Delegation of the European Union to China

"Refreshing Transatlantic Trade Relations": Keynote Address by Commissioner Phil Hogan at CSIS

16/01/2020 - 17:13
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Introduction

Ladies and gentlemen, thank you for your warm welcome and happy new year! I am very pleased to be here with you this morning.

This is the first of what I expect will be many visits to Washington as European Trade Commissioner. Of course as an Irishman I feel very much at home in America so this is certainly one of the perks of the job.

I had a very busy day yesterday and Tuesday, meeting members of the Administration, senators and members of the House.

These meetings were in the main both positive and productive. They confirmed that there are powerful and influential voices on both sides of the Atlantic calling for political leadership to refresh, recalibrate and generally reclaim the shared trade agenda of the EU and US in the coming months.

If we go about this in the right way, working together, the mutual benefits can be very significant. However, if we fail to do so, the damage will be significant, not alone for us both, but for the world we have built together.

We are entering this decade at a pivotal moment in time, and we are faced with profound challenges, many of which are totally new.  It is crucial that we make the right choices at every fork in the road from this point on.

And the choice above all, is this: either we cooperate and shape the response to these challenges together, or these challenges shape, divide and diminish us.

Transatlantic Relationship

Ladies and gentlemen, you are all familiar with our rich shared history of global leadership, in the trade arena but in many other areas as well.

The US and the EU are each other’s most important partner, and we have for decades shared an international outlook and values rooted in our intertwined history. Together, we shaped the global trading system and the multilateral institutions that govern it.

This allowed us to build an economic partnership that has become the most significant commercial artery in the world. Together, we form the largest and wealthiest global market, with overall trade in goods and services worth over 1.3 trillion annually.

Working together, we have been the engine of sustained global prosperity for many decades.

But the sands of global trade are shifting. The last decade in particular has seen fundamental shifts.

Trade politics is no longer exclusively about trade policy. It is often a proxy for security, technology, geopolitics and more. In particular, trade has become a tool in the global struggle for technological supremacy.

Other, more general mega-trends have accelerated at a rate of knots, such as:

Digitalisation and technological advances;
The rise of China;
Climate change;
Global demographic shifts;
And a recognition of the impact of international trade on workers and farmers.
The combined weight of these changes means we are now experiencing a high-pressure crisis moment for the international trading system.

However, diamonds are made under pressure. The EU is treating this as an opportunity to crystallise our priorities – and to assert them on the world stage. I sincerely hope that the US is thinking along the same lines.

We in Europe are not going to retreat into our shell at this critical juncture in international relations. We are very much open for business, and we believe in the opportunity of openness. New European Commission President Ursula von der Leyen is taking a strong geopolitical approach to all our policy work.

And she has given a clear commitment that we need a positive, balanced and mutually beneficial trading partnership with the United States.

I would like to elaborate on how we can move a little faster in that direction.

Trade deficit

First of all, in the interest of transparency and fair play we need to measure our trade relationship with the right metrics. We must call out the narrative that the US has a trade deficit or an unfair trading relationship with Europe.

In reality, the relationship is both balanced and highly mutually beneficial. This cannot be stated enough – the facts are clear.

Our tariffs are very similar. On industrial tariffs, our weighted average applied tariff is 1.4%, while the US tariff on the EU is 1.6%. The inclusion of agriculture changes the picture only slightly: the EU weighted average on all US imports stands at 3%, while the US tariff on EU imports stands at 2.4%.

The modern economy thrives on goods, services and investment, and each of these creates jobs and salaries for American workers.

The US is a services-led economy, in fact the US is the global services powerhouse.

American services exports to the EU amounted to $256 billion in 2018, with a surplus of $60 billion, all of it strongly supporting jobs and wealth right here in the US.

On top of that, American companies in Europe send back $123 billion dollars to the US every year.

Transatlantic trade in goods and services is worth over 3 billion dollars per day. Sounds like a fairly healthy relationship to me!

Mutual investment is another pillar of the transatlantic economy. In the last decade alone, the EU attracted over 58% of total US foreign investment. US companies freely choose to invest more in the EU than in all other markets combined.

This is a highly profitable enterprise for American companies, who have an investment stock of $3.6 trillion in Europe.

Of course, this also applies in the other direction: 60% of foreign investment in the US comes from Europe. It should be noted too that 66% of all EU imports are required for further production in the US, which means more job for Americans.

So why put tariffs on these EU products to make them more expensive for your people!

We can say beyond any doubt that the transatlantic economic relationship is a balanced one, a multi-layered one, and above all one that is very beneficial to both sides. These are important facts that should be fostered and strengthened.

The EU is a free and open market, offering a level-playing field to US companies. Other partners do not do so. Transatlantic supply chains allow companies in the EU and US to operate more efficiently, and secure millions of jobs on both sides of the Atlantic: 16 million at last count.

No other market is as free and open for US businesses as the EU. Where else are you as welcome?

I might add I am coming under pressure to defend this level of openness given that our European businesses can be hit with unjustified tariffs and restrictions at a moment’s notice.

And let me be clear that we reject the US labelling the EU as a security risk in order to justify the imposition of tariffs. This narrative is hurtful to both our people.

Bilateral relations

The EU is absolutely committed to a strong and positive bilateral agenda. The Executive Working Group established by President Trump and President Juncker in July 2018 has done good work. It has reduced tensions, and encouraged cooperation on both the bilateral agenda and global challenges.

From our side, we are already delivering results. Take for example our increase in imports of American soybeans, and liquefied natural gas.

This increase in imports is good for US farmers and exporters - but also for energy diversification and agriculture in the EU. It is a great example of a win-win.

But improvements in trade should not be one-way: the EU has been patient for many years – since 2008 – to receive approval for export of apples and pears to the US. What is the scientific basis for blocking this approval?

Europe is a major export destination for US farmers: last year we imported some $14 billion of American agriculture products. In fact, we like your products so much that agri-food imports from the US are the fastest growing EU imports.

In addition, we granted the US exclusive use of 35,000 tonnes of our import quota for hormone-free beef. This is out of a total import quota of 45,000 tonnes, operational from 1 January 2020.

These are good news stories, but we are ambitious for more. We want to finalise our negotiations on conformity assessment, a long-standing US ask. We also remain ready to discuss tariffs and reducing non-tariff barriers.

We need more convergence in relation to standardisation and in the regulatory field. This is the best way for us both to be rule-makers instead of rule-takers; ongoing negotiations on this are important.

Cooperating to Shape Responses to Future Challenges

We are keen to intensify our cooperation on technology, covering areas such as semiconductors, artificial intelligence, additive manufacturing and quantum technology. This cooperation will be massively important for our economies and our security.

The EU followed the US’ example and introduced its own investment screening mechanism, and we are eager to learn from your experiences. We need to protect our trusted transatlantic trading and investment space. We should have discussions on a possible agreement to “whitelist” each other when it comes to investment and export controls.

But we recognise these are only the first steps. We will need to cooperate much more closely on the technologies that are transforming our economies in order to protect our trusted trading space.

The EU agrees on the importance of telecom network security, particularly in relation to 5G. The European Commission published an EU-wide risk assessment in October 2019.

This month, the EU and its Member States will present a toolbox of mitigating measures to address these risks. This work will provide a good foundation for further transatlantic cooperation.

We are laying the foundation for our shared future for decades to come.

Finding Solutions to Bilateral Issues

However, we must also deal with the disputes of the present day.

Imposing tariffs on each other serves nobody's long-term interest. Tariffs are in reality just another form of taxation on businesses and consumers.

There are no winners in a trade war.

You don’t have to take my word for it: the federal reserve study released last month shows that the import tariffs imposed to protect US manufacturers have had the opposite effect by raising input costs and triggering retaliatory tariffsThis reduces economic growth, wages and jobs. This is hardly a sensible approach.

In this regard, we regret the choice of the US to move ahead with tariffs in the Airbus case, and the recent announcement to potentially subject additional EU products to tariffs.

This leaves the EU with no alternative but to follow through in due course with our own tariffs in the Boeing case, where the US has been found in breach of WTO rules.

We have a joint responsibility to sit down and negotiate a balanced settlement, so that we can leave these disputes behind us. The EU has shared concrete proposals with the US on dealing with clearly identified aircraft subsidies and on future support to our respective aircraft sectors.

Now is the time to show that we can defend the position of both the US and EU aircraft sectors in a market with strong emerging players.

That is the real challenge. If we continue to beat each other up then the future risks being lost to new competitors.

Finding agreement is also essential in relation to our modern, connected economies. Citizens in both America and Europe want digital companies to contribute their fair share of tax on both sides of the pond. We need to find a sustainable answer to this problem if we want to prevent every country coming up with an individual solution.

The EU fully supports the discussions taking place at OECD level on a global digital services tax. But we have been equally clear that we have no option but to regulate on our own if the US blocks a global agreement.

Updating the Rulebook

Ladies and gentlemen, we are operating in a changing global economy.

In Europe, we remain absolutely unwavering in our conviction that an open trading system with a firm and fair rulebook is the best hope for every country around the world to achieve sustainable economic progress. Global challenges need global rules.

Unfortunately, the current rulebook is out of date, and the rules-based multilateral system has drifted away from economic and business realities.

The gaps in the multilateral rulebook have allowed China to provide significant subsidisation that distorts markets and investment flows.

By creating overcapacity in certain sectors, China’s state-owned enterprises are in a position to outbid others in government procurement or in acquisitions.

This means it can exploit its role as a key investment destination to siphon off technology by forcing joint ventures or requiring disclosure of trade secrets in order to get licences.

China has been able to do all this while maintaining closed markets that allow its own operators to grow, by putting up internal barriers for foreign operators – such as complex licensing requirements and discriminatory licensing conditions.

That is why WTO reform is a top European priority. We fully agree with the US that the organisation needs to be fixed, and it needs a profound overhaul, not just tweaking at the margins.

Rulemaking is paralyzed. Transparency is underused. The current rulebook does not adequately address some of the most trade distorting measures, such as industrial subsidies.

We need to step up cooperation. A new balance needs to be found in the organization, with clear rules and commitments that properly regulate global trade to deal with today’s challenges, not those of 25 years ago.

We need to establish a level playing field that reflects the world of today: a diverse global economy more connected and technologically driven than ever before.

Our objective is to return the WTO to the centre of global trade – where it belongs.

That is why we urgently need to fix the negotiating function of the organisation. For us this is a total no-brainer, because the organization has been unable to create new rules or adapt existing ones for too long.

I therefore warmly welcome Tuesday’s trilateral agreement between the EU, US and Japan to find new ways to strengthen global rules on industrial subsidies. This is a very important step towards tackling issues distorting global trade, and shows what can be achieved when global partners work together.

Rights and obligations in the system should be rebalanced. At a minimum I think we can probably agree that so-called “emerging countries” like China have well and truly emerged!

This means that a fresh look is needed at the question of exceptions for developing countries, which should only be available where and when needed.

A broad exception for two thirds of WTO members is not acceptable. We are in agreement with the US on this, and we need to define the appropriate way to get there.

The WTO will need to change the way it works, negotiates and decides. The hostage-taking and consensus-blocking attitude will not work anymore. We need mechanisms to facilitate the integration of plurilateral approaches in the WTO framework. This would introduce a new dynamic into the organization and will be crucial for several negotiations, including on e-commerce.

But I repeat: what is value of new rules without a proper enforcement mechanism? We therefore need an effective dispute settlement system that enforces the rules as we have agreed them. Nobody can play the global trade game without a good referee.

To our American friends my message is very simple: let’s talk, let’s cooperate, let’s lead.

We will approach any discussions on WTO reform with an open mind.

We have made proposals to address US concerns and now we need clarity in relation to what the US wants.

The time has come to start discussions in earnest. Our strong preference is to tackle WTO reform on the basis of transatlantic cooperation, but if the US does not engage, the EU will work with other partners.

Conclusion

Ladies and gentlemen, let me conclude by once more wishing you a happy new year and a happy new decade.

I remain hopeful that the 2020s can be an era of refreshed and resurgent transatlantic relations.

We have a strong and proactive trade agenda in the European Union – I can assure you we will be no shrinking violets. We will robustly defend our interests.

But let us recall that our primary interest, and the job we are here to do on both sides of the Atlantic is to protect the interests and wellbeing of our people and our economies.

American and European companies are relying on open markets, and if we fail to protect them it is our economies, our workers and our citizens who will end up paying the price.

The European Union and United States are sometimes described as siblings and I have to say I agree with this observation.

As we all know, siblings bicker, siblings call each other names, siblings sometimes even get into fights!

But let us not forget that when the pressure comes, siblings are family and will always support each other.

So I hope we can get back to seeing matters eye to eye. This is the world’s best hope for a peaceful and prosperous future. Thank you.

Useful link: Webcast of the event

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