All the current talk about ‘regulating’ globalisation in Europe could lead to short-sighted protectionist policies. Corinne Vadcar outlines some pathways to make the most of openness and digitalisation.
Everyone in Europe has had something to say about the adverse effects of globalisation on people and societies in recent months. Many are now prompt to embrace the idea of ‘regulating’ the process. ‘Regulating globalisation’ has become the new politically correct way of thinking about global economic integration, and is seen as a way to counter populism.
French president Emmanuel Macron is a champion of this approach. Macron is calling for a Buy European Act. Germany, Italy and France have called for an EU-level mechanism to screen foreign investments. Some proponents of a more controlled globalisation process want to reinforce ‘reciprocity’ in public procurement markets, and strengthen Corporate Social Responsibility chapters in EU free trade agreements. The overarching aim is to ensure ‘fair trade’ and ‘fair globalisation’.
There is a rationale for regulating globalisation. But when the idea of ‘protection’ – a buzzword used by Macron – prevails over other policy goals, there is a risk we end up with harmful ‘protection-ism’.
Many may think ‘regulated globalisation’ is an ‘enlightened’ form of protectionism, and hence that it is not protectionism.
In fact the idea of ‘regulated’ globalisation rides the current wave of nationalism. Putting out proposals such as European procurement preferences or localisation requirements is doing just that.
The idea of controlling globalisation conveys the idea that it is possible to master the forces of globalisation. Yet it is technological innovations that are often the main drivers of strong societal and economic shifts, not globalisation alone.
The principle of public policies should be to accompany these shifts, not try to stop them, in other words to ensure societies and economies adapt and are able to transform themselves to be in a winning game.
Focusing on trade policy tools to address challenges linked to globalisation means policy could miss out on the realities of the digital globalisation.
In the world of global value chains in which our economies are in, trade policy has only a partial role to play. As a result of digitalisation, production systems are undergoing deep change. Trade flows will increasingly be driven by data, services, and digital platforms.
Relevant policies to tackle these areas are e-commerce, services (including services embedded in goods), and a broader reconsideration of competition law, tax systems, and the legal framework to protect personal data.
Other strategies to boost growth and jobs in such an environment involve enabling the digital transformation of small and medium-sized enterprises, training and education, multifaceted innovation, and support to European platforms.
These are some important items that should be part of a more robust answer to the question of inequalities in a globalising world.
Trade policy measures introduced to ‘regulate’ globalisation risk being anachronistic and short-sighted. None of them will help fight populism.
One such issue is trade defence instruments. Their very existence shows there are safety valves and ‘checks and balances’ in the multilateral trading system. But trade defence has somewhat become politicised and its abuse could trigger a trade war. With possible upcoming US anti-dumping measures on steel and aluminum such a route would be damaging on both sides of the Atlantic.
There is a tendency in the EU to overestimate the ability of CSR chapters in FTAs to deter anti-trade protest movements. Because FTAs are blamed for increasing social inequalities or damaging the environment, the temptation is strong to see social, environmental and perhaps fiscal standards as the best formula to respond to such concerns.
Trade agreements are not perfect tools. FTA chapters on such norms are worth being reinforced to help make international supply chains more responsible. But it is wrong to believe that these adjustments will pull the rug under the feet of anti-trade groups or stem the tide of populism. In fact, CSR standards have become more and more widespread in FTAs in recent years: this has not prevented populism from rising.
All this raises the question of what can be a really relevant European trade policy that regains the trust of public opinion and boosts responsible globalisation.
Look beyond trade policy
So what’s the way forward?
It is necessary to close gaps in the multilateral trading system. Rules on subsidies need to be reinforced at least to introduce the same level playing field between WTO members. China’s accession to the WTO agreement on public procurement needs to be accelerated.
Answers to the challenges and anxieties raised by globalisation cannot be found exclusively in trade policy.
Instead, the focus should be on better redistribution of incomes, ensuring equality of opportunity, developing and strengthening an individual’s career path including through lifelong training and learning. In this regard the European Commission in its reflection paper on Harnessing Globalisation is right when it says: “robust social and education policies are key to ensuring resilience and fair distribution of wealth”.
At a time when the EU needs to defend its commercial and political interests vis-à-vis the likes of the United States and China, one answer would be for the EU to be in a better position to enter into power games. That simply means more political unity between member states.
Finally, we should not be afraid of being unpopular if it is for the greater good.
Corinne Vadcar is a Paris-based trade analyst. Follow her on @VadcarCorinne
The views expressed in this article are the author’s own.