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SPEECH/06/274












Peter Mandelson

EU Trade Commissioner



Europe’s response to globalisation: where does EU trade policy go from here?






















Globalisation Seminar, Wolfsberg
Wolfsberg, Switzerland 4 May 2006

In this speech to political and business leaders in Wolfsberg, Switzerland, EU Trade Commissioner Peter Mandelson set out his priorities for EU trade policy following the conclusion of the Doha Round. Mandelson argued that Europe’s trade policy lies “at the intersection of two challenges – Europe’s external and internal responses to globalisation.” He set out an agenda for the remainder of 2006 and beyond “that focuses on hard, economic priorities and adapts our thinking to the realities and challenges of globalisation”. He called on the European Commission to show “leadership to push for change, even if it is painful”.

The successful conclusion of the Doha Round. Mandelson argued that the Doha round remained his “paramount priority”. He said that “a moment of truth has arrived” in the Doha negotiation in which parties would move quickly to find a ”balanced grand bargain...or face the consequences of putting off agreement for some time”. He echoed the Brazilian trade negotiator in calling for a combination of “ambition and realism”. He was strongly critical of NGOs that suggested that developing countries should contemplate walking away from the Doha talks, arguing that “this negative advice amounts to allowing the better off to climb the ladder of prosperity only to kick it away before others have the chance to follow”.

A tough approach to open markets and application of the rules. Mandelson said that the EU would take “a decidedly hard-headed approach to ensuring markets are genuinely open and that international rules are applied openly and transparently”. He said he would take “a new strategic approach to market access”, that recognised the need to realign EU trade policy to account for the growth of Asia. He said the EU would continue to push for the removal of tariff barriers, but also seek to reduce non-tariff barriers and open up new markets for services. He argued: “this cannot be a mad rush towards open markets at all costs. It doesn’t have to be a race to the bottom either. But we should not forget entirely that it is a race”. Mandelson announced that the European Commission would produce in the autumn an “overarching” strategy paper on how best to enhance the EU’s external competitiveness.

Reflecting on anti-dumping in a globalised world. While strongly defending anti-dumping rules as necessary to ensure public confidence in fair trade and a fair deal for European businesses, Mandelson argued that the it is important that “such rules are adapted to the complexity of global markets...to the changing patterns of trade and production, where manufacturers in the EU may compete with European distributors who have outsourced production, and where consumers and other manufacturers expect the benefits of wider choice and lower prices”. He said he would launch a formal reflection on the use of anti-dumping measures - probably in the second half of 2006.

A twenty-first century strategy for China. Calling China “the biggest single challenge of globalisation in the trade field”, Mandelson said that the EU would produce a strategic communication in the autumn on the EU-China relationship. Arguing that “Europe must get China right, as a threat, an opportunity and prospective partner”, Mandelson said the Communication would focus on “key challenges such as intellectual property, market access issues and investment opportunities” and would “spark a lively debate both within the EU and in China”.

I often find with lectures like today’s that I accept the commitment with pleasure months in advance, but with hardly a thought to what I will actually say. I assure myself that somehow the lecture will write itself against the background of events at the time. Then a couple of weeks before the appointed day it dawns on me that the lecture isn’t going to write itself. And that you need a theme.

On this occasion the timing struck me as significant. It is some twenty months since I first addressed the European Parliament as Trade Commissioner designate: effectively a third of the Commission’s five year mandate. I am at the point where one has no excuse for not being totally acquainted with the job: yet still in a position to shape a future agenda and have some chance of pushing it through. So that is the analytical task I have set myself today.

We face many challenges these days: terrorism, environmental change, resource shortages and so forth. The overarching challenge that subsumes them all is globalisation – the rapid movement of goods, services, capital, technology, ideas and people across the world. It is the defining characteristic of our times. In international economics it is most acutely felt in the rise of Asia and how we as Europeans respond.

The big challenge internally within Europe for the Commission is to demonstrate our relevance in shaping Europe’s response to globalisation and to rebuild a sense of purpose in European policy after the sharp blows of the French and Dutch referenda last year.

As Trade Commissioner I feel I stand at the intersection of these two challenges – Europe’s external and internal responses to globalisation.

Europe’s Attitude to Globalisation

I want to say four things about Europe’s attitude to globalisation. First, the key determinant of whether or not we Europeans meet the challenge of globalisation will be whether we succeed in nurturing the values of openness: not just open markets, but also open, creative minds and cosmopolitan, tolerant attitudes.

Second, the key test of those values of openness will be whether Europe’s Member States succeed in driving forward reforms that strengthen economic openness and at the same time develop a modern social agenda that multiplies opportunity and hope, in place of the insecurity and fear on which populist attitudes feed.

Third, the key test for the European institutions is the lead we can give to Member States to pursue the necessary reforms, using to the full the powers of the Treaties to defend the values of openness.

Fourth, the key challenge for the Trade Commissioner today is to build an agenda for external competitiveness for Europe. This means a new agenda for trade policy, including and beyond the Doha Round, that promotes openness both in our own markets and the rest of the world.

In all this there are two traps to avoid. One is to think of the EU principally as a defence or bulwark against globalisation. This treats globalisation as a threat rather than an opportunity – not just for the whole world to get richer, but for millions who have lived lives of unremitting poverty to enjoy a better, freer life.

The other trap is to imagine that globalisation has made European integration irrelevant to the ability of European nations to take advantage of these opportunities. This would only be true if Europe fell into the first trap of trying to repel rather than embrace globalisation. If the response to loss of jobs was to blame new competition and then to give in to pressure to keep that competition out.

The truth is that the European Union gives us the potential to shape globalisation positively in ways even the largest of our nation states cannot achieve on their own. To influence exchange rates and the management of global imbalances; to negotiate, with weight, on trade to secure better market access for European producers and fair trade rules; to lead on development in Africa; to contribute to Middle East peace and the security of Europe’s neighbourhood; to safeguard our energy supplies and develop innovative solutions to energy conservation and climate change.

We have much to offer. The EU is the world’s biggest trading block. It is the most important donor of both aid and preferential market access to the developing world. This can be translated into real leverage in securing social justice and human rights. As for the environment and sustainable development, the EU has a more successful track-record than the US in finding multilateral solutions.

Why is this? The EU has been forged by combining the strengths and traditions of individual countries. Our integration has developed unique instruments – legislation, competition rules, funding programmes – which make the EU a uniquely capable intermediate player – between national action and international rules.

The Union is in fact a successful example of “globalisation” on a regional scale. It has provided the right space for effective regulation and solidarity, in which regional integration gives our citizens and businesses a better chance to experience the benefits of globalisation, while providing a safety net against the impact of change.

And enlargement has strengthened this role. It makes the case stronger for more – not less – integration. And it has been decisive in redynamising the economies of the acceding countries, helping them to pursue difficult but necessary reforms, and extending those benefits across the single market as a whole.

How does Globalisation affect us?

Globalisation is not new. Global links – as countries like Switzerland at the cross-roads of Europe have experienced – have existed for centuries. What makes this phase of globalisation different is the speed and depth of change. It affects all peoples in all continents.

Since the Second World War progressive liberalisation of trade and investment has brought sustained economic development to more and more countries, with world trade increasing fifteen-fold and global per capita incomes doubling.

The growth rate of the world economy was 3.5% per annum in the final four decades of the 20th century. In the developed world this growth has funded dramatic social advances, healthier and longer lives and significant improvements in the environment.

However, the picture is not universally positive. Too many people around the world remain excluded from the benefits. Although since 1980 the number of absolute poor has fallen by 200 million, the picture is patchy. Where East Asia has benefited, other regions – notably sub-Saharan Africa – have seen little improvement and 1.2 billion people still live on less than $1 per day.

Globalisation needs to bring benefits to the poorest if it is to be sustainable.

The EU has prospered in this process. We are now the major player in world trade. But things are changing fast. Brazil, India and China are growing in world trade and in world politics. China alone has seen a 17% annual growth rate in trade between 1994-2004, and now trades as much as the EU did in 1994.

Twenty years ago just 10 per cent of manufactured goods came from developing and emerging countries. By 2020 China’s and India’s share alone could be 50%. This is a dramatic shift in production and trade patterns. Cutting-edge knowledge is no longer confined to Europe or North America. Indian universities are turning out more than a quarter of a million engineers every year. Research spending in China is set to catch that in the EU by 2010.

As European Trade Commissioner, I have found myself in the crossfire of globalisation – from textiles to shoes and chemicals. The recent case of the import of Chinese and Vietnamese footwear has been a lesson in the complexity of the issues it throws up. European manufacturers, many of them SMEs, have lost market share, money and jobs in the face of dumped imports; often other European footwear brands are developed and designed here but with production outsourced to China and Vietnam. Consumers have been caught in the middle – less well off families benefiting from lower prices – but generally consumers paying retailers anything from €35 to €100 for shoes imported for under €10. Balancing their interests and defending the rights of European businesses is a complex task.

The challenge in making the case for an open Europe and an open world is that, while the benefits are often spread throughout society, the pain it sometimes causes is sharp and focused, hitting particular sectors and particular regions.

If we can shape the right response - and I believe we can – the disciplines global competition imposes can be a force for good. Spreading prosperity. Opening opportunity. Fighting poverty. Bringing greater political and social stability.

But people need to hear the case for change. They need leadership and vision, from our politicians; from you as business leaders; and from the Commission. The leadership to push for change, even if it is painful. The vision to shape the right rules that can smooth globalisation’s rough edges and deliver the policies that cushion the most vulnerable to the speed of current changes.

What needs to be done?

Europe must pursue a positive agenda of reform and adjustment at home and seek open markets abroad.

This cannot be a mad rush towards open markets at all costs. It doesn’t have to be a race to the bottom either. But we should not forget that it is a race.

In the past, we were running to catch up with the higher productivity of the United States. Now we need run with one eye on those out in front and the other watching new countries – China, India, Brazil - coming up behind. That is not comfortable unless you have eyes in the back of your head!

Internally, in Europe, you will be aware of our Lisbon Agenda for growth and jobs. It aims to harness reforms, to drive competitiveness, improve regulation, and unleash the potential of our businesses and workforce, using economic success to fuel - and fund – modern social systems and the chance of a better quality of life.

Here, let me be clear. Modern social systems and a better quality of life are not optional extras. They are an integral part of a formula to deliver a lasting political response to globalisation.

We need a new, more social Europe. But one that offers choice and opportunity rather than one that tries to delay inevitable change. We need public policies that support change, and, through funds like our new Globalisation Adjustment Fund, help change to happen.

We need active labour market policies to help unemployed people back into work quickly. We need measures that encourage individuals to take new jobs at initially lower wages while they gain skills on the job or through lifelong learning that raise their earning potential.

This will be a different Social Europe from the one we promoted in the early days of the internal market, when the emphasis was on putting in place a common set of minimum labour standards. Today, this must be about protecting people rather than jobs. Helping outsiders to find new jobs, not defending at all costs the rights of insiders to keep the job they have. Equipping people for change in the labour market and providing new opportunities.

We also need to encourage innovation and ensure that Europe is a cutting edge knowledge centre where new ideas are stimulated and supported. The Commission’s proposed European Research Council and the European Institute of Technology are pillars in providing the infrastructure to support a knowledge economy.

Modernising the welfare state and reforming labour markets is the primary responsibility of Member States. Where the EU itself has the central role is in defending and extending the Single Market. Here the Commission has to be robust in defending the values of openness. In recent months we have seen the European Parliament compromise on the Services Directive, high profile resistance to a number of cross border takeovers, the espousal of national champions and talk of economic patriotism.

Of course there is always a temptation for Member States to push the blame for unpopular policies – even if they are the right policies – onto the European institutions. It’s one of the reasons we are there! But we have to push back – remaining clear in our vision and purpose.

Towards a new trade policy agenda

So how will I, in my trade work, pursue this openness agenda over the remainder of this Commission’s mandate? How can we ensure that what the Union does beyond our borders strengthens us internally, just as our internal policies contribute to the external competitiveness of the Union as a whole?

Now is the time to reflect on this, partly because we are entering the endgame in the Doha world trade talks and, partly, because the Barroso Commission has done much over its first eighteen months in office to strengthen our internal competitiveness – and our external thinking needs to catch up.

My first and paramount priority remains securing a broad and balanced agreement in the Doha Round. This must genuinely open markets and free up trade, and deliver real possibilities for development of the world’s poorest countries. Free trade comes at a price, and that’s why liberalisation that is proportionate and progressive is desirable for developing countries. But the costs of protectionism and keeping markets closed are much greater – for all in the global economy, including developing countries. Some commentators and NGOs do not share this view and are advising developing countries to reject a Doha deal. I would ask them for the historical evidence of developing countries achieving successful economic growth without integration to the global economy. This negative advice amounts to allowing the better off to climb the ladder of prosperity only to kick it away before others have the chance to follow.

The Doha talks are at a critical stage and a moment of truth has arrived. We either find a feasible, balanced grand bargain to meet our respective economic needs – maintaining ambition but with realism, as the Brazilian chief negotiator has said this week – or face the consequences of putting off agreement for some time. What would be the consequences?

First, the principles and process of multilateralism, which brings the international community together, would be set back, and not just in the trade sphere. Second, we would risk postponing, and possibly losing altogether, the global tariff reductions, the wide removal of subsidies and the strengthening of trade rules that can only be achieved through multilateral rather than bilateral negotiation.

And, third, for my own, European constituency, I would add that while a successful trade round will bring increased competition in our markets – and a real loss for agricultural livelihoods – this will be balanced by the industrial and service sector benefits of more dynamic global markets and new opportunities for European companies. The opportunity cost of failure would be very substantial. So, the EU will continue its efforts to help broker an early agreement, and one that must fully correspond to the full Doha framework and not just part of it.

The Agenda Beyond Doha

My second trade priority will be to look beyond a successful Doha deal. I will be using the second half of this year to define a new forward-looking agenda that helps to boost our competitive performance at home and abroad; an agenda that focuses on hard, economic priorities and adapts our thinking to the realities and challenges of globalisation.

This approach will be set out early in the autumn in an overarching Commission Communication on the external aspects of Europe’s competitiveness. This will examine how future trade policy can contribute to our internal competitiveness policies and what are the priority tasks for us to build new and secure global markets for our investment and trade.

There are three main elements of this post-Doha agenda.

First, Europe needs to pursue a decidedly hard-headed approach to ensuring markets are genuinely open and that international rules are applied openly and transparently. This is not just about self-interest or defending the rights of European businesses – important though that is. It is about securing long-term, sustainable trading opportunities, allowing companies to make commitments with confidence to operating in the constantly evolving markets that globalisation must entail.

On the one hand I will be proposing a new strategic approach to market access. We will be looking at how we deal with barriers in overseas markets – not just tariffs on goods, but the much more challenging non tariff barriers, especially those which operate behind-the border on goods, and crucially, on services. We need to ensure we have the tools available to respond to unfair barriers - be they local standards, restrictions on competition or discrimination in public procurement.

On the other hand, I will undertake a review of the way trade defence instruments operate in the face of globalisation.

These rules are part of the international trading system, and clear rules are essential to maintaining public and business confidence in globalisation. While we are not trying to roll back the comparative advantages of emerging economies, we will take action if - on the basis of thorough investigation - we see those advantages being topped up by unfair practices. These are important and necessary instruments.

Nevertheless, we have to ensure that such rules are adapted to the complexity of global markets. And to the changing patterns of trade and production, where manufacturers in the EU may compete with European distributors who have outsourced production, and where consumers and other manufacturers expect the benefits of wider choice and lower prices.

I do not have preconceived ideas about the outcome of this work, but I am convinced that this is a reflection that needs to be launched. And ideally here too we would work multilaterally to ensure common approaches to the use of trade defence among the widest possible range of trading partners.

The second strand of the review of trade policy will be to reflect on how we take forward key strategic relationships both multilaterally and bilaterally.

I am a convinced multilateralist. It is self-evident that many of the most pressing problems thrown up by globalisation, from climate change to global security, require global responses. Anything else delivers second-best outcomes.

Yet, Doha also shows that in trade policy there are opportunities to build on what is put in place multilaterally. We can and should go further in pursuing the needs and interests of European businesses in particular parts of the world, or in particular areas of policy.

I have been struck in this regard by the patchwork of relationships I have inherited. We have a strong focus of agreements or on-going negotiations in Africa, the Gulf, certain OECD partners and South America. But, for example, the EU has not yet defined strong trade relationships with Asia – the area of most dynamic economic growth. We need to look again at this.

Third on my agenda, we must examine – in the context of this September’s EU-China Summit - our political and economic ties with China. China is the biggest single challenge of globalisation in the trade field. I will be presenting this autumn a Communication on trade and investment in China which will analyse the impact of China on the global economy, and how the Union should respond. It will focus, in particular, on key challenges such as intellectual property, market access issues and investment opportunities. Europe must get China right – as a threat, an opportunity and prospective partner. I hope our Communication will spark a lively debate, both within the EU and with China.

Conclusion

This is an ambitious and full agenda. But I believe it is the right one at the right time. We need to look forward. We need to be able to show that our trade policies can deliver, inside and outside the Union, a growth and jobs dividend for businesses and citizens. Of course there are risks, but there is only one possible path to success: by building a Union that is open to itself and to others, competitive and capable of change.

That is the kind of Europe to which I am committed and, I believe, the only Europe that can both win over the sceptics and re-energise the committed. A Europe which can harness open markets and open minds. A Europe of economic dynamism and social justice.


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