Indonesia won't import more sugar from Thailand inspite of tariff cut

Indonesia probably won't import more sugar from Thailand in the coming years just because of a sugar tariff cut agreement signed between the two countries recently, industry executives said Tuesday.

The memorandum of understanding "will bring down the prices Indonesian buyers have to pay, holding other factors constant, but I don't think it will have much impact on how much sugar Indonesia is going to buy from Thailand," said an official with Thai sugar producer Mitr Phol Group.

The MOU, signed between the governments of the two countries during the 14th Asean meeting in mid-February, stipulates that "Indonesia shall maintain the level of sugar trade between Indonesia and Thailand in line with the historical trade during the past three years on average."

Analysts said this article appears to be a concession by Indonesia for being allowed to classify sugar as a "highly sensitive" product, which exempts it from tariff elimination.
Under the MOU, Indonesia will only need to reduce its import tariffs on Thai sugar to 5%-10% during 2011-2015 from 30%-40% currently.
Market participants said that given domestic pressure to protect local sugar mills, the Indonesian government will continue to release import permits at a level only to meet any domestic shortfall.
"I think the impact, even if you look at the long term, after the tariff cuts, will still be limited," said a sugar trader based in Singapore.
The Indonesian government isn't prone to import white sugar whenever they've got enough local output, and overall demand for raw sugar imports is also tepid, he said.
Indeed, the MOU gives flexibility, stating that Indonesia should maintain the level of sugar imports from Thailand "unless international price and domestic production do not allow the maintenance of such level of trade."
According to the attachment of the MOU, Indonesia's annual sugar imports from Thailand between 2005-2007 averaged 554,141 tons.
At first glance, the agreement seems to be good for Thailand, but it's hard to figure out whether it will actually result in more trade, said an official with a trading company in Indonesia.

source: marketwatch