Under Regulation (EU) 2016/330, Indonesia’s palm-based oleochemical manufacturers receive an import duty advantage under the Generalised System of Preferences (GSP) scheme for selected oleochemical products exported to EU. Malaysian producers do not enjoy the scheme as Malaysia is now classified as an upper middle-income economy. This has resulted in decreasing imports of Malaysian oleochemical products to EU, shown by a negative compound annual growth rate (CAGR) of 4.68% (-4.68%) for the period from 2010 to 2017. This development will put Malaysian oleochemical manufacturers at a disadvantage when competing in the EU market. The study therefore aims to examine the impact of the granting of EU’s GSP to Indonesia on the export performance of Malaysian palm-based oleochemicals. Employing the gravity model in this study, it was confirmed that this granting of EU’s GSP to Indonesia’s palm-based oleochemicals has caused a negative impact on the export performance of Malaysia’s palm-based oleochemicals to EU. For every 1% increase in import tax difference in EU between Malaysia and Indonesia, Malaysia’s palm-based oleochemical exports to EU will be reduced by 0.6%. With Indonesia enjoying this advantage, Malaysia will lose her competitiveness. Thus, it will be more profitable for Malaysian oleochemical manufacturers to shift their operation to Indonesia to gain the GSP advantage when exporting to EU.
Keywords: gravity model, generalised system of preferences (GSP), palm-based oleochemicals, export performance, the European Union (EU)