EC’92 LEAVES OUTSIDERS WORRIED.

Jun 4, 1991

EC’92 LEAVES OUTSIDERS WORRIED.

GENEVA, 31 MAY (CHAKRAVARTHI RAGHAVAN) – A week-long UN-organised symposium on the implications of the Single European Act for non-members, which concluded Friday, has left those outside the European Community worried, several participants said Friday.

The participants conceded that their views, as those of EC protagonists who hold out prospects of benefits for outsiders, were judgmental, necessarily subjective, but based on the record of the European Community member-states and the Commission, in the earlier phases of the integration and in multilateral trade negotiations including the Uruguay Round.

The symposium, organised by the UN's Department of International Economic and Social Affairs (DIESA) and purportedly aimed at looking at the implications from the point of view of trade and economic prospects of non-EC states, had very few Third World participants or viewpoints.

Of the over 50 participants listed, excluding a few international civil servants from the Third World, there were only three from the Third World.

At a press briefing, DIESA officials had no convincing explanation, merely pointing to the viewpoint from Brazil and from the perspective of ACP countries presented at the symposium, as also several of the papers from Northern participants who had looked at the likely effects on aid and trade to the Third World countries.

Some of the papers from Northern academic participants did deal with likely effects on the South, but essentially from the viewpoint of the Asian and the NICs - on the basis that they have significant market shares of EC's imports and exports.

As David Greenway of the Nottingham University puts it in his paper, the market opportunities will be in terms of EC suppliers that have a market presence prior to 1992 and competitive and anti-competitive threats of EC firms in non-EC markets.

Either way, the papers in terms of goods and services have dealt primarily with the industrialised countries and new industrialised countries.

However some of the participants from international organisations at the symposium said such an aggregation at global level would shed no light on the plight of the large number of Third World countries that would be affected.

While an individual Third World country or a region or groups of countries not coming under these categories may have a small share in terms of EC's trade, from the particular country or regional perspective the share (in terms of its own exports or imports) might be large and thus the effects on its trade and economy would be large, whatever the benefits to the global economy.

Several of the participants also complained privately that the European Community had little or no participation. The list put out on the opening day had only two EC officials and even they apparently did not participate in all the sessions.

Jeffrey Schott of the Washington-based think tank, the Institute for International Economics, in a paper to the symposium, said that the net effects of the EC internal market reforms on the structure of the world trade could to date only yield speculative conclusions and "it remained an open question whether the internal reforms will be matched by a complementary commitment to external liberalisation".

The answer, he said, might turn on whether the 1992 process would succeed in generating growth large enough to justify the political costs of accommodating the resulting economic restructuring in Europe and whether the Uruguay Round would result in substantial liberalisation of long-standing trade barriers.

Other participants also underscored the mutual effects of the EC'92 and the Uruguay Round processes.

Despite the "Euro-optimism", Schott said, there was a serious risk that internal adjustment pressures within Europe would impede efforts to achieve external liberalisation (as shown by the current proposals about the auto-sector). There was also the additional risk that if external liberalisation were implemented, the reforms could be applied in a discriminatory manner favouring one region, Eastern Europe, at expense of another, East Asia.

"The fact that many countries have sought to emulate or otherwise guard against the potentially adverse trade effects of such developments confirms the problem while it compounds the risk for the GATT and the future of the multilateral trading system".

Schott seemed to think that the U.S. and EC could reach a compromise in the Uruguay Round agriculture negotiations on the basis of the Hellstrom text put forward at Brussels and resulting in a 25 percent reduction in current subsidies (domestic and export), and that this could help reach agreements in services, intellectual property and other areas for trade liberalisation and that these would benefit the Third World countries.

He had no answer as to how the Hellstrom compromise (which would still enable export subsidies up to 70-75 percent) would benefit the Third World and its agricultural development and what kind of a free market and free trade it would be if the Third World could provide domestic support only if its internal "market" price would be not above the world market prices determined by the U.S. and EC dumping of their exports.

David Robertson of the Australian National University Canberra also emphasised the importance of the Uruguay Round and said that if nothing was done by the EC on agriculture and the CAP, the round would fail. It was not a question of selling food to Europe but of Europe dumping it on other markets.

"If Europe wanted to be 100 percent self-sufficient, we don't care a damn", the Australian academic told a press conference. "But if they want to dump the surplus on world markets it is another matter. If the Uruguay Round is to succeed, the EC cannot say that its 12 States had studied the situation and this is our position and others have to follow suit. They have to introduce some flexibility in their negotiating position and the Commission should negotiate without dictating".

Robertson said that those outside the EC were certainly worried and were going back, after the symposium, "with more uncertainties than when we arrived".

The Commission itself, he said, was not sufficiently represented at the symposium and from the responses given, it would appear that even after 1992 "national borders" and jurisdictions of the member-States would continue.

The real effect of EC'92, he told newsmen on the opening day, would not be known until 1995 and one could only make judgements, necessarily based on the EC's "pretty sick" record so far. But on this basis for those outside "EC'92 would be more of a threat than one of opportunity", he declared.

The integration process so far, including of the original six and the expansion since then to the current 12, showed that national restrictions continued across a variety of sectors - motor cars, electronics, components for computers and textiles. There could be no single market without ending the restrictions.

The EC Commission itself had been making extensive use of anti-dumping measures, "not against ‘unfair’ trade but against ‘competition’ trade". The CAP was the responsibility of the Commission and "no one could have devised a more impervious system of protection". If the EC's practices and attitudes of the past were projected into the future, the common external trade policy would be more protectionists than some of the national policies.

"Rather than a 'Fortress' Europe, we will have a 'rampart' facing us. The U.S. would still probably do well. The Japanese had been discriminated against since the 50’s by the EC and the same approach was being applied to the 4 NICs and other dynamic Asian economies. In time, even Latin Americans, I suspect, will find themselves subject to these terms", Robertson said.

The trends in the U.S. Trade Acts of 1984 and 1988, giving increased discrimination to the administration to regulate imports and with emphasis on reciprocity and bilateralism to achieve market access, the free trade agreements with Canada and Israel and the proposed agreement with Mexico, could "harden EC positions on trade policy designed to discriminate against outsiders, especially the non-preferential-trading countries", Robertson said in a paper presented to the symposium.

The initial euphoria about 1992 appeared to be diminishing, as the economy of Europe itself was slowing down. He for one had never believed that EC'92 would succeed in breaking down all internal barriers and the growth effects of the single market would have benefits for the rest of the world.

There were several areas like subsidies and CAP where agreements were yet to be reached and it was not certain that the single market would be achieved by end of 1992.

But if all the EC’92 directives were implemented and the internal market completed by 1493, the cost in terms of discrimination against outsiders could be high. Elimination of remaining national import restrictions (quotas, VERs, MFA measures) might only be achievable if they were replaced by "tough EC-wide measures". The Commission had shown it was prepared to be tough in use of VERs and anti-dumping measures against Japan and NICs.

The EC's preferential trade agreements already discriminated against those countries without preferences and the prospect of new EC preferences with Eastern Europe and enlargement of the EC to include EFTA and other countries could extend the "European dimension". The East Asians could find their exports of consumer manufactures to the EC undermined by competing goods using low-cost labour from Eastern Europe and the Mediterranean and facing a double threat: from direct competition in the EC market and the competition from these labour-abundant (East European and Mediterranean) countries for Japanese and U.S. investments.

Robertson noted that the GATT provided the only forum for non-preferential trading countries to negotiate with the EC on the EC’92 process issues. The U.S. had tried to hold bilateral talks in Brussels (on harmonisation of standards and the Banking Directive) but these were not welcomed.

The Uruguay Round provided outsiders with an opportunity to discuss and modify several EC’92 proposals - e.g. the Second Banking directive, trade in services and the concept of reciprocity, rules of origin and local content requirements. But the breakdown of the Round (at Brussels) over agriculture had suspended negotiations over many of these issues before any basis for agreement could be reached and in some areas important progress made was in danger of being lost unless negotiations regained momentum.

There were draft texts on dispute settlement, rules of origin, government procurement and elements of a draft framework for trade in services. But negotiations on other important issues relating to EC’92 were still unresolved: "safeguard" provisions and "grey area" measures, anti-dumping, subsidies and countervailing duties, non-tariff barriers, textiles and clothing and of course agriculture.

"The history of EC countries", Robertson said in his paper, "is dominated by protectionism and discriminatory solutions to economic problems. Any benefits for outsiders from EC’92 will depend on the new EC-wide trade policy that evolves when all internal frontiers are removed. The CAP and experience with anti-dumping and EC administration of VERs and MFA show that very little regard is given to consumer interests in the development of industrial policy. Protectionism is growing in the U.S. and new problems of economic development in Eastern Europe are likely to stimulate dirigiste solutions. The prospects for keeping EC in the spirit of the GATT system will turn on progress in the Uruguay Round".

David Greenway, in his paper, said much would depend not only on the EC directives in terms of unification but how they were enforced. Once adjustment strains begin to manifest themselves, it was not difficult to imagine slippage occurring, with the result that internal benefits would be eroded and non-EC countries would find themselves subject to greater threats than otherwise.

The opportunities for non-EC producers in the short run would arise from the market widening and in the long run from income growth. But the benefits could be realised only through market presence, that would be required prior to 1992, and market intelligence, he noted.

As for potential threats to non-members, the wider EC market and full scale economies and reduction of inefficiencies would make EC firms a competitive threat, though an entirely legitimate one, to non-EC firms in the latter's own markets. Those affected would be in the existing export markets of the EC.

But there would also be anti-competitive threats. This would be because of the relative position of EC residents vis-a-vis non-EC residents - as in respect of factor mobility and some merchandise trade, leaving to factor diversion and trade diversion.

Other anti-competitive threats would come from potential trade policy of the EC commission after 1992. These threats would arise from the replacement of national restraints with Euro restraints, market exclusion via setting standards and certification procedures, aggressive reciprocity in negotiating equivalent access and imposition of local content requirements as a condition of inward investments.

The probability of such a scenario developing would depend on many things, including the speed with which adjustment strains show, strains which would be greater if they occurred against the back cloth of fixing exchange rates among members.

The strains would not be distributed evenly across sectors or countries and "the greater the strain the more pressure there will be on the Commission to make special ‘transitional’ arrangements or engage in market opening measures with other trading partners. It is in such circumstances that anti-competitive threats should be taken more seriously".In the area of manufactures, through replacement of national quotas with EC quotas, both Industrialised and Third World countries would be affected - especially Japan, NICs and the least developed countries. In the area of food processing and high technology, through the mechanism of standards and certification, both ICs and all Third World countries would be affected.

The ICs would be affected in Financial Services, Government Procurement and Transportation.

North America and Japan could be affected in terms of capital flows through local content requirements while in labour migration (through the mechanism of residence rights, family settlement, vocational training etc) Southern Europe, Eastern Europe, North Africa, East Africa and West Africa would be affected.