Chems Trade Protectionism On The Rise

Business, China, Company Strategy, Economics, Europe, India

By John Richardson

TRADE protectionism in chemicals is set to rise during 2012 as a result of a weaker global economy, warned a trade lawyer who specialises in the chemicals industry.

“There was a 30-40% increase in the total number of anti-dumping cases in Europe in 2011 over the previous year, and I think this trend on a global basis will continue,” said Edmund Sim, Singapore partner at Appleton Luff, a firm of international lawyers.

“You can argue that increased trade protectionism is not a good idea during a period when Europe needs more investment from countries such as China, against which many of these new cases have been lodged.

“But whereas northern European countries are traditionally strongly in favour of free trade, France, Italy, Spain and Greece have always been more protectionist, and they are among the countries most-affected by the Eurozone crisis.

“It is all about protecting jobs where unemployment is high and manufacturing industries are struggling, not just in Europe but in the West in general.”

US politicians continue to claim that jobs have been lost to China because Beijing has kept the value of the Yuan artificially low against the US dollar, thereby boosting the export competitiveness of its manufactured goods.

“Mitt Romney has talked about signing into law duties on Chinese imports, based on the extent to which the US calculates that the Yuan is undervalued, 48 hours after becoming President,” said Sim. Romney is a leading candidate for the Republican nomination for this year’s Presidential election.

“But a bit like using nuclear weapons, this would not make sense as the immediate response from China and elsewhere would be swift and severe, benefiting no-one. I therefore think it may be better employed as a threat rather than actually used.”

The latest anti-dumping case involving chemicals is claims by the Turkish government against imports of mono-ethylene glycol (MEG) from SABIC.

“In the case of the Turkish claims, a straightforward anti-dumping claim might have some grounds,” said Sim.

“This is where allegations are proven that prices are higher in a producer’s domestic market than what it is charging overseas.”

But he added that a case for anti-subsidy, or countervailing duties, would be much harder to stand-up. These duties are levied when it is determined that raw-material prices have been unfairly subsidised.

“In the case of ethane to make ethylene and then MEG, this doesn’t make sense as ethane cannot be shipped around the world. It is essentially stranded, and so there is no international market price that local production costs can be compared with,” said Sim.

India, however, successfully levied polypropylene (PP) anti-dumping duties against SABIC, which were partly based on an argument that feedstock prices were unfairly subsidised, he added.

Propane, used to make propylene and then PP in Saudi Arabia, is internationally traded as liquefied petroleum gas (LPG). Saudi propylene-to-PP producers receive propane feedstock at a 28% discount to CFR Japan naphtha prices – viewed as comparable to the international price of LPG.

Earlier this month, India removed anti-dumping duties against eight Saudi PP producers that were first imposed on 30 July 2009. The duties, ranging between $28.49-323.50/tonne (EUR22-249/tonne), are still in place against Oman and Singapore.

“This was the result of a political deal between the Indian and Saudi government following very high-level talks,” said Sim, which might be the outcome of the dispute etween Turkey and SABIC.

Turkish government officials have agreed to re-evaluate the allegations against SABIC, with both sides in the dispute pushing for an early resolution.

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