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by Dr. Constantin Gurdgiev exclusively for the Libertas.org Over the years past, the European Commission has consistently advocated more openness and competition within the EU internal markets and vis-à-vis the rest of the world. Making exceptions for a handful of sectors (including some major ones like agriculture, insurance, h ealth public services and aviation), the Commission was a champion of the policies that on the net benefited European consumers and entrepreneurs. Sadly, it now appears that the only EU body capable of at least some pro-growth thinking is rapidly descending into the protectionist economic policy hell inhabited by other EU institutions.
Only a few weeks ago the Commission published a plan that would restrict competition from foreign companies in the EU's energy sector. Reported as being aimed at preventing the Russian Gazprom from capturing a dominant position in the European market – something that is hardly a threat, given that the EU already has rigid internal competition laws – the move is really designed to shield the heavily subsidized European producers of bio-fuels from the less subsidized US competitors.
More...If this was not enough to signal to the rest of the world the true extent of the Commission's commitment to free movement of goods and capital, this week the EU Commission has decided to altogether restrict foreign companies dealings in the EU. In theory, the restriction will apply only to those non-EU states do not set a level playing field on par with existent internal EU regimes.
According to the official Communication from the Commission titled The European Interest: Succeeding in the age of globalization, "The EU has a key stake in using its clout in global negotiations to ensure that openness is not a one-way street: the political case for openness can only be sustained if others reciprocate in a positive manner." That 'positive manner' from the Commission point of view requires that " third countries offer comparable levels of openness to EU exporters and investors". Furthermore, the foreign companies wishing to operate within the EU "will not be allowed to by-pass the rules applied in the internal market".
Overall, the new proposal is an open call for the most rabid form of economic protectionism that the EU has ever devised. Here are some reasons as to why it is both unworkable and bad for Europe's future.
First, the new EU position directly contravenes the spirit and letter of our commitments under the WTO rules regulating trade. Furthermore, these proposals would derail the entire Doha Round of trade negotiations by making any progress on the so-called Singapore agenda completely infeasible, given the EU insistence that the entire world should comply with the EU-own internal regulations.
Second, the EU proposals impose the compliance burden on the non-EU registered companies that is completely out of line with the way the EU treats companies from its own member states. For example, if France were to be found acting in contravention of some EU treaty, the penalties for such contravention would not be leveled against Credit Agricole. Yet a company registered in Bombay can be penalized in its EU operations if India fails to satisfy the unspecified EU criteria for what constitutes 'positive-manner' reciprocity. Such a system of regulations would impose crippling risk premia on any company from outside the EU operating within Europe, effectively preventing many companies from investing in Europe.
Third, foreign companies operating within the EU are already required to comply with the internal EU regulations regarding working conditions, safety and other regulations aimed at ensuring safe operations and protection of labour, European investors and consumers. The new regulation would not prevent, for example, the problems relating to the workers' pay raised in the case of Gamma contractors in Ireland. However, should a Turkish company operating within the EU change in its entirety the corporate structure, its relations with shareholders and suppliers outside the EU to match a European standard? Is this a reasonable or workable arrangement? Of course not.
Fourth, given that the EU wants to make sure that the foreign companies will not by-pass the rules applied in the internal market, can the Commission be so kind as to explain:
a) Given that there is no singular set of rules for operating within the EU market, how should the foreign company chose to comply with these – in their entirety or according to some rule of choice?
b) Should the foreign company cease trading altogether if complying with the EU internal rules were to cause a legal conflict within its operations in its country of origin?
The latter two questions reveal the real reason for the EU Commission's newly found fondness for erecting protectionist barriers. Since complying with the EU internal markets regulations can effectively become a haphazard game of guess and verify for foreign companies, the EU will be able to use the new barriers as a justification for pushing through more harmonization of regulatory and corporate governance regimes under the disguise of facilitating foreign direct investment in the EU.
Over the years, the European Union had no problems with dealing with some of the most unsavory regimes around the world. The EU and its member states do not support today and/or did not support in the past the trade and investment embargoes and restrictions against Cuba, Iran, Libya, North Korea, Cambodia, Sudan, Zimbabwe and a multitude of other pariah states. Yet, it is about to arbitrarily impose undefined and unspecified restrictions on the foreign investors' and companies' ability to develop their operations in Europe. The facts that in the end such a policy will lead to Europe sliding further down competitiveness rankings, that it will hurt domestic consumers of goods and services, that it will undermine the ability of European economy to generate innovation and investment needed for future growth are minor symptoms of the far more threatening disease. The real problem with the Commission's idea of undefined 'reciprocity' testing is that it imposes European standards (that are largely failing Europe itself by retarding economic growth and jobs creation) onto the rest of the world.
And that smacks of the worst form of colonialism – colonization by the incompetents.
Dr. Constantin Gurdgiev is a leading economist and journalist, and is a member of Libertas. |
