March 7, 2017
Volume 7 Issue 4
ASEAN Lube Trade: Far From Free
As the Association of Southeast Asia Nations moves to eliminate intra-regional tariffs by 2018, analysts say member countries’ non-tariff measures could still hinder lubricant trade.
The ASEAN Economic Community in 2015 began phasing in its program to eradicate tariffs on all trade between the 10-nation zone by 2018. Import tariffs were reduced from 8.9 percent in 2000 to 4.5 percent in 2015. By 2010, six ASEAN member countries had removed tariffs for 98 percent of products. Cambodia, Laos, Myanmar, and Vietnam are following suit.
But despite tariff reductions, intra-ASEAN trade only increased from 23 percent of member states’ total trade volume in 2000 to 25.3 percent in 2014, according to “Non-tariff Measures in ASEAN 2016,” a report from Indonesia’s Economic Research Institute for ASEAN and East Asia (ERIA).
The policy’s impact on trade has been minimal, said Manu Bhaskaran, founding director of Centennial Asia Advisors Pte., an advisory firm based in Singapore. That’s because countries have introduced a “plethora” of non-tariff measures since 2000, he said.
ERIA noted that as of 2015, the region had in place nearly 6,000 NTMs – which it defined as any policy measure other than ordinary customs tariffs that can have an economic effect on international trade quantities and/or prices. It pointed out that even legitimate NTMs are considered restrictive to free trade.
NTMs are seen most commonly in the form of technical barriers, whereby imports must conform to a country’s technical requirements through testing, inspection or certification. Technical NTMs accounted for around 43 percent of the region’s so-called protectionist policies in 2015, according to ERIA. Nearly 90 percent of Indonesia’s NTMs are considered technical.
Examples include sanitary and phytosanitary requirements, pre-shipment inspections and country-specific standards. For example, Indonesia ensures some imports – including many lubricants and raw materials for lubricants – conform to Halal standards, which certify that a product’s ingredients are permissible under Islamic Law. SNI, or the Indonesian National Standard, is a series of lubricant standards only applicable to imports that some groups are pushing to go into effect this year.
Another example is Thai Industrial Standards Institute’s TIS 1040-2541, a compulsory standard for two-stroke gasoline engine lubricants. Certifying products under such technical requirements can be costly and time-consuming. Sinopec said it took “more than one year to meet the requirements for registration of several construction machinery lubricants like the T500 Classic Diesel Engine Oil,” in Thailand last year, according to a statement on its website. Thailand has more NTMs than any other ASEAN country, said Rizqy Anandhika, an ERIA associate researcher.
“Divergent national standards make it difficult to reap the benefits of cross-border trade, even when taking into consideration the cost-saving effects of tariff reductions,” said an investment consultant in ASEAN Briefing, a business intelligence report by Dezan Shira & Associates.
NTMs’ costs and effects on the free flow of trade are often more difficult to discern than those of tariffs, Anandhika told Lube Report Asia. “In theory, NTMs involve cost of compliance, which might increase the production cost of goods.”
Other NTMs that can add to the cost of finished lubricants include indirect taxes. Vietnam, for example, reduced import tariffs for lubricant products from 5 percent to nil on Jan. 1 under the AEC program. However, its Ministry of Finance is currently looking into raising an environmental protection tax on oil and gas imports by 37.5 percent from its current 3,000 Vietnamese Dong (U.S. 13 cents) per liter.
NTMs are increasing in seeming correlation to tariff reductions, said Anandhika.
“Cambodia, Vietnam, and Thailand have undergone more energetic tariff reductions as all three started from high levels,” said the report. However, “they have also had substantial rises in the number of NTMs.”
“Many of the member countries within ASEAN are currently implementing one or more of these compensating mechanisms in one form or another, and there has been no clear indication on the longevity of these mechanisms, especially within the next 5 years,” according to a report, “The New Lubricant Trade in ASEAN” by France-headquartered Ipsos Business Consulting.
The AEC is actually enforcing “NTMs reduction” efforts, such as removing some requirements that testing and certification be done in the importing country, Anandhika said. Those efforts have been somewhat effective in the cosmetic and electronic industries, and the AEC is now reviewing similar efforts in automotive, medical devices and other sectors, he added. “This can bring about some cost-savings.”