I am going to cover three main perspectives on EU trade policy. First, I am going to give an overview of our trade policy priorities and achievements over the past five years. Second, I want to look at how the financial crisis has affected global trade and the context within which trade policy is made. And, third, I will look at some perspectives for the future.
I am taking this "long run-up" to addressing the future perspectives for trade policy for two main reasons. The first is that by looking at the recent past we create a frame of reference for the future. The second is that we are in a period of significant economic uncertainty and political change.
Economic uncertainty due to the crisis and the fact that, even though the financial sector is now considerably more stable than it was last autumn (because of unprecedented and coordinated government intervention), the real economy - jobs, growth, trade – is a long way from a full recovery in Ireland, in Europe and across the globe.
And political change because the process of selecting the politicians who will lead the EU's major institutions is ongoing but only partially complete. As you know, EU Heads of State and Government gave their political support in June to Commission President Barroso for a second term of office, but this is yet to be confirmed by a vote in the Parliament.
The Parliament last week elected Jerzy Buzek (a Polish conservative) as its President for the first-half of this EP legislature, but we are still yet to see how the Parliament is going to position itself on the major policy issues. The members and portfolios of the next European Commission also remain to be decided in the autumn.
And, crucially, the referendum on the Lisbon Treaty will decide the legal arrangements according to which the institutions operate.
Trade policy: recent priorities and achievements
The Commission's trade policy priorities in recent years were set out in the "Global Europe" trade agenda that was published in October 2006. The Commission's strategy was one of opening up trading opportunities abroad, while boosting competitiveness at home; doing this means linking our external trade agenda with the internal process of economic reform embodied in the Lisbon strategy.
Europe's economic strength today, in a global market-place, depends totally on our ability to remain globally competitive. Some two-thirds of European imports are inputs to the production process; in other words, they are transformed into higher value added products, much of which is then in turn exported.
As such, we need to import in order to export. Or, in other words, trade policy is about being open to imports to drive our export strength.
I think this approach has helped both trade policy-makers and our stakeholders to see trade policy as part of the wider globalisation agenda: to make sure that we are addressing the most important challenges and pressures of the global age, and to ensure that our trade instruments were fit for that purpose.
- In a globalised economy, in which European companies source and sell their products down long global supply chains - Europe's economic strength at home depends on its competitiveness in the world.
- At the same time we must ensure that our companies have fair access to third markets, which are often less open than our own. The growing inter-dependence between economies means that countries all share a stake in each other’s prosperity and development. EU competitiveness depends on growing prosperity in our major and future markets. At a time of rapid change – and concerns about the pace and nature of change – Europe needs to make the case for openness and engagement, not isolation and retreat.
This message resonates even more strongly today as the world economy is in the process of recovering from the financial crisis that hit the banking system last year.
- The policy agenda that we have pursued emphasises our core commitment to the WTO and the multilateral approach to negotiating, developing and implementing trade rules, but it also includes some new elements to improve the market access that we are delivering for European business.
- In recent years, the Commission has been very active in implementing this agenda:
We have continued to be a firm proponent of the WTO and the Doha Round of world trade talks.
We succeeded last summer in Geneva in positioning the EU well. For perhaps the first time in WTO history no one was pointing the finger at the EU. This may be cold comfort, given we did not close the deal but we must take comfort where we can.
We launched new free trade agreements with India, Korea and South East Asian countries.
And we [now have a draft final agreement] with Korea: this would be a major boost for both economies in the context of the crisis.
We have focused new resources on better protection of intellectual property rights and fair access to raw materials.
We have established a new trade dialogue with China, which provides a forum for addressing trade issues before they become legal issues for the WTO: an approach that is particularly important with Chinese interlocutors.
And we have set up partnerships with Member States and EU business – via the Market Access Strategy to do a better job of tackling trade barriers in third countries – to actually reduce them rather than just talking about reducing them!
Let me say a few words on the importance of delivery on this agenda.
- I have been in a number of high-level meetings on Korea in recent weeks. The Commission has negotiated an extremely ambitious deal with Korea that will set new benchmarks for trade agreements in many areas, such as services, non-tariff barriers, and trade rules. It now needs to be backed by full political approval from the EU institutions.
This presents a real test for Europe. The agreement offers major benefits to many industries – chemicals, machine tools, pharmaceuticals, service sectors, but it also presents challenges for the other sectors, such as cars. We may be told by some that this is a nice deal, but "not now thanks".
We must ask whether, in this time of economic crisis, we are ready to do an ambitious deal that can send the right signal that the broader economy needs. Times may be hard but Europe is still open for business. That is a powerful message of confidence in the future.
- Our enhanced trade dialogue with China is also starting to deliver results. It has facilitated a technology transfer agreement between a European telecommunications equipment manufacturer and its Chinese counterpart. We have also helped a major European cement manufacturer to resolve a trademark infringement.
- Our Market Access Partnerships are also helping to leverage the combined weight of our business, member state and EU channels of influence (sometimes also working with partners in third countries with similar interests).
Here are a few examples of the concrete improvements that have been achieved:
● We have simplified administrative procedures for EU exports of cosmetics to Mexico, Japan and Korea.
● We have worked with the US to suspend tariff increases on combine harvesters in Russia.
● We have reduced technical barriers to exports of wines and spirits to Malaysia, Thailand, India and Colombia.
These successes are not necessarily earth-shattering individually, but they are important for business and for the sectors concerned. We will go on to deliver further real benefits and opportunities.
And it is by delivering on our objectives and priorities that we can build a solid platform for the future. A solid platform is even more important given the economic shock of the economic and financial crisis.
EU trade and the economic crisis
A strong starting position for Europe: The first point to make is that the EU economy went into the crisis with a strong position in international trade.
- In 2007, the EU was the world's largest exporter of goods, with a 16.5% share of the global exports. During the past decade or so, when emerging countries, such as China, have been playing an increasing role in global exports, the EU has also maintained a higher share than other developed countries. The US and Japan now respectively account for 11.0% and 6.5% of the world market for manufactured exports.
- Moreover, the EU is the global leader in exports of services, with 27.6% (2007) of the world market against 19.4% for the US and 5.2% for Japan. The EU is also the world's biggest investor and the principal host of foreign investment. When intra-EU stocks are excluded, the EU owns 38% and hosts 29% of world investment stocks. I am also stuck by a figure from a recent study (Quinlan) for the American Chamber of Commerce. He signals that US industry earns as much from its investment in Belgium as from all its investment in China. This highlights the importance of trans-Atlantic markets, but also gives a sense of scale in the global economy.
- The EU’s strong overall performance is due to an upgrading of the quality of its exports, combined with the ability of EU companies to sell products at premium prices because of quality, branding and related services. We account for more than 30% of the world market for these products, as much as the US and Japan combined. These products represent about half of our exports. We need to build on this ability to sell quality products at premium prices. This is the only way to maintain high levels of employment, wages and social protection in Europe to which we are attached.
But the EU is trailing behind in several high-tech products whereas countries such as China are rapidly catching up. We must ensure the EU's capacity in the future to keep its products at the cutting edge of quality and innovation. For this, we need the right policies at home – education and training, innovation and R&D, training policies are all key elements of the Lisbon strategy. And we must do all we can to ensure intellectual property rights are effectively protected abroad.
Trade policy in the current crisis
Turning to the crisis, we need to be clear that trade policy was not a root cause: financial market regulation and macroeconomic policy are not decided by the WTO in Geneva.
Moreover, by helping to avoid a repeat of 1930s protectionism, the rules-based WTO system has been a central pillar of international efforts towards recovery. The leaders of the G20 have based their trade policy on WTO rules and disciplines and the prospect of further liberalisation offered by the DDA.
But the crisis has demonstrated the extent of global economic inter-linkages. Global production chains and massive trade in intermediate products mean that trade grows faster than GDP in an upturn and falls more quickly in a recession. In recent months, most major economies have seen exports 20 to 30% lower than in 2008. Japanese exports in February 2009 were half that of February 2008.
In spite of modest improvements in the very latest data, the latest forecasts from the IMF and the WTO see world trade declining by between 10 and 12% this year. The Commission forecasts (May) that the EU economy will shrink by 4% this year. The latest IMF prediction is a decrease of 4.7%. And, unfortunately, unemployment is set to rise further in the EU from its current level of 8.9% [current US level: 9.5%] towards 11% next year.
The weak economic outlook only strengthens the arguments in favour of concluding the DDA. This would offer a "double dividend" of a boost to global growth (of around EUR 150 billion per year) as well as preventing the scope for "WTO-legal" protectionism by raising applied tariffs within bound limits.
The crisis has also highlighted the importance of social policies in support of workers who lose their jobs. The aim should be for policies to equip workers with the skills to find new work and so minimise their time outside the labour market. This is exactly what the Globalisation Adjustment Fund seeks to do. [Comment: note that Ireland has just submitted its first application for the GAF - EUR 14.8 million for DELL – which would be the largest single application so far, if approved].
And Trade policy has an important supporting role to play. If countries around the world were to throw up barriers to trade, then global production chains could collapse and a deep recession could become a depression. By helping to keep EU and foreign markets open, EU trade policy is helping to limit scale of the downturn, and therefore the number of citizens who lose their jobs and become dependent on social policies in the short-run.
Priorities for the future
- History shows us that fragile banks, shrinking economies and rising unemployment make for a potentially dangerous combination. The EU has shown global leadership in its response (with some cracks from time to time, but generally a collective effort): bank rescue packages; playing a catalyst role in the establishment of the G20 process; and the macroeconomic stimulus of the recovery plan agreed at the December European Council.
Our short-term priority must therefore be to build a platform for a sustainable recovery over the medium-term.
In a number of crucial areas trade policy is playing a supporting role: social policies are primarily provided at the national level, as are the education, employment and innovation initiatives that will ensure our future economic competitiveness and dynamism.
But open international markets based on international rules for free and fair trade are critical to the EU's strategy of importing to export.
In the near-term we must therefore continue to press for progress in the DDA for both the growth-boosting and defensive reasons that I have underlined.
The EU will also continue its bilateral and regional negotiations with Korea, India and others with a view to agreeing a set of deals of further benefit to EU business. As I have said, we will soon initial an agreement with Korea that should show the way for our other ongoing FTA negotiations.
Over time, we should also look at how we can best facilitate deeper market integration with our key trading partners. The EU leads the world in trade in services and in investment. Many of the barriers that our businesses face are therefore "behind the border" and dependent on national approaches to economic regulation.
These barriers are not always easy to tackle at the multilateral level. Commissioner Ashton has recently spoken of the importance of building "relationships" that address more than just the "numerical" barriers of tariffs. Addressing these barriers more effectively is about playing to Europe's economic strengths.
We will also continue to engage actively in the trade and environment debate. The most politically visible part of this agenda is the importance of ensuring a UN-based approach on climate change that fits with an open international trading system.
And my final point would be fundamentally internal in nature. Although some emerging countries are rapidly catching up, the EU is currently, along with the US, one of the two big players in the WTO system. This is for two main reasons. First, because over the past fifty years the Commission has built up a reputation as a tough negotiator in favour of the interests of the member states of the EU. And second, because our trade partners know that if they do a deal with the Commission, it means access to the EU's Single Market of 500 million consumers.
The flipside is that a weakening of the single market undermines the Commission's role as negotiator and the leverage that we have with third countries.
My concluding remark is therefore that EU trade policy continues to provide guaranteed access to international markets and international economic policy leverage that is particularly beneficial to smaller EU member states, such as Ireland. But the Commission's capacity to deliver in international negotiations depends upon a solid domestic platform.
It is therefore – I firmly believe - in our shared interest to see a strong European Commission over the next five years based on a strong legal and institutional footing. So that the European Union can continue to put the economic interests of its citizens at the heart of its policy priorities.
Thank you for your attention.