Posted on 20 October 2006

 

Firsty, AFTA will promote intra-ASEAN steel trade because it should be cheaper to for a member country to buy steel product from a fellow member. The basic condition is that the CEPT rates are lower than MFN (normal) import duties.   It will be cheaper for a tinplate mill in Thailand to source tin mill black plate from an Indonesia producer.  Similarly, a Malaysian cold rolling mill will prefer hot rolled coils from Thailand. The following table illustrates the tariff comparison in three ASEAN members.  Please note that tariff rates provided in the table are of common grade and for illustration purpose only. Tariff levied on special grades may be different.  For the most recent rate for each tariff line, always refer to the official releases from the authorities.  

 Tariff Comparison for Selected Products (%)

Tariff	Product	Thailand		Malaysia		Indonesia
		MFN	CEPT	MFN	CEPT	MFN	CEPT
72.07	Slab	1	0	10	5	0	0
72.07	Billet	1	0	0	0	0	0
72.08	HR sheet	5	2-5	50	5	7.5	5
72.09	CR sheet	7	5	50	5	12.5	5
72.10	Galvanised sheet	9	5	50	5	15	5
72.13	Bar/rod	5		15	5	15	0-5

(Sources: www.aseansec.org, GAPBESI)

Referring to the table, in the case of exporting steel products to Malaysia, an ASEAN producer shall enjoy a price advantage over the non-ASEAN suppliers as their product will be taxed at a 45% lower than other at a Malaysian port.  If the price of the product is US$ 500, tax levied will only be $25 instead of an overwhelming $250 at 50% MFN rate.  In a lesser degree, a galvanizing mill in Thailand will enjoy 2% less import duty if they purchase the cold rolled coils from any producer in Indonesia or Malaysia.  However, no incentive will be given for a bar mills in Malaysia or Indonesia when they source billets from a Thai producer.

Secondly, it will promote new investment in the region.  Until today the region has been importing all kind of steel products from non-ASEAN countries.  Since only producers inside AFTA who enjoy the privilege of CEPT scheme, a window of opportunities is now open.  Both existing and new steel companies now has the incentive to build new capacities in the region as they can consider the whole ASEAN as a protected ‘domestic’ market.  For example, the region imported more than 16 million tons of flat steel product last year, mostly from non-ASEAN producers.

The region’s steel consumption is growing steadily and there are opportunities to investing in the region for all phases of iron and steel industry, from ironmaking to coating. 

However, steel business –like other business- if far from an ideal situation.  Lack of mutual interests, different policies and approaches of governments, and different industry structure and levels of development are distorting the intra-AFTA steel trade.

Capacity, Cost and Quality barriers

From a different perspective -instead of promoting new investments- the region’s undercapacity is a barrier to intra-AFTA steel trade.  Simply there is not enough steel produced in the region which can fulfill the growing demand. It is not easy for the ASEAN producers to simply increase their capacity and substitute imported steel from non-ASEAN countries.  The higher costs associated with the region’s steel products are significantly higher than the large producers in other parts of the world.

The price advantage provided by CEPT scheme may not be significant when importers can source cheap commercial grade steel from low cost producers (e.g. China, Russia, India).

On top of that, some segments demand a very high quality of steel product and services which may be beyond the reach of the ASEAN producers, at least until now.  Most of the steel products consumed by automotive,  electronics, home appliances industries must meet the strictest quality requirements.  In the long product sector, cold heading quality and high carbon wire rods are still imported because the local producers can not produce them.    

Non-tariff barrier

AFTA is designed to effectively reduce all kind of trade barriers among ASEAN members. However, we still see some non-tariff barrier applied in the region. The non-tariff barriers are the other common instruments of international trade policy.

For example, to import a steel product into Malaysia, an importer needs to get Approved Permit (AP) from the Ministry of International Trade and Industry.   

 
Bilateral and Extended FTA

Both bilateral and extended AFTA will definitely complicate the implementation of AFTA arrangement for steel product.  For example, an ASEAN-China FTA will effectively provide preferential treatment for steel products from China and there is no way that small local producers can compete with large steel companies of China.  

Concluding remarks

The ASEAN steel producers should have a consultative mechanism for promoting common objectives and concerns in order to effectively applying the CEPT scheme.  Governments are also responsible to adopt a coordinated regional policy instead of national steel policy.  The regional policy is important to promote a view towards eliminating remaining barriers and ultimately promoting new investments. The region’s steel industry will have a better chance of survival when the relatively small domestic markets truly merged and becoming an integrated regional market.

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