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India Imposes Extra Import Duty on China Tyres as Auto Sales Falter

Move looks to bolster domestic tyre manufacturing sector and comes in addition to existing 2017 import levy.

Photo: In for a let-down: China-sourced tyre imports now face levies of up to 22%. (Shutterstock.com)
In for a let-down: China-sourced tyre imports now face levies of up to 22%.
Photo: In for a let-down: China-sourced tyre imports now face levies of up to 22%. (Shutterstock.com)
In for a let-down: China-sourced tyre imports now face levies of up to 22%.

All China-sourced radial tyres with a 16-inch plus rim diameter imported to India are to be subject to additional countervailing duty (CVD) for the next five years. The additional duty, which ranges between 9.12-17.57% and covers eight tariff categories, will apply to the kind of outsized tyres typically required by buses or trucks and is seen as a bid to bolster India's beleaguered domestic tyre manufacturers.

This new duty will be in addition to the 12-18% import levy that has applied to China-made truck and bus radial tyres (TBR) since 2017. This could see certain tyre categories face combined import tariffs of between 18 and 22%, although this is still lower than the 30% injury assessment made when the first tranche of CVD was mandated two years ago.

While the imposition of the new duty is officially down to the fact that the Chinese government continues to subsidise the country's tyre exports, another major factor has been the dramatic slowdown in India's domestic auto industry. As a sign of this, May saw an 8.62% year-on-year drop in vehicle sales across the country, with passenger vehicles – a key TBR segment – faring even worse, recording a 20.55% fall. This is seen as continuing the downward trend that has been apparent since July 2018.

As well as declining sales and subsidised imports, India's tyre manufacturers have also had to contend with rising raw material costs, with the price of natural rubber alone having risen by 23% since the beginning of the year. While this fresh CVD round is not expected to result in a huge windfall for the domestic tyre manufacturing sector, it is, at least, seen as set to protect their current margins from further erosion.

The move, though, has already bolstered the share price of many of India's leading tyre manufacturers. Within days of the decision, for instance, the share price of two of the market leaders, JK Tyre & Industries and Ceat, rose by 4.7% and 3.2% respectively. Among the other manufacturers to benefit were MRF (2.6%) and Apollo Tyres (1.2%).

Despite these positive signs, there remain concerns that the move won't suffice to reboot the domestic tyre sector, which has seen the value of individual manufacturers drop by 15-28% since the start of the year, with poor auto sales having made many investors jittery at best. These concerns stem partly from the fact that China TBR imports have dropped hugely over recent years, falling from a high of 150,000 units a month in 2017 to a current level of about 30,000 units a month. Naturally, with import levels already low, the impact of added tariffs is not likely to be huge.

Another – arguably greater – concern is that the new levy does nothing to counter the surge in tyre imports from Vietnam and Thailand, two countries that are exempt from tariffs under the terms of the ASEAN–India Free Trade Area (AIFTA) agreement. With Thailand, for instance, now accounting for 57% of all TBR imports (compared to 2% two years ago) and China's share having declined from its 2017 high of 92% to just 24%, suspicions remain that many of the supposed ASEAN imports are actually mainland-sourced.

Mitra Dave, Mumbai Consultant

Content provided by Picture: HKTDC Research
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