Peter Mandelson
EU Trade Commissioner

Europe's global trading challenge and the future of free trade agreements

Foreign Policy Centre Debate
Brighton, United Kingdom, 26 September 2005

The economic challenge facing Europe is urgent and inescapable. Since the Lisbon agenda was first proclaimed, the growth rate of Europe's productivity has actually declined.

A social model that results in twenty million people unemployed, and tens of millions more of working age inactive, cannot be judged a successful social model.

In most Member states, welfare systems are not insuring citizens against the new risks of modern life, whether single parenthood or mental illness, or doing enough to combat the inequalities of social inheritance or helping those without trade union membership in new labour market conditions. So, we need a better, more effective social model, not the abandonment of it.

We all know about the future challenge from China and India.

Those who interpret this challenge as a race to the bottom based on low wages, have got it wrong, or at least substantially wrong. The staggering thing about Asia is the appetite for education, the outpouring of graduates often in computer science and engineering, and determination to develop their own research base.

The issue for Europe is a race to the top, as a race to the bottom. In truth it's a question of not trying to compete where we can't - but making sure we succeed where we can as a provider of top quality, highly specialised goods and services in a knowledge based economy.

Europe cannot hide away from what is happening to our world. Sheltering ourselves from change is not an option. It would cut European industry off from the world economy just at the moment when the parameters of international competition are being transformed.

If we did manage to put some sort of protective wall in place do people seriously think that companies would be under the same pressure to innovate and raise their competitiveness behind this wall?

For industry, the challenge is perpetual adaptation, perpetual modernisation. That is the reality of the world economy in which we live.

Nor have we in Europe, America or Japan the moral right to think that the world owes us a living. It doesn't.

Developing countries have every right to exploit the legitimate comparative advantages they have. It is in this decade that the world is finally leaving the legacy of colonialism behind where Europe was able to shape the global pattern of production to suit its own interests. No more, I am afraid. Actually, I'm not afraid - I think it's right.

Of course in our trade policies we should press the case for core labour standards and greater environmental responsibility around the world. But we must be careful that these issues are not interpreted by the developing world as a cover for disguised protectionism.

The realities of globalisation should not push us into a state of pessimism about Europe's future. There is a clear reform strategy for the European economy: opening markets to drive productivity and innovation; investing in science, education and research to give us the capabilities to compete; and reforming labour markets and welfare states to get people into jobs, improve employability and skills, and extend opportunity to those whom economic developments are leaving behind.

The problem frankly is not in setting out the strategy. The problem is in delivering it.

And this is why the debate on the Future of the European Social Model is so important.

I know where I stand on Europe's values. If Europe's approach were one where we allowed globalisation simply to wash over us and our only response was to leave people to sink or swim, then Europe would have ceased to be Europe and we would betray the values of social cohesion, and responsibility for each other, that are our heritage and our strength.

But if we reform our social models rather than abandon them; if we borrow best practice from each of our Member States, we can make globalisation work for all our citizens.

This means a recognition that globalisation left to its own devices will cause severe problems for the low skilled and low paid - and will increase inequalities.

What our Member States need to build is a modern and empowering Welfare State that equips all our citizens for a new economic world and offers effective help with adjustment, when future trade shocks destroy once secure jobs as undoubtedly they will.

It is about these questions that Europe urgently needs to establish a new consensus and Member States need to find new ways of acting together with a common determination to secure reform.

My job as Trade Commissioner is to deliver on that first pillar of our Lisbon strategy by creating more open markets in Europe.

In truth we are pretty open already. The data suggest that, even with the CAP, the EU is already the most open major economy in the world - more open than the United States, which some critics of Europe misleadingly hold out as the exemplar of free trade and economic liberalism.

The question is: can we be more open still? I think yes: we still must seek to eliminate further or reduce our own tariff and non-tariff barriers in the context of a successful outcome to the Doha round.

The clock is ticking for the Hong Kong Ministerial in ten weeks time.

I am in no doubt that the Doha Development Agenda must live up to its name and that must include a strong component of agricultural liberalisation throughout the developed world. But my Member States will simply not accept further first moves from the EU which are pocketed without parallel moves by others.

Doha has also to secure better access for European suppliers of goods and services in a world where new markets are growing at a speed no one would have anticipated ten years ago.

What is crucial for Europe is progress in lowering tariffs elsewhere in the world and improving market access for European providers of Services.

At present Europe's overall trading position remains strong. What we cannot afford to do is stand still. Our position is under constant threat. In high-technology products the EU is losing ground. We are less well placed in rapidly growing markets, such as Asia.

My challenge as Trade Commissioner is to improve market access for European exporters of goods and services. Tariffs are still a huge problem for us in some markets, especially in the advanced developing countries. But non-tariff barriers are the problem of the future: norms and standards - checked in triplicate, procurement "rules" such as local content requirements and restrictions on competition. WTO incompatible intellectual property rights legislation is often the biggest impediment to market access.

The DDA remains my number one priority because the multilateral rules-based system under the WTO is the most effective and legitimate means of managing and expanding trade relations. Yet, in recent years, there has been a clear surge in bilateral and regional trade negotiations.

The EU has to address this challenge. I am not against free trade agreements (FTAs) as such as long as they complement rather than substitute for multilateral approaches.

Regional agreements and the multilateral WTO approach can offer different and mutually supportive means to achieve similar goals: progressive improvements of trading conditions, based on clear and fair rules, to promote growth, employment and sustainable development for all countries involved. They can build upon WTO rules and its framework by going further and faster in promoting openness and integration than is sometimes possible at the multilateral level. And there is a clear downside to standing on the sidelines while others scoop the markets.

So we will continue to pursue vigorously our current agenda of FTA negotiations with a number of regional groups, such as Mercosur and the GCC. We will pursue the possibility of FTAs with ASEAN, the Andeans, and the Central Americans. And once they are in the WTO, we will deepen our relationships with Russia and the Ukraine.

What is the market access agenda we need to pursue bilaterally as well as multilaterally.

First, we desperately need better recognition of Intellectual property rights (IPRs) and an improved IPR enforcement.  This is key to Europe's position in the knowledge economy.

Next, we need to bring down investment barriers in the same way that we target trade barriers.

Thirdly, public procurement has been a key part of the EU's single market programme. But third country bidders ride freely on the far-reaching liberalisation of the Community procurement markets by contrast to the access of EU companies to procurement markets elsewhere. We need political leverage to reverse this.

Finally for reasons of both morality and long term self interest we have to conquer poverty in the poorest developing countries and create new markets where hardly any exist. The EU has a good record here.

With Everything But Arms we have opened up our markets to completely tariff and quota free access for everything from LDCs: we want other developed countries, including the US to follow suit.

Secondly Europe is doing more than anyone else to offer aid for trade. To improve capacity to trade that the poorest countries need so that they can progressively integrate themselves, at their own pace and according to their own progress, into the world trading system.

In the case of the ACP countries I am a strong supporter of Economic Partnership Agreements ( EPAs). These are not classic free trade agreements where both sides make equal concessions: we have no agenda of liberalisation what we want to force on the poorest ACP countries. Rather they are development tools that will lead in time to the growth of regional markets and trade with the EU.

The European economy stands or falls on our ability to keep markets open, to open new markets, and to develop new areas where Europe's inventors, investors, entrepreneurs can trade. We should pursue this objective by every means we can.