FocusTaiwan petchems hopeful on China zero-tariff deal by end ‘09

21 September 2009 06:10  [Source: ICIS news]

By Pearl Bantillo and Judith Wang

SINGAPORE (ICIS news)--The Taiwanese petrochemical industry fervently hopes a zero-tariff agreement with China could be forged by year-end, and implemented in time when China’s free trade agreement (FTA) with southeast Asia come into force in 2010, industry sources said on Monday.

Details of the proposed economic cooperation framework agreement (ECFA) between Taiwan and China will be carved out when delegates from the two governments meet in October.

This gives them less than three months before China and the 10-member Association of South East Asian Nations (ASEAN) tear down trade barriers for easier flow of goods, which will put Taiwan at a disadvantage if a similar deal failed to materialize soon, industry sources said.

“This is why the agreement [is] most urgent. [It] should be in place at start of next year,” said Jack Shieh, executive manager of the Petrochemicals Industry Association of Taiwan (PIAT).

More important than the annual savings of New Taiwan dollar (NT$) 3m ($92,506) from the zero-tariff deal, said Shieh, is for Taiwan’s petrochemical players not to lose out to their southeast Asian peers in the important Chinese market.

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam comprise the ASEAN.

Taiwan exports about two-thirds of its petrochemical output to China - its nearest neighbour. On an annual basis, a total of 10m tonnes of petrochemical raw materials are shipped from Taiwan to China, on which an average of 6.5% import duties apply, Shieh said.

The China-Taiwan ECFA should help Taiwan maintain its strong trade standing with China as it levels the playing field between the territory and its southeast Asian peers.

“We expect the agreement to [be] sign[ed] as soon as possible, but it still depends on the negotiations of the authorities between China and Taiwan,” said Chen Peili, director for industrial policy division at Taiwan’s Ministry of Economic Affairs.

“We will see whether the ECFA will be inked by the end of this year,” she said.

The ECFA, however, could cause a flood of cheaper Chinese products into Taiwan that can potentially kill other industries. “For some weak industries like ceramics, we will definitely provide help for them and consider their benefits and rights,” Chen said.

The 45-member strong PIAT had sent out more than 10 delegations to China to negotiate the terms of the ECFA for the petrochemicals industry, said Shieh from the association.

Taiwan’s petrochemical exports to China includes five major commodity plastics - namely polyvinyl chloride, polyethylene, polypropylene, polystyrene and acrylonitrile butadiene styrene (ABS) - as well as some intermediate materials such as phenol, acetone and synthetic fibres, he said.

Without the China-Taiwan ECFA, the petrochemical industry would suffer another blow after reeling from the unprecedented slump in sales volumes and product prices since late last year, analysts said.

Profitability of most of Taiwan’s petrochemical companies had shrunk by half in the first six months of the year, said Shieh.

Formosa Plastics Corp, which is part of Taiwan’s biggest conglomerate – the Formosa group, reported a 47.5% year-on-year decline in net profit in the January to June 2009 period.

“The second half of year may be better [when] most markets have recovered,” said Shieh.

($1 = NT$32.43)

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By: Pearl Bantillo
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