Europe has opened a can of worms by trying to reconcile free trade with fair trade.
Under pressure from French President Nicolas Sarkozy, the European Commission on March 21 adopted proposals that could shut foreign companies out of bidding for public contracts in the EU unless their home countries provide similar access to European firms.
The EU executive, which has historically promoted free trade and opposed protectionism, insists the measure is intended as a crowbar to open lucrative government contracts in countries such as Japan, the US and China, not to close EU markets.
Public procurement worldwide, ranging from building roads and railways to supplying software and running data networks, is worth about 1 trillion euros (US$1.3 trillion) a year, and Europe’s market is far more open than those of competitors, the commission says.
Japan allows foreign bidders on less than 3 percent of public contracts and the US is only slightly more open. EU officials are irked by more “Buy American” provisions creeping into recent US legislation.
The plan has to be approved by the European Parliament and a qualified majority of EU governments, which is far from assured, but it has already prompted fierce debate.
Critics, especially the free-trading British, say the proposals send the wrong signal and would put Europe on a slippery slope toward fencing off markets rather than opening them.
A British government policy paper on trade published last year said the principle of reciprocity might sound “superficially reasonable,” but it could open the door to protectionism.
“The government does not think that the EU should close its own markets if others’ markets are not opened. This could weaken competitive forces, drive up costs and [in procurement] reduce value for money for the EU taxpayer,” it said.
Germany, Europe’s biggest exporter, is also unenthusiastic, fearing retaliation against its cars, chemicals and industrial machinery, which are still conquering Asian growth markets.
Sarkozy, who has long banged the drum for trade reciprocity and branded Europe “naive,” has gone further and demanded that the EU adopt a “buy European act” similar to the Buy American Act reserving certain markets for domestic producers.
In an election campaign speech last month, he threatened to impose unilateral restrictions on public contracts if the EU does not act — a move that would breach European law.
Like many trade battles, the dispute pits the interests of producers against those of consumers and exposes the limits of Europe’s ability to spread its own system of rules-based governance worldwide.
A study produced for the French government argues that aside from public procurement markets, European manufacturers face a growing problem of “unfair competition” from countries with lower labor, environment and safety standards.
The report, entitled Ending Unfair Globalisation, by veteran industrialist Yvon Jacob and a French economics ministry official, Serge Guillon, repeats familiar complaints about China’s subsidized finance for companies, intellectual-property theft and exchange-rate management.
However, it also pinpoints issues such as the failure of European authorities to police the usage of the “CE” (European Conformity) quality label, meant to reassure consumers that goods meet EU safety norms.