Germany and trade: why we must talk

In a special to the OECD Observer, Mr Müller explains why Germany wants broad-based trade talks to forge ahead. For Doha to succeed, industrialised countries may have to make some substantial concessions.

In a few weeks the fourth Ministerial Conference of the WTO will be held in Doha, Qatar. Together with the European Union as a whole, Germany will endeavour to ensure that a new, comprehensive trade round is initiated at the conference. Given the increasing level of international trade flows, it is essential that the rules of the WTO are further developed and adapted to the challenges of globalisation. A balanced agenda for the negotiations must cater in equal measure for the interests of both industrialised and developing countries.

Trade has always been strategically significant, and common rules have needed to be laid down. This is shown by the first known written agreements, dating from the 3 rd century BC, which concerned questions of trade. A country like Germany, which has few raw materials of its own, owes much of its present prosperity to trade. In Germany alone, around a third of GDP is dependent on exports. On average, one job in four depends on trade.

Over the past five decades the increase in trade flows has been disproportionately high, and world trade has increased by a factor of seventeen. The current volume of trade in goods and services amounts to over US$ 1 billion per hour.

It has long been recognised that trade rules could not be expected to develop spontaneously, that certain basic rules needed to be established. The establishment of the General Agreement on Tariffs and Trade (GATT) was a sound and forward-looking economic policy move. This is strikingly evident from the fact that the GATT – founded in 1948 though never formally entering into force – was always generally respected in the form of a gentlemen’s agreement. In the eight rounds of negotiations it held, it succeeded in lowering customs duties in the industrialised countries from 40% to an average level of 4%.

GATT’s replacement by the WTO in 1995 was the obvious next stage, providing the only multilateral regulations governing trade worldwide. It is in the German and European interest to strengthen this organisation and help it maintain the worldwide recognition it has rightfully earned. Moreover the importance of the WTO regulations goes far beyond trade itself. The increase in international integration as a result of continuous trade flows ensures political stability. In addition to its economic importance, it has profound foreign policy implications.

Why now?

There are economic reasons for holding a new trade round now rather than later. The removal of existing barriers to trade leads to greater prosperity: economic studies are based on the belief that a reduction of trade barriers by a third in agriculture, services and manufactured goods can produce economic gains amounting to US$613 billion, equivalent to the GDP of Canada, a G7 country. The removal of all impediments to trade would produce economic gains as high as US$1.9 trillion, the equivalent of twice the GDP of China. For Germany the increase in prosperity, should the targets set for the trade round be reached, is estimated at around DM23 billion, with the creation of 55,000 additional jobs.

But the political dimension of a new world trade round is not to be underestimated. Since Seattle, trade policy has become an explosive issue in the public mind. Many social groups, particularly in the industrialised countries, are demanding regulations for globalisation. The age of simple tariff rounds is over. The close connection between free trade and the environment, social conditions, food safety and the provision of vital medicines can no longer be ignored. This means taking the very positive step of laying down rules for trade in a global market on a democratic basis.

There is no other alternative. The absence of multilateral rules would result in uncontrolled abuse on the part of those with the most economic power at any given time. The message for foreign affairs must be clear: trade creates common interests and international integration and thereby increases political stability.

Development is another important consideration. Hitherto people in developing countries have derived very little benefit from the trade system. The majority of the world population lives in dire poverty. The causes of this are manifold and are not normally related to trade policy. War, bad government, corruption, mismanagement and natural disasters hinder the economic development of many countries.

Germany has a particular interest in changing this situation and enabling developing countries to play a greater part in international trade. As the second largest trading nation in the world, we feel we have a responsibility in this area. At the same time we realise that substantial concessions will be required on the part of the industrialised countries. At present there are still far too many trade barriers, either confronting developing countries or in the developing countries themselves, and these barriers need to be removed.

Germany managed to ensure that the “Everything but Arms” initiative was successfully adopted as part of EU policy in February 2001. It gives the poorest developing countries completely free market access in the EU for all but a few sensitive products, for which there are interim regulations. As part of the trade round it is also necessary to introduce measures to facilitate trade for the other developing countries, notably trade in textiles and agricultural produce, in which developing countries are particularly competitive.

The greatest threat to developing countries is not globalisation, but marginalisation. Developing countries are in urgent need of a trade round that will enable them to further their interests and benefit from the multilateral system. Associated with a comprehensive development strategy, free trade is an indispensable precondition for prosperity.

Main concerns

The agenda for a new round must fully cater for everybody’s particular areas of concern. Only if the content of the round is broadly based will it be possible to ensure that balanced results are achieved at the end and that all those participating in the negotiations feel that proper account has been taken of their interests.

In addition to the negotiations over agriculture and services, already underway, the traditional trade themes belong on the agenda, particularly the lowering of customs tariffs, the elimination of quotas, the removal of non-tariff obstacles to trade, and anti-dumping.

For Germany the “new” themes of environment, investment and competition are particularly important. We must give careful consideration to the arguments of those opposed to globalisation. However, we cannot turn back the clock, as many demonstrators want. The free world market offers more in terms of opportunities and advantages than disadvantages. The world trade system has to be developed. Internal and external transparency must be increased and the participation of democratic institutions and society has to be improved. In addition, account must be taken of environmental protection, social development, food safety and the provision of vital medicines. In our view, multilateral agreements on investment and competition are necessary adjuncts to the system. And it is essential that the International Labour Organisation and the WTO engage in an ongoing, high-level dialogue on the question of “core labour standards”.

Since Seattle, it has become clear that the successful achievement of a trade round depends on the agreement of the developing countries, which make up a four-fifths majority of the WTO member states. With the other EU member states we shall strive to ensure that the justifiable interests of these countries are taken into account at the Ministerial Conference in Doha and in the context of a trade round. Concessions on subjects of importance to developing countries, such as the implementation of the Uruguay Round, market access in areas where developing countries are competitive, and willingness to provide technical assistance will be key.

©OECD Observer No 228, September 2001 

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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