Ane Solesvik Oppedal[Type text]06/05/2013
BACHELOR THESIS
The EU Commission’s Communication on Trade, Growth and Development:
Tailoring Trade and Investment Policy for Those Countries Most in Need?
By: Ane Solesvik Oppedal 401970
Aarhus School of Business and Social Sciences 2013
EU-Kommissionens meddelelse om Handel, vækst og udvikling:
Skræddersyet handels-og investeringspolitik for de lande der har størst behov?
Abstract
This paper provides an analysis of the EU Commission’s 2012 Communication on trade, growth and development to evaluate the extent to which the discourse in the Communication is supported by actual policy implementation. A liberalist and social constructivist approach is used to shed light on the shortcomings of the Communication, which is evaluated in light of two cases. The case of biofuel production and consumption in the EU provides the reader with insight into the detrimental effects of EU support of local European farmers at the expense of foreign producers. This case demonstrates that policies, such as those related to the CAP, require revision before the EC can rightfully claim Policy Coherence for Development, which is a key aspect of the intention of tailoring trade and investment policy to those countries most in need. The case of the EU’s Economic Partnership Agreements with the African, Caribbean and Pacific countries demonstrates intrinsic flaws in the agreements which are magnified under a comatose Doha Round. These agreements, rather than facilitating pro-growth development, will result in a biased liberalization and a fiscal crunch for poor developing countries instead. The cases were selected on the grounds that they provide valuable insight into relevant global challenges, as well as bridging the conceptual gap between a variety of the themes of the communication and actual EU policy implementation. The methodological approach used is a quantitative approach and a hypothetical-deductive method, in which I made certain assumptions based on previous knowledge of the research topic. The empirical evidence was derived from a variety of sources, relying heavily on international research institutions as well as official EU documentation and reports. The findings in this paper suggest that the EU Commission’s ‘Communication on trade, growth and development: tailoring trade and investment policy to those countries most in need’ falls short of doing just this. If the EU hope to maintain legitimacy in their role as global economic leaders there needs to be greater coherence between development discourse and actual policymaking.
Table of Contents
· Abstract ------2
· 1.0 Introduction ------4
· 1.1 Problem Statement------7
· 2.0 Theoretical Approaches to EU Foreign Policy------7
· 2.1 Liberalism------7
· 2.2 Social Constructivism------8
· 3.0 Methodology------9
· 4.0 Overview of the Commission’s Communication on Trade, Growth and Development ------12
· 5.0 Analysis------13
· 5.1 The production and consumption of biofuels in the EU---- 13
· 5.2 Where is the CAP?------13
· 5.3 Climate Change and Energy Dependence------14
· 5.4 Biofuels and the Global World------16
· 5.5 The EU’s Economic Partnership Agreements with the ACP Countries under a Comatose Doha Round------18
· 5.6 The International Trading System------18
· 5.7 Biased Liberalization and Fiscal Crunch------20
· 6.0 Perspectives ------23
· 7.0 Conclusion------26
· Works Cited------28
1.0 Introduction
On 27 January 2012, the European Commission (EC) released the Communication Trade, growth and development: Tailoring trade and investment policy for those countries most in need (Overseas Development Institute, 2012). The communication is intended to set a trajectory of the European Union’s trade policy for the next decade, and is an update to the Communication on Trade and Development published in 2002. The communication is a response to the changing economic realities over the last decade and its profound implications for trade, development and investment policies (European Commission, 2012). Although globalization in itself is not new, the pace and scale of globalization today is unprecedented. The increasing globalization of the world economy over the last two decades presents the European Union with opportunities as well as challenges. The reshuffling of global Gross Domestic Product (GDP) shares over the last decade is giving rise to increasing concern that the EU is losing its role as a global economic leader to emerging economies like China, India and Russia. In the wake of the 2008 financial crisis the European Union acknowledges that they are facing domestic pressures in addition to the global challenges, and are aiming to adapt their economic strategies to accommodate the global economic transformation.
Over the last half century the EU has been the largest importer and exporter of goods and services, and still enjoys a dominant role in the world economy as one of the largest global markets (Renda, 2013). However, disappointing economic performance by the 27 EU Member States combined with a gradual decline in productivity as well as in share of the markets has exposed some fundamental weaknesses in the EU economy. The developing energy dependence on the rest of the world is expected to intensify especially due to the rising energy demand as a result of technological development, and the increasingly ageing population of Europe is generating a gradual loss of competitiveness and adding considerable pressure on national public budget and welfare systems (Renda, 2013). The globalization trends are therefore posing significant threats to the European Union’s position in the global landscape. According to statistics from the Organization for Economic Cooperation and Development (OECD) the share of Brazil, Russia, India and China’s (BRICS) GDP combined rose from 17 % in 1990 to 28 percent in 2010. China’s share of the world’s GDP alone has already reached 17 percent, equal to the Euro zone, and only 6 percent behind the US global GDP share of 23 percent (Renda, 2013). Based on these trends the OECD predicts that by 2030 the Euro area’s share of global GDP will decrease to only 12 percent, whereas China is presumed to hold 28 % of the world’s GDP shares, shifting the currently strong position of both the EU and US away from the west, and replacing both the EU and the US as the dominant economic player (Renda, 2013).
In March 2000, in what later became known as the Lisbon strategy, European leaders committed the EU to become “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment” (European Parliament, 2000). However, it soon became increasingly apparent that these ambitious objectives were not realistically obtainable in the current economic environment. In 2004, the European Commission established a High Level Group, headed by the former Prime Minister of the Netherlands, Wim Kok, in order to carry out an independent review of the progress made towards the Lisbon objectives, which accumulated in the report “Facing the challenges, The Lisbon strategy for growth and employment (Kok, 2004). According to Kok, the failure of the Member States to act with sufficient urgency on the Lisbon strategy coupled with external events since 2000 has slowed the progress towards reaching the goals set out by the European Commission in 2000. He argues that the key issue in the disappointing delivery of the overall strategy is the lack of determined political action (Kok, 2004).
Europe today finds itself in a similar situation, facing many of the same challenges as described in the 2004 report. As stated in Kok’s report “Europe faces two enormous challenges – increasing global competition and a rapidly ageing population […] to safeguard and strengthen [Europe’s] distinctive economic and social model, it must adapt” (Kok, 2004). Currently, most of the targets set by the European Commission’s 2010 growth agenda “Europe 2020” will be impossible to achieve, as the economies of some of the largest European member states approaches or have already reached recession. And given the negative demographic of the European Union, without a boost in productivity—presently quite unlikely, very little growth seems attainable in the future (Renda, 2013). Globalization is rapidly putting pressure on the European Union in terms of maintaining its role as a global competitor, for example through the emergence of “global value chains”. The increasingly “sliced” process of producing goods, from raw materials to finished product, means that each process can be executed wherever the necessary materials and skills are available at competitive cost (OECD, 2007). These trends force the EU to offshore and outsource industrial activities in countries with lower labor costs. As the EU is home to many of the world’s largest multinational companies, there are a lot of potential gains in offshoring and de-localization parts of the production process; however, it seems that the internationalization of industrial production has led to a declining contribution of the EU economy on total world output (Renda, 2013). The European Commission recently released the “European Competitiveness Report” in 2011, which claims that one of the main threats to EU competitiveness is the so called ‘industrial upgrading’ of China (as well India and Russia, albeit to a lesser extent) and their successful price competition in high-skill industries. In 2007 the share of EU imports in technology-driven industries from China was already higher than in intra-EU imports, while high-skills industries were also recording rapidly rising shares between 2000 and 2007, evidence of China’s rapid technological upgrade (EC, 2011). The EU needs to ensure that the high value-added phases of the production chains are not moved outside the EU, as this will result in the loss of the EU’s leadership in many industrial sectors. While US companies focus on the development of an American manufacturing strategy, European corporations, to the advantage of other regions, are seemingly losing control over key-industrial know-how. The result is that within certain sectors in the economy, such as the automotive industry, the EU is becoming more of an assembly regional block rather than a producing one (Renda, 2013).
The EU is also struggling to maintain its competitive edge in the global market in terms of Research and Development and Innovation. Declining university systems combined with a reluctance to import new talents and attract highly skilled workers from abroad are affecting the business environment of Europe. The fact that most EU firms specialize in low-tech sectors is, according to the European Commission, one of the reasons for the EU’s innovation gap. The EU suffers from a weak position in terms of Information and Communication Technologies (ICT), and although the EU is still performing relatively well in nanotechnologies and biotechnologies, the US still continue to lead in these fields (Renda, 2013). The negative demographic of Europe, as also mentioned in Wim Kok’s report in 2004, is also a source of concern. According to the Commission’s Competitiveness Report extensive investment into education and research is needed to maintain sufficient competitiveness as the number of elderly rapidly increases and the number of young people decreases over the next decades. In 2011 the EU’s population of working age peaked, whereas onwards the potential labor force is expected to decrease, putting immense pressure on the EU to find ways of financing living expenditures of elderly Europeans while maintaining its competitive edge in an increasingly competitive world (EC, 2011).
1.1 Problem Statement
In the face of the above domestic and global challenges, the European Union still recognizes their international responsibility to the developing world. The EU maintains that trade policy is one of the most effective ways to bolster development, and their aim is to improve conditions for trade and investment in developing countries in the fight to eradicate poverty. This paper evaluates the extent to which the European Commission’s communication Trade, growth and development: Tailoring trade and investment policy for those countries most in need successfully confronts the global challenges of today, and whether its intention to promote economic growth in the EU and to accommodate trade and investment policy to least developed countries is successfully implemented in terms of actual political action. The paper explores two different cases of EU policy areas linked to trade, and analyze the implications of these polices on global trade and development patterns in light of the Communication. According to the communication international trade will both improve the economic situation within the EU as well as encourage sustainable development abroad, therefore two international theories of integration will be used to better evaluate both the intentions and the shortcomings of the EU’s trade and development trajectory as set by the European Commission. The liberalistic perspective focus on economic integration as a driving force in international relations, whereas the social constructivist perspective argues that other factors, such as ideological motivations impact the global environment.
2.0 Theoretical Approaches to EU Foreign Policy
2.1 Liberalism
There are three theoretical frameworks dominating the contemporary field of international relations, realism, liberalism and constructivism. This paper focuses only on the last two, as they more accurately relate to the topic of EU’s international trade policy. The liberal paradigm argues that states’ preferences are not stable, and that these preferences are based on two factors. First, preferences are adjusted if different societal actors win in domestic competition, and secondly, preferences change when individuals’ economic opportunities and interests are reconstructed in the face of changes in the global system. As states’ interests are defined economically, liberalists predict more interstate cooperation and international institution formation incentivized by increased economic interdependence as a result of globalization (Hix, 2005).
In the liberal perspective societal actors and elites compete, their individual preferences driven by economic interest rather than geopolitical concerns, and in the international system state officials act rationally to pursue their economic preferences, which are shaped by the behavior of international and supranational institutions and developments in other systems (Hix, 2005). Liberalists maintain the primacy of economics and societal economic interests over politics and power relations. Generally speaking, liberals recognize the neoclassical economic assumption that the free market is the most efficient way of allocating resources, and therefore argue that in a world where individual economic interests are the driving force of politics, states should pursue free trade rather than protectionist policies. However, liberals also accept that government is important for the procurement of goods and services that would not be supplied in sufficient quantity by the market (Hix, 2005).