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Speech by Commissioner Mandelson: Tilting the global balance: Asia's new trade growth

Tilting the global balance: Asia's new trade growth

In this keynote speech to the WEF Asia Forum in Singapore on 29 April 2005 EU Trade Commissioner Peter Mandelson calls for Europe to renew and consolidate the scope of its relations with Asia to reflect the region's dramatic changes. He announces that the EU and ASEAN have agreed to set up a political level "vision group" to assess the feasibility of an EU-ASEAN Free Trade Agreement. He argues that Europe should welcome "the renaissance of Asia" not as a threat but an opportunity and a stimulus for European competitiveness.

- Europe's trading relationship with China has changed dramatically in the last twenty years. Today four of Europe's top ten trading partners are in Asia: China, Japan, South Korea and Taiwan. Imports to the EU from ASEAN countries are growing by 10% per year. Commissioner Mandelson calls economic change in Asia "an economic revolution on a breathtaking scale…the world has seen nothing like it since the opening up of the United States in the closing decades of the nineteenth century."

- Commissioner Mandelson argues: "I do not share the view of those who regard Asian growth as a danger". He argues that as the world's leading exporter and investor, Europe needs "more confidence about its potential and its ability to manage change and remain competitive…Asia and its growth is a means of sustaining this performance, not reversing it".

- He argues that Europe's greatest concern should be a share in Asia's booming markets through increased competitiveness, improved market access and tougher rules on counterfeiting and the protection of intellectual property.

- He argues that Europe must deepen and consolidate its economic links with the Asian region, both through co-operating on the Doha Round and by developing stronger bilateral links to improve conditions for market access.

- He stresses that these bilateral links should not be an alternative to the EU's priority of multilateral trade opening, but a complement that could further deepen co-operation.

- He announces that he has agreed with his ASEAN counterparts to set up a political level "vision group" to assess the feasibility of an EU-ASEAN Free Trade Agreement.

How do I sum up my view of Asia? In a single sentence, I would say that if the story of the last century was the rise of the United States as a global power, the main story of the present century will be the rise and rise of Asia.

I've been an Asian-minded person for several years. It was on sabbatical from membership of Tony Blair's Cabinet that I began to take a keen interest in the remarkable economic and social development of your region. In the years before 2004, I paid several extended visits to Asia, full of curiosity.

As Trade Commissioner, in the past six months, I have been back to India and China and I am just now returning from meetings with ASEAN Ministers in Vietnam, and with government and business leaders in Thailand. And it tells us something about the growing political importance of Asia that the decisive meeting on the future of the Doha Trade Round will take place in Hong Kong in December, with a Mini-Ministerial beforehand in China in July.

The astonishing economic growth in ASEAN and China and India cannot fail to make a profound impression. I see it as my responsibility to remind my fellow Europeans constantly that the renaissance of Asia is good for Asia certainly, but also good for Europe and good for the world.

Asia is also more and more visible on the global political stage fostering inter-regional dialogue with major regions of the world, including Latin America, Africa, the Middle East and Europe as well as more intra-regional cooperation in South and in East Asia, for example through ASEAN plus 3.

Against this background, there are three big points I want to make today.

First, that Europe needs to build a stronger, more dynamic relationship both with the countries of Asia individually and bilaterally, but also with the Asian region. A stronger "Euro-Asian space" is not only desirable in itself - we are, after all, at either ends of the same land mass. But in spearheading this relationship in the twenty first century, the European Union can demonstrate that it is able to repond to a demand for "more Europe", a demand I have heard with heartening clarity from many of my Asian interlocuters.

Second, that a partnership on the European side, that moves beyond good will and warm words, will present a formidable political challenge to the EU Member states: it will require Europe to be welcoming of economic change, to be innovative and open, and this will not occur unless Europe significantly raises its game in helping its people and industries to adjust to changing world economic balances brought by Asia's rise.

Third, that we need to work together to create new economic and trade opportunities within a rules based economic system - both through multilateral cooperation in the WTO and, where this helps, through bilateral and inter-regional trade agreements. I do not see this as an either/or: Asia is a perfect illustration that these tracks should run together.

It is of course the economic and strategic impact of Asia on the rest of the world that raises all these issues. And must make my fellow European citizens sit up and understand what is going on. For what poses the far greater danger for the future is not the rise of Asia but the introspection and fearfulness of Europe.

Europe should look outwards and act together boldly on the world stage. That is why the worst preparation for the external challenges facing the European Union in the decade ahead would be for Europe to implode in squabbles over ratification of its new Constitutional Treaty. This would be a sign that in the new emerging world, Europe is at risk of marginalisation.

I do not share the view of those who regard Asian growth rates above 9% as a danger. Yes, the growing economic power of this part of the world represents a new source of competition. But it also represents a new source of economic growth and stimulus to innovation, as well as an opportunity for cooperation.

And Europe and Asia have to cooperate if we want to tackle the real challenges of our lifetime. Of course, the burgeoning growth in Asia puts extra pressure on natural resources such as water and raw materials. Of course, it adds to environmental problems such as air pollution and global warming. Of course, both Europe and Asia are net energy importers. Of course, the process of economic dynamism, for a time at least, widens social inequalities.

But economies in the western hemisphere share similar problems. Collectively, we are all putting strain on our planet. We need collective solutions. And collective action requires credible negotiating partners on both sides, which is not easily offered when nation-states operate separately and apart.

Region-building is a vital part of building the capacity for collective action and cooperation with the rest of the world. For all the many frustrations, regional cooperation has worked well for us in Europe: over half a century it has helped to make war unthinkable and peace, stability and democracy the natural order. It has defeated the ideological extremes of Fascism and Soviet Communism. For all Europe's present reform challenges, it has delivered unprecedented prosperity and our current difficulties do not detract from Europe's remarkable achievements.

My discussions with ASEAN have confirmed my belief that our EU model has something to offer to Asia. Together I would like to build a partnership between Europe and Asia to help deepen regional integration in Asia.

To do this, we need to overcome some reservations about each other. The predominant mindset in Europe today is defensive. If you talk in Europe about Asia and its astonishing economic growth in the region, people think of a threat, rather than of an opportunity. Equally, I have heard complaints this week about the West's protectionist behaviour during my discussions with ASEAN interlocutors. In Europe there is a lot of sensitivity about surging Chinese textile exports. What this tells us is that we need to be realistic with each other: we need to monitor economic change carefully in order to enable and assist industry to adjust, be it European or in developing countries.

The pattern of European trade with Asia has changed dramatically over the last decades. Twenty years ago, of Asian countries only Japan was among the EU's top-ten trading partners. Today, four of the top-ten are Asian: China, Japan, South Korea and Taiwan. This will continue to grow and evolve further.

Ten years ago China accounted for less than a fifth of United States exports to Europe. Today the comparable figure is three quarters.

Since 1990, EU imports from the ASEAN countries, Korea and South Asia (including Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka) have grown by more than 10% per year. At the same time, our exports to the same countries have increased by about 7%. Equally, the pace of change in intra-regional trade flows in Asia is impressive: in less than 10 years trade between China and Asia increased fourfold; trade between China and Japan/Korea tripled over the same period; intra-ASEAN trade doubled, and trade between ASEAN and India has tripled.

This is an economic revolution on a breathtaking scale. The world has seen nothing like it since the opening up of the United States and the industrialisaton of Germany in the closing decades of the nineteenth century.

Inevitably, it will trigger sometimes painful restructuring and a reallocation of productive resources in Europe and elsewhere. We should not diminish how much is at stake. Business now thinks in terms of global supply chains. "Outsourcing" and "delocalisation" are everyday features of economic life.

But Europe needs more confidence about its potential and its ability to manage change and to remain competitive. The EU is the world's leading exporter of goods and services and the world's leading investor abroad. Asia and its growth is the means of sustaining this performance, not reversing it

Contrary to what is sometimes suggested, the EU's export performance remains strong. This is mainly due to our ability to sell relatively high-priced, top of the range, high-quality branded products. Today, these products account for about half of European exports; yet only a third of world import demand. Europe is more successful than the United States in competing at the top end of the market. As consumer faith and incomes extend and grow, Europe's target markets will expand. It is also encouraging to see, that more and more of these transactions are priced in Euro, the successful European single currency.

Producing and selling expensive European top-of-the-range products is not just a matter of technological advance. The quality of the products, the trade-mark/reputation, and the provision of services related to the sale of product are all decisive factors for success.

Emerging Asia is, and will increasingly be the essential trade partner of choice for Europe. There are already millions of wealthy households in China and India offering a huge future potential for EU business. This is why, amongst other reasons, the "new" Asia is to be welcomed, not feared.

What should be of greatest concern to Europe is the task of maintaining and increasing our market share in the new Asia. There are legitimate worries here: and they raise questions not just of European competitiveness, but of trade policy such as protection of intellectual property, the opening up of public procurement, genuine - not commitments on paper - market access for European service businesses and in some cases, persistently high industrial tariffs.

Innovation remains key for Europe to be able to respond to the Asian phenomenon. Urgent action to reassert Europe's technological leadership is crucial, which is why the European Commission under Jose Manuel Barroso has given itself the Leitmotiv of "growth and jobs" and called for increased investment in the "knowledge economy". We need to advance economic reforms, to equip people for change and to bring governments and business to work in partnership to improve competitiveness.

As for the impact of Asia on the international trade system, there is much activity in the region to consolidate and strengthen regional links through the continuing negotiation of regional Free Trade Agreements (FTAs), between ASEAN, China, Korea, Japan and even India. In addition, the United States is increasing its economic influence in the region through bilateral FTAs. The obvious risk is that these regional efforts detract from multilateral trade liberalisation and the multiple benefits this offers.

That is why, in the EU we continue to see our number one priority in the successful and ambitious outcome of the ongoing multilateral trade negotiations, the Doha Round. Nonetheless, past experience has shown that multilateral and bilateral trade negotiations are not mutually exclusive and can be complementary to each other.

The lesson of region-building in the EU is that integration needs to be real, deep and wide. It must also be non-distorting and in conformity with WTO rules. If everybody is to gain from regional Free Trade Agreements in the long term, it is important to avoid a situation where agreements become a spaghetti bowl of "à la carte" arrangements, to mix culinary metaphors.

I firmly believe that a good multilateral result in the WTO round would deliver the biggest gains to all trading nations, in particular to the developing world. It would open up more possibilities for South-South trade and be an important step in the direction of progressive integration of developing countries into the world trading system at a speed that meets their individual needs and circumstances. This objective is at the heart of my Doha agenda.

The discussions I had with my ASEAN counterparts this week made me believe that there is scope for further deepening of our close cooperation on the multilateral front in order to reach conclusive progress by the Ministerial Conference of the WTO in December in Hong Kong. I look forward to taking this a step forward today with my Asian colleagues Minister Lim and Minister Kim who join me on this Panel today.

However, multilateral decision making in an organisation where all 148 members each have a vote, and all have to agree, is at times frustrating and slow. Also, it is a fact that the mulitlateral agenda does not cover all areas of trade and economic cooperation that we have an interest in addressing together, notably investment and transparency in government procurement.

We should therefore not rule out opportunities to add these topics through regional or bilateral negotiation, including with Asian partners, both on market access and on rules. That is why I am open to evaluate, on a case by case basis, possibilities for regional bilateral trade agreements, as long as this does not detract from our multilateral efforts in the Doha Round.

In that spirit I agreed with my ASEAN counterparts - without prejudice to the precise vehicle - to advance our consideration of an EU-ASEAN trade agreement by creating a political level "vision group" that will test the feasibility of such an agreement. I believe we should look to deepen the economic partnership between Europe and Asia in the immediate years ahead. In doing so, we will ensure that the Euro-Asian space is more than the sum of two continents. For the course of my mandate as Europe's Trade Commissioner, this will be a priority.

I have no blueprint to unveil. And I have no fixed views - for now - on what precise pattern or model we should end up with. But the time for further thinking has arrived and I look forward to developing it.

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