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European Commission

[Check Against Delivery]

Karel De Gucht

European Commissioner for Trade

Making the most of Europe – the EU's common commercial policy as a driver for growth

University College of London, European Institute Britain & Europe Series

London, UK, 21 February 2014

John Maynard Keynes' portrait of an upper-class Londoner at the turn of the last century is still fascinating today.

He "could order by telephone, sipping his morning tea in bed, the various products of the whole earth...

... and at the same moment, and by the same means…

… adventure his wealth in the natural resources and new enterprises of any quarter of the world."

Typical Londoners in 2014 are even more connected than their predecessors… … and not just because they can do their shopping or investing over the Internet, from their smartphone, wherever they happen to be:

  1. World trade was at 16% of world GDP in 1914. Today, goods and services exports amount to a more than double that percentage – to say nothing of the vast stocks and flows of foreign direct investment.

  2. A hundred years ago, most consumer goods were produced in in one country. Today, the vast majority of the products you use every day – whether it's your phone or the train on the underground – incorporate components and services delivered by workers all over the world.

  3. What is more, our wave of globalization benefits many more people, over much more of the world than the first wave that Keynes was describing.

Almost a billion people across the developing world have left poverty behind in the last 20 years – in large part because the labour they supply can now be connected to demand in other parts of the world.

Their improved economic prospects have also shifted the balance of global economic power to the East and South… and brought tougher competition to the doors of companies in the North and West.

Even if they come with such significant benefits, adapting to changes like these is not easy:

Writing in 1919, Keynes was in fact mourning the passing of that first period of globalism. He was criticising a post-war peace settlement that had neglected the economic and political importance of trade between European countries.

In fact, international trade would only really recover three decades later, after a second global conflict had convinced the Western European nations that open markets were essential to peace and prosperity.

Finding the right response to the changes that our world is facing today is just as important as it was one hundred years ago. Technology will remain a forceful driver of trade and investment flows, but governments can halt globalisation if they resort to protectionism.

The United Kingdom's role in the European Union's common commercial policy is part of that response. And that is what I would like to speak about with you today.

Europe's goal on trade is to make globalization work, for people here in the UK and across our continent.

  1. We want to sell our products and services in large and growing markets around the world.

  2. We want to have access to high quality components and raw materials.

  3. Through both of these mechanisms we want to create jobs for European workers.

  4. And we want to help people a second time – as consumers – by giving them a wide choice of products and services at good prices.

  5. Finally, we want to help set the global rules of the game on issues like the environment, health and safety and labour rights.

The EU translates these objectives into concrete results for British business, workers and consumers.

Just to name some of our recent achievements, since this European Commission took office four years ago...

...we have put broad and comprehensive free trade agreements with Korea, Columbia, Peru and Central America into effect;

...we have concluded negotiations on agreements with Singapore and Canada...

...and last December we helped reach the first new multilateral trade agreement since the founding of the World Trade Organization (WTO).

These achievements are part of a wider programme that will remove barriers on two thirds of our trade overall. It includes negotiations with emerging economies like Vietnam, Thailand and India as well as our developed partners in Japan and the US. It also includes negotiations on the rest of the WTO's agenda including on issues like trade in services, environmental goods and information technology equipment.

The reason EU trade policy is effective is very simple: the size of the Single Market.

Taken together, Europe's is the largest economy in the world, representing a fifth of all global output. In trade terms, that makes us the largest export market for some 80 countries and the second largest for another 40. For all of those economies access to the European market is not an option, it is essential.

That puts us in a position of strength in trade negotiations.

It means countries are willing to negotiate with us...

... to open their markets to our exports...

...and – in many cases – to tighten their rules to protect the environment, consumers, health and labour.

None of the countries that eurosceptics give as examples of what an independent UK trade policy would look like has that kind of influence. Not Switzerland. Not Australia. They have trade agreements, but they do not have Europe's weight when it comes to effective market opening or projecting our values.

The same would be the case if Britain chose to go it alone. Within Europe we speak about big countries and small countries. In global terms, all European countries are small.

And they are getting smaller. In the year 2000 three of the five biggest economies in the world were European – including the UK. In 2010 there were only two – Germany and France.

And – even if today the UK is the fastest growing of the big three EU players – economists expect that by 2030 none of them will be in the top five globally…

… unless – that is – Europe sticks together.

Because taken together, the EU would remain in a comfortable second place right out to 2050, based on the same projections.

So a common commercial policy is the way Europe – and the UK through it
– can influence the changing world in the years ahead.

That is the general case for EU trade policy. But let me illustrate it with an example: The Transatlantic Trade and Investment Partnership (TTIP) with the United States.

One thing should be clear from the outset – this agreement is only feasible because of the European Union's common approach to trade. The European Union's trade negotiators are the only ones that can deal with the United States as equals, because of our scale. And the US is interested in these negotiations because of the scale of the Single Market.

The benefits of this agreement will be two-fold – direct economic gains, and a strategic improvement in our ability to shape the 21st century world economy.

The economic gains for a country like the UK – with such close ties to the US – are clear: More opportunities for British exporters of cars, legal services and financial services. More inward foreign direct investment.

All in all – an ambitious TTIP deal is estimated to be worth as much as 10 billion pounds a year to the UK economy over time.

But these economic gains are only part of the picture. The TTIP is also about strengthening European influence in the future world economy.

As I have already said Europe on its own will be in a strong position in the future. But we will still need allies. And TTIP offers a way to secure our cooperation with the United States on very important questions. Together, we will be able to shape the rules of the future; separately we will undergo them.

This agreement will by necessity have a major focus on rules and regulation –because those are the most important barriers to transatlantic trade.

Finding ways to lower regulatory barriers to trade – while avoiding any lowering of the protection that regulation provides – will not be easy.

But if we are successful the agreements we pioneer can later be applied more widely – helping form the basis for truly global rules. Those rules would have the added benefit of being based on principles not only of economic openness, but also of high standards for health, the environment, labour and consumer protection.

On these questions of values the truth is that the EU and US share much more than we differ on. TTIP, by bringing us even closer, strengthens those shared values on the global stage.

In my mind these benefits are clear. But I also know that others have concerns about potential negative side effects. In a democracy, concerns like that are always welcome, so I would like to address three of them.

First, regulation: Some people are afraid that the Americans will force us to stop protecting our environment, reduce regulation of banks, eat hormone-treated beef and change our legislation on GMOs.

I have been very clear on this point in the past. But I would like to make it clear again: we will not be doing any of that. It's not going to happen.

Why? Because there are ways to facilitate trade without lowering the level of protection.

For example, we could eliminate:

  1. Unnecessary double factory inspections for pharmaceuticals;

  2. Unnecessarily different car safety standards;

  3. And needless differences between how we keep track of medical devices in case of product recalls.

But anyone who says TTIP is all about deregulation is mistaken. TTIP will not trigger a race to the bottom. Because as I said, by working together on these issues the EU and US are strengthening the chances that our high standards will be used by other countries around the world.

Second, investment protection, and – in particular – the system known as investor-to-state dispute settlement. This system allows investors to bring claims against host governments to international arbitration panels in certain cases.

This is sensitive. People are worried that this system will limit our freedom to make laws to protect our citizens or the environment. They look at some of the cases that have been brought – by a tobacco company against Australia for example – and they ask why that should be possible.

The jury is literally still out on these cases, but I do understand the concern.

That is why I want people's help to design our approach to this issue, through a public consultation on our draft text for the negotiations. We will be launching that next month. All European citizens will be able to give their views.

But I also want to make sure that they have all the facts.

They should know that these agreements are not new: they have existed for 40 years.

  1. Of the 1,400 investment treaties around the world, over 80 were negotiated by the UK.

  2. Almost all other EU member states also have them.

  3. Nine of our newest member states have them with the United States already.

  4. And none of these treaties has stopped us from developing the world's highest standards in the areas of health, security and the environment.

Investment agreements also exist for a reason. The British economy benefits from the investments your companies make in other countries. And governments in those countries do sometimes treat foreign companies unfairly, putting – ultimately – British jobs and broader economic interests at risk.

My objective for EU investment policy is to improve on these agreements. I want to keep the good bits that protect investments but also fix the shortcomings that have created concerns.

I want to stop loopholes being used for frivolous claims and to put the arbitration system itself beyond reproach in terms of transparency and impartiality.

That is why we are holding this consultation. To make sure we do this in the right way.

Third, the National Health Service (NHS).

Again, I want to make sure that everybody understands that this agreement does not endanger the NHS in any way.

Two concerns have been raised.

The first is about rules on trade in services. We use trade agreements to create opportunities for British and European services companies – accountants, lawyers, telecommunications companies, banks and insurers.

But we do not do that with public services like health – because of their social role. The UK government's approach to providing health services will therefore not be affected by the TTIP negotiations on services. If Member State of the European Union wants to keep certain services in the public domain, it can. However, if it wants to contract out those services to the private sector by way of a concession, we should be open to the idea that that contract may also go to an American company.

The second concern is on the investment protection issues I have been already spoken about. People are worried that investment protection might limit the possibility for future UK governments to reverse decisions on privatisation taken by their predecessors.

However, investment protection rules do not interfere with the sovereign right of the UK to decide how it wants to organise healthcare.

The UK has been negotiating bilateral investment treaties since 1975. You have more than 80 of them and they have not gotten in the way of UK health policy so far. That should be even less of a possibility under TTIP: The goal is to have more rather than less policy space than in previous agreements.

But let's imagine a future government did choose to take some privatised services back under state control.

Given the centuries-old tradition of the rule of law in this country, certain strings would be attached for such action under national law. For example, taking away private property would only be possible by following due process and paying effective compensation.

Indeed, in no western economy does the law allow expropriation of private assets without compensation. So taking anything back into public ownership always has a cost. The government would have to come to an accommodation with the private contractors – either by waiting until contracts expire or by paying whatever compensation is required by the contract.

In such a case there would be no expropriation, no denial of justice, no arbitrary behaviour by the state.

The same would be true under international arbitration. Again, the investment protection standard would not prohibit nationalisation. It would only ask for effective compensation under due process of law. So, also under international law, there would be no case for a company to win an arbitration case.

That is the long and the short of it, in my view. But you don't have to take my word for it. When we launch the public consultation our proposed text will be on the table for all to examine.

It is because of the intensely connected and changing nature of the global economy that we need to have discussions like these.

But it is only by facing up to these complex issues and by finding ways to reconcile our values and interests in a competitive world economy that we will secure our future.

The European Union is the best vehicle that the UK – or any of our Member States – have to do that. It's probably a major reason why 8 out of 10 UK companies think staying in the Single Market is so important.

But, conversely, the UK is also essential for Europe to succeed:

We need your effective and enlightened civil servants. We need your broad-minded journalism. Most of all, we need your long tradition of open markets – from Adam Smith, through the repeal of the Corn Laws, to the leading role the UK plays in EU trade policy today. Remember that the oldest free trade agreement was the Methuen treaty of 1703 between England and Portugal, named after the British Ambassador to Lisbon!

The response to globalisation can and should involve strengthened national identities. But those identities must allow for the mutual benefits that comes from cooperation – With Europe, and through Europe with the wider world.

Keynes lamented the short-sightedness of the 1919 Versailles treaty, asking, "must we not base our actions on better expectations… and believe that the prosperity and happiness of one country promotes that of others?”

The answer to that question, in my view, merely one hundred years ago, and today, is: YES.

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