The chemical industry in the Arabian Gulf is largely export oriented. The industry has a 4.3% share in global chemical exports and trades with more than 100 countries worldwide, exporting over 73 million tons of chemicals annually. The GCC is a major hub for the production and export of chemicals. Therefore, having free access to global markets is a lifeline for the regional industry.
GPCA and its members advocate for open market policies, as we strongly believe that market liberalization will enhance trade by allowing individual producers from the Arabian Gulf to gain access to key markets, and the wider industry to earn greater returns. Such returns can be invested back into research and development and developing more value adding products or directly into the economy.
GCC chemicals trade: Facts and figures
In 2019, GCC chemical exports grew by 6.4% reaching 82.5 million tons. We estimate a decline in GCC chemical export volumes of 15%-20% in 2020, dropping to 66-70 million tons due to significant demand disruptions in chemical supply markets caused by the pandemic. Although GCC export volumes grew by 6.4% in 2019, the region’s export revenue declined by 10.3% and it is estimated that it declined further by more than 20% in 2020. We forecast GCC chemical trade to grow by up to 10%, in terms of volume, in 2021. GCC chemical surplus continues to rise reaching a new high of 59 million tons in 2019, which represents about 70% of export volume. The current five-year forecast for GCC chemical trade is to grow by 3% – 5% per annum. The strongest contribution of GCC chemical exports over the past decade came from polymers and fertilizers with a 29.6% and a 27.9% contribution, respectively. However, under an appropriate international policy framework, there is a strong potential for the industry to further expand and cater to the constantly growing global population.
The GCC chemical industry trades with more than 100 countries worldwide. While petrochemicals and polymers form the largest part in GCC chemical exports, GCC chemical imports are concentrated around inorganic chemicals representing 48.1% of total imports. With that, petrochemicals and fertilizers contribute the most to the GCC trade surplus, while inorganic chemicals contribute the most to trade deficit.
As the voice of the chemical industry in the Arabian Gulf, GPCA has consistently supported and advocated for free trade with global economic blocks. Free Trade Agreements (FTAs) between two, or more countries increase the flow of services and goods, bring about greater economic integration, and ensure 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. It is crucial for GCC states to prioritize establishing FTAs, whether general or sectoral, with their key export partners to maximize potential economic and trade benefits to the GCC industry. A lack of such FTAs with key trade partners will see the regional industry lose its competitive advantages, and likely lose market shares to producers that enjoy preferential market access.
While the GCC is still in the negotiation phase to establish FTAs with its top trading partners, chemical producers are required to pay an import duty of between 5.5-6.5%. 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 exhaustive and 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, the GCC producers are moving from trade-focused relations to one focused on investments. FTA negotiations with these key markets should not only focus on preferential access but also investment protection.
Another country that is open for an FTA with the GCC, is the United Kingdom. The UK ended its so-called Trade and Cooperation Agreement (“TCA”) with the EU on 24 December 2020. This has hugely impacted the ongoing GCC-UK strategic partnership discussions, in favour of both parties. This collaboration marks a further strengthening of the trade and investment relationship between the GCC and the UK. The GCC is already one of the UK’s largest trading partners, with bilateral trade amounting to almost £45 billion in 2019. The benefits that a potential deal with the UK could bring to the GCC region range from enhancing its competitiveness, to being part of important global value chains, and increasing the economic activity of the GCC’s chemical industry. GPCA is playing a role in the ongoing GCC-UK Strategic Partnership Initiative by sharing with the GCC Secretariat challenges faced by the regional chemical industry with respect to trade with the UK and recommendations for negotiations pertaining to the same, through the GPCA International Trade Committee (ITC).
Current landscape and COVID-19 challenges
The GCC chemical industry has increasingly operated in an environment characterized by rising protectionism, in the form of higher tariffs, closed border sentiment and other trade restrictive measures as a result of the COVID-19 pandemic, against the backdrop of supply chain disruptions and increased demand for essential goods.
Due to the coronavirus pandemic, demand for essential hygiene products and medical equipment, including vaccines, has spiked globally, and well-functioning value chains can help to quickly ramp up production, while mitigating price increases. On the other hand, a lack of international cooperation and imposition of tariffs and other trade barriers risk impeding the urgently required supply of vital goods in parts of the globe.
For example, without the necessary consumables such as face masks, gowns, and gloves produced in middle-income countries, major developed economies will struggle to prevent the spread of infections, especially amongst frontline workers. At the same time, a lack of more complex equipment like lifesaving ventilators made primarily by high-income exporters will put more lives at risk in developing economies. The same principle applies to the chemicals manufactured by producers in the GCC and used as intermediary raw materials to produce medical and hygiene equipment that is crucial to fight COVID-19.
Need for reform in post-COVID era
The new post-COVID reality will not be short of challenges as the world is preparing to face the implications on the economy, society, businesses, and consumers. Global and regional trade has been dramatically impacted by the restrictive measures that were put in place as a result of the pandemic. Rather than improving access to services and goods, the world has regressed on free trade, jeopardizing the prosperity and economic development of nations all over the world. Now is the time to enact change built on transparency and cooperation, and crucially, a modernized and fully functioning WTO is more essential than ever in driving the new agenda forward. GPCA has developed a position paper that highlights the necessary reforms required to modernize the WTO.
