Indonesia may lose acid market in China

An Indonesian chemical industry group has urged the government to push China to cut tariffs against their stearic acid products so that they can better compete with Malaysians, who are aggressively selling their products in the world's most populous nation.

"The government must talk with China or else Malaysia will take over Indonesia's stearic acid market share there," Indonesian Oleochemical Manufacturers Association (Apolin) chairman Kris Hadisoebroto said on Tuesday in Jakarta.

According to Kris, China cut its tariffs on Malaysian stearic acid from 16 percent to 10 percent in January, this year, while still maintaining the tariffs on similar products from Indonesia at 16 percent. This has made the neighbor's products significantly cheaper.

Prior to the new policy, Indonesia controlled up to 80 percent of acid market in China with annual exports of 300,000 tons worth US$200 million in the past three years.

Unless China cuts tariffs on Indonesian acid products to the same level as Malaysia, the industry would suffer and have to start laying workers off this year, Kris said.

Stearic acid, which is a derivative product from crude palm oil, is used to help bind and thicken lotions and creams, and also useful in making soap and candles harder. Malaysia and Indonesia are both the biggest palm oil producers in the world.

The tariff cut given to Malaysia is part of the "early harvest package" (EHP), that is the first phase of the implementation of the free trade agreement (FTA) between China and the Association of Southeast Nations (ASEAN). The FTA will be fully implemented in 2010.

Under the EHP, China and ASEAN countries should start to slash tariffs on agricultural products to 10 percent or lower starting Jan 1, this year and zero percent in Jan. 1, 2006.