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Published on March 31st, 2012 | by Claudia Mancini
Image © [caption id="" align="alignnone" width="565" caption="© kevbo1983"][/caption]   Last week, financial magazines and newspapers were full of analysis and comments about a proposal of the European Commission to revise public procurement rules in EU member states. According to the proposal, the Commission would, in the future, have the power to restrict access to the EU public procurement market when a foreign country is found to have “repeatedly discriminated” against European companies. The Commission was very keen to deny any protectionist aim, and declared that its intention was to provide the EU with stronger leverage to open up closed markets abroad. Analysts however, were quick to point out that “fair free trade” and “reciprocity”, in political jargon, are often code for “protectionism” and, as a consequence, warned against a future characterised by international trade wars. Truthfully, drastic judgments are still somewhat premature. A basic knowledge of the (admittedly complex) European institutional framework reveals that the Commission has merely a power of initiative, while the final legislative decision lies in the joint hands of the Council (where the Ministers of the member states' governments sit) and the Parliament. Still, it is difficult not to see in the Commission's proposal a “significant shift in European thinking”, as the NYT put it. In the European Council, based on past records, we can identify a clear divide between traditional proponents of protectionist measures and staunch defenders of free-trade principles. France, regardless of the political party in power, is the leader of the first category, while the UK clearly guides the opposing faction, backed by Germany, Netherlands and Denmark. Despite the on-and-off support of Italy and other Mediterranean countries, the protectionist side never managed to gain a majority in the Council; on the contrary, since the appointment of British politician Peter Mandelson as Trade Commissioner in 2004, a very strong and active support to liberal free-trade policies has been dominant in Brussels. The pro-free trade European agenda was not even affected by the global financial crisis. Many observers worried that, in order to survive the economic downturn, countries would resort to aggressively protectionist measures; the dreaded scenario was a repetition of the protectionist spiral that, during the Great Depression, had seen the major world economies engage in trade wars, with the only result of prolonging the crisis. In reality, while some countries, especially China but also the US, Turkey, Russia and Japan, did in fact resort to protectionist measures to mitigate the domestic effects of the crisis, Europe had, until now, remained virtually immune to the temptation to close its markets. For this reason, when Mr Sarkozy, launching his presidential campaign, called for a “Buy European Act”, modelled on the “Buy American Act” approved by the Obama administration, few people thought his proposal had any chance of success. After all, France had long been unwavering in its protectionist positions, but it had usually  found itself isolated in Brussels. Now, the fact that the Commission has managed to agree on a detailed proposal about restricting access to the European public procurement market is a sign that Mr Sarkozy's pressure might be succeeding in acquiring unexpected allies. It is possible that the dramatic effects of the economic and financial crisis, especially on unemployment and industrial production, might be swaying hearts in a few governments around the continent. Germany, as usual, is a key player in the alliances game. Traditionally defenders of free-trade policies, in the last few years the Germans have had to take some contradictory decisions regarding protection of national industries (i.e. Opel). The current climate of public discontent about the financial help granted to countries like Greece might now persuade Ms Merkel to side with France; in this way, she would also be providing electoral support to her strategic ally, Mr Sarkozy. A leaked document about the German position on the issue, however, seem to point in a different directions. Another player to keep an eye on is Italy. Usually close to Paris and more prone to protectionism than to laissez-faire, the Mediterranean country is now governed by technocrat Mario Monti. A liberal at heart, Mr Monti might be tempted by an alliance with London, after the common ground found with Mr Cameron at the latest EU summit. All in all, it is very difficult to predict how the Council will deliberate on this critical matter, and there are serious doubts that the proposal will be approved. We should keep in mind that the issue will be decided through qualified majority voting, which means no country can yield a veto; moreover, behind the scenes, national diplomacies are still hard at work trying to reshape alliances and sway allegiances. What is sure is that a change in economic and trade policy in Brussels does not seem as far-fetched today as it might have looked just a month ago.

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The European Union: Caught between protectionism and free trade

© kevbo1983

 

Last week, financial magazines and newspapers were full of analysis and comments about a proposal of the European Commission to revise public procurement rules in EU member states. According to the proposal, the Commission would, in the future, have the power to restrict access to the EU public procurement market when a foreign country is found to have “repeatedly discriminated” against European companies. The Commission was very keen to deny any protectionist aim, and declared that its intention was to provide the EU with stronger leverage to open up closed markets abroad. Analysts however, were quick to point out that “fair free trade” and “reciprocity”, in political jargon, are often code for “protectionism” and, as a consequence, warned against a future characterised by international trade wars.

Truthfully, drastic judgments are still somewhat premature. A basic knowledge of the (admittedly complex) European institutional framework reveals that the Commission has merely a power of initiative, while the final legislative decision lies in the joint hands of the Council (where the Ministers of the member states’ governments sit) and the Parliament. Still, it is difficult not to see in the Commission’s proposal a “significant shift in European thinking”, as the NYT put it.

In the European Council, based on past records, we can identify a clear divide between traditional proponents of protectionist measures and staunch defenders of free-trade principles. France, regardless of the political party in power, is the leader of the first category, while the UK clearly guides the opposing faction, backed by Germany, Netherlands and Denmark. Despite the on-and-off support of Italy and other Mediterranean countries, the protectionist side never managed to gain a majority in the Council; on the contrary, since the appointment of British politician Peter Mandelson as Trade Commissioner in 2004, a very strong and active support to liberal free-trade policies has been dominant in Brussels.

The pro-free trade European agenda was not even affected by the global financial crisis. Many observers worried that, in order to survive the economic downturn, countries would resort to aggressively protectionist measures; the dreaded scenario was a repetition of the protectionist spiral that, during the Great Depression, had seen the major world economies engage in trade wars, with the only result of prolonging the crisis. In reality, while some countries, especially China but also the US, Turkey, Russia and Japan, did in fact resort to protectionist measures to mitigate the domestic effects of the crisis, Europe had, until now, remained virtually immune to the temptation to close its markets.

For this reason, when Mr Sarkozy, launching his presidential campaign, called for a “Buy European Act”, modelled on the “Buy American Act” approved by the Obama administration, few people thought his proposal had any chance of success. After all, France had long been unwavering in its protectionist positions, but it had usually  found itself isolated in Brussels. Now, the fact that the Commission has managed to agree on a detailed proposal about restricting access to the European public procurement market is a sign that Mr Sarkozy’s pressure might be succeeding in acquiring unexpected allies. It is possible that the dramatic effects of the economic and financial crisis, especially on unemployment and industrial production, might be swaying hearts in a few governments around the continent.

Germany, as usual, is a key player in the alliances game. Traditionally defenders of free-trade policies, in the last few years the Germans have had to take some contradictory decisions regarding protection of national industries (i.e. Opel). The current climate of public discontent about the financial help granted to countries like Greece might now persuade Ms Merkel to side with France; in this way, she would also be providing electoral support to her strategic ally, Mr Sarkozy. A leaked document about the German position on the issue, however, seem to point in a different directions. Another player to keep an eye on is Italy. Usually close to Paris and more prone to protectionism than to laissez-faire, the Mediterranean country is now governed by technocrat Mario Monti. A liberal at heart, Mr Monti might be tempted by an alliance with London, after the common ground found with Mr Cameron at the latest EU summit.

All in all, it is very difficult to predict how the Council will deliberate on this critical matter, and there are serious doubts that the proposal will be approved. We should keep in mind that the issue will be decided through qualified majority voting, which means no country can yield a veto; moreover, behind the scenes, national diplomacies are still hard at work trying to reshape alliances and sway allegiances. What is sure is that a change in economic and trade policy in Brussels does not seem as far-fetched today as it might have looked just a month ago.

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