Remarks from European Commission Director General for Trade David O’Sullivan, 20-20-2010

Is Trade Policy Stuck?
 
Breakfast with European Commission Director
General for Trade David O’Sullivan
Washington International Trade Association
January 20, 2010 Washington, D.C.
 
Good morning. I am delighted to have the chance to address
such a prominent group on the role of trade policy at this critical
juncture for global economic policy.  
 
This morning's event is rather ominously entitled "is trade policy
stuck?"  At least it is ominous for those of us who believe – as I
do – that trade policy has been a key element of the economic
achievements of the post World War II era and, in particular, of
the remarkable economic growth that we have come to take for
granted in the last twenty years.
 
Unfortunately, it is an entirely apposite question, and the short
answer is, I am afraid, yes, it looks like trade policy is stuck, at
least for the moment.
 
•  Crucially, the DDA is still blocked. We have a G20 pledge to
conclude in 2010 but even the most optimistic have started to  
doubt the feasibility of this deadline. The risk of yet another
missed Doha deadline remains real. I continue to be a great
DDA optimist but sometimes I feel like the last Mohican.
 
•  Bilateral trade-opening is in many ways a second-best option
to multilateral liberalisation, but it is, for the moment, the only
show in town. The EU-Korea deal, which we initialled in
October, once implemented, will lead to significant market-
opening, arguably the biggest free trade deal since NAFTA. It
is certainly the most far-reaching FTA ever concluded by the
EU and the flagship of Global Europe strategy. We are also
working on other deals, particularly with Latin America and
Canada, and, of course, India. These deals have the
potential significantly to shift the global trade landscape.  The
US has also been active bilaterally, although a key deal like
KORUS has been suffering in purgatory for over 2 years. And
US deals with Colombia and Panama are also pending. 
 
But, it has yet to be proven that such deals, until ratified and
implemented, add up to a revolution in global trade. 
 
Can we afford that trade policy is stuck? 
  
So, does trade policy really matter? And if it does, how can we,
as policy-makers and business leaders alike, make the case not
just for open markets but also for further trade liberalisation?
 
Before the crisis, we were complacent about trade, thinking it
worked perfectly well (even increased!) without government
intervention and negotiations.  The sense that trade policy had
somehow run its course was pervasive. 
 
That image is now shattered. The fourth quarter of 2008 and
the first quarter of 2009 saw a massive fall in global trade.
Charts showing trade figures were bleeding red all around the
world. In February 2009, Japanese exports were fully 50%
lower than the previous year.  
 
Still we were lucky not to see the worst-case scenario. During
the crisis existing structures  avoided a protectionist backlash.
WTO rules and coordinated G20 efforts not to backtrack –
buttressed by a robust monitoring effort by the WTO Secretariat
saved the day. The global consensus on open markets has
held. Tellingly, only Russia – not a WTO member —has raised
tariffs considerably. And it is in the area of government
procurement – where WTO rules are not universal – where we
have seen a rather important increase of semi-protectionist  
measures. So it is fair to say  that the multilateral rules-based
system has passed its worst stress-test yet. 
 
The market value of WTO ratcheted bound tariffs has suddenly
soared.
 
That is not to say the road ahead will not be bumpy. Trade flows
have now stabilised at levels somewhat below those before the
crisis, but there is no sustained evidence of an upturn. Asian
markets have led the way, as the US and the EU have had to
deal with larger "balance sheet" issues. As unemployment rises
with a lag behind economic activity, the greatest pressures in
favour of protectionism may yet be ahead of us, not behind.
 
On balance, however, I believe it is fair to say that both the EU
and the US have played their role in averting what could have
been a truly global crisis. It is evident that we have a common
responsibility, as the world's two largest trading blocks,
constituting around 50% of global economic activity, to keep
trade flowing. 
 
People rightly talk about the dawning of a “Pacific Century”
because we will certainly witness a shift from the Atlantic to the
Pacific in the course of the coming period. But we should not
forget certain objective economic realities. Today, the EU and  
the US are still the twin engines of the world economy, and by
quite a long way.  The trans-Atlantic marketplace remains the
single most important economic corridor in the world. 
 
The EU remains the world's largest economy and trading
power. Our economy is worth around $ 18 trillion annually which
makes our 500 million-strong single market one of the most
attractive destinations for global exporters and investors. We
are also the world's largest:
 
•  exporter ( $1 850 billion in 2008)
•  importer ( $  2 250 billion in 2008)
 
Combined, the EU and the US  represent around 50% of the
world’s GDP. We are each other's most important trade and
investment partners. Our trade is worth $ 610 billion in goods
alone.
 
You may have seen in recent press articles that China is rightly
proud that it overtakes Germany as the world's largest exporter.
But the EU as a whole still holds first place. None the less, it is
clear that a geo-economic shift is taking place. The crisis has
merely accelerated this shift.  The new power configuration is
most visibly illustrated in the way in which the G-20 has taken
over from G-7.    
 
This trend is a natural, indeed welcome, corollary of the
successes that emerging countries have had in their economic
development.
 
 
We should not fear a richer China or a richer India. Our relative
weight in the world economy may fall but we will both have a
smaller share of a  bigger pie. The challenge for us is how to 
make room for emerging countries in the current system of
global governance, while, at the same timemaintaining the living
standards that our citizens demand.  
 
 
What are our instruments to unstick trade policy?  
 
The first and most important tool is concluding the DDA. 
 
I continue to believe that many US critics of the round
underestimate the more immediate economic gains Doha would
deliver.  Europe's estimate is that – based on what is more or
less on the table - a successful and comprehensive DDA would
add $ 200 billion to world GDP per year.  Half the gains would  
be reaped in the first 5 years of implementation only.  And in
key US export markets, such as China and the EU, the average
industrial tariff traders face will be slashed by just under 30%
and 50% respectively.  
 
Cynics might say that that might only buy you a bank these
days. But these are annual gains, not one offs, and they come
at a time when governments have little or no fiscal room for
manoeuvre, and when the risks of an upturn in trade
protectionism have not gone away.
 
Are there markets where we Europeans had hoped to achieve
more?  Do we not share the greater ambitions of certain US
industries? Yes, of course.  That is why the DDA story does not
stop with agriculture and industrial goods, even if we, too, would
wish for a top-up for the industrial package. The negotiation on
services still to come is of vital economic interest for us both.
Trade facilitation offers more  gains than almost any other
chapter of the package. The rules chapter contains issues of
great importance for us both. We have to see this agenda right
through until the end to understand its true economic value.   
 
And let us not forget about the negotiating logic of this Round. 
The outcome on the table today has been ten years in the making. 

The compromises in  today's draft package are the
result of give and take which has already taken place.  The US,
like the EU, has sacrificed gain in some areas in order to defend
sensitive domestic interest.  So we have to recognize that both
of us have accepted to gain less in some areas in exchange for
being asked to do less by others.   The US has obtained very
favourable treatment in agriculture, as well as recognition that
100% duty free quota free would be politically hard to sell.
These gains did not come free.
 
More fundamentally, we both also accepted from the outset that
poorer developing countries will  do comparably less than the
industrialised economies because this is the Doha Development
Round.  And all these years of negotiation which have brought
us to where we are today have  been based on this premise.  
We have calculated that, for Sub-Saharan Africa, the DDA is
worth around $ 17.5 bn additional economic activity each year -
that's around half annual inflows of overseas development
assistance.  Delivering the development premium we promised
matters deeply.  
 
So, it would be an illusion to believe that, this late in the day,
trade negotiators have another deal ready in their drawers that
is intrinsically better than what we currently have on the table.     
Does this mean that the rest of the world does not recognise
that the deal on the table is not saleable in the US? Of course
not. We may occasionally be over-optimistic, but we are not
politically unaware. We understand fully that there is a
significant lack of support in Washington for the current deal.
And I honestly believe that everyone in Geneva is willing to look
at what it takes to make the DDA politically acceptable to the
United States. 
 
But, frankly we can't judge whether what US critics are asking
for is an adjustment others might be able to accommodate, or
whether it is instead an overhaul which unpicks the whole
negotiation and takes us back to square one. Just as
importantly, we can't judge  whether the US could settle
tomorrow on the right terms or whether the daunting political
calendar of the Obama administration inevitably means that this
is a question for 2011 rather than 2010.
 
These uncertainties mean that your negotiating partners are
reluctant to engage. 
 
Let me finish on Doha with  a few words on the systemic
importance of the WTO. The WTO is central to global economic
governance, and as we have seen it was instrumental in
avoiding a protectionist pandemic. Its rules-based system  
represents the most advanced  level of economic governance
today. 

Closing the DDA will strengthen the WTO. The corollary is
similarly true. Critics of the Round dangerously underestimate
the value of locking in the big, emerging economies within a
strengthened rules based trading system.  What we call, in the
jargon, the "systemic" gains  are fundamental – it is about
providing companies everywhere with a long term insurance
policy that borders will remain open.
  
Moreover, Doha is the gateway for further reform of the WTO.
The trade negotiations of the future will be less about tariffs (or
even services) than about complex non-tariff barriers, standards
and regulatory differences, and how to promote sustainable
development including better protection of the environment and
the respect of fundamental labour rights.  But we can't get there
until we've done Doha. 
 
And what everyone in the WTO knows is that this Round needs
US leadership if it is to be concluded.
 
Quite simply, we can't do this without you. It is not about
cornering you. And it certainly not about trying to embarrass you  
into agreeing a deal you don’t like. It is about how we succeed
in bringing you on board for defining a 21st century trade policy
environment which combines the best of the late 20th century
liberalism with a strong development dimension as well as a
recognition that the gains and costs of trade opening must be
fairly shared.   
 
Europe and the United States share a strong common
responsibility of leadership in this debate. And leadership
requires engaging the public through a robust democratic
debate on the benefits of open markets. 
 
We need to leverage our bilateral relationship as a laboratory to
explore new avenues in trade policy. 
 
In this context, tariffs have become a lesser evil. Regulatory and
behind-the-border barriers are now the key obstacle to freeing
up trade and investment. That's why better and more effective
regulatory cooperation is the  way forward and would bring a
double dividend: smarter regulation and more trade. 
 
We both have tended to imagine that the global debate is about
whether US or EU standards dominate. We may both be wrong. 
  
The 21st century debate may well be about whether there are
truly global standards or whether we witness the clash of
standards between relatively equal giants: EU, US, China and
India. Maybe we should start to think less about differences
between us and more about what happens when we both face
standards imposed by others.
 
That is not to say that we will neglect existing trade irritants,
which we are also tackling together, as this year's agreements
on beef Hormones and Bananas illustrate. What we need to do
is set up an "early warning system" that will help avoid future
disputes and prevent the creation of new non-tariff barriers that
impede trade and investment. I believe that business expects
us to get past the differences and build on the positives of our
relationship.
 
 
Looking forward
 
We do not yet know if we are in an L-, V- or W-shaped
recession. What is clear is that we are not yet out of the woods.
There are dark clouds on the horizon: rising unemployment and
persistent macroeconomic imbalances.  
  
Getting back on a growth-creation path is imperative, both
morally and politically, but with public finances stretched to the
limit, we can no longer rely on fiscal stimulus to pull our
chestnuts out of the fire. So we must find other ways to kickstart
the engine of economic growth.
 
Getting trade back on track must be part of this equation. Trade
makes all of us richer, protectionism poorer. 
 
Hence the strategic importance of keeping markets open and
concluding the DDA. 
 
This brings me back to my  original question which I have
touched on briefly: how can we create public awareness about
the benefits of open markets, especially during a crisis?
Personally I believe the role of business here is crucial. We rely
on you, America's business leaders, to help make the case for
open marketsas part of an important element of the global
economic recovery, including the  importance of the right Doha
deal. 

I hope I am preaching to the converted here – you deal in global
supply chains, multinational  customer bases and new markets
and so need open markets.  But there is another reason why
we must preserve the multilateral model: the fight against
climate change.    
 
Copenhagen showed the dangers of straying off the multilateral
track. Climate change is far more complex than the Doha
Round, and we have less experience in negotiating over
emissions targets than we do tariffs. So we must ask ourselves
how we will ever be able to agree on climate if we can't agree
on trade.
 
So it's imperative that we work together to "unstick" trade policy.
 
And for that we need American  businesses and politicians to
make the case for an open and robust trade policy with the
WTO as its centrepiece.
 
Like the EU, the US is the big winner of any open global trading
system.
 
But we need to proclaim this from the rooftops because the
alternative will lead not just to economic losses but ultimately to
a less just and a less equitable world. 
 
That may be beyond the paygrade of the average trade
negotiator but I hope it is not beyond our comprehension.