European Trade Commissioner: Trade Must Keep Up With Economic Developments - Global Trade Magazine
  October 1st, 2015 | Written by

European Trade Commissioner: Trade Must Keep Up With Economic Developments

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  • The task of trade policy cannot be to maximize exports and minimize imports.
  • Find ways to support those who lose out from trade but don’t hold back benefits from society as a whole.
  • Economic integration means trade policy can be used politically against those that don’t follow norms.

The world finds itself at a peak of international economic integration with trade flows of goods and services equivalent to about a third of world output.

But the world is also changing, noted Cecilia Malmström, the European Commissioner for Trade, in a speech earlier this week in New York, “creating two major new challenges that demand new responses from trade policy makers.”

The first challenge is to keep up with economic developments. Trade is not just about finished products anymore, Malmström said. “Trade and investment are part of the production process itself,” she added. “And the most successful economies are those that connect to the global value chains that result from that. In this paradigm, the task of trade policy cannot be to maximize exports and minimize imports.”

The second challenge to trade policy is about legitimacy. “Concerns are partly based on traditional protectionist fear of international competition,” said Malmström. “We do need to find better ways to support those who lose out from trade. But that cannot mean holding back benefits from society as a whole.”

Trade negotiations today are complex; they involve a much broader range of issues than taxes on imports at the border. “We live in societies governed by complex regulation to protect things like the environment, public health, or consumer safety,” said Malmström. “These policies are vital. But they do have an impact on trade flows. So to be effective, today’s trade deals must look at ways to make public policies like these more compatible with each other. That, however, creates a concern that standards may end up being lowered.”

Other trade concerns include the poor conditions for workers and the environmental footprint of exports. Consumers want to “make sure that trade policy supports sustainable development and human rights, rather than representing a race to the bottom,” said Malmström.

Free trade benefits humanity by allowing individuals to make as many economic decisions themselves as possible. “We are better off because consumers can choose between the best products in the world at the best prices,” said Malmström. “We are better off because companies can use imported components to become more efficient – meaning they can creating more jobs at home over time. And we are better off because trade brings innovation.”

The first response to the challenges facing trade policy, according to Malmström, “must be to continue to open markets and ensure that they remain open for the mutual benefit of people around the world. Transparency allows us to show that new economic opportunities don’t have to be at the expense of high quality regulation.”

Malmström’s second response is to raft trade policy to support the economic development of poorer countries. “One of the best things that developed economies can do is open their markets to imports from developing counties,” she said. “The EU is the world largest importer of products from the poorest countries in the world.

“Opening markets to imports works for developing countries too,” Malmström added. “Cheaper imports benefit the poor the most. And the Asian economic miracles tell us that integrating into global value chains via open trade can deliver spectacular results.”

Trade policy can also support principles like human rights, labor rights and environmental protection, according to Malmström. In a nutshell, greater levels of economic integration means countries can use trade policy as a political weapon against those that don’t follow international norms.