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Challenges, Opportunities for EU and China

EU Trade Commissioner Peter Mandelson delivered a speech at the Party School of the CPC (Communist Party of China) in Beijing on Tuesday. The following are excerpts:


This afternoon, I want to talk about globalization. After 10 months in my job as European Trade Commissioner, I think I have an original perspective to offer a perspective shaped by visions of pullovers and trousers.


You would never know it, on the basis of reading the European press, but the EU remains the second largest exporter of textiles in the world. This surprising fact contradicts the view of those who see globalization, and the rise of China and India in particular, as the swamping of European markets by low cost producers. The truth is Europe can compete in the new world, but it involves a process of restructuring and adjustment in which there will inevitably be losers as well as winners within the EU itself.


I have been described by some as an excessive economic liberal too slow to intervene to manage the impact of China's surging export power, so damaging Europe's producers.


By others, I have been pilloried for seeking to manage a market phenomenon whose dimensions none of us can yet fully appreciate, so damaging Europe's importers and consumers.


I want to make my position clear. I am for open trade. I am for liberalization. In textiles, I welcome the end of the multi fiber agreement. I want China to benefit from WTO membership, and the rest of the world to benefit from China's entry into international markets and opening of her own home market.


Of course, where trading practices contravene WTO rules, we will robustly defend our interests. But I am not, as a matter of basic conviction, in favor of intervention in markets or managing trade. In the long run this is a cul-de-sac. It inhibits innovation and adjustment. It entrenches uncompetitiveness. In the short term, it can bring desirable relief. But as we have seen, it can also have unforeseen and damaging consequences in a world where trade is flowing as fast and furious as today.


But I operate in the sphere of practical politics not pure economic theory. I have to recognize and manage public pressures, and try to reconcile them when they clash. We all know that the textiles issue is particularly sensitive. I had no choice last June but to find some temporary relief for European producers who, for whatever reason, were against the wall. I refused to do this unilaterally, or without sound evidence, because I do not believe that is the way to respond to China. I will continue to resist unilateral action so long as China, too, maintains the spirit of dialogue and cooperation.


Let's use what happened this summer to have a much clearer, better informed debate about globalization, the impact of China and India, and how we should respond. Political leaders in Europe have to be more creative and courageous. We must resolve differences and come to a common view, rather than asking the Commission to try (inevitably without complete success) to reconcile irreconcilable demands. The Commission for its part has a vital responsibility in stimulating this debate.


This is a matter of real urgency. I continue to believe that, in the particular circumstances we face, the Shanghai textiles agreement is a good one for Europe and should be maintained. But I will continue to take a lot of persuading to manage trade in similar ways, unless, in doing so, we are genuinely creating the space for businesses and people to adapt to new circumstances in the long term. This is the only way forward.


So let the globalization debate go on.


First of all, let's try to define it. Due to unprecedented progress in transport technology and communication, globalization is bringing about a fantastic acceleration of exchanges between the nations of the world. Exchanges of people, knowledge and culture for the best; exchanges of pollution, dirty money and diseases for the worst. Also, what concerns me most as EU trade commissioner is exchanges of goods and services on a huge and growing scale. The processes of globalization are indeed a major step in the history of the world's economy, a movement that will change forever the face of the planet.


Globalization indeed concerns every human being on the planet, in every aspect of his or her life. No surprise then, if globalization is attacked and designated as the cause of all problems we face, especially in the Western world.


As you know, the growth of manufacturing in China and, for example, the service sector in India are changing global economic relations very fast. Low cost IT links and increasing well-educated populations in Asia are producing new global production and employment patterns, with huge consequences for energy demand and raw materials. These trends have accelerated over the last two years.


These facts are remarkable. But our role as officials and political leaders is to show that we manage these shifts in everyone's interest so that globalization brings in more advantages than drawbacks and to demonstrate how it can be even more efficient if responsibly managed.


If we get it right, globalization will mean a higher standard of living, higher rates of literacy and longer life expectancy for hundreds and hundreds of millions of people.


As communications are easier and transport of goods and people cheaper, goods can be made where they are most efficiently produced and people can work where they are the most proficient. Capital and labor costs are reduced; prices are decreasing.


Cheaper products first mean higher purchasing power for all of us: access to basic goods for millions of poor in developing countries and cheaper basic goods that benefit poor families in rich countries as well.


Globally it means more jobs. For companies, European companies included, it means bigger markets, higher profits and fresh opportunities if they seize them. The recent price rise of oil and other raw materials are often presented as a consequence of the growing Chinese demand, which is partially true and is a real problem, but it is not often stressed that this trend is counterbalanced by lower costs of production here in China. Contrary to what happened in the 1970s, oil prices have picked up but inflation rates stay low, which is also a positive aspect of a globalized economy.


I also want to point out what is, in my mind, the major geopolitical change brought by globalization. Worldwide trade, foreign direct investment and cross-border supply chains not only have an impact on our economies but are also profoundly transforming the relations between our nations. With more and more integrated economies, we are also politically more dependent on each other.


Let's never forget that when nations are trading, they are not making war on each other. And within countries, these impacts make our societies more open, more diverse and I believe more pluralistic, creative and free, as you will find in China. I want to believe that what happened with European integration over the last 50 years, which has given us an unprecedented period of peace, will also happen on other continents, and between them.


But I said that the issue of globalization is complex and far from smooth.


Whereas here in Asia, globalization is first seen as a process which generates jobs and lifts millions out of dire poverty, in Europe, it is often pointed at with an accusing finger as a destructive force.


I hold to my view that the wrong answer would be to build new tariff barriers and to protect us behind unrealistic walls.


(China Daily September 8, 2005)

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