The proposed free trade agreement (FTA) between India and Oman, which was expected to be signed in January 2024, could face a delay due to opposition from the Indian petrochemical industry. The industry fears that the FTA would expose it to unfair competition from Oman’s subsidized and integrated petrochemical sector, which has been expanding its capacity and product range in recent years.
Background
India and Oman have been negotiating an FTA since 2008, aiming to boost bilateral trade and investment in various sectors, including energy, manufacturing, agriculture, services and tourism. The FTA would eliminate or reduce tariffs on a range of goods and services, as well as address non-tariff barriers and facilitate cooperation on standards, customs procedures, intellectual property rights and dispute settlement.
According to the Ministry of Commerce and Industry of India, the two countries have completed 10 rounds of negotiations and are close to finalizing the text of the agreement. The FTA is expected to increase bilateral trade from $6.7 billion in 2020-21 to $12 billion by 2025, as well as create new opportunities for Indian exporters and investors in Oman’s growing market.
However, the Indian petrochemical industry has raised concerns over the potential impact of the FTA on its competitiveness and profitability. The industry argues that Oman enjoys an unfair advantage in the petrochemical sector due to its abundant and cheap natural gas resources, which are used as feedstock for producing various chemicals and plastics. Moreover, Oman has invested heavily in developing its downstream oil-and-gas activities, including a new petrochemicals plant and an expansion at one of its refineries in Sohar .
The Sohar petrochemicals complex, which is expected to start operations in 2018, will have a steam cracker unit, high-density polyethylene and linear low-density polyethylene plants, and a polypropylene plant. Once completed, the project will increase Oman’s petrochemicals production capacity from 200,000 tonnes per year to 1.4 million tonnes . The complex will also benefit from Oman’s strategic location as a gateway to the Gulf Cooperation Council (GCC) market, which has signed a free trade pact with South Korea in March 2022 .
The Indian petrochemical industry claims that the FTA would allow Oman to dump its subsidized and surplus petrochemical products in the Indian market, undercutting the domestic producers who have to pay higher prices for feedstock and face higher taxes and duties. The industry also alleges that Oman does not adhere to the environmental and labor standards that India follows, creating an uneven playing field.
The industry has urged the Indian government to exclude petrochemicals from the FTA or impose adequate safeguards to protect its interests. The industry has also sought a level playing field with Oman in terms of access to feedstock, infrastructure, taxation and incentives.
Implications
The opposition from the Indian petrochemical industry could pose a challenge for the finalization and implementation of the FTA with Oman. The Indian government may have to balance the interests of different sectors and stakeholders while pursuing its trade liberalization agenda. The government may also have to address the concerns of other industries that may be affected by the FTA, such as textiles, steel, pharmaceuticals and agriculture.
The delay or cancellation of the FTA could have negative implications for both India and Oman. For India, the FTA would offer a strategic opportunity to diversify its energy sources and markets, as well as enhance its economic and political ties with Oman and the GCC region. For Oman, the FTA would help it reduce its dependence on oil revenues and promote its economic diversification and integration with global value chains.
The FTA could also have positive spillover effects for both countries in terms of attracting foreign direct investment, creating jobs, fostering innovation and improving standards. Therefore, both sides may have to find a mutually acceptable solution that addresses the issues raised by the Indian petrochemical industry without compromising on the overall benefits of the FTA.