x Abu Dhabi, UAEMonday 24 July 2017

Gulf giants fear plastics trade war over tariffs

A fresh round of protectionist tariffs in Asian markets is threatening the Gulf's petrochemical industry, worth US$10 billion in annual exports.

A fresh round of protectionist tariffs in Asian markets is threatening the Gulf's petrochemical industry, worth US$10 billion (Dh36.72bn) in annual exports. Such tariffs could spark a damaging trade war and disrupt target markets - especially China - that formed the premise for multibillion-dollar investments in chemical plants across the region, said Abdulwahab al Sadoun, the secretary general of the Gulf Petrochemicals and Chemicals Association.

Gulf exporters are still battling a 21 per cent anti-dumping tariff on Chinese imports from the Gulf of methanol, a basic building block of the chemical industry, in place since last summer, and face new plastics tariffs in India proposed last month, he said. A so-called "double-dip" recession would only increase pressure on Chinese and Indian officials to protect their own higher-cost domestic chemical companies, Mr al Sadoun said.

"The drive behind it is of course the recession and politicians who are trying to safeguard lost job opportunities," he said. "I would not rule out that there will be more tariffs in the future." Mr al Sadoun said he had no estimate for how much business was at stake, but China bought more than 55 per cent of Gulf petrochemical exports, and the market would continue to be the global centre of demand growth.

Gulf producers have to respond quickly to fledgling tariff proposals to prevent protectionist policies from gaining momentum across the world, he said. China last year levied tariffs on imports of methanol and butanediol from Saudi Arabia, after accusing Saudi companies of "dumping", or setting their prices below their production costs in order to retain market share. The tariff for butanediol was reduced earlier this year to 4.5 per cent from above 20 per cent, Mr al Sadoun said, but China continues to levy a 21 per cent tariff on methanol imported from Saudi Arabia.

If Saudi companies are cleared by the investigation, the Chinese government will refund the damages to their revenues, he said. "We're expecting the disclosure of the anti-dumping commission in the next few weeks, and we're confident that the case will be won by the GCC companies," he said. "Any issues taking place in China will have ramifications for this part of the world." India last summer imposed tariffs on polypropylene, a common plastic, imported from Saudi Arabia and Oman. The tariffs lapsed, but India's ministry of industry and commerce recommended a new round of tariffs on July 21 based on the two countries' "unfair" cost advantages.

GCC producers have some of the lowest production costs in the world because they buy oil or natural gas from their governments at prices set far below international market rates. In Saudi Arabia's case, the model was upheld by the World Trade Organisation (WTO) when the country joined in 2005. India is a much smaller market for Gulf producers, Mr al Sadoun said, but the country's complaint goes a step further by questioning the very basis on which the Gulf has built its chemicals industry.

Gulf countries could push back against both protectionist measures by referring the matter to the WTO or even imposing their own tariffs on imports from China and India, he warned. "This could lead to trade wars between countries," he said. "I don't see a winner in this war, everyone will be losing." The Saudi government flexed its diplomatic muscle last year with the Chinese government over the methanol issue, and as an oil supplier and major market in its own right it has the ammunition to confront protectionist governments, said Jean-Francois Seznec, a Gulf chemicals expert and visiting assistant professor at Georgetown University in Washington.

It was likely to challenge India on the issue, he said. "India is very dependent on the Gulf for oil," he said. "Also, India has perhaps 3 million workers in the Gulf, without whose remittances many Indian villages would suffer greatly." @Email:cstanton@thenational.ae