FocusIndonesia raises PE, PP duties despite WTO obligations

26 February 2009 06:06  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--Indonesia has raised the import tariffs on polyethylene (PE) and polypropylene (PP) from non-Asean countries by five percentage points despite its World Trade Organisation (WTO) obligations to cut duties, industry sources said on Thursday.

Import tariffs for cargoes from non-Asean countries, excluding China, South Korea and Japan, have been raised to 15% for high density PE and homopolymer PP, and to 10% for copolymer PP, said a senior official from the Indonesian Olefin & Plastic Industry Association (INAPLAS).

Under its WTO membership obligations, Indonesia was supposed to reduce the import duty on PP and PE imported from most favoured nations (MFNs) to 7.5% in January this year from 10%, but that plan had been put on hold due to the economic downturn, said INAPLAS secretary-general Budi Susanto Sadiman.

The five-percentage point tariff hikes apply to MFNs as long as they are non-Asean, excluding China, South Korea and Japan, and non-Asean imports have been targeted because their volumes have doubled in the past two years, Sadiman said.

“The government has to cushion the impact of the global downturn,” he said.

The tariff hikes may also be aimed at reducing the impact of sharply declining exports on the country’s GDP, said Song Seng Wun, chief economist with brokerage CIMB-GK.

“Exports are on a sharp fall. You want your imports to fall as much so that the country remains in a trade surplus position,” said Song. The Indonesian economy is likely to post growth of at least 3% this year, about half of the rate of expansion registered in 2008, he said.

The latest import tariff changes and recent directives for government funds to be spent on only local products may have raised concerns that Indonesia was leaning towards trade protectionism due to the prospect of an influx of Middle East cargoes into Asia, and that such measures could trigger a negative trend in the region, the sources said.

Close to 4m tonnes of PE and over 2m tonnes of PP capacities are expected to start up in the Middle East this year.

But others said there were merits to these initiatives such as promoting the development of local manufacturing industries, including plastic finished goods, said Sadiman.

“It is believed that higher import duties will create a more conducive environment for new investments in the local petrochemical raw material sectors, such as PE and PP, which in turn will hasten the development of the manufacturing sectors, including plastic products and related industries such as home appliances and packaging materials,” he said.

The local PP industry had proposed to inject new investments over the next few years if the import tariff on plastic resins supplied from MFNs were kept at 10%.

Besides the restarting of a mothballed PE facility by PT Titan and de-bottlenecking works by PP producer Tripolyta to raise its capacity, there have been no significant investments in Indonesia’s petrochemical sector since the 1997 Asian financial crisis, said Sadiman.

“By pushing for their “Buy Indonesia” policy, they boost domestic consumption and increasing import tariffs now just reinforces that policy,” Song added.

Indonesia’s latest tariff moves were unlikely to raise trade protectionist worries, said some analysts.

“The main export destination in Asia for petrochemical products remains China,” said Sutthichai Kumworachi, an analyst at brokerage firm KGI Securities. The import market in Indonesia is comparatively small, he added.

Bohan Loh contributed to this story

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By: Chow Bee Lin
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