External sources of growth
Trade “part of solution” to crisis, argues Commission
By Joanna Sopinska | Wednesday 27 June 2012
Against the backdrop of growing protectionism in the midst of one of the worst financial crises in Europe, the EU executive is making a strong case for an “ambitious external trade agenda” focusing on “reciprocal market opening”. In an internal draft document entitled ‘External sources of growth. Progress report on EU trade and investment relationships with key economic partners’ obtained by
Europolitics, the Commission claims that boosting trade “is one of the few means to bolster economic growth without drawing on severely constrained public finances”. It underlines that “robust external demand is the only reliable source of growth for the moment, as the domestic demand components remain weak”. The paper argues that an ambitious external trade agenda would bring GDP gains of more than 2% or €275 billion - equivalent to adding a country the size of Austria or Denmark - and the creation of more than two million jobs across Europe.
This strong message in favour of trade liberalisation is sent to the leaders of the 27 member states ahead of their European Council meeting, on 28-29 June, as part of the Commission’s contribution to the ongoing efforts to work out a “comprehensive” EU-wide strategy to return to growth and job creation in Europe. At its March meeting, the European Council requested the EU executive to submit, in June, a paper reviewing how the deepening of relations between the EU and its key trading partners can help bolster economic growth in Europe.
The Commission has three main suggestions. Firstly, it speaks in favour of stepping up the pace of negotiations and ratifications of free trade agreements (FTA) with third countries and regional organisations, such as Mercosur or ASEAN (Association of Southeast Asian Nations). Realising the potential gains from trade requires the conclusion of “at least some of the deals the EU is currently negotiating with other important partners,” says the Commission. It says the ongoing free trade talks with Canada and Singapore are most likely to be finalised by the end of 2012. It also underlines the importance of the ongoing FTA talks with India and Mercosur as well as of the future negotiations with the US and Japan (the EU is considering opening FTA talks with these two countries in the near future). “Potentially transformative agreements” with the US and Japan would, according to the EU executive, bring “two thirds of the economic gains”.
Secondly, the Commission advocates “an active and offensive” trade policy vis-à-vis emerging economies, “where there are both significant growth prospects and a large potential for further trade opening”. Despite the gradual elimination of trade and non-trade barriers in countries like China and India over the last years, EU exporters are still suffering from significant asymmetry. The EU has therefore “clear interest,” according to the Commission, in “engaging in ambitious efforts to deliver liberalisation to these countries”.
Finally, the EU executive speaks against any sort of protectionist measures, which could badly affect imports to the EU. “Not only are exports essential to economic growth and job creation, countries also need increasingly to import in order to be able to do so,” the Commission argues. To support this argument, it gives the example of Nokia smartphones, made in China but containing 54% European added value. “Raising the costs of imports reduces countries’ competitiveness and ability to sell on global markets,” says the Commission. It argues against any attempt to stop the relocation of EU companies to third countries. “The core objective of the EU’s trade policy then becomes to maintain, and where necessary, reinvent, Europe’s place in global supply chains through competitive manufacturing, rather than trying to keep every single production step at home,” says the EU executive.
At the forthcoming European Council, EU leaders are expected to express their strong support for the pursuit of an ambitious trade agenda in order to help Europe overcome the current financial and economic crisis. “Trade must be better used as an engine for growth,” state the draft Council conclusions, to be adopted on 28-29 June. The leaders are expected to declare their full determination to “promote free, fair and open trade” and call for the “rapid” signing and ratification of agreements that have already been finalised. They are also likely to signal that the ongoing free trade negotiations with Canada and Singapore “should be finalised by the end of the year”.