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

as a whole would profit from such an agreement: On the average global real GDP per

capita increases by 3.3%.2 With respect to job losses, we can take into account that

economies not only have single goods but many different goods and domestic

companies will have a competitive advantage in the production of other goods as per

basic economics. If local workers and companies lose shares in some markets, they will

profit from larger exports to the partner economy of the free trade agreement on other

markets. Although tariffs between the U.S. and the E.U. are already very low, non-tariff

barriers (NTB) are crucial and play an important role for transatlantic trade. NTBs

restrict the import of goods and services from abroad by other means than duties on

imports for e.g. quality standard specifications, technical rules and requirements for

2 The Transatlantic Colossus - Berlin Forum on Global Politics Internet & Society Collaboratory - FutureChallenges.org

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imported goods, and labeling requirements, which differ significantly. All these

requirements constitute an obstacle to export products to another country.

The crucial economic effects of NTBs are the implication that these barriers increase

costs of production for companies that want to export their goods and services.

Consider auto parts: technical requirements specify the use of different flashing lights

and indicators and anti-shock and brake pads for cars used in the U.S. than for cars in

E.U. In this case the manufacturer has to produce two different products for two markets

and producing two kinds of a certain product causes additional costs. Hence with regard

to economics NTBs are treated as import duties. Therefore, abolishing NTBs are

equivalent to a removal of import duties.

Time plays an important role here. If an FTA decides to abolish import duties at the start

of 2015, prices for imported goods and services are impacted and decrease

immediately. But in the case of removal of NTBs would need more time for

implementation and take effect. Consider the European manufactured electronic display

system, for automobiles for U.S. export, it requires a costly and long process of U.S.

federal agency authorized technical tests in the U.S. The only other way to route this

long process is if the European manufacturer designs a new product. Hence an FTA

that removes tariff and NTBs will display its full effectiveness only after a period of 10 to

20 years.

1.3. Benefactors of TTIP

Some of the projected benefits of the TTIP, if implemented, are:

E.U. exports to the U.S. would go up by 28%, equivalent to an additional 187 billion

worth of exports of E.U. goods and services.

The E.U. imports from the U.S. will also increase by 159 billion.

The E.U. & U.S. exports to the rest of world would increase by over 33 billion and 80

billion respectively.

The TTIP would increase wages of about 0.5% for both skilled and less skilled workers.

Job movements (or losses) between sectors are predicted to be about seven jobs per

1000 jobs over ten years.

An average European household of fours disposable income would increase by 500

per year as a result of the combined effect of wage increases and price reductions.

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Positive spill-over effects: Common regulatory approaches between the E.U. and the

U.S. will reduce costs for exporters from and to markets of other trading partners (such

as developing countries).

The perceived benefit in exports from a TTIP for individual sectors includes Metal

+12%, Processed Foods +9%, Chemicals +9%, Motor vehicles +40%3

2. Sector Analysis: TTIP and the Chemicals industry

A central question in the TTIP negotiations is that of regulations for various products to

ensure the protection of the environment and human health. These regulations, red tape

or non-tariff barriers, play an essential role for companies in the chemicals industry

across the Atlantic. There are few areas of transatlantic product regulations where the

transatlantic divide is as big as it is in the area of chemicals. For instance, the two sides

of the Atlantic have fundamentally different regulations on issues such as hormones,

genetically modified organisms (GMOs), cosmetics and the registration and restriction

of chemical substances.

A report by the British Foreign & Commonwealth Office found that the implementation of

an ambitious TTIP by the year 2027 is expected to increase U.S. chemical exports to

the E.U. by more than $35 billion, an increase of over 61 percent from 2012 levels.4

About 60 percent of these gains would result from reducing non-tariff barriers, which are

therefore the focus of this chapter.

Chemical companies, as we will see below, are playing an essential role in overall

trade: At more than $960 billion, chemical products accounted for almost 6.2% of U.S.

GDP, and made up over 16.8 percent of U.S. manufacturing shipments in 2012.5 The

chemicals sector has thus been identified by both the European Commission and the

Office of the United States Trade Representative (USTR) as one of the sectors being

particularly important for regulatory cooperation.6

3 European Commission, Trade

4 https://www.gov.uk/government/publications/ttip-and-the-fifty-states-jobs-and-growth-from-coast-to-coast

5 Based on 2012 US Census data

6 Press conference with EU representative Ignacio Garcia Bercero and U.S. representative Daniel Mullaney on

20 December 2013.

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According to Eurostat and the US Census Bureau, 28 EU countries exported goods

worth 387.59 billion dollars to the United States in 2013, making it by far the largest and

most important market for European companies. 7 During the same year, U.S.

companies sent 262.15 billion dollars worth of product to the EU.

Eurostat trade statistics from the Chemicals sector reflect the significance of the U.S.-

E.U. trade partnership (Chemicals constitute the overarching commodity group 5

Chemicals and related products).8 With 22.6%, the U.S. takes by far the largest share of

the European export market in Chemicals. Equally impressive, products from the U.S.

account for 27.5% of all Chemical product imports into the E.U

Table 1: Extra-EU28 trade of chemicals and related products by main partners (EUR millions): Share of

exports by partner (%)

7 Eurostat, http://www.census.gov/foreign-trade/balance/c0003.html

8 http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

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Table 2: Extra-EU28 trade of chemicals and related products by main partners (EUR millions): Share

of imports by partner (%)

The total volume of transatlantic trade in chemicals has been growing steadily over

the last decade. Tables 3 and 4 present U.S. commodity exports from the E.U. and

imports into the E.U. in terms of value. The figures highlight the chemical industrys

importance for trade with the U.S. as well as the steady increase over the past

years.

Table 3: Exports to the U.S. from the E.U. (EUR billions)

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Table 4: Imports from the U.S. to the EU (EUR billions)

For the E.U., chemicals are the commodity group that constitutes the largest share

of exports to and imports from the U.S. of the reported commodity groups.

Particularly impressive, in 2012, almost two thirds of all exported commodities from

the E.U. to the U.S. are chemical products. The E.U. thus has an exceptional role

as a supplier of chemicals to the U.S.

2.1 Regulatory Models

Such strong interdependence requires regulatory cooperation. Though the United

States and the European Union have very similar levels of protection, their

regulatory systems are designed in a fairly different way, creating unnecessary

barriers to trade for companies in the chemicals industry.9 The TTIP offers an

opportunity to reduce these differences in regulations. The following section will

examine these regulations in the chemicals industry before we continue with our

case study, which exemplifies the opportunities that a reduction in regulation would

create for 3M and BASF respectively.

These opportunities are highly relevant as a 2010 report from the OECD named

Cutting Costs in Chemicals Management demonstrates that harmonizing the

testing and evaluation of new chemicals and pesticides can reduce costs by up to

9 Regulatory Co-operation and Technical Barriers to Trade within Transatlantic Trade and Investment

Partnership (TTIP)

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153 million per year.10 It can also add other significant non-monetary benefits, for

example reducing the number animals used in chemical testing.

One goal of this sector analysis is to highlight areas that would be particularly well

suited to mutual recognition and harmonization as far as regulation can be regarded.

In practice, this means balancing stronger market integration while retaining the

legitimate interests of e.g. health and safety on both sides of the Atlantic. The fact

that there is very little documentation available indicating the specific intentions of

the E.U. and the U.S. makes this analysis more difficult. An interesting result of the

analysis, we find, is that there are differences in preferences regarding TTIP not

only between government agencies and chemical companies, but also within the

sector. This relates to company size and investment a company has made in order

to adapt to regulations in the other market respectively.

Chemicals regulations in the E.U. and the U.S. differ in fundamentally important

areas. The following section will first give a brief overview of the regulatory systems

in place in both the E.U. and the United States. We will then compare both systems

while highlighting the main differences. Finally, we present the barriers to trade that

are resulting from these differences and make suggestions in terms of areas that

would be particularly well-suited to mutual recognition within the TTIP.

2.1. The European Union: No data, no market

E.U.-wide regulations in relation to the classification, packaging and labeling of

dangerous substances date back to 1967.11 Environmental and health concerns

gradually came to play a more significant role. Testing requirements also became

more extensive and expensive.

The E.U.s current chemical regulation is defined by REACH (Registration,

Evaluation, Authorization and Restriction of Chemicals).12 Reach took effect in 2008

and was under review in 2012. The report did not propose any changes to the terms,

though it did, however, acknowledge that there is a need to reduce the impact of

10

http://www.oecd.org/env/ehs/47813784.pdf 11

Council Directive 67/548/EEC of 27 June 1967 on the approximation of laws, regulations and administrative provisions relating to the classification, packaging and labelling of dangerous substances. 12

Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), establishing a European Chemicals Agency.

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REACH on SMEs, particular those relating to administrative burdens and fees.13

Accordingly, REACH was identified by SMEs as the single most burdensome pieces

of E.U. legislation at a European Commission public consultation.14

The aim of REACH is to i) ensure a high level of protection of human health and the

environment, ii) promote the free circulation of substances on the internal market

and iii) enhance competitiveness and innovation. REACH requires firms which

manufacture and import chemicals to evaluate the risks resulting from the use of

those chemicals and to take the necessary steps to manage any identified risk.

Industry has the burden of proving that chemicals produced and placed on the

market are safe.15

This translates to the fact that producers of chemicals are responsible to produce all

the information on the chemicals before they introduce it to the market. It implies the

precautionary principle16, as formulated by the European Commission, which aims

at preventing potential risk. If there is a potential risk, there are several measures

that can be adopted such as conducting additional research or simply informing the

public.

According to the literature, there is an ongoing discussion on whether REACH

constitutes a barrier to national regulation. The Swedish Chemicals Agency KremI

finds that member States have a smaller scope for national regulation under

REACH compared with what applied under previous legislation.17

The REACH rules require all E.U.-based companies to register (or pre-register)

chemicals they manufacture or import in significant quantities a tonne or more a

year (Article 5 of the Regulation).18 The information requirement in the registration

correlates to the volume of the manufactured or imported substance. This data is

then considered to assess safety risks as well as the chemicals effects on health

and environment. All information is submitted to and evaluated by the European

Chemicals Agency (ECHA) before the product is introduced to the market. The no

data, no market guideline was established in 2008. Any company that did not pre-

13

http://ec.europa.eu/enterprise/sectors/chemicals/documents/reach/review2012/index_en.htm 14

http://ec.europa.eu/enterprise/policies/sme/files/smes/top10report-final_en.pdf 15

http://europa.eu/legislation_summaries/internal_market/single_market_for_goods/chemical_products/l21282_en.htm 16

Communication from the Commission on the precautionary principle, COM(2000) 1 final. 17 wedish Chemicals Agency memorandum, apin-m let (C-358 11) Reachf rordningens harmoniserande

verkan, dnr 13-335. 18

http://ec.europa.eu/news/environment/080513_1_en.htm

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register between 1 June and 1 December 2008 had to stop producing or importing

immediately.

ECHA and the member states cooperate closely on evaluation issues. Also, certain

chemicals may also be made subject to authorization.19

2.2. The United States: Reform underway

In the United States, the regulation of manufacture and sale of chemicals follows

the Toxic Substances Control Act (TSCA) from 1976. Under the act, producers are

responsible for submitting information to the Environmental Protection Agency

(EPA). They do not however have to produce any data other than what they already

have available. The EPA can only have products removed from the market they can

prove that the product poses an unreasonable risk to humans or the environment.

Until 2013 however, the EPA has only decided on restrictions for five existing

chemicals.20

Unlike within the E.U., individual states are not prevented from adding additional

rules and regulation regarding chemicals. California, Maine and Massachusetts

have introduced stricter regulation similar to REACH (see for example California's

Safe Drinking Water and Toxic Enforcement Act from 1986).21

The TSCA went into force in 1976 and has not yet been revised. There is currently

a proposal on the table to update T CA called the Chemical afety Improvement

Act (C IA). In the bills original language the lawmakers express the necessity to

update the law to ensure that chemical regulation in the United States reflects

modern science, technology and knowledge. Similarly, they acknowledge that,

public confidence in the federal chemical regulatory program has diminished over

time.22

Accordingly, the bill has won bipartisan support and would give the EPA more

authority to demand further testing and additional data from chemical manufacturers

and require a systematic evaluation of grandfathered chemicals. It also calls on the

EPA to make more information available to the public.23

19

http://echa.europa.eu/regulations/reach/evaluation/substance-evaluation. 20

Bergkamp, The European Union REACH Regulation for Chemicals, 2013. 21 http://www.oehha.org/prop65.html 22

http://reformtsca.com/Main/CSIA-Bill-Language.pdf 23

http://reformtsca.com/Main/CSIA-Bill-Language.pdf

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2.3. Global Regulatory Models

Both the United Nations as well as the OECD have developed systems for

harmonizing the classification, testing, or labeling of Chemicals:

UNECEs Globally Harmonised ystem of Classification and abelling of Chemicals

(GHS) wants to raise awareness primarily concerning physical hazards and toxicity

from chemicals. 24 The system addresses classification of chemicals, proposes

communication elements, including labels and safety data sheets. GHS is not

binding, though the E.U. has adopted it in 2008.25

Mutual Acceptance of Data (MAD) is the OECDs chemicals program. MAD focuses

on reducing the costs and the efforts associated with having to test and assess the

same chemicals in different countries. Via MAD, test data generated in any

member country in accordance with OECD Test Guidelines and Principles of Good

Laboratory Practice (GLP) shall be accepted in other member countries for

assessment purposes and other uses.26 The MAD guidelines were first adopted in

1981 and are legally binding in all OECD countries as well as several non-members.

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

a. Responsibility

The main difference, as described above, relates to how the responsibility for the

chemicals and their risks is distributed. Following no data, no market, the E.U.

shifted the full responsibility to the producer of chemicals through REACH. If the

manufacturer cannot produce the required information, the product may not enter

the market. This follows the precautionary principle, which clearly aims at

preventing risks.

In the United States, in contrast, the governmental regulatory agency EPA assumes

the responsibility. To restrict chemicals and have a product removed from the

market, the EPA has to produce data that demonstrates the existence of an

24

http://www.unece.org/fileadmin/DAM/trans/danger/publi/ghs/ghs_rev04/English/ST-SG-AC10-30-Rev4e.pdf 25

Regulation (EC) No 1272/2008 of the European Parliament and of the Council of 16 December 2008 on classification, labelling and packaging of substances and mixtures, amending and repealing Directives 67/548/EEC and 1999/45/EC, and amending Regulation (EC) No 1907/2006, Preamble, Recitals 5-8 16 December 2008 on classification, labelling and packaging of substances and mixtures repealing Directives 67/548/EEC and 1999/45/EC, and amending Regulation (EC) No 1907/2006, Preamble, Recitals 5-8 26

http://www.oecd.org/env/ehs/mutualacceptanceofdatamad.htm

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unreasonable risk. Otherwise companies can freely place their products on the

market.

Similarly, EU.. regulation is more encompassing when it comes to new and existing

chemicals. REACH regulates both new and existing products while TSCA only

applies to chemicals that were introduced after its inception in 1976. By that time

there were already 62,000 chemicals on the U.S. market for which no data is

required27.

b. Impact on human health and the environment

REACH requires producers to submit information that shows how human health and

the environment are impacted by the product. The EPA however cannot require

additional information from the manufacturer.

c. Restrictions

REACH includes restrictions for just fewer than 100 substances.28 In contrast, since

its introduction in 1976, only five substances have been restricted under TSCA.29

4. Public information

Under T CA, the EPA s ability to share information about company identities or the

chemicals structures with the public is restricted. In line with its responsibility role,

the EPA can only disclose confidential information when it determines that it is

necessary to protect human health or the environment from an unreasonable risk.30

REACH, in contrast, requires firms to submit and publish safety data sheets for

users, retailers or importers. Unlike TSCA, REACH can also share company data

on chemicals with government authorities and EU institutions.31

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

From the sector analysis as outlined above we can derive the following conclusions:

27

Vogel, Swinnen, Transatlantic regulatory cooperation, 2011. 28

http://www.echa.europa.eu/addressing-chemicals-of-concern/restrictions/list-of-restrictions/list-of-restrictions-table 29

http://www.cicc.org/pdf/TSCA-101_update-13.pdf 30

Chemical Regulation: Comparison of U.s. and Recently Enacted European Union Approaches to Protect against the Risks of Toxic Chemicals : Report to Congressional Requesters. Washington, D.C.: U.S. Govt. Accountability Office, 2007. Print. 31

Chemical Regulation: Comparison of U.s. and Recently Enacted European Union Approaches to Protect against the Risks of Toxic Chemicals : Report to Congressional Requesters. Washington, D.C.: U.S. Govt. Accountability Office, 2007.

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The main uncertainty for chemical companies involved in transatlantic trade relates

to who is responsible for the chemicals that are placed on the market and which

data the company needs to present.

Registering products in order to comply with REACH is costly and presents a large

barrier especially for SMEs in the chemical industry.

As European companies have already adapted to the more restrictive REACH

system, they might have opportunities to offer more sustainable solutions compared

to American producers, especially if a future common regulatory system or other

reforms such as the currently discussed Chemical Safety Improvement Act (CSIA)

include more regulations for the industry.

3. Recommendations from the Sector Analysis It appears that harmonization is not a viable option in the transatlantic dimension

considering the existing regulatory models. Both in the E.U. as well as in the U.S.,

regulatory systems for the chemicals industry have developed over a long period of

time and are already well established. Harmonization is a long and expensive

process that also requires a common legislative framework. Additionally, the

complexity of technical barriers to trade is not only linked to the fact that the

regulations often have a legitimate purpose, but also to the fact that many technical

barriers to trade arise outside the direct control of states. Industry associations and

standardization bodies for example regularly set conditions that affect the trade in

goods and services.

Mutual recognition is a feasible way of to reduce non-tariff barriers to trade or

technical barriers to trade. This means that neither party needs to chance its rules

but that each others rules are being accorded as equivalent, making them mutually

acceptable.

The lowest level of regulatory corporation is information exchange and transparency.

There are two tools already in place on which can be built: GHS for the

classification and labeling of chemicals and MAD for the production and exchange

of data. A crucial question is then if the U.S. is willing to implement the GHS criteria

just as the E.U. previously did in 2008. Another question is, if the by many

considered groundbreaking Chemical Safety Improvement Act (CSIA) will actually

be passed by legislation. Some academics however also fear that the TTIP process

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could harmonize down European chemicals regulations so that they approach low

U.S. standards.32

It needs to be mentioned here that third countries such as South Korea have

adjusted their legislation towards REACH (see K-REACH).33 If the U.S. does not

adjust accordingly, U.S. companies risk losing ground to competitors from Europe

or Asia that have adapted to more restrictive regulations. If their products are put on

the most regulated market, they can be put on every market.

4. Case Study

BASF, a German company, the Badische Analin- und Sodafabrik, is the worlds

leading chemical company with over 110,000 employeess worldwide serving

customers in nearly every country in the world. BA Fs core competencies are built

around the following units: chemicals, performance products, functional materials

and solutions, agricultural solutions, and oil and gas. In 2013, BA F reported 70

billion in sales with income before special items estimated at 7.2 billion.34 Its stated

corporate purpose is creat[ing] chemistry for a sustainable future. The list of

customers is immense, particularly when considering that their business is a B2B

business. Customers include the automotive industry, chemicals and plastics,

detergents, and agricultural industry.

The 3M Company, formerly know as the Minnesota Mining and Manufacturing

Company, is, fundamentally a science-based company looking to create solutions

for customers. In 2013, the company generated over $30 billion dollars in sales,

with close to $20 billion in international sales accounting for approximately 65% of

its total sales worldwide. 3Ms products range from health care to highway safety,

office products to abrasives and adhesives. Like BASF, 3M conducts sales in

virtually every country in the world and employees approximately 90,000 people

globally.35 Different from BASF, the 3M does sell products directly to consumers

most people are familiar with Post-It Notes and Scotch Tape.

32

http://www.ciel.org/Publications/TTIP_FactSheet_EU_Feb2014.pdf 33

https://chemlinked.com/chempedia/k-reach 34

http://www.basf.com/group/corporate/en/about-basf/index?mid=0 accessed on 10 June 2014 35

http://solutions.3m.com/wps/portal/3M/en_US/3M-Company/Information/AboutUs/WhoWeAre/ accessed on 10 June

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4.1. Products BA Fs chemical segment is made up chiefly of chemicals and intermediaries. The

chemical portfolio, ranges from solvents, plasticizers, and high-volume monomers

to glues and electronic chemicals as well as raw materials for detergents, plastics,

textile fibers, paints and coatings, plant protections and pharmaceuticals. BASF

works to supply the chemical industry and as well as other sectors while ensuring

that BA Fs other segments are supplied with the chemicals necessary to enable

downstream production.36

Fig. XY, shows BA Fs global production sites

Although smaller, 3M assortment is equally diverse. The business segments include

consumer goods, electronics and energy, healthcare, industrial applications and

safety and graphics.

3M Vice President Jeff Rageth pressed for a creation free trade agreements in 2011

when he wrote to congress. Although his remarks were specific to stalled trade

agreement talks in Korea, Colombia and Panama, the currently stalled Transatlantic

Trade and Investment Partnership. Mr. Rageth wrote in 2011,

3M is a large U. .-based employer and manufacturer established over a century

ago in Minnesota. Today, 3M is one of the largest and most diversified

manufacturing companies in the world. Thousands of 3M jobs in the U.S. are tied to

36

http://www.basf.com/group/corporate/en/about-basf/index?mid=0 accessed on 10 June

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exports and the support of our international companies. While we conduct the

majority of our manufacturing and research activities in the U.S., over 65% of 3M

sales were outside the U.S. in 2010. 3M exported over $650 million from Minnesota

alone in 2010. The elimination of tariff and non-tariff barriers in Korea, Colombia

and Panama is critical to help us level the playing field for our exports in those

growing markets. The three pending free trade agreements help boost U.S. exports

to and engagement in these markets, thereby helping to maintain and grow jobs

and investments for 3M at home.37

Current CEO of BASF and President of CEFIC, the European Chemical Industry

Council, Dr. Kurt Bock, spoke with equal excitement when the TTIP talks

commenced in Brussels in June of 2013.38 A full abolishment of tariffs for chemicals

would positively affect BASF and 3M as well as the industry. In 2012 alone, duties

and tariffs accounted for $1.5 billion (US) of the approximate $48 billion of chemical

goods traded. The council (CEFiC), lead by Dr. Bock, views the TTIP as an

outstanding opportunity to enhance regulatory transparency and cooperation while

minimizing cost and burden for government and industry.39

The strong belief in an urgent need for increased regulatory transparency is

mirrored by CEFICs American counterpart, the American Chemistry Council, who is

ready to contribute constructively to this work. For both organizations, the ultimate

goal of the TTIP is enhanced regulatory cooperation. Both CEFIC and the ACC

consider the chemical industry an utmost priority for the TTIP talks. Central to the

industrys concern are data and information on which regulatory decisions are

based, process for identifying priority substances, approaches for characterizing

risks and hazards, transparency in regulatory processes and rules to protect

commercial and proprietary interests.40

Manufacturing leaders on both sides of the Atlantic have been outspoken in their

support of a free-trade agreement, urging the United States Congress to take action

to promote expanded free trade between North America and Europe. According to

the ACC, increasing regulatory cooperation could creative positive export synergies

37

http://paulsen.house.gov/press-releases/how-the-pending-trade-agreements-will-affect-minnesotas-economy/ 12 June 2014 38

http://uk.prweb.com/releases/2013/6/prweb10843914.htm 14 June 2014 39

http://uk.prweb.com/releases/2013/6/prweb10843914.htm 14 June 2014 40

http://www.americanchemistry.com/Policy/Chemical-Safety/Endocrine-Disruption/ACC-Comments-on-Trans-Atlantic-Trade-and-Investment-Partnership.pdf 14 June 2014

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of up to $800 million dollars between the U.S. and the EU.41 Great regulatory

compliance between nations and continents means savings for both 3M and BASF:

even where regulatory approaches differ, opportunities should be pursued to

minimize divergence in regulatory outcomes and reduce costs of compliance.42

NAM (National Association of Manufacturers) International Economic Policy

Committee Chairman, Executive Committee Member and Ball Corporation

Chairman David Hoover Jay Timmons, was quoted in March of 2013,

A successful trade agreement with the EU will level the playing field so

manufacturers in the United tates can increase exports and sales. [] U. . export

growth slowed over the past year, and the answer is access to new markets and

removing trade barriers. Trade agreements have a proven track record of success,

as exports to just our 20 free trade agreement partners accounted for nearly half of

U.S.-manufactured goods exports last year.43

Futhermore, NAMs U. .-EU Task Force chairman Greg Walters, also 3Ms

International Trade and Governmental Affairs supports ambitious agreement [to]

drive economic growth, lower existing barriers and serve as a model for the rest of

the globe to follow.44

5. Innovation and Corporate Governance Styles

5.1. Speed of technological and commercial innovation:

Environmental Conditions (make the choice of the conditions to be analyzed based on

the most significant differences)45:

Technology and Communication

Among all its European counterparts, Germany ranks number one when it comes to

Technological innovation. The German government understands how much it can

contribute to a sustainable and stable economy. The emphasis it put on technological

41

http://www.americanchemistry.com/Policy/Chemical-Safety/Endocrine-Disruption/ACC-Comments-on-Trans-Atlantic-Trade-and-Investment-Partnership.pdf 14 June 2014 42

http://www.americanchemistry.com/Policy/Chemical-Safety/Endocrine-Disruption/ACC-Comments-on-Trans-Atlantic-Trade-and-Investment-Partnership.pdf 14 June 2014 43

http://www.nam.org/Communications/Articles/2013/03/Manufacturers-Outline-Goals-for-Successful-EU-Trade-Agreement-Negotiations.aspx accessed on 12 June 2014 44

http://www.nam.org/Communications/Articles/2013/03/Manufacturers-Outline-Goals-for-Successful-EU-Trade-Agreement-Negotiations.aspx 14 June 2014 45Embassy of the Federal Republic of Germany in the US - www.germany-info.org/rights.htm

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advancement is reflect on the amount of money it invested in education and research.

(A whopping 12 billion Euros between 2010 and 2013)46

In 1996, the recent Telecommunications act became effective, which ultimately

liberalized the telephone market and made Germany an even more attractive place for

business investors. Today Deutsche Telekom is the largest telecommunications

provider in Europe and with approximately four million customers at the end of 1996, the

third largest carrier in the world.

With its increasing emphasis on technology advancement, Germanys lead in high tech

products development and marketing has also improved tremendously. Germany is

currently the world's third largest export nation in this field. It is slightly behind Japan

and the US by less than 1 or 2 %. The US, on the other hand, is definitely the world

pioneer when it comes to technology. NASA, for example, is the incubator for a lot of

large-scaled and complex technological developments in the States. Like its ally

Germany, the US puts a lot of emphasis on promoting technology development among

universities and students. According to a recent article published by NASA in June 4th

titled: NASA Invites Universities to Submit Innovative Early-Stage Technology

Proposals, NASA is NASA is trying to get students from universities take part in the

agency exploration to deep space and Mars. The Stage Innovations NASA Research

Announcement is seeking for innovative space technology proposals that could benefit

the space program.

According to Michael Gazarik, NASA's associate administrator for the Space

Technology Mission Directorate in Washington: "The sparks to fuel the fire of innovation

that will develop the new space technologies of tomorrow reside within American

universities," He also mentioned that the main goal of this project will eventually boost

economic growth and competitiveness."

Beside, during an interview with Mark Muro (@markmuro1), a senior fellow at the

Brookings Institution and policy director of its Metropolitan Policy Program, when being

asked what the drivers for a major manufacturing revival are, he suggested that

Computer-assisted design and prototyping is accelerating the engineering process. He

46http://www.germany.info/Vertretung/usa/en/07-Econ-Energy innovation/03__Science/00/__Science.html

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used iPad-driven additive manufacturing, 3-D printing, and robotics as examples to how

they all contribute to reducing the need for labor, and merging simulation and modeling

with physical making. As Mark suggested, all these means that U.S. companies are now

leading the world in accelerating product development cycles and delivering on the

promise of mass customization. And that the result is the game is now being played on

American terms.47

5.2. Corporate Governance in Germany

The way corporate works has always been pretty straight forward in Germany. Most of

the publicly traded German operating companies are served by stable and consistent

management boards that are composed of German nationals as well as shareholder

bases represented by "a preponderance of cross-holdings by German banks, insurance

companies and other operating companies"48. Generally, there are not a lot of outsider

and most of the time German companies are run on a consensus style, meaning that

everyone to a certain degree agree to each other presence at board meetings. Unified

outcome and decision are more preferred to than differences in the both. Such

approach contributes a lot to the economic stability Germany has always been known

for as well as making Germany the one of the most prosperous Western powers in the

world.

Despite all there, changes are slowly happening to its old approach. Due to

globalization, the numbers of foreign investors have been on the surge and activist

shareholders are taking more control and initiative over decision making. According to

the article "Current Corporate Governance Trends in Germany" by Ken Altman, "In their

22nd of August, 2008 edition, the highly respected German newspaper, Handelsblatt,

published their leading story with the headline" Foreigners increase pressure on

companies international investors use general meetings for criticism."

5.3. Corporate Governance in the United States

On the contrary, the US adopts a different approach when it comes to corporate

governance. It is way more shareholder-oriented or market based compared to its

47

http://blogs.wsj.com/briefly/2014/06/04/how-technology-is-transforming-u-s-manufacturing/ 48

http://www.econstor.eu/bitstream/10419/50757/1/348829639.pdf

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German counterpart, which thrives on stability and prudence. Unlike the Germans,

where ownership is way more exclusive, ownership of corporations in the US is

relatively more dispersed and involves a heavy engagement from institutional investors,

such as pension funds. Also, American Corporate boards have a higher proportion of

outsiders and independent members, who might not necessarily be chosen based on a

consensus, so as to improve board processes. Pay for executives are often closely

linked to shareholder returns. In other words, the more money the company makes on

behalf of its shareholders, the more the executives are going to be paid. Finally,

corporate governance is also achieved externally through "the monitoring of

gatekeepers, such as audit firms, that certify the flow of information from managers to

capital markets49".

6. Conclusion:

TAFTA/TTIP is still an evolving agreement with both pros and cons and there are still

areas that needs clarity and conceivability for its final push as Free Trade Agreement.

But from our analysis and case study of BA F and 3M, what we see is that Pros of

TTIP coming into force outweighs the cons as the industry on both sides of the Atlantic

stands to gain a lot and the benefits are to be passed on to consumers for a better

business standard.

49

http://www.boeckler.de/pdf/p_arbp_223.pdf

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7. Bibiliography:

- UNCTAD Report-2013

- The Transatlantic Colossus - Berlin Forum on Global Politics Internet & Society Collaboratory -

FutureChallenges.org

- European Commission, Trade

- https://www.gov.uk/government/publications/ttip-and-the-fifty-states-jobs-and-growth-from-

coast-to-coast

- US Census data, 2012

- Excerpt from 20 December 2013, Press conference report with EU representative Ignacio

Garcia Bercero and U.S. representative Daniel Mullaney.

- Foreign Trade,Eurostat, - http://www.census.gov/foreign-trade/balance/c0003.html

- Stats, Eurostat - http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

- Regulatory Co-operation and Technical Barriers to Trade within Transatlantic Trade and

Investment Partnership (TTIP)- http://www.oecd.org/env/ehs/47813784.pdf

- EU Council Directive 67/548/EEC of 27 June 1967 on the approximation of laws, regulations and

administrative provisions relating to the classification, packaging and labelling of dangerous

substances.

- EURegulation (EC) No 1907/2006 of the European Parliament and of the Council of 18

December 2006 concerning the Registration, Evaluation, Authorization and Restriction of

Chemicals (REACH), establishing a European Chemicals Agency.

- http://ec.europa.eu/enterprise/sectors/chemicals/documents/reach/review2012/index_en.htm

- http://echa.europa.eu/regulations/reach/evaluation/substance-evaluation.

- Bergkamp, The European Union REACH Regulation for Chemicals, 2013.

- http://www.oehha.org/prop65.html

- CSIA - http://reformtsca.com/Main/CSIA-Bill-Language.pdf

- UNECE- http://www.unece.org/fileadmin/DAM/trans/danger/publi/ghs/ghs_rev04/English/ST-SG-

AC10-30-Rev4e.pdf

- Vogel, Swinnen, Transatlantic regulatory cooperation, 2011.

- EUrostat, Chemicals - http://www.echa.europa.eu/addressing-chemicals-of-

concern/restrictions/list-of-restrictions/list-of-restrictions-table

- TSCA, CICC- http://www.cicc.org/pdf/TSCA-101_update-13.pdf

- CIEL-TTIP: http://www.ciel.org/Publications/TTIP_FactSheet_EU_Feb2014.pdf

- Reach: https://chemlinked.com/chempedia/k-reach

- BASF Corporae: http://www.basf.com/group/corporate/en/about-basf/index?mid=0

accessed on 10 June 2014

- 3M About Us: http://solutions.3m.com/wps/portal/3M/en_US/3M-

Company/Information/AboutUs/WhoWeAre/ accessed on 10 June

- http://paulsen.house.gov/press-releases/how-the-pending-trade-agreements-will-affect-

minnesotas-economy/ 12 June 2014

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- American Chemistry: http://www.americanchemistry.com/Policy/Chemical-Safety/Endocrine-

Disruption/ACC-Comments-on-Trans-Atlantic-Trade-and-Investment-Partnership.pdf

- Embassy of the Federal Republic of Germany in the US - www.germany-info.org/rights.htm

- http://www.germany.info/Vertretung/usa/en/07-Econ-

energyinnovation/03__Science/00/__Science.html

- Wall street Journal: http://blogs.wsj.com/briefly/2014/06/04/how-technology-is-transforming-u-s-

manufacturing/

- Econstor: http://www.econstor.eu/bitstream/10419/50757/1/348829639.pdf

- Boeckler: http://www.boeckler.de/pdf/p_arbp_223.pdf

Documents

Transatlantic Project Paper-Chemicals(BASF and 3M)