WhatNext Rubber Media International Came across a few media reports over the past few days, by quoting Kerala based politicians (India), that the current downswing in natural rubber (NR) prices in India is driven by huge imports of compound rubber from countries such as Indonesia and Vietnam. Let’s unfold the facts.
Fact No. 1: India’s imports of compound rubber from Indonesia and Vietnam are either negligible or nil (Please see the table below).
Fact No.2: Of the total quantity of compound rubber imported in India during Jan-Jun 2022, nearly 43% was from USA, Canada, South Korea and such other countries which neither produce nor supply natural rubber.
Rubber products manufacturing companies having manufacturing in different countries have advantages if they prepare the compound in one location and distribute to the plants operated in different locations. The advantages include: (1) Scale advantage in sourcing raw materials and making compounds, (2) Maintenance of uniform quality across the world, (3) Optimization of manpower, particularly of compounding expert, (4) Minimization of environmental hazards for the plants operated in different countries. It is largely to make the supply-chain more efficient that these companies import compound rubber.
Fact No.3: Nearly 35,000 tons of compound rubber were imported in India during Jan-Jun 2022 from Thailand and Malaysia. This quantity could be (At least partly) guised imports to take advantage of the lower customs duty levied on compound rubber. India levies basic import tax @10% for compound rubber as against 25% for TSR and RSS (Believe it or not, latex attracts a 70% basic import tax in India). There are additional duties and charges in addition to the basic customs duty. The above-mentioned quantity of 35,000 tons comes to only 11% of the total quantity of NR (Including compound rubber) during the period.
Fact No. 4: The imported compound rubber is not accounted in the data of imports or consumption officially reported by the Rubber Board. There are several points to be considered before the Rubber Board could make its database inclusive of compound rubber. Firstly, the entire quantity of compound rubber is not NR and hence the full quantity cannot be accounted. The proportion of NR in the compound can vary across importing firms. Even for the same firm it can vary across different shipments. In the case of compound rubber coming from Thailand, the exporter in Thailand is bound to submit to the Rubber Authority of Thailand (RAOT) a laboratory test certificate stating the quantity of NR contained in each consignment. The exporter is bound to pay a cess to the RAOT for the NR contained in every consignment. A similar system is followed by Malaysia also, through the Malaysian Rubber Board. It means, Indian customs can obtain the NR-content in every consignment of compound rubber coming from Thailand and Malaysia. However, chances are high for the exporters in Thailand and Malaysia to under-report the NR-content because they are liable to pay the cess to the authorities in the respective countries for quantity of self-declared quantity of NR.
Fact No. 5: In China, compound rubber is permitted to be imported at 0% import tax as against 10% import tax levied on NR latex and 20% levied TSR and RSS. To take advantage of this differential import tariff in China, the NR suppliers exporting to China used to export compound rubber, rather than NR. As a result, China’s import of compound rubber belonging to HS 400510, 400591 and 400599 surged from 2009 onwards. Sample testing done by Rubber Research Institute of Thailand (RRIT) in 2010 and 2011 revealed that NR constituted more than 99% of the total volume of compound rubber exported from Thailand to China. To discourage the practice, China on December 31, 2014, decided to introduce a national standard (General Technical Specification for Compound Rubber) for compound rubber imported into the country. The standard prescribes that the content of NR in compound rubber should not exceed 88% and it should be uniformly mixed with other materials. The national standard came into force on July 1, 2015. Strikingly, China did not raise the import tax of compound rubber to 20% to bring parity with NR. Instead of that China introduced a Technical Specification for Compound Rubber to prevent guised imports. China realized that at least a part of the imports in compound rubber is for making the supply-chain more efficient. Chinese authorities did not want to disturb the supply-chain.
To bypass the new regulation introduced by China on July 1, 2015, NR suppliers exporting to China started exporting mixture-rubber having a different HS classification (HS 400280) for which import tax is 0%. Eventually, import of mixture-rubber surged in China from the second half of 2015 onwards. Currently, Thailand, Malaysia, Vietnam and Myanmar mainly export NR to China in the form of mixture rubber. Of the total quantity of 3.213 million tons of NR imported in China during Jan-Jul 2022, mixture rubber constituted 1.788 million tones or 56%. In effect, auto-tyre companies in China can source major part of their NR requirements without payment of any import tax. It is understood that China is in the process of introducing a national standard for mixture-rubber as well.
#rubber #compound #India #import #China #import_tax #WhatNext #Rubber_media #JomJacob
Highly informative and insightful, sir!!! Also sheds light on big industries always manage to circumvent rules or find ways to evade tax
Thank you, Mr. Rajiv, for your feedback and encouraging words.
Much appreciated.
As mentioned in the report, if the idea is to be deliberately circumvent the import duty then, it’s only natural that it should be on par with the duty structure on existing NR imports.
Thank you for sharing the view, Mr. Satish. It is obviously guised imports of natural rubber in the case of compounds coming to India from Thailand and Malaysia. But the case of imports from USA, Canada and South Korea is different. Even in the case of compounds coming from Thailand and Malaysia, we don’t have proof to conclude that 100% of the imports are guised imports.