By Joby Joseph
India has given ample tariff protection to the domestic natural rubber (NR) production sector by excluding all the major forms of NR from the purview of tariff reduction/elimination commitments under the ASEAN India Free Trade Agreement (AIFTA). Conversely, a large number of value-added rubber products were classified either for tariff reduction or for tariff elimination under AIFTA. However, the negative balance of trade of India in rubber and rubber products is widening, especially after the entry of AIFTA during the year 2010
The growing negative balance of trade of India and the threat of growth in import of rubber and rubber products during the post-AIFTA phase was analysed and documented by Joseph and George (2016). It is at this juncture, the discussions for the formation of a larger trade agreement “Regional Comprehensive Economic Partnership (RCEP)” by ASEAN along with its six FTA partners deserve attention. Apart from India, other countries in the proposed RCEP are China, Japan, Korea, Australia and New Zealand. In the total world export of rubber and rubber products, around 42% was the contribution of ASEAN (20.66%) and its FTA partners (22.64%) during the year 2017 indicating the importance of the proposed RCEP agreement. While around 55% of the export earnings of rubber and rubber products of ASEAN were from the export of raw materials, the share of raw material exports were only around 15% of the total value of exports of rubber and rubber products of their FTA partners and around 85% of the export earnings were from the exports of value-added rubber products.
Apparently, this shows the dominance of raw material exports of ASEAN and the dominance of value-added rubber products exports of its FTA partners in the world exports of rubber and rubber products. The share of export of value-added rubber products in the total value of exports of rubber and rubber products of the FTA partners of ASEAN were 96.49%, 92.80%, 61.41%, 75.86%, 99.30%, 99.63% respectively for China, India, Korea, Japan, Australia and New Zealand during the year 2017 (ITC, 2019).
However, in the world exports of rubber and rubber products, the share of India was only around 1.5% during the year 2017. The meagre share of India is mainly due to the domestic market-oriented production and consumption of rubber and rubber products. The higher domestic market-oriented production system and import dependence of rubber and rubber products resulted in widening the negative balance of trade in rubber and rubber products of India. The recent trends in the external trade of rubber and rubber products of India showed that the import is growing in a much faster pace than the export (Joseph and Jacob, 2018). Though, generally, the regional trade agreements are offering greater market access through deeper tariff liberalisation the lukewarm performance of the export of rubber and rubber products of India vis-à-vis imports is a matter of concern. In this context an understanding of the export competitiveness of rubber and rubber products is necessary to streamline the trade policies of India on rubber and rubber products.
A recent study undertaken by the Rubber Research Institute of India (RRII) covering all the major seventeen product groups listed in chapter 40 of the HS at the four digit level indicated that in the RCEP market only in the case of “Reclaimed rubber (HS 4003)”, “Waste, parings and scrap of rubber (other than hard rubber) and powders and granules obtained therefrom (HS 4004)”, “Plates, sheets, strip, rods and profile shapes, of vulcanised rubber other than hard rubber (HS 4008)”, “Conveyor or transmission belts or belting, of vulcanized rubber (HS 4010)”, “New tyres (HS 4011)”, “Retreaded/used tyres (HS 4012)”, “Inner tubes (HS 4013)”, “Hygienic or pharmaceutical articles (including teats), of vulcanized rubber other than hard rubber, with or without fittings of hard rubber (HS 4014)” export of India showed comparative advantage during the year 2016
Only the export of product groups such as Synthetic rubber (HS 4002), “Reclaimed rubber (HS 4003)”, “Waste, parings and scrap of rubber (other than hard rubber) and powders and granules obtained therefrom (HS 4004)”, “Compounded rubber, unvulcanized, in primary forms or in plates, sheets or strip” (HS 4005), “Retreaded/used tyres (HS 4012)” of India oriented towards the RCEP region
The study indicated that the benefits of trade creation and diversion for the rubber and rubber products of India are limited due to the already existing low tariffs and comparative disadvantages of many of the rubber product groups in the RCEP market. In effect, in order to reap the benefit of export market and to retain the domestic rubber and rubber products market, India needs to be more competitive.
The analysis showed that India’s major product group of exports such as HS 4011, HS 4016, HS 4009, HS 4010 and HS 4008 are neither oriented towards RCEP nor showed comparative advantage (Except HS 4011 and HS 4008) in the RCEP market. Therefore, appropriate policy measures to promote competitiveness of this product groups are highly warranted. In sum, the chances of appropriation of higher market share in the RCEP region are limited for the major export items of India due to the already existing low tariffs and comparative disadvantages in exports to the RCEP. In this context, the threat of imports of both raw rubber and finished rubber products are to be taken care of due to India’s domestic market oriented production system and doubtful competitiveness of major value-added rubber products.
Author is a Scientist, Economics division, Rubber Research Institute of India
ITC (2019). Trademap, International trade centre
Joseph, J. and George, K.T. (2016). ASEAN-India Free Trade Agreement and India’s balance of trade in rubber and rubber products: A preliminary assessment. Rubber Science, 29(1): 1-6.
Joseph, J. and Jacob, J. (2018). Over-dependence of Indian rubber industry on imported natural rubber: The question of long-term sustainability. Rubber Science, 31(1): 1-9.