European policy-makers increasingly see the EU’s commitment to open markets as naïve. They are concerned about the constraints EU firms face when competing, in the EU or abroad, with businesses from the EU’s major trading and investment partners – especially, but not exclusively, China.
- To tackle this problem,
the EU is developing instruments to unilaterally limit or regulate some
foreign companies’ access to its market. For example, the Foreign
Subsidies Regulation (FSR) would allow the European Commission to
discipline firms which receive foreign subsidies that distort
competition in the EU; and the International Procurement Instrument
(IPI) could limit foreign companies’ ability to win EU public contracts
unless EU firms have fair rights to bid for public contracts in the
foreign company’s home country.
- When these measures were first
envisaged, in some cases more than a decade ago, the EU saw them as part
of a broad strategy to increase trade and investment with China on
fairer terms. Given the West’s growing rivalry with China, the EU now
has different priorities. It needs to strengthen its internal market,
and build trading and investment partnerships with countries which pose
less political risk.
- On the domestic front, some of the
instruments risk weakening, rather than strengthening, the EU internal
market by being insufficiently targeted. This means they could limit
beneficial inward investment and unnecessarily increase the uncertainty
and costs of doing business in the EU.
- Despite this downside,
the EU’s new unilateral tools could still be beneficial overall if they
help to open up new opportunities for EU firms in foreign markets with
greater growth prospects than Europe. To achieve this, the instruments
must be used surgically and strategically. They should be used to seek
more open trade and investment with countries like the US and India,
which are protectionist but also pose less political risk than China.
- The
EU should take the opportunity to tweak those proposals which have not
yet been finalised, to reduce the risk that they unnecessarily limit
investment and competition in the EU, and to better facilitate pragmatic
compromises with foreign countries. And the Commission should do its
best to ensure the level playing field instruments are deployed as
negotiating leverage to diversify the EU’s economic relationships,
rather than to protect EU businesses. Using the instruments sparingly
will be essential to their effectiveness.
Open
markets have helped the EU become one of the most prosperous regions in
the world – enjoying significant inward foreign investment and high
levels of competition. Foreign firms are generally free to export to the
EU, participate in its single market, acquire EU firms and win European
public procurement contracts. Yet leaders of some of the EU’s most
influential member-states now see the EU’s commitment to open markets as
naïve, or at least believe that the EU would benefit from a more
closely managed trade and investment policy.
They are concerned
that other countries are taking unfair advantage of Europe’s openness in
several ways. First, other countries often have more protectionist
domestic regulation – meaning that European firms have less access to
foreign markets than foreign firms enjoy in the EU. Second, when foreign
firms compete in Europe, they may have advantages European firms lack –
such as state subsidies that would be banned under EU state aid law or
protection from competition in their home market. Third, foreign firms
may also operate in a looser regulatory environment, for example
producing goods or services in jurisdictions with fewer concerns about
the environment. Some of these concerns apply even to the EU’s closest
global partners – EU leaders were dismayed when the US recently
strengthened its Buy American Act, which privileges US firms in public
procurement processes. However, in general, European concerns have been
focused on China. ...
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