Lord Sainsbury of Turville

CEFIC - GLOBAL CHEMICAL INDUSTRY EUROPEAN CONVENTION

The UK Government sees the chemical industry as critical to wealth creation in our country and to the quality of our lives. There are those who see the industry as part of the old economy. We see it as part of the new Knowledge Economy and of central importance to our future economic success.

We also believe that the chemical industry has a key role to play in our transition to a more sustainable society. As the recent UK document ‘A Vision for Sustainable Production and Use of Chemicals’ said, “The Chemical industry is central to the pursuit of a sustainable society; without it, the prospects of sustainably meeting the needs of nine billion people by the second half of this century are zero.”

At the same time the Government is acutely aware that the UK chemicals industry faces major challenges and is an industry in transition. The industry is having to respond to changing domestic demand and the pressures of globalisation, both of which are driving the industry towards higher added value products. The UK as a manufacturing location is also having to compete with the emerging economies, and a large proportion of the new investment in commodity chemicals is being made in countries where there are cost-advantaged feed-stocks, for example the Middle East, or more rapidly growing markets such as Asia.

The UK industry already has 60% of its industry in higher value added speciality chemicals and consumer products. This is higher than the USA with 44% and Germany with 40%. We don’t expect this trend to slow down and we believe there will continue, therefore, to be a premium on new product development and marketing, as well as on process innovation.

We should not be surprised by this trend as at no time in recent history has the restructuring of global economic activity been so great, with Asia moving from the fringes of the new world economic order to the centre; and at no point has the speed and technological change been so fast and pervasive.

To help industry meet these two challenges, globalisation and major advances in science and technology, the UK Government is determined to create the best conditions in the UK for companies to innovate and grow. And in 2001 I set up a Chemicals Innovation and Growth team, drawing on expertise from within and outside the chemicals industry, to advise me on what actions we specifically needed to help the chemicals industry.

They reported in 2002 and put forward a number of proposals which covered the reputation of the industry, innovation, sustainable development and skills. They also suggested that a Chemistry Leadership Council should be set up. This has played a key part in ensuring that the recommendations are implemented.

I was particularly interested in their proposals on research and innovation, and I am delighted that a research strategy report has been presented to Government as a guide to high-level priority setting, as well as a joint report with the Royal Society of Chemistry on chemical science spin-outs from UK universities, which reviews the critical success factors in this important area.

At the same time, we are in the final stages of initiating a Chemistry Innovation Network, which will act as a hub for business and universities and lead to a simplification of the large number of individual initiatives at both national and regional level.

Finally, the Chemistry Leadership Council has recently produced a “Vision for a Sustainable UK Chemical Industry”, which seeks to chart the sustainable way forward for the industry. This is, I believe, both a courageous and far-sighted move. It is courageous because at a time when the industry faces so many competitive challenges, it highlights the challenge of sustainability. It is far-sighted because if the industry is to restore its reputation with people and the financial markets, and to become attractive again to the brightest and best young scientists and engineers, it needs to be seen to be facing up to this challenge. We need to communicate to young people that the chemical industry is part of the solution to environmental issues not part of the problem.

This is the situation that the UK Chemical Industry faces, but looking across Europe and reading your excellent document, ‘Horizon 2015’, it seems to me that our situation is not unique, and while the issues are not exactly the same in each country, we face a set of common problems. So I would now like to turn to how at a European level we can create the best possible conditions for your industry to innovate and grow.

A key factor in your future competitiveness will be the implementation of REACH. I think we can all agree that the protection of human health and the environment must be basic goals for the chemical industry.

Added to that is the current mess of regulations that apply to the industry. One set of regulations for ‘existing’ chemicals. Another set for ‘new’ chemicals. Unnecessary restrictions on innovation. Plus a mass of individual controls on marketing and use. That does not make sense. The rationalisation that REACH will bring about is overdue, and its objectives are right.

However, the initial proposals put forward for consultation would, I believe, have been extremely damaging to the industry. To make matters worse they would not have been very effective. Although REACH was always going to be complex, the original proposals were excessively so. They also threatened to impose high costs on the most vulnerable part of the supply chain - low volume producers, and stifle innovation.

EU Governments and industry have worked hard to influence the Commission’s initial proposals. Our intention was not - as some critics suggested - to ‘water down’ REACH, but rather to improve it. Our representations, and those made by industry as part of the consultations in 2003, played a key role in securing improvements. And the importance of streamlining and making REACH more effective was demonstrated at that time by the letter to the Commission President signed by the German, French and British heads of government, emphasizing the need for changes to be made.

The Commission has listened to all stakeholders and made a number of important changes. According to their own estimates, projected costs will be reduced by 10.6 billion euros.

But I believe that there is scope for yet further improvements. And the Council, the Commission and the Parliament are currently constructively engaged in this process of refinement.

We now need to get the agreement of all the stakeholders so that we can move forward. That of course includes Cefic, which has come forward with many constructive and helpful proposals in the past. And we will continue to make certain your voice is heard. For example, we think it makes sense to seek reassurance that intermediate chemicals are well controlled, without asking for lots of data from them.

I do not think we will get away from volume-based criteria for registration. That is not everyone’s first choice, but there are elements of a risk-based approach within the volume framework. This will not satisfy you completely - I know that - but other aspects of the proposals, particularly greater emphasis given to exposure, do offer scope for reducing information requirements, provided the overall objectives are met.

The Anglo-Hungarian proposals for ‘one substance, one registration’ (OSOR) are also intended to improve REACH by reducing costs and strengthening the provisions to avoid duplicate testing. We have gone some way towards making this more flexible, and will consider what others think of that.

In all there have now been over 50 studies about the costs and benefits of different aspects of the proposals. The task now is to build on all that hard work. To use the studies. And to make decisions.

That is why in recent weeks we have, in our role as the EU Presidency, produced an amended text seeking to take account of all this work. That process has involved us in considering the accumulated amendments from Member States and trying to arrive at a workable proposal that can be agreed. I should stress that the proposal does not reflect our preferred option on every issue, but, holding the EU Presidency, our job is now to get agreement.

We are now entering a new stage in the discussions, and I am glad to report that discussions are moving forward constructively.

I look forward to very substantial progress by the time of the November Competitiveness Council. The Presidency’s aim is to secure a package which improves the protection of human health and the environment while maintaining the competitiveness and enhancing the innovative capability of the EU Chemicals industry. These are important challenges and ones on which we all need to act. We have debated REACH for a long time, and now is the time for decision.

Another area I know you’re interested in is the European Framework Programme.

Over the past two decades, through a series of Framework Programmes, the EU has steadily reinforced its efforts to promote and support research activity. As a result, Europe has made significant steps towards the establishment of a genuine internal market for science and technology.

However, more action is still required to strengthen the EU’s basic research base, to make the EU an attractive place for business to invest in research and to create the right climate for innovation.

With this in mind, the UK Government strongly supports the establishment of a European Research Council to fund science-driven research. We also see the setting up of a European Research Council as an opportunity to make the rest of the research in the Framework programme more user-driven.

The Framework Programme has been in the past a mixture of basic and applied research. This has meant that there have not been clear criteria for allocating funds or evaluating the results. We support the setting up of a European Research Council because we believe it will be a better way to manage the basic research which currently accounts for approximately 20% of the Framework Programmes.

At the same time we need to make certain that the applied collaborative R&D programmes which account for approximately 80% of the Framework are more user driven and create real competitive advantage for companies. This is a challenge for both the Commission and industry. It is essential that the Commission listens to what industry says are its needs but it is also vitally important that industry is able to articulate clearly what research will create real value for it. In the past there has been too much of a tendency in my view to devise programmes which are thought to be of value to industry, and then to put in knowledge transfer programmes to persuade industry to use them. This should not be necessary if the programmes are user-driven in the first place.

I am delighted to say that the Commission appears to be largely in agreement with this approach in its proposals for FP7 and in particular its proposal for the establishment of a European Research Council.

In developing the Framework Programme there are four important factors that will have to be addressed.

First, we must ensure the effective independence of the ERC. It must, as far as possible, be effectively independent both from the European Commission and from Member States and able to pursue its own science driven agenda - run by scientists for scientists.

Second, funding for the European Research Council must be allocated purely on the basis of scientific excellence, as assessed by a truly international peer review process.

Third, we must improve the way that user-driven research projects are developed so that they better meet the needs of industry. It is extremely worrying that there has been a drop in the participation of industry in Framework 6 and we need to work hard to devise research programmes that create genuine competitive advantage for industry.

And finally, Framework 7 must deliver funding with the minimum level of bureaucracy, whilst - of course - ensuring the necessary financial monitoring and controls are in place.

The UK Presidency will be working with the Commission, member states and the science base to tackle these issues.

Mr President, we believe strongly that an innovative, socially responsible and profitable chemical industry is a key part of the new Knowledge Economy and vitally important if we are to create a prosperous Europe with a high quality of life. And you can be certain that in the years ahead the UK government will be working hard both at home and abroad to create the best possible conditions for you to innovate and grow.