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Another problem was that the USA removed Indonesian-made tires from its generalized system of preference. This US program was designed to support developing countries by cutting import duties and taxes for about products from countries. Indonesian-made tires were removed from the list as the USA believes that Indonesia’s tire industry is already sufficiently competitive. This means that tire exports to the USA are now subject to a five percent import tax.

Rubber, known for its elastic quality, is a commodity that is used in many products and applications around the globe (from industrial to household products). There are two types of rubber, to wit natural rubber and synthetic rubber. Natural rubber is made from the juice (latex) of the rubber tree, whereas the synthetic type is made from petroleum. Both types are interchangeable and as such influence each other&#;s demand; when the price of petroleum rises, demand for natural rubber will increase. But when supply disruptions of natural rubber cause its price to rise, then the market tends to turn to synthetic rubber. This section discusses Indonesia&#;s natural rubber sector. Indonesia is one of the largest producers and exporters of natural rubber.

Indonesia&#;s downstream rubber industry is still underdeveloped. Today, the country depends on imports of processed rubber products due to the lack of domestic processing facilities and the lack of a well-developed manufacturing industry. Little domestic consumption of rubber explains why Indonesia exports about percent of its rubber production. However, in recent years there is a change visible (although a slow one) as exports slightly decline on the back of increased domestic consumption. About half of the natural rubber that is absorbed domestically in Indonesia goes to the tire manufacturing industry, followed by rubber gloves, rubber thread, footwear, retread tires, medical gloves, carpets and other tools.