Why free trade matters
Teressa Szelest, President, Market and Business Development North America for BASF Corporation, believes that trade creates wealth and spurs innovation, leading to better products and lower prices. As a global exporter and importer, BASF supports comprehensive trade liberalization that goes beyond the removal of tariffs and addresses wider issues such as standards and regulation.
The chemicals sector is built on global trade. In 2015, international trade in chemical products was worth €1.6 trillion. Much of that trade is within the value chains that transform raw materials into consumer products. Around 80 percent of all chemical products are sold to other chemical companies, and much trade takes place between different units of the same company.
Encouraging trade through the reduction of tariffs and other barriers helps BASF, its customers and the chemicals industry. It reduces the cost of inputs and the price of end products, and opens access to new growth markets. At the same time, increased competition through trade accelerates the pace of innovation. That keeps us focused on finding new ways to manage our costs, improve our operations and deliver additional value to our customers.
The best route to achieve multilateral trade liberalization has traditionally been negotiations at the World Trade Organization (WTO). But its latest round of negotiations has come to a halt. Furthermore, the challenges we face today are multi-dimensional, addressing not only the need to further reduce tariffs, but reaching greater international alignment on standards and regulations, and developing solutions to new non-tariff barriers. These complex issues are not currently covered by the WTO, so other answers have to be found. A pragmatic global solution can only be achieved through a “bottom up” process, beginning with bilateral or regional agreements.
“Encouraging trade through the reduction of tariffs and other barriers helps BASF, its customers and the chemicals industry.”
Teressa Szelest, President, Market and Business Development North America for BASF Corporation
To give an example for the importance of regulatory harmonization, take BASF’s pharmaceutical ingredients business. The production plants must comply with strict quality standards. This means the production plants are regularly inspected by both the European Medicines Agency and the U. S. Food and Drug Administration (FDA) using the same international standards.
This duplication of work and cost could be eliminated through an agreement between the two sides without affecting standards. The proposed bilateral trade agreement between the United States and the European Union – the Transatlantic Trade and Investment Partnership (TTIP) – would provide just such a framework for the authorities to recognize each other’s inspections.
Achieving this degree of trust and alignment between the two sides is a complex undertaking. That is why we need to think small first to achieve something big in the end. Bilateral trade agreements may well prove the most feasible and pragmatic way to strengthen free trade and benefit society – serving as guardians against the recent rise in protectionist policies around the world. For such agreements to succeed, however, they must ultimately be open for countries to join and to shape the way the world does business.