The main trade body representing petrochemicals producers in the region plans to put pressure on European Union and GCC negotiators to reach a trade deal.
The Gulf Petrochemicals and Chemicals Association is writing to European and GCC chief trade negotiators to push the case for a quick deal, Abdulwahab Al Sadoun, the GPCA secretary general, said yesterday.
Regional producers have been suffering since EU tariffs more than doubled at the start of last year when the two parties failed to reach a deal.
“I hope the call will be taken up by the GCC and the Europeans,” Mr Al Sadoun said, adding that the GPCA has the backing of its European counterpart, the European Chemical Industry Council.
“We are trying to reach out, signing a joint letter to European and GCC chief negotiators and highlighting the benefits to both economies from reaching a deal,” he said.
The letter is the latest effort in a process that has dragged on for nearly three decades.
The GPCA had been hoping a deal would be reached before the higher tariffs kicked in at the start of last year, when the EU introduced a new system – the Generalised Scheme of Preferences – designed to ease trade restrictions for developing countries.
But the EU deemed GCC countries to be rich, with per capita incomes higher than many EU countries, or in the case of the UAE higher than all of them.
The effect for the GCC producers was a more than doubling of tariffs on petrochemicals, from 3 per cent to 6.5 per cent from January 1 of last year.
The higher tariffs depressed GCC exports to the EU dramatically, with linear low density propylene (LLDPE) – a mainstay product that goes into making products from plastic bags to toys – falling by a third last year, according to Eurostat, which monitors EU economic data.
Petrochemicals is a key plank of many governments’ strategies of diversification.
Petchems production capacity in the Arabian Gulf has grown nearly fourfold since 2000, producing 147.2 million tonnes of products last year, according to GPCA. With huge new projects coming onstream, GPCA forecasts capacity will reach 198.6 million tonnes by the end of this decade.
However, despite the rise of Middle East capacity, the Gulf’s share of Europe’s LLDPE market fell from 79 per cent to 70 per cent last year, according to Platts, an industry data and analysis company.
The industry as a whole has been roiled by the collapse in oil prices.
“Crude oil and petrochemicals are inextricably linked,” according to a new report by McKinsey, a consulting firm. “Oil price shocks are much more than just another management issue that chemical executives have to contend with”, as falling oil prices lower costs but also prices and have an unpredictable effect on end demand.
The complexity of the industry is reflected in the fact that Gulf producers have the backing of some parts of the European chemicals industry, specifically those that want access to its cheaper primary petrochemicals products. But it faces opposition from other parts of the industry, such as its direct competitors in Germany and elsewhere.
Gulf producers are looking for an easing not only in the tariffs but in so-called non-tariff barriers, such as bureaucracy that holds up clearing at ports and customs, which makes their products more costly.
“There has been progress but there is always something extra being added to the table,” said Mr Al Sadoun. “But we are hopeful that our call will be taken up by the various stakeholders.”
amcauley@thenational.ae
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