Major Challenges for Foreign Trade Policy

Christian Diemer © Heitkamp & Thumann KG

Christian Diemer © Heitkamp & Thumann KG

Germany is one of the winners of globalization. Like no other, German industry relies on open markets. The growing number of trade conflicts poses major challenges for European foreign trade policy. Christian Diemer, the chairman of the BDI Committee on Foreign Trade, speaks about the international orientation of our economy and the importance of the global regulatory framework and new free trade agreements.

Mr. Diemer, since April of this year you lead the BDI Committee on Foreign Trade – the foreign-trade parliament, so to speak, of German industry. What challenges are German companies confronted with today?

Our companies are at ease in the global marketplace. The volume of German foreign trade is almost as large as our overall economic output, with a total approaching 3 trillion euros. Moreover, through Foreign Direkt Investment (FDI), our companies are internationally integrated: almost 7 million people are employed abroad in companies with German shareholders.  This international orientation is essential for German industry. Our companies are globally competitive and thus safeguard jobs in Germany. However, this success is dependent on the economic framework conditions – for example, an environment of openness, free trade, and sound regulations. Currently, changes are taking place in these areas. In particular, the United States is pursuing its own new path. It is increasingly calling into question the rules-based trade regime and showing no willingness to further develop multilateral agreements. The United States Government appears to no longer base its decisions on building on consensus among its trade partners but rather, opting more and more for confrontation.

Through its pursuit of state capitalism, China had already posed a challenge in previous decades to fair, international trade. Market access was often possible only within the framework of politically controlled, bureaucratic decisions. In recent years, however, we have seen liberalization efforts.  Through the measures undertaken by the United States, China is now being provoked into returning to protectionism and unilateral national actions. In global terms, openness for trade and investment is decreasing rather than increasing, and the insecurity on world markets is growing. For our companies, the situation is exacerbated by growing competition from emerging economies, which are more and more often serving those markets in which our enterprises have been traditionally strong.

You have sketched the major developments related to globalization. It is not just Germans who are affected by these developments but the world’s 7 billion citizens. Can German policy have any real influence over these developments? What opportunities do you see to improve the conditions for German companies on world markets?

Shaping international framework conditions will indeed become more difficult because the balance of power – economic, demographic and technological, for example – is shifting to the disadvantage of Germany and Europe. For this reason, our policymakers must exploit every opportunity to establish an intelligent international regulatory policy. This means, first of all, making the right decisions at home, in order to set a good example. Germany cannot afford to go it alone, and Europe must demonstrate its openness for international trade and investment from regions outside Europe. At the moment, it seems to me that some policymakers are overanxious about Europes “technologically selling out.” Foreign investment must be continually welcomed. The state should exercise no more control than is necessary to safeguard national security. We must of course clarify the exact boundaries of this control in our discussions with policymakers.

Second, in the globalization process, it is especially important for Germany that the EU becomes stronger. Only by working together with our European partners can we bring significant weight to bear in the shaping of the international order. Third, it is important to support the international institutions instrumental in shaping the global order and to participate in them with full commitment. The World Trade Organization plays a central role here. It must be strengthened and reformed. We must make every effort to get the United States on board. We also need the WTO to rebalance competition regulation in order to take Chinese state capitalism into account. In this context, international dialogue forums such as the G7 and G20 will become increasingly important. The German government and the EU must use these forums to maintain a rules-based and open global economy. If this order were to collapse, our competitiveness would be at risk. At the same time, we should further open markets through bilateral negotiations with important trade partners.

You mention trade and investment agreements. Many people today would think, above all, of TTIP or CETA in this context.  Plans to improve trade between the EU and its close partner, the United States, failed because of criticism from the general public and policymakers, among other things. How do you rate the chances of reining in growing protectionism worldwide through preferential trade agreements?

In the TTIP negotiations, mistakes were made. For example, policymakers did not inform the public early enough about what, in fact, was being negotiated and which stage the negotiations had reached. It is true that discretion makes sense when agreements are being negotiated; for many decades, discreet negotiations were the norm, and by the way, they yielded good results.  But during the course of the TTIP negotiations, the wider public showed, for the first time ever, an interest in receiving information about international trade agreements. Policymakers did not manage to respond quickly enough to the altered circumstances. Today the EU’s trade policy is much more oriented towards dialogue, and modern agreements take the legitimate criticisms that were made previously into consideration. This can be observed, for example, in the area of investment protection, where the EU has developed a new model – one that conforms with EU regulations – for dealing with investor-state arbitration.

Meanwhile, European trade policy has made considerable progress. In 2017, almost all customs duties in trade with Canada were dismantled through CETA.  In 2018, Europe and Japan created the world’s largest free trade zone with their Economic Partnership Agreement. Moreover, the free trade agreement with Singapore will soon enter into force. Finally, this year, the EU will negotiate industrial goods tariffs and regulatory issues with the United States in an important step considering the trade policy of U.S. President Donald Trump, which is aimed at national autonomy. Thus, Europe is moving forward with the conclusion of trade agreements. But we must work even harder to ensure that companies make full use of existing agreements. In this area, the BDI has laid bare various shortcomings. Policymakers must work towards improving the possible applications of trade agreements. For instance, the burden of red tape in customs administration must be reduced and companies must be kept better informed about the opportunities offered by the agreements.

Christian Diemer is the CEO of Heitkamp & Thumann KG and chairman of the Committee on Foreign Trade of the Federation of German Industries (BDI).