China faces a significant shortage of natural rubber, with over two-thirds of its consumption relying on imports annually. Before 2002, the official import tariff for natural rubber was set at 25%, but in-quota tariffs were effectively collected at 12%. From 2002 onward, the government unified the import tariff at 20%, though it was later reduced to 5% on paper, while actual implementation increased by 8%. This inconsistency sparked widespread debate, especially after 2002 when natural rubber prices surged, significantly increasing costs for plastic and tire companies. The issue became a point of contention between upstream producers and downstream manufacturers, with many arguing that the 20% tariff is too high and should not be lowered.
According to reports, state departments have conducted multiple studies on reducing the tariff, but all proposals were blocked due to strong opposition from the Ministry of Agriculture. The ministry argues that natural rubber is a strategic resource, even though domestic production meets only one-third of national demand. It plays a critical role in the country’s strategic reserves. However, years of underinvestment in rubber plantations have led to serious challenges in the agricultural sector, including low wages and poor living conditions for workers. Additionally, rubber tree cultivation requires long-term investment, and China has been planting rubber in unsuitable areas, leading to high costs and an unstable industry. Once impacted, recovery would be extremely difficult.
With rising natural rubber prices—reaching over 16,000 yuan per ton this year—domestic tire and rubber product companies now face material costs accounting for nearly 80% of their expenses. This has intensified calls for tax reductions. Recently, the China Rubber Industry Association urged the National Development and Reform Commission, the Ministry of Finance, and other authorities to lower the import tariff from 20% to 10%. Their argument is that domestic production cannot meet growing demand, especially with the expansion of the tire industry. Imports are expected to exceed 130 million tons this year, and global shortages are likely to persist, keeping prices high. Lowering tariffs would not harm domestic companies significantly, as seen in countries like South Korea (1%) and Japan (zero tariff), which encourage the use of foreign natural rubber resources.
Domestic natural rubber production costs around 6,000 yuan per ton, with indirect costs adding another 8,000 yuan, making profits substantial. Meanwhile, import channels vary: processing trade allows zero tariffs, compound rubber imports face 8%, border trade 10%, and general trade 20%. Most imports come through processing trade or compound rubber, due to the high cost of general trade. In 2003, compound rubber imports jumped 186%, reaching 256,000 tons, and in 2004, they rose another 31% to 335,000 tons. Despite this, companies often dislike using compound glue due to quality issues and lack of standardization. Many view the practice as wasteful, yet high tariffs force them into these arrangements.
In July 2023, China implemented the China-ASEAN FTA tariff rate for several countries, lowering compound rubber tariffs to 5%. This policy remains puzzling. Many question where the 20% tariff revenue goes, as neither farmers nor companies seem to benefit. Both the China Rubber Industry Association and tire companies agree that the current 20% tariff is outdated, creating market distortions and weakening competitiveness. It also prevents necessary reforms and contradicts international practices.
While the government is aware of the problem, resistance to tariff reduction remains strong. The debate continues, with no clear resolution in sight.
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