20 May, 2013

WTO Chief Urges More Opening Of Europe Services Sector to Boost Economies

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World Trade Organization Director-General Pascal Lamy, in a speech at the European Business Summit in Brussels on 15 May 2013, said that “a big part of the answer to improving European competitiveness lies in a greater and better leveraging of Europe’s comparative advantage: the size of its internal market”. He added that “a further effort in opening up the services sector in Europe would go a long way in improving European competitiveness”. The following is the full text of his speech, entitled, “Unlocking Europe’s Business Potential; Navigating a Globalized World.”

It is a pleasure to attend this eleventh edition of the European Business Summit. It provides a nice opportunity to return to Brussels at a very propitious time, i.e. when spring is back after a long and grey winter!

And let me start by thanking BusinessEurope for the support you have afforded to the WTO and to me personally during what has certainly been challenging times. I would like to extend particular thanks to President Jurgen Thumann for having accepted to serve on the panel that I composed to look into the future of world trade and which delivered its report a couple of weeks ago. When I composed this panel, I wanted to have a strong business presence since business is a major stakeholder in the world trading system; one we should do well to listen to, one which we should engage with given your role in fostering innovation, generating growth and creating jobs.

Unlocking European competitiveness

Ladies and gentlemen, the weather in Brussels has certainly improved. But the grey, turbulent and long winter of the economic crisis is still with us. Economic hardship in Europe remains and unemployment is the single largest concern across Europe. And this is taking its toll on support for the European project, as we have seen in a Pew poll released just this week.

You have chosen “Unlocking European Competitiveness” as the main theme of this year’s summit. I think this is both timely and relevant.

“Timely” because the key to maintaining Europe’s place in the world economy has a lot to do with improving its competitiveness, especially at a time when the geography of the world economy is changing with the rise of emerging countries.

“Relevant” because job creation is largely the result of your own economic activities. It is only business that can create the much needed jobs. And for that stability and certainty, there are necessary pre-conditions.

While doubts remain concerning the direction, shape and depth of domestic reforms, while uncertainties persist about the soundness of the financial sector, while the flow of credit to business and in particular SMEs remains slow, while doubts remain about the further economic integration of the Euro-zone, business will remain coy, there will be limited appetite for new investments and job creation will remain below potential.

So what should be done to unlock European competitiveness?

My starting point is that Europe is favourably positioned in the global economy. Europe has so far managed to retain its share of around 20% of world exports while the United States and Japan have seen their shares decline. Its trade balance is positive overall, and it has multiplied by a factor of five since 2005.

But what is also clear is that sharp differences remain within the European Union. The risk is clearly one of increasing divergence between European countries, both in terms of industrial development and in terms of trade. This divergence has little to do with trade rules, which are the same in all European countries since the European Union has a common external trade policy. It has more to do with labour costs, with price and non-price competitiveness, with the structure of the business sector and with productivity, to name a few factors.

Better leveraging the European internal market

In my view, a big part of the answer to improving European competitiveness lies in a greater and better leveraging of Europe’s comparative advantage: the size of its internal market.

The EU’s internal market has helped enlarge and deepen European supply chains. Trade is no longer about finished products or services. It is about trade in tasks. In fact, 60% of merchandise trade is in intermediates. It is about adding value by contributing to a stage in the production of a finished product or by providing services. And the European market offers business an excellent setup for value chains to thrive.

But there is an area where the potential of the EU’s internal market is not fully exploited and this is in the area of services. While services represent about 20% of total trade, their share doubles when we consider their contribution to global “value-added” trade. The services that are incorporated into the value of traded products include, among other things, research and development, and modern logistics. In fact, in a world of value chains, the frontier between goods and services is blurred.

Understanding the crucial role of high value-added services in the success of value chains is particularly important for industrialized countries, as it indicates where their competitive advantage may be and where trade can create jobs. On the other hand, it is vital for developing countries as well, as it shows the importance of trade facilitation and good transport and logistical services in enabling trade in value-added.

A further effort at opening up the services sector in Europe would therefore go a long way in improving European competitiveness. Whether this is done internally or as a result of trade agreements, the result would be the same. At the end of the day, trade opening — if done in a deep and comprehensive way, tackling both tariffs and non-tariff barriers — can be a powerful trigger for structural reforms.

But European competitiveness also hinges on investing in its biggest asset: the skills of its workforce. A key labour market policy worth promoting is precisely the creation and the promotion of a trained workforce, through bargaining between employers and employees, to help that workforce adapt to technological and market changes. The European knowledge economy must be firmly based in the knowledge and skills of its workforce. And maybe this is an area where pooling resources on a European scale would allow better economies of scale and positive spillovers.

Linked to skills are obviously the technology programmes in areas such as energy, environment or applied research. These should encourage co-operation among firms, including those that compete against each other rather than support national champions. And this is why, here again, Europe would do well in leveraging its size.

But in my view, the biggest task ahead of you is to re-establish the conditions for real convergence within the European Union. This requires reconsidering both national and European policies that are growth-enhancing, whether in the form of regional policies, labour policies, skills and innovation policies or competition policies.

You would have noticed that in my intervention I have carefully avoided entering into the current debate of austerity versus growth. I have not done it because I think this is the wrong debate to have today. The United States which is going through a fiscal adjustment twice as fast as that of the European Union is also showing positive growth rates. Both are needed. Doing both is perfectly possible, provided that they are done in the right doses and in the right sequence.

One last point, fiscal prudence and growth need not be at the expense of social safety nets. We also have the example of this in Europe. And this is precisely the specificity of the European model: “Sozialmarktwirtschaft”, somewhere between “big Wirtschaft” and “small Sozial” or “small Wirtschaft” and “small Sozial”!

Thank you for your attention.