This article is part of our special report Free Trade for Growth.
SPECIAL REPORT / EU plans to introduce new trade reciprocity rules that could block foreign companies from European contracts will prove a key battleground as member states prepare to debate a new industrial policy initiative next month.
A European Commission communication on industrial policy, to be unveiled on 10 October, appears to harden language towards the EU's foreign trading partners.
The policy paper, seen by EURACTIV, refers to the “disturbing tendency to resort to protectionist measures and discriminatory practices” amongst competing trading nations, and singles out Brazil, Russia, India and China (the so-called BRICs).
It says that the Commission will continue to push for a trade agenda “in a spirit of reciprocity and mutual benefit as well as a comprehensive enforcement agenda”.
The reference to reciprocity will re-ignite an ongoing debate about the future direction of Europe’s trade policy.
In March, the EU executive tabled a public procurement initiative that proposed blocking non-EU companies from bidding for government contracts if their home countries do not grant the same access to their own public procurement markets.
The exact details of that proposal – and its translation into law – still need to be refined as the initiative is debated through the European Parliament and the EU Council of Ministers from next month, but they are likely to be heated.
Debate is ideological and practical
“The debate is both ideological and practical. On the ideological side there is the question of whether countries which do not themselves apply open and free trade rules should then be enabled to trade freely with Europe,” according to Sean McGuire, a spokesman for the Confederation of British Industry in Brussels.
The UK does not favour the ideological view, however, as McGuire explains. “The more practical point of view is that that is just the way the world is, and if Europe attempts to impose protectionist measures on the BRICs, then it will retreat into internal debate, close down markets, and provoke retaliatory measures from countries such as China, which would not be in our interests.”
France, by contrast, is the flag-carrier for those countries wishing to tighten trade policy to insist on reciprocal rights from third countries.
“It is unacceptable that Europe's public markets should be open to [third] countries when they don't benefit from an equivalent access,” France's trade minister, Nicole Bricq, said after meeting Trade Commissioner Karel de Gucht and Internal Market Commissioner Michel Barnier in Brussels on 3 September.
Bricq said that if progress is not made on reciprocity, France will impose conditions on the European free trade agreements currently under negotiation with Canada and Japan, and the US.
Reciprocity debate reflects tariff question
Lack of reciprocity rules represent a bugbear for French industry, which blames the current difficulties of automaker Peugeot and other industrial flagships on "unfair competition".
In a position paper sent to the European Commission, the Cercle de l’Industrie – which represents CEOs of all major listed French industrial groups – recommended that the reciprocity initiative on third-country access to the EU’s public procurement market should be adopted “as soon as possible”.
“The EU should extend the debate on the concept of reciprocity to other areas (e.g. environmental or social norms), although it deserves to be handled with care and pragmatism,” the paper added.
France’s position on trade echoes recent moves to re-open a debate on the introduction of carbon tariffs on non-EU companies.
“We must demand reciprocity,” Arnaud Montebourg, the French minister for "industrial revival” said during his first interview in May, pledging simultaneously to revive plans for a carbon tariff at the EU's borders.
"This is an external tax," he explained when asked whether this would mean imposing tariffs on products imported from China, where industries are not subject to CO2 emission limits.
Member states hold diverging views
The carbon tariff plan has few fans among France's European partners, who previously rejected the idea as protectionist. But the Commission's upcoming industrial policy initiative and push for greater reciprocity in trade will give Paris an opportunity to put it back on the agenda.
Although the Commission may be mulling the plan, it will have awkward memories of an earlier attempt to introduce such a tax in 2008. UK officials immediately responded saying they would fight any move to impose a 'carbon tax' on imports from non-EU countries. Only Italy officially supported the idea while Germany, which had initially backed it, later showed hesitation over fears it could lead to a trade war that would damage its export-dependent economy.
Germany's reluctance on carbon tariffs and wider trade reciprocity issues is still apparent today. “International business needs to deliver clear messages to political leaders in and outside the EU against protectionism and in favour of free trade,” a senior German industrialist told EURACTIV on condition of anonymity.
“The EU should avoid contradictions between its global economic interests and aims and its own potentially protectionist measures, such as the planned reciprocal market access instrument for public procurement,” the German industrialist added.
Global tensions over trade on the increase
Industry itself, which has generally taken a mixed view of such trade measures, may be hardening. In the face of the financial crisis the competition for global market share – particularly in BRICs countries – is becoming increasingly febrile.
Trade ‘reciprocity’ concerns – particularly in the ICT sector – were key topics addressed at a recent high-level EU-China meeting (3 May).
Western ICT companies such as Ericsson, IBM and Cisco have enjoyed early access to China’s markets but their future involvement has been questioned following Chinese demands for "reciprocity" in trade agreements and national security concerns over the country's information infrastructure.
European software companies in particular have complained that they are sidelined in bids for government contracts in China, while the European Commission also has concerns about US legislation that favours homegrown firms.
The debate in Europe is part of a global picture of hardening trade restrictions that is causing alarm bells in the World Trade Organisation, the traditional forum for disputes.
“For the first time since the beginning of the crisis in 2008, this report is alarming,” the WTO’s director-general Pascal Lamy told the body’s ambassadors of this year’s report on trade measures introduced by members.
“The accumulation of these trade restrictions is now a matter of serious concern,” Lamy warned.