VINACHEM

While there are no clear winners, Laos and Myanmar can be considered losers under a US policy that is shaking up global supply chains, as manufacturers in those countries are subject to a steep 40 percent US import duty.

The competition landscape in Southeast Asia has become clearer as the Aug. 1 tariff deadline set by the United States President Donald Trump passed with most countries in the region facing the same hurdle in exporting goods to the world’s largest consumer market.

While there are no clear winners, Laos and Myanmar can be considered losers under a US policy that is shaking up global supply chains, as manufacturers in those countries are subject to a steep 40 percent US import duty.

Brunei Darussalam, meanwhile, got off somewhat lighter with 25 percent, but that is still high within the region.

Singapore received the lowest rate among ASEAN countries with a 10 percent US import tariff, unchanged from what the Trump administration had imposed at the start of Trump’s tariff barrage in April.

However, export activity there involves higher operational costs, says researcher Wen Chong Cheah from the Economist Intelligence Unit (EIU).

Moreover, pharmaceuticals and semiconductors, two of Singapore’s main export goods, are not among the key exports of any other ASEAN countries, meaning the city state was “less able” to leverage a lower tariff “to gain a competitive edge”, said Cheah.

“Most of ASEAN is [subject to] similar [US import] tariff rates. It seems that we are back at square one. Among Indonesia’s competitors in the region, none has a distinct edge in terms of export costs to the US,” he told The Jakarta Post on Monday.

Trump announced on July 15 that Washington would impose a 19 percent tariff on Indonesia, the second-lowest tariff in the region. The government has hailed the figure as an achievement, since it is significantly lower than the 32 percent initially threatened.

Some had hoped the deal would tip the scales in favor of Indonesia, until it was subsequently unveiled that its regional peers Malaysia, Thailand and the Philippines, received exactly the same 19-percent rate, along with Cambodia.

Exporters in manufacturing powerhouse Vietnam, meanwhile, have to contend with a marginally higher rate of 20 percent to access the US market.

That difference, however, was “negligible” and “insignificant” in changing the region’s landscape for trade with the US, given Vietnam’s capacity and efficiency, said Permata Bank chief economist Josua Pardede.

He told the Post on Monday that the 1-percent gap was too small to “fundamentally change trade patterns”, since competitiveness was not solely driven by tariffs but also by production efficiency, logistical costs, product quality and business ties.

“Vietnam still enjoys a strong market position, particularly in the electronic industry, textiles and footwear. Such a small tariff difference is possibly not big enough to directly shift trade volumes from Vietnam to other ASEAN countries in a meaningful way in the short-term,” said Josua.

Different angles, same result

Discounting Singapore, ASEAN’s largest economies are subject to more or less the same rate, even though each played a different hand in the negotiations with Trump based on local economic characteristics and priorities.

Indonesia was among the ASEAN countries offering “generous concessions” to the US, Cheah said.

Jakarta agreed to purchase 50 Boeing aircraft alongside US$19.5 billion worth of agricultural and energy goods and offered wide-ranging regulatory reforms as well as tariff-free access to Indonesia for most US products.

Cheah highlighted the promise to rewrite local content requirements, the archipelago’s long-established policy to protect local industries by forcing foreign investment onto Indonesian soil or into business ties with local producers.

“By conceding this point on local content requirements to the US, the Indonesian government has created a precedent that may make it difficult to implement a similar strategy in the future, even with other countries,” explained Cheah.

Kuala Lumpur, too, has agreed to ease some nontariff barriers, such as by simplifying halal and facility registration for US imports, in addition to purchasing 30 Boeing jets and lifting some import bans, to gain the 19 percent rate instead of 25 percent.

However, Malaysia put up a fight in the negotiation as it denied the requests for a blanket exemption and turned down a US request to remove duties on cars, tobacco and alcohol, according to The Edge Malaysia.

It also disagreed to liberalize foreign equity ownership in strategic sectors, thereby maintaining existing caps to ensure sufficient space for local players.

Malaysian Trade Minister Tengku Zafrul Aziz said on Friday that Kuala Lumpur had refused to compromise on those points to protect local industries.

“We have our reasons. It is a national policy to ensure we remain competitive, and as long as it continues to bring value to the country, we must continue with it,” Zafrul was quoted as saying by the South China Morning Post.

With a deal expected to be enshrined in a joint statement sometime this week, Malaysia also secured tariff-free access for pharmaceuticals and semiconductors exported to the US.

Washington is reportedly open to exempting imports of cocoa, rubber and palm oil from both Malaysia and Indonesia.

Asked whether Jakarta could have put up more of a fight in the tariff negotiations the way Malaysia did, Cheah said “it’s difficult to say”, since the export products of both countries were vastly different.

“Malaysia occupies a key node in the semiconductor supply chain, which makes it difficult for the US to find a replacement in the short term. This gives Malaysia more leverage when negotiating its trade deal,” said Cheah.

“Malaysia handles around 10 percent of the world’s microchip packaging and testing and accounts for about 20 percent of US semiconductor imports. Meanwhile, Indonesia’s exports to the US are less critical. This includes clothing, electronics and palm oil. Hence, Indonesia has less bargaining power with the US,” he added.

Bangkok agreed to eliminate import duties for more than 10,000 US items out of roughly 11,000 items in total and committed to purchasing US energy and agricultural products to get the 19 percent rate. It also agreed to slash in half its $35-billion surplus in bilateral trade with the US, within five years.

It did not yield, however, to US pressure to eliminate tariffs on sensitive products or those that would hurt domestic farmers, Bangkok Post reported on Sunday. THE JAKARTA POST/ANN