GCC and EU free-trade agreement hampered by Saudi export tariff

25-Jun-10

After two decades, disparities between the GCC and the EU on a free-trade agreement (FTA) have narrowed down to export duties -Saudi Arabia wants to impose tariffs on its petrochemical exports. EU had suggested Saudi Arabia could impose duties on a percentage of export products, but the GCC insisted on imposing them across the board. If all differences iron out, and the FTA is concluded now, it would take over a year to come into effect. For petrochemicals, the kingdom wants to apply an export tariff to retain some of the [subsidies] that otherwise would [be conveyed] to consumers abroad. Saudi Arabia provides cheap raw materials for its petrochemical industry, allowing its plastic and other products to be sold at lower prices. Exporting them would transfer those subsidies abroad. Tariffs would be a way for the Saudi government to claw back the subsidies. From the EU standpoint, Saudi Arabia is subsidising the development of its local [petrochemical] firms, making them into formidable competitors, and at the same time, applying an optimal export tax to retain the rents generated by its dominant position in oil production.