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Political
briefing
September
2014
unites
Open markets: The foundation of our standard of living
Page 2
Strong partners: New opportunities
Page 3
Yes to TTIP: A long list of reasons for it
Page 4
A controversial idea: A call for more objectivity
Page 5
Collaboration: Improving together
Page 6
Investment protection: Fair regulations for all
Page 7
The big picture: Transatlantic chemical trade
Page 8
Chemical industry: Two heavyweights in international trade
Page 9
1
Political briefing
September 2014
Promoting growth and prosperity
Open markets: The foundation of our standard of living
Growth and prosperity simply do
not happen overnight. They are the
end products of international trade
and a global exchange of ideas and
know-how. This fact is clearly spelt
out by a recent study conducted by
the Bertelsmann Foundation on
globalisation’s positive impact on
income: From 1990 through 2011,
Germany’s per capita income rose
by €1,240 annually as a result of
the country’s worldwide business
activities. But this was hardly the
study’s only finding. It also determined that, amongst the 42 countries reviewed, average per capita
income climbed in each nation.
Global relations have a clear impact on
people’s pocketbooks and lives – and
this impact extends well beyond
material needs. Rising standards of
living are also closely associated with a
high level of environmental protection
and social services.
Globalisation also powers Germany’s
chemical industry, a sector whose
companies conduct 60 per cent of their
business activities outside the country.
It helps them generate growth, boost
revenues and create jobs. For this reason, the chemical industry has made
trade policies a top political priority.
Particularly in times of slow growth, the
pace of globalisation must be boosted
by taking such steps as lowering customs duties and removing non-tariff
trade barriers. As a result, standards
of living can climb.
GLOBALISATION BOOSTS INCOMES
Average annual gain in per capita income between 1990 and 2011
as a result of increasing globalisation
Source: Bertelsmann Foundation
Germany
€1,240
Greece
€980
France
€800
Portugal
€800
EU average
€700
Great Britain
€160
250
As a way of bolstering the economic
strength of Germany’s chemical industry and of promoting long-term growth
in Europe, the German chemical industry association Verband der Chemischen
Industrie e.V. (VCI) has committed itself
to the following trade-policy postulates:
A
A
Open markets and global standards fuel
long-term growth as well as promote
economic, environmental and social
progress.
A
A
The successful conclusion of the
Transatlantic Trade and Investment
Partnership (TTIP) would represent an
historic opportunity to intensify economic and political relations between
the EU and the United States. It is an
opportunity that must not be ignored.
EXPORTS REMAIN THE KEY DRIVER OF EXPORT GROWTH
Annual GDP growth in Germany in per cent; growth impact
of segments
Sources: VCI, Prognos
+1.3%
Private consumption
Public-sector consumption
Gross spending on
capital equipment
Foreign trade
42.0%
5.8%
14.6%
34.2%
€580
Bulgaria
500
750
1.000
1.250
How much does an individual profit from international economic
integration? On average, every EU citizen has gained €700 annually
since 1990.
2011–2030
Prognos AG projects that exports will remain one of Germany’s
key growth factors through 2030. Rising trade surpluses will
produce more than one-third of economic growth.
You will find this and other political
briefings at www.vci.de/politikbrief
2
Political briefing
September 2014
Strengthening transatlantic ties
Strong partners: New opportunities
The transatlantic partnership faces
major challenges today. And these
challenges have arisen in spite of
the core set of values shared by the
partners on both sides of the Atlantic. Politically, culturally and economically, the EU is more closely
allied with the United States than
any other country in the world.
The job facing us today is to build
on this relationship and to open new
perspectives – by taking such steps
as concluding the Transatlantic
Trade and Investment Partnership
(TTIP).
To the German chemical industry in
particular, the United States represents
many things. It is:
An export market
A
A
The United States ranks with the
Netherlands as its leading international
market. In 2013, German companies
exported products valued at about €15
billion to the United States. The surplus
in transatlantic trade totalled more than
€4 billion.
Production base
A
A
The EU and the United States are the
world’s leading economic powers:
Together, they produce nearly one-half
of the global economy’s output. One of
the driving forces behind this production is dynamic transatlantic trade. The
United States is the key partner outside
Europe for many German industrial sectors.
The United States plays a major role
as an international production site
for the German chemical industry.
German chemical companies employ
about 70,000 people there. The United
States generates 26 per cent of German
subsidiaries’ total production. This is
nearly three times the amount generated in China, the second leading
international production location with
9 per cent.
The importance of the United States as
an export market for the German chemical industry is rising as well. And the
reason for this is easy to see: The economic momentum being generated by
Germany, Europe as a whole and emerging countries is waning. By contrast,
sales generated with the United States
climbed by 5 per cent in 2013.
TTIP could produce even more growth
momentum: Customs duties could be
eliminated, trade barriers removed and
economic growth fuelled. At the same
time, joint product standards could be
developed and serve as global models.
This work would give more weight to the
transatlantic partnership – and would
bring both sides closer together in political terms once again.
Investment target
A
A
As a result of this key role, the United
States is also an important investment
target. About 40 per cent of all investments that German companies make in
capital equipment at their international
business locations flow into the United
States – and the level is rising rapidly.
SHARED STRENGTH: THE PLACE OF THE EU AND THE UNITED STATES IN THE WORLD (2012)
Sources: FERI, Eurostat, VCI
GDP
€25.3 trillion
45%
Industrial Production
€12.4 trillion
36%
Investments
€4.3 trillion
32%
The EU and the United States make
up just 12 per cent of the world’s
population. But, together, they
produce nearly half of global GDP.
Population
820 million
12%
3
Political briefing
September 2014
Underscoring the benefits and opportunities
Yes to TTIP: A long list of reasons for it
Amid the heated public debate,
negotiations being conducted on the
Transatlantic Trade and Investment
Partnership (TTIP) could bog down.
For this reason, the benefits of the
proposed free-trade zone must be
underscored.
Sparking demand
A
A
The German chemical industry believes
TTIP would create a tremendous number of
opportunities to stimulate growth and raise
standards of living:
Eliminating customs duties
A
A
The maximum customs duty applied to
chemical exports to the United States
is zero, 5.5 per cent or 6.5 per cent,
depending on the product group
involved. Each year, the German
chemical industry pays about €140
million in customs duties to the United
States. TTIP could eliminate these
payments and create more freedom for
companies to make further investments
in innovations and long-term growth.
Reducing non-tariff trade barriers
A
A
The European Commission estimates
that up to 10 times more money could
be saved if non-tariff trade barriers
were removed. Key issues here include
standardisation of regulations, mutual
recognition of standards and the
elimination of redundant work.
The Ecorys research institute was
asked by the European Commission
to determine the impact of TTIP and
based its research on the premise that
non-tariff trade barriers would be cut
in half. The chemical industry considers
this assumption to be very optimistic
over the short run. Nonetheless, TTIP
has tremendous potential even when
conservative assumptions are applied.
Opening the U.S. energy market
TTIP would stimulate growth on both
sides of the Atlantic. For Europe, the
European Commission projects that
more than €120 billion would be added
to GDP growth and that 400,000 new
jobs would be created. In their role as
the “industry for industry”, chemical
companies stand to gain in particular
from this economic surge. For its part,
VCI expects that chemical companies
will generate additional growth of €600
million. Experience has shown that 70
per cent of this will flow into new jobs
and salaries.
A
A
Energy exports from the United States
require government approval. But such
authorisation is issued on a very
restrictive basis. TTIP could eliminate
this authorisation requirement. As a
result, the EU could gain better access
to affordable energy sources. In light
of Germany’s dependence on Russian
natural gas, this factor should not be
underestimated.
Simplifying rules of origin
A
A
As a condition for granting exemptions
from customs duties, rules of origin
determine whether a product was
actually produced in a particular
country. Verifying this is an extremely
time-consuming procedure. TTIP would
create an opportunity to reach an
agreement on simple rules of origin and
eliminate unnecessary red tape. A joint
transatlantic approach could also serve
as a blueprint for WTO regulations.
TTIP is not a means unto itself
Free trade is a really effective way to
generate growth. Citizens, too, stand
to gain from the positive impact of
trade liberalisation – including new
job opportunities, lower prices and
a larger variety of better quality
products.
MORE JOBS AND PROSPERITY THANKS TO TTIP
Macroeconomic effects for the EU
Source: Ecorys, commissioned by the European Commission
+€120 billion
+€70 billion
+400,000
Gross domestic product
Annual income
Jobs
(=0.7%)
(€500 per
household)
4
Political briefing
September 2014
Eliminating misunderstandings
Controversy: A call for more objectivity
In the past, the job of negotiating
free-trade agreements has been left
up to experts. But this is not the
case for the Transatlantic Trade
and Investment Partnership (TTIP):
Groups from all parts of society are
speaking up like never before. The
chemical industry expressly welcomes this debate. Nonetheless,
some TTIP opponents are using the
debate to play on people’s fears –
and occasionally make assertions
that do not stand up to scrutiny.
Will TTIP undermine European
law-making practices?
A
A
Given the far-reaching nature of the
free-trade agreement, the chemical
industry is determined to bring more
objectivity to the discussion:
Will TTIP introduce ”unhealthful
chlorine chicken“ and ”hormone
beef“ into the EU?
Meat producers in the United States use
chlorinated water to disinfect slaughtered chickens. Cattle may also receive
hormone treatments in the United
States. The EU has imposed an import
ban on this beef. The United States
maintains that this ban violates WTO
regulations. Nonetheless, the United
States has accepted a compromise that
would allow the EU to maintain the ban.
Such successes demonstrate that the
EU is quite capable of solving controversial trade issues with the United States.
No such agreement has been reached
for chicken treated with chlorine – a
practice that the German Institute for
Risk Assessment considers to be safe.
The chemical industry has confidence
in the European Commission’s negotiating skills – in regard to this sensitive
issue as well.
TTIP would change nothing about EU
law-making practices. The European
Commission would continue to be the
only authority that submits proposed
laws. The European Parliament and the
Council of Ministers would continue to
make decisions about these proposals.
Under TTIP, the only change would be
that the European Commission and the
U.S. government would consult on a
matter in advance. These discussions
would enable trade barriers to be
eliminated at an early stage and
prevent unnecessary redundant work.
Any agreements reached during these
consultations would have a binding
effect on the subsequent law-making
process.
Will only big industry profit
from TTIP?
A
A
The agreement would produce a
number of social benefits: Improved
assignment of responsibilities between
the EU and the United States would
create greater product variety and
quality, lead to lower prices as a result
of more efficient production operations
and offer new job opportunities to
people on both sides of the Atlantic.
Would TTIP weaken the REACH
chemical regulation?
A
A
The German chemical industry is a
supporter of REACH and the high level
of protection that it offers to the environment and society as a whole. It will
implement REACH on schedule and in
a comprehensive manner. Furthermore,
the differences between the U.S. Toxic
Substance Control Act (TSCA) and
REACH are so significant that mutual
recognition and, thus, the feared
lowering of standards is unthinkable.
Are TTIP negotiations sufficiently
transparent?
A
A
During all types of negotiations –
between possible coalition partners,
companies considering a merger or
”wings“ of an organisation – each side
expects to have a minimum level of
confidentiality. Anything else would
significantly hurt that side’s particular
position. For this reason, total transparency cannot be created. This, too, is the
case with TTIP. One point should be
noted, though: The European Commission has never before provided citizens
with such a comprehensive amount of
information. It has also initiated a public
consultation process to address the
investment protection issue that has
become a target for criticism.
As a rule, TTIP would benefit all European companies that export goods to
the United States. In particular, small
and medium-sized enterprises would
profit from the planned reduction in red
tape and relaxed regulations in such
areas as certifications and product
testing. Current regulations create a
very high barrier for small companies
in particular.
Will TTIP hurt developing countries?
A
A
In principle, imports from third countries
may be supplanted by the imports of
the transatlantic partners. This could
also affect developing countries. But
they would retain their privileged
market access even after TTIP was
introduced, and the most destitute
countries would continue to import all
products duty free into the EU. There
is a much broader issue to consider as
well: TTIP would spur the economy and
trade around the world – developing
countries would profit from this stimulus
as well.
VCI has put together a comprehensive Q&A brochure that addresses
these and other controversial issues
related to TTIP:
http://bit.ly/TTIP-FAQ-Chemie
5
Political briefing
September 2014
Reducing non-tariff trade barriers
Collaboration: Improving together
The primary aim of traditional
free-trade agreements is to reduce
customs duties. The Transatlantic
Trade and Investment Partnership
(TTIP) would go one important step
further: It would expand its scope
to include other trade barriers.
A European Commission study notes
that the savings potential of this
particular area is 10 times higher
than it is for reduced duties alone.
Such savings could be achieved by
harmonising rules, mutually recognising standards and avoiding
redundant work.
Three proposals by the chemical industry show the areas where improved
regulatory collaboration is possible:
Classification and labelling of fabrics
A
A
In this area, the United Nations’ Globally
Harmonized System (GHS) has already
been devised. But it is being implemented at very different speeds by
countries. Proposal: In future, a particular fabric should contain the same
warning labels and symbols everywhere.
As a result, it would no longer have be
repacked or relabelled – this is a change
that would improve safety and lower
costs.
Pharmaceutical inspections
A
A
Both U.S. and European drug officials
regularly conduct quality inspections
at companies. The guidelines for these
inspections were drawn up on the
OECD level. But each agency does
not recognise the results of the other
agency’s inspection. TTIP could put an
end to many unnecessary duplicate
inspections.
Product tests
A
A
Pesticide and biocide regulations
differ on both sides of the Atlantic.
As a result, chemical companies are
forced to regularly conduct duplicate
tests to prove that their products are
safe to use. Through the use of similar
test requirements and mutual recognition of results, redundant work that
creates not a single extra layer of safety
could be eliminated.
NON-TARIFF BARRIERS ARE
THE BIGGEST HURDLE
An overview of trade barriers
between two countries
Source: Graphic by the ifo Institute
for Economic Research
Customs duties
Trade policy measures
(excluding customs duties)
Other political areas that affect trade:
e.g. financial policies, security
policies, environmental policies
Natural barriers like geographic
distance and languages
In addition, TTIP would create an opportunity for more collaboration in future.
Under one plan, the EU and the United
States would work more closely together
on regulatory issues and consult with
the ”other side“ at an early stage when
legislation is being drafted. At the same
time, each country would retain its full
sovereignty.
One point is clear: Every form of collab­
oration should produce the maximum
level of protection. Harmonisation
should never become a means unto
itself. Chemical regulations are a good
example of this: In this area, the differences between the EU and the United
States are so great that mutual recognition is neither reasonable nor practicable over the short term.
Customs duties make up only a
relatively small share of total trade
costs. Non-tariff barriers have a much
bigger impact. And these barriers are
largely political animals.
Total trade
costs
6
Political briefing
September 2014
Reforming the rules of the game
Investment protection: Fair regulations for all
Investments power technical progress and growth. To operate in
both domestic and international
markets, companies need legal
protection. And the reason is obvious: They are unwilling to invest
millions and millions of euros in
markets far from home if they have
to live under a cloud of potential
expropriation or nationalisation.
As a result, investment protection
treaties become a top priority – this
is also the case with the Transatlantic Trade and Investment Partnership (TTIP).
VCI has submitted a number of proposals designed to ensure that all interests
are thoroughly considered:
Preserving national sovereignty
A
A
To maintain countries’ political authority,
it must be assured that amendments to
laws are no longer hastily dismissed as
Permitting appeals
”confiscatory intervention“. Investors
A
A Rulings issued by the court of arbitshould be entitled to damages only in
r­ation in cases involving investment
exceptional cases, including instances of
protection partners have been concluarbitrary intervention. A model could be
sive and binding. An appeals process
Article XX the General Agreement on
like the one used by the WTO for years
Tariffs and Trade (GATT). This agreeshould be introduced here as well.
ment allows government intervention
Highly respected international law
aimed at protecting the environment,
experts should serve on this appellate
health and consumers.
level.
Around 3,000 investment protection
treaties are in effect around the world.
These treaties are usually concluded on Creating greater transparency
a bilateral basis and address such issues AA The general public has a great interest
as discrimination bans, market-access
in the court-of-arbitration process. This
regulations and rights to file legal chalprocess should be much more translenges. If an investor believes that his
parent than before. This requirement
should apply in particular to the selecor her rights guaranteed by an intertion of the judges – in part to prevent
national treaty are being violated, the
possible conflicts of interest in the
individual may file a challenge with an
beginning – as well as to the release
investor-state court of arbitration. Invesof documents and access to hearings.
tor protection is to be incorporated into
TTIP, even though the EU and the United
States have well-developed legal sysMore clearly defining
tems. Such cases would involve intercentral principles
national law instead of national law.
A
A The investment protection treaties
include principles that leave a great
deal of room open for interpretation.
As direct international investments have
risen, the number of investment protection treaties has increased sharply
around the world. In 2012, this figure
amounted to 3,200. With a total of 131,
Germany has the most bilateral treaties
of all countries.
Preventing a wave of lawsuits
A
A
Critics maintain that companies could
file unjustified legal challenges against
countries and exercise political pressure. To prevent this from occurring,
a number of steps should be taken,
including the requirement that the
losing side pay court costs.
TTIP would offer a unique opportunity
to introduce a binding reform of the
process of investor-state courts of
arbitration. This opportunity must be
seized. The reform could also set a
precedent for other investment treaties.
INTERNATIONAL INVESTOR PROTECTION IS BECOMING
INCREASINGLY IMPORTANT
Number of investment treaties worldwide
Sources: UNCTAD, Federation of German Industries (BDI)
3,500
3,000
2,500
Read about “The
Impact of InvestorState Dispute Settlement (ISDS) in the
TTIP” by Professor
Christian Tietje of
the University of
Halle-Wittenberg.
One such principle is the requirement
regarding “fair and appropriate treatment” of international investors. This
requirement could and should be
composed in more clear and specific
terms.
2,000
1,500
1,000
500
§ § § § § § § § § § § § § § § § § § § § §
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§ § § § § § § § § § § § § § § § § § § § §
§ § § § § § § § § § § § § § § § § § § § §
Number
1980
§
1985
1990
1995
2000
2005
2010
7
Political briefing
June 2014
The big picture
Transatlantic chemical trade1
EU 28 – UNITED STATES
A
A
Chemical exports EU à United States
Share of total exports to the United States
Share of EU chemical exports2
A
A
Chemical imports of the EU ß United States
Share of total imports from the United States
Share of EU chemical exports2
A
A
EU chemical trade total with the United States
A
A
Chemical trade duties EU à United States per year
€58.9 billion
20.4%
8.7%
€42.6 billion
21.7%
7.3%
€16.3 billion
€700 million
GERMANY – UNITED STATES
A
A
Chemical exports Germany à United States
Share of total exports to the United States
Share of chemical exports from Germany
A
A
Chemical imports Germany ß United States
Share of total imports from the United States
Share of chemical imports to Germany
A
A
German chemical trade balance with the United States
A
A
Volume of German chemical industry’s direct investments in the United States, 2012
A
A
Number of German chemical subsidiaries in the United States, 2012
A
A
Sales of German chemical subsidiaries in the United States, 2012
A
A
Workforce of German chemical subsidiaries in the United States, 2012
A
A
Capital expenditures of German chemical companies in the United States, 2012
A
A
Volume of U.S. direct investments in the German chemical industry, 2012
A
A
Chemical trade duties Germany à United States per year
1
Data are based on tentative results for 2013 (unless stated otherwise)
2
Including intra-EU exports and intra-EU imports
€14.6 billion
16.5%
9.1%
€10.6 billion
21.8%
10.0%
€4.0 billion
€13.9 billion
132
€49.7 billion
69,000
€2.3 billion
€3.6 billion
€140 million
Sources: Eurostat, Destatis, Deutsche Bundesbank, VCI
8
Political briefing
September 2014
Key figures
The chemical industry in numbers
Two heavyweights in international trade
important product group for imports
and exports from and to the United
States, respectively – even ahead of
cars.
Together, the EU and the United States
dominate global chemical production:
Measured in total revenues, they ranked
second and third behind China in 2012.
The chemical industry also plays an
exceptional role in foreign trade between both regions: In the EU 27, chemical products are the second most
Both sides could profit considerably
from a transatlantic free-trade zone: The
removal of trade barriers and an agree-
CHEMICALS IN THE EU AND THE UNITED STATES:
JOINT LEADERS
Chemical revenues by region, 2012
Sources: Destatis, VCI
ment on uniform standards would create
new sales opportunities for companies,
lower costs by hundreds of millions of
euros and fuel the job market – the
German chemical companies alone
could create around 2,000 new jobs in
their home country.
INTENSE TRANSATLANTIC TRADE
Share in per cent, 2012
Sources: Eurostat, VCI
Exports EU 27 à USA
35.0%
EU 27+United States
28.7%
19.3%
15.7%
11.9%
6.7%
6.1%
EU 27
United States
The rest of America
11.9%
10.5% Minerals
9.4% Electric products
6.7% Minerals
5.7% Metals
3.6% Plastic products
Japan
3.8% Food
5
3.5% Metals
2.9% Plastic products
Korea
1.8% Vegetables
1.5% Textiles
10
15
1.8% Paper
0.9% Paper
1.8% The rest of the World
20
25
30
35
TTIP could create the world’s largest chemical trade zone: In 2012,
the EU and the United States generated total revenues of €1,424
billion with chemical products. This represents a world market
share of 35 per cent.
9
Automobiles
7.1% Electric products
The rest of Asia
2.0% India
%
19.2%
Chemicals
15.8%
Automobiles
25.5%
Machinery
21.5%
Chemicals
4.6% The rest of Europe
3.3%
24.8%
Machinery
China
Imports EU 27 ß USA
%
5
10
1.6% Food
15
20
25
%
5
10
15
20
25
A total of 21.5 per cent of EU 27 exports to the United States
involve chemical products. For imports, the total is just
2.3 percentage points lower. Dynamic transatlantic trade
can also be found in other industries.
Your contacts
Imprint Political briefing
Head of VCI’s Berlin office Norbert Theihs
E-mail [email protected] Phone +49 (0)30 200599-12
Head of VCI’s Europe office Professor Reinhard Quick
E-mail [email protected] Phone +32 (0)2 54806-90
More information www.vci.de/politikbrief and
www.twitter.com/chemieverband
Publisher Verband der Chemischen Industrie e.V. (VCI),
Mainzer Landstraße 55, 60329 Frankfurt, Germany Phone +49 (0)69 2556-0
Editor in chief Manfred Ritz Staff writer Jenni Glaser
Information as of 10 September 2014 Partner agency www.GDE.de; Jens Köster
Printed on paper from sustainable forestry.