The outlook for U.S. chemical companies seems bright, as low production costs fueled by the domestic boom in natural gas output creates favorable business opportunities. However, there is another factor that can bring additional gains to businesses — the proposed U.S. trade deals with the European Union and Asia Pacific, Reuters reported.
According to Cal Dooley, president of the American Chemical Council (ACC), abolishing EU tariffs on chemical product exports from the United States could save U.S. manufacturers as much as $1.5 billion each year. The potential gains from regulatory cooperation could substantially exceed this sum, although the ACC has not yet made its estimates, he added.
Plans to discuss a possible free trade deal were announced last week by U.S. and EU officials, with the idea that existing tariffs should be reduced and regulation reforms implemented so that legislation facilitates trade instead of being an obstacle, Reuters reported. Talks are expected to start by June and are predicted to last for between 18 and 24 months.
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Many U.S. chemical companies have criticized an EU regulation known as REACH, because they are forced to deal with significant bureaucracy, such as data requirements, registration and testing, regarding thousands of different chemicals. While American companies cannot hope for a complete abolishment of tariffs and regulation, they can expect that the talks could result in a reduced cost of compliance, Dooley explained.
The negotiations might mean that the White House needs to make its own moves to facilitate trade by asking Congress to renew the "trade promotion authority" — a law that expired in 2007 and allowed the U.S. president to submit trade pacts to Congress for a straight vote without amendments. The law has been considered as key for making other countries offer better deals to the United States in trade talks, so Dooley hopes that the White House would push the legislation.
Currently, Western Europe is the biggest market for exported U.S. chemical products, with an export value of $52.8 billion in 2012. Countries from the Asia Pacific region followed closely, at $51.8 billion. Canada and Mexico are also key markets for U.S. chemical production, with a combined total of $49.6 billion.
Bearing in mind the importance of chemical product exports, the United States is planning to conclude its negotiations with Canada, Mexico, Australia, Vietnam and six other Asia-Pacific countries on the proposed Trans-Pacific Partnership (TPP) before the end of 2013, Reuters noted. It is hoped that the pact would increase U.S. chemical exports by approximately $1.2 billion annually, Dooley said.
Negotiaions over proposed trade deals with the EU and countries in other key regions will be a perfect opportunity for American chemical producers to take advantage of the dramatic fall in production costs thanks to the abundance of shale gas. Some 85 percent of chemical manufacturers in the United States rely on natural gas as key feedstock, so a drop in natural gas prices allows the industry to grow and boost exports.
