New duty exemption ruling upsets plastic makers

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Local plastic manufacturers have complained over the newly-issued Finance Ministry regulation which widens the coverage of plastic products exempted from import duty under the ASEAN–China Free Trade Agreement, saying that it will seriously harm the downstream industry.

In a change to the previous rule, the new regulation passed at the end of last month increases the number of zero-duty plastic products to 10,012 items from 8,738 items at present.

The new items include various kinds of finished plastic products, such as plastic sheeting, packaging, household equipment and toys, which alone represents about 30 percent of overall plastic imports.

Indonesian Olefin, Aromatic and Plastic Industry Association (INAplas) secretary general Fajar A.D. Budiyono said last week that local producers of finished plastic products would face stiffer competition from imported products, particularly from China, as the regulation would significantly reduce prices. The specific products were previously levied with import duties of up to 15 percent.

“Most of the products to be exempted from import duty are produced domestically by our manufacturers. With the zero duty, local manufacturers will be substantially undercut,” he said.

The impact of the new rule would likely take effect in the second half of this year, with imported products potentially taking a bigger share of the domestic market, Fajar predicted. At present, imports account for 15 percent of the local market, according to the association.

Overall imported plastic products are estimated to rise by 8 percent this year to 523,800 tons in terms of volume, and by around 10 percent to US$1.46 billion in terms of value.

During the first half of this year, imports have already reached around 260,000 tons, fulfilling industry expectations, Fajar said.

“But it’s possible that the imports could surge by between 10 percent and 20 percent in terms of volume following the duty exemption,” he said.

Fajar expected that the government would tighten supervision of imported products, including monitoring carefully the application of the Indonesian National Standard (SNI), to counter a possible influx of poor-quality products amid the rising imports.

Indonesia, Southeast Asia’s biggest economy, expanded by 6.3 percent in the first quarter and 6.4 percent in the second quarter of this year.

Industry players expect that as the economy grows plastic consumption in the 240-million-population nation will steadily increase, driven mainly by sectors using a lot of plastic packaging materials, such as the food and beverage industry and the automotive sector that utilizes plastic for vehicle parts.

The local plastic market is estimated to see slower demand growth of 7.75 percent this year to 3.48 million tons, after expanding by 22.47 percent last year, due to the impact of the worldwide slowdown.

Despite a relatively well-developed downstream industry, local manufacturers still depend heavily on imported raw materials, including from ASEAN countries, the Middle East, the United States and European countries, as demand outstrips local production.