EC Reflection Paper on Harnessing Globalisation AN OVERVIEW DAVID SAMMUT DIRECTOR, INTERNATIONAL ECONOMIC POLICY ECONOMIC POLICY DEPARTMENT MINISTRY FOR FINANCE
Stems from the EU Commission “White Paper on the Future of Europe” Series of Reflection papers published by the EU Commission on: • The social dimension of Europe • Harnessing globalisation • The deepening of the Economic and Monetary Union • The future of European defence • The future of EU finances 2
Taking Stock of Globalisation and its Effects • Globalisation is not new but changing fast: supply chains have gone global • Trade went from representing 20% of world GDP in 1970s, to about 50% today • While traditional trade is stabilising, other forms of exchange such as data flows, are growing exponentially- aimed to represent 4% of overall EU GDP in 2020 3
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Positive force for change… • A more connected world bringing more opportunities: people have more opportunities to exchange ideas • Countries can produce more for less through specialisation and exploiting economies of scale in global markets • European exports have grown due to demand for quality goods and services 5
Positive force for change… • Greater choice of imports at lower prices: lifts living standard • FDI flows provide a key source of capital and technology transfer • Scarcity of natural resources leading economies to shift from fossil fuels to develop more clean and resource-efficient technologies, raising environmental standards • Lifted millions out of poverty and improved standards for many more 6
…but it also brings challenges • Benefits are not spread equally, especially for those less adaptable to change and competition • Changes in various sectors resulting in factory shut-downs, job losses, downward pressure on wages and conditions • Unfair trading practices: dumped imports; subsidies; lack of reciprocity in opening markets • The Commission is concerned with risk of widening inequalities if effects of globalisation are not addressed 7
Looking ahead Virtually all sectors will be changed: Transport with driverless and connected cars, drones and car- sharing; Energy with smart grids, renewable energy and distributed generation; Agri-food with climate-friendly farming and applications to reduce food waste; Telecommunications with more powerful networks, virtual reality and virtual workspace; 8
Looking ahead Further changes: Distribution networks with the growing importance of e- commerce; Financial services with virtual banks, insurance and crowdfunding; Factory production with increased automation; Health care with online diagnosis and increased cross-border mobility of medical professionals. 9
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Challenges for Europe • How to innovate in strategic technologies and help workers to gain the right skills to avoid widening the gap in the labour market • Embrace the digital economy-using digital technology and e- commerce to increase cross-border opportunities, while mitigating challenges such as data protection, cybersecurity and abuses of market power 11
Challenges for Europe • Investment by governments to narrow gap between countries in: ◦ education for technological skills ◦ encouraging innovation ◦ ensuring fair competition ◦ regulating smartly where needed • Prepare for a global, mobile workforce and mitigate the threats that come along with a more interconnected world 12
Challenges for Europe • Temptations of isolationism or inaction will have to be resisted; • Protectionism leads to long-term negative consequences through disruption of production and increasing costs and prices for consumers; • Governments and Multilateral organisations need to instil more global governance and global rules along with domestic policies that boost our competitiveness; 13
Europe’s External Response • Establishment of multilateral organisations and agreements: UN, IMF, World Bank, WTO-which brought peace, stability, trust and prosperity to many • Post-financial crisis: G20 governments agreed on a coordinated programme to support the global economy through more robust global rules on financial markets and to fight tax avoidance • Other initiatives: 2030 Agenda on Sustainable Development Goals (SDGs); UN summit in 2016 on migration; WTO Agreement on Trade Facilitation 14
More should be done… Global rulebook remains far from complete…. • More regulation needed on Digital Economy • Rules for a level playing field that address harmful and unfair behaviours such as tax evasion, corruption, resources extraction, illicit financial flows, harmful government subsidies or social dumping 15
More should be done … • Multilateral cooperation with global partners as preferred EU approach, or at least cooperation with smaller coalitions while leaving door for others to join (plurilateral approach) • EU initiatives: promoting 2030 Agenda on SDGs; Consensus on Development; Proposed External Investment Plan • More integrated and pro-active European economic diplomacy- requiring more coordination between EU, Member States and Financial Institutions 16
The EU should continue to ... • Develop balanced, rules-based and progressive trade and investment agenda • Opening markets in a reciprocal way • Enhancing global governance on issues like human rights, working conditions, food safety, public health, environmental protection and animal welfare • Uphold EU and Member States high standards and protect citizens from unfair competition 17
The EU should continue to ... • Ensure international economic and financial rules that support more effective mechanisms at global level; ensure stability of financial sector, facilitate e-commerce; promote convergence of technical standards • Improve social and labour standards • Ensure efficient globalisation-minimizing costs and use less resources, reducing pollution • Engage in cultural diplomacy • Pull together and speak with a single voice 18
Restore a level playing field • Better enforcement of existing agreements and strong enforcement of our own EU rules • Customs risk management to facilitate and accelerate legitimate EU trade while ensuring safety of citizens • Protection of international investments through Multilateral Investment Court to replace ISDS • Effective Trade Defence Instruments / Public Procurement through International Procurement Instrument • Openness to Foreign investment • Tax justice and transparency 19
Europe’s Internal Response Robust social and education policies are key to ensuring resilience and fair distribution of wealth National Level • Address inequalities and foster social inclusion of more vulnerable categories of people • Empower through lifelong learning and equal access to education and training • Facilitate access for all to the job market through a modern and effective labour market EU level • Implementation of the Pillar in the European Semester process • EU structural and investment funds to promote essential investments • Major efforts to make Europe more competitive 20
Making Europe more competitive and innovative • Innovation • Investment • Sectoral Policies • Regulation and taxation • Proper functioning of the Internal Market 21
Empowering Regions • Benefits of globalisation are widely spread, but costs are often localised • Targeted regional policies addressing investment needs, skills gaps and regulatory obstacles to maximise benefit from the internal market and prepare for challenges of globalisation • Example of assistance: European Structural and Investment Funds to support regions with smart specialisation strategies • Innovation clusters linking up companies, universities, start-ups, investors and local governments must be further developed and linked up across Europe 22
Harnessing Globalisation-A Shared Task EU Level • Trade agreements to open markets and enforce a level playing field • Measures to address tax avoidance and evasion as well as tax erosion • Promotion of globally relevant regulatory standards • Trade Defence Mechanisms • European budget (such as EFSI, ESIF, GAF, Horizon) • European external investment plan • Development assistance • Product and food safety 23
Harnessing Globalisation- A Shared task Member State Level • Provision of education and training • Active labour market policies and instruments to assist workers • Social fairness through taxation • Development assistance • National investment plans • Infrastructure spending • Research and development 24
Harnessing Globalisation- A Shared task Regional Level • Modern infrastructure provision • Cluster policies and smart specialisation • Land and sea logistics networks • Effective use of regional funds (EFSI, for example) • Provision of education and training Local Level • Smart city solutions • Integration of migrants • Innovation hubs and entrepreneurship incubators 25
Conclusion • Process of globalisation not be smooth but cannot be stopped or reversed • Pro-active approach: important not to let globalisation shape our destiny but rather take the opportunity to shape globalisation in line with our own values and interests • Globalisation can be beneficial where it is properly harnessed • Concerted effort required from regional to European level 26
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