COMMENTARY

Rubber and Rubber Products

Tariffs and Protection in the ASEAN-India Agreement
Tharian George K, Joby Joseph

products is attempted to provide a conceptual basis for disaggregate-level analyses and monitoring outcomes from a policy perspective. Objectives The following are the three specic objectives here: (1) To understand the tariff policy, tariffs and tariff reduction commitments on rubber and rubber products under the AIFTA. (2) To examine the tariff preferences and differential levels of protection provided to three broad groups under rubber and products. (3) To highlight the policy implications for India. Methodology Our database consists of the ASEAN-India Trade in Goods Agreement, schedules of the tariff commitments under the AIFTA, and external trade data on rubber and rubber products provided by the department of commerce, Ministry of Commerce and Industry. The analysis focuses on the technical contents of the AIFTA pertaining to the inclusion of tariff lines (products) under the six listed categories Normal Track-1 (NT-1), Normal Track-2 (NT-2), Sensitive Track (ST), Special Products (SP), Highly Sensitive List (HSL), and Exclusion List (EL) as well as the implementation period and tariff reduction commitments. Among the six categories, SP is excluded from the analysis as it is not applicable to rubber and rubber products. Singapore is excluded from the country-wise analysis as its tariffs on all originating goods are zero from the date of entry of the agreement. The analysis of the tariff policies is based on the destination-wise classication of tariff lines into three groups tariff elimination, tariff reduction, and exclusion list as India has three separate implementation periods with reciprocal and non-reciprocal provisions pertaining to NT-1, NT-2 and ST with the ASEAN-5 (Brunei Darussalam, Indonesia, Malaysia, Thailand and Singapore), the CLMV (Cambodia, Lao PDR, Myanmar and Vietnam), and the Philippines.5 Rubber and rubber products contained in the mandatory 85 tariff lines at the six-digit level are grouped into raw materials (tariff lines included under HS
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Attempting to provide a conceptual basis for disaggregate-level analysis of the implications of the ASEAN-India Free Trade Agreement on rubber and rubber products, this article critically assesses the key provisions of the accord. The analysis reveals that the categorisation of tariff lines under six different groups is the most crucial component governing tariff policy and the implementation period. Indias negative balance of trade in rubber and rubber products with ASEAN and the high annual average growth rate of imports of nished rubber products underline the need for close monitoring of the trends in external trade with the trading bloc at the disaggregate level.

Tharian George K (tharian@rubberboard.org. in) and Joby Joseph ( jobyjoseph@rubberboard. org.in) are at the Rubber Research Institute of India, Rubber Board, Kottayam.

he signing of the Association of Southeast Asian Nations (ASEAN)India Free Trade Agreement (AIFTA) in 2009 was important in Indias engagements in regional trade agreements (RTAs) for three reasons. First, the AIFTA covers the largest number of countries compared to the 17 other RTAs so far signed by India.1 Second, Indias total merchandise trade with the ASEAN is signicant vis--vis other RTAs.2 Third, no other RTA has generated such sharp polemical exchanges cutting across regions and sectors on the potential threat of cheaper imports into the country. However, the perceived vulnerability of various sectors in India has not been based on an objective understanding of the provisions related to tariff policy, tariff reduction commitments, and the implementation period. Moreover, implications of the interlinkages between the tariff policy and the implementation period committed to by India and the ASEAN have not been critically assessed. In effect, there has been an absence of comprehensive sector-specic analyses from a policy perspective. Against this background, this article attempts to explore the tariff policy, tariffs, and tariff reduction commitments on rubber and rubber products in Chapter 40 of the Harmonised System.3 The study assumes importance as the share of rubber and rubber products sector in Indias total merchandise trade with the ASEAN is signicant in relation to the share of the sector in the countrys total merchandise trade with the world.4 More importantly, the ASEAN accounted for 12.92% of the countrys total value of exports and 26.69% of imports of rubber and rubber products with notable sectorwise differences (GOI 2012). Hence, a critical assessment of the key provisions of the AIFTA on rubber and rubber

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4001-03), intermediate products (tariff lines included under HS 4004-08), and nished rubber products (tariff lines included under HS 4009-17) to focus on the conceptual basis of the tariff policies. Differential levels of protection are analysed by linking the categorisation of the three product groups with the average nal tariffs at the end of the implementation period. Categorisation of Product Groups The most crucial component in tariff policy under the AIFTA is perhaps the categorisation of tariff lines under six different groups. The categorisation prexes both the tariff policy and the implementation period under the Trade in Goods Agreement. Table 1 summarises the details. From the angle of tariff policy, the tariff lines under NT-1 and NT-2 represent
Category Tariff Policy

Functionally, the two key factors governing the trade-off between India and the ASEAN are the categorisation of tariff lines under each product group and the nal tariff rates. Indias tariff commitments are given at the eight-digit level of the HS (12,169 products) and almost 75% of them are covered in NT-1 and NT-2, while the share of products in the EL is around 10% (George 2010). Table 2 shows the sector-wise tariff lines of India and the ASEAN member countries on rubber and rubber products. Table 2 indicates that India has the lowest number of tariff lines on raw materials, nished products, and all rubber and rubber products. Malaysia has the highest number of tariff lines in all sectors other than nished products. Though the number of tariff lines beyond the mandatory six-digit level is an indication of the trade-related importance
Implementation Period CLMV and India

importance under the AIFTA. Table 3 provides the category-wise shares of tariff lines of the ASEAN and India. Table 3 reveals that more than 52% of Indias tariff lines on rubber and rubber products are categorised for tariff elimination (NT-1 and NT-2), 40.23% for tariff reduction (ST), and 6.89% are excluded from tariff reduction. This is in contrast to the varied strategies pursued by the ASEAN member countries. At rst look, India is one among the six countries having a liberal tariff policy, with less number of tariff lines in the EL than Brunei (48.79%), Vietnam (39.61%), and Myanmar (21.26%). However, Indonesia and Lao PDR with no tariff lines under the EL deserve attention. The analysis on category-wise shares of the countries provides only a broad outline on the tariff policy pursued on rubber and rubber products under the

Table 1: Categorisation of Tariff Lines, Tariff Policy and Implementation Period under AIFTA
ASEAN-5 and India Philippines and India

Normal Track-1 Normal Track-2 Sensitive Track* Special Products

Tariff elimination Tariff elimination Tariff reduction Tariff reduction

January 2010-December 2013 January 2010-December 2016 January 2010-December 2016 Applicable to India only for palm oil, coffee, black tea and pepper; January 2010- December 2019

January 2010-December 2013 for India and January 2010-December 2018 for CLMV January 2010-December 2016 for India and January 2010-December 2021 for CLMV January 2010- December 2016 for India and January 2010-December 2021 for CLMV Applicable to India only for palm oil, coffee, black tea and pepper; January 2010-December 2019

January 2010-December 2018 January 2010-December 2019 January 2010-December 2019 Applicable to India only for palm oil, coffee, black tea and pepper; January 2010December 2019 Applicable to the Philippines only. January 2010-December 2022

Highly Sensitive List Tariff reduction Exclusion List Excluded from any tariff reduction

January 2010-December 2019 January 2010-December 2024 for Indonesia, Malaysia and Thailand for Vietnam and Cambodia Only annual tariff review

*Applicable to tariff lines with most favoured nation (MFN) tariff rates above 5%. Source: GoI (2010).

tariff elimination, while ST, SP and HSL are concerned with tariff reduction. The tariff lines under EL are excluded from tariff reduction. As the tariff policy progresses from NT-1 to HSL, the longevity of the implementation period increases with country- and group-specic differences. A salient feature of the AIFTA has been the non-reciprocal nature of the implementation period of Indias tariff concessions to the CLMV. The four-country group is required to full its commitments only at a later stage for products covered under NT-1, NT-2 and ST. The preferential treatment given to the CLMV has policy implications for India arising from the differential tariff rates in the ASEAN during the implementation period.
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of a product, the disaggregate-level classication has potential for trade facilitation and revenue generation. However, from a policy angle, category-wise classication of the tariff lines assumes more
Table 2: Sector-wise Tariff Lines on Rubber and Rubber Products (Nos)
Country Raw Intermediate Finished Total Materials Products Products

AIFTA. At the disaggregate level, it is imperative to understand the sector-wise shares in categorisation to assess country-specic tariff policies and preferences across the three broad product groups.
Table 3: Category-wise Shares of Tariff Lines on Rubber and Rubber Products (%)
Country NT1 NT 2 ST HSL EL Total

India 32 Malaysia 120 Vietnam 46 Thailand 48 Indonesia 48 Myanmar 46 Philippines 48 Cambodia 48 Brunei Darussalam 46 Lao PDR 48
Source: GoI (2010).

26 41 12 12 12 12 12 12 12 12

116 122 149 119 119 149 125 119 149 119

174 283 207 179 179 207 185 179 207 179

India 44.83 8.05 40.23 Malaysia 36.40 9.88 41.70 Vietnam 60.39 0.00 0.00 Thailand 66.48 15.64 13.97 Indonesia 34.64 0.00 65.36 Myanmar 57.00 0.00 21.74 Philippines 41.08 21.63 22.70 Cambodia 69.27 0.00 28.49 Brunei Darussalam 51.21 0.00 0.00 Lao PDR 94.97 3.35 1.68
Source: GoI (2010).

0.00 6.01 0.00 0.00 0.00 0.00 1.08 0.00

6.89 6.01 39.61 3.91 0.00 21.26 13.51 2.24

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

0.00 48.79 100.00 0.00 0.00 100.00

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Table 4 shows the sector-wise shares of different categories. Table 4 is illustrative of a sectorspecic tariff policy and differential levels of protection accorded to the tariff lines. In the raw materials sector, all the countries have included a majority of tariff lines in NT-1, with the exception of the Philippines. Four ASEAN member countries have committed all tariff lines in the raw materials sector to NT-1. However, the Philippines (52.1%) and India (28.1%) are the two countries that have adopted a highly protective tariff policy for all forms of natural rubber (NR). In the case of intermediate products, India has adopted a cautious strategy of placing a substantial share of tariff lines in ST (77.0%) and EL (11.5%). The strategies of ASEAN members vary; from inclusion of all tariff lines in NT-1 (Vietnam,
Country Raw Materials (HS 4001 - 4003) NT1 NT2 ST HSL EL Total

Cambodia and Brunei) to Myanmar committing 41.7% of the tariff lines to the EL. Indias tariff policy in value-added nished products is unique in that no tariff line on rubber and rubber products is included in the EL. Instead, the largest number of tariff lines are included in NT-1 (47.4%), followed by ST (41.4%). Conversely, Brunei (67.8%), Vietnam (55.0%), Myanmar (26.2%), and Malaysia (13.9%) accord higher protection to value-added products. A closer understanding of the priorities of tariff policy and differential levels of protection pursued by individual countries require a comparative analysis of the destinationwise shares of tariff lines and average nal tariffs at the end of the implementation period across sectors. Table 5 summarises the country- and sector-specic priorities.
Finished Products (HS 4009-17) NT1 NT2 ST HSL EL Total

Table 4: Sector- wise Shares of the Tariff Lines under Different Categories (%)
Intermediate Products (HS 4004-08) NT1 NT2 ST HSL EL Total

India Malaysia Vietnam Thailand Indonesia Myanmar Philippines Cambodia Brunei Darussalam Lao PDR

65.6 0.0 6.3 72.5 14.2 12.5 100.0 0.0 0.0 97.9 0.0 2.1 77.1 0.0 22.9 100.0 0.0 0.0 47.9 0.0 0.0 75.0 0.0 25.0

0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0

28.1 0.0 0.0 0.0 0.0 0.0 52.1 0.0

100.0 7.7 3.8 100.0 2.4 0.0 100.0 100.0 0.0 100.0 75.0 0.0 100.0 41.7 0.0 100.0 50.0 0.0 100.0 41.7 41.6 100.0 100.0 0.0

77.0 0.0 11.5 85.4 12.2 0.0 0.0 0.0 0.0 16.7 0.0 8.3 58.3 0.0 0.0 8.3 0.0 41.7 16.7 0.0 0.0 0.0 0.0 0.0

100.0 47.4 11.2 100.0 12.4 9.0 100.0 45.0 0.0 100.0 52.9 23.6 100.0 16.8 0.0 100.0 44.3 0.0 100.0 38.4 28.0 100.0 63.8 0.0

41.4 55.7 0.0 18.5 83.2 29.5 32.0 32.8

0.0 0.0 9.0 13.9 0.0 55.0 0.0 5.0 0.0 0.0 0.0 26.2 1.6 0.0 0.0 3.4

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 0.0 0.0 0.0 0.0 100.0 100.0 0.0 0.0 0.0 0.0 100.0 32.2 0.0 0.0 0.0 67.8 100.0 100.0 0.0 0.0 0.0 0.0 100.0 83.3 0.0 16.7 0.0 0.0 100.0 94.2 5.0 0.8 0.0 0.0 100.0

Source: GoI (2010).

Table 5: Destination-wise Shares of Tariff Lines and Average Final Tariffs (%)
Country Raw Material Tariff Tariff Exclusion Elimination Reduction List Intermediate Products Tariff Tariff Exclusion Elimination Reduction List Finished Products Tariff Tariff Exclusion Elimination Reduction List

India Malaysia Vietnam Thailand Indonesia Myanmar Philippines Cambodia Brunei Darussalam Lao PDR

65.6 (0.0) 86.7 (0.0) 100.0 (0.0) 97.9 (0.0) 77.1 (0.0) 100.0 (0.0) 47.9 (0.0) 75.0 (0.0) 100.0 (0.0) 100.0 (0.0)

6.3 (5.0) 13.3 (4.31) 0 2.1 (5.0) 22.9 (2.39) 0 0 25.0 (5.0) 0 0

28.1 (31.11) 0 0 0 0 0 52.1 (3.0) 0 0 0

11.5 (0) 2.4 (0) 100 (0) 75 (0) 41.7 (0) 50 (0) 83.3 (0) 100 (0) 100 (0) 83.3 (0)

77.0 (5.0) 97.6 (6.93) 0 16.7 (5.0) 58.3 (4.46) 8.3 (1.0) 16.7 (5.0) 0 0 16.7 (5.0)

11.5 (10.0) 0 0 8.3 (20.0) 0 41.7 (5.0) 0 0 0 0

58.6 (0) 21.4 (0) 45 (0) 76.5 (0) 16.8 (0) 44.3 (0) 66.4 (0) 63.8 (0) 32.2 (0) 99.2 (0)

41.4 (5.0) 64.7 (7.63) 0 18.5 (5.0) 83.2 (4.66) 29.5 (3.78) 33.6 (4.82) 32.8 (5.0) 0 0.8 (5.0)

0 13.9 (22.65) 55 (23.18) 5 (10.0) 0 26.2 (5.07) 0 3.4 (13.0) 67.8 (13.37) 0

Figures in parentheses are the average final tariffs at the end of the implementation period. Source: GoI (2010).

Table 5 summarises the priorities and strategies pursued on rubber and rubber products by the signatories of the AIFTA. In the raw material sector, though the Philippines has the largest share of tariff lines under the EL, Indias average nal tariff rate is the highest (31.11%). More precisely, tariff lines on all important forms of NR are protected by India with a high rate of tariffs. Conversely, the average nal tariff rates of ASEAN members on tariff lines in the raw material sector varied from 2.39% to 5%. Vietnam, Myanmar, Brunei and Lao PDR have included all the tariff lines in the tariff elimination category. In the intermediate products sector, India has adopted a more liberal and cautious approach of committing the highest share of tariff lines (77.0%) in the tariff reduction category, followed by the EL (11.5%) with 10% and 5% average nal tariffs, respectively. The ASEAN countries that follow a relatively more protective policy in this sector are Malaysia, Indonesia, Thailand, Myanmar, the Philippines and Lao PDR, with average nal tariff rates ranging from 4.46% to 20.0%. However, Vietnam, Cambodia and Brunei have included all the tariff lines in the tariff elimination category. India has pursued the most liberal tariff policy in the case of value-added nished products by including 58.6% of the tariff lines in the tariff elimination category and the remaining tariff lines (41.4%) in the tariff reduction category with a 5.0% average nal tariff rate. Along with Indonesia, the Philippines, and Lao PDR, it has excluded all tariff lines in the nished products group from the EL. In sharp contrast, all the other ASEAN countries barring Lao PDR follow a more protected tariff policy with average nal tariff rates ranging from 3.78% (Myanmar) to 23.18% (Vietnam). At the disaggregate level, the share of tariff lines included in the EL by Brunei (67.8%), Vietnam (55%), Myanmar (26.2%) and Malaysia (13.9%) deserve attention. In sum, Indias tariff policy on rubber and rubber products under the AIFTA focuses on providing more protection to the raw materials sector, while the ASEAN countries have a protected tariff policy on value-added nished products.
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Conclusions The observations from the analysis highlight four important points (i) the crucial role of categorisation of tariff lines in prexing the tariff policy; (ii) the reciprocal and non-reciprocal blocs of countries in ASEAN related to the implementation period; (iii) the varied tariff policies and rates followed by ASEAN member countries, contrary to the popular perceptions; and (iv) the contrasting sector-specic tariff preferences between India and the ASEAN. Apparently, the underlying factors behind the varied strategies are dependent on a host of factors in the trade-centric agenda of the agreement. Indias strategy of pursuing an inverted tariff structure on rubber and rubber products under the AIFTA may have been guided by the composition of the total value of exports to and imports from ASEAN.6 The countrys large rubber products manufacturing base absorbs its entire domestic production of

NR. However, the AIFTA has the potential of giving rise to major structural adjustments in the prevailing equations among the NR production, processing, rubber products manufacturing, and external trade sectors in the country. This assumes importance for two reasons (i) Indias negative balance of trade in rubber and rubber products with the ASEAN (more than $535 million in 2010-11); and (ii) a higher annual average growth rate of imports of nished rubber products into India (27.35%) from the ASEAN than exports (17.88%) from India to the group in the last decade. Therefore, a close monitoring of the trends in external trade of rubber and rubber products with the ASEAN at the disaggregate level assumes importance, given the context of market integration.
Notes
1 Perhaps the only notable exception is the Global System of Trade Preferences (GSTP).

2 3 4

5 6

However, as a trading bloc, the 10-member ASEAN is the single largest group. In 2010-11, the ASEANs relative shares in Indias total merchandise exports and imports were 10.21% and 8.28%, respectively (GoI 2012). Chapter 40 in the 2007 version of the HS has 85 subheadings (tariff lines) at the six-digit level. While the share of rubber and rubber products in Indias total value of merchandise exports and imports with world are 0.75% and 0.79%, respectively, the relative shares with the ASEAN were 0.95% and 2.95%, respectively, during 2010-11 (GoI 2012). Technically, Indias categorisation of rubber and rubber products is conned to NT-1, NT-2, ST and EL. During 2010-11, the share of raw materials in the total value of imports of rubber and rubber products from the ASEAN was around 80%. Indias exports to the ASEAN were dominated by valued-added nished products with a share of around 78% (GoI 2012).

References
George, Tharian K (2010): India-ASEAN FTA: See the Larger Picture, Business Line, 1 February. GoI (2010): Trade Agreements, Department of Commerce, Ministry of Commerce and Industry, New Delhi, available at http://commerce. nic. In/trade/international_ta_ indasean.asp (2012): Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, New Delhi, available at http://commerce. nic. in

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