Speech by Cecilia Malmström, European Commissioner for Trade at the Atlantic Council, Washington DC
Ladies and gentlemen,
It is good to be back in Washington. My thanks to our hosts at the Atlantic Council for inviting me. The last time I came here to speak was in June 2016.
It was a different time: not only had the Brexit referendum results just come in. But Sweden had just been knocked out of the group stages of the European Championship – it was not a great month to be honest.
The world has changed a lot since then.
The challenges of Brexit are real but one comfort in these negotiations has been the unity of the 27 remaining Member States to find solutions.
It shows the strength of the European community. Sweden made it to the quarter final of last year’s World Cup! We have seen some significant changes, too, in the policy area I think about most: international trade.
We have moved from a period, beginning at the end of the last century, of hopeful optimism about benefits of international economic integration, leading to cooperation and the building of institutions.
This optimism has now eroded, giving way to suspicion and distrust. Some of these shifts can be linked back to the pains of globalisation.
Globalisation comes with many positive opportunities, and is a force for good – but it has also transformed our economies in ways that were hard to predict.
People saw their communities transforming, they saw jobs changing or disappearing. This made many feel insecure. And many also blamed trade for these changes.
Some of those concerns were valid too – and as I will speak about later, we have transformed our trade policy to face these challenges.
There are other valid reasons for the shifts in tone worldwide: The global impact of state-capitalist economies operating at a massive scale. This deserves a response. New challenges like these require new solutions. This is yet another area where we must transform our trade policy.
But my view, and Europe’s view, is that closing up is not the answer.
In a globalised world, a decision made in one place can have unexpected consequences in another. Fundamental changes are taking place in the world that have regional, as well as transcontinental, consequences.
Shortly the vast majority of economic growth will be taking place outside the West. We need to factor that into our strategies.
Infrastructure, institutions and influence
So how should we face these challenges?
In the past, we have done it through institution building – and America led the way. You built a global architecture to uphold the liberal world order – standing against anarchy and authoritarianism.
NATO stood against the threat of Russia in the East. The United Nations aimed to foster cooperation on a grander scale. The International Monetary Fund created financial and monetary stability.
And we had the WTO, at that time the GATT. It was created for stability in open trade: a fundamental economic freedom.
And it worked. The world did not fall to Communism. Peace was achieved in Europe. After the fall of the Berlin wall and the collapse of the Soviet Union, Europe promoted democracy as the natural choice for countries coming out from behind the Iron Curtain, and Europe was united.
The EU believes that this approach is as essential today as it was in the past. We need to engage with globalisation by building on existing institutions.
This way we do not have to start from scratch. We can update them so that they are fit for the 21st century.
Alliances around the world
That is what brings me to Washington DC. We are here to engage in meetings with the US and Japan.
The US and Japan are two of our most important partners in trade – not just because we are major economies, but because we share values too.
We had a long meeting yesterday - USTR Lighthizer, Japanese Minister Seko and myself - as part of our cooperation to see how we can work together to update and develop new rules to counter, for instance, distorting trade practices. We made good progress together, this was our 5th meeting at the Ministerial level and our respective staff are in constant contact on this as well.
Recently we concluded a trade agreement with Japan - a real success story. The EU and Japan have a lot to gain in terms of business. When it’s in place, our agreement will account for a quarter of the world’s GDP.
It is a modern agreement too. It opens up Japan’s services market to EU firms. Companies will be able to bid for more public contracts – in particular, in the railway sector.
And it contains specific provisions to help spread the benefits of globalisation. For example, with small and medium-sized companies, or SMEs.
They are chronically underrepresented in trade, and yet they are 99% of all businesses in the EU. They have created 85% of all the new jobs in the EU in the last 5 years.
They’re a good target for spreading the benefits of globalisation, since they sometimes need a bit more help to reap the benefits of out trade agreements.
So in our agreement, we have a specific chapter dedicated to SMEs. Japan is a significantly different market to ours.
Language, customs and marketing are a challenge for every company, but adding tariffs makes life even harder.
These costs can often be handled by big companies – they have experts who can look at it, but smaller companies – they are not up to addressing these barriers.
So to help them to overcome them we have committed, with Japan and other partners, to:
• Provide SMEs with information online on how to access markets;
• Set up specific "Small Business Contact Points";
• And acknowledge the importance of SME access to global trade
This is a way to try to spread the benefits of globalisation, across countries and across communities. To show that trade is good for people across countries, in different communities.
It shows open trade is good for creating jobs, investment and growth all over. In this way, hand in hand with domestic measures, we work to address the backlash to trade at home.
The agreement also builds on our relationship – the EU-Japan Free Trade Area is a strategic alliance too. It makes us both stronger and brings us closer together. It also gives us a platform to work together in many other areas.
This is critical as Japan is a key partner, along with the US.
Together we are working to make trade fairer, and to save the organisation that has underpinned global trade for decades: I speak, of course, about the WTO.
World Trade Organization Reform
The European Union are committed global traders.
Beyond Japan, we have concluded an agreement with Mexico, where we are currently finalising some technical details, and one in force with Canada for more than a year.
We have struck agreements with Singapore and Vietnam, and we have opened negotiations with Australia and New Zealand. We are also negotiating with Chile, Indonesia, Tunisia and the four countries of Mercosur.
We are one of the busiest trade negotiators in the world, and this is important.
We also remain committed to what we see as the fairest and best system for open global trade – the WTO.
We believe in open, rule-based trade. Without the WTO, there are no rules.
International trade without the WTO would be anarchic.
Countries would be bullied, companies would fall victim to unfair practices – there would be no reliability, no stability.
So we need to repair and stand up for the system. So yes, there is a crisis and yes, we need reform and modernisation.
The rules need to be updated to face 21st century realities. In particular, unfair trading practices from China – like forced technology transfer and state subsidies.
The US is currently trying to tackle these issues through unilateral action.
We understand and shared the frustration with the current status quo, but we believe that only multilateral solutions can provide a sustainable response.
We see that as one of the objectives of our trilateral meetings this week.
The EU has a new plan to invigorate and revive the WTO. And we want to work with the US to do that with us.
Plan to update the WTO
The WTO is coming under increasing pressure. If we are going to save it, we need to act – and fast. First, we need to save the Appellate Body – the dispute mechanism of the WTO.
The Appellate Body is not perfect. That’s why the EU has made concrete proposals to improve it.
But without proper enforcement of the common rules, they don’t mean anything. So we need to look at the system in such a way that maintains its critical functions, its integrity and its independence, and see what we can do to improve it.
If the WTO is going to be an effective institution, it needs to have agency and credibility. Here, we have put forward proposals supported by other countries.
Second, we need to update the rulebook. In 2018 we are still using the rules of 1995. Little has been updated, little has changed – indeed, some rules are the same as they were in 1947.
Third, we need to strengthen the processes of the WTO itself. Improving transparency, and we need to establish the process to resolve trade tensions at an early stage.
Saving the WTO is about more than simply maintaining stability in the short- and medium-term.
It is a way for us to shape globalisation in the long-term – to make sure it looks the way we want it to; to create and enforce the rules early.
The rest of the world are developing – soon they will catch up.
Global institutions like the WTO, the IMF and the UN are central to making sure that we have a rules-based international order, and that we defend democracy and openness.
So a final few words on our relationship more broadly with the US.
As you recall, last year President Trump met with the President of the European Commission, Jean Claude Juncker.
They met here in Washington, and they decided that they were both committed to try to find a positive trade negotiating agenda.
They created an Executive Working Group to try to find common ground, which I lead from the EU side, and Ambassador Lighthizer from the US side.
We are identifying possible outcomes and making progress – like buying more liquified natural gas, buying more soya beans, and also in our discussions on regulatory cooperation in some areas.
These past few days here in DC, we have taken stock of where we are,
to see how we can go forward. We have spoken about regulatory cooperation, about standards, about different ways to facilitate trade between us that can be mutually beneficial. We have had good meetings - I’ve met several times with Ambassador Lighthizer this week - and we have made good progress. Our people are also working hard to take our work forward.
The US and the EU have always been close partners. We look forward to maintaining that relationship while facing the challenges of the 21st century.
Conclusion: Trade as a tool for change
Trade is a powerful tool for change. It has lifted millions out of poverty.
We have used it to pressure for reform, to strengthen our economies, and build relationships and alliances.
There are some who suggest that closing is a good option – to redirect investment and wealth back towards their own countries.
Not only will it not work, but in doing so they sacrifice two things.
First, their values. Open trade is a fundamental economic freedom. Removing that freedom is removing a critical part of open democracy.
Second, their connection to the world. Trade is much more than money.
It is relationships, it is value chains. It is about people-to-people contacts. It is about the exchange of ideas.
It can result in win-wins – not just economically, but politically and geostrategically too. That is how we want to use our trade policy.
We belong to some of the most developed nations in the world, and we are at a critical juncture. Our economic might in trade is an important part of our toolbox, and an ever more important part of our response to a new, globalised world.
The US and the EU now have the opportunity to cooperate once again – as we once did after World War Two – to shape the global order in the coming century. From the EU side we are committed to play our part in this. And I believe that the US is as well.
10 January 2019