EU circular economy risks overregulating – Spanish chem group

Interview article by Jonathan Lopez

LONDON (ICIS)–The European Commission’s plans to create a ‘circular economy’ risks adding even more regulation into EU chemical producers’ legal framework causing a further loss of competitiveness against overseas peers, the director general at the Spanish chemical trade group said on Monday.

Juan Antonio Labat, director general at the Federacion Empresarial de la Industria Quimica Espanola (FEIQUE), added the EU should deny China market economy status because the country does not “fulfil any of the conditions” required to have full access to the free trade arrangements regulating international commerce. The EU is to make its final decision in May.

The Commission presented in December 2015 plans for a “circular economy” by reducing waste and boosting recycling, creating a “win-win situation” for consumers and manufacturers with savings of €600bn for EU businesses, the creation of 580,000 jobs and reduction of carbon emissions by 450m tonnes/year.

“The circular economy, a good idea in principle for the chemical industry, will be converted by the Commission in an aggressive legislative push which risks converting the whole attempt for less waste and more recycling in a handicap for manufacturers,” said FEIQUE’s Juan Antonio Labat.

“The European Commission continues being absent from the industrial reality of the EU. Within the chemical industry, we already face overregulation which according to the Commission’s own estimates cost us between 12.5% and 13% of our revenue.”

Labat was referring to an internal report to be published later this month in which the EU will outline the cost of regulation for the chemical industry, as the issue has been a constant complaint from different chemical trade groups in the EU.

By facing the largest and most strident regulation in the world regarding chemicals, Labat said European companies need capital expenditure (capex) not matched by competitors overseas.

FEIQUE said the Spanish chemical industry had registered in 2015 sales of €58bn. All indicators pointed to Spain’s chemicals industry being an exception in the eurozone where output had been either stagnant or growing at weak levels.

Labat said out of the €58bn in sales during the year, between €1.5bn and €1.8bn would have been spent in complying with EU regulation.

“In a European level [for European chemical groups as a whole], we calculate that would be around 10 times more. Around €18bn spent in adapting and complying with the regulation,” he said.

“The eurozone needs an industrial impulse – for that, European manufacturers need regulations which are in line with other competitors’ regions. Regulation should be done thinking in global levels, and not just putting more and more costs on local producers. Otherwise, we risk those producers shifting production – and jobs – to the US or China.”

Although critical with many of the decisions taken from the EU and its lawmakers, Labat and the trade group he represents are fully behind the likely recommendation from the Commission not to grant status of market economy to China.

Citing a report from the European Union Chamber of Commerce in China, Labat said many industrial sectors in China (with steel as the flagship product) are producing well over 100% of the world’s consumption and flooding the markets with cheap exports.

The EU is set to announce in May whether it will grant China the market economy status it needs to trade in many industrial sectors. However, the mood in Europe is not towards total free trade with a country where the market rules are not set by the economy itself, but by the government.

“I think China does not fulfil any of the conditions to be declared a free market economy. It’s a 100% planned economy, where prices don’t change according to the markets but to the political decisions taken in Beijing. Granting market economy status to China would damage Europe as a whole and I think everyone in Europe is, this time, on this side of the argument,” said Labat.

The FEIQUE executive said the Spanish hung parliament, formed as a result of the general election on 20 December, is not affecting chemicals yet but other sectors, those dependant on public spending, are starting to feel the pinch.

Nevertheless, the previous government passed a last-minute 2016 budget in November 2015 which is now allowing the country to continue running without much fuss, said Labat.

“Expenditure in public infrastructure and in general all state expenditure was set in the budget approved in November 2015, hence we could say the economy is also in an interim state. What we need to secure as a chemical industry is that the next government listens to our concerns on electricity costs, which are the main burden for us,” added Labat.

However, negotiations to form a government have yet to succeed. Were the different political parties unable to agree on an executive, Spain would hold another general election on 26 June, despite predictions by pollsters of practically the same result than in the previous elections.