Why the EU and the US need the multilateral trade system
It is essential to maintain an open global system. We have seen in the past what happens if major economies adopt protectionist policies. We then risk triggering a negative spiral like the one we saw at work in the 1929 crisis. When one country closes its borders, others do the same, and we all become losers. This is especially true today, at a time when our economies are even more interconnected and virtually all companies need to buy inputs or sell their products internationally. In a more protectionist world, we would all lose access to new products, services, technologies and ideas. Our companies would pay higher prices for inputs and lose clients in countries that close down. And the poorest citizens would be hit the hardest with price increases. This is what economists call a “negative sum game”: a situation in which results are negative for everybody.
In Europe, this phenomenon had disastrous economic consequences in the 1930’s and contributed to social unrest that fuelled nationalism and ultimately contributed to war. This is why, after World War II, European countries decided to open up to each other and to create the world's largest single market. This not only boosted EU’s prosperity, economic growth and competitiveness. But this also created a long lasting peace. It is now in our DNA to be open and trading with our neighbours, instead of going to war with them.
What is true for Europe is true for the world. Open, rules-based and fair trade is a positive engine for prosperity, innovation and peace. And we can all see this for ourselves. A more connected world has brought with it new opportunities for many. People now travel, work, learn and live in different countries. They interact with each other on the web, sharing their ideas, cultures and experiences. Students have online access to courses run by leading universities across the world. Countries can produce more for less by specialising in what they do best and exploiting economies of scale in global markets. International competition, global climate action, scientific cooperation and exchange of ideas have stimulated creativity and accelerated innovation. Companies active in international markets remain competitive because they learn and adapt faster. This is what economists call a “positive sum game”: a situation where we all win by enlarging the pie, rather than destroying a good part of it and fighting for what remains.
Now, this being said we are not naïve free traders. It is also true that openness and competition are good only if they are fair and based on high standards. Trade must not only be open but also rules-based and fair.
This is why after World War II, not only did we build the EU, but we also worked with the United States and other partners to build a strong multilateral framework. We created the United Nations (UN), the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT) which later became the World Trade Organisation (WTO). These institutions and rules brought peace, stability, trust and prosperity to many. Interconnectedness increased and global trade shot up.
In 2007-2008, G20 governments agreed to uphold this commitment to international cooperation when tackling the financial crisis that affected all of us. We collectively agreed to avoid repeating errors of the past and refrained from resorting to protectionism. We also coordinated to support the global economy and adopted more robust global rules to regulate financial markets and fight tax avoidance. We then continued to develop the global rulebook by endorsing the 2030 Agenda for Sustainable Development in 2015 and then a binding international agreement to fight climate change in Paris.
Today more than ever it is necessary to continue our global effort to cooperate on harnessing globalisation. This is why it is important to preserve our multilateral world order and institutions. The WTO and its dispute settlement are amongst the most important elements of this system. They are not perfect but provide for minimum rules and channels of cooperation to address trade relations and disputes. We hope we can count on all nations in the world and our US friends to preserve this crucial common good. The WTO and its dispute settlement are like the rules of the game and the referee in a football or a baseball match. If we get rid of them this will get ugly and will rather look like “rollerball” or “hunger games”. I don’t think this is the kind of game we want to play.
Beyond this, we must work together to improve global rulebooks and economic governance to address loopholes. We need stronger discipline for instance on: 1) subsidies and state-led distortions that lead to overcapacity and dumping, 2) tax avoidance, or 3) social and environmental standards. Work to develop the global rulebook on these topics in the WTO or the G20 is essential. And so are bilateral cooperation or bilateral FTAs that contain modern rules. This is why the EU continues to negotiate modern new generation FTAs with around 20 partners around the globe. We are constantly looking for like-minded partners ready to open up but also sign up to advanced rules and standards. We have just started to implement our trade agreement with Canada (CETA), politically concluded this year an FTA with Japan, and hope to conclude soon with Vietnam, Singapore, and Mexico, as well as to start negotiations with Australia and New Zealand. So, basically, our working assumption is that we want to open up a new market every six months. We are negotiating with all NAFTA countries and with all TPP countries except one. We believe in rules-based, open, fair trade. We want to let responsible reciprocity function in a market economy to solve our societal challenges such as unemployment, climate change and poverty. We believe that rules-based trade strengthens the rules-based world order, which is fair. We believe that trade is the way to increase wealth, well-being, productivity, and competitiveness.
Now it is true that there are situations when certain partners are not willing to sign up to the same standards as us or do engage in unfair trade practices. We must then have the right tools to be able to restore a level playing field. But we must do so in full respect of WTO rules. In the EU, we are reforming our trade defence instruments and notably just agreed to use a new dumping calculation method – close to the US one. These instruments are essential to protect EU industry from unfair competition. We have protected many jobs in the past years by for instance acting against dumping caused by overcapacity in the steel sector in China. We also just proposed a new EU foreign investment screening framework which will allow us to react if foreign companies threaten our security or public order when taking over EU companies with critical technologies, infrastructure, inputs or sensitive information.
We must use these instruments whenever needed and are ready to cooperate with the United States and other partners to address the common challenges we face when trade is unfair and there is a need to restore a level playing field. Our cooperation within the Global Forum on Steel Excess Capacity is an example of such cooperation.
To conclude, I would like to stress that EU-US bilateral relations remain essential for us, even if TTIP negotiations are halted. The US is by far the EU's most important economic and political partner: in 2016, two-way trade in goods amounted to €1.67 billion per day. EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sides of the Atlantic, with a third of the trade across the Atlantic actually consisting of intra-company transfers. The EU is committed to a strong transatlantic relationship and looks to establish a positive agenda for cooperation with the Administration, covering both bilateral and global issues.