The Next Frontier: Rethinking the Global Trading System
Remarks by the Dutch Minister for Foreign Trade,
Frank Heemskerk, at the CSIS Conference 'The Next Frontier: Rethinking the Global Trading System', Washington DC, 25 March 2009
Ladies and gentlemen,
As the Dutch Minister for Foreign Trade and a social democrat, I have been asked to provide you with a European perspective on the relationship between trade and the environment.
Trade and protectionism
The current economic crisis shows us what happens when world trade shrinks. The most recent WTO figures show a downturn of 9% in 2009. The impact on our economies is dramatic - even more so in developing countries.
So, first and foremost, we urgently need a Doha round agreement - for our industries and societies and especially for developing countries. The G20 London Summit on 2 April should therefore send out a strong signal that the deal needs to be closed as soon as possible.
We should be realistic and clear about the benefits of a Doha agreement. We have done calculations at the Ministry of Economic Affairs which show that gains in prosperity will amount to a total of 160 billion euros. So there are real gains on the table. Approximately 25% will go the EU and another 25% to the United States. They should be taken.
Secondly, we must resist the temptations of protectionism. As European Commissioner Catherine Ashton stated last week, we have a choice between doing what is popular but damaging in the short term, and what is right and sustainable in the medium to long term. I am convinced that both the EU and the US will choose the latter.
As some speakers before me have pointed out, we must also be honest about trade and globalisation. There are many winners but there are losers too. Among the winners are large multinational companies. What always strikes me is their relative silence in this debate. NGOs and trade unions send large delegations to international negotiations, to emphasise the downside of further liberalisation. We need industries to do the same for the benefits. I am therefore a strong supporter of CSR as a means of broadening public support for international trade and globalisation. Companies should go beyond just showing consumers that their products are made in India, for instance. They must also inform them that they are being produced sustainably. In that way, CSR and public support for globalisation go hand-in-hand.
From a political perspective we have to realise that in the EU and the US stimulus packages are paid by taxpayers. They want results at home in return. Politicians have to be able to respond to that demand to a certain extent. Protectionism is wrong, but there is often a thin line between protectionism and the patriotism that politicians sometimes have to call on to foster public support for essential measures. So sometimes the trade community should be a little less harsh on politicians.
Trade and climate change
We are not only fighting protectionism. We are facing climate change, too. This is an import and difficult area, in which the trade community is faced with important questions. How do we avoid beggar-thy-neighbour policies, or carbon leakage? How do we deal with free riders? How to be effective?
My first answer is that most of the time tariffs and sanctions are not really effective. They are a second best option at most. To fuel our debate today, let me illustrate what they mean in the real world.
In DC, Stockholm and The Hague, tariffs and trade sanctions are generally advocated for three reasons:
- to protect businesses at home;
- to protect the environment abroad;
- and to put pressure on unwilling negotiating partners.
I don't think sanctions will help much. For instance, Chinese firms that export to the world market are often best in class, including on the environment. The problem lies with firms targeting purely domestic production and consumption. Will trade measures affect these firms? I strongly doubt it.
We know that there are more efficient ways to tackle problems than doing so with trade measures. Applied to carbon leakage, this means that:
If competitiveness is our problem, then the solution probably lies in cost containment, notably reduction of taxes and other costs, or efficient allocation of emission rights, and in stimulating innovation and R&D.
If the environment elsewhere is our main concern, then we should probably focus on obsolete producers there, and not on imports here. Because the imports usually come from modern factories that are greener than some of our own.
So, if trade measures are likely to be second best, what constraints might nevertheless justify their use?
WTO Director-General Pascal Lamy's answer to the question whether measures against carbon leakage are allowed under WTO rules was a very wise one. 'It depends,' he said.
We have to be aware that should we use a loophole in WTO rules to impose trade restrictions on, for example, China for doing too little to reduce CO2 emissions, the Chinese will use the exact same method to block our trade. China thinks that the EU and the US created the problem and that we are doing too little to solve it. This is a recipe for a trade war! Let's not start one.
Positive instruments
The only way forward is to forge a much stronger link between trade and sustainability. In my mind, this link is not a policy option, but a policy imperative.
There are several positive ways to do this:
First of all, we have to remove trade barriers to clean technology and products that are good for the environment.
We could follow the example of CITES, which has created global agreements blocking imports of endangered species.
The inclusion of positive incentives in FTAs for countries that adhere to environmental standards is an important option.
We can expand and initiate negotiated programmes, like those that aim to prevent illegal logging. For developing countries these programmes have to include assistance in enforcing the rules.
Conclusion
Let me leave you with three conclusions.
First, we need to tell an honest story about trade and globalisation, in which we highlight not only the benefits, gains and winners but also address the concerns of those who lose and the measures we are taking to mitigate that.
Second, I want to underline once more the risk of using trade instruments for the benefit of sustainability. There might be opportunities, but as I have pointed out, there are many risks and drawbacks too. Effectiveness is only one example.
Lastly, there are, fortunately, positive instruments available to tackle sustainability issues in trade policy effectively. Let us explore them further and use and implement them as soon as we possibly can.
Thank you.