RESEARCH AND ANALYSIS

Competitive distortions in the access to raw materials for the European chemical industry

René van Sloten, Executive Director Industrial Policy, European Chemical Industry Council

150pxls.gif (76 bytes)
Feedback


The issue of fair and secure access to natural resources is of pivotal interest for the European chemical industry as it is highly dependent on access to raw materials and sensitive to artificial distortions in their pricing. Europe itself is relatively poor in natural resources, so most of the required materials are imported from other parts of the world and processed in Europe. Here the value chain is extended and base chemicals are often further processed to high-end products. This development happened to a large extent because of the highly developed technology and skilled labour force, which Europe can pride itself on. This was also possible due to the EU approach concerning key traditional raw materials for the industry. Within the framework of trade policy, the European chemical industry enjoys access to key raw materials at zero or low import duties (e.g. for oil and naphtha). A key step in this process was the achievement of the Chemical Tariff Harmonisation Agreement in the Uruguay Round which brought about a substantial reduction of import duties on chemicals. Although this reduction entailed also lower import duties for processed chemicals, these were more than offset by the gains of tariff reductions on key input chemicals. This approach was crucial for the success of Europe’s chemical industry as feedstock can make up to 60% of the cost and this model has proven its value for all countries which adopted the CTHA when acceding to the WTO.

Prior to the outbreak of the economic and financial crisis in 2008, there was a sharp increase in demand for industrial goods, so also for raw materials. Although the overheated situation on raw materials market in 2008 has temporarily disappeared owing to the downturn, the issue of access to raw materials remains highly important for European industry. This is because our concerns not only relate to prices but also to availability and relative prices. These factors determine our competitiveness. And of course the pressures will mount again as soon as economic activity starts gearing up again. Longer term, the pressure on raw materials will increase. Therefore, we will need to use raw materials in a much more sustainable manner as the present pattern of exploitation and consumption can simply not be maintained in a world of 8-9 billion people! Our production process, feedstock use, consumption patterns will need to radically change to ensure sustainable development. The chemical industry plays a key role in searching solutions to these challenges.

A worrying trend is that countries that are rich in resources increasingly introduce discriminatory practices which limit availability of their raw materials to other markets in order to support their domestic downstream industries. In some cases a clear long term industrial policy strategy underlies such moves, starting with the establishment of a dominant national champion followed by the dumping of raw materials in order to drive mines elsewhere in the world out of business and succeeded by restrictions on the export of such materials. Such a policy not only hits Europe or other OECD countries, but is especially detrimental for developing countries as well. Production of derivatives from these raw materials in the same third countries is not always accompanied by high environmental standards. Taking a global perspective, such a raw materials management is detrimental for the environment, leads to economic inefficiencies and distorted investment decisions.

The European chemical industry is particularly and increasingly hit by practices such as double pricing, export restrictions and export taxes, e.g. for ethylene feedstock, gas, palm oil, key minerals, etc. The chemical industry does not contest the right of countries to decide on the exploitation of their natural resources. We also agree that restrictions may be necessary for environmental reasons. WTO rules provide safeguards for that, and in fact this is the only governance we have. We don’t deny other countries’ right to develop. In fact that development is needed and welcome, as it creates markets for our products. What we cannot accept is that countries subsidize their downstream industry by artificially increasing the price on world markets for their competitors. We cannot let viable and European companies meeting the highest environmental standards go under because they face unfair competition with regards to the cost of raw materials or even because of lack of raw materials, especially not at the present times of economic crisis when employment is already under heavy pressure. Such beggar-thy-neighbour policies ultimately will backfire as other countries may seek redress in anti-dumping measures to offset the artificial distortion of raw material prices.

Cefic therefore wholeheartedly supports the European Commission’s proposal in the Doha Round to improve governance with regard to export taxes and export restrictions and regrets that hitherto there has not been sufficient willingness among WTO members to negotiate this issue in the Doha round. In the context of the Doha-Round, further tariff reductions on renewable raw materials for industrial use should be considered.

Agricultural policies designed to promote fuel or energy use of raw materials (e.g. animal fats) or high import duties on renewable feedstock can equally impede increased use of renewable feedstock in the chemical industry. However, we recognise that issue is complicated by a number of often conflicting objectives. There is the obvious conflict between food, fuel and feedstock. Environmental and social aspects also need to be taken into account.

In summary, free and undistorted access to raw materials is key for our industry. Any distortions in pricing and access to feedstock have a direct adverse impact on the competitiveness of our sector, given that feedstock can make up a huge part of the production costs. We thus call for stronger global governance under the aegis of the WTO.

 

Feedback  back to top

Please let us know your views on the submitted articles. Your comments may take a few minutes to be displayed on the page. Accented characters may not display correctly. By participating in this forum you are deemed to have accepted the Rules for participation in WTO on-line forums.

 


> Guide to downloading files