COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE ECONOMIC AND SOCIAL COMMITTEE - AN INDUSTRIAL COMPETITIVENESS POLICY FOR THE EUROPEAN CHEMICAL INDUSTRY: AN EXAMPLE
Date: 1996-04-30
Institutions: European Commission
Subjects: chemical industry, competition policy, competitiveness, industrial policy

COMMISSION OF THË EUROPEAN COMMUNITIES 

Brussels,  30.04.1996 
COM(96)  187 final 

COMMUNICATION  FROM THE COMMISSION 

TO THE COUNCIL. THE EUROPEAN  PARLIAMENT 
AND  THE ECONOMIC  AND  SOCIAL COMMITTEE 

AN  INDUSTRIAL COMPETITIVENESS P O L I CY  F OR  T HE 
THE EUROPEAN CHEMICAL INDUSTRY  :  AN EXAMPLE 

TABLE OF CONTENTS 

EXECUTIVE SUMMARY 

table a : Actions enhancing chemical industry competitiveness 

I. 

INTRODUCTION 

II. 

THE EU  CHEMICAL INDUSTRY 
II.A  Facts about the industry 
II.B 
Features of the industry 
II.C  Challenges facing the industry 

II.C.l 
II.C.2 

Better and more environmentally  sound products 
Competitively priced products 

III.  ACTIONS TO ENHANCE COMPETITIVENESS 

III.A  Actions to improve the regulatory framework 

III.A.l  The current framework 
III.A.2  Principles for future  action 

III.B  Actions to ensure effective  competition 

III.B. 1  Effective  competition internally 
III.B.2  Effective  competition externally 

III.C  Actions to strengthen intangible investment 
III.C.l  Research and development 
Intellectual property 
III.C.2 
III.C.3  The need for a scientific  culture 
III.C.4  Training 

III.D  Actions to develop  industrial cooperation 

III.D.l 
III.D.2  External industrial cooperation 

Industrial cooperation within the EU 

I V.  OPERATIONAL CONCLUSIONS AND WORK PROGRAMME 

V. 

ANNEXES 

table  1 :  Output, trade in  1994 (Ecu Billion) 
table 2 :  Top 30 chemical companies in the world (1994) 
table 3 :  Employment (in thousands) 
table 4 :  Growth rates 
table 5a  :  Most ingenious companies 
table 5b  :  Most ingenious companies 
table 6 :  Capital spending (% of turnover) 

; 

Application of principles for Regulatory Impact Assessment to the problem 
of nickel allergy - an example 

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/* 

EXECUTIVE  SUMMARY 

This Communication, drawn up in consultation with representatives from the European chemical industry, is 
within  the  framework  of  the  'Communication  on  an  Industrial  Competitiveness  Policy  for  the  European 
Union1 (EU).  It seeks to identify  the industry's main challenges and needs and to define  a set of actions2 to 
enhance its competitiveness. 

1.  The features  of and  challenges  facing the EU chemical  industry 

*  The  main  challenge  facing  the  European  chemical  industry  is to  strengthen  its  long  term  international 
competitiveness  .  by  supplying  its  clients,  in  Europe  and  abroad,  with  high  quality,  environmentally 
sound and competitively  priced products*  In the light of this challenge  and bearing  in mind  the need to 
maintain  a  level  of  profitability  sufficient  to  ensure  that  investment  continues  in  Europe,  several  key 
features of the industry have been identified  : 
-  Chemical products and environmental and health  policy 

The chemical industry has a wide range of customers  : big industrial sectors (e.g. automobiles and other 
means  of transport,  food  and  beverage, pharmaceuticals,  textiles,  construction);  the  agricultural  sector 
for  fertilizers  and  pesticides;  and  individual  end-users  for  plastic  packaging,  paints,  detergents, 
cosmetics, etc.  Chemical products are closely related with everybody's daily life.  Within Europe, there 
is thus a high level of awareness of the related health and environmental  implications.  This, as well as 
the actual risk and the complexity  of the issues have given rise to an increasing number of regulations, 
frequently  of national  origin:  such regulations  should  be founded  on a sound  scientific  basis  and their 
potential economic impact, including on the international competitiveness of this industry must be  fully 
taken into account. 

- The European and global dimension of its markets 

In this context it is important to promote a level playing field, at least with the main OECD and newly 
industrialised  competing  countries,  in  terms  of  market  access,  environmental  framework,  and,  if 
possible,competion rules, fiscal and social regulations. 

- Its dependence on imported raw materials and energy  inputs 

Oil  and  gas,  used  in  the  production  of  petrochemicals  and  their  derivatives,  as  well  as  industrial 
minerals required  for  the production  of inorganic  chemicals, are in general  not  endogenous  to  Europe 
and must be imported.  Together with energy sources such as electricity and gas, which are supplied by 
European  companies,  these  represent  up  to  60% of  chemical  companies'  production  costs.  Effective 
competition  requires  that  the  unit  prices  for  these  inputs  must  not  be  distorted;  whether  in  the  third 
countries that supply them, or within the EU. 

- Its high reliance on capital and RTD 

Net  assets higher  than  1 Million  ECU  per  employee,  for  a major  part  of  industry  (especially  basic 
chemicals)  and  an average  expenditure  on research  and technological  development  (RTD)  of  about 
5%  of  turnover,  compel  the  chemical  industry  to  seek  high  capacity  utilisation  rates  in  order  to 
minimize fixed costs and maximise income.  This involves : 

•  continuing restructuring  . tending towards production in the most efficient  facilities  and the possible 

closure of the least profitable ones. 

• 

•  an effort  to  ensure the  largest  possible  markets, requiring  the  consolidation  of  an  effective  Internal 
Market within the EU and,  access under conditions of undistorted competition to external markets. 
increased  efforts  towards  co-operative  research, both with competing  and user  companies  in more 
"horizontal" fields of RTD (promotion of recycling, greater use of information technology, etc.). 
the  continuous  development  of  innovative  new  products  and  manufacturing  processes,  as  a  long 
term  strategy  in order to counter  the  increasing  pressure  from  newly  industrialising  countries  (e.g. 
Asia,  Arabian  Gulf  states)  particularly  in  products  with  lower  value-added,  and'  from  those 

• 

'COM(94)319 
2See  also "I able  A 

, 
/  A 

industrialised  countries  (e.g.  USA,  Canada)  benefiting  from  certain  comparative  advantages  (raw 
material and  lower energy prices, etc.) 

*  These characteristics  represent,  by their  diversity,  complexity  and  interdependence,  a genuine  challenge 
for  an effective  implementation  of an horizontal  industrial  competitiveness  policy  for  the  EU  chemical 
industry.  A number of courses of action and concrete measures have been identified  in the context of the 
chemical industry  ; these could be used as an example for similar industries. 

2.  Basic  principles  and  actions  aimed  at  strengthening  the  international  competitiveness  of 

the EU chemical  industry. 

In any market economy, each industrial company is responsible for the strategic decisions and initiatives 
it must take in order to maintain or strengthen its medium and long term  international  competitiveness. 
Nevertheless, public  authorities  have a role to play  in creating  the  legal  and  economic  framework  and 
by adopting, if necessary, accompanying  measures for the  actions taken by industry.  The actions to be 
developed by the Commission, industry and/or Member States are grouped around the four priority areas 
of the industrial Competitiveness Communication : 

2.1.  Actions to improve the regulatory  framework 
This  improvement,  in  line  with  the  recently  adopted  "Guidelines  for  Regulatory  Policy",  should 
concentrate on : 

- 

- 

the  consolidation,  the  updating  and/or  the  simplification  of  the  current  regulatory  framework  for 
chemical  substances  and preparations.  Among examples of such activities  are  the codification  of 
the  Directives  on  fertilizers,  on  limitations  for  placing  on  the  market,  and  on  detergents;  the 
reshaping  of the Directive  on preparations, the simplification  of the Directive  on the protection  of 
the  health  and  safety  of  workers  from  the  risks  related  to  chemical  agents  at  work  and  the 
simplification  of  procedures  for  the  notification  of  new  chemicals,  especially  by  the  SMEs,  are 
other examples of such activities. 
the application of a sound approach for  all new possible regulatory  initiatives concerning  chemical 
products or facilities, involving : 

•  a scientific  evaluation  of the risk  that the  substance, preparation  or type  of  facility  in  question 
represents  for  health,  safety  and/or the environment  and a comparison  with the risks  associated 
with possible substitute products or alternative processes; 

•  an appropriate  analysis of the costs and benefits of the options available at EU level, and also of 

possible national measures; 

•  whenever possible  and  relevant,  a comparative  analysis of similar legislation, in force  or under 

elaboration, in the most competitive third countries. 

If the results of these three types of analysis justify  a new initiative, be it at international  or at EU 
level, this  should  be  implemented  by means  of the  instrument  which  is the  simplest  and the  least 
costly and which ensures a  high level of health and environment protection.  A wide range of such 
instruments  exists  : unilateral  industrial  initiatives,  negotiated  agreements  at  EU  or  national  level 
(for which the Commission  is preparing a general framework),  economic incentives  and  regulatory 
initiatives at EU or, if possible and necessary, at international level. 
This  approach  will  also  apply,  whenever  possible,  to  current  cases  where,  despite  harmonization 
measures  already  taken,  the  internal  market  for  chemical  products  is  still  fragmented:  partial 
directives  (asbestos); national  requests  for  implementation  of article  100A§4  (pentachlorophenol-, 
cadmium, creosote, ..) 

These different  actions should be analysed and developed in co-operation with the representatives of 
industry and/or the Member States concerned. 

/o 

2.2  Actions to ensure effective  competition 
The global  dimension  of the  chemical  industry  and the need  for  the permanent  adaptation  of  its  structures 
will be taken into account by the Commission in the  application of the competition rules, inside and outside 
the EU, in particular when : 

-  analysing  possible  proposals  coming  from  industry  aiming  at  finding  solutions  to  structural 
overcapacity  in  certain  basic  chemical  industries,  through  appropriate  actions  by  the  companies 
concerned, provided  the existence of such structural  over-capacity  is proved  and the proposed  action 
is compatible with the competition rules ; 

-  pursuing  efforts  to  liberalize  the  electricity  and  gas  markets  within  the  EU,  which  will  allow  a 

reduction of costs for the chemical industry, being an intensive energy user. 

-  pursuing efforts  for the effective  use of trade instruments, and in particular for the elimination, among 
the  members  and  in  certain  WTO  applicant  countries  (Arabian  Gulf  states,  China),  of  non-tariff 
barriers  (double pricing systems for certain raw materials, registers of imports, etc); 

-  exploring  bilaterally,  with  the  main  trading  partners  (e.g.  with  the  USA,  through  the  Transatlantic 
Business Dialogue and the Joint Action Plan), and multilaterally  new agreements on competition and 
international trade, in particular on the removal of barriers to international  investment. 

2.3  Actions to strengthen intangible investment 
The increasing  need  for  innovation  in new, high quality  chemical  products  for  diversified  markets  and  for 
the development  of more efficient  sustainable manufacturing  processes, lead industry, the Commission  and 
national authorities, to focus their efforts  on RTD, education and scientific training, in particular on : 

- 

the continuation  of co-operative research programmes  at European  level, not only between  industries 
with similar characteristics  (such as the SUSTECH and PRIMA initiatives for process industries such 
as  food,  steel  and  paper),  but  also  with  user  industries  (transport,  construction)  and  with  computer 
software  suppliers (for greater use of information technologies); 

-  a  greater  integration  of  the  chemical  industry  in  existing  or  future  multi-sectoral  initiatives  (task 
forces,  clusters),  which  will  allow  better  access  to  the  various  Community  programmes  and  an 
optimization of their results through a better coordination; 

- 

-  a greater flexibility in the development and revision of the Community-specific  RTD programmes; 
- 

the  improvement  of  patent  protection  for  example  for  pesticides  or  products  resulting  from 
biotechnology; 
the 
industrial  initiatives  aimed  at  improving  young  people's  chemical  education  and  the  scientific 
training  of  workers  which,  together  with  the  Community  programmes  SOCRATES,  Leonardo  da 
Vinci,  certain  sub-programmes  of the 4th  Framework  Programme  and  actions  eligible  for  Structural 
Funds,and  with the necessary cooperation of the educational programmes of the  Member States, will 
strengthen  the  essential  educational  and  scientific  basis  for  an  innovative  chemical  industry,  which 
must include education in health and safety of workers. 

2.4  Actions to develop industrial  cooperation 

The complex and highly diversified  structure of this industry - containing  not only major  multinational 
corporations,  but  also  numerous  SMEs  - as well  as the  risks  and  the  opportunities  offered  by  certain 
international markets, require an intensification  of actions for industrial co-operation. 
-  The  importance  of the  SMEs  in a number  of  sectors  and their  essential  role  in the  creation  of jobs 
subcontracting  ,  requires  the  continuation  and/or  the  development,  by  industry  and  the 

and 
Commission, of actions such as: 

• 

• 

the improvement  of access by the SMEs to non confidential  technical, economic and  legislative 
information,  through  a  more  computerized  communication  system  being  developed  by  the 
European  Chemical  Industry  Federation  (CEFIC) and  through  the DG III  coordinated  network 
RISC  (Reseau  d'Information  du  Secteur  Chimique.).  The Bilbao  Agency  on health  and  safety 
will also be a source of impartial, validated  information. 
the promotion, among chemical  industry  SMEs of various Community programmes developed  by the 
Commission to facilitate partnerships and subcontracting, to improve management techniques,etc 

Ill 

Id. 

-  International co-operation projects, to be developed by industry, with the support of the Commission, 

can reduce the risks and increase the opportunities existing in third country markets : 

•  for the countries neighbouring the European market (CEECs. certain NIS and the Mediterranean 
countries),  training  and  technical  assistance  projects  for  national  administrations  and  for 
managers  within the  chemical  industry,  in order to promote the progressive  establishment  of a 
regulatory  framework  (public  and  occupational  health,  environment,  competition  laws,  etc.) 
similar to that of the EU, will help those countries which are candidates for accession, but would 
also  allow  the  extension  of  the  EU  internal  market  providing  more  stable  and  homogeneous 
conditions of competition; 

•  for third countries with fast  growing markets (certain CEECs, China, South-East Asia and Latin 
America), training and technical assistance projects combined with other activities more centred 
on technology transfer and investment promotion, will allow  better access ; 

•  for  countries  rich  in raw materials  or  energy  resources  (e.g. Russia,  the  countries  of  the  Gulf 
Cooperation  Council),  investment  in  infrastructure  or  in  industrial  minerals  will  allow  better 
access to these resources and perhaps better control over  erratic prices. 

3.  Conclusions. 

*  The  Commission  considers  that  the  chemical  industry  of the  EU, though  among the  most  modern  and 
competitive  in the world,  faces  a set of challenges that must be met if it  is to maintain  and,  if possible, 
strengthen, its international competitiveness. 

* 

In  order  to  do  this,  a  set  of  actions  to  be  developed  or  pursued,  by  industry,  the  Commission  and 
Member States, has been identified  in the present Communication.  The Commission will implement, in 
co-operation  with  representatives  from  the  European  chemical  industry,  a  structured  follow-up 
programme,  and  will  closely  monitor  the  evolution  of the  international  competitiveness  of  this  sector 
and  the adoption of the various measures proposed in this Communication. 

IV 

U 

TABLE A 
ACTIONS ENHANCING CHEMICAL INDUSTRY COMPETITIVENESS 

Actions 

Commis 
sion 

MS 

Industry 

1.  Consolidate Internal Market legislative work; resolve 

2. 

asbestos, dioxins, PCP cases 
In absence of international level regulation, take account of 
competitiveness of EU industry prior to EU regulation 

3.  Undertake risk assessment and adequate analysis of the costs 

and benefits  for all new regulation or action 
4.  Develop and widen Responsible Care initiatives 

5.  Establish a Community framework  for voluntary agreements 

in MS 

6.  Assess rapidly mergers and joint ventures 

7.  Continue to increase the transparency of State aids rules 

8.  Liberalise energy, especially gas and electricity, markets 

9.  Investigate causes of structural and cyclical overcapacity and 

capacity shortage 

10.  Seek new WTO members apply tariffs  of 0 %, 5.5 %, 6.5 % 

11.  Pursue non-tariff  barriers, especially double pricing 

(distorting investments incentives) 

12.  Reflect the Transatlantic Business Dialogue suggestions to 

harmonize rules on classification,  etc of chemicals 
13.  Explore multilateral agreements for trade and competition 

14.  Improve 4th RTD Framework Programme including Task 

Forces; develop 5th Framework Programme 
15.  Promote SUSTECH and PRIMA approaches 

16.  Enhance scientific  and technological culture 

17.  Implement Commission proposal for increased patent 

protection for crop protection products 

18.  Develop RISC 

19.  Intensify  actions for SMEs 

20.  Relaunch EASTT 

21.  Enhance technical assistance on chemical legislation to 

CEECs 
Increase industrial cooperation with China and others 

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I.  INTRODUCTION 

1.  The Communication will briefly  describe the chemical industry and the challenges it faces, 
and will  propose  a series of initiatives to enhance  its competitiveness.  The initiatives or 
actions  will  be  either  those  currently  pursued  or  those  to  be  undertaken  by  the 
Commission, by Member States and by industry. Those to be undertaken  are contained in 
the  paragraphs  in  bold  type.  The  Commission's  actions  should  be  seen  as  part  of  the 
the  September  1994 
horizontal 
Communication1  which in turn built upon the  1990 Communication2  on industrial policy. 
The  actions  or  initiatives  will  have particular  relevance  to  the  chemical  industry  but  not 
only be applicable to it.  The preparation of the Communication has involved  consultation 
with representatives  of industry  from the earliest stages.  Significant  divergences of views 
between the Commission  and industry  are made explicit.  This approach could be used as 
an example for other similar industries. 

industrial  competitiveness  policy  prescribed 

in 

2.  Following a description  of the industry and the foreseeable  challenges it faces  for the next 
ten  years,  the  Communication  will  examine  certain  measures  grouped  under  the  four 
priorities  of  the  industrial  competitiveness  Communication  :  improving  the  regulatory 
framework  (there  referred  to  as  the  modernisation  of  the  role  of  the  public  authorities), 
ensuring  effective  competition,  promoting 
developing 
industrial  cooperation.  A  final  chapter  will  seek  to  establish  overall  conclusions  and  a 
common  work  programme  to  ensure  that  the  Commission  and  industry  improve  their 
working together to enhance competitiveness. 

intangible  investment  and 

II.  THE EU  CHEMICAL  INDUSTRY 

II.A FACTS ABOUT THE INDUSTRY 

3.  The  chemical  industry  is  very  heterogeneous  in  character. 

Its  principal  activity  is 
chemically transforming  materials into diverse substances with new chemical and physical 
properties.  Its  main  sectors  can  be  grouped  into:  basic  organic  and  inorganic  chemical 
products;  fertilizers  and  nitrogen  compounds;  basic  plastics  and  synthetic  rubber; 
pharmaceutical  and medical products; speciality chemicals, which include  agrochemicals, 
and  specialty  polymers;  paints,  varnishes  and  coatings;  cleaning  and  polishing 
preparations; perfumes  and toiletries; and  man-made  fibres.  The  industry  is divided  into 
two  upstream  sectors:  basic  inorganic  chemicals  and  petrochemicals  (or  basic  organics), 
while  the  rest  of  the  sectors  are  downstream.  The  upstream  sectors'  outlets  are  almost 
exclusively  the  downstream  sectors.  This  Communication  will  generally  not  cover  the 
pharmaceutical  sector  which  is  already  the  subject  of  a  separate  Communication3,  nor 
man-made fibres, though some of the statistics include data from these two sectors. 

4.  The chemical industry is the EU's second largest manufacturing  industry, just behind  food, 
drink  and  tobacco,  in  terms  of  production,  and  electrical  engineering  in  terms  of  value 
added.  The  EU  is the world's most  important  producer of chemicals, well  in front  of the 
USA and even further  ahead of Japan.  Its positive trade balance is also bigger than that of 
chemical  industries  in  the  USA  or  Japan.  15 of the  world's  top  30  chemical  companies 
have EU headquarters (a further  three are in Switzerland) and the three largest are German. 

'COM (94) 319 An  industrial  competitiveness  policy  for the European  Union 

2COM (90) 556 Industrial policy  in an open  and competitive  environment 

3COM(93)718 

The  EU  chemical  industry  directly  employs  1.65 million  people  and  has  a  turnover  of 
ECU  316  bn.  (see  tables  1,2)  Another  three  million  employees  work  in  sectors  using 
output of the chemical industry as direct inputs and thus depend on its competitiveness. 

5.  Popular  belief  sees  the  typical  chemical  company  as  a  large  firm;  this  is  true  for 
petrochemicals,  but  small  and  medium  sized  enterprises  (SMEs^) play  a  vital  role  in  the 
chemical  industry  as  a  whole  and  overwhelmingly  characterise  sectors  such  as  paints, 
specialty  chemicals,  cosmetics,  basic  pharmaceuticals  and  plastic  processing.  Eurostat 
data for  1990 show the chemical industry in the EU  12 comprised  32,700 enterprises  (this 
excludes the plastics transformers).  87% of the enterprises  have less than  50 employees, 
although  they  only  account  for  12%  of  persons  employed  and  16%  of  total  turnover. 
Medium-sized  firms,  i.e.  those  employing  between  50  and  249  employees,  represent 
nearly  9%  of  total  enterprises  or  nearly  17%  of  persons  employed,  and  16%  of  total 
turnover. 

6.  Employment  in the EU chemical  industry  fell  by 4.4% in  1994, a year of good  economic 
recovery.  1995 is also likely to have seen a decline though a smaller one.  Although  1.65 
million people worked in the chemical industry in  1994, this figure has almost  continually 
declined  from  the  1980  figure  of  1.95  million  (though  with  a plateau  during  the  boom 
years  1987-1990). 
It  might  be  noted  that  both  the  USA  and  Japan  saw  much  smaller 
declines  in  chemical  industry  employment  (table  3).  Declining  employment  has  been 
offset  by  improved  quality  of  the  workforce,  e.g.  even  blue  collar  staff  now  require 
advanced  education  and  training  to  cope  with  computer-controlled  processes.  The 
chemical  industry  has  had  to  continually  restructure  in  the  face  of  global  competition; 
declining  employment  is  one  indication  of  this.  The  basic  chemical  sectors  have  been 
especially  affected  by this : the fertilizer  industry has seen its workforce  fall  from  140,000 
in 1980 to 28,000 in 1995. 

7.  Certain  parts,  especially  petrochemicals,  are  very  cyclical,  experiencing  wild  swings  in 
prices  and  profitability.  Some  people  have  seen  industrial  cooperation  measures  as  a 
possible means of avoiding the problems of excess capacity  during economic  downturns : 
high unit  costs, cut-throat  price cutting, large financial  losses and  a lack of investment  in 
new  technologies.  Structural  excess  capacity  is  essentially  the  result  of  an  inability  to 
adapt  the  structure  to  the  cycle,  taking  the  appropriate  measures  which  may  include 
shutting  down plants.  New  capacity  coming  on stream  in a depressed  market  can  add to 
the problem. 

8.  The EU chemical industry is currently doing reasonably well in terms of profitability  after 
several years of depressed  earnings.  Sustained  worldwide  economic recovery  is certainly 
part of the reason for this.  The gross operating surplus rose in  1994 to  13.5%.  Real output 
of the industry grew 6% in  1994.  1995 will have seen lower growth but still a  satisfactory 
rate, especially  compared  with the depressed  years  1990-1993.  But even with those  poor 
years  the  EU  chemical  industry  increased  output  while  all  manufacturing  industry  saw 
output  fall  in the early  1990s.  Between  1985 and  1994 the chemical  industry  saw output 
increase faster than GDP, which in turn grew faster than total industry output (see table 4). 
The  relative  decline that  has  been  affecting  the  EU's  manufacturing  sector  as  a whole  is 
less  prevalent  in  the  chemical  sector  but  the  average  return  on  capital  employed  across 
economic cycles is lower in Europe than in the USA or East Asia. 

9.  The European chemical industry owes its current competitiveness to five principal factors : 
flexibility and willingness to restructure; a multinational  structure favouring  open markets 
and free trade; a heightened  sense of responsibility towards the environment; a capacity to 
innovate; and a high quality workforce  and management. 

II. B FEATURES OF THE INDUSTRY 

10.  The  chemical  industry  is  a  global  industry  with  many  multinational  companies,  though 
several product markets remain regional.  In Europe a sizeable number of factories  belong 
to  American  companies.  European  companies  also  have  significant  investments  in  the 
USA  and  other  parts  of the  world.  Many  sectors  benefit  from  significant  economies  of 
scale  in production  and  distribution  that  may  lead  to  global  product  markets.  Trade  as 
well as investment is important.  20% of EU chemical output is exported. 

11.  In  general  terms,  the  industry  is  both  capital  and  research  intensive.  Many  parts  of  the 
industry  see over ECU  lm  capital  assets per worker employed.  This means that there are 
very  high  fixed  costs  and  a need  for  substantial  cash  flows.  More  than  5% of  turnover 
goes on research  and technology  development  (RTD).  Intellectual  property  plays a vital 
role  and  becomes  an  increasingly  valuable  component  of  competitiveness  : therefore  the 
chemical  industry  is especially  vulnerable to a lack of protection  for  intellectual  property. 
Patents  are  a  key  indicator  of  efforts  to  acquire  such  assets.  European-based  chemical 
companies  are among  the  world  leaders  in patent  ownership  (table  5).  However  the EU 
chemical  industry  cannot  afford  to  become  complacent  in this  area.  As  a whole  the  EU 
had only  36% of patents in the field of chemicals in  1987/9 period, no better than the EU 
average for all types of technologies.  The USA has a higher than average share of patents 
in chemicals. 

12.  In  terms  of  capital  spending,  the  European  chemical  industry  appears  less  well  placed 
against  the  USA  and  Japan.  1994  saw  a  slightly  higher  figure  for  investment  in  the 
European chemical  industry compared with  1993, but this figure  was 25% down on  1990. 
In contrast the US chemical  industry  significantly  increased  capital  spending  in  1994 and 
was  spending  40% more  than  in  1990.  Japan  saw capital  spending  fall  in  1994, a  slight 
reduction  from  1990  ( table  6).  Different  phases  of the  economic  cycle  explain  some of 
this. 

13.  Energy  and  gas-as-feedstock  costs  play  an  important  role  in  the  chemical  industry  as  a 
whole, representing between  15% and 60% of manufacturing  costs for most products.  The 
vital  importance  of electricity  for  chlorine products  and natural  gas for  fertilizers  are just 
two  examples.  Much  of the primary  energy  is imported  into  the  EU  as are many  of the 
raw materials for the industry, especially for basic chemicals.  This tends to lead to certain 
input cost disadvantages. 

14.  Energy  efficiency  in  the  chemical  industry  has  made  substantial  progress.  The  energy 
consumption  per  unit  of  output  fell  by  25% between  1960  and  1980  and  a further  25% 
between  1980  and  1993.  In  many  sectors  energy  efficiency  is  reaching  its  theoretical 
limits.  Lower  gas  and  electricity  prices  are  therefore  even  more  necessary  for 
competitiveness.  The  Paris-based  International  Energy  Agency  produces  data  showing 
that industry  in European  OECD Members paid  $169/toe for  natural  gas against  $127/toe 
in the USA  in  1993.  Electricity  prices to industry  were  7.4  c./KWh ($866/toe)  in  OECD 
Europe and 4.9 c./KWh  ($565/toe) in the USA.  Furthermore, inside Europe energy prices 
vary by as much as 100% between Member States. 

15.  The chemical  industry produces products which affect  everybody's life. This is part of the 
reason  why there  are special  sensitivities  surrounding  the public  and  occupational  health 
and environmental  aspects of chemical products.  Governments  and the industry  are  fully 
aware of and respond to these sensitivities. 

II.  C  THE CHALLENGES FACING THE EU  CHEMICAL  INDUSTRY 

16.  The EU chemical industry's aim is to retain or improve its place in the global economy and 
achieve a satisfactory  return on capital.  To this end, its objective is to supply its customers 
worldwide  with the  highest  quality  products,  at the  lowest  competitive  cost,  in  a healthy 
and  environmentally  sustainable  fashion  and  on  a  long  term  basis.  This  requires  it  to 
generate  sufficient  profits  from  current  sales  to  provide  for  the  investment  necessary  to 
find new products.  Furthermore,  in a world  of highly  mobile capital, Europe must  offer 
attractive rates of return on capital invested or see a dwindling of investment and a decline 
in activity therein.  The objective  of the Commission and Member States is to provide the 
best  possible  horizontal  framework  . to  allow the  chemical  and  other  industries  to  fulfil 
their  aims and  objectives  and  ensure that this  maintains  or increases the  level  of highly 
qualified  employment in the EU. 

II.C.l  Better and more environmentally sound products 

17.  New  and  higher  quality  products  require  innovation.  These  are  the  products  that  meet 
environmental  concerns and consumer preferences, that can reduce car exhaust emissions, 
result  in  new  fabrics  or  improve  skin  care.  The  challenge  is  to  ensure  that  innovation 
continues  to  produce  better  products,  with  reduced  environmental  impact  through  the 
complete life cycle of the product.  Innovation may represent an incremental  improvement 
Innovation  requires  significant 
or  a  radically  different  set  of  molecules  altogether. 
spending on RTD.  It also requires excellence in the science base and an adequate pool of 
well educated scientists and researchers. 

18.  Companies  can decide  on how much they  spend  on RTD but the public  authorities  must 
ensure  that  the  population  is  well  educated  and  should  encourage  a  rational  scientific 
debate over issues such as new products and processes.The  authorities recognise the need 
for  independent  public  sector  research  to  address  public  concerns  and  perceptions  in  the 
acceptability  of the risks  involved.  Furthermore, these  authorities  can  inhibit  innovation 
with requirements for the testing and registering of new products. Innovation is the key to 
guarantee and  enhance the EU's industry  competitiveness.  There are reports from  certain 
segments of the European chemical industry that the number of new products launched per 
year have fallen  significantly  over the past  15 years; a fall  of 50% is reported  by the dyes 
industry.  There  are  indications  that  many  of  Europe's  chemical  companies  are 
increasingly locating their innovation activities outside the EU - notably  in the USA.  The 
public  authorities  and  industry  must  work  together  to  address  these  worrying  trends.  In 
particular  environmental  legislation  should  encourage  innovation  while  guaranteeing  a 
high  level  of  protection  of  the  environment. 
It  can  best  perform  this  dual  role  when 
appropriately  integrated into other policies. 

II.C.2 Competitively priced products 

19.  Competitively  priced products are the only way the EU chemical  industry  will  sell, make 
money,  contmue  to  invest  and  operate.  The  challenge  is  to  ensure  that  Europe  can 
continue  to  produce  good  products  at  sufficiently  low  prices  to  compete  with  products 
made  in  other  parts  of  the  world.  One  way  is  to  concentrate  on  those  products  and 

_4_ 

processes  where  Europe  has  a  comparative  advantage.  Continual  restructuring  is 
necessary  with  the  least  efficient  firms  leaving  a particular  sector  and  the  industry  as  a 
whole  shifting 
investment  from  unprofitable  sectors  to  profitable  ones.  Certain 
impediments to the process exist; barriers to exit,  e.g.  excessive  state aid, are part  of the 
challenge. 

20.  Efficient  resource  allocation  requires  markets  to  work  and  as  a  global  industry  the  EU 
chemical  industry benefits  from  open markets worldwide.  Such markets initiate continual 
restructuring  but  efficient  resource  allocation  and  real  competitiveness  indications  can 
only be achieved  if competition  is effective.  The EUshould  ensure that  foreign  chemical 
producers abide by World Trade Organisation fWTO^ rules. 

21.  Europe will continue to provide the basis for the EU chemical  industry's  sales but exports 
are a vital source of earnings.  European firms have every interest in being present in those 
markets which are experiencing  fast  growth, in order to reap the benefits  of economies of 
scale  and  reduce  costs  Most  forecasters  see  the  Pacific  Rim  as  providing  the  fastest 
growing markets.  EU firms are already present in all the Pacific Rim countries but need to 
be more present.  China will probably  be an important  sales area for the next  decade  and 
the  other  East  and  South  Asia  countries  will  drive  world  sales.  It  is not  easy  to  sell  or 
engage in  business ventures half way round the world but it is a challenge which must be 
met.  This can be helped  by ensuring fair  conditions  for  free  access to and  investment  in 
these  countries.  The  Pacific  Rim  will  also  pose  a  major  challenge  as  a  supplier  of 
chemical products to other parts of the world. 

22.  Competing  globally  and  being  able to produce  competitively  through  economies  of  scale 
requires minimum efficient  scale sites and companies.  Joint ventures or mergers offer  two 
of  the  possible  ways  of  creating  companies  large  enough  to  obtain  these  advantages 
provided that such operations do not lead to an appreciable restriction of competition.  The 
challenge  is  for  the  EU  competition  authorities  to  ensure  that  companies  are  allowed  to 
to  compete,  but  not  to  allow  such  operations  which  can  impede 
grow  big  enough 
effective  competition  within  the  EU.  However,  SMEs  also  play  an  important  role, 
especially  in  some  sectors  such  as  specialty  chemicals  and  paints  and  varnishes  where 
sales  are made  to  final  consumers.  SMEs  are  often  suppliers  or  customers  of  the  larger 
companies  and  one key challenge  facing  the industry is how to improve this  complicated 
but potentially highly flexible  structure to reduce costs. 

23.  The  rationale  for  the  Single  Market  is  to  allow  firms  to  benefit  from  the  economies  of 
scale  from  a  large  market  .  The  Single  Market  has  certainly  come  a  long  way,  but  the 
challenge  is  to  ensure  that  remaining  barriers  are  abolished  and  that  integration  is 
improved.  Certain  specific  national  regulations  for  chemicals  still  exist.  As  with  other 
industries,  chemicals  suffer  from  the  lack  of  truly  integrated  railway  or  road  transport 
networks.  The  still  missing 
internal  market  for  electricity  and  gas  is  a  big  drawback 
impacting negatively  on the competitive position  of the chemical  industry.  The lack of a 
single  European  currency  is a further  challenge  with  currency  fluctuations  causing  major 
complications. 

III.  ACTIONS TO ENHANCE  COMPETITIVENESS 

24.  To  meet  these  challenges,  industry,  the  Commission  and  Member  States  need  to  take 
specific  actions.  Some  actions  are  currently  underway  and  need  reinforcing;  but  some 
new  initiatives  are  required.  The  Commission,  together  with  industry  and  the  Member 
States,  must  act  within  the  four  priority  areas  for  industrial  competitiveness  policy: 

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improving the regulatory framework,  ensuring effective  competition; promoting  intangible 
investment; and developing industrial cooperation. 

I I I .A  ACTIONS TO IMPROVE  THE REGULATORY  FRAMEWORK 

25.  Most  of  the  chemical  industry's  activities  have  an  impact  on  public  health  and  the 
environment, and therefore  many of the industry's domains of activity are regulated. More 
specifically,  regulation  covering  production  processes  and  products  is  of  paramount 
importance for the chemical  industry. Being a highly capital  intensive industry,  it is most 
important that the legal framework  is as stable and predictable as possible. 

III.A.1.  The current  framework 

26.  The legal basis of a Community legislative measure is determined, in accordance with the 
case-law  of the  Court,  in the light  of the objective  pursued  by this measure.  Legislation, 
the objective  of which is to guarantee free movement of goods within the Internal  Market, 
is based on Article  100 A.  When the objective of legislation is to protect the environment, 
the legal base used  is Article  130 S.  Article  118 A provides a mechanism  for  developing 
health and safety  initiatives wich calls for cost effectiveness  studies to avoid constraints on 
SMEs, a full  scientific  base for regulations and a tripartite consultation process.  It enables 
Member  States  to  maintain  or  introduce  more  stringent  measures  for  the  protection  of 
working conditions.  Article  129 provides the framework  for the development of measures 
dealing with public health. 

27.  Internal  Market  issues  and  environmental  protection  are  closely  linked  to  each  other. 
When proposing  Internal  Market  legislation,  the  Commission  must  take  as a base  a high 
level  of  environmental  protection  (Article  100  A3),  while  Member  States  wishing  to 
"apply"  (under  Article  100  A4),  "maintain  or  introduce"  (under  Article  130  T)  stricter 
envrionmental  rules than those in force  at EC level  must  make  sure, according  to  Article 
130 T, that  such national  measures  are compatible with Treaty rules, including  principles 
relating to the free movement of goods. 

Free movement of chemicals 

28.  Chemical  products  move  freely  within the Internal  Market.  According  to the principle  of 
mutual  recognition  which  has  been  derived  from  the  "Cassis  de  Dijon"  judgement4, 
products  legally  produced  and  marketed  in  one  Member  State  must  in  principle  be 
admitted  in all other Member  States.  In order to identify  cases in which  a Member  State 
has refused  the free  movement  of goods, despite the fact  that they  were legally  produced 
and/or marketed in another Member State, an information  procedure has been set up under 
which  the  Commission  and  the  Member  States will  exchange  information,  from  January 
1997  onwards,  on  national  measures  which  derogate  from  the  principle  of  the  free 
movement of goods. 

29.  Whilst the principle  of mutual recognition  applies to all types of products,  some  Member 
State  actions  may  have  the  effect  of  fragmenting  the  Internal  Market.  This  places  an 
obligation  on  the  Commission  to  harmonise,  that  is, to  propose  Union-wide  regulations 
which  deal with the risk to health and the environment  while  assuring  free  circulation. A 
comprehensive  framework  for  chemicals  control  has  been  created  at  Union  level.  The 
Community's  direct  contribution  began  with  ad-hoc  measures.  Development  of  a 
harmonised  system  for  classification,  packaging  and  labelling  of  dangerous  substances 

4  Case  120/78 Court of Justice 20 February  1979 

began  with  adoption  of  Directive  67/548/EEC.  A  harmonised  system  for  limiting  the 
marketing and use of dangerous preparations5 and substances6 followed.  Harmonised rules 
for  the classification,  packaging  and labelling  of dangerous preparations  were  established 
by  Directive  88/379/EEC.  In  more  recent  years,  controls  have  been  extended  in  a  more 
programmed  way to include notification  of new substances7 and the systematic  evaluation 
of  existing  substances8.  A  systematic  approval  system 
is  to  be  set  up  for  biocides. 
Moreover,  a  Community  framework  has  been  set  up  which  lays  down  essential  safety 
requirements  that  have  to  be  met  throughout  the  Community  in  order  to  allow  for  free 
movements  of  dangerous  goods.  The  Community's  legislative  action  in  the  field  of 
chemicals  has been  generally  appreciated  in the  sense that  a single  set  of  rules  at  Union 
level  is,  clearly,  more  efficient  than  fifteen  different  systems  at  national  level.  Further 
consolidation  is of  course  possible  and  is already  under  way  for  dangerous  preparations, 
fertilizers and detergents. 

30.  Environmental  conditions  are  different  between  the  Member  States  and,  for  that  reason, 
some  Member  States  may  wish  to  apply  national  rules  going  beyond  Community 
legislation.  The major  challenge is to balance the need to develop and maintain the nternal 
market  with  the  need  for  higher  levels  of  environmental  protection  in  those  Member 
States. 

31.  The Commission will continue to consolidate the internal  market rules for  chemicals 
to avoid difficulties,  such as restrictions  of trade, caused by different  sets of national 
legislation. 

Environmental regulation and sustainable development 

32.  Complying  with  environmental  requirements  is  sometimes  seen  by  industry  as  a  non 
productive  cost.  However,  environmental  leadership  can  stimulate  innovation  for  new 
technologies  and  products  and  thus  provide  a  competitive  advantage.  Also,  good 
environmental  performance  can bring about important  savings in resources and  contribute 
to creating a good corporate public image for each company. 

33.  A  key  objective  of  both  public  authorities  and  industry  is  to  enhance  the  international 
competitiveness  of  industry  in  a  context  of  sustainable  development.  The  concept  of 
sustainable  development  involves  economic,  social  and  environmental  aspects,  as  was 
concluded  in the  1992 United Nations Conference  on Environment  and Development  that 
met in Rio de Janeiro. The Fifth  Environment Action Programme9 stresses that these three 
aspects are key elements in developing policies based on sustainable development. 

III.A.2  Principles for future action 

34. The internal  "Guidelines for Regulatory Policy", adopted by the Commission on 16 January 
1996, constitute  the basic  reference  for  future  proposals.  The  main  objective  is to  make 
sure  that  the  evaluation  of policies  reflects  the  common  interest.  The paragraphs  below 

5 Directive 76/769/EEC 
6 Directive 79/117/EEC 
7 By the 6th  Amendment to Directive 67/548/EEC 
8 Council Regulation  793/93/EEC 
9COM (92) 23 Final 

- 7-

summarise how this could be pursued when legislation affecting  the EU chemical  industry 
is being prepared. 

35.  Once a potential  risk to health or the environment has been identified  (often  in a Member 
State), the  Commission  should  decide  whether  or not  to  act.  Perhaps  no  intervention  is 
necessary  and  the  matter  can  be  resolved  through  mutual  recognition  of  Member  States 
rules. Article  130R.2 of the Treaty foresees that the precautionary principle is to be applied 
to environmental  questions. This application  could potentially  occur when indications  for 
a  very  high  level  of  danger  for  the  environment  or  the  human  health  exist  and  risk 
assessment, for practical reasons, can not be carried out. 

36  A detailed analysis to justify  intervention is also needed.  In this context a risk  assessment 
is  first  carried  out  according  to  Community  principles.  Then,  having  confirmed  that  an 
unacceptable  risk  does  exist,  detailed  strategies  for  risk  reduction  are  identified  and  the 
most cost-effective  option is chosen.  This process must involve an appropriate analysis of 
the  costs  and  benefits  of the  options  available.  (See  in  annex  an  example  of  the  proper 
application  of  such  principles  in  the  case  of  nickel)  As  far  as  proposals  relating  to  the 
environment are concerned, Art.  130R.3 of the Treaty requires that in preparing its actions 
relating  to  the  environment,  the  Community  take  account  of  the  potential  benefits  and 
costs of action or lack of action.  This is also foreseen  in the Fifth  Environmental  Action 
Programme.  The  same  should  apply  to  Member  States  in their  areas  of  competence.  A 
proper  economic  and  environmental  analysis  aiming  at  appraising  the  net  benefit  for 
society  of a measure, sheds light on  its efficiency  and  helps add more objectivity  to an 
otherwise  potentially  emotional  debate.  CEFIC  has  to  continue  to  provide  proper 
scientific  data (exposure of workers, toxicological  studies) in order to facilitate  the proper 
legal framework  for an improved competitive environment. 

37  The  Commission  will  carry  out  a  comprehensive  risk  assessment  and  an  adequate 
analysis  of  the  costs  and  benefits  prior  to  the  adoption  of  proposals  affecting  the 
chemical industry.  In areas where Member States intend to apply stricter rules  than 
those in force at EU level, the Commission will encourage them to carry out the same 
analysis.  When  Member  States  already  apply  these  stricter  rules  the  Commission 
will, in the framework  of the analyses that it carries out as regards the  compatibility 
of  national  measures  with  Community  law,  pay  special  attention  to  the  analysis  of 
risks and to the cost-benefit  aspects of such national measures. 

38.  Deciding  on the  level  at which  intervention  should take place  is important.  Will  it be at 
international  level  (OECD,  UNEP,  PARCOM)  or  will  it  take  place  at  EU  level? 
Evidently, consideration needs to be given as to whether the risk is one that transcends the 
relevant  territorial  boundaries.  Also,  stricter  regulation  by  the  EU  may  affect  the  EU 
chemical industry's competitive position vis-à-vis the chemical industries in other zones of 
the  world.  International  convergence  of policies,  one  of  the  central  issues  of  the  present 
debate  on  trade  and  environment,10  is  needed  not  only  to  avoid  the  temptation  to  use 
environmental and health protection arguments to justify  protectionism, but also to prevent 
some  countries  from  exploiting  a comparative  advantage  as 'dirty producers'  of  chemical 
products.  When  rules  in  other  industrial  economies  are  less  strict  than  in  the  EU, 
délocalisation  of  certain  production  lines  may  occur;  this  may  also  encourage  imports 
from third countries of products whose production is no longer possible within the EU. 

10 See the (draft)  Communication to the Council on trade and environment,  Section I point 2.3 

39.  When  agreement  at  international  level  is  not  possible, 

the  implications  of  new 
European  environmental  measures on the competitiveness  of the chemical  and other 
industries will  be taken into account.  It  might be preferable  to involve  at least the 
OECD countries and advanced developing countries in environmental rules. 

40.  The most appropriate type of action must be selected.  Besides regulation, voluntary action 
and  economic  instruments  can  play  a  complementary  role  in  achieving  desirable  health 
and environment targets. Voluntary  agreements and economic instruments are more likely 
to  be  effective  in  improving  environmental  performance  than  in  regulating  the  free 
circulation of chemicals. 

41.  Voluntary  action  can  take  the  form  of  unilateral  industry  programmes,  such  as  the 
chemical  industry's  Responsible  Care  Programme  or  the  Voluntary  Energy  Efficiency 
Programme  (VEEP).  Voluntary  approaches  and  agreements  reflect  bilateral  cooperation 
between public authorities  and industry  and may serve to achieve  Community  objectives. 
One high-profile  example where voluntary sectoral agreements can play an important role 
is  in  reducing  CO2  emissions,  provided  that  they  include  quantified  reduction  targets. 
This approach is favoured  by industry instead of a C02/energy tax. Examples of voluntary 
actions  concerning  products  at  international  and  EU  level  include  the  reduction  of  risks 
from  brominated  flame-retardants  (implemented  at  OECD  level)  and  the  labelling  of 
detergents  (implemented  at  EU  level).  Another  example  of  voluntary  action  is  the 
substitution applied by industries in some Member States of some dangerous pesticides by 
less dangerous ones. 

42.  Industry  will  develop  and  widen  Responsible  Care 

initiatives  and  other 
environmental  management  systems 
leading  to  better  overall  environmental 
It  will  develop  new  processes  and  products  that  are  more 
performance. 
environmentally  friendly  and  more  resource  effective  and  invest  in  new  equipment 
and facilities which  decrease emissions and energy use (Voluntary  Energy  Efficiency 
Programme  (VEEP)) 

43.  When  preparing  voluntary  agreements,  attention  should  be  paid  to  conformity  with 
competition  rules, since voluntary agreements which imply cooperation among firms may 
pose problems  with  regard  to potential  anti-competitive  practices  by participating  firms. 
Where such voluntary  agreements fall  within the scope of Article 85 §1 of the Treaty, they 
may  nevertheless  benefit  from  an  individual  exemption  provided  that  the  conditions  of 
Article 85§3 are met. 

44.  As far as the use of voluntary  approaches or agreements is concerned, a Community 
framework  is  under  consideration,  aiming  at  establishing  criteria  within  EU 
environmental  policy  and  at  ensuring  that  such  agreements  do  not  fragment  the 
Internal Market. 

45.  Economic instruments are becoming widely used in the environmental  field.  In particular, 
public  authorities  can  influence  the  environmental  choices  of  companies  and  consumers 
through taxation.  As a rule, fiscal  instruments e.g. incentives for  accelerated  depreciation 
are  decided  at  Member  State  level,  taking  into  account  the  Commission  policy  on  state 
aids  and,  in  particular  cases,  specific  provisions  for  fiscal  instruments  in  Council 
Directives11. The CO2 dossier has shown the difficulties  of reaching unanimous agreement 

11 [An  example  is  Art.  15  of  Directive  94/62/EC  on  packaging  and  packaging  waste 

(O.J.  n°  L  365, 

31.12.94,pl0)] 

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on  environmental-related  taxes.  To  date,  some  Member  States  (Denmark,  Finland,  the 
Netherlands  and  Sweden)  have  unilaterally  proceeded  with  national  schemes,  including 
exemptions  for  certain  activities.  They  think  that  economic  instruments  are  a  cost-
effective  way to deal with environmental  problems.  In order to avoid unfair  competition 
and distorted resource allocation, these exemptions must respect the conditions  laid down 
in  the  framework  for  environmental  aids,  which  was  adopted  by  the  Commission  in 
December  199312.  At  the request  of the  ECOFIN  Council,  the  Commission  is  currently 
considering the possibility  of devising a new approach for the taxation of energy products 
which will deal, at a Community  level, with the problem of competition, whilst creating a 
framework  within which Member States can, if they so wish, pursue other specific  policies 
such  as  reduction  of  CO2  emissions.  However,  the  EU  chemical  industry  is  not 
convinced that environmental levies are a good way of addressing environmental issues. 

46.  In addition, a communication  on environmental  levies is under consideration  by the 
Commission.  This  Communication  will  give  Member  States  guidelines  on  how  to 
reconcile  the use of economic  instruments  to achieve  environmental  targets with  the 
requirements  of  the  Internal  Market,  while  strictly  observing  inter  alia  the  above-
metioned framework for environmental aids. 

III.B  ACTIONS TO ENSURE EFFECTIVE COMPETITION 

47.  The  chemical  industry,  comprising  many  firms  operating  across  several  Member  States 
and  indeed  operating  as  multinationals  in  the  global  economy,  requires  effective 
competition inside and outside the EU. 

III.B.1 Effective  competition internally 

Competition law, mergers and joint ventures 

48.  The  competitiveness  of the  industry  as a whole  requires that  large  companies  should  not 
abuse  possible  dominant  positions,  nor  engage  in  anti-competitive  practices.  The 
competition  authorities  should  allow  mergers  or joint  ventures  which  do  not  threaten  to 
lead  to  an  appreciable  restriction  of  competition  and  disallow  those  which  do.  In  this 
context  it  is  particularly  necessary  to  assess  how  the  partners  are  placed  on  the  market 
which  is  increasingly  global,  especially  for  certain  basic  chemicals  and  advanced 
technologies. 

49.  The  Commission  will  ensure  that  both  cooperative and  concentrative  joint  ventures 
are assessed  rapidly.  The Commission has submitted a Green Paper  on the  revision 
of  the  Merger  Regulation  which  is  presently  being  discussed  with  the  Council  and 
European  Parliament.  The  Commission  is  seeking  to  lower  the  thresholds  for  the 
Merger  Regulation  removing  the need  for  multiple  notifications  and  creating  a real 
'one stop shop'. 

Cycles of excess capacity and capacity shortage 

50.  Many  capital-intensive  industries  are  prone  to  cycles  of  excess  capacity  and  capacity 
shortage  and the petrochemicals  sector is particularly  vulnerable.  The problem  is easy to 
identify,  the  development  of  effective  mechanisms  to  address  the  issue  is  much  harder, 
particularly  in  a  competitive  climate  where  each  firm  believes  it  will  succeed  and  even 
capture market share from others.  Furthermore, in the petrochemicals sector, the cycles of 

12O.J. n°C72,  10.3.94, p. 8 

-10 

capacity  excess  and  shortage  may  have  causes  and  consequences  outside  Europe  and a 
global  analysis  would  be  appropriate.  The  industry  is  providing  certain  input  for  the 
Commission work as part of a scenario-planning exercise. 

51.  The Commission will encourage restructuring in cases of structural inadaptation and 
will  investigate  the  causes  of  cyclical  and  structural  capacity  mismatches  in 
petrochemicals  when  assessing  whether  any  form  of  industrial  cooperation  might 
alleviate the apparent problems without infringing competition rules. 

State aid 

52.  State  aids  should  not  give  unfair  advantages  to  some  chemical  companies,  allowing  less 
efficient  producers to maintain or even increase market  share, lowering the efficiency  and 
thus competitiveness of the industry as a whole.  The industry should also not face  unfairly 
subsidised  competition  from  other  sectors.  The chemical  industry  contains  many  capital 
intensive  activities  and  has  an  interest  in  minimising  distortions  caused  by  state  aid.  .In 
determining  which  State  aids  are  allowed,  the  Commission  will  continue  to  apply 
transparent and objective criteria.  Sectoral aid frameworks  may discriminate against small 
entreprises  and  new-comers.  The  new  synthetic  fibres  framework,  for  example,  has 
reduced this distorting effect,which  was present in the former one.  The revised  framework 
for  state  aids  for  SMEs  makes  it  easier  for  all  small  companies  to  invest  in  intangible 
investment. 

53.  The  Commission  will  continue  its  efforts  to  increase  transparency  in  the  rules  on 
State aid and in its administration  of State aid cases to reduce the overall amount of 
state  aids  granted,  and  to  minimise  the  distortions  such  aid  can  cause.  The 
Commission will continue to study a horizontal control system for regional aid to big 
investment projects, which would set up a multisectoral discipline. 

Prices of energy and other inputs 

54.  Effective  competition  requires  unrestricted  access to  inputs  at  world  market  prices  if the 
EU  is  not  to  be  disadvantaged.  Energy  is  one  key  input.  However,  agricultural  based 
products,  e.g.  sugar  and  starch,  which  serve  as  basic  products  for  certain  fine  chemicals 
and specialties should also be included. 

55.  Much work has already been done in identifying  the remaining obstacles to the integration 
of  energy  markets, and  some  progress  has been  made  in removing  barriers.  However,  it 
has to  be recognised  that within  the energy  sector, the markets  for  electricity  and  gas are 
still  far  from  being  open  and  competitive.  An  industry  like the chemical  industry,  being 
exposed  to  global  competition  needs  to  benefit  from  competitive  energy  input  prices 
which  can  only  be  assured  through  the  realisation  of  internal  energy  market.  Large 
industrial users, will  gain particular benefits  in terms of lower costs, thus leading to direct 
and indirect advantages to all consumers, increasing global industrial competitiveness. 

56.  The Commission will continue efforts  to liberalise energy  markets in the EU, leading 
to  more  efficient  energy  production  and  distribution  and  also  to  cheaper  energy 
inputs for the chemical and other industries.  Effective  third party access for gas and 
electricity is one major element of such liberalisation. 

11 -

III.B.2 Effective  competition externally 

57.  Externally,  effective  competition  requires  the  Commission  to  create  a level  playing field 
and  ensure  that  the  newly-created  WTO  works  effectively.  The  long  term  objective  of 
both  the  Commission  and  the  European  chemical  industry  is  to  eliminate  all  barriers  to 
trade.  Tariffs  for  chemicals  in  developed  countries  are  relatively  low  and  will  decrease 
further  and be harmonised  at 0%, 5.5% and 6.5% thanks to the Uruguay  Round  in which 
the  industries  of  the  EU,  USA,  Canada  and  Japan  played  a  major  role.  Developing 
countries, especially the richer, more advanced nations such as Malaysia,  Thailand, Brazil 
and  Mexico  and  China,  should  be encouraged  to  reduce  their  tariffs  to these  harmonised 
rates. 

58.  The Commission will seek to ensure that new members of the WTO , especially those 
that  are  relatively  advanced,  apply  the  harmonised  rates  for  chemicals,  from  the 
start.  Efforts to reduce others' tariffs will also be made. 

59.  Non-tariff-barriers  or  measures,  and  in  particular  double-pricing  of  raw  materials  and 
feedstocks,  distort trade.  The latter  is of particular  concern to the petrochemical  industry 
for  whom  feedstock  double-pricing  in  certain  developing  countries  causes  unfair 
competition.  Among  the  various  means  available  to  tackle  this  problem,  countries 
intending to join the WTO should, when possible, be obliged to refrain  from  applying such 
practices.  Double-pricing  of  natural  resources  may  have  a  distorting  impact  on  trade-
flows  and  on  investment  decisions.  Testing  and  certification  problems  also  frequently 
represent  non  tariff  barriers  to  trade  in  chemicals,  with  China  and  Poland  being  recent 
sources  of  such  difficulties  for  EU  exporters.  Special  registration 
and  mandatory 
declaration procedures that distort trade should be ended.  Although not considered  illegal 
measures  by  the  WTO,  technical  rules  on  the  classification,  packaging  and  labelling  of 
dangerous  chemicals  and  preparations  and  on  Prior  Informed  Consent  for  trade  in 
hazardous  substances which  differ  from  region to region, also constitute  barriers to trade. 
Whilst  the  United  Nations  is  trying  to  promote  global  harmonization  of  these  rules  the 
work is proceeding only slowly.  There are moves to accelerate this through joint EU/USA 
leadership. 

60.  In consistency with its market access initiative, the Commission will seek to address these 
problems firstly by using all available instruments at multilateral level and in particular by 
being vigilant to ensure that the Community's trading partners adhere to WTO obligations 
and  respect  them.  It  will  also,  whenever  appropriate,  raise  market  access  issues  in  the 
context of its bilateral relations with third countries as well as pursue other policies such as 
the promotion of international industrial cooperation. 

61.  The Community  adopted the Trade Barriers Regulation  (TBR) in December  1994 to 
address non-tariff-barriers  and  other trade distortions.  It will  act upon  a complaint 
by  a  company  or  industry  concerned. 
Imports  into  the  Community  subject  to 
injurious dumping and subsidisation will be combated, though a rigorous  application 
of the updated  commercial  policy instruments, further  to a valid  complaint  from  the 
company  or  industry  concerned.  The  Transatlantic  Business  Dialogue  (TABD) 
contains  working  groups  covering  inter  alia  certification,  regulation  and  trade 
liberalisation. 
If  the  TABD  so  recommends,  the  Commission  could  reactivate 
bilateral discussions with the USA to harmonise the rules on classification,  packaging 
and labelling and Prior Informed Consent, first bilaterally then globally. 

12-

62.  The international dimension of competition policy, combined with the lack of international 
rules, also affects  competitiveness.  This is particularly  damaging  when the nature of the 
market is global.  One example is the export cartel of US rock phosphate producers, which 
prevents EU fertilizer  manufacturers  gaining  access to phosphate  at prices  low enough to 
compete with US-made phosphate fertilizers.  Trade and competition is an important issue 
on the new trade agenda.  The Commission will seek a multilateral agreement whose main 
elements would be the creation of a framework  based on a set of common rules, a binding 
positive community instrument and a dispute settlement procedure. 

63.  Coordination  between  the  competition  authorities  in the  EU and  USA  is already  assured 
via  an  agreement.  Similar  arrangements  are  being  considered  with  other  countries,  e.g. 
Japan.  The  Europe  Agreements  incorporate  rules  on  competition  with  implementing 
provisions  similar to those of the EU/US  agreement.  Such rules  are  also  included  in the 
agreements being concluded with Mediterranean countries. 

64.  The Commission  plans to explore international agreements on competition  law -both 
bilaterally  and plurilaterally.  The Commission will evaluate, on a case by case basis, 
possibilities and benefits of the incorporation of competition rules in new cooperation 
and  association  agreements,  in order to  remove  barriers  to trade  in  these  countries. 
In  addition, within  the  OECD, work  on  International  Investment  might  permit  the 
reduction  of  such  practices  as  double  pricing.  This  will  tackle  export  cartels  and 
barriers  to  market  access  caused  by  coordinated  practices  between  domestic 
producers. 

III.C  ACTIONS TO STRENGTHEN INTANGIBLE INVESTMENT 

65  A company's  competitiveness  on the eve of the 2 1st Century  depends increasingly  on its 
innovative  power13  in  terms  of  processes,  products,  work  organisation  and  the  rapid 
dissemination  of new technologies.  Investment  in research and development,  intellectual 
property,  training,  health  and  safety,  data  processing  and  the  whole  panoply  of  areas 
covered  by  'intangibles',  is  essential  if  the  chemical  industry  is  to  remain  competitive. 
Research productivity  is a major  target, taking into account the contribution of research to 
standards  and  regulations,  the  role  of  RTD  in  promoting  rapid  absorption  of  new 
technologies  in particular  by SMEs, the need for  a more coherent  and coordinated  public 
intervention and private efforts  in RTD.  Furthermore, the chemical industry will  continue 
to  give  due  attention  to  education  and  training  issues  involving  chemistry  and  chemical 
engineering;  and  to  reinforcing  the  science  base  of industry.  Innovation  in the  chemical 
industry also has an important effect  on other sectors e.g. vehicles and electronics. 

III.C.l Research and development 

66.  The  chemical  industry  has  long  realised  the  importance  of RTD leading  to  innovation  in 
products  and  processes  as a fundamental  source  of  competitiveness.  Until  recently  it  has 
tended  to  avoid  collaboration  with  its  competitors.  Although  it  has  been  involved  in 
previous  Framework  Programmes, this was relatively  low key  given the  level  of  its  own 
RTD  capabilities.  However,  growing  pressure  from  society 
'cleaner' 
technologies  and  to  maintain  a  competitive  position  in  the  global  market,  coupled  with 
high  costs  and  high  risks  for  such  RTD,  have  made  participation  in  the  4tn  Framework 

to  develop 

13See  1995 Green  Paper  on  Innovation 

- 13 

Programme more attractive and important for the chemical industry.  This has led industry 
to  launch  SUSTECH,  an  initiative  extending  beyond  the  chemical  industry,  aimed  at 
promoting collaborative RTD in technologies for  sustainable process industries in Europe. 
The  term  "sustainable"  is  used  in  this  context  to  mean  process  industries  which  are 
resource and energy efficient  and which generate the minimum of waste and damage to the 
environment. 

67  Within the current 4m  Framework Programme, specific programmes such as Industrial and 
Materials  Technologies  (BRITE-EURAM),  Standards  Measurement  and  Testing  (SMT), 
Information  Technologies  (ESPRIT), Environment  and  Climate  and  Marine  Science  and 
Technology  and  Biotechnologies  finance  a  large  number  of  projects  relevant  to  the 
chemical industry.  To take  two examples: within ESPRIT, the PRIMA initiative involves 
16  large  companies  from  the  chemical,  food  and  beverages,  steel,  paper  and  utility 
industries  and  is  designed  specifically  to  strengthen  the  competitiveness  of  Europe's 
processing  industries  by  securing  the  maximum  business  advantage  from  information 
technology;  within  BRITE-EURAM  the  ADMIRE  project  involves  several  chemical 
companies cooperating on new design methods for large scale gas liquid reactors. 

68  The  creation  of  Task  Forces  has  been  an  important  step  to  promote  better  coordination 
within  industries  and  European  authorities  in  RTD  Programmes  : the  chemical  industry 
can and should participate actively in the car, train and plane of the future  projects  as well 
as in water technology  and healthcare subjects.  Concerns over competitiveness mean that 
the  structure  of the RTD programmes  needs to  support  cross-disciplinary  working, to  get 
results to market  faster  and to make processes  simpler  and more flexible. Part  of this  can 
be  achieved  by  thematic  clusters, whose  aim  is, through  coordination  and  integration,  to 
secure added value by improving  synergies, facilitating  technology transfer  and  catalysing 
the dissemination and exploitation of results.  Clusters can also be based around particular 
suppliers  or  user  groups,  such  as the  process  industries  and  include  demonstration  and 
application-oriented  actions. 

69.  The  4*n  Framework  Programme  will  continue  to  support  collaborative  RTD 
initiatives  of  the  chemical  industry  .  The  research-industry  Task  Forces  combine 
other  Community  policies  with  RTD  and  application  projects.  This  model  has 
already proved its worth and could be extended . 

New  thematic  clusters  could  arise  directly  out  of  industry  and  user  demands,  with 
the  chemical  industry  playing  a  key  role  as  a  vital  supplier.  The  Commission  is 
seeking industry input on the orientations for the 5th Framework Programme. 

III.C.2 Intellectual  property 

70.  Intellectual  property  is a vital asset in the competitiveness  of the chemical  industry  .  The 
patent  system  allows companies to recoup the investment  they  put  into  RTD.  One threat 
to  European  competitiveness  has been  the  short  effective  life  of the  intellectual  property 
protection  afforded  to  pharmaceuticals  and,  still  today,  to  crop  protection  products. 
Though  the  patents  themselves  last  20  years,  their  effective  life  is  as  short  as  ten  years 
because of the time taken between patent granting and the bringing of these products onto 
the  market  .  This  long  period  is because  of the  stringent  and  lengthy  testing  procedures 
necessary for such powerful  chemicals. 

14-

71.  Although  an  additional  patent  protection  term  of  up  to  five  years  has  been  granted  for 
pharmaceuticals  via a Supplementary  Patent Protection  Certificate  scheme14 , the  same is 
now about to be adopted for crop protection products15 . Its early adoption is important in 
ensuring  Europe  remains  the  global  leader  in  RTD  and  production  of  crop  protection 
products when, as hoped, it is fully  adopted by Council in early 1996. 

72.  Biotechnology  is  an  important  factor  for  future  competitiveness,  since  it  is  a  technology 
that  can  provide  high  added  value  products,  which  address  people's  needs  (e.g.  drugs  to 
fight so far  incurable  diseases, improved  crop plants which allow the application  of more 
environmentally-friendly  growing  methods  or  which  are  less  affected  by  severe  climate 
conditions -drought,  cold-, etc.).  Biotechnology  is therefore  a key part of the activities of 
certain  chemical  companies, but  suffers  from  a number  of  shortcomings  in  its  legislative 
framework,  among which is the lack of harmonised patent protection in Europe.  Without 
a  clear  and  risk-based  legal  framework,  research  and  production  will  increasingly  take 
place  in  Japan  and  the  USA,  already  the  global  leaders  in  this  field.  The  European 
Parliament  rejected  a  proposal  to  harmonise  and  improve  patent  protection  for 
biotechnological  inventions.  A new Commission proposal was put  forward  in  December 
199516.  It  makes  a clear  distinction  between  invention  and  discovery.  If  accepted,  this 
new proposal  will  contribute to a more innovative  climate and will provide  a harmonised 
basis  for  patent  protection  within  the  EU 
It  will  ensure  the  patentability  of 
biotechnological  inventions in Europe while taking into account ethical aspects. 

73.  The Commission has also just proposed a modification  to the rules on the contained use of 
genetically  modified  micro-organisms, which  without jeopardising  the  current  high  level 
of protection  for  human  health  and  the  environment,  aims  at  making  the  Directive  more 
risk-based and at increasing its flexibility.  The proposal is streamlining the administrative 
procedures for  certain no and low risk activities, thus eliminating regulatory  redundancies 
which are not justified  by safety  reasons and which therefore  cannot fail to have a negative 
impact  on  Europe's  capacity  to  innovate,  while  maintaining  a  sufficient  transparency  for 
the consumers.  Furthermore, the recently revised block exemption on technology  transfer 
offers  the  indispendable  legal  security  for  agreements  on  licensing  intellectual  property 
which is of particular importance for the biotechnology  sector. 

III.C.3 The need for  a scientific  culture 

74.  The EU chemical  industry  is worried about the decline of the scientific  culture in Europe. 
literate  workforce  and 
To  remain  a  global  leader,  industry  needs  a  scientifically 
governments  which 
Too  many 
schoolchildren  and university  students believe  science is 'too hard'  or 'too dirty'  for  them. 
More  must  be  done  by  national  governments,  and  to  whatever  extent  possible  by  the 
Commission to foster  an atmosphere which is pro-science. 

take  decisions  based  on  scientific  principles. 

75.  Industry  will  intensify  efforts  to  improve  the  scientific  and  technological  culture  in 
Europe.  Under  the  title  of  "Education, Industry  Partnership",  CEFIC has  already 
launched  three  actions:  'Chemical  Industry  and  the  Young'  is  a  multi-annual 
programme to nurture  in the under-18s  a better understanding of the  fundamentals 

1 Regulation  1768/92 

15COM(95) 456 Final 

16COM(95)661 Final 

- 1 5-

of  science  and  an  awareness  of  the  benefits  and  risks  brought  by  the  chemical 
industry and the means used to reduce such risks.  The 'Science Education Award' is 
an  annual  competition  to  find  the  best  European  science  teachers.  The  'Museums 
Project*  is  aimed  at  renewing  chemistry  exhibitions  in  Europe's  museums.  The 
Commission  also  emphasises  the  need  for  a  strong  scientific  and  technical  base 
within  education  in  its  published  White  Paper,  "Teaching  and  learning  : towards 
the  learning  society"17.  The  SOCRATES  programme  funds  educational  exchanges 
and promotes the use of new technologies in schools. 

m,Ç,4 Training 

76.  Training  is  a  major  area  of  Commission  activity  and  can  play  a  role  in  improving  the 
climate  for  science.  Three  separate  sets  of  Community  financial  supports  contribute  to 
improved  training:  The  Leonardo  da  Vinci  programme  seeks  to  promote  actions  to 
improve the quality of training policies and practices and to develop new ways of learning 
through  pilot  projects,  exchanges  and  placements  as well  as  surveys  and  analyses  in  the 
context  of  transnational  partnerships.  The  4th  RTD  Framework  Programme,  already 
referred  to,  provides  specific  financial  aid  for  research  projects  linked  with  training  and 
long  distance  learning.  The  fourth  activity  of  the  Framework  Programme  concerns  the 
stimulation  of  mobility  of  researchers,  with  the  aim  of  promoting  a  quantitative  and 
qualitative  increase  in  human  resources  within  Europe.  The  objectives  are  to  stimulate 
training through research and to improve transnational mobility and cooperation.  In some 
RTD  programmes,  specific  training  is  also  included  as  an  accompanying  measure  to 
research  projects,  as  for  example  the  industrial  training  of  young  candidates  through 
participation  in  a research  project  within  the  BRITE-EURAM  programme.  One  specific 
programme  Environment  and  Climate,  also  finances  projects  in  socio-economic  areas 
including  examination  of  the  best  way  of  diffusing  innovation  and  projects  to  facilitate 
exchanges  and  further  research.  The  Structural  Funds  provide  financial  assistance  for 
training  and  development.  Such  finance  can  come  either  from  national  programmes  or 
Community  initiatives.  ADAPT  and the  new Objective  4  programmes  are particularly 
focused  on  training.  The  incorporation  of  health  and  safety  within  such  training 
programmes  is  equally  important  as  a  cost  effective  approach  and  a  contribution  to 
competitiveness. 

77.  The  future  RTD  Framework  Programmes  will  provide  further  opportunities  to 
support  training  through  research.  The  Structural  Funds  will  continue  to  target 
training as a component to enhance competitiveness. A new call for proposals for the 
Leonardo da Vinci programme for 1996 has been published on 29 February 1996. 

III.D  ACTIONS TO  DEVELOP INDUSTRIAL COOPERATION 

78.  Industrial  policy  measures  involving  industrial  cooperation  have  an  internal  and  an 
external  dimension.  Both  sets of measures  seek to make businesses more competitive  by 
giving  them  opportunities  they  would  not  have  as  isolated  players,  by  facilitating  the 
transfer of non confidential  knowledge and experience between companies. 

III.D.l  Industrial cooperation within the EU 

Chemical sector information  network 

17COM  (95)590 

- 1 6-

79.  One area of industrial cooperation is in the field of better information  and communication. 
The Commission has set up a comprehensive network for the chemical  sector: 'Le Réseau 
d'  Information  pour  le  Secteur  Chimique  (RISC)"  to  allow  it  and  industry  to  be  better 
aware  of  the  activities  and  desires  of  the  other.  The  main  aim  of  RISC  is  to  create  a 
synergy  between  the  various private  and public  operators  in order to  encourage  dialogue 
and  to  allow  the  exchange  of  information  between  the  Commission  and  industry  via 
European  federations.  The current  activities within the network  are to exchange, collect, 
process  and  analyse  the  data  in  various  fields  such  as  economics,  foreign  trade  and  the 
legislative area while fully  respecting competition laws. 

80  RISC  will  be  further  developed  including  increased  integration  with  industry 
federations, thus gaining maximum  benefit  from electronic data transmission.  RISC 
will  also  enable  other  European  federations  to  be  better  integrated  into  the  policy 
making  process.  The  Commission  and  industry  will  continue  to  devote  significant 
resources  to  improving  communications,  in  particular  linked  with  the  means 
provided  by  the  Information  Society.  Investment  in  information  technology  will 
continue to increase.  Better links will be created  to harness the results of advances in 
information  technology  to  the  needs  of the  chemical  industry  thereby  enhancing  its 
competitiveness  in concrete terms. 

SMEs 

81.  There  are  numerous  programmes  and  support  measures  in  favour  of  SMEs  under  both 
Enterprise  policy  and  other  Union  policies  to  improve  the  business  environment  and  to 
support  the  creation  and  development  of  SMEs.  In March,  the  Commission  presented  a 
proposal  for  a  Council  decision  on  a  new  Multi-annual  Programme  for  Enterprise  and 
SMEs to cover the period  1997-2000 which will provide the legal and budgetary basis  for 
the  Community's  specific  enterprise  policy  actions18.  While  these  policies  are  not 
specifically  geared  towards  the  chemical  sector,  there  are  some  which  are  particularly 
interesting  to  chemical  SMEs.  The  Euro-Info-Centres,  provide  a  business  information 
network  and  act  as  a  'first  stop  shop',  the  B.C.  Net,  Europartenariat  and  Interprise 
programmes  provide  co-operation  opportunities,  and  there  are  other  measures  aimed  at 
improving  SMEs' management  capability, access to finance  and technological  know-how. 
One  specific  example  of  an  area  for  enhanced  competitiveness  is  certification  to 
international quality standards.  This is difficult  for chemical industry SMEs to achieve but 
Quality  Assurance  Certification  is  vital  for  their  ability  to  sell.  SMEs  should  be 
encouraged  and assisted to obtain it.  The proposed  SAFE programme will also contribute 
to supporting improved  quality management within SMEs. 

82.  Specific  action  is underway to enhance the competitiveness of chemical SMEs and  promote 
better  links  between  SMEs  and  between  them  and  bigger  companies.  CEFIC,  other 
federations  and  the  Commission  are  involved  in  studies  to  understand  better  how SMEs 
function  in the chemical sector and on what their competitiveness depends.  To this end their 
role in subcontracting, employment-creation  and  exporting will be carefully  examined  and 
proposals made to enhance their competitiveness. 

III.D.2 External industrial  cooperation 

l8COM(96) 98 Final of 20 March 1996 

-  17-

83.  The  role  of  the  Commission  is  to  set  the  framework  for  individual  companies  to  undertake 
investment  or  other  forms  of  industrial  cooperation.  It  is  for  individual  firms  to  decide  with 
whom  and  how  to  cooperate.  The  Commission  has  a  more  direct  role  to  play  in  cooperation 
involving more state controlled  economies.  Industrial cooperation benefits the recipient areas and 
European  industry.  In  all  areas  direct  investment  by  chemical  companies  will  provide  much 
needed  capital  for  the  host  countries  and  ensure  better  allocation  of  resources.  It  also  provides 
opportunities for access to and a presence on new fast growing markets. 

84.  No  single  industrial  cooperation  strategy  is appropriate  for  all the different  regions of the  world: 
each  region's  specificity  requires  a  particular  regional  orientation  within  a  common  set  of 
institutional  instruments.  Outside  the  Transatlantic  Business  Dialogue  and  specific  cooperation 
with Japan, three non-mutually-exclusive  types of industrial  cooperation  can be highlighted  : that 
with  regions  close  to  the  EU,  including  Central  and  Eastern  European  Countries  (CEECs)^, 
Russia  and  some Newly  Independent  States(NIS), and the Mediterranean;  that  with  fast  growing 
economies,  which  includes  China,  ASEAN  and  Latin  America;  and  projects  which  improve 
Industrial  cooperation  is a feature  within  the PHARE 
access to raw materials  including energy. 
and  TACIS  programmes  and  ECIP  (European  Community  Investment  Partners)  and  AL 
Invest  for  Latin  America,  and  Med  Invest  for  the  Mediterranean.  Furthermore,  industrial 
actions  in  favour  of  the  African,  Carribean  and  Pacific  (ACP)  countries  are  carried  out 
under  the  "Lomé  IV  Convention".  That  Convention  has  a  chapter  on  "Industrial 
development,  manufacturing  and processing", that provides  inter  alia for  (i) industrial  joint 
ventures  between  EU  and  ACP  companies,  (ii)  support  to  "engineering,  metallurgical  and 
chemical  industries",  (iii)  transfers  of  technologies,  (iv)  external  investment  in  favour  of 
ACP  industrial  companies,  (v)  training,  (vi)  research.  Under  the  same  Convention,  the 
Centre  for  the  Development  of  Industry  (CDI)  was  established  to  foster  the  industrial 
development  of the ACP  countries. 

Regions  in close  proximity 

85.  The  pre-accession  strategy,  designed  to  prepare  those  countries  of  Central  and  Eastern 
Europe  so  desiring  it  for  EU  membership,  defines  the  framework  for  structured  dialogue 
between  the  EU  and  CEECs  and  provides  a  concrete  vade-mecum  for  the  exercise  in 
legislative  compatibility:  the  White  Paper  on  the  preparation  of  associated  CEECs  for 
integration  into  the  EU  internal  market.  The  chemical  industry  has  a direct  role  to  play  in 
the  process.  The  Commission  has  developed  contacts  with  CEECs  in  order  to  clarify 
certification  procedures  which  were  incompatible  with  EU  procedures.  Cooperation 
between  EU  and  CE EC  producers  of  detergents  and  cosmetics  have  allowed  certain 
CEECs  to  better  understand  certification  legislation  in  the  EU  and  move  to  adopt  similar 
legislation  themselves.  The  Cosmetics  Federation  (COLIPA)  organised  a  meeting  with 
Eastern  European  national  authorities  and cosmetics producers  in Prague  in late  1995.  The 
Fertilizer  Manufacturers  Association  (EFMA)  has  also  been  involved  in  a  project  to 
encourage  better fertiliser  use in  Russia. 

86.  The  Commission,  together  with  the  participation  of  the  federations  and  companies 
concerned, will  continue  to provide technical  assistance  to the  CEECs with  legislation 
for  future  membership,in  support  of  investment  and  development  of  harmonised 
institutional  frameworks  .  EU  industry  will  cooperate  with  industry  in  the  CEECs 
and  national  administrations  to ensure  that  such  legislation  is operated  in such  a way 
as  to  avoid  unnecessary  administrative  burdens  or  barriers  to  trade,as  well  as 
exports  from  these  countries  distorted  by  lower  levels  of  environmental  protection  in 
their  chemical  facilities.  It will  also  pursue  specific  industrial  cooperation  themes  in 

19See the Commission  Communication on Industrial Cooperation with the CEECs, COM(95) 71 Final 

- 1 8-

the mixed  committees  set up with  CEECs  by the Association  Agreements and  develop 
industrial  cooperation  with  the  Mediterranean. 

87.  Cooperative  actions  in  support  of  management  training  and  other  areas  for  CEEC 
chemical  companies  in which  CEFIC is already involved  may  continue  to  be  financed 
by  PHARE  subject  to  the  priorities  of  theses  countries.  Industry  will  relaunch  the 
E A S ÏT  technology  for  environment  programme  for  CEECs  with  the  objective  of 
providing  the  best  practice  techniques  and  know-how  to  ensure  environmental 
performance  and  standards  in  the  pre-accession  countries  will  be  compatible  with 
EU  membership. 

Presence on fast-growing  markets 

88.  China  is  a  huge  market  with  enormous  potential.  Many  EU  chemical  companies  are 
already  investing  in  China  but  the  Commission  has  a  role  to  play  to  ensure  China 
continues  to  welcome  such  investment.  In  order  to  facilitate  and  to  promote  investment 
one  task  of  the  Commission  has  been  to  encourage  China  to  adopt  regulation  frameworks 
compatible  with  EU  regulations.  Some  actions  in  the  field  of  certification  and  quality 
have  already  been  completed.  COLIPA  is  cooperating  with  Chinese  cosmetic  producers 
on regulations  for  cosmetics. 

89.  The  Commission  will  develop  industrial  cooperation  with  China  and  other  E.  Asia 
countries  and  Latin  America  to  ensure  EU 
in  their 
development  and  to  take  advantage  of  these  fast  growing  markets.  The  main  issues 
will  revolve  around  chemical  product  legislation  (especially  for  China),  technology 
transfers,  successful  joint  ventures  and  other  forms  of  foreign  direct  investment. 
Environmental 
industrial 
cooperation  projects. 

issues  will  be  a  growing  concern  and  subject  for 

is  well  placed 

industry 

Access to raw materials  including  energy 

90.  Industrial  cooperation  projects  can  improve access to raw materials.  One possible  set of  projects 
would  be  to  extend  the  western  European  petrochemical  feedstock  pipelines  into  Central  and 
Eastern Europe and even  into Russia.  Gas pipelines originating in Russia could also be developed 
specifically  to  supply  European  chemical  companies.  There  are  ideas  to  develop  gas  supplies 
from  the Gulf region.  Industrial cooperation  could  involve the Gulf Cooperation  Council  (GCC) 
and  Mediterranean  countries,  for  example  to  bring  such  gas  overland  from  Saudi  Arabia  to  a 
North African  port. 

91.  The Commission will favour  projects which improve access to raw materials and energy and 

put in place mechanisms  to encourage EU companies to undertake such initiatives. 

IV.  OPERATIONAL  CONCLUSIONS AND WORK  PROGRAMME 

92.  The EU chemical  industry  is the EU's second largest manufacturing  industry  and the world's most 
important  producer  of  chemicals. 
It  also  accounts  for  30%  of  RDT  spending  by  the  EU 
manufacturing  sector.  It must meet many challenges  if it is to retain, let alone increase, its global 
competitiveness.  The primary responsibility  for the chemical  industry's competitiveness  lies with 
itself.  The Commission  and the Member  States have to  provide the adequate  framework  and,  if 
needed, undertake specific  actions, to enhance this competitiveness. 

93.  Grouped  around  the  four  priority  areas  of  the  Communication  on  an  industrial  competitiveness 
policy for the EU, a set of actions for the industry, the Commission and Member  States have been 
identified.  The  pursuit  of  those  actions  will  certainly  help  the  competitiveness  of  the 

- 1 9-

European  chemical  industry  and  thus  can  constitute  a  model  for  the  implementation  of 
such policy in industries with similar characteristics and challenges. 

94.  To  confront  the  challenge  of  improving  the  regulatory  framework,  the  European  Union 
will  ensure  that  the  legislative  aspects  of  the  Internal  Market  are  consolidated  and  the 
problems  caused  by disparate  national  legislation  be resolved.  A formal  set of principles 
will  be  applied  at  Union  level  for  individual  cases  of  classification,  limitation  or 
authorising  schemes  governing  the  marketing  of  chemicals.  The  principles  will  ensure 
that  the  Community  decides  whether  to  regulate,  who  will  regulate  and  how  such 
regulation  should  be  done.  In  the  same  vein,  environmental  regulation  will  pay  close 
attention to competitiveness always involving an analysis of costs and benefits  and proper 
risk  assessment  in  line  with  the  Treaty.  Where  appropriate  and  feasible,  international 
environmental  regulation will be preferred  to EU level action.  Voluntary  agreements will 
be  studied  on  a  case  by  case  basis  and  a  Community  framework  for  them  is  being 
prepared. 

95.  To confront  the challenge of ensuring effective  competition, the Commission will  analyse 
possible  industry  proposals  to  overcome  structural  overcapacity  where  this  exists,  in 
conformity  with the rules of the Treaty.  It will pursue liberalisation  in the electricity  and 
gas markets thereby affording  the chemical and other industries more competitively priced 
energy.  Within the WTO, the Commission will seek reduced tariff  and non tariff barriers, 
paying  particular  attention  to  the  problem  of  double  pricing  especially  for  new  WTO 
members.  The  OECD  as  well  as  the  WTO  will  see  continued  work  on  Distorting 
Investment  Incentives  as  well  as  multilateral  agreements  on  trade  and  competition. 
Chemicals will also feature  in the Transatlantic Business Dialogue.  The chemical  industry 
is invited to convey to the Commission informations regarding the market access problems 
it encounters in third countries so that it can take steps to solve them. 

96.  To  confront 

the  challenge  of  assuring  more  intangible  investment,  industry,  the 
Commission  and Member  States should concentrate efforts  to reinforce  innovation, RTD, 
education and the whole scientific  culture. , As regards the EU RTD actions, the chemical 
industry will be better integrated  into the existing Task Forces and more focused  clusters. 
Intellectual property protection will be strengthened: the agrochemicals and biotechnology 
sectors  will  benefit  from  specific  patenting  improvements.  Commission  programmes 
ranging  from  the RTD Framework  Programme to the  Structural  Funds,  SOCRATES, and 
Leonardo da Vinci will intensify  the education and training of scientists in Europe. 

97.  To confront  the challenge of promoting more industrial  cooperation, the Commission  and 
industry will further  develop the RISC information  network and improve knowledge about 
and  actions  undertaken  for  SMEs  in  the  chemical  industry.  Externally,  industrial 
cooperation  will  be  reinforced  with  the  USA  via  the  TABD  and  Japan  via  specific 
deregulation  projects.  Actions  will  also  be  pursued  with  chemical  companies  in  : 
countries near to the EU, e.g. CEECs; fast growing economies, e.g. China; and energy and 
raw material rich countries e.g. the GCC and Russia. 

98.  Launching  and  implementing  the actions  identified  in the above text  implies  a deepening 
and  strengthening  of  the  already  existing  relations  between  the  varied  representatives  of 
the EU chemical industry (CEFIC, sectoral associations and, sometimes, individual firms), 
Member  States and the Commission.  A work programme should review initiatives  in the 
main  areas  of  action,  e.g.  internal  market  rules,  environmental  actions,  internal  and 
external 
SMEs 
issues, 
information/communication  and cooperation with third countries. 

competition 

education 

training, 

RTD, 

and 

- 2 0-

Table 1 : Output trade in 1994 (Ecu Billion) 

Output 

Exports 

Imports 

EU 
U SA 
Japan 

316 
287 
196 

67 
43 
20 

41 
28 
17 

Sources : CEFIC & Eurostat 

Trade 
Balance 
26 
15 
3 

350 

E EU 

B U SA 

DJapan 

Output 

Exports 

Imports 

Trade 
Balance 

21 

Table 2 : Top 30 chemical companies in the World  (1994) 

Company 

Worldwide Turnover 

in million ECU 

in million US$ 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 

HOECHST 
BASF 
BAYER 
DU PONT 
DOW 
CIBA-GEIGY 
RHONE  POULENC 
MERCK& Co 
ELF GROUP 
ICI 
MITSUBISHI  CHEMICAL 
ASAHI CHEMICAL 
AKZO  NOBEL 
SANDOZ 
ROCHE 
SHELL 
SUMITOMO  CHEMICAL 
EXXON 
PFIZER 
MONSANTO 
SOLVAY 
ENICHEM 
ZENECA 
HULS 
L'AIR LIQUIDE 
LILLY,  ELI 
GENERAL  ELECTRIC 
MITSUI TOATSU 
BOC 
HENKEL 

25 714 
22 625 
22 494 
18 932 
16 827 
13 771 
13 069 
12 586 
11 934 
11 826 
11 021 
10 983 
10 261 
9 760 
9 069 
8 705 
8 046 
8 024 
6 962 
6 955 
6 588 
6 024 
5 765 
5 392 
4 808 
4 802 
4 740 
4 712 
4 482 
4 389 

30 586 
26 911 
26 755 
22 518 
20 015 
16 380 
15 545 
14 970 
14 195 
14 066 
13 109 
13 063 
12 204 
11 608 
10 787 
10 354 
9 570 
9 544 
8 281 
8 272 
7 836 
7  166 
6 857 
6414 
5719 
5712 
5 638 
5 604 
5 331 
5 220 

Sources  : Chemical Insight & CEFIC 

22 

Table 3 : Employment (in thousands) 

1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 
1994 

EU 
1959.90 
1890.90 
1850.00 
1799.50 
1788.30 
1780.40 
1779.20 
1767.60 
1769.50 
1790.90 
1797.40 
1897.90 
1816.40 
1734.10 
1656.90 

U SA 
1107.40 
1109.00 
1075.10 
1042.80 
1049.00 
1043.50 
1021.00 
1024.60 
1057.30 
1073.90 
1086.10 
1075.80 
1084.00 
1078.40 
1053.90 

JAPAN 
409.30 
408.10 
405.00 
402.00 
395.90 
395.70 
396.30 
391.60 
390.60 
393.00 
401.00 
406.00 
415.00 
413.00 
410.00 

Source : CEFIC 

1980 

1982 

1984  1986 

1988 

1990 

1992  1994 

23 

Table 4 : Growth rates 

F^ 

1985-1994 

EU Chemicals 
EU Industry 
EU GDP 

| 

: 

(% P-a) 
3 
1.7 
2.4 

Sources : CEFIC & Eurostat 

11935-1994 (%p.a.) 

EU Industry 

EU GDP 

Chemicals 

24 

Table 5a : Most ingenious companies 

Number of  inventions in 1988/1989 (Source : Panorama 1993) 

Worldwide 

Eastman Kodak (USA) 
Bayer (EU) 
Hoechst (EU) 
Bosch (EU) 
Fujitsu (JPN) 
BASF (EU) 
GE (USA) 
Canon (JPN) 
Philips (EU) 
Fuji (JPN) 
IBM (USA) 
Hitachi (JPN) 
Mitsubishi Electric (JPN) 
Siemens AG (EU) 
Toshiba  (JPN) 

1014 
1198 
1198 
1229 
1289 
1290 
1306 
1414 
1541 
1545 
1623 
1723 
1747 
1966 
2009 

500 

1000  1500 

2000 

2500 

\ 

\ 

{ 

Toshfca(JPN) 

Semens  AG(EU) 

Mtsubshi  Bectric 

(JPN) 

Htachi (JPN) 

IBM (USA) 

Fuf (JPN) 

imimmtmmttittfmfttMiattiib 

Fhiips (EU) 

sggasapSaiaite 

Canon( 

(JW) JiiifPPnfPffil 

G£(USA) wmfÊm$^ 

*«*<*>  mmmm 

hbechst(EU) 

j ^ ^ | § g | ^ | ^ j| 

Bayer  (BJ) 

Eastman Kodak V 

(USA) 

fcàiS&S 

25 

Table 5b  : Most  ingenious  companies 

Number of inventions in 1988/1989 (Source  : Panorama  1993) 

From Europe 

Alcatel (FR) 
ABB (CH) 
Rh6ne Poulenc (FR) 
Shell (UK/NL)) 
Unilever (NL) 
ICI (UK) 
Henkel (D) 
Thomson (FR) 
Daimler (D) 
Ciba Geigy AG (CH) 
Bayer(D) 
Hoechst  (D) 
Bosch  (D) 
BASF  (D) 
Philips (NL) 
Siemens AG  (D) 

339 
367 
382 
424 
475 
490 
553 
557 
685 
738 
1198 
1198 
1229 
1290 
1541 
1966 

26 

Table 6 : Capital spending (%  of turnover) 

WE 

U SA 

1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 
1994 

5.10 
4.70 
4.50 
4.20 
4.20 
4.60 
5.40 
5.90 
5.90 
6.40 
7.00 
6.70 
6.20 
5.30 
4.60 

6.40 
6.30 
6.60 
4.80 
4.80 
5.30 
5.00 
5.20 
5.60 
6.80 
6.70 
8.30 
8.20 
7.60 
7.90 

JAPAN 
6.10 
6.40 
6.60 
6.40 
6.40 
6.90 
7.00 
7.90 
8.50 
9.10 
9.90 
9.90 
9.60 
7.40 
6.20 

Sources  : ESCIMO & CEFIC 

10.00 

Annex 
Application of principles  for 
Regulatory Impact Assessment 
to the problem of nickel 
allergy - an example 

OLP 

1. 

Introduction 

Many people are allergic to nickel in jewellery products.  In other words they suffer from 
soreness and inflammation  of the ears when they wear cheap earrings, from soreness and 
inflammation  of the arms when they wear cheap bracelets and watch-straps and so on.  In 
addition to the effects  of direct contact with cheap jewellery, many  suffer  soreness of the 
hands which keeps them away from  work. 

Nobody  is  allergic  to  nickel  at  birth.  They  usually  become  sensitised  when  they  have 
their  ears  (or  noses)  pierced  and  nickel  comes  into  contact  with  the  wound.  Once 
sensitised they may suffer  from nickel allergy whenever they wear cheap jewellery. 

Cheap  costume  jewellery  is  very  popular  especially  among  adolescents.  The  annual 
turnover  of the  industry  in the  EU  is about  850 million  ECU  and  much  of this  involves 
trade  between  Member  States.  It  is an  industry  which  is  highly  competitive  and  which 
relies on nickel because of its low cost and contribution to quality. 

Because  of  the  widespead  use  of  costume jewellery,  the  incidence  of  nickel  allergy  is 
thought  to  effect  about  30  million  people  in  the  EU.  Not  only  does  this  cause  a  large 
amount of suffering,  it also leads to substantial  spending by public authorities  in treating 
those  affected  and  to  significant  costs  to  the  economy  as  a  result  of  working  days  lost, 
without including the additional costs arising from  occupational exposure. 

There are no rules applied outside the EU to the use of nickel in costume jewellery. 

2. 

Why act? 

It is necessary to act for a number of reasons.  Firstly, there is a need to reduce the risk to 
public  health,  already  affecting  30  million  people.  Secondly,  the  Internal  Market  in 
costume  jewellery,  worth  several  hundred  million  ECU/year,  must  not  be  allowed  to 
fragment  further  - national  rules on nickel are applied already by Denmark, Germany  and 
Sweden and are being discussed  in Italy.  Thirdly, it is necessary to act for reasons of cost 
-  treatment  costs  for  the  EU  being  estimated  at  40  million  ECU/year  and  the  cost  of 
working days lost is also thought to be substantial. 

3. 

Who should act ? 

Obviously  nickel  allergy  is  not  an  exclusively  European  problem.  It  affects  the  whole 
developed  world.  This being, so the first choice would be to have the OECD take action. 

There  is,  however,  no  consensus  on  the  problem  at  the  OECD  level.  Unanimity  is 
required and at least two countries would oppose (USA, Switzerland). 

Intervention  must be at EU level to protect  the Internal  Market.  The Commission  should 
take the lead, and has done so (see 6 below) 

-29-

4. 

What should be done ? 

To decide what needs to be done it is necessary first of all to examine the risks. 

The  main  risk  is  associated  with  the  piercing  of  ears  and  noses.  The  use  of  nickel  in 
piercing and healing should be stopped. 

A  secondary  risk  is  associated  with  the  wearing  of  costume  jewellery.  Research  has 
shown  that  these  products  provoke  an allergic  reaction  when  nickel  is  released  in  large 
quantities through the action of sweat on the jewellery.  There is no need to stop the use 
of nickel in costume jewellery  altogether, though clearly  something more than a warning 
label is needed on these products (experience has shown that adolescents often  don't read 
labels). 

In short the best way to control risk would seem to be the  following: 

to ban the use of nickel for the piercing of ears and noses, and 

to  impose  a  limit  on  the  rate  at  which  nickel  is  released  from  costume  jewellery 
products 

This is a feasible  strategy  as safe  substitutes  for  nickel  are available.  However,  before  it 
can  be  adopted  it  is  necessary  to  check  that  the  advantages  of  the  controls  exceed  the 
drawbacks. 

The advantages  are clear  : 30 million people would  be protected  from  the risks of nickel 
allergy, the internal market of several hundred million ECU/year would be preserved, the 
public  authorities  would  save  40  million  ECU/year  and  the  economy  would  avoid  the 
loss of many working days. 

There  are  drawbacks,  however,  at  the  levels  of  consumers,  industry  and  the  state. 
Consumers  will  have to pay  up to  15 % more  for  costume jewellery.  EU  industry  may 
have  to  bear  once-off  investments  of  about  70  million  ECU  and  may  suffer  increased 
operating  costs  of  about  30  million  ECU/year.  Finally,  the  Commission  will  have  to 
invest  150 000 ECU in developing test methods. 

The advantages, however, would seem to more than offset  the drawbacks. 

5. 

How should it be done ? 

An approach involving voluntary  co-operation between the Commission  and the  costume 
jewellery  industry would not be effective  for several reasons.  Firstly, there is no industry 
partner  as  the  costume  jewellery  industry  is  not  organised  at  Union  level  or  even  at 
national  level.  Secondly, voluntary  controls  are unlikely  to be effective  given that  most 
costume jewellery  originates  outside  the  Union,  there  are  many  importers  and  there  are 
millions of retail outlets. 

The  Commission  needs  to  devise  binding  rules  which  can  be  enforced  by  national 
authorities.  There  is no need, however, to regulate the detailed  design  of all the  various 

-30-

products which might cause nickel allergy i. e. earrings, bracelets, watches and necklaces 
but also spectacles, buttons, buckles, catches, hair slides, zips etc. 

What is needed is the following: 

firstly, a Directive 

which bans the use of nickel in piercing; and 
which  establishes  a limit  for  nickel  release  for  all  products  which  come  into  direct 
and prolonged contact with the skin 

and secondly, a set of harmonised test methods to enable the national authorities to easily 
and cheaply control these provisions. 

6. 

Closing remarks 

Directive  94/27  of the European Parliament and Council1, based on the above described 
approach, was adopted unanimously by the Council in July  1994.  It will enter into force 
6  months  after  publication  by  CEN  of  three  European  Standards, incorporating  the  test 
methods needed for control (latest estimate of entry into force is mid 1997). 

1OJL188,22July  1994, p. 1 

-31-

ISSN 0254-1475 

COM(96) 187 final 

DOCUMENTS 

EN 

10  08  15 

Catalogue number  : CB-CO-96-212-EN-C 

ISBN 92-78-03857-1 

Office for Official  Publications of the European Communities 

L-2985 Luxembourg 

32.