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CNBC Transcript: Andrew N. Liveris, CEO, Dow Chemical Company

Following is the transcript of a CNBC interview with Andrew N. Liveris, CEO, Dow Chemical Company. The interview was broadcast on CNBC on 20 March 2017.

All references must be sourced to a "CNBC Interview".

Interviewed by Geoff Cutmore, Anchor, CNBC at China Development Forum 2017.

Geoff Cutmore: So let's start Andrew by just asking you how good or otherwise you feel about the growth momentum that the Chinese economy has right now.

Andrew N. Liveris: Look, the growth momentum in China is based on their pivot of a few years ago almost as President Xi came into power that discusses domestic sector growth economy rather than an export reliant economy. I'd say a few years in, it's going as well as they wanted. And for Dow surpassing our expectations because the other pivot that's occurred here is the obvious one of the environment.

I mean when they hit the food safety issues a few years ago when they hit the, you know, the issues of water and clean water in their riverways, if you look at the air and the air pollution especially in places in the urban centres like Beijing, they've accelerated their notion in the 13th five year plan speaks to it of putting in place sustainable growth. So, sustainable growth, if you put the technologies and the products, these are domestic sector purchases, these are companies being born all over China. SMEs to reform state-owns that are needing these technologies and that will create new types of growth. They call it high quality growth. So instead of high volume only, high quantity that's high quality.

GC: The government has been trying to restructure and reform, part of that has been down to the environmental story. But some of it has also been about access capacity around the state owned enterprises. They've also been slowly opening the door in some sectors of the economy where there has been limited access. Are you concerned at all that under the pressure they feel now from the American administration some of those progressive moves get rolled back or suspended?

AL: So that's, that's a very big question, has several big bite sized chunks. Let's go one by one and I'll give you the Dow view. The reforms as it relates to excess capacity in.. let's call it me two product lines that the state owned enterprises have been primarily involved in. They used to call those pillar industries. In essence those cutbacks, those factory shut downs mostly for environmental reasons but really because of structural capacity reasons - oversupply, they're not low on the cost curve here they're higher on the cost curve. Very few of those commodities do they have some sort of competitive edge. Those are being welcomed. Those are being, in fact Dow never participated in building petrochemicals here. We've built in places like Saudi Arabia or the United States that are much lower on the cost curve. And so the pivot from restructuring the structure of the supply side to working the demand side and then really look at the demand side as I said earlier as a domestic sector quality demand side to change the skills they need for the digital age to put in place efficient transportation smart cities and better food supply. All those technologies are innovation driven so low cost integration commodity, as a base fine they've got enough building on top of that an innovation centric economy through investment here in China like Dow has done. We have a very large R&D center, our second largest in the world is right here in China.

We have got 750 Chinese scientists working towards all these environmental drivers but also domestic drivers working with Haier to give them a more efficient washing machine so it uses less water and takes out bacteria; working with Nippon paints and take out pollutants in indoor air quality; and many other building projects and materials projects that I can quote. Those sorts of growth drivers are right in the sweet spot of technology driven companies. Now as it relates to the US administration and the back and forth that's begun and I want to emphasize the word begun. It's begun because what? The inequity perceived in global distribution of wealth is not just unique to emerging countries it's very much in the centrepiece of developing countries and the United States. You know what President Trump got elected on was very simple and that is the income distribution of the US economy as it became more and more of a service sector economy, the factory workers, the displaced workers of America didn't have a job to look forward to. And the conundrum there is there's a half a million science based jobs open in the United States as we speak. So what the issue is isn't really China-centric. The issue really is US-centric. How do I rekindle manufacturing the United States? Not by taking it away from someway but rekindling it in the United States. Now will that manifest itself into a discussion on trade? Absolutely. What's fair trade look like? You said it in your question. Access. Are all US companies being able to access the Chinese market equitably according to whether they are important whether they are local. No. So what does fair trade look like? And is it in fact what we used to have in trade agreements? That's a discussion that's opening up. I call that healthy. I, as a global company want to access the Chinese market, the US market, the South American market, every market on the same standard.

GC: So you don't think you get that access in China?

AL: Well so over all the years that we've been operating here we could never do a petrochemical complex without making it a joint venture. Technology transfer had to occur in China's first manifestation of economic growth. Now that they've got their own technology they need it less. Service sector countries, companies can't access this market. The financial services insurance companies, health sector, sector companies. So those you know access issues on investment, not necessarily on trade of goods are importing. China has been pretty good under WTO standards. We can import pretty much everything here as a manufacturer from elsewhere but to invest here - we didn't have equal access.

GC: But do you not feel conflicted that you are now perceived to be part of Donald Trump's drive for "America first" when your business makes two thirds of its revenue from the rest of the world?

AL: The question is flawed because I am not part of anyone's drive to make America first. I'm part of President Trump's activity to rekindle manufacturing so it's not a zero sum game. And that is fundamental, is the answer to your question. This is not a zero sum game. We all know that. People who trade in the global system, we know what has to happen here and to satisfy a population's feeling of inequity, globalization hasn't been fair. Think about it this way, America pretty much since World War 2 has been a consumption economy. In essence you can import pretty much anything to America and sell it in America in any environment retail or in the channel you want. To invest in America, there hasn't been any incentive to invest other than the market. So whether you're an importer or an investor if you're a consumption economy, the American economy is the best in access. Every other economy is an investment economy. Even Europe has protections around investment. So I would say to you there is a recalibration going on globalization. Think of it as not consumption but investment. I want to be part of that conversation. So I get a better answer for the Dow chemical company.

GC: You have a very nuanced view on this strategy. The problem is that people read the headlines and they see the fact that Steve Mnuchin was unprepared to put an anti protectionist language in the G20 communique that sends a terrible message doesn't it? To anybody that believes that free trade lifts income levels for everybody?

AL: So people elect governments, governments do what they have to do to protect their people. We should not judge why the democratic process elects this or that. Dow is 120 years young. We work with every government. And I've been CEO for a dozen years. I work with every government in the United States, every government around the world. Including this one here. So I am not afraid of headlines. It's the body of work that goes below the headlines. That's more important behind every statement, there's a body of work that has to happen. And I would say very important to the US government is job creation in the manufacturing base of America. And if you look at the raw data, America has lost that battle the last three decades. It wants to regain footing. Now there are some advantages - entrepreneurial, best universities in the world, energy, low cost energy. The petrochemical chemical sector that I belong to, investing 180 billion dollars as we speak, Dow 7 billion dollars. So we are not starting from zero. So what businesses like ours have to do is help with the body of work together to get America what it needs investment and growth and job creation for the new age not yesterday's era the new era. And then grow from there off of a flat level playing field. I'm all for that in any country.

GC: But I mean not to get too theoretical about this but Ricardian comparative advantage is all about trade happening to the advantage of both parties. And if you can manufacture at a lower cost somewhere else trying to bring those jobs back to America is trying to reverse the rules of economics isn't it?

AL: Yeah, and we're not going to spend an awful lot of time at this point because it's a one or two hour interview probably. But please remember what's happened to the world based on technology the industrial age 4.0 the fourth industrial revolution is creating this another, another pressure it's enormous on job creation. It's in essence the digitization of industries not just digitization of communication or even digitization of e-Commerce which everyone in the in the world probably understands somewhat if you're an online shopper or for sure use a smartphone.

But the digitization of manufacturing has begun. And companies like Dow are digitizing. That means we're not creating the same sort of jobs we used to create. So the war on human capital and the war on job creation has moved and the governments that get that, when they rebuild their manufacturing sectors to this new economy have to look at skills, look at their education system and they have to look at many things that other countries might do and build them all together like Germany and apprenticeship programs. Many of us have become universities in our own right because the universities are not giving us what we need. So when you look at competitive advantage think of it in the context of the technology age. And what we haven't done to prepare our kids and frankly the displaced workers out there mostly in Western economies we can't protect them. We have to skill them, we have to help them get these new skills to deal with robotics and automation and the Internet of Things and the digitization of every factory floor and in by so doing we create an ecosystem of new jobs.

And I mentioned earlier half a million of these jobs are opened in the United States as we speak. Me? Yeah. We're not going to get there overnight but we can make that happen faster if (we) cooperate with governments and get them into the right programs.

GC: But let's just bring this back to a human level, look we understand the points that you're making and I'm sure as you've explained them to people that you've spoken to here as you've gone into some of the details perhaps their eyes widened and they've gone, now I start to see some of the reasons why you're involved. But you must also be getting some pressure here I would imagine. A little bit of blowback particularly from the Chinese who see you now as being a party to an administration that's had relatively harsh language towards this government.

AL: Look, I've been coming to China since the 70s. One thing I know about the Chinese culture in the Chinese people and Chinese leadership, they never overreact. They are patient and they seek to understand. The meetings I've had frankly have been nothing like you describe. They've been more... Well, now that you're inside discussing this and understanding it the way you're understanding it. Tell me a lot more about it and how does it apply to the relationship. And I'm getting that sort of question. And you know I won't push back on the label you're giving me. Remember I'm a global CEO. You said those statements earlier.

GC: And you're in a unique position of having helped both administrations. You were also involved with President Obama's administration. As you compare the approaches of the two, how do you feel what Trump is doing is more effective in terms of rolling back some of the red tape and the barriers to you doing business?

AL: Yeah the distinction is interesting because the three pillars of activity are almost the same. The work products on what are the technologies of the future? What are the policies to encourage them? How do we get the workforce skilled? The emphasis in this administration is the last two. The workforce skilling and training and finding national programs that make sense as recent as yesterday, two days ago in the United States. We had a meeting on that when the German chancellor visited. How did we learn from Germany and then most importantly the point you made? How do we take out these headwinds to enable manufacturing to invest in this country in the US again?

Just to give you one step. The average regulatory cost to a US manufacturer is a small medium and large, is roughly $19,500 per employee per year. The average cost to all other sectors is less than half of that at $9,900. So the manufacturing sector has his added burden at double the rate of every other sector. So just working on that alone. Forget everything else that gets done would immediately enable the policy environment to have an effect on investment. There are many other things I could talk about but those two areas, regulatory and training, those two areas our emphasis points on this administration.

GC: On the regulatory, and I am going to wrap it up here because I know you need to go off. Let me just ask you then about the process here to finally get this deal over the line with DuPont, because it's felt torturous I think to me looking from the outside. So it must have felt even tougher for you on the inside here. You're talking now about a second quarter closure of this. How frustrating though has this regulatory process been?

AL: So antitrust regulatory, regulators around the world whether they be the EU or China or in the US any time too big businesses get together, you know, we were expecting that there would be some of this. It's taken much longer in Europe than we imagine, because there was a very decent thesis put out by the regulator that we had to respond to that it had never been raised before. And also the context of the deal changed. The other deals that happened pretty much right after us, changed the context of our deal. No matter which way you want to say it you couldn't just look at our deal and say well I'm looking at those other two coming along. So that created a series of delays. You mentioned a second quarter. So first half is what we said. I'm very confident we're going to get there. In fact first half is what we're all planning on. We have put in place now all the programs to get us ready for day one. We're gearing up down DuPont are getting ready to create this new company that will then have three companies spun out of it. The regulatory remedies for sure have been frustrating. I've used a line which I'm going to use on you three months of delay in the context of $30 million of new value – fine.

GC: But couldn't Europe do with a little bit of Trump va va voom when it comes to getting these things to run a bit faster?

AL: There are plenty of people commenting on what the EU is like and what there isn't and including from the US right now. My experience with the EU is 27 nations trying to – the EU 27 – trying to make a decision on pretty much anything is dramatic, but its own bureaucracy rate. So yeah, could it have been easier and simpler? For sure. But look, I see a finish line. So you know what. Whatever it took to get from there to that finish line - fine. I'm a big boy. We know how to get this done. This deal is phenomenal, when it's day one I can look at it and say that's all memory, faded memory.