Globalisation Challenges
Speech by Frank Heemskerk, Minister for Foreign Trade, at the SER/EZ symposium on Globalisation Challenges on 3 September 2007, The Hague
Ladies and gentlemen,
This meeting is an important launch for the Social and Economic Council’s advice on globalisation. And let me be very clear: I see generating greater public support for globalisation in the Netherlands as one of my most important tasks as Minister for Foreign Trade.
I am truly convinced that an open economy and ongoing globalisation are good for the Dutch economy, and consequently for jobs and Dutch society as a whole. But I realise that my call for greater public support is also motivated by self-interest. After all, the political parties that lost seats at the last election in The Netherlands were those which traditionally have had a more open and international outlook; this is especially true of my own Labour Party.
Whereas the political parties that won seats were those on the far left and far right of the Dutch political spectrum. And these are the parties that adopt a defensive and sometimes even negative attitude towards continued globalisation and our open (and European) economy.
To win back support - and to win the next elections … - it is not enough to simply say to the Dutch people: globalisation is good – let us explain it again. International trade does not always, and everywhere, have favourable effects. That is what prompted the most pressing question this government is asking the SER to address: How can Dutch companies and their stakeholders give an appropriate response to globalisation’s less favourable effects? It is my impression that in particular companies are absent from the political debate on globalisation rather too often.
Sometimes their attitude seems to be: ‘It’s up to the politicians to sell pro-globalisation policy; our job is to sell our products.’ But it’s not as simple as that.
Ladies and gentlemen,
In July, I visited China, along with representatives of some thirty companies, and saw at first hand the intense economic activity that is sweeping the country.
Developers are demolishing skyscrapers that are less than twenty years old, only to replace them with new ones, twice as high of course. Considering that China’s economy was smaller than Belgium’s when Deng Xiaoping took office in 1978, the scale of China’s economic development since then has been almost unimaginable. Please take a good look at the two pictures of the Shanghai river and skyline in 1980 and in 2005. That picture says it all.
Within a few decades, Western economic domination of the global economy will be over for good. China and India will overtake the US and Japan as global numbers one and two in terms of total GDP. Western economic powerhouses like Germany, the United Kingdom and France will no longer have a guaranteed place among the world leaders.
Today I want to discuss four socioeconomic challenges posed by the rise of the East and the South.
1. Dutch companies as - part of - a global player.
2. Preventing protectionism.
3. Improving global governance for the sake of poverty reduction and sustainable development.
4. Promoting Corporate Social Responsibility as a global concern.
Let me start with the first of these:
1. Dutch companies should position themselves as global players or as a part of a global player
The economic shift to the East and South can be traced in global trade statistics. The Western economies’ share of world merchandise trade has fallen to below 50 per cent. At the same time, trade between low and middle income countries has become one of the most dynamic elements of world trade. So it is no longer just North-South (or North versus South, as some like to emphasise), but also South-South and East-East trade relations which are increasing.
The Dutch business community is adapting, by targeting high-quality sectors of the global production, and by outsourcing parts of the production process to other countries. Or Dutch international companies have become part of bigger multinationals. The integration of the Dutch truck producer DAF into PACCAR, an American global player, is a success story. And the Dutch company Numico has great expectations of teaming up with the French multinational Danone. Other successful examples of adapting to new challenges include our shipbuilding industry, now specialising in technologically-advanced vessels, and our growing creative industry.
Commercial services also present attractive alternatives to disappearing industries, delivering considerable added value. Take for instance the footwear industry. While the major share of production has gone to low-wage countries, high wage countries focus on research & development, marketing & design, and sales & logistics. And those activities account for more than 50 per cent of the total value added. And for top brands like Gucci the value added involved with such activities can be as much as 80 per cent.
In the future, it will become more important to strengthen ties with fast growing markets in the emerging economies. Contrary to Europe, in these emerging markets the national state often plays a far more dominant role. This requires a different way of doing business.
Unfortunately, some companies are scared off too easily, by cultural and legal differences, financial risks and unfair competition. For this reason, the Dutch government is trying to smooth the path to these emerging economies. By trade missions, credit and investment guarantees, and our international economic and diplomatic network.
I’m curious to learn the SER’s assessment of the challenges facing Dutch businesses as they strive to become, or remain, global players or parts of global players. What will we get in return? Only high-tech jobs and knowledge workers? What is the future of production line workers in the Netherlands?
And what can the government, business and employees do in order to cope successfully with our continuous economic transition?
This brings me to the second challenge:
2. Preventing protectionism against foreign investment from emerging economies
In the Netherlands, one out of every 10 (!) people working in the private sector is employed by a foreign company. If you add indirect employment, you will have an idea of how important foreign enterprises are to our Dutch economy. At the moment these companies mainly come from Europe and the US, but multinationals from China, India and other emerging economies are making great progress. With an active acquisition policy, I want to attract more foreign companies, bringing jobs to the Netherlands; high wage jobs and the lower wage jobs attached to them.
Recently a debate has started on unfavourable effects which investment from emerging economies may have on our public interests. The issue is whether national security and control of vital infrastructure could be compromised if government funds from, say, Russia, China or the Middle East would acquire stakes in our network industry or other strategic sectors. I want to be clear on this: many of these government funds have been operating for many years and have a good track record as shareholders. Foreign investment, including sovereign wealth funds, contributes to our prosperity. That being said, the transparency of these funds can be improved. Whereas Norway or Singapore show good examples, sovereign wealth funds of other countries are lagging behind. Therefore, IMF and World Bank should actively stimulate standards for more transparency of such funds.
The US, however, has expanded its assessment criteria. National security and vital infrastructure risks can be reasons for opposing investment. Fears about a possible takeover of the oil-company Unocal or important harbours by Dubai Ports World, fuelled this anxiety. The result of the American protectionist measure is a fall in foreign investments. This is a signal we should take seriously. After all, the Netherlands is the 5th largest foreign investor and the world’s 7th largest recipient of foreign investment.
Of course we should not be blind to potential risks. Protecting public interests through a golden share could be an option, but other approaches seem more effective to me. The unbundling and statutory splitting of energy companies in the Netherlands into independent network and commercial parts illustrates that adopting targeted measures for each sector is better than reintroducing a golden share. However, I’m very interested to learn the views of Commissioner Peter Mandelson and the SER on this.
And this brings me to the third challenge:
3. Closing the gap in global governance for the sake of poverty reduction and sustainable development
Successful completion of the WTO Doha Development Agenda would create more room for poor countries to operate in developed as well as emerging markets. Trade, however, must also be sustainable. More and more Western consumers want products made with respect for people and planet. This makes good sense, although many are not prepared to pay a higher price for those products. Unfortunately, the concerned citizens portrayed by the media and hoped for by NGO’s do not yet seem to be the same people as the consumers in our supermarkets, shopping on a budget. But how far can we raise sustainability standards for developing countries?
High standards may undermine access of poor and emerging countries to the world market. In addition, environmental objectives and social safeguards of the North are sometimes seen by the South as a form of green or red protectionism.
Agreements on fair, sustainable trade should therefore be negotiated in international forums, where developing countries must be equal partners in the decision-making process.
WTO is a very important instrument to improve sustainable trade, however surely not the only one.
I am strongly convinced that we will only close the global governance gap by broadly strengthening the system of multilateral institutions, and by increasing the powers of multilateral organisations to enforce agreements. As the first economic Nobel price winner, the Dutchman Jan Tinbergen taught us, we cannot achieve all our objectives through one instrument, in this case the WTO.
In my view, the ILO needs stronger instruments – and not just ‘soft’ law – to enforce fundamental labour standards. And environmental treaties, like the Kyoto Protocol on Climate Change, the Montreal Protocol on the Ozone Layer and the Cites Convention on protection of biodiversity need greater power and reach. Some basic values in the fields of human rights, labour standards and environmental protection are so universal that underdevelopment can not be an excuse for ignoring them.
Also here I am looking forward to the views of Commissioner Mandelson from an European perspective. And it goes without saying that I’m very curious to hear the Social and Economic Council’s views on trade policy initiatives, tied to poverty reduction and sustainable development.
This brings me to our fourth and final challenge:
4. Promoting Corporate Social Responsibility as a global concern
Progress has been made since the SER published ‘Winst van Waarden’, its advice on corporate social responsibility seven years ago. Our multinationals employ standards which can be held up as an example to other companies. I was impressed by the excellent social, environmental and safety conditions I saw in a tea factory from Unilever in Dubai during my recent economic mission to the Gulf States. I am sincerely convinced that outsourcing of production by Dutch companies to Asia or Africa will raise production and quality standards there.
Take for example a company like Shell, it is not applying two different levels of environmental standards (for instance one for the environment in the Netherlands and another for the environment in Malaysia).
An important question is whether our multinationals, including our trading companies, devote enough energy to their supply chain responsibility. I believe that multinationals need to do more to improve working conditions in the companies they do business with. Not only as regards food safety or product characteristics, but also on social and sustainability issues.
How far should standards and liability be applied to subcontractors? And to even more remote corners of the global production and trade chains? Another question: Is there a difference in terms of accountability and of liability for subcontractors between a one-off trading relationship and a long-term cooperation?
If a Dutch company has had a 20 year trade relationship with a subcontractor in China, and that subcontractor has been heavily involved in those horrible slavery events we have recently seen in China; then the Dutch company is in my view accountable as well.
It would be useful for the debate in the Netherlands, and for the Dutch position in the EU, if the SER could give its views on the scope of supply chain responsibility.
What does the Council consider to be reasonable CSR commitments? And how can we promote the local companies in emerging countries itself to increase their Corporate Social Responsibility?
Your advice will help the government to determine its definitive position. For now, I will monitor international attitudes to supply chain responsibility, such as those in the UK, which focus on the duty of care principle.
Ladies and gentlemen,
Globalisation poses many challenges. I certainly haven’t presented a complete picture of all of them. But I’m convinced of one thing:
We need to constructively address the 4 challenges I have outlined, if we want to win back public support for globalisation among the Dutch people. I say this on the basis of my own political convictions, and because it is good for business, employees and the Dutch consumers.
But politicians can not do this alone. Greater involvement by the international business community in the Netherlands is essential, and I am sure that the SER’s advice will make an important contribution in that respect as well!
Thank you very much.