World economic relations are no longer limited to international trade in goods and services. In the world economy, the Community and all major partners are interdependent: Community policies must reflect and build on this reality.
The Community must keep up its efforts to bring the Uruguay Round to a swift conclusion covering all the problems now outstanding and paving the way for the transition to a world trade organization.
In the context of the liberalisation of global trade and economic relations, the integration of Central and Eastern Europe and the former Soviet Union into the world economy will contribute to the strengthening of growth in these countries and the world in general. Similarly, the Community should for the same reasons support the smooth and gradual integration of the developing countries in the world economy.
The perspective of accession for the Associated Countries confirmed by the Copenhagen summit lays the foundation for the development of a Europe-wide zone of open markets and economic cooperation which will stimulate growth in the Associates and give a strong stimulus to Community exports and therefore growth. This process of integration will contribute to rendering European enterprises in West and East more competitive on world markets.
The Community economy is a global economy. The Community accounts for 1/5 of total world trade in goods. 12 million jobs in Europe depend directly on export of goods. Tradeable services account for 1/4 of overall goods and services exports. Nor are trade figures alone a good reflection of Community economic links world-wide. Direct investment by Europe in other countries accounts for over 1/3 of foreign direct investment worldwide. The Community has strong links to preferential partners, but these do not dominate trade: Community exports to EFTA, Eastern Europe, the Mediterranean basin and ACP countries together account for only just over 40% of total exports.
Underlying this static picture, the structure of the world economy is undergoing rapid change. The post-war picture of inter-country trade, increasingly accompanied by international investment and with very large companies the privileged players is less and less reliable. Trade in goods increasingly means inter-firm trade in semi-manufactures. The development of informatics networks makes it possible for companies to cooperate more flexibly than by joint venture or franchise alone.
This means that the key factors shaping business behaviour will be different. Already, import duties are generally less important for exporters than domestic regulations (tax, safety, consumer protection). There is less and less scope for a nation state or an economic community to improve life for its businessmen by acting alone. Nor, even internationally, can trade policy action be taken without looking at possible policy linkages (trade/exchange rates, trade/environment, trade/security, trade/human rights) which were hardly addressed ten years ago.
Integration in the global economy nonethless depends on a solid set of trade relations. The analysis of competitiveness has already demonstrated that extra-Community exports of traded goods are too frequently concentrated in sectors where long-term prospects are for low demand. Nor are Community exporters sufficiently focused on the Asia-Pacific region, which has the highest medium-term growth potential. Community exports to some Asian markets have increased dramatically, underlining the mutual advantages of free trade. But we need to be more broadly present and to pursue further market opening worldwide.
Nominal exchange-rate fluctuations may increase business uncertainty on third country markets and are a proper subject for Community activity (see recommendation 8 below) but do not seem to drive the underlying trend in Community competitiveness.
Perceptions of unfair trade abound. Some relate to traditional problems (dumping, subsidy, unilateralism), some to the problem of free-riding in new areas of international policy coordination (social or environmental dumping, international impact of anti-competitive practices). There remains, too, a sense that market-opening is lagging behind economic growth and export performance in many countries, mainly newly industrialized countries.
Several Member States' contributions underscore the benefits of an open market economy and free competition as advocated in the Union Treaty. This would enable the Community to turn its competitive advantages to good account in the framework of the international division of labour. Maintaining an open economy facilitates the allocation of resources to the places where they are most productive and, consequently, specialization in products and services with a high added value and greater competitiveness. In the view of some Member States these arguments also hold good for products originating in countries with low wage costs as their development, coupled with an opening-up of their markets, offers new opportunities for European industry.
All Member States consider the conclusion of the Uruguay Round in the very near future to be necessary for the world economy. Several point to the need in future negotiations to take account of certain factors which have a bearing on trade, such as the environment, competition conditions and monetary aspects. There is no unanimity, however, on the inclusion in trade negotiations of social aspects or on the use and shape of trade policy instruments.
Most of the contributions highlight the benefits to be derived from the European Economic Area and the progressive integration of the economies of the Central and Eastern European.
Some Member States call for international economic cooperation to be stepped up significantly, notably in the G7 framework.
Open markets with free competition is one of the objectives of the Treaty on European Union. It has a profound interest in promoting open markets, both inside and outside the Community. Open markets are a key element for international competitiveness. Within the Community they facilitate the international division of labour and the assignment of resources where they are most efficient. They also enable Community industry to purchase goods and services (for intermediate of final consumption) or raise capital in the best available conditions worldwide.
In the changing world economy, Europe itself is changing rapidly, presenting dangers but also great opportunities for the European Community.
The successful conclusion of accession negotiations with four of the EFTA countries will lead to the creation of an even more powerful industrial and trading Community.
Recent changes in Eastern Europe and the former Soviet Union have major implications for the Community, creating new opportunities to expand the overall volume of trade in the region and challenging the Community, and Community business, to play an active role in supporting these countries in their progress towards full market economies so that they achieve their full potential. The European Council meeting in Copenhagen laid down the parameters for developing future relations.
The integration of the Associated Countries of Central and Eastern Europe with the Community resulting from the decisions of the Copenhagen summit will further reinforce the Continent's trading capacity and its competitiveness on worldions of social aspects or on the use and shape of trade policy instruments. markets.
In the longer term, similar benefits and challenges for the Community can be expected from contributing actively to a smooth and gradual integration of the developing countries into the world economy.
An open and comprehensive framework for trade and economic relations under internationally agreed rules, enforced multilaterally, with strong coordination of policy-making in all areas beyond those rules, is the only recipe for maximising growth in an interdependent world. But that recipe will only work if the Community economy regains a long-run competitive position on world markets.
The push for competitiveness and the search for a strong position in the global market depends on a long-term vision: 20 years, not 2.
The open "trade" system must be improved and extended to meet the challenge of global economic interdependence. In order to regain public confidence, it must be seen to respond to current concerns.
The Community must be seen to take full advantage of that system. Community institutions must respond more quickly to threats and opportunities. Community business must work harder at developing strong links to foreign firms and consumers.
We must avoid setting up international trade as either a panacea or a scapegoat for current ills. Strong export growth can ease necessary internal restructuring, but no action on the external front alone, however drastic, could resolve the current unemployment problem.
Community priorities must reflect structural change in world markets, both the long-term prospects of fast-growing regions such as Asia and the immense opportunities created by adjustment in Central and Eastern Europe and the CIS.
These latter opportunities must be seized as they represent not only large future markets but also will present opportunities to Community companies to improve their competitiveness on world markets. It will be necessary to push forward with the liberalisation of market access, and to develop the economic relationship in areas such as industrial co-operation, in order to maximise the benefits accruing to the Community and the Associates from progressive economic integration.
However, the creation of new market opportunities in highly indebted countries will depend on the effective alleviation of the debt burden which strongly constrains these countries' capacity to import. The Community will work jointly with other partners in order to find a lasting and satisfactory solution to the debt problem.
(a) Reform the open market rules of the world economy
The Uruguay Round is an overdue first push towards the objective of strengthening GATT rules and extending them to reflect today's wider and more complex set of international economic relationships. We must reach a successful conclusion to the Round this year. Prospects for a favourable deal will not improve with time. Without a Uruguay Round agreement, the open trade system will come under sharp protectionist pressures: current Community trade flows as well as prospects for further growth will suffer.
In the remainder of this year and beyond, the Community's priorities are clear:
The latest negotiations have produced progress in sectors where the Community is competitive, at least among major developed countries, and have laid the basis for further progress among all GATT participants.
Negotiations for accession to GATT by countries such as China and Russia will provide opportunities to secure clear commitments to continued market-opening.
The Community must make a positive contribution in order to unlock all these benefits.
Even if the Uruguay Round is concluded successfully, it is still based on a one-track approach to trade liberalisation, dealing only with governmental obstacles to trade. It is important that multilateral rules are developed for the elimination of private conduct and structures which constitute obstacles to trade. Such obstacles are adequately dealt with in the Community through an active competition policy. However, the competition policies of its major trading partners are not geared similarly to the trade impeding effects of such private obstacles. Multilateral rules in this area should therefore re-establish a level playing field for Community companies and provide them with important additional trade opportunities.
In a global economy, the range of policy areas where foreign decisions will affect Community companies is widening rapidly, while the scope for unilateral Community action to secure competitiveness gains at the expense of other economies is weakening. The strategy for all policy areas should be to seek common action with partners to meet Community objectives. This will require early action in a series of fields: some, such as intellectual property rules and investment, are covered in the Round, and others such as environment and multilateral rules which establish a level playing field.
This is essential to guarantee prompt action on outstanding issues. GATT is too loose a body to respond with the speed now essential in the face of new challenges, to integrate the range of policies that now interact, or to secure full compliance with increasingly complex multilateral rules. The trade impact of environment protection is one such issue which will have to be tackled immediately after the Round: the EC wants to see a permanent environment committee in the new multilateral trade organization. A strengthened organisation to manage the multilateral system is the essential guarantee that a Uruguay Round result will be of lasting value.
Special sectoral deals create inter-sectoral distortions which hamper economic growth in Europe. The Community is fighting in the Uruguay Round for an overall agreement that enables rules for textiles and clothing, agriculture and other sectors subject to GATT - recognised or covert trade restrictions, to be returned progressively to normal disciplines. The process can only be gradual, must bind all participants and must be set in the context of an overall strengthening of GATT rules as well as of the recognition of Community policies in the spheres affected. On this basis, it will be beneficial to Community producers as well as to the economy as a whole.
This is necessary corollary to other action referred to above. Dumping and export subsidy remain threats to fair competition. GATT rules for preventing unfair competition must be strengthened. Safeguard action must also be made more effective and transparent, so that the Community can, as GATT foresees, take temporary action to allow industrial restructuring. Wherever possible, this action should be based on cooperative understanding with all involved rather than unilateral action.
Trade policy should be shifted towards the citizen (transparency, assessment of consumer interest) and towards greater Commission autonomy (subject to CFI control by the European Court). This will increase the confidence of Community producers that necessary decisions can be taken rapidly. But this will require not only legal powers but greatly increased Commission resources, and better cooperation from national administrations (eg. statistical offices and customs). Key areas for resource increases include anti-dumping / anti-subsidy / safeguard action, the new policy instrument, the international dimension of competition policy, and action to prevent circumvention or fraudulent use of quotas under the multi-fibre agreement.
(c) Promote Community Business strategies for the post-Round world
Uruguay Round market-opening measures will be implemented progressively. But it is not too early to focus debate on optimal strategies to generate Community gains (profit, market-share, new investments and business relationships) from the post-Round world market. This should look beyond the likely impact effect on world business confidence and anticipate the adjustment necessary to take account of new competitive situations in Community markets as well overseas.
There is no need for Community duplication of member state export promotion efforts. But at Community level, more effort is needed to produce Community-wide business organisations, and to develop Community organisations expert in regional rather than simply national export markets. Asia is a high priority for action in this regard. Positive developments in Latin America (the setting-up of NAFTA, Mercosur, etc.) open up increasing possibilities for action in this region as well.
The framework exists in embryo in the current web of bilateral agreements, and will be reinforced as those countries align themselves ever more closely on multilateral open market principles. The Community is both leading the cooperative effort of the G24 and developing through TACIS and PHARE its own instruments.
Broader business investment in these markets whether bilaterally or in joint efforts with Asian or American business is the element that must now be encouraged. Closer economic integration of this sort would accelerate the pace of reform to the East and reduce the examples of friction that inevitably result in sectors suffering structural overcapacity.
We should improve co-ordination between export promotion and other policies in order to increase export opportunities, particularly at the cutting edge of technological development. As policy cooperation becomes more extensive (for example on environment or biotechnology under the Community/Japan Declaration, or otherwise) the officials involved should be conscious of the scope for creating new forms of industrial cooperation or new markets for Community products.
The globalization of the economy raises the question of the adequacy of the current instruments of commercial policy. We should now be developing more positive tools of business and inter-governmental co-operation.
(d) Developing the relationship with Eastern Europe and the former Soviet Union
The Europe Agreements concluded with Poland, Hungary, the Czech and Slovak Republics, Bulgaria and Romania commit the parties to the creation of broadly based political and economic cooperation on the basis of a free trade area. In Copenhagen the European Council decided to accelerate the timetable for removing barriers to trade on the Community side, recognising that greater market access was an essential support for the process of economic reform in these countries.
In addition to the framework for future trading relations, which has been established, it is necessary to develop a broad and dynamic economic relationship, by encouraging business and economic co-operation between Western and Eastern Europe and by providing a framework for cooperation, including the application of common competition rules in the wider European area. One of the benefits of closer economic cooperation should be to reduce trade frictions by easing adjustment and minimizing recourse to trade defence instruments.
The Community is currently negotiating Partnership and Cooperation Agreements with Russia and a number of other newly independent states and defining the rules which will govern the future trading relationship will form a key element of these agreements. The Community has indicated its willingness to envisage establishing a free trade area with Russia in the future.
Finally, the Community must pursue the process of multilateral opening and integration among TACIS and PHARE participants and support appropriate regional co-operation so that the old model of hub-and-spoke preferences can be avoided.
In order for the former centrally planned economies of Europe to be able to implement market oriented reforms sucessfully the Community will need to adopt an innovative approach that, besides market opening and financial support, includes the necessary transfer of skills. Cooperation between Community enterprises and newly-privatised firms can play a key role in this regard.
(e) Anchoring the Southern Mediterranean Region into the European Economy
The Mediterranean neighbours, from Morocco to Turkey, represent the southern part of the European Union's future economic and social environment. With a rapidly growing population of presently some 200 million people, these countries represent as important an export market potential as Eastern Europe.
It is of vital political and economic importance for the European Union to develop this relationship into a closer economic symbiosis.
The first steps towards a possible Euro-Mediterranean free trade area have already been made: free trade agreement with Israel (1989), Customs Union to be completed with Turkey by 1995 and Cyprus, association agreement to be negotiated with Morocco in 1994, later with Tunisia and possibly with other countries of the region.
It is also expected that the successful outcome of the peace negotiations in the Middle East and the process of economic liberalization which is underway will boost the intra-regional trade.
All these developments should, during the coming decade, lead to a substantial increase in entrepreneurial activity in the Mediterranean countries, marked by more direct investment: more joint ventures: more agreements of production sharing; and, in general, a much higher level of industrial and trading interaction.
These geo-strategic developments on Europe's Southern flank are bound to have a positive impact on the European employment situation, thanks to the economic dynamics that will be generated in the Mediterranean Basin.
For this potential to become a reality the EC must contribute actively to the process of economic and social transformation which has already started in these countries, towards more open, regionally integrated and efficient economies.
(f) Improve Competitiveness
Trade and economic policies cannot substitute for the development by business both of saleable products and of the means to deliver them to world markets on time and at the cost and quality needed. As to social costs, the fear of so-called social dumping would be misplaced if it related to a belief that in certain countries the level of social protection is kept artificially low in order to gain a competitive advantage elsewhere. We should not accept too simple a picture of high-wage industrial countries and low-wage developing countries. Differences in worker wages alone can be misleading. It is true that modern technology spreads much faster and more easily than in the past to different areas of the world. But poorer education, lower skill levels, lower levels of capital investment overall and inadequate infrastructure can all offset the possible advantage to be derived from low wages.
This is not to say that the Community has no difficulty in competing with labour-abundant countries. But European competitiveness is falling not principally because of the impact of international social cost differentials in some sectors, but because we ourselves suffer structural distortions in Europe. In developing countries, more elaborate social protection becomes a generally held political objective as national income rises to a level where those objectives are attainable. In the long run, a major part of the solution will consist in helping these countries to set up the conditions necessary for the development of domestic demand and rise in the standard of living.
The search for greater competitiveness both by trade and other policies does not imply that social protection should be undermined in Europe or ignored abroad. We are rightly proud of our record in this respect, which compares with the best in the world, and we are right to remain committed to establishing European-wide standards for social protection wherever appropriate.
The Community and its member states can take every opportunity to raise with countries concerned the need to bring forward their own legal changes. We can encourage this by positive measures, for instance by providing legal advice or technical cooperation where required. These are legitimate objectives of development aid and economic cooperation. But trade policy is not an instrument for the achievement of those objectives.
We rightly object to unilateral action by others to impose on Europe their view of how the world shouldGenerated with CERN WebMaker be run. The international organisations responsible for multilateral rules must themselves judge Community compliance with these rules. The same principle must apply to judging others' compliance.
There are 3 fronts on which to act :
(g) Pursue a balanced policy on Preferential Agreements
As worldwide levels of protection fall, the importance of trade preferences diminishes, except in the case of newcomers to the world market-economy open trading system.
Preferences remain an important signal of the Community's political commitment to one or other of its neighbours or partners, but should be made compatible with the health and stability of the multilateral system. Nor should special bilateral economic relationships be limited to trade preferences : economic integration cannot be achieved only through reduction of tariffs and non-tariff barriers, however. It also requires the elimination of distorsions of competition resulting from anti-competitive behaviour or State aid.
(h) Relocation
Increased direct investment is good for jobs, good for reducing trade imbalances and trade frictions, good for developing Europe's cultural understanding of other countries, and for the projection of Europe's identity among its trading partners. It is most useful as a stimulus to the world economy where trade barriers are low, so that increased international investment should go hand in hand with effort towards further market opening, in particular in the newly industrialized countries.
There are no Community restrictions on foreign investment, although some Member States continue to vet investment in certain sectors. We encourage investment, but encourage inward investors to integrate fully in the European economy. We do not want so-called "screwdriver" operations, nor are they likely to be an attractive formula in the long-term for European-based operations, since we have high labour costs and a screwdriver operation depends on low labour costs. For us the future lies in inward investment fully integrated in the local economy, with research, development, marketing and management functions located in Europe alongside manufacturing, sales and service. This indeed is the trend, not least because there has been a sharp rise in mergers and acquisitions as a proportion of overall foreign investment in Europe.
Little by little, foreign investment in Europe has come to be accepted by European citizens as the first step in closer cooperation between sectors in Europe and their counterparts in key markets overseas. The same is not yet true of European outward investment which has been criticised for over 30 years as a means of "exporting jobs". The argument runs that outward investment, simply deprives Europe of value-added activities, increases our imports and decreases our exports. This is not a correct analysis. Over 80 % of Community overseas investment goes to other Members of the OECD. Less than 10 % goes to the newly industrialized Asian countries and Latin America. In some parts of the Community, the level of investment in low-salary countries is even lower : 4 % of overseas French investment, for example, a figure that has changed very little over time. Industrialists who invest outside Europe tend to do so to supply markets other than their own, reimporting barely 10 % of their total intra-company purchases from the low-salary countries where they have invested.
(i) Work multilaterally to minimize exchange rate fluctuations
Coupled with macro-economic imbalances and the resulting current account problems of major trading countries, exchange rate fluctuations increase prevailing levels of uncertainty and increase trade friction, thus reducing business confidence and delaying recovery.
This is a problem which cannot be tackled by the Community in isolation but requires a multilateral solution in which there is better co-ordination between the macroeconomic and structural policies of major international economies and not only exchange rate targeting. The Community can encourage this by building on its own internal policy co-ordination of economic policy through regular surveillance.
Recent developments within Europe have not made action on this front any less urgent. Community interests will only be given proper weight in world discussion of exchange rate issues when we are seen by the rest of the world to be back on the course towards EMU.
(j) The international dimension of competition policy
Competition policy in most countries has traditionally been seen as a purely national prerogative. The Community was the first to practice a policy which tried to deal with the impact that distortions of competition had on trade. Originally only applied within the Community, this approach has been gradually extended to trade with the Community's main trading partners in Europe as well. Thus, competition policy has played a major role in furthering international trade and in particular the possibilities of our companies to export to other markets, hitherto closed by anti-competitive practices, State aids or public monopolies.
Not all of the Community's main trading partners have followed a similar approach of applying their competition policies to open their markets to imports, however. Such policies are lacking in particular in a number of countries in East and South-East Asia, whose markets are closed not so much by tariffs and non-tariff barriers, but mainly by anti-competitive practices. The "Keiretsu" in Japan and the closed distribution systems in several countries are but two, important, examples of this phenomenon.
It should be a Community priority to seek to establish rules governing these competition problems. Idially such rules should be multilaterally agreed, in order to give them the broadest coverage possible. As indicated above, the present GATT Round does not deal with the issue, even though certain codes (in particular the TRIPS and Services Codes) include provisions on restrictive business practices. The Multilateral Trade Organization, created as part of the Round's package, should cover competition policy issues as part of its immediate agenda, focusing especially on restrictive business practices and cartels. The aim should certainly be to agree on minimum substantive rules, but more importantly to lay down procedures to ensure enforcement of these rules by each of the contracting parties. For it is only through their enforcement in individual cases that the positive market opening effects can be achieved. The right of recourse to GATT panels should be strengthened, as should the effectiveness of their adjudications. Achieving effective rules of this kind will be difficult and time consuming but it is high time to begin the process.
In the short term, therefore, the first step is to seek agreement on a system of mutual consultation and cooperation with competitive authorities elsewhere in order to forestall potential conflict. The Commission has concluded an administrative agreement with the anti-trust authorities of the U.S. in order to limit such conflicts through a process of consultation, cooperation and coordination.
If the agreement, which is presently being reviewed by the Court of Justice, is upheld, it can form a model for other negotiations. Discussions to this end were already held with the Canadian authorities and other candidates could follow. As one of their main objectives is to limit conflicts in cases of enforcement, such agreements can only be concluded with authorities which actively enforce their competition rules.