The introduction of EU tariffs on UAE plastics exports has stoked fears of trade protectionism in the euro zone as the economic bloc's debt crisis threatens to spread. The EU this week slapped new tariffs on the UAE, Iran and Pakistan for material used in plastic bottles and films, arguing that EU producers were being hit by subsidies and price undercutting.
"There's a high risk of this becoming more common as the full extent of Europe's debt problem becomes clearer," said Mark McFarland, an emerging markets economist at Emirates NBD. "What traditionally happens in deep recessions is that it becomes common to protect local producers at the expense of international export companies." Talks on a free-trade agreement stalled last year after almost two decades, with prospects for reviving the negotiations uncertain. Securing the agreement had become more of an imperative for the EU than the GCC as the financial crisis in the euro zone spurred the need to boost economies there, said Sultan al Mansouri, the UAE Minister of Economy.
Petrochemical subsidies have been a central sticking point in negotiations over a free trade agreement between the EU and GCC. European policymakers argue petrochemical companies in the GCC have an unfair advantage over EU producers because of the lower price of oil, which is the result of government subsidies. They claim this helps to make GCC goods artificially competitive against EU products. Europe has already bolstered trade protection for EU producers such as Spain's Novapet and Equipolymers of Italy against imports from Asia.
The latest measures involve adding tariffs on polyethylene terephthalate, commonly used in a range of plastic products exported by producers in the UAE, Iran and Pakistan. The European Commission's Official Journal, published on Monday, said EU petrochemical manufacturers suffered material damage due to subsidised imports from the three countries and accused JBF RAK, a Ras al Khaimah-based producer, of dumping, or selling goods at under cost.
The duties imposed are for four to six months and may be extended to five years. They are as high as 142.97 (Dh640.89) a tonne. JBF RAK was unavailable for comment yesterday. The Gulf Petrochemicals and Chemicals Association, the industry's representative body in the region, declined to comment. "If the EU has these measures enforced it does put a need on UAE companies to put an emphasis on efficiency gains to make themselves more competitive," said Mr McFarland.
The move could affect companies such as Aalmir Plastic Industries, based in Sharjah, which ships plastic films to the EU four or five times a year. The company said yesterday it was unaware of the new tariffs. Subsidies on oil helped petrochemical companies in the Gulf make products at about a twelfth of the cost of their EU counterparts, said John Sfakianakis, the chief economist at Banque Saudi Fransi.
"The tariffs could be a signal of what's to come," he said. "The Europeans are trying to voice their acute concerns on subsidies but they have to realise the Gulf may be willing to discuss this issue but won't want to move back." Trade protectionist issues have been blamed on the failure of nations to agree on the multilateral Doha Round of free trade talks, which have been stalled since 2008. Analysts say agreement is vital to ensuring the sustainability of the global economic recovery.
Some countries are moving towards prohibiting subsidies on agriculture and manufacturing, said Alejandro Jara, a deputy director general of the World Trade Organisation. "Sometimes certain instruments are used to give out subsidies which harm the economy and cause injury to other parties in interested jurisdictions," said Mr Jara. firstname.lastname@example.org