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Globalisation and China - Future of Trade Policy

The Rt. Hon. Alistair Darling MP,  Former Secretary of State for Trade and Industry
Renmin University, Beijing,  28 November 2006

I welcome the opportunity to speak to you about trade policy today.

And also to emphasise my belief that global co-operation is not just essential to break down trade barriers, but also to work together to ensure economic gain in a way that meets our obligation to tackle climate change.

Globalisation is reshaping the world’s economic map. I hope that China and the UK - both in their own right and working together - should take a lead to underpin the global trading systems on which our prosperity depends.

I particularly welcome the opportunity to speak to you. You will be making choices and representing China in the years to come, when its influence on the world economy will be immense.

It is a huge responsibility and a huge opportunity.

First, I’d like to set out the context that trade policy operates in.

2006 is a time of flux for both China and the UK. We face economic and social changes that are global in scope, and unprecedented in pace, bringing opportunity and challenge.

The global economy has undergone radical change over the last fifty years. But the last decade has seen the most major economic change since the time of the Industrial Revolution in nineteenth century Europe.

China’s share of the global economy which was 6.8% in 1980 is expected to grow to 19.4% by 2020- that’s in the space of 40 years!

Communications and Transport links have helped to ensure that this change continues to be is rapid and dramatic.

Increasingly we are working, producing and consuming across national borders.

The lives of communities and individuals all across the world are ever more interlinked.

The international flow of trade increased twenty-fold over the second half of the last century. And we are trading in new ways.

Many developing countries have built up their manufacturing and are now the world’s major source for many key products.

China produces 80% of the world’s photocopiers, 60% of cameras, and 50% of textiles. At wages that are a fraction of those in Europe and the United States.

At the same time, new technologies mean companies can now procure the services they need – whether banking, insurance, or business support operations – from the other side of the world.

And new patterns of investment have boosted growth and created jobs. The global stock of foreign direct investment – that is, the total amount of capital invested in foreign countries –is five times greater today than it was in 1990 – just 16 years ago.

This means that as never before, the challenges that we face today are global challenges, requiring global solutions.

Such as how to ensure a competitive economy, with wealth and jobs for all, while securing the future of the environment in which we all live.

How to guarantee a steady and affordable energy supply, while cutting the emissions that threaten our climate and economic security.

And – crucially - how to manage the uncertainty and tensions of globalisation. To make the right decisions that consolidate the open and fair international markets on which all our prosperity depends.

Some countries have responded to fears around energy security by taking actions that prevent competitive markets from operating freely.

Demand for energy is growing in emerging market economies such as China. And it is therefore only natural that their companies are expanding their activities in the global energy sector.

Britain has no objections to any country, or company, investing in overseas resources - competition is, generally, a good thing.

But such agreements need to be transparent and in line with market conditions and practices.

Meeting the global challenges of energy and climate security depends on allowing markets to function efficiently.

Attempts to secure access to finite natural resources outside the market framework will ultimately drive energy insecurity.

And lead to increased tensions between states.

We need to work together at a global level and China is a key player.

The Changes

I now want to talk about how I believe we should respond to the huge changes we are now seeing across the world.

We have a choice.

To try and turn away from what is happening, to erect barriers in an attempt to shield ourselves from change.

Or to embrace change. We have an opportunity to show how globalisation can bring new jobs and increasing prosperity for our people provided we make the right choices.

We also know that there are global threats that demand a global response and climate change is a prime example.

Today we can hear people argue that you can deal with economic changes by sheltering from it, erecting trade barriers, retreating from what is going on around the world. They are wrong. It is to the advantage of both Britain and China that we trade freely.

And we hear people argue that you have to choose between economic growth or tackling climate change. The truth is that is a false premise. Climate change and economic growth are inextricably linked.

Trade starts with bilateral links.

Of course the UK and China enjoy a cooperative bilateral relationship in a range of key areas.

Energy. The Near Zero Emissions Coal project that was announced at the EU-China Summit in September 2005. Its aim is to develop and demonstrate in China and the EU advanced, near-zero emissions coal technology through carbon capture and storage.

The European Union has pledged €1.6 M and the UK have pledged €5 M (£3.5M) for phase 1 of the project and we are working with other EU member states to arrange the financing of the demonstration plant construction.

Science and innovation. We will soon be opening the first international UK Research Council office in Beijing.

Education. More students come to study in the UK from China – some 50,000 - than from any other country.

But this visit has shown me in detail the practical benefits of the trade and investment relationship between China and the UK.

From banking, to petrochemicals, to retail. International names such as Shell, BP, Rolls Royce.

I am delighted at our strong relationship. We need to do more to build on it. My discussions with Bo Xilai, and the meetings between UK and Chinese business delegations, will, I hope, lay the groundwork for many more projects in future.

But if our bilateral collaboration is to develop and thrive, there must also be an international consensus to take forward further trade liberalisation, further developing the open and fair markets that underpin our prosperity. We have a tremendous opportunity and responsibility especially to the developing world.

Just as there is a need to tackle the growing problem of climate change. Today, I want to emphasise the importance of that challenge and also the need to keep on the pro-development track and as part of the current world trade talks.

The Stern Review published this summer robustly sets out the economic case for bold and early action on climate change.

Climate change is a global challenge that demands a global solution. We are at a crossroads. Either we tackle climate change internationally, or we will not tackle it at all.

The costs of inaction in the future will be far greater than tackling climate change now.

Unless we take steps now, climate change will severely effect the global economy, human life and the environment. Some of the most severe impacts will be felt by people in the poorest countries, who are less able to adapt.

It is not too late to take action to avoid the worst impacts of climate change. But in this global era we need more than the right policies. We need the political will to build new arrangements for our time.

Environmental policy has to be economic policy.

And Governments need to set clear, credible and long-term incentives. Then business and individuals can respond to this leadership and make changes in their lives.

This is a challenging time for international trade policy. In Europe and the US, some politicians are calling for protectionist measures – the wrong response to the many changes we see before us.

Those measures have taken different forms.

Attempts to make cross-border takeovers in sensitive sectors more difficult.


Vocal opposition to takeovers in sectors such as steel, energy and banking.

Moves to protect so-called “national champions”.

And in some countries, we have seen populist responses playing on protectionist sentiment to bolster their own standing.

It is understandable that some in developed countries are apprehensive. Globalisation means change. It means our industries must develop, and with them our workforce. People need to learn new skills. Adapt to new jobs.

That change can bring insecurity, and nostalgia for the old perceived certainties.

That is why politicians and global business leaders need to take a lead in showing the benefits of globalisation. We must come together to stop the profound mistake that a retreat into protectionism would represent.

It’s an argument we must win. Because retreating behind national borders and shutting the gate is no way to deal with globalisation. It is a dangerous and ultimately ineffective option.

We saw in Europe in the 1930s the kind of economic chaos and hardship it can generate. Just as opening the global market has driven the prosperity of the last decade, so a return to protectionism would have global consequences. Lower growth, fewer jobs created, millions in developing countries remaining trapped in a cycle of poverty and despair.

And as this audience will well know, evidence shows overwhelmingly that countries derive economic benefits from bringing down tariffs and barriers. It’s good for Britain. It’s good for China.

Because open markets increase competition, lowering prices for domestic consumers and business producers alike. Cheaper goods coming from factories and on to shop shelves.

Because competitively-priced imports help raise living standards – especially for our poorer and more vulnerable communities. And because they help keep inflation and interest rates down.

Some see protectionism a way to create or nurture “national champions.” But the irony is that ultimately, it cannot.

In the long term, firms that are sheltered by protectionism have little incentive to innovate, and can become stagnant – with little hope of competing effectively in the global market.

So we need to have confidence in our ability to face the challenges head-on, and to make globalisation an engine for economic growth that benefits developed and developing countries alike. Provided we make the right choices. Globalisation can bring massive benefits to our country and to our peoples.

First and foremost, this means working to support the multilateral trading system, and its centrepiece, the World Trade Organisation.

Multilateral trade rules, helping to bring down tariffs and barriers worldwide, offer the best way to boost the world economy.

And the World Trade Organisation – with its one hundred and fifty member countries each having a voice, a vote, and a veto – offers the forum to achieve this.

The multilateral system can bring significant benefits to individual countries. A World Bank report estimated that China has benefited from World Trade Organsation membership on the scale of tens of billions of dollars each year.

More widely, globalisation and openness to trade have helped China to grow at around 9% each year for the part quarter-century, lifting over 450 million out of poverty, and opening up doors for Chinese entrepreneurs.

It is right, then, that China take a lead in promoting the multilateral system.

As the world’s fourth largest economy, and third largest exporter, with unrivalled manufacturing might and a long diplomatic reach, it is well equipped to do so.

China could and should play an important role in unlocking progress in the Doha Development Agenda which will make world trade fairer as well as freer.

The Doha Development Agenda remains the UK’s top priority, and the top priority of our fellow EU Member States. It offers great potential for the world economy.

The opportunity to build on the previous trade rounds that did much to spur the global economy and boost development.

A successful conclusion to these negotiations will be an essential part of helping us show that globalisation can deliver benefits for everyone.

Since the talks began in 2001, progress has been slow. Talks in 2003 broke down over agricultural subsidies. A year ago in Hong Kong we saw welcome progress on some issues - including aid for trade and a development package – but did not achieve agreement on the key areas of agriculture, industrial goods and services.

Then, in July 2006, the negotiations were suspended.

Although the suspension was undesirable, it provided the opportunity for a period of reflection.

This has led, at least in some quarters, to the realisation of what is at stake in these negotiations and what the risks of failure are.

Others say that we can do more for developing countries by giving up on the WTO and looking instead to regional trade agreements.

I disagree with both suggestions. Putting our head in the sand won’t make difficult issues go away. And the World Trade Organisation, uniquely, gives every member a voice, a vote and a veto.

No regional or bilateral deals offer developing countries the same kind of negotiating status – nor do they offer the same potential economic benefits.

We’ve got to confront protectionism.

We need to see a final deal with a good package on aid for trade and trade facilitation – helping developing countries build the skills and infrastructure to benefit form a freer trading system, and making bureaucratic trade procedures simpler and more effective. And explain that growing wealth is good.

Put simply, the failure to conclude the Doha Development Agenda would mean tens of billions of dollars of global economic growth forgone.

And a missed opportunity to create a more free and fair world trading system that could contribute to achieving the Millennium Development Goals by helping lift millions of people out of poverty.

We have seen in recent weeks a clear signal from many WTO members that they wish to restart the DDA negotiations. Informal discussions have begun again in Geneva, discussions that could pave the way for a formal resumption of negotiations at an early stage.

Both the UK and the EU are committed to making every effort to seize this opportunity. China should do the same.

We can achieve a deal that delivers for the world’s poorest as well as the global economy. It’s too easy to talk of what countries may lose. We’ve got to focus on what can be won.

We need China to play its part by working with other World Trade Organisation members to lay the foundations for a concerted move to restart the DDA negotiations and to bring these to a successful conclusion.

This will require political will and flexibility. But we must remember what is at stake if we do not succeed.

With China’s growth and economic power, it is right, too, that it take on other serious responsibilities towards its trading partners.

China is already ahead of other emerging economies in opening its markets to trade. But China is also a major economic power.

So it is important that China’s markets operate openly and transparently, with effective and fair regulation. This means fulfilling WTO commitments to liberalise trade in services and investment. Providing a level playing field for foreign companies must underpin a successful future for inward investment in China.

It is important, too, that robust action is taken against the infringement of intellectual property rights. Knowledge is the driving force behind economic development in an ever-growing number of countries and sectors.

I was pleased to here Chairman Jia’s assurance that China would take more effective steps to protect the IPR of UK companies. That’s essential not just to us but as a clear statement of intent and action to EU member states.

Stronger IPR enforcement will bring benefits at home, too, for the increasing number of Chinese firms for whom intellectual property is the key to prosperity.

It is right that the new Partnership and Cooperation Agreement to be negotiated between the European Union and China should include a specific focus on these issues.

And it is also right that Europe, for its part, ensure that it reacts to Chinese competition in a measured and fair way.

Europe must make the changes necessary to compete successfully in a global market. Free and fair trade must be a two-way process.

The UK, the EU and China need to ensure that their trading arrangements as a whole are fully consistent with their role as global players

Alongside the multilateral system, it is clear that bilateral and regional trade agreements are going to be a key part of the trade landscape. China has negotiated agreements with Pakistan, Thailand and Chile.

The European Union has been in negotiations with a number of countries – in some cases for many years - and is considering starting further negotiations.

The UK is clear that bilateral or regional trade agreements must complement the multilateral system. They must be building blocks for multilateral liberalisation, not stumbling blocks.

They must create trade, and not divert it. They must support sustainable trade that works to the benefit of developing countries. And they must be transparent.

These are simple propositions. But the question of how to ensure that bilateral and regional agreements complement the multilateral system is not so simple.

Some of these issues have been discussed as part of the Doha negotiations. Indeed, the very negotiating mandate for the DDA recognises the case for tackling them.

Discussion so far has produced results. All sides have agreed to rules setting out what information states should provide to the World Trade Organisation, when they should provide it, and how, as they pursue Regional Trade Agreements.

However a good deal more needs to be done while key questions remain to be answered.

Such as whether we need a tighter definition of what regional trade agreements must have in them – and what they must not.

Whether there is a role for the World Trade Organisation secretariat in providing guidance or enforcement.

We need to get these tasks going – and we need it now.

Conclusion

It must be together that we confront and overcome these challenges.
We want to see economic growth and to achieve that in a sustainable. We need to work together.

Working with each other as partners, and in cooperation with the rest of the world.

Not fearing globalisation as a threat, but seizing it as an opportunity for all to reap rewards.