June 17, 2013
Trade is the golden girdle of the globe.
Where Commerce has enriched the busy coast
He catches all improvements in his flight
Spreads foreign wonders in his country’s sight,
Imports what others have invented well
And stirs his own to match them, or excel
‘Tis thus, reciprocating each with each
Alternately the nations learn and teach
While Providence enjoins to ev’ry soul
A union with the vast terraqueous whole
In 1782, William Cowper celebrated global trade in his poem Charity. Commerce here is seen as an enabler of global unity; as nations trade with each other, they become linked with the (terraqueous) planet as whole, using products made in climates and places very different from their own.
Trade is more global today than ever; despite the failure of the latest WTO negotiating round. But is the world more united? In contrast to Cowper’s idealistic personification, two recent disputes have demonstrated the extent to which trade gives way to tense power-struggles. In many mythical tales, a girdle was a magical device giving power and strength if worn by a man and protection if worn by a woman. Alternatively, a girdle is another word for a corset, a vicious undergarment designed to constrain and squeeze female bodies into a certain desirable shape. Which part does trade play in our contemporary world; magic weapon or fatal constrictor?
On June 4 the European Commission offered a temporary reprieve on its threatened sanctions on imports of Chinese solar panels. Karel De Gught, the EU trade chief, lowered the impending 47% average punitive tariffs to 11.8%. That rate will last for two months and will revert if the Chinese fail to answer to an inquiry over solar panel “dumping” in the EU (selling products below the cost of production). China produces approximately 65% of all global manufactured solar panels, and the EU accounts for around 80% of Chinese export sales, or €21 billion. Despite the seeming concession, on June 5 the Chinese Ministry of Commerce announced plans to investigate European subsidies to its wine industry. The Chinese may have a case; under the reformed CAP programme in 2008, National Support Programmes for wine growers totaled €2.8 billion.
Nevertheless, both the choice of industry and timing are a spectacular example of the current trade tensions. European member states are deeply divided over the solar panel investigation and the wine manoeuvre appears to deliberately target these disagreements. By targeting the wine industry, China artfully chose a cultural symbol dear to southern European countries, most of whom supported the Commission’s proposed tariffs. Please note that China did not launch investigations into European beer. Moreover, the announcement came as the Chinese Premier Xi was strolling around Sunnylands resort with US President Obama. A blunt editorial note in the leading Chinese People’s Daily read, “The change of times and the shifts of power have failed to alter the condescending attitude of some Europeans.”
In the same week, cracks also appeared between EU member states around the EU-US trade talks (TTIP). France has repeatedly insisted that the Commission’s negotiating mandate must include l’exception culturelle; meaning that core cultural industries would not form part of any free-trade deal (protecting the French film-making and other European arts). Washington has warned that would almost certainly cause US negotiators to bring equivalent caveats to the table. On 14 June France rebuffed the Commission’s last minute concession to allow the French government to challenge any offer made by the Commission when the trade negotiations are under way and in a late-night deal, France successfully secured the cultural exception. The Commission has however made it clear that the compromise involves a clause whereby the cultural question could be re-opened in the course of negations if necessary.
Commerce may well have “enriched the busy coast”, but the events of the last few weeks do not fit the poet’s vision of global harmony through trade and exchange. A few years before Cowper, Oliver Goldsmith offered a different vision in his poem The Deserted Village (1770);
Proud swells the tide with loads of freighted ore,
And shouting Folly hails them from her shore;
Hoards, even beyond the miser’s wish, abound,
And rich men flock from all the world around.
Global trade may be a good thing; certain aspects of it may not be. A lowering of labour, environmental and social standards offer one example of the associated risks. Chad Damoro (2012) argues that Europe is a market power, based on its size and structure. With over 500 million consumers, it is the largest industrialized market in the world. It has Europe-wide institutions to monitor and enforce certain (high) regulatory standards. Finally, flowing from its basic democratic set-up, Europe as a market power caters for interest contestation; European (and national) institutions are open to public consultation, scrutiny and influence.
France may have been justified in seeking to protect vital cultural industries and Germany may have correctly predicted Chinese retaliation over solar import tariffs. In future however the Commission and member states must learn not to air their disputes in public as explicitly. If member states are not united, Europe is liable to be pushed towards lower standards and increasing global irrelevance. Europe must successfully reform its CAP system so that it plays by fair global trade rules. It must also know when to present a united front to its trade partners, whether in the West or the East.
In a study released on 17 June, a German think tank found that an EU-US trade deal would lead to a growth in real per capita income on both sides. The study also correctly pointed towards several nuances; growth was likely to be higher in the US than in the EU, while third country parties, particularly developing nations, would lose out on growth. These predictions are based on the assumption of a comprehensive deal involving non-tariff barriers, long-term predictions and taking into account purely economic (rather than political) factors.
Political factors are however vital, because the trade girdle is neither objectively a magic weapon nor a fatal constrictor. Rather the nature of trade will be determined by those who set the rules; “Negative effects (particularly on developing countries) need to be avoided or reduced. Traditional trading partners of the two large economies (EU and the US), in particular, should be included in negotiations or get an early opportunity to conclude similar, compatible agreements with these economies, if this has not already happened. At the same time, the real gains in social welfare for the western industrial countries should be an incentive for adequately compensating losers of the agreement, and for demonstrating readiness to compromise in multilateral negotiations. Transatlantic trade and investment partnerships could and should serve as an impetus, and not as a hindrance, on the multilateral negotiations that have stalled in the Doha Round.” (GED, Who benefits from a trans-Atlantic free trade deal? 2013)
The Europe Union’s legacy is free and open trade* that brings nations together in relative peace and stability, regulated by decent standards and governed by the rule of law. This is the legacy that a more united Europe must export.
*It also is important to note a change from Europe’s trade history. Throughout the ages European states consistently and repeatedly abused their military and commercial strength to the detriment of other nations. As one example, some 60 years after Cowper’s idyllic trade vision, British gunboats arrived in China, in part to defend the lucrative (and destructive) trade in opium. At the Treaty of Nanking in 1842 and a further supplementary treaty in 1843, China ceded Hong Kong to Great Britain, opened five of its ports to Western trade, granted Great Britain a favoured trade status, abolished trading monopolies, limited tariffs to 5% and accepted the principle of extraterritoriality, whereby Western merchants were accountable only to the laws of their home country. By 1880, China was importing 6,500 tons of opium annually. This is a legacy also worth remembering, if only to ensure that the European Union collectively avoids repeating mistakes historically made by member states.Kimberley Botwright