Abstract
The world is recovering from the biggest deglobalisation since the Great Depression. But this is happening in the context of an anaemic West and a faster-rising East. The global economic crisis has accelerated the shift of economic power to emerging markets, particularly in Asia.
Nevertheless, the EfU remains the world's leading trading entity, at the heart of globalisation. European producers and consumers have benefited hugely from the long pre-crisis globalisation boom. This did not happen automatically: in the EU, as elsewhere, it was powered by a combination of technological innovation and the liberalisation of internal and external markets. Now the danger is that the EU, consumed with fighting internal problems, will retreat into defensiveness and passivity; it might allow protectionism to creep ahead and fail to lead to keep markets open abroad. That would be disastrous. It would damage the competitiveness of European firms and the welfare of European consumers, it would entrench anaemic economic performance and it would exacerbate intra-EU political and social conflicts. It would take the EU back to the Eurosclerosis of the 1970s. Externally, the EU would be diminished and marginalised, squeezed between the US—still the fulcrum of international relations—and rising emerging powers.
Hence the EU must rise to the post-crisis challenge, not duck it. The domestic house must be put in order. Fiscal and monetary policies need to be cleaned up. At least as important, new structural reforms are needed to defend and advance the single market. The EU also needs to be more proactive in external trade policy, co-leading to contain emerging protectionism, induce further trade liberalisation worldwide and put the world economy back on the track of ‘reglobalisation’.
The single market is the bedrock of EU trade policy. When the single market is healthy and integrating, the EU looks outwards and helps to secure open markets abroad. When the single market is undermined by internal protectionism, the EU becomes more defensive abroad. The first priority must be to defend the single market from ‘crisis interventions’ that threaten existing gains. The second priority must be to tackle ‘unfinished business’ on the single market. These two priorities frame our policy objectives for the single market:
stronger state-aids disciplines;
avoiding intrusive over-regulation of financial markets;
containing costly, heavy-handed ‘green interventions’ (quite different from market-conforming policies to promote energy efficiency and ‘green growth’);
energy and services liberalisation;
further Common Agricultural Policy (CAP) reform;
transparency mechanisms to scrutinise policies that affect the single market and the EU's international trade.
Turning to external trade policy, we propose the following policy objectives for the EU's multilateral and bilateral agendas. The EU should consider the following on the WTO:
Lead an initiative to finish the Doha Round as soon as possible, though the result is likely to be modest. The priority must be to despatch the Doha Round so that the WTO can move on to pressing twenty-first century business.
Undertake a strategic examination of post-Doha priorities. The benchmark should be commercial relevance, with the twin objectives of containing emerging protectionism and providing stronger multilateral rules for twenty-first century trade.
Place commercial priorities for European producers and consumers at the heart of a post-Doha agenda. The WTO will have to address new issues such as investment, competition and energy, as well as strengthening existing rules on subsidies, public procurement and other issues.
Emphasise decision-making flexibility. The WTO needs to move to workable plurilateral coalitions—‘variable geometry’, in other words.
The other plank of external trade policy is the bilateral agenda. Here the EU needs to be more strategic and ambitious, using its existing international bargaining power more forcefully and effectively. It should:
Avoid a permissive, indiscriminate approach to FTAs: eschew deals with commercially insignificant countries, and less-than-comprehensive deals with commercially significant partners.
Insist on comprehensive, ‘deep-integration’ FTAs—going well beyond rather weak WTO benchmarks—that seriously liberalise trade and induce structural reforms in the EU and its partners.
Focus on top trading partners: examine options for FTAs with the US and Japan, and look to strengthen the bilateral framework for trade cooperation with China.
We conclude on a note of political advocacy. European elites, especially in policy and business, do not talk enough, publicly and explicitly, about the benefits of open markets and the hard policy choices required. This applies to the single market and globalisation generally. That leaves the field open to those who peddle ‘globalisation angst’ and who provide excuses for protectionism at home and abroad. A few prominent Europeans from past generations have done the opposite, making the public case for open markets at home and abroad. Statesmen such as Ludwig Erhard and business leaders such as Wisse Dekker come to mind. Today, the fortunes of the single market and international trade do not depend merely on technocratic fixes by privileged insiders in Brussels and national capitals; the prevailing climate of ideas and opinions is at least as important. Europe's leaders must make the case for open markets, publicly and explicitly. Europe's future depends on them.