In The Press

Strengthening the European Commission will help fight protectionism (in The Daily Telegraph)

17 February 2009

The European Union was at the forefront of lobbying efforts against the "Buy America" clause in the US economic stimulus package. President Barack Obama's plan originally contained a clause requiring any publicly funded projects to use US steel. The EU ambassador to Washington, John Bruton, said the measure would see a "new age of protectionism".

President Obama conceded it needed to be re-examined, stating: "It would be a mistake to start sending a message that we're just looking after ourselves and not concerned with world trade." As a result, the Buy America clause was counter-balanced by a commitment to international trade agreements, a welcome step for the EU and advocates of free trade.

The magnitude of the economic challenge facing the world is obvious. What started as a crisis in the US banking sector has become a global economic malaise. Growth forecasts for the global economy have been revised downwards from 3pc last September to 1pc in January, partly driven by a fall in trade and cross-border activity. Declining trade and foreign investment, allied to rising unemployment, make a toxic cocktail. It is no wonder a number of countries are seeing social unrest and disorder.

As the economic hard times bite, there have been signs of increasing protectionism. The US, despite its record of creating global businesses, has been as guilty as any country. Long before President Obama reached the White House, the US had been very restrictive on foreign entrants to some sectors, especially its airline and media markets.

The economic stimulus bill not only included the Buy America clause, albeit in watered-down form, but also contained some other protectionist measures, for instance, restricting the use of foreign worker visas.

But such activities are not confined to the US. India and Vietnam have slapped tariffs on steel, Indonesia is using licences to repel imports, and some countries are imposing anti-dumping measures as a form of covert protectionism. Meanwhile, French President Nicholas Sarkozy has proposed a strategic investment fund to guard French industry from foreign competition. In the UK, the dispute at the Lindsey oil refinery has led to some calling for the ring-fencing of British workers, a form of labour market protectionism. Moreover, the impasse in the Doha trade round has resulted from protectionist thinking. Worryingly, the World Bank predicts that trade will go into reverse this year for the first time since 1982.

In Europe, there are signs that the single market is under considerable stress. The EU's free market provides enormous benefits for the British economy, as our report, An Indispensable Relationship, shows. Europe is the UK's primary market, with 52pc of our total trade with the rest of the EU, compared with 4.2pc with China and 1.3pc with India. Free movement of people means there are 2m EU citizens in the UK but there are 1.6m UK citizens in other EU states. These flows of people and investment underpin the UK's economic relationship with Europe.

The single market, worth £20bn to the UK, needs strengthening but there are imminent threats to it which must be addressed. First, banks are starting to lend only domestically, whereas we need international lending. Second, as governments intervene, state aid rules have been put to one side. There is a danger that illegal practices will be considered fair game once normality returns. Infrastructure projects in stimulus plans should be open to foreign bids under single market rules. EU officials have been lobbied to raise the threshold from €5.15m (£4.6m) at which EU tendering must take place, but they should stand firm. Third, there is danger of wage subsidies – which may already be talking place in some states.

In preserving open markets and combating protectionism, the European Commission is an important bulwark. Recently, the French have criticised the EC as excessively neo-liberal and Anglo-Saxon. It may come as a surprise that many in France believe that the EC is dominated by neo-liberal British thinking.

The EU has a crucial role to play in addressing national protectionism. Business leaders want the EU to combat protectionism. In a recent MORI poll, 95pc of business leaders said that the EC should play a greater role in "stopping the protectionism of some member states". In seeking ways of maintaining free trade and eschewing protectionism, politicians should embrace the EU to achieve these goals. In the current climate of national protectionism, we need a stronger EC to maintain the integrity of the single market.

Roland Rudd is the chairman of Business for New Europe

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