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European Commission

Karel De Gucht

European Commissioner for Trade

Trade, Investment and Sustainable Prosperity

Summit of the European Union and the Community of Latin American and Caribbean States (EU-CELAC Summit)/ Santiago, Chile

26 January 2013

Ladies and Gentlemen,

What we need for lasting growth of the world economy… are open markets.

That goes for Europe, it goes for Latin America and it goes for the Caribbean.

I can tell you from experience that this is not always an obvious proposition.

Defenders of protectionism say we are all better off hindering imports because foreign goods, foreign businesses and foreign workers take our jobs or lower our wages.

But while the fact that open markets do boost growth may be inconvenient for some, it is certainly the truth.

And because that truth has come under questioning – in this region and to some extent in Europe – it is worth explaining why it is true. And why open market policies are the best way to promote sustainable growth, on our two continents and around the world.

Trade has always played a part in expanding opportunities: From the Andean peoples who used specialisation and exchange to support large populations on a bare minimum of arable land…

… to the free trade-based successes of the United Kingdom in the nineteenth century and the United States in the twentieth.

The reason?

  1. Trade provides access to goods and services that are needed by consumers and companies.

  2. It enhances productivity by allowing specialisation and by increasing the level of competition.

  3. And it spurs demand by giving exporters access to new customers.

The gains from trade, but also the adjustment it requires, have grown larger over time.

Because over the last half-century, we have seen the rise of worldwide systems of production along regional and global value chains.

There are very few products produced today that do not incorporate either a component or a service from another country.

And that means international trade and investment are now at the heart of the production process, as opposed to being just the concern of a company' sales department.

In this context, a country that cuts itself off from trade is doing itself a disservice as its efficiency would drop steeply:

  1. 15% of the value of the European Union's gross exports is made up of imports.

  2. Two-thirds of all our imports are raw materials and components.

  3. And even a country like Brazil – whose exports are dominated by primary products – has 10% foreign content in its exports. A figure that will only rise as Brazil moves up the value chain on the back of its high-tech and high-value-added companies.

By the way, that process of moving up the value chain is also supported by international integration. Technology transfer is one of the most important ways in which trade helps growth. It is worth remembering the point made by the UN Economic Commission for Latin America and the Caribbean: Two thirds of all research and development projects in this region originate in Europe.

Policymakers need to understand that the realities of today's world economy mean that we need trade to boost growth and that trade must flow two ways if want to make the most of it.

Imports and exports are not rivals. We need both.

But – and here we come to the issues at the heart of this summit – can open markets promote sustainable growth?

Can we make sure that the gains from trade are widely distributed? And that the environment and labour rights are protected?

The most important thing to remember in this regard is that trade cannot be a standalone policy. Trade in itself can never deliver sustainability.

It needs, first, to be supported by reforms that ensure a competitive business environment at home – like a strong competition policy and liberalisation of enabling services; good education opportunities and wage levels that do not grow out of line with productivity.

Second, countries can and should adopt measures to protect public health, safety at work and the environment and they should see to it that these measures are cost-effective. Inefficient regulation is a major drag on competitiveness.

The EU's free trade agreements have a clear focus on sustainable development:

  1. All parties to our agreements – ourselves included! – commit to implementing the most important international conventions on labour and the environment.

  2. They – and we – also promise not to lower protections in order to attract investment.

  3. They – and we – commit to systems of arbitration by civil society.

We are also strongly in favour of making sure that companies themselves internalise these concepts and behave in a socially responsible way. Which is why we encourage all of our trading partners to sign up to the OECD's guidelines on corporate social responsibility for multinational companies.

On top of all this there are some areas that require a special focus. That is why Europe is exploring ways to ensure companies carry out due diligence on their supply chain for minerals originating in conflict and high-risk areas. Open trade in raw materials is a vital pillar of the world economy but it does not have to encourage conflict and misery for the world's most vulnerable.

No: Trade can promote growth while at the same time supporting the sustainable development of our societies. Both growth and sustainable development can indeed further the interests of businesses in consolidating their own market presence in the longer term.

However, we have not come all this way to Santiago only to talk about what we believe.

We also have to decide what we will do!

Europe, Latin America and the Caribbean have more to do together to promote open markets.

But before I come to the detail, I feel I need to address an issue that is almost certainly on your minds: the state of the European economy.

We are, without doubt, in a difficult moment. Although the acute part of the crisis is over, we are still faced with very weak growth and high and mounting unemployment.

If we have now turned the corner in the euro crisis, it is because of the actions we have taken, and continue to take, at the level of the EU:

  1. Establishing more control over Member States' fiscal health,

  2. Building effective safety nets,

  3. Moving decisively towards banking union and a break in the link between sovereign and bank debt,

  4. All accompanied by the firm support of the European Central Bank.

It is also because of the enormous progress made by national governments, progress that does not always get media attention. Member States – both those who have needed bailouts and those who have not – are making decisive reforms:

  1. to their labour markets,

  2. to their services and energy markets

  3. and above all to their public finances.

There are positive signs even in countries that were hit really badly – Spanish exports have risen in recent months, buoyed by increased competitiveness. Ireland may even be able to return to financial markets by the end of the year.

At any rate, even in poorer shape, Europe is still the largest market in the world, with 500 million consumers and a GDP of 12.6 trillion euro.

We are still the world's largest exporter and importer and the largest host and recipient of foreign direct investment.

As far as this region is concerned we have invested an average of 30 billion euro a year over the last decade, making up 40% of total investment. And we are your second largest trading partner.

It is therefore in everyone's interest that we draw our economies ever closer.

How, then, should we take forward our efforts to open markets?

Both globally and between ourselves.

Globally, we need to move forward at the World Trade Organisation.

This year we have an important project – finding a way ahead on multilateral trade rules despite the impasse in the Doha Round.

We have the chance to do a deal on trade facilitation that would streamline customs and border procedures the world over. It could be worth as much as 68 billion euro to the world economy, with the biggest gains going to developing countries. Europe, Latin America and the Caribbean all need to pull our weight if we want this to succeed.

In addition, we should continue to respond to the call of the G20 not to resort to protectionist measures; be it through tariffs or other means such as forcing higher local content requirements.

The second thing we can do is work on our bilateral relations. Because providing a stable, open framework for our economic relations based on more than trade in goods will ensure that they continue to grow.

This is particularly the case for investment, which is certainly an important way the EU can support the development of this region. The positive spinoffs of foreign investment in terms of job and knowledge creation in host countries require business-friendly and predictable operating environments backed by adequate legal protection. It would be fair to point out that there is some way to go in parts of the region to restore foreign investor confidence.

Intellectual property rights lie at the heart of the drive for competitiveness and innovation for any growing economy, which is why sometimes, access to foreign markets is denied unless intellectual property rights are transferred. We have reached the level of comfort and efficiency we take for granted in today's world thanks to human ingenuity. Trade agreements must safeguard intellectual property rights and create a framework where exchange of knowhow is a stimulus for a greater exchange of services and goods.

In general, we have already taken visible strides towards building a more stable framework for modern and open trade relations.

  1. We have highly successful trade agreements with Mexico and Chile, in force for over a decade.

  2. Since 2008 we also have an economic partnership agreement with countries of the Caribbean. This is the first of a set of trade-for development agreements we wish to achieve around the world and it is already showing its potential to boost development.

  3. And last year we signed agreements with Central America, Columbia and Peru that should come into operation in the next few months, if we all work hard to put the final arrangements in place.

However, there are two areas in particular where we have more to do.

We need to look again at the agreement with Mexico to bring it into line with today's commercial realities and the much more advanced Mexican economy. Given Mexico's ties to the two countries to its North, there should be a strong relationship between that effort and what Europe can achieve with Canada and the United States – hopefully soon. Similarly, we could also look at ways to modernise our 10-year old agreement with Chile.

We also need to bring the negotiations with the Mercosur countries to a conclusion. Mercosur includes some of our most important economic partners on this continent so it is no secret that Europe would like to have made more progress in these talks by now.

That is not to say we have not made progress – on the rules part of the deal we certainly have. But on the core issue of access to each other's markets we have still not gotten down to business.

Ladies and Gentlemen, we are serious about trade and investment.

We believe that international trade and investment are a key part of the solution to the challenges Europe faces at home.

It is a matter of fact: The European economy contracted last year, but the contraction was 75% smaller than it would have been without our income from trading with the rest of the world.

And that is why Europe has the most ambitious trade liberalisation agenda in the world today.

We also believe that open markets are the way forward for the economies of Latin America and the Caribbean.

Again we only have to look at the facts: the most open economies in the region are the ones that have had the most success.

So I hope that you too share our belief.

And that together we can work to turn those beliefs into more growth and more prosperity for our peoples.

Thank you very much for your attention.

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