Trade Policy and Free Trade Agreements

Background: the importance of trade policy

A provider of 1.2 million of direct jobs and supplier of virtually all key value chains, the European chemical industry is of strategic importance to the EU economy.

At the same time, the EU27 chemical sector is a key global player. With €594 billion of sales (2021), it is the second largest chemicals producer in the world; 33% of its production is sold outside the EU27 (2021), and data on 2021 shows a strong increase in both exports and import.

As one of the most globalized and an export-oriented EU industrial sectors, the importance of the EU’s trade policy for the European chemical industry can hardly be overestimated. The European chemical sector is a strong supporter of free, fair and sustainable trade.

Trading chemicals around the world stimulates competition, provides incentive to develop new markets through innovation and stimulates production efficiency. However, the multitude of crisis that has hit the sector over the last years, from the value-chain disruption caused by the Covid-19 pandemic to the war in Ukraine and the subsequent energy crisis, has exposed the European Chemicals Industry’s vulnerability. This is affecting its ability to compete. As a result, EU chemicals exports saw a significant decline in 2022.

Free international trade underpinned by a global rules-based trading system can help the sector overcome these challenges and expand its competitive advantage. In particular, Free Trade Agreements (FTAs) are an important policy instrument to mitigate risks and increase market access.

Other important areas related to trade policy are sanctions, tariff suspensions and quotas, trade controls and customs policy.

Free Trade Agreements (FTAs)

In an increasingly volatile and ambiguous world, marked by several crises, the competitiveness of Europe’s industrial base and of the European chemical sector is at risk. High energy prices, dependencies on the supply of critical raw materials and feedstock, an ageing society and declining market shares: these are just some of the challenges that the European chemical industry is currently facing.

In this challenging landscape, free, fair and sustainable trade is key for our industry to leverage its strengths. And Free Trade Agreements (FTAs) are an essential tool to unlock this potential. Through FTAs, Europe can reduce its structural disadvantages via diversification of supply, while securing access to global  growth markets for Europe’s world class products.

To fully support the competitiveness of the European Chemical Sector, Cefic has identified five key recommendations for an effective trade policy:

1. Conclude and ratify FTAs with key trading partners, notably, the USA, Mercosur, India, ASEAN and Africa, and pursue further market opening with China.
   
2. Strong focus on reducing non-tariff barriers: while tariff barriers have decreased, non-tariff barriers create severe disadvantages for European companies in FTAs partners’ markets and beyond. Reducing non-tariff barriers is key for European companies’ access these markets.
   
3. Add in all FTAs a dedicated annex for regulatory cooperation on chemicals.
   
4. Make the Trade and Sustainable development chapter more business conducive and include the implementation of UN Globally Harmonized System of Classification and Labelling of Chemicals (GHS) in the scope.
   
5. Add in all FTAs a dedicated Energy and Raw Material chapter aiming to grant the EU preferential access to key raw materials and energy carriers (e.g. hydrogen).