German Chemical Producers See TTIP as a “Political Chance”

Industry Association Forecasts 2% Rise in Production This Year

21.07.2014 -

The German chemical industry has come out squarely in favor of the controversial US-European trade agreement Transatlantic Trade and Investment Partnership (TTIP).

While many across Germany and Europe, in particular consumers and trade unions, are skeptical of the agreement, with some even calling some of its provisions “an affront to democracy,” Dr. Karl-Ludwig Kley, president of the German chemical industry association VCI (and CEO of Merck KGaA), said European chemical companies believe TTIP could bring noticeable impulses for the economy, in particular tariff reduction, reduction of non-tariff trade barriers, and stimulation of the overall economy. 

At the same time, however, he emphasized that “there can and must be no compromise to lower the protection standards.”

Regulatory cooperation with a long-term approach would be the decisive advantage and a basis for lasting impulses for the chemical industry, Kley believes. “This is where TTIP could bring entirely new perspectives. It would be desirable to establish a permanent process where the possibilities are explored for an approximation of rules and regulations in the medium to long run,” he said.

According to the VCI’s own calculation, the German chemical industry would clearly benefit from TTIP. Potential effects for the industry would be 2,000 new jobs, a production plus of €2 billion, and additional value creation of €600 million. Kley said experience shows, that the greatest benefits would be seen by the workforce, with 70% of the additional value creation chalked up to jobs against a 30% gain for company profits.

Although US trade tariffs are already low – for chemicals ranging from zero to 6.5% – “even low tariffs cause high costs,” the VCI president noted. In 2010, the association calculates that German chemical exporters paid €140 million to the US – “unnecessary costs that could be used for really meaningful investment.”

So-called non-tariff trade barriers are a much more important perspective, according to Kley. A study by research group Ecorys, he said, has calculated savings potential up to ten times higher than for tariffs. As one example, he mentioned the classification and labeling of substances. If substances were labelled with the same warnings and symbols on both sides of the Atlantic, repacking and relabeling would be no longer necessary.

Another advantage of TTIP in VCI’s view would be a stimulation of the overall economy. As an “industry for industry”, this would benefit chemistry in particular,” Kley remarked.

According to the Ecorys analysis, the German chemical industry would rank among the winners of an ambitious free trade agreement – irrespective of the shale gas boom. Although “US companies are clearly at an advantage where energy-intensive productions are concerned,” VCI points out that US companies supply their basic chemicals mostly to emerging markets while German chemical businesses export mainly specialties and pharmaceuticals to the strongly growing US market. 

“If tariffs and bureaucracy and regulatory costs could be lowered, TTIP would strengthen our competitiveness in specialty chemistry – also vis-à-vis third countries,” said Kley.

Along with the Netherlands, the US is the most important foreign market for the German chemical industry. It exports goods worth around €15 billion to the country and generates a trade surplus of over €4 billion. Roughly 40 % of all German chemical investment in foreign fixed assets to the US, and the trend is upward,” Kley said.

German Chemical Industry Pleased With H1 2014
Germany’s chemical producers have expressed satisfaction with their business progress in the first half of 2014. Production increased by 3% averaged across the portfolio, while sales rose 2%, despite a decline in prices by the same proportion.

For full year 2014, VCI president Kley said the association is upholding its forecast of a 2% rise in production. With prices expected to deteriorate by only 0.5%, a 1.5% improvement in sales to around €193 billion is forecast.

In this year’s first half year, business with both domestic and foreign customers for German-made chemicals improved, VCI said. Domestic sales increased “dynamically,” adding 3.5% to reach €40 billion. By contrast, the industry’s foreign sales gained only 1% to €58 billion. Due to the strong industrial economy, imports of chemicals into Germany also increased, by 4%.

Production capacities were utilized to around 85% from January to June 2014. Most product segments saw improvement, with pharmaceuticals gaining 7%, fine and specialty chemicals adding 6% and consumer chemicals 2.5%. Petrochemicals squeaked by with a 0.5% rise. Polymer producers found themselves on the minus side with a decline of 1.5%, while inorganic base chemicals sales took a dip of 3.5%.

The German chemical industry’s sales to European customers improved by 3% in the first half, but the dynamics of business with customers in NAFTA were stronger, VCI said. Thanks in particular to the strong recovery of the US economy, sales to the region picked up by 5%. Especially good demand was seen for pharmaceuticals and specialty chemicals.

By contrast, business with Asia was weaker than expected, with sales increasing only 0.5%. South America led chemical business’s the negative list, with a 10.5% slide, followed by Africa with a 3.5% setback.

Explaining the reasons for German chemical producers’ confidence, Kley pointed in particular to the country’s strong industrial economy. Along with Germany’s continued success as an export nation, he said the domestic economy is also “becoming increasingly robust.” 

Elsewhere, Kley said, signs are exceedingly appearing that the European economy has stabilized. Here, producers believe business is likely to show improvement in 2014, even if the region as a whole is not showing much dynamism.

For the full year 2014, VCI is sticking by its earlier forecast of 2% growth in production and a rise in 1.5% in total sales to €193 million on the basis of 0.5% lower selling prices.