Assessing Dynamics of Palm Oil Import Demand: The Case of Six Asian Countries

ABSTRACT

This article uses annual data to investigate the palm oil import demand in selected Asian countries (India, China, Japan, Bangladesh, Korea, and Pakistan) through using the autoregressive distributed lag (ARDL) technique. The findings of the study show that the palm oil and substitute oils prices and the national income of the importing countries are significant determinants of palm oil demand across the six models. Other factors such as biofuel mandate, trade policies, and exchange rate also proved to be important factors affecting import demand for palm oil in some of these countries.

KEYWORDS:

• ARDL
• bounds test
• import demand
• palm oil

Notes

¹ The Republic of Korea gradually allowed its agricultural trade policy to liberalize international trade in line with the World Trade Organization (WTO) commitment. Actual import tariff rates on palm oil stay at 0% due to Korea-ASEAN FTA, which includes major exporters of palm oils. Japan applied a preferential tariff system to 149 developing countries and 15 regions. According to the preferential tariff system (Generalized System of Preferences, or GSP), the tariff rate on palm oil and its products under Japan grants General Preferential Tariff (GPT) is 0 (UNCTAD, 2006). According to the Economic Partnership Agreement (EPA) between Japan and Malaysia, effective from July 2006, palm oil product exports to Japan are exempted from tariff charges.

² Since its accession to the WTO in 2001, China has adhered to a trend of gradual trade liberalization and new trade policy measures were adopted. Tariffs on oilseeds and related products were set at relatively low levels, and absolute quotas were transformed to binding tariff rate quotas (TRQs), which have been set up for major imported vegetable oils. Later on, China eliminated these TRQs in 2006, in accordance with its WTO commitments, and these items have been subject to automatic import licenses (WTO, 2008). At the regional level, the ASEAN-China Free Trade Agreement (ACFTA) between the Association of Southeast Asian Nations (ASEAN) member states and China was signed in 2002. Under this agreement, tariff reductions and elimination within the FTA with China started in 2005 (Balu & Ismail, 2011).

³ The ARDL methodology has been used to a large extent for investigating trade models. Examples of recent studies in this context include various works (e.g., Walter, Baek, & Koo, 2012; Jawaid & Raza, 2013; Shahbaz, Khan, & Tahir, 2013; Baek, 2013).

⁴ The unit roots and lag length selection results are available upon request from the author.