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EU’s Malmström: bad domestic policies also make trade unfair

EU’s Malmström: bad domestic policies also make trade unfair
Photo credit: Institute for Money, Technology and Financial Inclusion

05 Jun 2018

EU Trade Commissioner Cecilia Malmström says domestic policy choices, such as taxation, are just as responsible as global trade rules for determining who benefits from globalization.

Rising discontent with how the spoils of globalization are distributed has targeted the rules of multilateral institutions, such as the World Trade Organization (WTO), but EU Trade Commissioner Cecilia Malmström has said that domestic policies, such as taxation, deserve their share of the blame.

The European Union’s top trade official was speaking in Geneva at the opening session of the annual gathering of UNCTAD’s governing body – the Trade and Development Board​ – meeting at the Palais des Nations from 4 to 12 June.

The discussion focused on the crises facing the multilateral trade system, the latest being what some analysts fear could turn into a “trade war” following Washington’s decision to impose tariffs on steel and aluminium, which prompted threats of retaliation from US allies Canada, the European Union and Mexico.

EU officials including Ms. Malmström have called the US decision illegal and a classic case of protectionism and opened a dispute settlement suit at the WTO.

While Ms. Malmström did address the current trade frictions with the United States – taking the opportunity to defend the EU’s stance and caution against talking about a “trade war” – she spoke more about the bigger picture of growing public backlash against multilateralism and trade.

She said that while international institutions should take to heart people’s concerns that trade is doing more harm than good, and ensure the rules are fair and respected by all – including the most powerful nations ­– organizations like the WTO can only do so much.

“It’s up to the individual countries to make sure the benefits of trade trickle down,” Ms. Malmström said.

She added: “We know that the benefits are there. [Trade] has lifted millions of people out of poverty…But it has to trickle down in a responsible way. It has to be distributed. There we have tax systems and social systems. And that is the responsibility of every country.”

Trade rules won’t fix the poverty crisis

UNCTAD Secretary-General Mukhisa Kituyi echoed Ms. Malmström’s view that trade rules are only part of the story.

“The crisis of poverty is not exclusively a crisis of trade rules,” Dr. Kituyi said. “Development is not only about rule making.”

While designing better rules is important, he said, countries must also ensure they have in place the institutions, infrastructure and skills necessary to trade effectively.

He gave the example of UNCTAD’s ASYCUDA programme, which helps developing countries automate their customs procedures, significantly reducing corruption and trade delays.

In Afghanistan, he said, it has helped reduce clearance times from 18 hours in 2003 to around an hour, and to increase customs revenue from $50 million to over $1 billion.

“We are very glad to demonstrate that one of the most successful acts of trade facilitation in the world is ASYCUDA. But ASYCUDA predates the WTO agreement on trade facilitation by decades,” he said.

Yonov Agah, the WTO’s second in command, agreed that countries often focus too much on gaining access to markets and not enough on ensuring they’ve got the right strategies to benefit.

“You could have market access but if your domestic policies do not gear you towards benefitting from those market access conditions, you lose out,” Mr. Agah said.

“What kinds of domestic policies are you putting in place to ensure that the benefits flow down to the different segments of your society?” he asked.

Mr. Agah said therefore that just as important as making the system fair is ensuring governments have the right policies in place, and that UNCTAD could help countries better understand the different policy options available to them depending on their own priorities.

“Whether you are a least developed country, developing or developed, each economy has to look at its specific social, political and sometimes even geographic conditions, and then, based on the analysis by UNCTAD, begin to look at the policy choices that it needs to make,” he said.

UNCTAD can help the WTO out of deadlock

Tudor Ulianovschi, Moldova’s foreign affairs and European integration minister, and outgoing head of the Trade and Development Board, said that UNCTAD could also play an important role in finding solutions to the current challenges facing multilateral trade discussions in the WTO, for example on ending harmful fisheries subsidies.

“UNCTAD is a conference, it’s a place for discussions without having this sword over its head. It doesn’t regulate like WTO and this is a particularly good opportunity,” he said.

“It puts people together to discuss on the issues where in other circumstances, or across the street in the WTO, they are not being discussed or they are from the beginning confrontational or contradictory,” he added.

For Ms. Malmström, UNCTAD is particularly well-suited to help WTO member countries out of the deadlock on the current round of negotiations, often referred to as the Doha Development Agenda since the fundamental objective is to improve the trading prospects of developing countries.

Officially launched in 2001 at the WTO’s fourth ministerial conference in Doha, Qatar, the negotiations have seen little progress.

She said that moving forward on the development agenda is key to securing the WTO’s future.

“UNCTAD is certainly very well suited to give us in the WTO guidance on how to come out of this situation,” she said.

“And the more UNCTAD can do here to feed into that discussion – it will take some time and it has to take its time as well – I think the better [the discussion] will be.”