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Thu 13 Aug 2009 04:00 AM

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The protectionist game

It floods markets with cheap goods, but now China's hurting.  

The protectionist game
Chinese petrochemical producers are smarting from the effects of cheaply produced Saudi products flooding the market.

China and India have started anti dumping investigations against Saudi petrochemical producers, as their domestic industries face ruin amidst the collapse of prices. Anti dumping duties have already been slapped on Saudi methanol and butanediol products exported to China, and on polypropylene exported to Indian market.

The imposition of anti dumping duties on Saudi products raises the protectionism issue. It is hard to imagine that it still exists in today's globalised market, but here we are facing it again. According to research done by the Brookings Institution, new anti-dumping investigations opened in 2008 was up 31% compared to 2007, while the number of anti-dumping measures actually applied increased by 19%. Developing countries dominated this trend on both sides; they initiated 73% of all new investigations and were the target of 78% of them.

Saudi petrochemical products seem to be the target of producers in India and China. This can largely be attributed to the cost advantage Middle East producers enjoy compared to other producers around the globe. Indian and Chinese firms have been forced to shut down production units due to the dramatic decline in market prices. The sustained low price environment may be the final nail in their domestic petro industry's coffin, so they are rightly fearful that firms with the cost advantages of those from the Middle East will drive them out of business.

Saudi companies have been urged by the government to cooperate, and avoid exiting the Indian or the Chinese markets for good.

The move from the Chinese and Indian authorities to impose duties will reignite the issue of Chinese and Indian products being dumped into the Middle East's local market, especially the Chinese products. In a game of trade tit-for-tat, the Saudi Ministry of Commerce now intends to start investigations about the counterfeit Chinese products being dumped into the Kingdom.

The Arabic proverb "He hits me and cried, then was quick to complain" can be applied to the Chinese government in this situation, as it has been dumping its cheap products on all sorts of markets the world over, not just in this region.

Abdelghani Henni is the editor of Petrochemicals Middle East.

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