MAKING GLOBAL MARKETS WORK

As the largest free trade area in the world, the EU needs well-functioning global markets as prerequisites for its future growth and prosperity. In recent years, prevailing concerns over economic competitiveness have led to a focus on market access, market expansion and investment conditions in the EU’s external trade and investment agenda. While rebalancing the global economy was highlighted as a major priority in 2008, fears of economic stagnation

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among industrialised economies have now spread to other parts of the world. The financial crisis has further eroded confidence in the multilateral trading system, as countries channelled protectionist pressures into policies not well covered by enforceable WTO rules.

To enhance future growth prospects in the period 2014–19, improving the functioning of global markets – in addition to trade creation – is a critical priority for the EU. This comprises several dimensions. First, the power of OECD economies as rule-setters in international markets is likely to decline with their shrinking global market share. It is therefore critical for the EU to invest in diplomatic strategies and build coalitions to deepen the global rules-based system.

However, the desire of the EU to champion global rules will depend in part on its ability to ensure a level playing field for its companies. Despite the 2013 G8 discussions, for example, transparency in many sectors remains an aspiration rather than a reality, affecting the competitiveness of many major economies and companies. The US Dodd-Frank Act (Section 1504) requires extractive companies listed on US stock exchanges to report annually on payments to foreign governments. Similarly binding disclosure requirements have been agreed by European leaders through EU Transparency and Accounting Directives. Continuing to strengthen and consolidate the spread of transparency norms as a global agenda item is an important consideration over the next five years.

Enhancing security of supply for metals through enhancing transparency and global data on production, trade and stock levels is also key for the EU, whose manufacturing base relies on their imports. It could leverage its consumer power together with other major economies to ensure that stockholding figures from traders could be collated by an escrow service and published in aggregated form. It could also invest in making the work of the international commodity study groups for zinc, copper and other metals publicly accessible and expanding them to include production data for all key metals in virgin and secondary markets.

Reinvigorating the multilateral trading system also remains a priority, despite the stagnant Doha Round negotiations. The same applies to the plethora of bilateral trade deals pursued by the EU and the US, Japan and other allies. Whether or not the large or “emerging” developing economies will continue to drive global growth in the near to medium term, their willingness to participate in any future rule-making in the multilateral or regional arena will have significant implications for the functioning of global markets. Stepping up engagement with emerging economies – not only on trade rules but also on fragmented investment norms across the world – is therefore of great importance.

Exploring new mechanisms at different levels to limit or reduce trade disputes over natural resources or raw materials could also be useful, especially at a time when the global economy (including Europe) is more dependent than ever on their trade. This involves exploring the

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development of export-related disciplines in bilateral, regional or multilateral arenas. One option is for countries to work towards a set of guidelines that limit the use of export restrictions, especially at times of commodity price spikes.

Ensuring that future trade will bring sustainable growth also requires investing in the sustainability of physical infrastructure – whether international shipping routes or major trading corridors.

Since 90% of world trade is carried by sea, maritime security will become increasingly important.

A number of countries are expanding their claims to maritime exclusive economic zones, and this has already contributed to resource disputes in maritime areas such as the South and East China Seas. The EU has an interest in these disputes beyond its growing trade with South and East Asia, as it supports applying the international law of the sea, especially the United Nations Convention on the Law of the Sea (UNCLOS), to help resolve maritime disputes in the region. The EU’s voice in this area is both important and legitimate since the US has yet to ratify UNCLOS. The EU has also operated with Chinese, Indian and Russian ships (along with American, Japanese and South Korean vessels, among others) in the western Indian Ocean to counter piracy disrupting Eurasian maritime trade. The EU could try to build on those experiences to encourage more cooperation with rising powers on maritime issues of joint concern in Europe’s broad neighbourhood.

Improving resilience against supply chain disruptions remains challenging as modern manufacturing often involves combining thousands of components from different sources. Temporary shortages of any of these parts could bring production to a standstill. Measures such as mandatory stock holding or maintaining multiple suppliers could be costly and impractical, especially where products are evolving rapidly. Practical starting points for the EU could include training and support for small and medium-sized enterprises on risk assessment and resilience planning.

On development issues, the EU has traditionally been at the forefront of international efforts to strengthen links between trade and development. Its commitment to harnessing trade for development can be seen in its historical partnership with the African, Caribbean and Pacific (ACP) group of countries (although this has become troubled in recent years because of proposed Economic Partnership Agreements – EPAs), its Everything But Arms initiative for least developed countries, and its active engagement on Aid for Trade (AfT). However – as the European Commission recognised in its 2012 Communication “Trade, Growth and Development”

– the global trade context is being profoundly “reshuffled”. As emerging economies increase their share of world markets, developing countries (in particular the ACP) diversify their trading partners and sources of finance, and the EU expands its bilateral trade agreements, the value of preferential access to EU markets may be increasingly eroded and EU influence reduced (such trends can already be seen in ACP resistance to EPAs).

The EU will face several key challenges in pursuing a development-friendly trade policy in this future context. It could consider strengthening and expanding AfT to go beyond aid and mobilise

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private investment for trade (given the growing marginalisation of aid), as well as increasing AfT’s focus on informal sectors in which the majority of the poor work. Critically, trade liberalisation alone does not automatically bring development benefits, but needs to be embedded within broader strategies for inclusive and sustainable growth that take account of specific economic, governance, institutional and infrastructure contexts. In the light of this, the EU will increasingly need to dovetail its trade and development agendas in a way that goes beyond paying lip service to policy coherence for development (PCD) and places trade policy within a much broader development and sustainability agenda, with a view to promoting global public goods.