Transatlantic Project Paper-Chemicals(BASF and 3M)

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    Transatlantic Management Project Berlin School of Economics and Law (HWR) & San Diego State

    University (SDSU) June, 2014

    The Transatlantic Trade and Investment Partnership (TTIP) and the Chemical Industry:

    A Case Study of 3M and BASF

    John Wood - HWR Lars Scholtyssyk - HWR

    Laura Ho - SDSU Sarathy Kalaichelvan - HWR

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    Contents 1. Dimensions of FTA between the EU and US: The Transatlantic Trade and Investment Partnership (TTIP) .................................................................................. 3

    1.1. Existing free trade agreements .................................................................... 3

    1.2. TTIP Outcome U.S. & E.U......................................................................... 5

    1.3. Benefactors of TTIP ..................................................................................... 6

    2. Sector Analysis: TTIP and the Chemicals industry............................................. 7

    2.1. The European Union: No data, no market ................................................ 11

    2.2. The United States: Reform underway ........................................................ 13

    2.3. Global Regulatory Models .......................................................................... 14

    2.3.1 Comparison: U.S. Regulation vs. E.U. Regulation .................................. 14

    2.4. Conclusions: Uncertainties/Barriers to trade for Chemical companies ....... 15

    3. Recommendations from the Sector Analysis ................................................... 16

    4. Case Study ...................................................................................................... 17

    4.1. Products ..................................................................................................... 18

    5. Innovation and Corporate Governance Styles ................................................. 20

    5.1. Speed of technological and commercial innovation: ..................................... 20

    5.2. Corporate Governance in Germany .............................................................. 22

    5.3. Corporate Governance in the United States ................................................. 22

    6. Conclusion: ...................................................................................................... 23

    7. Bibiliography:.................................................................................................... 24

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    1. Dimensions of FTA between the EU and US: The Transatlantic Trade and Investment Partnership (TTIP)

    The proposed transatlantic free trade agreement (TTIP) or the transatlantic Trade and

    Investment Partnership (TTIP) between the United States of America and the European

    Union aims to bring the two economic powerhouses closer together and achieve

    boosted growth and economic vitality after years of slow growth due to the financial

    meltdown of 2008 and the subsequent recession. Although trade between the European

    Union and the United States is in a steady growth trajectory with low tariff barriers to

    trade, the TTIP aims to eliminate barriers, especially the non-tariff barriers (NTB) in

    trade, and bring closer cooperation between the U.S. and the E.U. regulatory bodies

    intellectual property protection.

    1.1. Existing free trade agreements

    Both the E.U. and the U.S. maintain a number of free trade agreements, which typically

    cover both trade in goods and services. According to data published by the World Trade

    Organization (WTO), the United States maintain 14 bilateral agreements, some of which

    involve several countries (NAFTA, which includes the United States, Canada and

    Mexico; CAFTA, which involves a number of Caribbean States, etc.). The E.U. has a

    total of 35 bilateral agreements. Korea, Mexico, Canada, Singapore (not yet in force),

    Israel, and Chile all have bilateral agreements with both the EU and with the US.

    However, an agreement between the E.U. and the USA would be unprecedented in

    terms of its sheer dimension. It would create a free trade area representing nearly 50%

    of global economic output, representing only 11.8% of the world population. The United

    States is third behind the EU and China as a source of German imports. Germany and

    the United States differ significantly in their export shares. The German share stands at

    50.5% of GDP, while the share of exports in the USA account for 13.9% of national

    GDP. 1 This clearly highlights different economic orientations: Germany is strongly

    orientated towards exports, while domestic consumption dominates in the United States.

    With these facts in mind, it is not surprising that in 2010, Germany generated a goods

    trade surplus of $208,252 million USD with the rest of the world. Conversely, the U.S.

    had a deficit of $645,123 million USD. In 2010, 8.2% of total German exports went to

    1 UNCTAD

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    the U.S., valued at 108,372 million USD, while imports from the U.S. accounted for

    6.6% of all German imports (76,898 million USD). Regarding industrial goods, Germany

    had a surplus of 26,908 million USD in 2010. In total, more than 80% of all German

    exports to the US are industrial goods. Trade in machinery and the automotive sector

    alone account for over 50% of total exports, while exports in agricultural products and

    services together represent less than 20%. It is clear that, from a German perspective,

    manufactured goods dominate the transatlantic trade with the U.S. However, when

    looking at trade in services, a different picture emerges. Germany was the second

    largest exporter of services in 2010 in nominal terms, with services exports relative to

    GDP at 7.4%. This was twice as much as the US (3.8% of GDP), the largest exporter in

    nominal terms. However, Germany had an overall deficit of 24,192 million USD with the

    world, while the United States had a surplus of 145,827 million USD. This difference is

    also reflected in bilateral trade in services, where Germany recorded a deficit of 1,025

    million in 2010. This divergence in traded goods and services suggests that the U.S.

    has a comparative advantage in services exports, while Germany has an advantage in

    manufacturing industries. This relationship also holds for the nominal trade volume.

    Nonetheless it must be noted that Germanys deficit in services trade has declined

    substantially in recent years, during which the German service industry has rapidly

    caught up.

    Turning to the agricultural sector, the U.S. exports larger volumes to Germany than it

    imports. However, in general, trade in agricultural commodities commands much lower

    volumes relative to output than the other sectors. Across all sectors, trade between the

    U.S. and Germany (or, more broadly, the E.U.) has a strong intra-industry nature.

    Additionally, intra-firm trade (i.e. international transactions within the same firm) is

    quantitatively very important and accounts for, e.g., 80% of German exports in the

    automotive industry, 76% in the chemicals sector and 61% in machinery. Interestingly,

    however, the share of intra-firm trade in imports from the U.S. to Germany is higher than

    in German exports to the U.S. This marked asymmetry has to do with the structure of

    foreign investment between the two countries. Furthermore, the share of intra-firm trade

    exceeds 30% in 12 of 32 sectors, measuring German exports to the U.S. as well as

    imports from the United States. In almost all sectors, a significant fraction of German

    imports from the U.S., and of exports to the U.S., takes place within firms. This

    demonstrates the high degree of cross-linkages between the two countries. Low

    average tariff duties, high industry variation tariff barriers between the U.S. and E.U. on

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    average are low. In 2007, for the manufacturing sector, the trade weighted average tariff

    rate was approximately 2.8% in both countries. However, this low average masks

    extreme sectorial peaks (for example, in textiles or motor vehicles).

    1.2. TTIP Outcome U.S. & E.U.

    As per the center for economic policy research funded by E.U., The U.S. and the United

    Kingdom would be major winners with an increase of GDP per capita by 13.4% and

    9.7% respectively. For Germany the calculations estimate an increase of 4.7%. France

    would be the country with the smallest gain of real income (plus 2.7%). Due to a

    comprehensive bilateral trade agreement, the U.S. would have almost 1.1 million

    additional jobs. For the United Kingdom, TTIP is supposed to create 400,000 additional

    jobs. 180,000 new jobs are projected for Germany, while 143,000 are project for Spain

    and 141,000 for Italy. Countries that suffer most are those economies that already have

    free trade agreements with the U.S. and/or the E.U.; most notable are the African and

    the emerging economies.

    Interestingly, for the NAFTA members, Canada and Mexico, for example, TTIP is

    supposed to reduce long-term GDP per capita by 9.5% and 7.2% respectively. Other

    big losers include Australia, those European countries which are not part of the E.U.,

    and all developing economies, especially countries in North and West Africa. The world

    a