FTA with China becoming complicated<\/p>\n
Zakki P. Hakim, Jakarta<\/p>\n
Local producers of stearic acid, long protected by the
\ngovernment, are now learning the bitter lesson that a free trade
\ndeal between ASEAN and China, signed three years ago, is
\nthreatening exports to the latter's huge market.<\/p>\n
New regulations on food safety announced by China last month
\nwill make things even worse, industry experts said.<\/p>\n
When the Association of South East Asian Nations signed a free
\ntrade deal (FTA) with China in 2001, Indonesian producers of
\nstearic acid demanded the government exclude the commodity from
\nthe liberalization plan on fears of competition from producers in
\nChina. The government granted the wish and retained a 16 percent
\nimport tariff on the commodity. However, since free trade adopts
\nthe principle of reciprocity, China has imposed the same tariff
\non products from Indonesia.<\/p>\n
But China, starting Jan. 1 this year, slashed the tariff to 10
\npercent for products coming from Malaysia, which agreed to
\ninclude stearic acid in the FTA deal, making the latter's products
\ncheaper than Indonesian products in the Chinese market. (This
\ntariff cut is part of the so-termed early harvest program, which
\nrequired ASEAN countries and China to start slashing tariffs on
\nagricultural products to 10 percent or lower starting Jan. 1 this
\nyear, and zero percent on Jan. 1, 2006. The FTA deal will be
\nfully implemented in 2010).<\/p>\n
Stearic acid, which is a derivative of crude palm oil, is used
\nto help bind and thicken lotions and creams, and is also useful
\nfor hardening soap and candles. Malaysia and Indonesia are
\nthe world's two largest producers of palm oil.<\/p>\n
\"Chinese buyers are now seriously thinking about deserting us
\nand buying (stearic acid) from Malaysia instead,\" Indonesian
\nOleochemical Manufacturers Association (Apolin) chairman Kris
\nHadisoebroto said over the weekend.<\/p>\n
At an assumed price of US$500 per ton, buyers in China would
\nhave to pay $30 extra per ton for Indonesian stearic acid than
\nMalaysia's due to the different tariff arrangement.<\/p>\n
Kris was worried that Malaysia might eventually take over
\nIndonesia's dominant share in China's fast-growing stearic acid
\nmarket.<\/p>\n
Prior to the new tariff policy, Indonesia controlled up to 80
\npercent of the acid market in China, with annual exports of
\n300,000 tons worth US$200 million in the past three years.<\/p>\n
\"The Malaysians outsmarted us in dealing with China,\" he said.<\/p>\n
Some have regretted the lack of understanding among the local
\nstearic acid industry players on how the free trade deal works,
\nleading them to make erroneous suggestions to government
\nnegotiators when the FTA deal with China was being discussed.<\/p>\n
\"Some people wanted (trade) liberalization, but kept
\nforgetting that the deal would be reciprocal. Some demanded
\nprotection, but failed to see that competitors in other countries
\nmight seize the opportunity, reducing tariffs and becoming far
\nmore competitive,\" said Thomas Darmawan of the Indonesian Food
\nand Beverages Association (GAPMMI).<\/p>\n
Indonesian stearic acid producers will even face more
\nproblems, as China has issued 22 new regulations on food safety,
\nseen as a form of nontariff barrier to trade.<\/p>\n
Thomas said that China already gave notification of the new
\nrules on Feb. 13 to the World Trade Organization (WTO), to be
\neffective in six months' time.<\/p>\n
The new rules include the regulation of hygiene standards for
\nfresh and frozen marine products, fresh tea leaves, cooked and
\ndried meat products, milk powder, concentrated fruit and
\nvegetable juice for the food processing industry, canned fish,
\nand cereal made from oats, wheat, rice and corn.<\/p>\n
\"We are supposed to open the market both ways, but now the new
\nrules could make it hard for us to penetrate the Chinese market,
\nwhile our door is open wide for them,\" Thomas lamented.<\/p>\n
Kris hoped the government would negotiate with China to
\nresolve the problem faced by the local stearic acid industry,
\notherwise the industry would eventually have to start laying off
\nworkers.<\/p>",
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