Fair, competitive and resilient: EU responds to globalisation

The blog post Reflection paper on globalisation: Opportunity or threat?, which  introduced the European Commission’s reflection paper on harnessing globalisation COM(2017) 240, left me with a desire to present the reasons of the Commission and how it wants to handle the internal and external pressures of globalisation, as part of the discussion about the future of Europe - #FutureOfEurope on Twitter.

Profound changes

We may be well or ill prepared, but profound changes await us. As the EU Commission writes about our interconnected future (page 11):

We are still in the early phase of the transformation where digitalisation, robots, artificial intelligence, the internet of things, 3D printing will revolutionise how we produce, work, move and consume.

The UK and the USA have both upset long traditions of integration, European and global. China increasingly acts like an economic and a military great power, but not based on the values of democracy, human rights and the rule of law many of us believed were becoming universal.

In the emerging tri-polar (or multipolar?) world, the relative weight of Europe in world affairs continues to decrease, to say nothing about the dwindling relative size of individual EU member states (page 12):

In 2025, 61% of the world's 8 billion-population will be in Asia, predominantly in China and India. Europe's relative share of the world population will decline, with the EU27 accounting for 5.5 %. This may bring about a multipolar world order with different political, technological, economic and military powers. But it also means large new markets for European companies.

Isolationism and protectionism - closing minds and borders, building physical and mental walls, creating obstacles to trade and investment - may entice individuals, communities, regions and countries feeling left behind, but the relief is shortlived (page 14):

Changes associated with globalisation can lead to calls for countries to isolate and insulate themselves from what is happening around them. This is particularly acute in regions that have been left behind. Some want to put up barriers and close borders.  

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However, a majority of European citizens recognise that protectionism does not protect. It may provide short-term relief, but history shows that it never had lasting success, and has often led to disastrous outcomes.

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Protectionism would disrupt production and increase costs and prices for consumers. European exports would become less competitive putting even more jobs at risk. An increase in trade restrictions by 10% is estimated to lead to a 4% loss of national income. We would lose access to new products, services, technologies and ideas. By hitting the poorest hardest with price increases, protectionism would have the opposite of its desired effect.

Harnessing globalisation

In a nutshell, for the sake of the citizens of Europe and the world, the Commission sketches the road to follow (page 14):

To better harness globalisation, we need more global governance and global rules. And we need to support that with domestic policies that boost our competitiveness and resilience at home.

Chapter 3 about the EU’s external response is dedicated to promoting a fairer international economic order (pages 15-18). Chapter 4 deals with the internal response of the EU: how to enhance innovation and competitiveness, as well as to bolster the resilience of those who otherwise fall behind (pages 19-23).

The thoughts about life-long learning and active labour market and social policies are closely related to the future of Europe reflection paper on the social dimension, the European pillar of social rights to be proclaimed and the Social Summit for Fair Jobs and Growth the coming week, 17 November 2017 in Gothenburg (Sweden). - For more information you can follow #SocialRights and #SocialSummit17 on Twitter.

EU level action

Individuals and firms make their own choices in a changing world, but the reflection paper is about how the political sphere should tackle globalisation. There are challenges for each political level - local, regional, member state and EU - as summarised on page 24.

Here we are interested primarily in a sketch of how the EU institutions should should invest their time and energy regarding globalisation:

• Trade agreements to open markets and enforce level-playing field
• Measures to ensure global tax justice and transparency
• Promotion of higher global regulatory standards
• Trade Defence Mechanism
• European Budget (such as EFSI, ESIF, GAF, Horizon)
• European External Investment Plan
• Development Assistance
• Product and Food Safety  

If this succeeds in inviting blog followers to read about the EU’s external and internal responses to globalisation - fair, competitive and resilient - it may be better to continue with the expert assessments I promised in a separate blog post.

Ralf Grahn

Sarkozy: French president and German chancellor to save euro

Yesterday, 1 December 2011, president Nicolas Sarkozy promised the French people later retirement, longer working weeks and smaller public deficits. Europe offers more sovereignty through added opportunities to act.

If France and Germany are united, Europe is united. On Monday the two countries are going to make proposals to guarantee the future of Europe. Sarkozy promised to do his utmost to create an area of stability and confidence at the heart of the eurozone.

Europe has to be rebuilt on more solidarity and discipline. More political responsibility means rejecting blind adherence to the rules of competition and free trade.

Europe needs more democracy. The accountable politicians make the decisions. No march towards supranationality. The heads of state or government and intergovernmentalism are the road ahead for European integration.

The eurozone needs more qualified majority voting [in the Council]. Europe has to protect its commercial interests and to rethink Schengen.

Europe has to end social and fiscal dumping among EU member states. Europe needs to protect its industries against global predators. Europe needs to protect the common agricultural policy.

The euro has to be defended. This is the reason for the heads of state or government as the government of the euro area. France has proposed a European Monetary Fund to serve as a bastion against speculation.

Sarkozy is confident that the European Central Bank will act. The euro area countries have to accept stricter budgetary discipline, including scrutiny of budgets, quick and automatic sanctions and a ”golden rule” on balanced budgets. Convergence is the key concept.

France and Germany campaign for a new Treaty.


Comment

Internally the all but confirmed presidential candidate Nicolas Sarkozy showed some bravery in Toulon by exhorting the voters to work longer and harder and to prepare for public belt-tightening.

More than ever since the Fouchet plan, Sarkozy assumes the Gaullist legacy to marginalise the EU institutions permanently, especially the Commission and the European Parliament.

He casts the president of France and the chancellor of Germany as the saviours of the euro currency, although even these two countries still have to agree on a joint proposal ahead of the European Council 9 December 2011.

The rest of the eurozone countries and particularly the other EU member states are relegated to pawn status.

Sarkozy's ferociously protectionist blasts may go down well in France, but how many among the 17 – now divided into core and non-core countries - or 27 welcome his calls to scrap free trade and the competition rules underpinning the internal market, as well as social and fiscal ”dumping” [later remembered and added: plus free movement and Schengen]?

Perhaps Sarkozy sees a golden opportunity to create a eurozone core in his own image, when a euro crash seems imminent without extraordinary measures and most of the new EU member states are still outside the eurozone, as are the open market economies Denmark, Sweden and the United Kingdom.



Ralf Grahn

France does not need wildcat strikes

France does not need wildcat strikes to vent protectionist sentiments – it has Nicolas Sarkozy as President.

Read EUbusiness: Sarkozy under fire in Europe for ‘protectionism’ (7 February 2009), available at

http://www.eubusiness.com/news-eu/1233941522.08

Recently hailed by many (including himself) as the great leader of Europe, Sarkozy shows a mind-boggling lack of understanding of or a total disregard for the basic tenets of European integration.

Good grief!

Ralf Grahn

Finland: No to protectionism - Yes to economic reforms

Ahead of yet another summit of European leaders, the Finnish government has issued a statement on its view on how to reform the international financial system and to overcome the economic downturn.

Protectionism is seen as a wrong turn. Instead, structural economic reforms of the kind envisioned in the Lisbon agenda are perceived as necessary, and the European Union should not let its climate targets slip.

Here is the text of the government’s press release:

Government Communications Unit
7.11.2008 11.16

Meeting of EU Heads of State or Government on financial architecture on 7 November
France, the current holder of the EU Presidency, will organise an unofficial meeting for the EU Heads of State or Government in Brussels on 7 November. Prime Minister Matti Vanhanen will represent Finland at the meeting.

The purpose of the meeting is to prepare the EU’s position for the upcoming international summit taking place in Washington on 15 November which is to discuss the international financing system and regulation of the financial market.

In Finland's view reform of the international financing system should focus on measures that promote the strength and transparency of the financing system. This calls for tighter rules for capital requirements concerning financial institutions as well as such rules that neither aggravate the cyclic tendency of the economy nor encourage excessive risk-taking.

As for financial supervision, European-level cooperation and coordination need to be developed to better acknowledge the fact that an increasing number of financial institutions are cross-border entities. The common European central bank system alone requires that the Euro Group has a good understanding of the risks concerning financial institutions.

Outlining the new financial architecture will take its time. It is important for the EU to act in unison. The EU leaders’ meeting will prepare the French Presidency for the upcoming meeting in Washington. The EU needs to have a clear view of how to organise unified action after the Washington meeting as well.

Development of the financial architecture is best carried out at the International Monetary Fund (IMF). This provides emerging economies with better opportunities to participate in the actions of the IMF.

The financial crisis is not over, but it is important that the economic foundations remain open. The crisis is not an excuse for protectionism. The EU Member States need to continue reforms in accordance with the objectives set by the Lisbon Strategy and keep to the climate targets.

Further information: Riina Nevamäki, Special Adviser on EU Affairs, Prime Minister’s Office, tel. +358 9 160 22055 or +358 40 705 2593

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There are two memorandums on the substantive questions available on the government’s web site (in Finnish).


Ralf Grahn

EU TFEU: Quantitative import restrictions

Besides security, the main objective of European integration is prosperity for the citizens of the European Union.

The prohibition of quantitative restrictions between member states on imports is one of the fundamental principles of the internal market.

The drafters of the earlier treaties have been smart enough to include ‘all measures having equivalent effect’ and the Treaty of Lisbon to leave the single market provisions undisturbed.


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In the Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) is silent between point 45 on Customs cooperation and point 46 on Agriculture and fisheries (OJ 17.12.2007 C 306/52-53). The annexed Tables of equivalences however give us an indication that there is a whole chapter to look at, brief but of fundamental importance to the internal market (OJ 17.12.2007 C 306/207).

We notice that Article 28 of the Treaty establishing the European Community (TEC) first becomes Article 28 of the Treaty on the Functioning of the European Union (TFEU) in the Lisbon Treaty version (ToL), later to be renumbered Article 34 TFEU in the coming consolidated version.

We set the provision into its future context (from the Tables of equivalences) and present its contents (taken from the latest consolidated version of the current treaties, OJ 29.12.2006 C 321 E/52):

Part Three Policies and internal actions of the Union

Title I The internal market

Chapter 2 (renumbered Chapter 3) Prohibition of quantitative restrictions between Member States

Article 28 TFEU (ToL), renumbered Article 34 TFEU

Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.

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The European Convention proposed the following Article III-42 of the draft Treaty establishing a Constitution for Europe (OJ 18.7.2003 C 169/34):

Subsection 3
Prohibition of quantitative restrictions

Article III-42 Draft Constitution

Quantitative restrictions on imports and exports and all measures having equivalent effect shall be prohibited between Member States.

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The IGC 2004 took over the draft text ‘verbatim’ as you see in Article III-153 of the Treaty establishing a Constitution for Europe (OJ 16.12.2004 C 310/65):

Subsection 3
Prohibition of quantitative restrictions

Article III-153 Constitution

Quantitative restrictions on imports and exports and all measures having equivalent effect shall be prohibited between Member States.

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If we take a look at the following Articles of the current TEC and the proposed TFEU, we are able to see that they have separate provisions concerning quantitative restrictions on imports and on exports, whereas the draft Constitution and the Constitution shortened the text by merging the two.

A citizen of the European Union can only dream of the brevity of the Constitution of the United States of America, but shorter, sharper and clearer treaty texts would in general be an improvement.

In this case, however, the provisions under discussion are among the shortest, and despite their brevity they carry a lot of punch. In addition, they are much sinned against. Preserving the distinction between two different Articles makes it easier to track case law back in time and to deal with different measures where in depth study is called for.

It is therefore preferable to let the coin preserve its two sides, considering the fundamental importance of these distinct provisions for the working of the internal market.

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Clear quantitative restrictions in international trade are usually called quotas, in this case import quotas.

Import quotas are protective or protectionist measures, since they leave part of the demand to be filled by domestic suppliers (leading to a privileged position for them and conversely to higher prices and less choice for enterprises looking for components or raw materials as well as for consumers).

Creating national artificial bottlenecks on imports contradicts the basic ideas behind the internal market.

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‘What’s in a name? that which we call a rose
By any other name would smell as sweet.’

Or, as nasty, Shakespeare might have said, had he been into trade instead of young love and protectionism instead of flowers.

One of the main contributions of the drafters of the treaties is the appropriate and repeated use of the phrase ‘and all measures having equivalent effect’. Member states’ restrictive legislative acts or administrative practices do not escape (in the long run) despite creative labelling. Their effects count, not the label.

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Since the basic tenets of the internal market are left unchanged, they are barely noticeable if you read the research papers or the commentaries on the Lisbon Treaty. You just have to go to text books or case law, if you want to study the single market. (My intention is to look at the treaties as a whole, as they would stand when the Treaty of Lisbon has entered into force. At the present time, earlier posts cover most of the TEU and the beginning of the TFEU.)

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Some of the treaty provisions need clarifying (secondary) legislation to become effective. Others, like Article 28 (new 34) of the Lisbon Treaty TFEU are clear enough to have direct effect, automatic application. Only by having priority over national provisions does European Community law offer redress to EU firms and citizens.

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There are permissible prohibitions and restrictions on imports (and exports and goods in transit), but these will be dealt with another day, after we have looked at quantitative restrictions on exports.


Ralf Grahn