Sommaire: Speech by EU Trade Commissioner Mandelson: Progressive liberalisation in a globalised world (Manila Peninsula, The Philippines, 15 May 2006)
It is a pleasure to be back in the region and to visit this country for the first time. I am particularly pleased for two reasons: I am very much an Asia minded person, having travelled a lot in the region before I took this job. And secondly for Europeans this is the part of the world that has given meaning to the word globalisation - which is often shorthand for the rise of Asia, and this includes not just China, but also South-East-Asia and the Philippines. And I am a European who
believes in globalisation - that the upsides far outweigh the downsides - and that we must not allow a sense of threat to overshadow the potential and the opportunity of what is happening in the world today.
The Philippines' experience
In the last two decades, the Philippines has gone through a remarkable period of economic adjustment and reform. To maintain this reform against the backdrop of the Asian financial crisis of the late 90s, and the rise and rise of China in recent years, deserves real credit. But it does not surprise me that some voices are calling for a "change" or a slower pace of the reform agenda. I want to try to make the case today for maintaining a policy of openness and progressive liberalisation; here in
the Philippines and elsewhere in the global economy.
Free trade spreads prosperity but it is not a magic wand. It does not automatically lead to greater economic growth. For this countries need high standards of governance and to invest effectively in their productive capacity and human resources in order to benefit from trade, and to deliver a better life for people.
As I readily acknowledge, trade liberalisation brings with it adjustment, and adjustment can mean heavy short-term costs. I have seen it in Europe with parts of the textiles industry after the end of the Multifibre Agreement, and I experienced it in the Caribbean where European agricultural reforms are having a serious effect on sugar producers.
Ensuring that short term pain is outweighed by long term benefits requires sound and sustainable domestic policies, good governance, and constant investment in the economy. It requires a willingness to back change and support those affected by change. Businesses need to be ready to innovate and to compete, to move up the value chain and to establish new sources of comparative advantage. This will only happen when there is a general openness to entrepreneurialism and foreign inward
investment.
Navigating the best way through these challenges presents legislators with difficult choices. There are no cast-iron guarantees of success for liberalising governments - that is the truth. But, on balance, the alternatives are much worse. Protecting markets and domestic industries from competition might bring relief in the short term, but this does not create innovative businesses or strong global or regional industries and it does not contribute to sustainable economic growth in the long term.
Sheltering from the pressures of the global economy is tempting, but in reality it means higher costs, less trade, lower employment growth and a shrinking base to pay for essential public services.
The case for progressive liberalisation: lessons from Asia
Over and over again in the last part of the twentieth century progressive liberalisation has resulted in rising living standards and the steady alleviation of poverty. Poor countries that opened to international trade and investment grew six times faster in the last third of the twentieth century than those that did not. That is the difference between less than 1% GDP growth per capita and 5% or more. That is the difference between doubling the size of your economy once every 16 years - or once
every century.
And that growth doesn't trickle down to the poor, it pushes up from underneath. The World Bank has shown that in the same three decades at the end of the twentieth century every 1% of per capita growth in developing countries added about the same 1% annually to the incomes of the poorest fifth of a population. That is the 'globalisation dividend'. 5% - every year - on the income of some of the poorest people on the planet.
Where that globalisation dividend is invested well - as long as the policies that accompany that growth use it for the widest public benefit - a virtuous cycle of open trade strengthens businesses, imports experience, technology and new skills. And a growing economy means more revenue to be reinvested into schools, public health, infrastructure, tackling poverty.
When Vietnam, for example, began to open up in 1988, three quarters of Vietnamese lived on less than a dollar a day. A decade later poverty had been cut in half, and less than 40% of the population lived every day on a dollar or less.
South Korea took just three decades to raise average incomes by 900% and add twenty years to life expectancy. And at the heart of this was trade. South Korea's share of global trade since 1960 has risen by about 6000%.
The Philippines has taken similar bold steps and it has the material potential to match these performances. It has one of the best educated workforces in Asia, widely fluent in the global language of English. Its global economic diasphora has capitalised on those qualities.
It has grown its manufacturing capacity to the point where high-tech, high-value light industrial goods now make up 90% of its exports, up from just 25% in the eighties. The growing services industry of the Philippines could be a regional hub for outsourcing and e-commerce: the India of South East Asia.
I acknowledge at once the considerable challenges still faced here. I understand some of the facts of life outside this room. But I believe that Asia's experience and the immense potential of the Philippines points clearly towards the benefits of progressive liberalisation. I urge you to hold to that course and not follow those who think it is better for you to retreat into yourselves.
Progressive liberalisation into trade policy: Doha
Since the beginning of my tenure as Europe's Trade Commissioner I have argued that tapping into this power of trade to serve development. The single most important priority in this respect is the successful completion of the Doha Round.
Such a multilateral agreement will bring benefits for the Philippines and the rest of the world, including the poorest countries. No number of bilateral deals would have the same widespread effect or benefits.
For Doha to succeed we need a Round that unlocks the door to development in all areas of the negotiation. We need a proportionate contribution from those players in a position to contribute. We should be ambitious in our goal but realistic in what we can achieve.
Progress has been slow. US Congressional Trade Promotion Authority will run out just over one year from now, which creates a serious deadline for the US negotiator. But we have a window of opportunity to create the momentum that is needed. Many of the parameters are already there. But taking those final steps - and we will all need to take them together - requires a higher level of political will.
What are the lessons of progressive liberalisation for Doha?
What does the principle and experience of progressive liberalisation imply for the Doha Round?
Without for a moment diminishing the heavy responsibilities of the developed world in the Doha talks, we must also focus on the opportunities for South-South trade. Most developing country tariffs on industrial goods are paid to other developing countries. The most protected markets in the world are in the developing world. We will set back global development for a generation or more if we concede the argument that says lowering industrial tariffs should apply only to the developed world.
The world trading system is no longer the preserve of OECD countries. Emerging developing countries like China, Brazil and India and the other growing economies of the G20 are benefiting from the increasingly important role they play in world trade. Together they now represent about 15% of global trade flows and their growth reflects this. That same growth makes them important markets for the exports of middle income developing countries like the Philippines. So it is right that they pay
something into the Round that reflects their growing capacity.
There has been a lot of attention paid to agriculture in this round, and to agricultural liberalisation's apparent role as the motor of development. But here is a striking fact: high tech exports from developing countries have actually increased by 20% per year since 1980, twice as fast as in industrialised countries. Industrial goods make up about three quarters of all developing country exports. The share of trade by developing countries in agricultural products, in contrast, has dropped from
42% in 1970 to just 11% today.
This sends a very clear message. Increasing trade in manufactures must be at the heart of the Doha Round. Yes, the EU clearly has interests in this area, as its highly efficient manufacturing industry has much to gain from wider market access. But developing countries also have a strong interest in more open markets as they use industrialisation to leverage their way out of poverty.
Of course, for some in the developing world agriculture is a huge source of competitiveness. But UNCTAD's analysis - confirmed again and again by experience - is that those Least Developed Countries which consistently do best in terms of growth are those which have moved away from basic commodities and towards manufactured goods.
Another key area of the negotiations for progressive liberalisation is services. Whilst the EU also has strong interests here, the sector is especially vital for development. The World Bank has estimated the potential gains from services liberalisation to be $900m for developing countries, more than four times the benefits from merchandise liberalisation. Why? Because services trade builds the backbone of a growing economy: banks, transport, telecommuncations. It is how businesses import
skills, technology and experience. It is the conduit of foreign investment. Look, for example, at the experience of India.
So a balanced outcome is vital to the overall success in the DDA. Balance between agriculture, industrial goods and services. Balance of special treatment across the spectrum of developing countries. Balance between ambition and realism. In achieving this balance, the coming months will test us all as trade negotiators, with everyone needing to show flexibility and take risks.
The EU and ASEAN
Let me finish by saying a few words about the European Union's trade relations with ASEAN.
When I took office I was struck by the fact that whilst the EU has agreements or on-going negotiations in Africa, the Gulf, certain OECD partners and South America, we have not yet defined strong trade relationships with Asia - the area of most dynamic economic growth. The European Union is the largest market in the world; and an important market for almost every country on the planet that exports. We are the third largest market for almost every country in ASEAN after the US and Japan.
One of my key commitments as EU Trade Commissioner is to help reshape our relations with Asia in a way that reflects the way the region is changing. I am committed to building closer and more durable commercial links, closer cooperation at the multilateral level: a better sense of a shared strategic and bilateral commercial partnership.
That is why, last year, I established with ASEAN colleagues a Vision Group to map out the way forward and test the feasibility of a Free Trade Agreement between the European Union and ASEAN. That group has had fruitful meetings and has presented a very impressive report.
I look forward to discussing the results of the Vision Group with my ASEAN colleagues tomorrow here in Manila. I am confident the work of the Vision Group and the commitment shown by both sides will provide the basis for a closer relationship and for the preparation of concrete next steps.
Conclusion
I've tried today to sketch some of the challenges of globalisation, but also the potential benefits that progressive liberalisation brings with it if we get it right. First we need to top globalisation's potential with a successful, balanced conclusion of the Doha Round.
Beyond Doha, we can build on the multilateral platform by deepening and strengthening our regional agreements. As progressive liberalisers we must also begin to think about how we can build a multilateral system that balances market opening with shared strategies for addressing the social dimension of globalisation. It promises to be exciting, challenging work. I look forward to sharing it with you.
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