07 June 2022 | Position
World trade and the international supply chain are currently under more stress than ever before: The fight against COVID-19 and the consequences thereof continues to pose a series of challenges. The political arena has also undergone radical change as a result of the war in Ukraine. The challenges posed by climate change are just as explosive as those posed by the growing competition of systems with China.
The reduction of strategic dependencies is gaining momentum while we frantically search for answers to all these challenges. At the same time, the EU is using its Green Deal to focus its policies on both climate and environmental protection and the circular economy - new unilateral trade barriers such as the "Carbon Border Adjustment Mechanism" (CBAM) play an important role in this process.
The stress test for supply chains
With its products, the German chemical and pharmaceutical industry, as part of an innovative global value network, contributes globally to both prosperity and UN sustainable development goals. In 2021, Germany exported chemical-pharmaceutical products worth more than 230 billion euros - roughly half of which went to countries outside the EU. During the same period of time, Germany imported chemical and pharmaceutical goods worth in excess of 162 billion euros. The chemical and pharmaceutical industry itself also imports raw materials, infeed products, and technology. The industry operates globally and benefits from its proximity to customers, the advantages that come from being in a specific location, and its leading expertise in intellectual property rights. Foreign companies are also investing and manufacturing products in Germany. This global network can help transform the EU industry as far as the Green Deal is concerned. COVID-19 and the dominance of geopolitics have however taken their toll on supply networks. Resilience is now emerging as a priority for the eco-political framework alongside efficiency and sustainability.
Bringing regulations into the 21st Century
Within the framework of the World Trade Organization (WTO), the German chemical and pharmaceutical industry has successfully integrated itself in global markets and the international division of labour. This trade order has eroded gradually in recent years, and we are yet to see a new regulatory framework emerge. The EU orients its trade strategy to the principle of an “open strategic autonomy”: The EU must be brought in good shape for the changing global environment without throwing its openness into question. The EU’s processes for trade agreements are sadly too long-winded. The agreement with the South American common market “Mercosur” is ready for ratification but on hold, while facts are being created in Asia with two major trade agreements (RCEP and CPTPP).
THE VCI IS CALLING FOR THE FOLLOWING
- Open markets and modern trade rules – instead of going it alone and implementing protectionist policies
Germany and the EU should work for open markets and fair competition rules – and against protectionism. Climate protection, food, healthcare, and prosperity all depend on free, rules-based trade. The WTO provides an important basis for this, but it needs to be modernised or supplemented.
- Forming alliances with the USA and other partners by means of trade agreements
The time to implement new regulations and roll out sustainable technologies is now. That is why pluri- and bilateral alliances with partners who share our values are indispensable. Our goal is to diversify trade relations. The EU, in particular, should seek unity with the US administration, and work closely as part of the Transatlantic Technology and Trade Council to address issues affecting transformation and security.
- Competition of systems with China
The EU needs to respond to China's geopolitical and industrial policy strategies with a strategy of its own. It should support companies in the competition of systems with China and coordinate these efforts with partners.
- Compensating for competitive disadvantages from the Green Deal without bulkheading
The ambitious goals and measures of the Green Deal threaten to put industry in Europe at a competitive disadvantage. Compensating for such disadvantages with unilateral measures at external borders which rely on making imports more expensive is a venture that must be avoided.
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