East interviews Karel De Gucht, Belgian Foreign Minister between 2004 and 2009 and current European Commissioner for Trade in the Barroso Commission. He led of the VLD, the Flemish Liberal Democrat party from 1999 to 2004.
In the last two decades the globalization of markets has brought great benefits to some countries previously considered as part of the developing world. The EU is now facing a particularly aggressive competition from these countries. The economic boom in China, India, Mexico and other countries is largely determined by the lower cost of production. How can Europe face such competition? Major emerging economies, especially China, India and Brazil, are rightly reaping the benefits of their growing role in world trade. This growth, based on progressive liberalisation, has been essential to their historic achievement of lifting millions out of poverty. But yes, they have now become much more competitive and this changes the nature of our relationship. We now focus less on development cooperation and more on increasingly balanced forms of partnership based on mutual interests, as well as evenly-shared global responsibilities. Our biggest strategic challenge is to anchor them into the global trading system under a new “covenant”. So that as their role and the benefits they draw from the global trading system grow, so do their responsibilities to play a full part in maintaining a global regime that favours openness. This is about both the economics and the politics of openness. European citizens expect them to open to us, as we open to them. We stand to gain from an active trade policy vis-à-vis emerging economies, where there are both significant growth prospects and much potential for further trade opening. The EU’s agenda of free trade agreements with large emerging economies such as India, ASEAN countries and Mercosur is a powerful tool to this end. As the overall objective of FTAs is to remove all tariff and non-tariff barriers to trade and the EU, like other advanced economies, is more open to trade than its emerging partners, this agenda will necessarily rebalance the current asymmetry in levels of openness and work towards a more level playing field. Apart from high labour costs, our companies have to pay higher costs for safety, social security, bureaucracy, respect for the environment and other constraints than the BRICS and MIST companies. In the long run even those countries will develop a social conscience and impose stricter regulations, but in the meantime how can Europe cope with social dumping? The question seems to imply that high labour and environmental standards are an economic burden. I think otherwise. High environmental standards can be a catalyst for innovation, an incentive for creating better and more efficient products, which improve our lives, our environment and our health. I will also recall that all products entering EU market must comply with all EU technical regulations. Therefore, the argument goes both ways: developing countries are often complaining that our advanced safety or environmental requirements are particularly difficult for them to meet and costly. When it comes to labour, European workers are among the world’s most productive, with an average productivity much above their counterparts in many developing countries. Although large emerging economies quickly catch up with more advanced countries in terms of their trade and industrial production, they are still at a very low level of income per capita and productivity per head in comparison with advanced industrial economies. General productivity levels in China are still at 20% of most advanced EU countries. They may rise rapidly, but so do wages with an average 20% increase annually. Europe’s future is not in low-wage manufacturing that we see in many developing countries, but in high quality goods and services typical for a knowledge-based economy. Building on our ability to sell products at premium price is the only way to uphold our levels of social protection, wages and increase employment rates. For us, the challenge of China and India is necessarily more a race to the top than the bottom. Europe must continue moving up the value chain. In recent weeks, the Commission initiated an anti-dumping procedure against China because of state aid granted to producers of solar panels. However, the action was hampered by Germany, which has a privileged relationship with Beijing. In fact, the EU has almost never succeeded in defending its production through resorting to anti-dumping. What other means does Europe have to defend its valuable industries? We have responded to China’s dumping of solar panels with low provisional duties but with a staggered approach, meaning they will rise if a solution is not found within 2 months. During this time we are engaging with our Chinese partners in an effort to find a negotiated and amicable solution through ‘undertakings’. This leaves space and creates an incentive for China to find a negotiated solution. I sincerely hope it can be achieved.
More generally, we firmly oppose unfair trade. Our commitment to open markets is upheld by our capacity to act against anti-competitive trade practices, using both anti-dumping and anti-subsidy procedures to do so. We do not seek to roll back the comparative advantages of our partners, but we do not hesitate to take action where those advantages are topped up by unfair practices such as anti-competitive pricing, subsidies or other state induced distortions. The EU is one of the main users of trade defence instruments globally, together with the US and China. We are also prepared to challenge our partners in the WTO to enforce our rights: it’s a question of balance. Rules must be respected by all. The EU has been an active and effective user of the WTO dispute settlement provisions. Brazil is experiencing a sharp slowdown in its growth pace. In Turkey, a new social and political unrest questions the development model of the AKP, the ruling party. In China, tensions between coastal regions and inland areas remain a big issue. In your opinion, what are the BRICS or MIKT countries that, according to their current production models, are more likely to continue on a path of sustained growth? That’s a difficult question. There is obviously a huge potential to catch up in many countries, with large productivity gains still to be made, a huge labour force, new opportunities brought by foreign investment, capital and ideas and the insertion in global value chains. But there are also huge bottlenecks, disparities, tensions and contradictions in what remain in many countries dual economies. Think of the challenge of urbanisation in China: they plan to bring 250 million people from the countryside to cities in the next 10 years. This is equivalent to half of Europe’s population. Of course this is as huge a challenge but also an opportunity. Social tensions are part of social development. It is not only about economic growth. Societies are changing with increased economic power but this will take time and will not always be an easy path.
East interviews Karel De Gucht, Belgian Foreign Minister between 2004 and 2009 and current European Commissioner for Trade in the Barroso Commission. He led of the VLD, the Flemish Liberal Democrat party from 1999 to 2004.
