Seminar transatlantic perspectives_for_global_economic_recovery_november_30


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Seminar transatlantic perspectives_for_global_economic_recovery_november_30

  1. 1. TRANSATLANTI C PERSPECTI VES FO R GLOBAL ECONO MIC RECO VERYIn search of congruence in t rade interests and export promotion policiesSeminar at Embassy of the Netherlands | November 30, 2010New perspectivesDuring a one day seminar at the Embassy of the Netherlands, top researchers fromthe US and the EU, accompanied by a select number of government representativesfrom both sides of the Atlantic, and high-ranked economists from several globalinstitutions, came together to discuss congruence of trade interests between botheconomic giants. Main objective of this high level Chatham House Rule seminar wasto find areas where trade liberalization (both transatlantically and globally) wouldgenerate gains for export and welfare growth that are comparable and mutuallybeneficial for both the EU and US. In combining and comparing existing empiricalresearch on export growth in a comparative study, different sets of policy measureswere ranked according to their influence on export and economic growth, thusproviding insight into common interests. This study will be updated on the basis ofthe discussions during the seminar, and will be made available early 2011. Theseminar, co-sponsored by the Embassy of Belgium, provided a unique opportunityfor frank discussion on transatlantic trade interests, and the concrete possibilitiesfor strengthening these. These possibilities for follow-up – most likely in the area oftrade in services – will be the topic of a high level policy conference in the firsthalf of 2011.The enduring importance of the transatlantic economic relationThe economic relationship between the EU and US is still by far the largest andmost integrated in the world. This is the case for trade in goods (20% of worldexports), but even more so for services (33% of world exports) and especially forinvestment (68% of outward stocks). The combined GDP of the EU and the US addsup to 54% of global demand. Looking ahead, this relative significance will decrease,as GDP and population sizes will increase in emerging markets. Already the share ofthe US as a destination for EU exports has diminished, even though the EU is still asimportant for US exports as a decade ago.However, certainly in the coming decade, the US and the EU will remain eachothers most important trade and investment partners and the largest players in theglobal economy. Many participants felt that currently the EU and US do not exploitall opportunities of this interrelated trade and investment relation, for instance inthe service market, due to an apparent inability to translate potentially win winsinto concrete action. Although China may already have become the favoritemetaphor in the political debate on trade (and China is the emerging market parexcellence that will gain in importance as a destination for US and EU exports), thisshould not eclipse policy makers from the reality that the next 10 years will bepredominantly another Atlantic decade in trade and investment. Efforts tostrengthen global trade and investment will therefore certainly benefit from atransatlantic perspective, and given window of opportunity to do so will not beendless given the transformations of global trade and investment.Transatlantic interests in liberalizing global trade
  2. 2. The EU and the US have a clear shared interest in liberalizing global trade. Bothtrading blocks would benefit substantially from a further liberalization of globaltrade, in particular when this would also include IPRs, public procurement andexchange rate policies. The urgency for the US – with its falling share in worldtrade and fundamental ambition of redressing its economic imbalances with astronger focus on foreign demand through export growth – in this is probably atleast as big as for the EU. During the discussion, the differences in the politicaleconomy regarding trade in the EU and US played an important role, in particularhow (temporary) ‘losers’ of liberalization could be included through redistributionmechanisms. A clear ‘private sector buy in’ (currently lacking for the DDA) inliberalization is essential for a favorable political economy towards liberalization.On the other hand, the growth of FDI and intra-firm trade potentially reducepolitical economic obstacles to liberalization.The EU and the US will benefit from a conclusion of the DDA, although severalspeakers underlined that the current state of the negotiations brings less thanoptimal (and, as put forward by some participants, in the case of the US,acceptable) benefits for both. In NAMA, procurement and services, more marketaccess by emerging economies would be beneficial for both the US and the EU. Inagriculture the issues at stake for the US and EU are in many respects comparable,whereas in some (potential) sectorals – such as financial services, telecom,cosmetics, environmental goods – some participants esteemed that win-winscenarios between the US and EU exist.Given the number of participants and the increased complexity of the round, itslong duration is not necessarily surprising or worrying, compared to previousrounds. However, several participants stressed that the standstill in negotiations(and particularly a potential failure of the DDA) will harm both the US and the EUsubstantially. Broad consensus existed that the DDA suffers from a problem in itsinitial (too limited) scope and design. From this perspective, the paramountquestion is how the fundamental relevance of DDA can be strengthened withoutderailing the current negotiations. ‘Rethinking the model’ whilst at the same timerealizing progress for many participants on the basis of the existing state ofnegotiations is in the interest of both the EU and the US. This would require arenewed focus on services, next to NAMA and agriculture, leading to the importantquestion of how to structure the negotiations on services in the current round.Some argued that realizing significantly better market access for the pooresteconomies is not a significant obstacle for concluding the round. Overall,participants esteemed that concluding the DDA was of strong strategic importancefor both the EU and US.Liberalizing the transatlantic market?A transatlantic free trade agreement…Between the transatlantic economies, substantial benefits are possible byeliminating tariffs (TAFTA) and by reducing non-tariff measures (NTMs). Thesebenefits on trade and investment for the EU and the US in some cases (for instancethe open skies agreement) surpass the expected benefits of the current DDAnegotiations. Although remaining tariffs are low, given the large volumes of tradecost savings through tariff reductions could be considerable. The US Chamber
  3. 3. recently launched an initiative to introduce a zero tariff on traded goods betweenthe EU and the US. Some participants warned for possible trade diversion due to aTAFTA, although others argued that the current low level of tariffs makes diversionof trade less likely.The gradual decline in the nearby future of the transatlantic relation as the focalpoint in global trade and investment would indicate that the relevance of TAFTA(and transatlantic NTM reduction) would probably be greater in the short term. Inthis respect, it was suggested that if sufficient political leadership was present, aTAFTA could be realized in a relatively short time span (possibly a year). However,another participant argued that both the US and the EU trade administrationscurrently would simply not have the capacity to work on TAFTA. Whilst someparticipants warned against the implications for multilateral trade negotiations ifthe EU and the US were to embark on a TAFTA, others argued that this actuallywould provide a useful signal towards emerging markets that they should offermore market access.…NTM reduction…The benefits of eliminating/harmonizing NTMs between the US and EU arepotentially considerably higher than that of TAFTA. Apart from the existing lowlevel of tariffs, the reason for this is that services (a ‘sleeping giant’) andinvestment constitute the backbone of the transatlantic economic relationship, andthat NTMs – more than tariffs – stand in the way for these. Revealed comparativeadvantage of the EU and the US in services would also make this a less likely areafor trade diversion. Also, with productivity increases in the US (as compared toEurope) being concentrated in services, a larger services market could beimportant for future US and EU growth. One participant argued that the success ofthe NEI was critically dependent on a robust investment agreement with Europe. Atransatlantic approach to NTMs would not just allow for benefits by economies ofscale between the EU and the US, but also contribute to global standard settingand the future competitiveness of US and European firms on global markets.The critical factor for NTM reduction is ‘actionability’, i.e. the question to whatextent harmonizing/eliminating NTMs is technically and practically feasible. Someesteemed that 50% of NTMs could indeed be reduced, whereas others argued thatthis percentage was probably too optimistic. In any case, convergence of NTMs inindustries where standards and regulatory frameworks are still in its infancy isprobably more actionable than elsewhere, an issue that the TEC agenda is clearlyaware of. Also, several participants stressed the importance of better cooperationbetween the trade policy community, and legislative/regulatory communities inthe EU and the US, both in the effort of reducing NTMs and in setting up newregulation.…or the current course?Participants also discussed if there is currently leeway for taking further steps instrengthening transatlantic trade and investment. The renewed TEC perspective onregulatory issues was seen as a step in the right direction, although manyparticipants expressed worry that small but complicated issues such as chlorinechicken would continue to dominate the agenda. Whereas for NTMs the agendawould probably be to fill a productive pipeline with concrete steps towards
  4. 4. regulatory convergence, momentum for TAFTA could come from joint US and EUcommitment to issue an official study as to its effects.Export (or better: trade) promotion: a shared interestExport promotion constitutes an increasingly popular instrument for governmentsto stimulate exports and economic growth in both the US and EU. There was astrong consensus among the participants that a focus on export promotion risks tohave serious economic flaws, both in terms of its goals (not just exports, but tradeincluding imports and ultimately welfare growth) and instrumentation (as inindustrial policy there is the risk that policy makers are over ambitious and gobeyond what close analysis of market failure would suggest). On a macro level, thefact that export growth presupposes the presence of international demand was alsobrought up as a warning for overzealous public export promoters. Althoughempirical studies on trade promotion are rare, a compelling agenda is present toreduce framework barriers to international trade for instance in business services.Also, a meta analysis of a large number of studies on economic diplomacy indicatesthat in many cases this has a significantly positive effect on export, and even moreso on imports and welfare growth. Finally, there is clear evidence that tradefacilitation has positive effects on welfare and trade.From a practitioner’s perspective it was argued that frequently the promotion ofexports, in particular for SMEs, has its basis in information asymmetries wheregovernments can play a useful role. Over the whole, the session indicated that theEU and the US instead of being competitors in the promotion of their exports inreality often have parallel interests in promoting trade, through mutual learning,realizing market access in third markets and most of all in realizing a moreefficient allocation of production through both exports as well as imports growth.ConclusionsOverall, the conclusions of the seminar were:• There is strong congruence of interests between the US in liberalizing global and transatlantic trade and investment;• Given the shared interest in concluding the DDA, the US and EU have a joint interest in strengthening the inclusion and commitment of the emerging markets in the world trading system.• The importance and benefits of strengthening the transatlantic trade and investment relation should be carefully weighed against the potential negative impact this may have on the above.• Both globally and transatlantically, services would probably provide the domain where a joint EU and US agenda would be most successful.One participant summarized what it takes to concretely bring joint US and EUinterests further: i) common definitions of challenges, ii) a shared sense of corporate interests, iii) a vision of partnership in implementation, and iv) a shared political economic outlook.Whereas for all three topics discussed congruence of interests takes a partlydifferent shape, in all three areas stronger cooperation in the area of services wascertainly a common denominator that could be further explored for the intendedconference in 2011.