At this week’s G20, global trade will come into the spotlight. It will present EU leaders with the daunting task of juggling economic sanity and political reality, write Ilaria Maselli and Jürgen Matthes.
Ilaria Maselli is a Senior Economist at The Conference Board. Jürgen Matthes is a Senior Economist at the Cologne Institute for Economic Research. They are the co-authors of the new report, Ensuring Accountability in Modern Trade Policy.
On the one hand, a whopping 15% of European jobs depend on trade. On the other hand, three decades of rising globalisation have left many Europeans indignant about the unequal gains from trade openness.
The perceived negative effects of trade liberalisation on Europe’s jobs and income distribution go some way explaining public resistance toward new trade agreements, such as the Trans-Pacific Partnership. But the increase in inequality is not the only criticism of the so-called new generation of trade agreements.
As major trade negotiations like TPP and TTIP have shifted from traditional tariff reductions toward lowering non-tariff barriers, anxieties have arisen that social, health, and environmental protections enshrined in national laws would be lost in a “race to the bottom”.
So, what should the EU position be at this week’s discussions on trade? Looking at today’s health barometer of Europe’s economies, the EU arrives to the G20 meeting in a much stronger position than many would have predicted only six months ago. Unemployment is slowly decreasing. Leading indicators point to a continuation of improved economic trends for the next several months – thanks in part to an increase in demand from emerging markets. To this, one has to add the inward-looking attitude of the US administration which makes Europe look like the largest pro-trade economy of the most advanced part of the world.
As a result, at the G20 negotiating table the EU has some good cards to play….
The EU can further strengthen its position as a champion of trade. It has to elaborate a cohesive view of globalisation that takes the needs of the entire society into account, rather than just business or overall output growth. The European Commission paper, Harnessing Globalisation, moves in this direction. However, the paper fails to tackle an important question: “Can non-tariff barriers be lifted in a way that does not lower standards and respects the will of society?”
In our view, this is not mission impossible. As discussed in our new report, Ensuring Accountability in Modern Trade Policy, the EU could argue for more transparency and accountability by drawing a few lessons from monetary policy. The latter constitutes a good example of how the need to manage a specific policy in a technocratic manner can be framed so as to establish accountability.
Trade negotiation rules need to define a clear mandate for negotiators, as well as for the bodies that will manage future cooperation between the trading partners involved in an agreement. Future trade deals need robust, transparent bodies for regulatory cooperation. Any technical body that compares the regulations of countries involved in a new trade agreement will need to be waterproof. To safeguard consumers and competitors, it must rely on reputable academic expertise, construct a strict code of conduct, publish its proceedings, report regularly to the European and national parliaments, and most importantly, hand over non-technical decisions to these parliaments.
“Whoever believes that the world’s problems can be solved by isolationism and protectionism is mistaken”, said recently the German Chancellor Angela Merkel in a speech. Moreover, trade openness and social cohesion are not competing goals. By taking into account the discontents of society and by elaborating a more cohesive vision on its trade policy, the EU can go a long way in strengthening its economic recovery through trade and gain public support for it.