Speech Harvard International Trade Seminar
Speech Harvard International Trade Seminar - 7 september 2009 - Boston
Ladies and gentlemen,
It is a privilege for me to be able to address you here today. Not only because your are a fine audience and the International Trade Seminar is a highly respected program of the Harvard Kennedy School of Government. But also because I think you, the nation's young and bright minds and tomorrow's decision makers, have a special responsibility in this crisis. You can help prevent that the economic crisis inflicts lasting damage on our economies. You can help us make the right choices to get out of this crisis.
This year we are celebrating 400 years of historic ties between the Netherlands and the United States, with the island of Manhattan at the centre stage of this strong alliance. The Dutch, through the English explorer Henry Hudson, in their search for a northwest passage to the Indies, founded New Amsterdam, today better known as New York City.
With modesty, I think I may say that we contributed to the build-up of a great American nation-state. And we have felt engaged to play a part in its continued development and growth all through the last four centuries until the present day. The ties that bind the Netherlands and the United States are vested in shared values, such as freedom and democracy, and common economic interests, like trade and cross-border investments.
Indeed the Netherlands and the United States are major trade and investment partners. The United States is the largest foreign investor in the Netherlands. And the Netherlands, with its mere 16 million inhabitants, is the fourth largest investor in the United States. In manufacturing and in finance, we even rank second.
The Netherlands is a small country that punches above its weight economically, thanks to a very open economy. I speak for a country where total trade equals 140% of GDP. That is huge, for instance compared to the US, where this figure is 26%. No less than a third of our economic growth is trade related. 3% world trade growth means 1% growth in the Netherlands.
In the year in which we celebrate our common roots and our shared values, my message to you is that one of the pillars of our prosperity, open international trade, is under siege. Open borders can no longer be taken for granted any more. It faces serious challenges as even the strongest economies go through difficult times. This begs for a strong and smart response by governments. Today, I would like to share with you three essential elements that this response should consist of.
- First, we should avoid protectionism and embrace change.
- Second, we need to re-energise multilateral cooperation.
- And third, we must make trade more ethical and sustainable.
Avoiding protectionism and embracing change
Let me very briefly start with theory. We all know Ricardo's theory of comparative advantages, so we know why international trade is a sound economical idea. Over the past decades, the growth of the global economy has gone hand in hand with the expansion of international trade. More goods are being sent across the world, more investments are being made around the globe than at any other moment in human history.
Nevertheless, right now, circumstances are not at all positive for international trade. We are going through a economic crisis that is exceptionally broad and deep . And economic crises always tend to provoke protectionist reflexes and inward-looking policies. This may be understandable, but it is certainly ineffective and possibly even dangerous.
Although there is little outright protectionism, politicians are beholden to their national voters and taxpayers. I think governments and politicians are right to make improving the national economies the focus of the national stimulus packages. We politicians must demonstrate that we are working for our citizens. But it is also part of a politician's job not to lose sight of the bigger picture. We should avoid taking measures with protectionist effect. Shutting out the rest of the world seldom solves domestic problems - it usually makes them worse. That is why President Obama was right to resist the more blatant forms of Buy American legislation. This is a matter of international solidarity. With markets shrinking everywhere, protecting jobs here through protective trade measures puts extra pressure on jobs in other countries. This is no way to solve unemployment, which is rising across the world. I would even call it irresponsible.
Moreover, in today's truly globalised economy, politicians who resort to protectionism to keep jobs at home also deny their voters better products, more choice and lower prices that usually result from international competition. In Holland, I always stress that competition saves people around 450 dollars a year in electronic. In times of crisis especially, consumers can't afford the extra financial burden caused by protectionism. We must make sure they don't have to.
There is another important reason why The Netherlands opposes protectionism. Our economy today is very diversified. In many different sectors, in the industry and in agriculture, Dutch entrepreneurs and companies are among the world's very best. I am convinced that one of the secrets of their success lies in the Dutch open-mindedness, flexibility and creativity. In short, our success depends on our ability to embrace change. Protectionism, on the contrary, inhibits change. Protectionism, by trying to preserve the status quo, in many cases merely postpones the inevitable. What is worse, protectionism kills creativity and stalls innovation.
Let me give you an example. In 1950 the Dutch textiles industry was one of the most important sectors in the Dutch economy. Textile companies alone were responsible for almost 20 percent of total industrial output in the Netherlands and offered a great many jobs. Today, their share of industrial output has dropped below 3 percent. The number of jobs in the textiles sector has fallen accordingly, as production has moved to low income countries.
But the Dutch textile sector is still doing very well!
As we speak, the Dallas Cowboys are playing their matches on a synthetic pitch that has been developed and made by Royal Ten Cate, one of the oldest Dutch textiles companies, dating back to the 17th century. This shows exactly what is wrong with protectionism: if we had protected our textiles industry when times got tough, we might have retained production in the Netherlands for, say, another decade. But would Ten Cate then have felt the need to change or to invest in new technology? I don't think so. If we had protected the industry, Royal Ten Cate might not have survived at all.
In short, protectionism might require painful adjustments. But we are usually better off embracing change.
Last November, the United States elected a new president who strongly believes in the change. I am thrilled with this message, and I congratulate Americans with their choice. I sincerely hope that president's Obama message of change will translate into concrete actions. For instance in the ongoing multilateral trade negotiations in the Doha Round.
Re-energising multilateral cooperation: Doha
The Netherlands has delegated trade policy authority to the European Commission. The Commission, the EU's executive body, negotiates international trade agreements on behalf of the EU's 27 member states. The WTO negotiations are the EU Commission's most important assignment on trade. The Netherlands, like the other EU member states, is dedicated to multilateral cooperation in the Doha-round. We stress the need to develop a roadmap that can lead to a successful conclusion of the negotiations in 2010. I strongly believe that at this critical stage we need a strong re-engagement of the world's largest economies, most importantly the United States and China. Recently, the Peterson Institute for International Economics predicted that Doha will increase incomes worldwide by between 300 and 700 billion dollars a year, depending on the level of ambition -- such as the inclusion of services in the Doha agreement! What is more, these gains would be evenly distributed between developed and developing countries.
The Doha-round is key to removing remaining non-competitive practices, to opening up markets for products from poorer countries and to increasing access to emerging markets. The EU has led by example by reforming its common agricultural policy and agreeing to abolish export subsidies in 2013. I sincerely hope that other developed countries, including this country, will follow suit. More reforms are necessary, mainly in agricultural policies, which are of critical importance to most developing countries.
A brief look at the international market for cotton shows us what the consequences of our current policies are: although a number of African countries have a huge comparative advantage in the production of cotton, they represent only a very small percentage of world cotton production. Not because their cotton is of a lesser quality, but because they cannot compete against highly subsidised and well-protected producers in the US and the EU. We must put an end to such practices.
Making trade more ethical and sustainable
Let me now turn to the third essential component of our response to the global crisis: making the global economy more ethical and sustainable.
As a response to the crisis, the G20 has stepped up its role as an important informal gathering of the world's largest economies. So far, most emphasize has been placed on tackling the financial aspects of the crisis. However, this crisis is also an opportunity to address bigger issues, issues that go beyond financial stability.
The current crisis is an opportunity to close the 'global governance gap'. In the globalised economy, businesses have become global actors, but regulation is still primarily a national affair. Moreover, the benefits of economic growth, trade and open borders come with potential downsides, like environmental degradation and growing differences between rich and poor. Thus the bigger task at hand lies in the broader G20 agenda, to make the global economy more transparent, fairer, and more sustainable.
As a first step in this direction, we should agree on the Charter for Sustainable Economic Activity, as introduced by Angela Merkel. It includes measures against tax evasion, bribery and money laundering. And it also addresses guidelines for corporate social responsibility and transparent corporate governance.
Together with the EU, the US needs to take a leadership role in creating broad support for these issues. Involvement of emerging economies like China and India is crucial. We have to realise that their participation is largely dependent on the credibility of our commitment, but also our ability to treat them as equal partners in this discussion.
Conclusion
In summary, in my view, three element are key to a sustainable recovery:
First, we must resist protectionism, to prevent even worse damages to the world economy. Instead, we should embrace change as the surest path to a strong and sustainable recovery.
Second, we need to boost multilateral cooperation and the Doha round, so that we harvest the huge potential gains that are on the table and that are within our reach if we show the political will to overcome the last few obstacles.
Third, we should improve global governance, by building an international system that enables all countries to harvest the benefits of trade and set us on a sustainable path towards recovery.
I know that today I have addressed an audience that probably consists of the people who might not need convincing when it comes to embracing international trade. But I know many people in our societies are much less enthusiastic about open borders. I hope that you will help building the case for open borders and spreading the message of free trade. We must not let protectionist forces prevail. Open markets are our best chance of a sustainable and strong recovery - in rich and in poor countries.
Thank you.