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Rt. Hon. Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills, Lord President of the Council
World Trade Week, London, 08 June 2009
Well, these are worrying times in government, Douglas, and I know a recession of this kind is going to have a significant impact on trade.
Indeed, the last time that global trade went backwards this sharply, it was because the global economy was shut down by world war. That’s how serious conditions are.
This should worry us because trade is not just an indicator of the health of the global economy: it is a determinant of it. It is central to global recovery, because it is the way in which returning demand will be multiplied throughout the global economy.
Trade is the conveyor belt of growth and the prosperity it generates. I want to say a bit today about this, but also about how the politics of trade needs to be handled after the credit crunch
We should be glad that with some exceptions, the general guard against protectionism adopted by the G20 leaders, at their summit in London under the Prime Minister’s chairmanship, seems to be working. If this recession is going to produce its version of the protectionist Smoot-Hawley legislation we haven’t seen it yet – although Buy America has those hallmarks, and we should be grateful to the voices in United States’ government and business who have spoken strongly against it, although it has already given unfortunate license to some US firms and some US States.
But this and other examples aside, I suspect that there are a number of reasons for this resistance to protectionism. The first is our supply chains, which are so integrated internationally that protectionism simply isn’t as viable or practical an instrument or a tool as it used to be – one of the dividends of globalisation and global supply chains.
The second is the fact that everyone is watching everyone else, and there is a lot to be said for peer pressure under these circumstances.
But most important is the WTO system itself, which has proved to be an extremely strong legal and normative check on protectionism. Unless a big player consciously steps outside the rules – and let’s face it, that is the nightmare scenario, in which a big player simply says international rules no longer apply to us – then a downward global protectionist spiral remains unlikely. Because no such big player is likely to or showing signs of, taking this step.
At a time when we are focused on the flaws or failings of international governance it’s important to recognise that by accident or design, in the area of trade we have indeed built a system in the WTO that is durable and which works and which must at all costs be protected.
But this is no argument, ladies and gentlemen, for complacency. Maintaining the integrity and openness of the WTO system means constant vigilance, and constant peer review, now more than ever.
So I am pleased to announce today that the British government will co-finance a new independent watchdog called Global Trade Alert that will unite a global network of Think Tanks to provide governments with independent analysis of trade distorting policies, produce evidence of the damage that protectionist policies are doing and advise on the least protectionist ways to provide support and stability to economies making their way through this very challenging downturn.
There are alternative paths and tools and interventions that governments can use – they need to be helped and advised what those are so that we do not have governments deciding, almost by default, to adopt trade-restricting policies.
This will complement and take further the monitoring that the WTO and other bodies are already doing on behalf of the G20.
Globally, in Europe and in the UK this needs to be backed by further practical measures to keep trade flowing.
It’s hard not to put the Doha Round at the top of this list. The fact remains that the DDA would be a huge fiscal stimulus all of its own – perhaps €120billion in gains to the global economy over its implementation period, with large parts of that stimulus benefiting developing countries that cannot afford fiscal stimulus packages of their own.
Because it would lock tariffs at around their current levels, it would be a concrete insurance policy against future protectionism. We need therefore to re-start ministerial negotiations at the earliest opportunity. I am encouraged, in making that call for those ministerial discussions to restart, by the recent elections in India - where you now have a Prime Minister and government less constrained by minority parties, and their coalition now able to speak to the rest of the world more clearly, and to pursue India’s interests into those international negotiations and help bring them to success. I would hope that stronger Indian position would and could be matched by a comparably stronger position and approach taken up by the US administration in Washington.
To this list I would also add the need for continued public action to ensure that the flow of trade credit is sufficient, another area of credit struck by lightening in the banking crisis in the autumn. We’re working on various ways of addressing this in the UK.
Revenue and Customs and the Department of Business are also going to produce an Action Plan containing practical measures to cut complexity and costs of border procedures for traders to be published alongside the Pre-Budget report in the autumn.
And my Department has produced a short guide for business on the assistance my Department can offer to UK business to overcome barriers to trade. It’s called "Trading in the Global Marketplace - How BERR can help". BERR should now read BIS – the Department for Business, Innovation and Skills and a lot more else put in - and it’s available here.
Even before this crisis, the reality was that popular support for globalisation, free trade and open markets was vulnerable – especially in the developed world.
The attitudes in the developed world, the richer countries has always been amongst some, not far below the surface, ‘let’s hoard what we have, let’s not share it with others’ – a completely counterintuitive and counterproductive attitude. Because what we want to do is share the benefits of trade and globalisation and trade with others. That’s how we are going to sell our premium and higher value goods and services to growing populations in the expanding markets around the world.
Often this was little more than special pleading. But it also reflected a more general anxiety about globalisation, the rise of China, the massive scale of global financial flows and who was managing them, and what the consequences would be if they weren’t arranged properly – a sense that these things are removing our control over our own lives.
That they serve the interests of capital and business but not of labour and people. The global rich, rather than the global poor. I don’t have to rehearse the arguments, they are familiar to you.
There is no point in defenders of open trade and open markets – as we are in this country and this government - pretending there is nothing at all to these arguments and that we simply should dismiss them. We’ve got to address people’s concerns directly. That is why we now recognise the need for global governance of financial markets and financial flows. Not suffocating regulation, but appropriate management instead.
It is why the Doha Round was always a development Round, to each according to their needs, with different burdens and expectations from the rich and poor depending on their capabilities.
That is why we need flanking policies like unemployment insurance and training that help people adapt to the rapid economic change that comes with globalisation and open markets.
But open trade didn’t cause the credit crunch. Let’s be absolutely clear about that. It didn’t cause the recession. Trade played a role in the build up of global imbalances because trade was the mechanism by which so many of those US dollars found their way to China. But open trade itself was not the problem.
The key to unwinding those imbalances will be shifts in export and import patterns, so the open trading system will remain an integral part of a healthy global economy.
Open trade remains the single most important way we know of expanding economic opportunity in our country, in Europe, and in the world, and lifting people and societies out of poverty - as global trade has done in every continent around the world in the last 10 years of openness. It remains key to a sustained global recovery from the recession, and key to growing global growth thereafter.
It was Maynard Keynes who said that the mistake free traders often fall into is to defend their case solely on the cheapness of traded goods. Of course people want cheap goods.
But trade is also about open societies and about opportunity: the moment when a small business in Europe realises there is a market for what they make in China or Brazil, or vice versa.
The case for open trade has to be built on the opportunities that come from trade and on the value of open societies over closed ones.
Let me say this to you in conclusion. It is now 70 years since the first national World Trade Week was launched in the US at the height of the Depression. Those seventy years have seen tumbling trade barriers for industrial goods and the creation of a rules based global trading system. And indeed with Doha, agriculture will be able to catch up.
That trading system faces a huge crisis of demand and credit. But the real long term risk to its health lies in protectionism somehow taking on a new veneer of respectability in the current economic crisis. Open trade therefore needs defenders now more than ever.
I believe that in the long view, preserving that openness is one of the key benchmarks by which we will judge political leadership in this crisis. And in World Trade Week, I think that’s a benchmark well our putting up high.
It is the gold standard of how we handle this recession and it will certainly be the benchmark that this government continues to set and to aim for.
