Evaluation of Foreign Economic Policy in the 18th Legislative Session

Stefan Mair © BDI

In the 18th legislative session, the Federal Government and the Bundestag further developed the legal and economic framework for companies that are active internationally. As Stefan Mair, Member of the Executive Board of the BDI, explains, the economic ties with important foreign markets have improved, the promotion of foreign trade has been further developed, and progress has been made in development cooperation. However, much remains to be done in the area of trade and investment policy.

Hardly any other country is as closely integrated into international trade flows and value chains as is Germany. Compelling proof of this is the ratio of imports and exports to GDP in Germany – 84.4 percent. Every fourth job depends on exports, and in the manufacturing sector it is every second job. Germany is a winner of globalization. But for German companies, success in foreign markets is only possible if they are able to prove their ability to compete on those markets. Thus, in times of increasing protectionism and other global uncertainties, demands on policymakers to make the right decisions in foreign trade policy and in the shaping of globalization also increase. However, there are many decisions in the area of foreign economic policy that the Federal Government and the Bundestag cannot take entirely on their own. Under the Lisbon Treaty, trade and investment policy is largely the responsibility of the European Union. Similarly, in the World Trade Organization (WTO), the G20 and the G7, Germany’s voice is just one of many. On the other hand, in foreign trade promotion with regard to bilateral economic relations and in development cooperation, the Federal Government more or less has a free hand in the promotion of foreign trade. In the 18th legislative session, the Federal Government was actively involved at every level of foreign trade policy. From the perspective of Germany industry, the results have been mixed.

Trade policy: Bilateral agreements, WTO

In recent years, the Federal Government helped to conclude important free trade agreements, including with Canada, Vietnam, and Singapore. Moreover, it took part in negotiations on other agreements – for example, with Japan, Mexico, the Philippines, and the Mercosur regional bloc. In the negotiations on TTIP, the Federal Government had a strong voice not just vis-à-vis the United States and the European Commission, which led the negotiations, but also in the often controversial public discourse. In view of the prevailing public criticism and the complexity of the negotiations, a rapid conclusion of the agreement was unrealistic. Nonetheless, it would have been beneficial if the Federal Government had clearly defended this important project throughout the process instead of at times questioning the agreement. In the area of multilateral trade policy, the Federal Government was able to contribute to concluding important agreements on trade facilitation and on information technology through its efforts in the WTO. Unfortunately, large parts of the Doha Round agenda have still not been completed, and the worldwide trend towards increased protectionism continues.

Foreign trade promotion, anti-dumping, and export control

From the perspective of industry, the further development of foreign trade promotion and the increase in funds for this purpose during the 18th legislative session are positive overall. Another positive is that the Federal Government pushed for balanced but effective anti-dumping procedures in the reform of trade defense instruments – especially during the discussions about China’s market economy status. In other policy areas, the evaluation is mixed. For example, German industry would have welcomed the expansion of the Hermes guarantees. Moreover, we cannot support the European dual-use reform in its current version. While the BDI backs the goals of the reform and is committed to a better protection of human rights, the instruments proposed by the European Commission are unsuitable both in terms of security and of economic policy. Furthermore, there is a concern that companies will be overburdened by having to carry out political assessments.

Protecting and screening of investments

In the 18th legislative session, the Federal Government made a very important contribution to further developing Investor-state dispute settlement with its proposals for the establishment of an Investment Court System. These proposals were adopted by the European Union and have been incorporated not only into the EU’s own negotiation proposal for a chapter on investment protection in TTIP but also into the already signed agreements with Canada and Vietnam. From the point of view of the German industry, the negotiations on an investment promotion and protection agreement between the EU and China are positive. Tightening controls over foreign investment, a discussion initiated by the Federal Government in the past few months, would be negative. Control rights based on economic criteria would constitute a major interference in private property and freedom of contract – two of the main pillars of the social market economy. Germany depends on an open investment climate. Thus, this discussion is sending the wrong signals, not least at a time of growing protectionism around the globe.

Promotion of global governance in difficult times

The Federal Government has successfully made use of the 2017 G20 Presidency to promote an active role in shaping globalization. This is thanks to its clear commitment to free trade, a multilateral trading system, and the need to oppose protectionism – despite an increasingly difficult environment. Setting the right priorities on specific issues such as digital trade has played a major role as well. It is dissappointing that the G20 did not deliver a joint message on climate protection and did not come up with mechanisms on carbon pricing, but the commitment of the remaining 19 G20 members to implement the Paris Climate Agreement and the launch of the G20 Resource Efficiency Dialogue can be counted as a success. The G20 Leaders were able to forge a consensus on trade, committing to open markets, to fighting protectionism and upholding a rule-based trading system. The compromises that were forged reflect that international cooperation is indespensable in an increasingly volatile global political and economic environment.  

Progress in development cooperation

During the past four years, the Federal Government’s work in the area of development policy has been positive overall. It is important to note that policymakers have recognized the role of the economy in development cooperation and the need for a paradigm change. Thanks to the various Africa initiatives of the Federal Ministries and the Government’s White Paper, the foundation has been laid for a stronger involvement in Africa. Now concrete and coordinated steps towards implementation must follow. The BDI is in favor of a closer interlinkage of foreign trade promotion and development cooperation. To strengthen the dialogue between industry and development cooperation players, more advisers with specialist experience in development cooperation have been deployed. Also, more partner structures for German industry have been created (global business desks, the German Society for International Cooperation, German desks, the German Investment and Development Corporation). What is needed now are improved instruments of financial cooperation to make it easier for small and medium-sized enterprises in developing and emerging countries to access markets. Technical cooperation should be expanded so that investments can have a lasting impact. Finally, political support abroad should be improved.

Economic ties with international markets were expanded

Significant progress was made during the 18th legislative session towards improving economic ties with foreign markets that are important for German industry. The strategic partnership with China was strengthened through regular high-level political meetings. The German-Chinese Economic Advisory Committee convened four times. Moreover, an innovation partnership has been established. Meanwhile, regular government-level consultations have taken place with India. However, a visit to that country by a Federal Economic Minister, joined by a trade delegation, is long overdue. The strategic partnership between Germany and Brazil has been deepened – for example, bilateral government-level consultations have been taking place since August 2015. The new Africa policy initiative of the Federal Government is helping Africa to be seen as a continent of opportunity. Means of protecting business dealings in sub-Saharan Africa and association partnerships have been developed. The TTIP negotiations contributed to stepping up the dialogue with the United States about the improvement of the transatlantic trade partnership. Following the standstill in the TTIP negotiations, these efforts must be continued regardless of what concrete form the discussions take. Economic ties with Russia have been overshadowed by the Ukraine conflict and reciprocal sanctions. Within the EU, the federal government managed to ensure a uniform approach towards Moscow and prevented a further escalation of the situation through the Minsk agreement.

Dealing with growing criticism of globalization

During the course of this legislative session, the Federal Government was confronted with the challenge of the growing criticism of globalization, especially in relation to the TTIP negotiations. This became ever louder, especially in relation to the TTIP negotiations. It was only late in the day that the Federal Government responded to the critics through arguments and offers to engage in a dialogue. The establishment of the TTIP Advisory Group – in which business and civil society were equally represented – was a step in the right direction. When drafting new investment protection and promotion agreements, the Federal Government entered into an active dialogue with critics and hammered out proposals for modern, reformed investment protection. In doing so, it succeeded in balancing the interests of business and civil society in many ways. But unfortunately, the Federal Government was unable to halt the trend of increasing skepticism towards globalization.

Considerable amount of work remains to be completed in the 19th legislative session

Within the powers given to them, the Federal Government and the Bundestag have furthered many foreign economic policy projects that have enhanced the competitiveness of the German industry in the world markets. However, by no means could all policy challenges associated with the increasing integration of German companies into the world economy be overcome. Opening global markets and the struggle against protectionism demand increased efforts towards the further development of the WTO, the conclusion of new trade Agreements, and the shaping of the global economic order within the G7 and G20 frameworks. German companies engaging in business abroad must receive better support – for example, through modern export controls and Hermes covers. The climate for foreign direct investments must be improved through clear commitments to openness and further reforms of investment protection. The next government will have its work cut out for it to improve economic ties with important foreign markets, especially as regards the transatlantic relationship. And this means that in the 19th legislative session there remains a substantial amount to be done by the Federal Government and the Bundestag in the area of foreign economic policy.

Dr. Stefan Mair is a Member of the Executive Board of the BDI.