"East meets West" is a wide subject, and difficult to cover in one article - but Commissioner McCreevy discusses the rise of the East and highlights few key thoughts on the relationship between EU, Russia, India and of course China.
It is an honour for me to be your guest this evening at this prestigious gathering of the Burren Law School. And it is a pleasure to address you in such a wonderful location. Historical places such as Newtown Castle, where we've just been, have a special atmosphere – it evokes the past, in the setting of the present, as we look to the future – which is no doubt an integral part of the annual gatherings here in Ballyvaughan.
In addressing the theme "East meets West – a clash of Cultures?", I should say that where I come from, where East meets West should ideally be in Croke Park on an All Ireland Sunday when Kildare take on Galway or Mayo. But that's for another day – hopefully not in the too distant future.
For this evening, I intend to focus on the developing economic relationship between the European Union and the East – India, Russia and particularly China.
The idea of a clash of cultures or civilizations is not new. It is as old as time itself. Yet, it has never been so topical and tangible. Why? The breakneck speed of advances in technology and transport, together with the lowering of the cost of communication via email and the internet, have introduced a highway that provides for 'access all areas'. We now find ourselves doing instant business with someone on the other side of the world.
The culture, the traditions and heritage of countries like China, Russia and India are undeniably vastly different to those of the West. So of course there are and will continue to be clashes of culture. But there is one thing that has always transcended those differences – and always will. That is trade. Throughout history, people have traded with each other - bartered a surplus of one product for the supply of another. And that old saying that "A fair exchange is no robbery" still stands. In the globalised world of today, business is business and culture is something else.
Almost overnight, the impact of China's growth is being felt in many areas, from trade and investment to the environment and climate change. The emergence of new economic powers on the Eastern flank of Europe – from Russia to India and China – is changing our perception of social and political realities. We are waking up to the realisation that there are now new centres of economic activity in the world. This can only be good in improving the well being of all - even if the rise in the price of food and other commodities reminds us that there are short-term downsides that need careful managing.
My job as Commissioner for the Internal Market and Services is not only to break down barriers within the 27 Member States, but also to make our markets more accessible to third countries and their markets more accessible to us, through working to achieve more convergence between their regulatory framework and ours.
When I look East, of course I recognise threats – but mostly I see opportunities. Huge opportunities. The rising living standards of billions of people in the East has created bigger markets for the high value added manufacturers and service providers from the West - and the European Union in particular.
The figures speak for themselves. Global growth is forecast to be between 3% and 4% in 2008, but the main engines of that growth will be China, India and Russia. If the US and EU economies slow down, we will depend on the emerging economies to take up some of that slackening demand. This is the reality of our global economic interdependence.
The growth boom that is reshaping the East has created a huge potential market for our goods and investment. Twenty years ago, there were not that many European businesses in China, India or Russia. Now they are increasingly present, taking advantage of these booming markets. There are scores of Irish companies operating in China today where two way trade is already worth billions of euro.
The recent acquisition by the French Société Générale of Rosbank, one of the leading Russian banks, is a prime example of how the East and the West now do business together on a grand scale. The reason why European exports are rising at 8% a year is because we are benefiting from these new markets.
The rate of development in China in all its spheres is simply astonishing. A business friend of mine told me recently that the boom in construction in Shanghai is so intense that the street maps have to be redone every couple of months. It's not just street maps that have to be redrawn. The emerging countries of the East have also embarked on a thorough modernisation of their legislative and regulatory framework. This provides a unique opportunity for the EU to influence these changes upstream. Europe is well positioned to take advantage of an ever more globalised economy, and the internal market – and the efficiencies and scale of economies it offers - is our trump card.
Over the years, we have built a single, high quality set of rules for the efficient functioning of the Internal Market. This single "rulebook" has become a reference worldwide. If we want to make globalisation deliver for Europe, we need to expand the EU's regulatory space beyond the borders of the Union - notably eastwards - be it through formal agreements, international standard setting or regulatory dialogues.
Inevitably, with the large trade surplus that the East is now running, it has become an increasingly important source of liquidity for the West. This has led to the creation of Sovereign Wealth Funds willing to invest in our markets in order to diversify their holdings. It is in our interest to welcome them; our markets and our economy need them, especially at times of economic volatility. Think of the financial services sector. These funds have proved to be a very useful source of capital for the financial institutions affected by the current crisis. Indeed, many of the Sovereign Wealth Funds that were being demonised by the Left in 2006 and the first half of last year have become the 'Saviour Wealth Funds' since the middle of 2007 and into this year.
But the East is, of course, also a challenge for the West, and the European Union in particular. Globalisation is not without pitfalls. It can be unbalanced, especially if some players don't play by the rules. Free Trade has to mean Fair Trade, and free markets in the West do not mean a free lunch for the East.
Let me start with trade imbalances, a cause of growing frustration in Europe. Here I would like to focus mainly on China, our biggest concern in terms of the scale of the trade deficit is the pace of its growth. In fact, the EU-China trade deficit is growing by 15 million euros every single hour.
We must recognise that the possibility to import low cost goods in the EU has been an important counterbalance to inflationary pressures. Those on low incomes have benefited from the lower prices of Chinese goods in particular. However, in opening our economy to China, we need to push China to open its economy to our industries. In that way we can re-balance the trade relationship. Not by reducing Chinese exports to Europe - that's not what we're asking for – but by improving the terms on which European companies trade in China, and combating discrimination against them.
Europe's exploding trade deficit with China can be reduced if some of the regulatory and trade barriers that European firms face in trying to access the Chinese market are removed. Take the financial services sector for example. The list of regulatory barriers is long, from discriminatory rules on the establishment of foreign banks and limitations on the scope of their business, to the exclusion of foreign insurers from statutory insurance business, and very high capital requirements for foreign banks and insurance branches. Such barriers are not in the spirit of China's commitments to the WTO. We have and will continue to keep pushing for more open markets, but Chinese policy makers know that for China to play a full part in the global economy, they have to provide reciprocal opportunities for other countries and businesses to invest there.
It would be a mistake to ignore the social and political pressures which exist within rapidly changing societies. China, India and Russia will be faced, sooner rather than later, with social pressures. When I was in Beijing last year, I had a very enlightening conversation over dinner with a Chinese Minister. His concern was how to manage an economy where people in the countryside did not have the same access to medical and other services as the people in the cities. He wanted to know how our new Member States had coped with the move from planned economies. He wondered how a universal health service be provided? With increased wealth and with increasing income gaps, the internal social problems were the biggest priority for the authorities. We seem to forget the huge internal pressures that exist in a country as vast as China. It is no more possible to rule China from Beijing than it is to govern Europe from Brussels.
Of course there is the continuing damage being caused through factories producing counterfeit goods on an industrial scale. Something in the region of 80% of fake goods intercepted on their way into the EU are made in China. And India has built up an industry producing the vast majority of fake pharmaceutical products. In 2006, seizures of fake pharmaceutical products increased by almost 400%.
The idea that The West makes it, then the East fakes it, is a common refrain from many EU industries.
The statistics are staggering – not only in terms of the economic damage being inflicted on the European economy, but more importantly the threat to the health and safety of our families. To focus on this issue, I am holding a high level seminar on counterfeiting and piracy in Brussels on May 13th next. The day long event will air and debate tackling this modern day highway robbery, as well as raising awareness among consumers that in the end, fakes cost more. My own personal view has always been that if something sound too good to be true...it is.
Intellectual Property Rights are essential to our competitiveness. Europe has repeatedly said it needs to see much better protection of intellectual property rights in emerging economies - particularly in China and in Russia. This is clearly in the interest of these countries, which claim they want to invest in innovation and high quality production. The fact is that in a commercial culture that doesn't protect intellectual property - today's violator is tomorrow's victim.
The Chinese are beginning to see this for themselves – they no longer want to be branded as the world's Number One counterfeiting industry. The fact, that an increasing number of Chinese firms and foreign firms established in China are engaged in research is adding to the authorities interest in protecting intellectual property.
Of course there is an enormous difference in our law- making process and in the regulatory environment. While Better Regulation and the consultation of stakeholders are at the core of EU policies, our companies doing business in China, India and Russia, complain about the lack of transparency in the regulatory environment. I believe that unpredictable treatment and regulatory issues drive away productive investment from these countries. Then both sides are the losers.
Globalisation means change and change makes people very nervous. New economic players arrive. New ways of doing things spread more rapidly. This causes uncertainty. Who will be the winners? Who will lose out? Public opinion puts pressure on politicians to do something. I have my own views on that, I do not believe the right decision or the best decision is made in those circumstances. Doing something for the sake of doing something has never been my way. And I always say that pressure should be kept where it works best – in car tyres. In any event competition and open markets are the best type of pressure for rising living standards.
But public opinion pressure works a lot of the time as many politicians the world over like to be seen to be doing things. Often, whether it is in the East or the West this can lead to protectionist measures. The concern about the activities of Sovereign Wealth Funds has led in the United States and some parts of the European Union to wanting to put controls on such new investment. While there are issues related to ownership and transparency in regards to some Sovereign Wealth Funds, it would, in my opinion, be an enormous mistake to discourage investment from these funds in our economies.
Frankly, we need such investment. Our economies will suffer if we don't allow the surpluses built up to be re-cycled in our economies. Ireland is a prime example of the benefits of Foreign Direct Investment. We need it to survive.
Protectionist trends are not unique to the West. Take the new Russian Law on Strategic Sectors which was approved a few weeks ago by the Duma in Moscow. This law requires foreign investors to apply for government approval in order to invest in particular strategic companies. However, the list of such strategic activities goes well beyond the concept of national security, including for example radio and television broadcasting, publishing activities and fishing! This obviously won't favour the Foreign Direct Investment inflows that Russia badly needs.
The East has arrived economically, offering opportunities but also presenting challenges. We should not fear globalisation – it is essential to our future prosperity.
As for the West, we must continue to resist protectionist temptations. A heavy protectionist swing in Europe against the East – or anywhere else for that matter - would be as damaging for Europe as it would be for these countries. We have nothing to gain from playing that game. Europe invests more capital outside its home market than any other economy. The competitiveness of our companies and the jobs of our workers are closely tied to open global markets. We have no other choice but to practise the openness we preach.
The corollary of Europe's commitment to openness is that we want an East which is integrated into and playing a full part in the global trading system. This is why we need to push for Russia's WTO accession. And why we must continue to push all these countries to trade fairly and open their markets. In order to be credible, we must be tough on unfair trade.
As the EU Commissioner for Internal Market and Services, I'm a strong advocate of getting more integrated financial and capital markets via more regulatory convergence with our main trading partners. To this end, we have recently launched regulatory dialogues with China, India and Russia – in addition to the ones we've already had for a long time with the US and Japan.
Capital markets are more interlinked than ever, the subprime issue being the most recent and obvious example. Regulatory dialogues mean that we sit around the table with our Eastern counterparts to solve business problems, to promote international standards and to try to align our regulations. I believe that more dialogues between the East and the West, a common approach and a coordinated international response are the way to solve the current financial turmoil.
First of all, the rise of Russia, China, and India, and the resurgence of the East is moving us towards a truly multi-polar economic world. The forces of globalisation will continue to push us together. Our goal should not be one of denying our differences, but of respecting them on a level playing field. It is the only way to ensure that we share an open and prosperous global economy.
Let us take back globalization from the pessimists. Let's grasp it, let's shape it and let's lead.
Thank you very much.