Iran Sanctions and Iran-Oman Trade – Part I Oman is a close neighbor and a significant trading partner of the Islamic Republic of Iran, which is located just across the Strait of Hormuz from the Sultanate. Iran accounts for approximately 4% of Oman’s exports. As reported in the Omani press, Oman and Iran recently held the 13th round of the Omani-Iranian Joint Committee to discuss ways to strengthen their trade relationship in areas such as investment, transportation, banking, tourism, mining, oil and gas, petrochemicals, shipping and telecommunications. However, numerous aspects of Omani-Iranian trade are likely to come under stress as a result of the sanctions that have been imposed against Iran in recent months by the international community. Nuclear Program Prompts Sanctions In response to Iran’s nuclear development program, which many suspect of pursuing nuclear weapons, the United Nations (“U.N.”) Security Council, the United States of America, and the European Union have all imposed sanctions relating to trade with Iran. All of these sanctions have the potential to affect Omani companies that do business, directly or indirectly, with Iran. This month we discuss the U.N. Security Council resolution against Iran, Resolution 1929. In next month’s Client Alert, Part II of this article will discuss the sanctions that the United States and the European Union have imposed against Iran. U.N. Security Council Resolution 1929 In recent years, the United States, many European nations, and other countries have grown increasingly alarmed at the prospect of Iran developing nuclear weapons, and have urged the larger international community to take measures to rein in Iran’s nuclear program. On June 9, 2010, the U.N. Security Council passed Resolution 1929, holding Iran in violation of its non-proliferation obligations under international law and instituting a fourth round of sanctions. Resolution 1929 was passed by the Security Council with twelve votes in favor, one abstaining, and two against. Under Chapter VII of the U.N. Charter, Security Council resolutions finding a threat to the peace, such as Resolution 1929, are binding upon member states and require implementation of their provisions via national law. Accordingly, all U.N. member states, including Oman, are obligated to implement and enforce Resolution 1929. Resolution 1929 institutes a number of measures targeting Iranian military and nuclear capabilities, as well as entities that provide financial or transportation services related to Iran’s military or nuclear activities. Among other measures, the resolution seeks to ban the sale of weapons and military equipment to Iran. Furthermore, all U.N. member states are prohibited from allowing Iranian investment in uranium mines, enrichment facilities and other nuclear technology. Finally, Resolution 1929 calls on U.N. member states to ban travel by, and freeze the assets of, specifically named Iranian officials and entities tied to the Iranian government, in particular those connected to the Islamic Revolutionary Guard Corps.
Tuesday, January 4, 2011
Friday, December 4, 2009
Oman Petrochemical Producers Targeted by Protectionism
In early December 2009, members of the Gulf Petroleum & Chemicals Association (GPCA) will convene in Dubai for the organization’s Fourth Annual GPCA Forum. Recent dumping accusations made by Asian and European petrochemical producers against GCC companies likely will rank highly among topics for discussion.
China, India and the E.U. each have complained of dumping by GCC producers in recent months, in some cases leveling tariffs on GCC products. “Dumping” is the term used when a producer sells its product on the international market at a price lower than either the cost of production or the price on the local market.
In June, China launched an anti-dumping investigation into Saudi methanol exports, placing a provisional tariff on Saudi methanol. In August, India levied tariffs on exports of poly-propylene from Oman and Saudi Arabia ranging between one and eight times production costs. In September, the EU launched an anti-dumping investigation against the UAE and Iran relating to exports of poly-propylene tripthalate, the substance used to make plastic bottles.
With the exception of Iran, all of the countries involved in these claims are members of the World Trade Organization (WTO). The WTO allows member states to take action against dumping when it causes material injury to the competing domestic industry. Prior to taking such action, members are required to show that dumping is taking place, calculate how much lower the export price is compared to the exporter’s home market price, and show that the dumping causes or threatens to cause harm.
The complaints raised by China, India, and the E.U. accuse GCC countries of subsidizing natural gas, a crucial input in the production of plastics and other petrochemicals. The low price of feedstock is said to reduce the prices of goods produced in the region to unfairly low levels compared with the international market.
In an interview with Abu Dhabi’s The National, the GPCA rebutted the subsidy allegation, emphasizing that the natural gas used in the production of petrochemicals is a by-product of crude oil production. In the words of the organization’s secretary general Dr. Abdulwahab Al Saadoun, “It is not a subsidy, because there is no cost incurred.”
According to the GPCA, Asian and European claims of dumping mask growing protectionism. In an October 2009 statement, the organization stated “the GCC industry and our governments will not accept the application of anti-dumping regulations against exports of petrochemicals and chemicals from the Gulf. We have seen a surge in protectionist actions brought by countries to block imports. These cases are baseless and violate international rules.”
A surge of protectionism would come as no surprise to the GPCA. The global financial crisis has affected the petrochemical industry worldwide, restricting credit, causing economic contraction and substantial declines in demand for petrochemical products. According to the GPCA, GCC producers have been the least affected by the crisis, making them ripe targets for protectionist policies. “During downturns,” Dr. Al Saadoun remarked in an interview with Arabian Oil & Gas, “there are moves toward protectionism and this is a key challenge we want to address through the collective efforts of all the members.”
Unless settled by the governments of the involved countries, the WTO Dispute Settlement Body may hear disputes between WTO members. History provides some indication as to how the WTO may rule on any cases brought before it. At the time of Saudi Arabia’s accession to the organization in 2006, Saudi negotiators successfully persuaded WTO member states that the country’s low domestic costs of feedstock were justified when compared against the additional costs associated with export. Experts believe that the WTO’s acceptance of this position will undercut European or Asian anti-dumping measures in any hearing before the WTO.
While the anti-dumping duties can exact a cost on regional producers during the time it takes to resolve these disputes, there may be an unexpected benefit for the members of the GPCA. As a result of these challenges, Dr. Al Saadoun has pledged that the “GPCA will strengthen coordination with GCC governments to ensure that exports of petrochemicals and chemicals from the Gulf region are not restricted by antidumping regulations and other trade restrictions.” To that end, the young organization has established an advocacy committee that will create a mechanism to alert its members about anti-dumping cases.
As a result of the anti-dumping challenges, GCC producers seem to have gained a new advocate eager to meet its aims of speaking on behalf of the industry and developing a range of tools and resources available to all of the region’s producers.
