Indian authorities should urgently terminate MEG investigation
By Dr. Abdulwahab Al-Sadoun, Secretary General, GPCA
India is one of the key countries around the world whose name is synonymous with trade – ever since nations began venturing into foreign lands and seas, trading valuable goods and services with one another, and bringing them back home for the consumption and exploration of their people. For centuries, international trade has been the driving force behind bringing humanity together, helping to support communities, creating jobs, and delivering prosperity to countries across the globe.
However, in recent times we’ve seen nationalist government policies in leading economies increasingly give rise to the destructive force of trade protectionism.
“Protectionism in all its forms should be rejected, and efforts should be made to discipline measures that constitute barriers to trade.”
Late Ms. Sushma Swaraj, India’s former External Affairs Minister in the first Narendra Modi government
Albeit being said in 2018, the words of the late Ms. Sushma Swaraj, India’s former External Affairs Minister in the first Narendra Modi government, resonate particularly well with the current trade discourse and landscape. Swaraj’s words of condemnation against trade protectionism were uttered in an address to the Shanghai Cooperation Organization (SCO) Council of Foreign Ministers in light of US’s imposition of tariffs on aluminium and steel and close to USD 50 billion worth of Chinese imports. As an important trade partner to numerous economies across the world, India is directly and significantly impacted by global trade policies which can affect its export revenue and economic performance.
Current trade landscape
When we fast forward to 2020-2021 the international trade landscape has deteriorated even further. The coronavirus (COVID-19) pandemic, as disruptive and troublesome it was to people’s health, businesses and economies, only accelerated the race towards trade protectionism, providing a false ‘proof’ to some that globalization is detrimental to our domestic economies and the fight against the virus.
Rising world power
In 2020, India emerged as the world’s 5th largest economy, when ranked by nominal GDP, overtaking France and the UK. The country’s role in providing essential personal protective and medical equipment, and subsequently in producing and distributing the vaccines has been crucial in bringing the virus under control. This is not only due thanks to its well-developed manufacturing base, but also because of its strong economic ties with trading partners, importing feedstock and intermediary products, including from countries in the Arabian Gulf. India represents the second largest export market for chemicals and petrochemicals from the GCC, second only to China.
Trade relations between India and the GCC
In recent years, the regional petrochemical and chemical industry has actively contributed to India’s economic growth and development. GCC chemical producers supply essential raw materials to important segments of India’s domestic manufacturing value chains, including healthcare, building and construction, automotive, textiles, and agriculture. All these sectors contribute immensely to India’s impressive growth and job creation. They will also be central pillars in the country’s economic recovery from the ongoing COVID-19 pandemic.
According to Indian Government statistics, in 2019 imports into India from the GCC stood at USD 25.5 billion (non-oil imports) and GCC countries exported 11.15 mt (million tons) of chemicals and plastics to India. This amounted to USD 6.52 billion or 25.67% of all non-oil GCC exports to India.
Dark cloud over India-GCC trade relations
Notwithstanding these figures, over the last couple of years trade relations in chemicals and petrochemicals between India and the GCC have taken a turn for the worse in light of recent trade protectionist developments. On 28 June 2021, the country’s Directorate General of Trade Remedies (DGTR) initiated an anti-dumping investigation into mono-ethylene glycol (MEG) imports from Kuwait and Saudi Arabia. The investigation was prompted by an application from two of the country’s heavyweight chemical manufacturers and concerned MEG imports from the USA as well. To the surprise of many, the inquiry came only a few months after India terminated another anti-dumping investigation concerning imports of MEG originating in or exported from Saudi Arabia (on 6 April 2020), Kuwait, Oman, Singapore, and the United Arab Emirates (on 20 November 2020). This was as a result of the application being withdrawn following extensive diplomatic and political engagement.
Damaging to domestic market
India’s adoption of trade protectionist measures against GCC MEG imports is damaging to its domestic market. It is utterly unjustified as it is not based on valid legal and factual grounds. It also lacks evidence of MEG imports being dumped from Saudi Arabia and Kuwait. To begin with, the price at which MEG feedstock is imported from the two GCC states is based on market considerations and is in fact not different for MEG that is sold domestically or exported.
Furthermore, there was no spike in MEG export volume from the two countries to India during the period of investigation (1 January 2020 – 31 December 2020). Rather, there was a decline in comparison to the previous year. To state that India’s MEG industry is suffering a material injury as a result of GCC MEG imports would be simply untrue.
According to a report by India’s Ministry of Chemicals and Fertilizers, India is net short of MEG with current demand of around 2.5 million metric tons (MT). As this shortfall is expected to continue, India will need to import more MEG to satisfy domestic demand and ensure that prices are sustainable and supply to the important downstream sectors are not impacted. The continuous pursual of trade protectionist measures against countries in the GCC could also jeopardize exports, thereby creating a bottleneck for the local chemical industry.
Breach of WTO rules
The investigation is in breach of the rules laid by the World Trade Organization, of which India is a member. Since the establishment of the WTO in 1995, India has initiated 23 anti-dumping investigations and imposed seven anti-dumping measures against Saudi Arabia and Kuwait. This figure is more than four times the number of investigations initiated, and measures imposed by any other WTO member. We urge the Indian authorities to immediately terminate the investigation in line with India’s obligations under the WTO Agreements.
In the words of India’s own leadership “protectionism in all its forms should be rejected”. Liberal trade policies allow the unrestricted flow of goods and services, sharpen competition, motivate innovation, and breed success. They multiply the rewards that result from producing the best products, with the best design, at the best price. While it may seem alluring and only too common to resort to trade protectionist measures, rising trade protectionism is only damaging to the very states which adopt it; it can hinder economic prosperity, obstruct business relationships, and jeopardize investments.
This OpEd was originally published in Refining and Petrochemicals Middle East November edition.