On May 31, 2018 the world woke to the news of US’s imposition of tariffs on steel and aluminium from the EU, Mexico and Canada in a move that dealt a major blow to free markets and signalled the beginning of a new era in global trade relations.
Mere weeks ago, Washington announced additional duties on about $50bn in imports from China after splashing 25 percent tariffs on Chinese steel and 10 percent on aluminium imports earlier this year.
This rise in protectionism, as history teaches us, has the potential to drastically alter trade routes, supply chains, relations and practices.
For decades, market liberalisation has dominated economic policy throughout the world. Free trade agreements (FTAs) between two or more countries have increases the flow of services and goods, bringing about greater economic integration and ensuring preferential access to key markets.
The GCC is currently signatory to just two FTAs – one with Singapore and another with the European Free Trade Area (EFTA), comprising Iceland, Lichtenstein, Norway and Switzerland. With a small but growing internal market, the region is still highly dependent on exports.
According to Gulf Petrochemicals and Chemicals Association (GPCA) figures, in 2017 the GCC exported around 80 percent of its chemicals and petrochemicals worth $52bn. Thus, having free access to global markets is a lifeline for the regional industry.
As the voice of the chemical industry in the Arabian Gulf, GPCA has consistently advocated for free trade with global economic blocks. The benefit of a GCC FTA covering trade in chemicals with key trading partners would not be reaped by the chemical industry alone but would, in fact, be shared widely. The removal of trade barriers and establishing free trade agreements with key export markets would be an important enabler for future export-led growth to our major markets.
China is the largest export market for GCC chemicals, accounting for 23 percent of all exports, while Europe is the second largest export market. With recent moves by the US to impose import duties on the EU and China, this is an opportune time for GCC leaders to establish free-market alliances and mutually favourable terms with these countries.
The EU also stands to benefit significantly by reaching favourable trade agreement with the region as this would not only result in closer economic ties but afford EU consumers’ access to more competitively priced products.
While the GCC is still in negotiation phase to establish FTAs with its top trading partners, chemical producers are required to pay a minimum import duty of 5.5 percent. This represents a significant loss in revenue that could otherwise be invested in projects and human capital development. An FTA with the EU was first tabled in 1990 but after unproductive rounds of negotiations the GCC pulled out, unilaterally, in 2008.
In recent years, GCC chemical producers have focused on emerging markets in Asia, but as these countries seek to gain more self-sufficiency in the long run, especially China and India, GCC producers may lose market share.
Nobody wins from closed market policies. On the contrary, more often than not countries will find themselves on the losing side. According to the UN, in the event of a global trade war, tariffs applied on developing countries’ could rise to a staggering 37 percent. If we take this worst case scenario, by 2023 the GCC chemical industry would accrue a combined loss of $9.6bn from exports to the US, China and the EU. To put things in perspective, this represents around 23 percent of export revenue from these markets, and eight percent of the GCC chemical industry’s total export revenue. This would be a significant loss for GCC producers, and have a knock-on impact on the economy as a whole.
Since its inception in 2006, GPCA has advocated for open market policies as we believe that market liberalisation helps individual producers from the Arabian Gulf to gain access to key markets, and the wider industry to earn greater returns.
As a result of our relentless efforts over the years, total business interest upheld in the region reached $50m, and we continue to call on regional regulators to develop policies that ensure the regional industry’s interests are upheld.
As the famous quote goes by Benjamin Franklin, “No nation was ever ruined by trade”. If we look at virtually everything that surrounds us, from our electronic gadgets, to our homes, roads and cars, tens of thousands of materials go into the production of items that make our lives more comfortable and enable us to do our jobs easier and faster. These materials are sourced from destinations across the globe ensuring higher quality, lower cost and affordability for the consumer. The truth is, none of this would have been possible without trade between nations.
If protectionism becomes the norm, we all lose as duties will be passed on to the consumer. As some of the most powerful nations remain embroiled in lingering trade tensions that threaten to derail growth for global and domestic economies, today, more than ever, the world is looking towards its leaders for wisdom and guidance.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.