INSIGHT: Asia producers expect high levels of protectionism

16 September 2009 15:39  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--Asian chemical producers and buyers might well have to contend with an increase in anti-dumping petitions from developed-world competitors over the next few months, Ed Sim, an expert in trade law and partner with the Singapore practice of law firm Appleton Luff, has warned.

“In Europe, the summer holidays are over and Baroness Ashton, who replaced Peter Mandelson as European trade commissioner last October, is now fully briefed,” he says. “And recently appointed senior officials at the US Department of Commerce (DOC) will be anxious to make a good impression with the Obama White House.”

Talk of a sustained global economic recovery only amounts to talk because equity and commodity markets have factored in a recovery that’s yet to happen, he adds.

Protectionism as a whole could remain at high levels for the next few years, until the recovery really arrives, he suggests.

Recent western cases against Asia include an EU investigation into polyethylene terephthalate (PET) resin imports from Iran, Pakistan and the UAE.

Imports between 1 July 2008 and 30 June 2009 are under study, according to a notice published by the EU on 3 September.

On 10 September, the EU announced that it had started investigating imports of high-tenacity synthetic yarn from China, South Korea and Taiwan between the same dates.

Enquiries need to be completed within 15 months and any provisional anti-dumping imposed within nine months of the start of each study.

The big case in the US is the anti-dumping investigation, launched in April, into plastic-bag imports from Vietnam, Indonesia and Taiwan.

Superbag of Houston and Hilex Poly of Hartsville, South Carolina, had made the complaint.

These two companies also petitioned at the same time for countervailing or anti-subsidy duties against Vietnam.

Last month the US Department of Commerce imposed duties of up to 4.2% on importers of plastic bags from Vietnam.

This followed an initial ruling that the Vietnamese government had provided subsidies ranging from 0.2% to 4.24% to local plastic bags players.

A final ruling on the countervailing case is due in the first quarter of next year with a preliminary ruling is due in the anti-dumping case in October.

Western companies have so far stuck mainly to the anti-dumping route to protecting business. Procedures are well-understood and the whole process is governed by the World Trade Organisation (WTO).

But ex-WTO measures - such as claims against developing-world countries over labour and environmental standards - might come to the fore, predicts Sim.

These face a big challenge, however: you can have done to you what you do to others.

“Take the food industry, for example. If you are a western manufacturer and make claims against, say, a Chinese competitor over poor hygiene standards you might end up facing an investigation into practices at your own factories.”

The existing threat from anti-dumping petitions is a big enough headache on its own for Asia’s plastic converters, he adds.

“One of the recent problems they have faced is the fall in availability of recycled or scrap-plastic from the west.”

This is the result of lower exports of durable goods, such as fridges, washing machines and computers, to the west that are shipped from Asia wrapped in plastic.

The plastic is returned to Asia to be recycled back into plastic film and bags etc, for non-food applications.

“In countries such as Thailand and China, which have well-established recycling networks, overseas rivals must be looking at domestic converters with greater suspicion.

“In some cases, pricing of plastic products made in countries with these good recycling networks might have stayed the same, or even fallen, compared with pre-crisis.

“This is despite the use of much higher percentages of virgin-resin raw material.”

But snap judgements might be erroneous: the pricing of virgin resin at certain times in this crisis has been below that of scrap during the economic boom.

Nobody can rule out this happening again while the economic recovery remains in doubt.

Further complications can make life difficult for both anti-dumping plaintiffs and defendants.

“For exports that occurred at the height of the crisis in the fourth quarter of last year, how do you define what should have been a fair price for shipments as commodity markets were in such chaos?” Sim asks.

Polymer and chemical producers were at that stage seeing buyers renege on agreements for cargoes already at sea.

The priority was to take whatever the buyers were willing to accept because of the chronic cash shortage.

But the time, effort and expense of pursuing claims could well be worth it for western manufacturers because of a tougher competitive environment.

High and mid-level western retailers are doing badly as US and European consumers tighten their belts – meaning better volumes for low-priced store chains such as Wal-Mart.

The pressure on costs all the way up the supply chains is likely to become more ferocious, resulting in increased outsourcing to Asia.

To discuss issues facing the chemical industry go to ICIS connect

By: John Richardson
+65 6780 4359

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