Summary: Speech by EU Trade Commissioner Mandelson - "A World of Opportunity: China and the future of international trade" (Beijing, 8 June 2006)
Peter Mandelson, EU Trade Commissioner; "A World of Opportunity: China and the future of international trade"; Renmin University, Beijing.
In this speech at Renmin University in Beijing on 8 June 2006, EU Trade Commissioner Peter Mandelson calls on China to move to meet its outstanding WTO commitments or risk a backlash in Europe against its perceived trading power. Arguing that Europe for its part had to have "the confidence to welcome China's economic resurgence", Mandelson also insists that if China does not provide better access for EU investment and trade, improved protection of intellectual property rights and the
dismantling of export incentives and other forms of trade-distorting subsidy, it could provoke a negative protectionist response in Europe.
Mandelson argues: "China is destined to enjoy a pivotal role in the world economy for decades to come. Economic leadership also brings with it responsibilities - to respect and support open markets, to apply rather than circumvent the rules and, above all, to ensure that the benefits of open markets are shared by all".
Mandelson continues: "Economically both sides have to commit to openness. In Europe that means keeping our commitment to open trade. For China it means living up to your WTO responsibilities to allow full and genuine market access for others' goods and services, freedom to invest, and protection for the rights of foreign companies." Mandelson says that China can help shape Europe's perception of its rise by "opening its market to outside goods and services; strengthening legal protection for
foreign companies and avoiding anti-competitive trading practices and regulations."
Mandelson concludes: "We should look at what we are doing together as shaping a grand bargain. The more the Chinese door swings open and the world sees a responsible China playing by the rules, the more our citizens will be able to understand our shared interest in deepening our relationship. It is the only way to ensure that the world shares your own excitement at living in the most exciting place on earth at the start of the twenty first century."
I am delighted to be here at one of China's leading universities to make this keynote address of my fifth visit to China as Europe's Trade Commissioner. And doubly delighted to deliver it before China's student population - a generation which, like no other before in China's long history, will contribute decisively to shaping the conditions for future prosperity not only of China, but of the whole world.
Globalisation: An Economic Phenomenon Requiring a Political Response
It is often said that if the nineteenth century belonged to the British Empire, and the twentieth century to the United States and perhaps the Soviet Union, then this century will be Asia's and in particular China's .
China's story is one of globalisation at work. For more than a quarter of a century you have grown at around 10% a year, lifting 250 million people out of poverty and creating an entrepreneurial middle class that is already more than 50 million strong.
Western views of this resurgence of China often fall at one of two extremes. There are those for whom the predominant response is fear. Fear that economic power will lead to military might and foreign policy confrontation. Fear that new competition means a race to the bottom involving the end of the European Social Model of which we are rightly proud.
At the other extreme is what I call globalisation hyper-mania. These people argue that the world is undergoing an economic revolution which politics can do little to shape or influence. We "modernise or die", maximising our share of burgeoning markets, new contracts and profit as best we can - and devil take the hindmost.
For those of you who know my politics, it should come as no surprise that I reject these extremes. I believe Europe must have the confidence to welcome China's economic resurgence, and that we are capable of competing in a "race to the top". Europe and China can build an economic relationship that brings benefits all round. But such a successful relationship means living up to economic and political responsibilities - and commitments - on both sides.
Economically both sides have to commit to openness, and resist protectionist pressures. In Europe that means keeping our commitment to open trade. For China it means living up to your WTO responsibilities to allow full and genuine market access for others' goods and services, freedom to invest, and protection for the rights of foreign companies.
Politically both sides have to work together to tackle the pressures generated by the wider security, social and environmental consequences of globalisation. We must do this both at home and in international policies.
In European domestic politics, seeing off protectionism involves more than political commitment and rhetoric. It requires new policies to help people adapt to change. Globalisation, and China's rise, have profound implications for how the Western world develops comprehensive new economic and social policies to anticipate future structural change, build new sources of comparative advantage, foster the creativity which is our innate strength, and allow all our people, including those who face
great social disadvantages, to have a fair chance to develop their talents to the full. Addressing these issues is the great European challenge in the next generation. Our governments are searching for the answers. Inevitably, this experience is shaping popular attitudes towards China.
But there are equally huge social and political challenges for China. Having remained closed for so long, you need to open up fast. Having sacrificed almost all your historic share of world GDP - coming almost to nought by the end of the Cultural Revolution - you need rapid and sustainable growth. But for that to work, China's growth has to be socially and environmentally bearable. You have done much to reduce poverty, but you face problems of new inequalities between regions. Your state
industries and financial system need restructuring and reform, with unavoidable social implications for unemployment. Your health system needs strengthening. And of course the environmental challenges you face are daunting.
In external policy globalisation is creating an agenda of political challenges that can only be met with collective responses. We share the same environment; the same natural resources. We face the same diseases and threats to international security.
Furthermore, the domestic policy choices of actors on the scale of China and the European Union cannot be decided and pursued in isolation. I recognise that this flies in the face of years of Chinese orthodoxy on the principle of non-interference in domestic affairs. But the reality is that foreign and domestic are fused together by globalisation. All of us, developed, emerging and developing countries alike, must find an appropriate response to these issues. And we must look to stronger,
reformed, global institutions - from the United Nations to the World Trade Organisation - to help us.
I do not say all this to lecture China. I say it to underline that the common commitment to openness that I want the European Union to build with your nation's leadership depends on a shared recognition of the political challenges we face. Globalisation is largely an economic phenomenon. But our politics and policy will determine whether we achieve sustainable global prosperity: or end in abrupt and catastrophic failure as the last wave of globalisation did in 1914.
So my middle way approach - rejecting both "do nothing" and state centralist models - looks forward to a prosperous and successful China; as a committed member of the international trading system and a partner across the board in managing the impact of globalisation; as a new and growing market for EU investment and exports; as a source of new products for European businesses and consumers.
Globalisation - transforming our world
The phenomenon of globalisation, as I have said, is not new. What makes globalisation different today is the unprecedented speed and depth of change. Our world is being "levelled" by faster and cheaper communications, global supply chains and a new competitive dynamic where every part of the global economy is effectively in competition with every other part.
Let me highlight three consequences of this:
First, distance has become less important. Technology is the driving force here: the internet of course, but also low transport costs, which have helped China become such a strong exporter. This has brought greater specialisation of economic activity. Products which are created in Europe are being made in China. Customer service phone calls are being routed to India. The web allows small businesses to turn any computer in the world into their shop window. All this offers a chance for developing
countries to catch up with the developed world in just one or two generations. But this shifting landscape inevitably arouses great public fears and concern.
So second, as a result, the public debate on globalisation is more profound than ever. Globalisation has changed the way politics is conducted. I am acutely aware that I pursue trade policy on behalf of the European Union under close scrutiny. We are part of an intense and open debate about the future development of our shared world, with all the extra accountability this implies.
Third, in the global information economy, knowledge is a currency of its own. All of us are taking steps to focus political attention on education and skills. This involves unprecedented investment, rules that protect intellectual property and a willingness to embrace innovation and the risks of entrepreneurship. Europe is benefiting from the talent of our newest Member States; here in China you are producing more than 4 million science graduates and 600,000 engineers each year. This means a
better educated population, but also one with higher and demanding expectations.
So a globalised world is one in which old economic certainties are rapidly eroded. Huge investments can shift at the click of a mouse from one market to another. The cheap imports applying intense pressure to one European company are likely to be the end product of a global supply chain that begins with another European company - and passes through others on the way. As tariffs and quotas are progressively reduced, the greatest barriers to trade are becoming regulatory barriers -
non-transparent licensing and standards enforcement, or poor protection for intellectual property rights. We need to work out together new responses to these new priorities.
Europe as a response to globalization
Europe has an important role to play in this search for solutions. Our European Union is a unique and successful experiment at regional level in tackling the challenges of globalisation.
In our internal market we have devised common rules and standards to free up the flow of goods, money and people. This and our political institutions equip us to deal on equal terms with continental partners and global challenges.
Our comparative economic strength, and our record in innovation and research, make us the world's biggest exporter and investor and therefore a key global economic player.
Because we have pooled important parts of our sovereignty as a Union of nation states we have a growing understanding of the benefits of collective action in response to big world problems.
For the same reason we understand the importance of effective international institutions and clear, enforceable rules.
New policies for globalization
As strong multilateralists, our highest priority right now in the "globalisation agenda" is an ambitious and successful conclusion of the Doha Development Round. There is no better means to reach the UN Millennium Development Goals. Failure to broker a deal would shake public confidence in our capacity to ensure that the benefits of globalisation are fairly shared. It would risk fuelling protectionism. It would weaken the rules-based international trading system and would make life much harder
for China in growing your external trade. Doha is, in all these respects, too important to fail.
But in Europe we also need to look beyond Doha's successful conclusion to the additional policies we will need to help us benefit from a truly global economy. Our post-Doha trade priorities will ensure that EU trade policy contributes to wider European competitiveness. We shall consider what we need to do to go further in our most important trading relationships, building on the multilateral platform. And we will need to find ways to broaden the range of issues we address in trade policy to
reflect the contemporary agenda.
We must also keep under review the instruments we use to defend Europe's legitimate trade interests and to ensure they reflect our wider interests in a global economy. Comparative advantages should not be topped by unfair practices or unjustified state intervention. We believe strongly that open trade must be fairly conducted. Provided that it is, the European Commission and European leaders must show leadership by explaining where Europe's long-term interests lie, and that transient
difficulties should not trigger counter-productive short term responses.
More generally, we need to develop stronger responses to the difficult adjustments that go with economic change. The heart of the problem is this: the benefits of market opening are diffused throughout the economy as a whole, while the pain it causes is sharp and focused on particular countries, regions or industries. Shaping a response, especially in vulnerable parts of the world like Africa or the Caribbean, will be critical to winning the argument for open trade. Globalisation demands that
we accept change. But it also obliges us to help those affected by change. Here too there is a role for China.
China's place in the new international order: the burden of leadership
Indeed I want to end today by underlining in perhaps rather stark terms the central role and responsibility that China now has in determining whether we can meet the challenges of globalisation successfully, and show conclusively that it really brings benefits to all.
Let me emphasise that the European Union wants to deepen our current relationship and take it to the next level. Our markets are open to your trade and I want them to remain so. The value of Chinese imports into the Union has almost doubled in just four years from €81 to €157 billion, and your share of total EU imports has grown from 8% to more than 13%.
But there are others in Europe who do not accept the argument for openness, and who are tempted by the siren song of protectionism. To be honest I believe that these people are gaining some ground politically at present: hardly surprising perhaps when we measure the impact China's exports have had on nearly every sector of the European economy.
The point I want to make is that, whatever the rest of us do, their case will only be defeated by the actions of China herself: by genuine and rapid movement to create the reciprocal market access in China that Europe and other economies require. EU exports to China have indeed increased by 69% over the last five years, so things are moving in the right direction. China's WTO membership has been another significant step -provided the commitments of membership are met.
But more is needed. China is destined to enjoy a pivotal role in the world economy for decades to come. Economic leadership also brings with it responsibilities - to respect and support open markets, to apply rather than circumvent the rules and, above all, to ensure that the benefits of open markets are shared by all.
Unfortunately we still see many obstacles remaining. Let me name some. New non-tariff barriers such as procedures for product certification, labelling approvals, or approval of ingredients. Lengthy authorisation periods. Unjustified sanitary barriers in agricultural trade. The adoption of national standards that do not match widely accepted international ones. Failure to open up government procurement. Complex rules restricting foreign investment. Unequal access to banking finance.
These practices complicate the lives of our businesses selling into China. We would like to work now with China to see them removed.
This will also bring benefits for you. China, after all, needs economic growth to sustain gradual, peaceful political reform. That growth in turn depends on access to foreign markets. That access will increasingly depend on fair access in return for exports to China's growing domestic market. Chinese companies and consumers will benefit from quality, high value products at lower prices. Foreign investment also supports China's growth - and offers better jobs for future graduates like
yourselves. This is why I hope to be able to negotiate a new agreement with China which includes removing barriers to investment in China in the manufacturing sector.
Trade in services is an area where China has made some ambitious commitments in the WTO, but where these commitments have not yet been translated into real opportunities for our operators: for instance in the financial, telecom and construction sectors. Yet opening these sectors would be in China's interest. Opening up banking would allow enterprises to have better access to capital funding; opening telecoms would contribute to a more dynamic telecom sector, more jobs and cheaper calls.
Another serious problem is intellectual property. The EU produces expensive, innovative and branded products. To retain their value these products depend on a robust international system to protect brands, patents and copyright. This is an area where we need to work with China to deliver rapid progress. And developing more robust IPR protection will also help China develop her own brands and patents in the future. Please do bear that in mind. I was pleased yesterday to sign an agreement to
prevent the sale of counterfeit goods in some markets here. I have also agreed with Minister Bo, whom I value as both a friend and colleague, to work together to open new centres in China to monitor and enforce IPR compliance.
Other areas are equally important, such as the export incentives and subsidies from which some Chinese companies benefit. The global marketplace will not work if the rules of the WTO on subsidising exports are not enforced. And underpinning all this trading system of course is the need for an international currency system in which market forces play a strong role.
Conclusion
Before writing this speech I re-read my earlier speeches on EU-China relations. I think I can fairly claim to have been a vocal and consistent champion of openness in Europe, of trade opportunities for China and of stronger economic and trade ties between us.
I will continue to make this case because I am convinced it offers the best hope for both China and Europe as we adjust to the changes in the global economy. It can help bring greater prosperity, justice and security to Chinese and European citizens. It is a great prize, but one which will not fall into our laps. It must be fought for on both sides.
As a further contribution I intend to put forward to the European Commission and to the Member States this autumn a major communication setting out the agenda for the trade and investment relationship between China and Europe for the next five years or so.
In Europe we must resist superficially attractive but self defeating arguments for turning in on ourselves. But let me reiterate: I am increasingly concerned that this will only be achieved if China shows greater urgency in playing her part: by opening her market to outside goods and services; strengthening legal protection for foreign companies and avoiding anti-competitive trading practices and regulations.
We should look at what we are doing together as shaping a grand bargain. The more the Chinese door swings open and the world sees a responsible China playing by the rules, the more our citizens will be able to understand our shared interest in deepening our relationship. It is the only way to ensure that the world shares your own excitement at living in the most exciting place on earth at the start of the twenty first century.
To end I can do no better than quote the comment of the People's Daily a few days ago on the confirmation by China's leaders that they intend to continue economic reform policies. It said: "The urgency and complexity of reform calls for absolute determination to advance that reform." This is equally true for both China and Europe in our different ways. This statement should be our perpetual guide and motto in the years to come.
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