Today’s newsfeed brought in a Bangkok Post report that the Thai sugar industry was complaining of non-tariff barriers (NTBs) to trade in sugar within the ASEAN Economic Community (AEC). Thailand has the largest sugar industry in ASEAN, and is the third largest sugar exporter in the world.
According to the Bangkok Post report, a combination of tariff and non-tariff measures in the major ASEAN markets prevents Thailand from increasing its intra-ASEAN exports:
· Thailand, Indonesia and the Philippines had placed sugar on sensitive lists, excluding the product from the 0-5% intra-ASEAN rates set by the ASEAN Trade in Goods Agreement (ATIGA).
· "The Indonesian government imposes a rule to force consumer product producers to use only locally made sugar, while industries can use imported sugar only if they receive government permission, of which there is no guarantee,” according to Rangsit Hiangrat, director-general of the Thai Sugar Millers Corporation.
· Rangsit complained that Malaysia allows imports of raw sugar but not refined, white sugar.
However, there are always two sides to a story. According to the Philippine Daily Inquirer, the Philippine sugar industry is not ready for the AEC because of competition from the Thais:
Jose Maria Zabaleta, former chair of the Philippine Sugar Millers Association, meanwhile stressed the need to repeal certain laws deemed a hindrance to the sugar industry’s competitiveness. “Small farms cannot compete with bigger and better-financed firms in Thailand. [The government] needs to allow reconsolidation, and to remove the Comprehensive Agrarian Reform Program (CARP) Law for sugar, rice and most other crops,” Zabaleta said in a separate text message.
The sugar industry in Indonesia, while expanding production, fears increased competition from Thai producers according to a report last month:
[T]he future challenge for sugar factories in Indonesia will be harder with the implementation of Asean Economic Community in 2015. Before its implementation, the presence of refined sugar in domestic market is quite bothersome and is a challenge for local sugar factories. In Batam, for example, refined sugar from Vietnam and Thailand is found and sold at IDR5,500/kg, and so is in Kupang. Regulation on imported refined sugar will not harm sugar factory and farmers if there is not any imported refined sugar sold at the market. But it is worried that the import will exceed the permitted regulation hence it will seep into the market as happened some time ago. Hence, in the future sugar factories under RNI management will face tougher rivals, not other SOE’s sugar factory but more efficient sugar companies from Vietnam and Thailand.
Another report from Vietnam indicates similar difficulties for its sugar industry caused by Thai competitors:
A report of the Vietnam Sugar and Sugar Cane Association showed that by the end of August 2013, the companies still had had 288,000 unsold tons of sugar. The sugar smuggling through the border gates has made it more difficult to clear the inventories. Nguyen Thanh Long, Chair of the Sugar and Sugar Cane Association, said though Thai imports bear the 5 percent tax rate, they are still VND2,000-3,000 per kilo lower than Vietnam made products. If the import tariff is cut to zero percent by 2015 as committed for AEC, Thai sugar would flood the Vietnamese market.
Sugar thus is a controversial issue in the AEC. However, as a primary agricultural product, that is to be expected. Sugar remains a politically sensitive industry in all parts of the world, even in more fully developed regional blocs such as the EU and NAFTA. Both have massive subsidies for their sugar industries which are supported by various import restrictions to maintain higher domestic prices. For example, I once heard that an American company could make money purchasing imported candy (which was not restricted), boiling it down into white sugar and selling that sugar on the U.S. market at the higher, subsidized price. Prices have since come down in the U.S., but this informs the reader of the distortions caused by government sugar policies.
Thus, given the political and social sensitivities involved, is the Thai sugar industry’s effort hopeless?
The identification of NTBs to intra-ASEAN trade is necessary for the next stage of the AEC’s implementation, after 2015. Only after NTBs are identified can they then be eliminated. Furthermore, as the ASEAN Secretariat is not given sufficient resources to conduct its own investigations into NTBs, and more importantly, do something about them, then the private sector will need to step up its own efforts. Interaction between the various national sugar industries, and just as importantly, the consumer interests in ASEAN, will also be necessary to make rational policy choices that improve consumer welfare (in the form of lower sugar prices) while balancing against the need to protect important rural constituencies such as the sugar industry. We therefore will need more such “naming and shaming” efforts from the Thai sugar industry and other private industry actors if the AEC is going to succeed.