INSIGHT: Tariffs shake-up will undermine EU processors, GPCA

15 November 2013 16:29  [Source: ICIS news]

By Will Beacham

LONDON (ICIS)--The Middle East Gulf is an increasingly important source of polymers for Europe’s downstream industrial base. So the fact that from 1 January, 2014, tariffs on imports of chemicals from the region will rise from 3% to 6.5% may be good news for Europe’s domestic polymer manufacturing sector, but it could mean increased feedstock costs – and therefore a poorer competitive position – for downstream industries.

For decades, the EU’s Generalised System of Preferences (GSP) has granted lower-than-usual import tariffs to poorer countries which are judged to be most in need of preferential trade status to encourage development. The latest version of the GSP reduces the number of beneficiary countries from 176 to 87.

The system uses World Bank figures to judge which countries are most in need of assistance. For 2014, eight high income and fourteen upper-middle income countries have been excluded from the GSP including Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, Oman, Argentina, Brazil, Cuba, Venezuela, Russia, Libya, Malaysia and Iran.

The impact on the European polymer and chemical industries could be significant. The region imports up to 90% of its C4 linear low density polyethylene (C4 LLDPE) requirement from the Middle East, especially Saudi Arabia, for instance, according to market sources. Butene-based LLDPE represents the biggest share of the LLDPE market. The region also imports increasing volumes of Middle East high density polyethylene (HDPE).

Market sources are worried that LLDPE buyers will face higher pricing in Europe, though poor downstream demand could temper any increases.

As you might expect, the Gulf Petrochemical Association (GPCA) is not happy about the decision to increase tariffs, arguing that it goes against the EU’s stated aim of lowering trade barriers globally as well as hitting Europe’s competitive position.

 “The more limited access to chemicals and inflation in production costs resulting from the tariff increase will undermine production capacity in Europe, GPCA general secretary, Abdulwahab Al Sadoun, told ICIS this week.

“The Gulf chemical industry will not adjust its export prices to allow European downstream industries to remain competitive.”

He argued that Europe currently benefits from access to competitively-priced products from the Gulf Cooperation Council (GCC) region and by making these more expensive, “downstream industries in Europe will suffer the most from the increase in tariffs.”

He urged European downstream industries and consumers to take action to request a lowering of applied tariffs.

The EU is on the one hand arguing for the lowering of trade barriers globally, but on the other, raising taxes on trade from the Gulf to Europe, Sadoun said.

“The EU decision to end GSP benefits for imports from GCC states is a protectionist measure that will not even benefit the European industry as the resulting increase in costs will further affect its competitiveness, both locally and on export markets,” he added.

For Europe’s trade group, Cefic, however, the move to increase tariffs is a logical step and could even spur more progress on a stalled free trade agreement (FTA) between the EU and the Middle East Gulf region. 

 “It’s simply a case of the new GSP excluding a number of countries which have reached a certain level of development,” executive director for industrial policy at Cefic, Rene van Sloten, said. “We welcome the new scheme because it is the right approach to focus on the most needy countries.”

He pointed out that in the case of Brazil and the Gulf there is already a proposal on the table for a free trade agreement which would eliminate tariffs altogether.

“The GCC negotiations are frozen. There is a free trade agreement on the table and the day it comes into force there will be 0% import duties on chemicals. The fact that duties are to rise is an incentive for the GCC to go into a free trade agreement,” he added.

These FTA talks stalled at the end of 2010 over the issue of the prohibition of export duties on raw materials from the Gulf which the Gulf nations did not want to commit to, van Sloten said. 

“They do not apply export duties to raw materials so it’s not a big open issue,” he added. “This prohibition would be good practice so there is no distortion on raw material prices. If there was an FTA tomorrow we would face more competition on petrochemicals but the requirement for the prohibition of export duties is important for us. It’s just a political decision – do they want an FTA or not?”

Negotiations on the FTA began in the 1990s but van Sloten is not aware of any moves to unlock the talks.

“Cefic would like to see a world without import [and export] duties – trade has to be liberalised,” he said. “As these duties rise we can also get supplies from other countries with which we do have FTAs.”

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By: Will Beacham
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