Speech: EU Trade Policy as a Means to Influence Globalization


European Commission

[Check Against Delivery]

Karel De Gucht

European Commissioner for Trade

EU Trade Policy as a Means to Influence Globalization

Humboldt-Universität zu Berlin

Berlin, 22 May 2014

Ladies and Gentlemen,

Immanuel Kant famously postulated that world trade and the absence of peace inherently contradict each other:

“Es ist der Handelsgeist, der mit dem Kriege nicht zusammen bestehen kann, und der früher, oder später sich jedes Volks bemächtigt.”

In a world economy that is increasingly integrated, Kant’s idea continues to be as fascinating as ever. While a perpetual peace, “ein ewiger Frieden”, remains elusive, I will argue …

… that trade continues to be a crucial driver of international relations

… and that trade policy can consequently be a powerful tool to positively shape globalization.

First, European trade policy can play a key role in maximising the benefits of globalisation: It can boost economic growth both at home in Europe and in the developing world.

Conversely, we can use trade policy to actively minimise globalization’s disadvantages. Europe’s strong position in trade makes trade policy a tool in promoting our values in the realms of human rights and sustainable development.

Finally, trade policy is key to defending Europe’s economic and political interests, and is therefore at the core of our overall external policy.

First, trade and economic growth. In the coming decades, 90% of economic growth will be generated outside Europe. Although the EU as a whole is as open an economy as that of the US or Japan, such that domestic demand is still the biggest component driving economic activity, we must tap into the faster growth of the rest of the world to accelerate ourselves. Robust external demand will be an ever more important source of growth in Europe – and it can underpin the difficult structural adjustments that many European countries are undertaking today.

Trade should also be a lever for the less well-off in the world, the developing and least-developed countries. For that, it is important to grant developing countries market access for products in which they are competitive, and not to close our markets for protectionist reasons.

To make the most of trade, we are working hard to reduce the barriers that hinder it. In fact, the “progressive abolition of restrictions to international trade” is a constitutional objective of the European Union under the Treaty of Lisbon.

We have pursued this objective bilaterally with our individual trading partners as well as in wider group negotiations and multilaterally through the World Trade Organisation.

Our bilateral agreements go much further than trade agreements have in the past. These treaties no longer just focus on pure tariff elimination. Instead, they cover regulatory areas and extend to topics such as procurement, intellectual property rights, competition and investment. From a legal perspective, one could also say that FTAs enter the realm of “law-making treaties” in a specialised area of international law.

The first such new-type agreement entered into force in July 2011 between the EU and South Korea. This so called “deep and comprehensive agreement” (DCFTA) shows some of the typical characteristics of this new format.

It contains ambitious chapters on services liberalization that go far beyond the traditional scope. It also outlaws the imposition of export duties. On top of this, it includes far-reaching provisions on public procurement, the protection of intellectual property rights and competition rules. These take into account that in a context of global value chains, we need to look at the whole set of restrictions that affect international economic activity.

Finally, we also do not duck the difficult issue of social, labour and environmental standards in our agreements. Quite to the contrary: All our FTAs contain a chapter on sustainable development.

We are currently negotiating a wide range of such bilateral free trade agreements. If successful they will eventually cover two thirds of our world trade and raise our European prosperity by 250 billion euro compared to what it otherwise would be.

During my tenure as Commissioner, we have implemented FTAs with Columbia, Peru and Central America. They are to be followed by agreements with Georgia, Moldova and – we hope – Ukraine in the near future. Finally, I am optimistic that in the next few weeks we can turn our political deals with Singapore and Canada into final legal agreements.

And this list does not even include the key negotiations with the economic heavyweights that I have started over the past four years – the talks with Japan and, most prominently, the Transatlantic Trade and Investment Partnership talks with the US.

My speech here today is not about the TTIP, but let me nonetheless use this occasion to debunk some recurrent myths about that subject, especially in Germany.

First, TTIP fulfils an important role in boosting European growth. It is projected to add 0.5% to our annual economic output to what it otherwise would be, and will therefore help us to grow faster.

Second, TTIP is neither an agenda for deregulation nor a programme for multilateral companies to maximise profits. Rather, we try to get to greater regulatory coherence based on a high level of environmental, health and social standards. Such approximation is also in the interest of the German “Mittelstand”, because smaller companies typically find it much harder to overcome regulatory hindrances than larger firms.

Finally, its geostrategic implications are important. An agreement between the two largest economies in the world, the US and the EU, has the potential to be a benchmark for talks with a wider range of partners elsewhere. This means that TTIP will be an important way for us to shape regulations, norms, including on investment, and ultimately values that govern economic exchange worldwide.

At the same time as we are pushing for ambitious agreements with our trading partners, we remain aware that bilateral accords are always second best. That is why we have been extremely active within the framework of the WTO to bring about further multilateral trade liberalization. And last December, at Bali, the WTO has achieved an important negotiation success since its beginnings back in the nineties. In fact, one could say that we have saved the multilateral trade liberalization process.

The Bali package shows that our trade policy is not just about helping the European economy, but equally about helping developing countries. Trade facilitation is at the core of the Bali package: It is essentially a way for countries to cut red tape at their borders – and to become more efficient and effective traders. This should save developing countries roughly 325 billion euros per year, and the EU has firmly committed to assisting them in the process. We will provide some 400 million euros over five years for trade facilitation.

Put differently, the Bali package is a good example of the greater role that EU trade policy can play in making the most of globalization.

Ladies and gentlemen,

The Lisbon Treaty makes clear that all the actions of the EU, including its trade policy, need to be consistent with our underlying principles:

– Democracy,

– The rule of law,

– The universality and indivisibility of human rights and fundamental freedoms,

– Respect for human dignity,

– The principles of equality and solidarity,

– And respect for the principles of the UN Charter and international law.

So let us have a look at the ways in which we can promote these values through trade policy.

First, as already mentioned, all our bilateral trade agreements contain sustainable development chapters. They address the difficult issue of social labour and environmental standards – and recognise that trade and investment should not be promoted at the expense of labour rights or environmental regulation.

At the same time, our FTAs are part of the overall institutional relations with our partner countries, which in turn require respect for human rights. In our agreements, the human rights clauses constitute a so-called “essential element”. This means that the non-implementation of human rights obligations can ultimately lead to the suspension of the trade agreement.

We are also using our bilateral trade agreements as a lever to promote human rights. A good example of this is our agreement with Colombia and Peru. Because of the incentive of our trade agreement, we were able to push for specific action by the Colombian government – on improving public safety in the country and on enhancing the situation of trade union activists in particular.

Second, we promote human rights in specific cases whenever necessary. I have initiated together with the ILO a Compact with Bangladesh after the tragic industrial accidents in its textile sector – most prominently the Rana Plaza incident last year. The Compact lists clear commitments on the part of Bangladesh to reform its Labour Law and to improve working conditions. And it works: the Bangladeshi government has not only revised domestic law, but also employed an impressive number of additional work safety inspectors. Importantly, the Compact also enlists companies in this effort. As an example, the Accord on Fire and Building Safety in Bangladesh has been signed and implemented by dozens of leadings international companies. We have a special influence – and responsibility – in the case of Bangladesh for a clear tangible reason: The EU is Bangladesh’s largest trading partner, and exports to our market make up around 10% of that country’s GDP.

We have also started many other initiatives to make trade a tool for sustainable development, including our proposal for an integrated EU trading strategy for minerals from conflict areas. It aims to help break the link between minerals extraction, minerals trading, and the financing of armed conflicts. It will do this through a range of measures, including an EU system of self-certification for importers of these minerals. Again, this is a good example of how trade policy can play a key role in our overall external policy. And in fact, I have worked closely with High Representative Catherine Ashton in preparing and proposing this initiative.

Third, our preference schemes – which offer easier access to the EU’s Single Market for developing countries – have all been designed to underpin sustainable development. To benefit from the Generalised System of Preferences, countries need to respect the principles of core international human rights and labour conventions.

And under the additional GSP Plus scheme we sweeten our unilateral gesture even further – but only if countries go further by ratifying and implementing an additional number of international conventions on the environment and good governance. At the moment, 13 countries benefit from this system.

Ladies and gentlemen,

In an increasingly integrated world economy, we not only rely on trade policy for economic growth, or to project our values. We also need it to help stand up for our interests – both economic and political.

The most important platform in this regard is the WTO’s Dispute Settlement Mechanism (DSU), which is quite unique in international relations: There is no international institution with such a powerful tribunal.

The DSU provides legal certainty, as it has exclusive jurisdiction over the enforcement of WTO obligations. At the same time, it ensures predictability, as there is a steadily evolving body of WTO law. Finally, the Dispute Settlement Mechanism allows us to deal with trade irritants within the framework of the WTO, without the issue affecting our overall bilateral relationship. Our links with the US are evidence of this: We are engaged in 11 active trade disputes with the US – more than with any other country – yet our political relationship is extraordinarily close.

We have used the Dispute Settlement Mechanism in a judicious but firm manner, and are currently involved in 48 disputes at the WTO – in 23 as complainant and in 25 as respondent.

Our first major objective in our cases is to fight protectionism abroad, and to thereby defend our economic interests. A good example is our recent WTO case against Canada. We have challenged local content requirements that were introduced by Ontario as a condition to benefit from feed-in-tariffs for wind and solar electricity. Just this month, the Appellate Body found that our concerns were largely justified – the local content requirements are in breach of the TRIMs agreement and the GATT.

There are plenty of other examples of our firm stance in defence of Europe’s core economic interests. Jointly with the US and Japan, we have challenged China’s restrictions on access to rare earths and other raw materials. This March, a WTO Panel confirmed that China’s export duties and quotas are in violation of its WTO obligations. Given the importance of rare earths in virtually all high-tech applications, this ruling is of vital importance for our industry. It will hopefully also induce China to revise its export restrictions more broadly, on a range of other materials and products.

We are also using the WTO framework to stand up for our broader political interests and values where necessary. Thus, we have defended the EU’s ban on the importation and marketing of seal products against WTO challenges by Norway and Canada. We are currently waiting for the ruling of the Appellate Body, but the panel report last November was squarely in our favour. The report confirmed that the EU’s ban on seal products is justified on moral grounds. In other words, we have successfully defended our principles of animal welfare at the WTO.

Finally, we have also applied our trade defence instruments in a firm way. Just one example: We have decided to take anti-dumping and anti-subsidy measures on imports of Chinese solar panels and found a constructive solution with China last December. This has made sure that the European renewable energy industry faces a level playing field – and that it can continue to develop cutting-edge technologies that benefit the environment.

Trade policy can also play a direct role in “high politics”. This role is anchored in the Lisbon Treaty. It states that the EU’s trade and investment policy must be coherent with the principles and objectives of the Union’s external action. Most recently, this has become very evident in the case of Ukraine. Following my initiative, the Commissioner has put forward a proposal for autonomous trade measures providing tariff preferences for Ukraine. It passed the institutional process at a record speed, and is an essential component of our broader efforts to aid Ukraine in these difficult times.

Vice versa, trade sanctions can be an effective tool of external action if they are applied prudently. This has become evident in the case of Iran. And we stand ready to take action regarding Russia’s involvement in Ukraine, if the situation requires it.

Ladies and Gentlemen,

Though we still are together the world’s biggest economy, our share in global prosperity is bound to shrink. That is not a source of sorrow, as it results from the rise of previously poor economies.

But with decreasing weight, we must try to safeguard our influence. Europe can only be influential if it manages to speak with one voice. On important issues ranging from intellectual property to investment protection, we have to work on finding this common voice every day.

Finally, our trade policy can only be strong if it is built on strong public support. You, as the current and future academic bedrock of German society, can play an important role in ensuring that support. We need you!

Trade will still fall short of ensuring Immanuel Kant’s “perpetual peace” anytime soon. But trade can nevertheless be a powerful policy tool for a better world. Let us make full use of it.

Thank you for your attention.