Should export tariffs on fertilizers be abolished?

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Should export tariffs on fertilizers be abolished? Author/Source: Date: 2016-10-25 Clicks: 39 Recently, the call to abolish export tariffs on fertilizers has once again sparked intense debates among industry professionals. Some people believe that with the successive cancellation of various preferential policies and the reinstatement of value-added tax on fertilizers, the production costs for fertilizer companies have risen significantly, putting them under pressure to incur huge losses. Therefore, it is necessary to abolish export tariffs on fertilizers. Some people believe, however, that eliminating export tariffs is not conducive to the healthy transformation and development of the domestic fertilizer industry; it leads to a reversal in the marketization of fertilizers, pushing the sector back overnight into a protected environment governed by policies. 　　Party A: Fertilizer tariffs should be abolished. First of all, all the preferential policies applicable to fertilizers have been removed. In the past, the fertilizer industry enjoyed various preferential policies; therefore, **tax and fee restrictions were imposed on the export of fertilizer products to balance the development of the industry. With the successive cancellation of various preferential policies and the reinstatement of value-added tax, the production costs for fertilizer enterprises have increased significantly; therefore, it is necessary to eliminate export tariffs in order to promote the healthy development of this industry. 　　Secondly, the fertilizer industry is suffering heavy losses, and exports have become a lifeline. Currently, China is the world’s largest producer and exporter of fertilizers; its production of urea and phosphate fertilizers accounts for over 40% of the global total. In 2015, the total export volume of various fertilizers from China exceeded 30 million tons. However, the continuous decline in product prices is putting the fertilizer industry under pressure to incur huge losses. **According to statistics from the Bureau of Statistics, from January to August this year, the entire nitrogen fertilizer industry incurred a net loss of 7.41 billion yuan, which is 14.39 times the loss amount in the same period last year. 　　Given the current circumstances, exporting fertilizers is an effective way to alleviate pressure on the domestic market, but tariffs have become a significant burden for enterprises. To this end, export tariffs on various fertilizer products must be abolished as soon as possible to help the industry emerge from its difficulties swiftly. 　　Once again, macroeconomic policies encourage exports. In recent years, China’s foreign trade exports have been in a poor state; in 2015, there was negative growth in China’s foreign trade exports, something that has not been seen in recent years. As a result, **several measures to encourage exports were introduced. Against this backdrop, fertilizer export policies should also be relaxed. In the first half of this year, both the volume and price of China’s nitrogen fertilizer exports declined significantly, one of the reasons being high export costs. Therefore, abolishing the fertilizer export tariffs for 2017 has become an urgent task. 　　Party B: Eliminating tariffs is a step backward. First, removing export tariffs would lead to inconsistencies in policies. In recent years, preferential measures such as reduced freight costs, lower electricity prices, and the reinstatement of value-added tax on fertilizers have been gradually removed, with the aim of enabling the fertilizer industry to move toward full marketization. If the export tariffs on fertilizers are removed, it means that the fertilizer industry will once again be placed under policy protection overnight, which goes against the principles of marketization. 　　Second, it has a negative impact on domestic production capacity. Eliminating export tariffs means completely opening up the fertilizer export market, which could lead to the revival of some domestic production capacities that are energy-intensive, polluting, and inefficient and are on the verge of being phased out. This is contrary to the development strategy aimed at achieving zero growth in fertilizer use by 2020. 　　Third, prices that affect exports. The foreign party will further suppress prices, indirectly passing on the waived export tariffs to the foreign investors. 　　Fourth, the removal of export tariffs on fertilizers cannot serve as a lifeline to rescue the industry. In recent years, as competition in the fertilizer industry has intensified and the process of marketization has advanced, calls within the industry to abolish export tariffs on fertilizers have never ceased. At the end of 2014, the \"Tariff Implementation Plan for 2015\" introduced significant changes to the existing export tariff policies for fertilizers; the seasonal differences in tax rates for nitrogen and phosphorus fertilizers were eliminated, and a uniform export tariff rate applied throughout the year came into effect on January 1, 2015. Amid favorable export conditions, throughout 2015, China’s total urea exports increased by a significant 180.99% compared to 2014, reaching a record high of 13.748 million tons; meanwhile, total diammonium phosphate exports rose by 89.08% compared to 2014, amounting to 8.019 million tons. Exports have brought significant benefits to the urea and diammonium industries. But such gains are only short-lived. 　　Entering 2016, although the export tariffs on fertilizers remained at the same level as throughout 2015, China exported 6.783 million tons of urea from January to August, a decrease of 20.6% on a year-on-year basis. As the patterns in both international and domestic markets change, the cost of imported fertilizers is decreasing, which reduces the export competitiveness of Chinese fertilizers. 　　This fully demonstrates that eliminating export tariffs is a temporary solution, not a permanent one. It can save fertilizer companies in the short term, but not for the long haul. Relying solely on exports to survive is not a viable solution for businesses.