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SPEECH/ 09/499

Catherine Ashton

EU Trade Commissioner

The transatlantic challenge: working together to shape the rules of globalisation

Figures and graphics available in PDF and WORD PROCESSED

U.S. Chamber of Commerce

Washington D.C., 26 October 2009

The transatlantic economy

I have been in this job for just over a year now and I've been struck by how often people talk about the growing importance of Asia in world trade. It is evident that Asia's –and particularly China's— role in the world economy is evolving fast. But when people talk about the dawning of a “Pacific Century”, they often forget that the transatlantic relationship is still the main engine of the world economy, and by quite a long way. Consider our strengths:

Together, the EU and the US represent over half of the world’s USD 60 trillion GDP

We are each other's most important trade and investment partners. Our trade is worth USD 643 billion in goods alone.

Total commercial exchanges across the Atlantic amount to a staggering USD 4.4 trillion annually, and more than 14 million workers on both sides depend on it. And these workers enjoy high wages and high environmental and labour standards.

Two thirds of those commercial exchanges consist of investment. And that in itself gives you a powerful sense of the depth of the relationship. We have a total stock of investment in each other’s markets worth around USD 1.5 trillion each way, with the EU’s cumulative stock accounting for around 70% of the US’s total inward investment to date. Notwithstanding the remarkable progress of Asian countries in recent years in attracting foreign investment, the value of US investment in Europe is three times larger than in all of Asia. Meanwhile, European investment in the US is 12 times the level of EU investment in China and more than 28 times the level of EU investment in India.

Many of you here will know better than I the benefits that an open and predictable trade and investment environment can deliver to businesses. Of course given the sheer size of our trade volumes it is inevitable that frictions and therefore disputes arise time to time. We should however keep this in perspective, as our trade disputes affect less than 2% of the value of our total commercial trade relationship. Inevitably, some of these disputes grab the headlines. But the simple truth is the vast majority of our trade and investment flows freely, and this is sometimes forgotten.

The high level of economic integration we have achieved makes this free flow of trade and investment possible, and our goal should be to further deepen that integration. Tariffs are not the real problem here. Although tariff peaks remain in a number of sectors, our weighted MFN tariff is around 3% and that of the US is around 2%. The major differences arise in regulatory approaches to key markets.

These are the real problems for our exporters: product licensing, risk assessment rules and divergent standards. These barriers arise because, regardless of the similarities between our economies and societies, some important differences remain which derive from different regulatory systems, and the values that underpin them. As such they are a kind of glass ceiling that prevent us from reaching the full potential of our relationship.

Dispute prevention and regulatory convergence

One of the major objectives for policy makers should be to establish an effective early warning system. Better and more effective regulatory cooperation is the way forward and will bring a double dividend: smarter regulation and more trade.

Let me explain what I mean by smarter regulation. Because of the dialogue we're engaged in, we are forced to look again at our own regulation, to challenge the way we look at it and to evaluate whether there isn't a smarter way of achieving the same public policy results. Just as we have a transatlantic market for goods we should have a transatlantic "market for regulation". A solid and critical exchange about our respective approaches, and indeed some degree of competition for best practice in this area can actually help us spot the most efficient regulatory tools, which we can then share with each other.

Moreover, regulatory convergence between the EU and US would also set an example to the rest of the world. If we don’t try and find common cause on this difficult subject then others might choose their own standards and regulatory solutions, and that would lead to fragmented markets and increased costs for our businesses.

So it makes sense to promote regulatory convergence to the greatest extent possible. This requires high-level political commitment, as well as genuine engagement and cooperation by our respective regulatory agencies. I, for one, am up for that challenge - I feel that as policy-makers we should be able to get our relationship right and together tear down remaining barriers, so that businesses on both sides of the Atlantic can continue to flourish.

In order to make progress, it may be a good idea to start looking into areas where we do not yet have diverging regulations. New technology sectors – nanotechnology is a very good example — offer the greatest prospects for achieving convergence through upstream cooperation.

I am not arguing for "one size fits all" solutions. But we need to look into each area on its merits and proceed on that basis. We need small successes to gradually build confidence in each others' systems and regulatory approaches.

The Transatlantic Economic Council (TEC)

This is where the Transatlantic Economic Council –TEC for short— can play a key role. Under the leadership of Gunter Verheugen, working together with our American counterparts since 2007, we have achieved a formidable working partnership. Looking ahead the TEC has the potential to develop into a genuine strategic instrument focussing on dispute prevention through upstream regulatory cooperation and convergence. At the same time it must also deliver concrete results in a reasonable timeframe.

We are just about to hold the fourth TEC meeting, which will focus on how regulatory approaches can take account of innovation. The Commission looks forward to discussing these important issues with the US side, which will be led by Michael Froman.

This will be the first TEC session under the Obama Administration and we're keen to find common ground quickly. At the same time we are conscious of the challenges facing this new Administration, both at home and abroad. The EU faces some of the same challenges, and some of our own. I greatly appreciate the regular and fruitful contacts I have with my counterpart, Ron Kirk. The USTR plays a key role in shaping the world trading system, and the world needs the U.S. to be engaged in key negotiations at this important moment for the global economy.

Working together

One of my major objectives is to try and find ways to solve "legacy" disputes. As both Ron Kirk and I discovered, much to our initial surprise, this job comes with a lot of baggage. Fortunately I have found in Ron Kirk a formidable and business-minded counterpart who is as eager as I am to get rid of excess baggage. It was in this spirit that we reached an agreement in May on a solution to the long-standing hormone-treated beef dispute. The deal benefits both parties and encourages us to continue exploring solutions to other disputes.

But no matter how enthusiastic we are, we cannot pull rabbits out of a hat. Practices developed over many years cannot be turned around overnight. We acknowledge these limitations and we will work around them. After all, we advocate regulatory evolution, not regulatory revolution.

A consequence of this approach is that tackling regulatory barriers calls for a different style to the traditional tough, "zero-sum" trade negotiations. The next generation of trade issues can only be solved by identifying and addressing issues upstream in the policy process, so we can find solutions that work for all.

In a nutshell that is what we do in the EU. To build the Single Market we first had to tear down barriers. That required some tough choices both inside the Commission and with our Member States, but the results go a long way in explaining why trade is seen as a positive force in the EU. I am not advocating that the US should apply for EU Membership – but our collective experience in dealing with regulatory barriers can be illuminating in the context of our bilateral relationship.

Today the EU is an open economy. We are the world’s largest importer and exporter, as well as the largest source and destination of foreign investment. Our trade-to-GDP ratio is around 27%, compared with around 24% for the US.

Naturally, trade openness can be sustainable only if it is supported by appropriate measures to help companies and workers to adapt, especially during downturns. Within the EU, social policy measures are also seen as another fundamental reason why there is broad support for open trade policy – something which has not been seriously questioned, even in this economic crisis.

As an outsider I can see that the American debate on open trade is difficult in the current economic climate. However I do know that the spirit of American enterprise remains very vigorous –not least in this room— and that trade is a key part of the economic recovery in the US, as it is in Europe. Going forward, as the US saving rate rises, output will increase and trade will become a significant contributor to the US economy.

As the world’s largest trading powers, the EU and the US have the collective weight and influence, as well as responsibility, to shape the economic agenda and show leadership. The world is looking for the US to show leadership also in the area of trade and we in Europe will not be found wanting. The stakes are high, but the time has come to show our cards.

Protectionism has become a real threat during the crisis. It’s true that the situation hasn’t got out of hand, but it still needs constant monitoring and vigilance. This monitoring exercise also includes measures that impose local content requirements or favour domestic over imported products, which may have a negative impact on trade. But I am preaching to the converted, as I know that the US Chamber of Commerce shares the concerns we have in this regard.

The Pittsburgh G20’s continued commitment to keep markets open was vital to ensure that people do not forget about the central role of trade in getting us out of the crisis. Now we must live up to these commitments if we want to speed up global recovery efforts.

Shaping the rules of globalisation

The economic downturn has hit trade badly. Last month's forecasts from the WTO still see world trade declining by 10% this year, the sharpest contraction since the end of the Second World War. Against this background the US and Europe, as the world’s largest economies, have an opportunity to coordinate our economic policies in a more strategic manner.

The weak global economic outlook actually strengthens the arguments in favour of concluding the Doha Round of world trade talks, which would offer a boost to global growth of around USD 220 billion every year and will come at no extra cost to the hard-pressed taxpayer, at a time when stimulus measures have already strained public finances. If you believe, as I do, that trade is the engine of global growth then both America and Europe have a common interest in rooting for an early conclusion to the Doha Round as part the global recovery efforts.

On so many issues in this round, US and EU interests are aligned. We both want real market access gains, and not just by opening each other's markets, but also those of the emerging economies. We both value the rules-based trading system the WTO provides, and the ratchet against protectionism. But despite the clear added value, there still seems to be a difference in appreciation about the benefits of what is on the table in the Doha Round. It seems to me that negotiators and politicians have to devote renewed energy over the next months to work out whether this is about perception or reality, and how to bring about a convergence of views. I'm glad that the US Chamber is among those actors in Washington who always support policies that will expand international business opportunities. I count on you to keep doing this for the Doha Round.

Last month in Delhi a key group of trade ministers, including Ron Kirk and myself, discussed the way forward for Doha. Delhi delivered agreement on a common objective to work for a 2010 conclusion, a commitment which leaders confirmed at the Pittsburgh G20 meeting.

Making progress will not be easy. And I stress that a Doha deal must be equitable for globalisation not to leave behind the poorest, especially the most vulnerable countries that have been hit hard by a crisis that is not of their making. In that sense we also have a shared responsibility to give them the prospect of being able to trade themselves out of poverty. This is not just a moral imperative. It's also good business sense: opening our markets now fosters development and growth for our partners, but it also helps to build the export markets of the future.

Doha will also help us reach out to those larger and stronger emerging economies and give them a bigger stake in the system. For the US, and for Europe, there are market access gains in those countries. In China, real market access for industrial goods will improve by around a quarter. Overall, according to some recent estimates, US annual GDP gains based on what's currently on the table will be in the range of USD 5.5 billion. In terms of exports, a comprehensive DDA deal will boost US agri-food exports roughly by 3% and exports of manufacturing products by more than 2%, in key markets like, the EU, China, Japan, Korea and Latin America.

Against a backdrop where trade flows are only starting to pick up again I believe Europe and America have a key role to play in providing leadership in what is still a difficult economic period.

That’s also why relationships like TEC can add value, not only by getting the various regulatory agencies involved discuss the questions that matter to our businesses and consumers, but also by articulating common solutions.

And in taking forward this work we need you, the business leaders, to be at our side identifying problems, yes, but also coming to us with creative solutions.

Thank you.

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