We Must Unshackle European Industry

We Must Unshackle European Industry

The idea behind the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the European Union and the United States is that both sides should benefit. Yet, for this to happen we need not only tough negotiations with the Americans, but also a change in thinking about EU regulations that block or hamper the competitiveness of European companies.

Many myths have gathered around the TTIP, which aims to create a free trade area between the European Union and the United States. Some see this agreement as a remedy for Europe’s economic woes, whilst others are skeptical. The pace of economic recovery on the Old Continent is still slow and the effects of the crisis—including high unemployment, a record level of debt, and slow GDP growth - remain strongly felt. Establishing what would be the world’s largest free trade area could change all this by fostering economic growth and creating new jobs.

Level playing field on a single market

It is almost certain that new jobs will be created due to the TTIP. This is evidenced by most big agreements that have laid the foundations for free trade areas in the past. History shows, that, depending on various factors, new jobs can be created either fairly evenly for all interested parties (such was the case with the European Economic Community, the predecessor of the European Union) or for one party at the expense of another (as exemplified by what happened in the United States and Mexico after the signing of the North American Free Trade Agreement, or NAFTA). Which scenario will prevail in this case? This is difficult to predict, although there are more and more indications that the TTIP will expose all the weaknesses of EU environmental regulations blocking the competitiveness of European industry.

[Tweet "it is necessary to ensure a ‘level playing field’ for all market players"]To make sure that the single market resulting from the TTIP functions smoothly, it is necessary to ensure a ‘level playing field’ for all market players. In part, this is the job of the negotiators. However, the underlying problem is that doing business in the United States is a lot easier than in Europe, especially in energy-intensive industries. These differences cannot be eliminated through negotiations, because it is difficult to expect the U.S. administration to be less friendly to domestic businesses and foreign investors creating new jobs in the United States. Abolishing barriers in trade with the most powerful and most competitive economy in the world will put many European companies at a disadvantage with regard to their American competitors.

A huge advantage for the U.S.

This problem is primarily related to the energy sector and energy-intensive industries, where the situation in Europe and the United States is dramatically different. These differences were well illustrated by what President Barack Obama publicly stated less than eighteen months ago. Visiting a steel mill in Cleveland, Obama likened the situation of that plant to what happens in similar plants abroad. The President highlighted the simple fact that if the steel mill were located in Germany or Japan, its energy costs would be twice or even three times higher. This gives the Americans a huge competitive advantage. As Obama noted, thanks to low energy costs, companies operating in the United States are more competitive and can thus create new jobs.

What should be done to reduce the disparities that Obama spoke so openly about ahead of the abolition of customs barriers and the establishment of a free trade area between the European Union and the United States? Let’s start with the ongoing negotiations, in which the key issue should not be whether to introduce uniform technical standards, but above all, open up the American raw material market to importers from Europe. Today, this market is fully open in the case of coal, which is subject to a zero custom duty in the EU. Our European companies have no access to U.S. oil and gas. Why is this so important? One clear reason is that the policy of protecting the domestic market has led to, not only an unusually rapid development of the U.S. chemical industry in recent years, but also to stagnation in this sector on the other side of the Atlantic. Large European companies, with access to cheap energy and raw materials in the United States, prefer to invest in the States than on the EU market. As a result, every other dollar invested in the U.S. chemical industry comes from the European Union.

Uneven burdens

[Tweet "In the face of U.S. protectionist policies, the European chemical industry is saved by EU duty rates"]In the face of U.S. protectionist policies, the European chemical industry is saved by EU duty rates, which currently stand at 6.5 percent for many chemical products. This creates the effect of a balance, though, of course, it does not provide the necessary impetus for the development of the industry. If, in the course of the negotiations, the EU fails to secure the same level of access to U.S. raw materials as American companies enjoy, abolishing these rates will, in effect, completely weaken the competitive position of our chemical companies. Equally important is the transition period (of up to 10 years) proposed by Central Europe Energy Partners (CEEP), as well as special clauses enabling the re-introduction of existing rates. Opening up the U.S. raw material market to exports does not mean that prices on both sides of the Atlantic will immediately become equal. An immediate abolition of customs duties, without protective clauses, could mean that hundreds of thousands of new jobs will indeed be created by the TTIP - it’s just that these jobs will be on the other side of the pond, but not in the EU.

The lower energy prices in the United States are largely the consequence, too, of both access to cheap raw materials, significantly lower taxes, and milder environmental regulations in that country. A standout example can be witnessed with the regulations on carbon dioxide emissions. In the United States, these regulations are significantly softer. In per capita terms, U.S. companies emit more than twice the amount of CO2 that their counterparts in Europe do. An additional challenge in the EU is the need to reduce CO2 emissions by 2030 by 40%. Although the United States has made a significant effort to reduce carbon dioxide emissions in recent years, the vast gulf in emissions between the two continents, means that U.S. companies remain far more competitive in this respect than European businesses.

A change in thinking about EU regulations

The possibility of entering a specific industry on the ‘carbon leakage’ list is a safety valve for energy-intensive businesses in the EU. This list is intended to prevent the ‘flight’ of strategic sectors - from the point of view of economic development and new job creation - outside the European Union. As a consequence, selected industries such as refineries, chemicals (including fertilisers) and steel are exempt from the restrictive CO2 rules. To be able to compete with American industry on the common market, these industries need to be ensured a free allocation of CO2 which fully meets their needs. Companies in the sector that apply best available techniques (BAT) should also be eligible for special treatment. BAT is an objective indicator of the innovativeness of technology used to eliminate CO2 emissions and other pollutants.

[Tweet "the European Union has the tools enabling European industry to strengthen its competitive position"]It is thus evident that, despite the overall direction in which EU regulations are headed, the European Union has the tools enabling European industry to strengthen its competitive position. This is important, because in the course of the debate about the TTIP, we are mainly hearing voices calling for tough negotiations with our American partners. These negotiations are necessary, especially when it comes to access to the U.S. market for raw materials, which is blocked today. Nevertheless, a lot more needs to be done on home turf, within the European Union. Without a change in thinking about the EU regulations that block the competitiveness of European industry, even the most skillfully negotiated agreement will not give us the strength to face the world’s most powerful economy within a common market.

Marcin Bodio Central Europe Energy Partners