We got it right. That’s the declaration from Finance Minister Larry Howai as he explained the rationale behind the 30 per cent increase in import duties on foreign-used tyres. Howai had made the announcement of the increase in duties on foreign-used tyres during his budget presentation on October 1. The annoucement sparked debate by the owners of foreign-used and new tyre shops.
In an interview with Business Guardian on Tuesday, Howai highlighted four areas the Government considered before making the decision to increase the import duties on foreign-used tyres:
• Impact on the consumer
From complaints he has received, Howai also said arbitrage is occurring in the foreign-used tyre industry in T&T.
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalise upon the imbalance, the profit being the difference between the market prices. Howai said the impact on the consumer was the first issue the Government considered.
“There have been some complaints that people bring new and used tyres mixed up in a (shipping) container. Of course, it all comes in as used tyres, so there is a little bit of arbitrage taking place inside of there (which) we needed to deal with. The administration of trying to sort that out would be difficult. It would be difficult to fully police in detail every container; we need to address a particular issue.”
Dumping is another.
Dumping occurs when manufacturers export a product to another country at a price either below the price charged in its home market, or in quantities that cannot be explained through normal market competition.
“A number of countries, they get rid of their tyres by selling it to Third World countries. We (T&T) then have the problem of trying to dispose of the tyres. We (T&T) then in turn, very readily re-export those tyres elsewhere, so there was an environmental consideration, which the Minister of Water Resources and the Environment (Ganga Singh) expressed some concern about and the overall cost of the disposal that we would have to bear.
“According to Mr Singh, we may have well over two million tyres for disposal which we have to now deal with,” Howai said. “The final issue is the whole question of safety. Although the Standards Bureau (T&T Bureau of Standards) does, in fact, do some work on. I have to confess that we really don’t have data.
“If somebody gets into an accident, it is difficult to identify the cause. Sometimes, it could be because the driver was speeding. It could be because the tyre blew out. There is always an issue in pinpointing the actual cause. It is very difficult to say there were ‘X’ number of deaths because of bad tyres.”
“We did do some research; we did get some data on what some countries were doing, including our neighbours, Jamaica, in respect of this, and the concerns that were being expressed throughout, as well as the concerns which the individual ministers had. We thought that the best way to do it was to equalise (the playing field in the foreign-used tyre industry).
“In the end, we said if you have people mixing (imported new and used) tyres, then, in a sense, we have a consistent duty across the board, then it does not matter whether somebody brings in new or used, it is going to take the same duty, so we decided that we would fix it at that level.”
Responding to complaints from tyre dealers who sell new tyres, Howai said:
“We were balancing, at the end of the day, the cost to the consumer. There is one school of thought that says you should not increase the duty at all, you should leave the duty at zero because the poor man is the one who buys the used tyre and then, on the other hand, we had the other issues.
“The new tyre dealers would say no, it (the duty on foreign-used tyres) should be higher than the new tyres. In a sense, we tend to find a happy medium between the two, one side arguing zero and one arguing a much higher number, the thought was to equalise it, which means it is also easy, from a Customs point of view, to manage the process from here.
“I must admit we were concerned about the impact on the small man. The concerns have been fairly muted so far. We think we might have gotten it just about right. It is always difficult to get these things exactly correct. We got it just about right as both sides are unhappy. We found a happy medium between the two.”
Used tyres below standard
What are the implications of a 30 per cent increase in duties of foreign-used tyres for the local tyre industry? Would the demand for foreign-used tyres decrease? Used car dealer Inshan Ishmael is embracing the increase in duties because the quality of tyres offered to the T&T market were not up to standard, though inspection was done on the tyres before retailers sold them. The list of complaints includes the issue of dry-rotting and the fact that some motorists “run the tyre to a “bare thread.”
“foreign-used tyres, in most cases, were not fit for public roads, especially with the huge amount of accidents we have been having. Almost 90 per cent of our accidents, there have not been any analytical breakdown to say why the accidents occurred: we just say the driver lost control.
“In many cases, it may be because of defective tyres or it could be that tyres were dry-rotted and they blow out,” Ishmael said.
The 30 per cent may minimise the quantity imported into the T&T market and may improve the quality being imported, Ishmael said.
He said the industry blossomed because business people saw the opportunity to buy a cheaper tyre. On the issue of whether the tyres are suitable for sale, Ishmael said there is no system available in T&T to shred tyres or appropriately dispose of them, so many tyres are dumped in landfills and on the side of the roadways, causing an environmental and health hazard.
“Really and truly, only because people wanted a cheaper source of tyres that we would have grown to such an extent. Safety should have been the primary concern. I have seen many people purchase tyres and regret it because the threading on those tyres, in some cases, wear out easily,” he said.
Ishmael said there is need to increase the import duty on new tyres. “There is something called aqua cleaning and when your tyre thread has gone to a certain limit or has gone down a certain amount, aqua cleaning happens. This is where water gets between the road and the tyre and this is what causes people to lose control (of their vehicle),” he said.
Winter tyres are another type which are ill-suited to T&T. “It is very dangerous because those tyres are not meant to be driven at a high speed on asphalt road. It is meant to actually help in snowy areas where you are driving at a particular speed and those tyres actually come into the country.
“In fact, if you talk to any tyre dealer, they would tell you they have seen these tyres. Some people use them. You are not supposed to use that on a standard dry asphalt road because they were not meant to be used on hot pitch,” Ishmael said.
Price increase on demand
He said demand may dwindle as the cost of a foreign-used tyre would increase from $175 to $200. Ishmael, owner of the Roll-on-Roll-off Centre, said the 30 per cent increase has not impacted on his business because he offers an incentive to his customers when they purchase a foreign used vehicle with defective tyres.
“In cases where a consumer purchases a car from us, if the tyre does not pass the Bureau of Standards’ test for quality, we give the customer an option: we tell them we could supply used tyres free of charge or we can supply new tyres at half of the cost.”
Ishmael said there are good quality foreign-used tyres, but there are some foreign-used tyre dealers who import a lower grade of foreign-used tyres and “everyone—all foreign-used tyre dealers—gets caught in the mix.”
“There are some dealers where you can get the best foreign-used tyres in the world because they have high standards, but the problem is there has to be legislation or something enacted which would get these fellas who are selling these ballhead tyres or half-ballhead tyres to increase the standard of tyres they offer,” Ishmael said.
“Our country seems to be last in the race when it comes to anti-dumping laws and a lot more needs to be done because people, when they go to these tyre shops, they change their tyres and (the business accumulates them), takes a big truck and dumps it in the middle of a canefield and then you find it after months.
“In fact, if you return years after, you would see the same tyre there, except it would be a little dry rotted.” ishmael said though small measures are in place, “a country with 600,000-plus cars, everyday people are changing tyres, soon the country may be overrun with tyres, something needs to be done.”
Ishmael said an India-based tyre shredding plant, which he did not want to name, had expressed interest in sharing its expertise on tyre shredding. “That company had approached me. They were looking for investors about a year ago, and we hadn’t heard anything after that. I even have a sample of the container that they had brought with the various degrees of recycling that can be done. Unfortunately, the company might not have been given the encouragement that they wanted,” he said.
Ishmael said foreign-used tyres come mainly from Japan. “Japan is almost a 90 per cent source. Some people bring out of South Africa and some people bring out of the United Kingdom and the United States, too.”
Meanwhile, one importer of new and used tyres who also did not want to be identified, said the proposed increase in import duties for foreign-used tyres is fair.
He said T&T should adopt a system like in Tennessee, United States, which uses discarded tyres as fuel at a power plant.
The T&T Bureau of Standards
Deryck Omar, executive director, T&T Bureau of Standards, said the foreign-used tyres are inspected at the Point Lisas port and at the Vehicle Management Company of T&T (Vmcott) at the Beetham Highway and in San Fernando locations.
Regarding the issue of disposal of tyres, Omar said the responsibility of disposing tyres rests with the Ministry of Local Government.
Omar said there are two standards of compliance.
1. TTS 536:1997: used for foreign and new commercial vehicles
2. TTS 266:2002: used for privately-owned vehicles
What Minister of Finance Larry Howai said in the budget:
“In respect of import duty on all tyres, I propose to provide consistency of treatment in the duty regime for new and used tyres with an application of a 30 per cent import duty, bearing in mind that new tyres attract an import duty of 30 per cent and used tyres are imported duty free.
“In keeping with the rules under the Caricom Treaty, the Ministry of Trade and Industry will submit this proposal to Coted (Council for Trade and Economic Development) for approval prior to its implementation.”
Among the businesses which sell new tyres are:
1. Tyre Clinic 2000 Ltd
2. Tyre Centre Ltd
3. AM Marketing Company Ltd
4. Automotive Components Ltd