Cefic’s TTIP position favours chem majors, SMEs at risk

Focus article by Jonathan Lopez

LONDON (ICIS)–The European Chemical Industry Council (Cefic) is favouring the interests of major chemicals in the negotiations between the EU and the US to sign a free trade deal but leaving behind those of small and medium enterprises (SMEs), a source at a European company said this week.  

Chemicals are a key topic for discussion in the Transatlantic Trade and Investment Partnership (TTIP) free trade deal as many European chemical producers fear the lifting of tariffs between the US and the EU will hurt their operations and could put them out of business.  

They argue by opening the European market to US chemical products – produced with cheaper energy costs and less strident regulation – the region will be flooded with more competitive material coming from the US, putting their operations at risk.

While Cefic and other trade groups have had access to the Commission – the EU’s executive body – during the TTIP negotiations, trade unions and political parties at the European Parliament have complained they have hardly received any information.

Cefic has been a strong supporter of TTIP and has claimed it will be a win-win situation both for companies and consumers.

However, the way Cefic is organised means a small number of players – the corporate members (ACOM), a list of 69 companies – set the policy agenda and are the largest financial contributors to the trade group’s financing.

To be an ACOM member, companies should surpass global sales of €1.0bn per year – but not necessarily in Europe – and have at least one production facility in Europe.

According to the company source consulted, the concerns of the “real chemical companies in Europe” lie there.

By setting the agenda, having almost exclusive access to internal Cefic working groups and other bodies that generate Cefic position papers, the balance is always tilted towards the big multinationals with operations in several world’s regions, the source said, adding many ACOM companies are not headquartered in Europe, which would raise the question of whether they do in fact represent a European, or global, point of view.

Under the ABM companies tag there are 434 firms, while 33 chemicals are gathered under the Associated Companies membership. A further 60 companies and associations are listed as Partners.

So far, 596 individual names are on Cefic’s membership list.

“How do they reach the figure of 29,000 companies represented?” the source said.

Technically, the figure could somehow be reached adding up the other two types of membership. On one hand, national trade groups, although Cefic doesn’t disclose figures of members per country; on the other, business federations representing specific chemical sectors or products within the EU, with hundreds of members across the region. All in all, a token presence.

ACOM members setting the agenda, the source went on to say, can afford lifting tariffs in practically all their business lines as they already operate as global companies. Other producers who fear it will mean putting them out of business have had a hard time lobbying the Commission to change priorities in the negotiations for TTIP.

“We managed to pull out through several sources the first Commission’s tariff offer to the US [issued in February 2014, at the start of TTIP negotiations]. Essentially, at Cefic’s insistence, the Commission proposed immediate tariffs reduction in almost every chemical product – around 20 were excluded in a so-called sensitive list,” said the source.

“Cefic’s general trade objective is free trade in chemicals worldwide. Of course, knowing who they are that makes a lot of sense. They [ACOM members] have facilities in China, Brazil, US… they want to have complete freedom to send product anywhere.”

However, several European companies lobbied the Commission individually and successfully achieved modification in a second tariff offer issued by the EU’s executive body in October 2015, broadening the range of products included in the sensitive list.

Among others, some products included in the expanded sensitive list in October were soda ash, ammonia and the plasticizer dioctyl terephthalate (DOTP), “of which US conglomerate Eastman is specifically targeting the EU market with their exports,” said the source.

An important warhorse between US and EU companies could be ammonia, for example, which is produced in great quantities both in Europe and the US but with the latter enjoying lower natural gas prices, making its ammonia more competitive.

On the back of lower natural gas prices, two European chemical majors, BASF and Yara, have built a large-scale ammonia plant in the US in order to tap on the shale gas boom in that country, with views to potentially export some product to Europe later on.

“This issue with ammonia is clear of where the interest of multinationals collides with regional producers. If you are BASF, you can do that and bring back the ammonia, but if you are an SME you don’t have the money to go to the US and build a plant. The end effect is that, to some degree, more expensive EU-produced ammonia will compete on the EU market with the reimported, cheaper, duty-free ammonia produced by EU companies in the US.”

The new director general at Cefic, Marco Mensink, who started his tenure on 1 May, said the trade group is committed to listen to all its members and take into account their views.

“Cefic has a broad membership.  Every member has the opportunity to express their views. As incoming director general one of my first priorities is to reach out to all members, large and small. I will personally visit each national association,” said Mensink.

“What I can only hope is that members continue to use the governance structures instead of giving anonymous quotes to the press.” 

Market players at the European aromatics industry have said they are expectant to see what the TTIP will bring, as information is scarce, but added that after facing competition from Asian players during past years, TTIP could be an additional factor which could make their operations more challenging.

The majority view in the aromatics industry is if the EU ends up opening its chemical markets to US players, without tariffs and with the advantage of a less-strident regulatory burden and lower energy costs, their operations would become very challenging.

So far, three European chemical companies – all of them large chemical producers, two of them ACOM Cefic members – have gone public saying TTIP will be a challenge for European chemicals. Poland’s Grupa Azoty said so already in February 2015, while Austria’s Borealis and Spain’s CEPSA argued the same earlier this month.

Chemical analyst Oliver Schwarz, from Germany-based consultancy Warburg Research, also said the full implementation of TTIP would be a negative for chemical companies, adding the secrecy of the negotiations does not really allow much comment yet.

“My key take away is that TTIP wouldn’t bring a lot of new positives for Europe’s chemicals and for smaller companies it might mean they get more disadvantages on their way than obstacles being removed,” he said.

“We’ll see more products flooding into Europe which were unwanted for several reasons before. In some of them, if tariffs are removed, that might leave small companies out in the cold, and bigger US companies might be able to squash smaller EU firms.”

The analyst went on to say that if the EU levels its chemical regulation with the US’, and not the other way around, it might involve a “a reshuffle to what we achieved in the last couple of years introducing Reach,” the EU chemicals regulation.

“US chemical regulation is not as strict as the EU’s. There is a lot of uncertainty about TTIP – will the EU soften regulations? Will it make, on top of TTIP, another round of negotiations which then will be able to level the playing field again? It’s all very obscure at the moment, and very complex.”

Additional information by Truong Mellor