EU fabric is strained but will last out

Written by Malcolm Subhan | Updated: Jun 11 2005, 05:33am hrs
Imagine the political upheaval that would follow if California decided to leave the American Union! Or, if Andhra Pradesh or Karnataka wanted to pull out of the Indian Union. The fact is that very large, populous countries like India, the United States and China face an on-going struggle to hold the country together, especially if some parts of it are more prosperous than others.

This is the problem which the 25-nation European Union (EU) faces in a very acute form for two reasons. The first is that it lacks the political glue that holds together countries like India, for example. The second reason is that the economic model, put in place when six West European countries set out to integrate their continent 50 years ago, is being called into question in several EU countries.

In rejecting the European Constitution, the French and the Dutch were in fact rejecting this economic model, largely out of fear that it has failed them, and this at a time when globalisation is resulting in jobs being lost, through outsourcing (not only to India but also the poorer EU countries), and a flood of cheap imports from countries like China. The British, not surprisingly, have welcomed the demise of the Constitution, which really cannot come into force given its rejection by two of the EUs six founding members, France and the Netherlands. Both Labourites and Tories feel that the UKs economic model is far superior to that enshrined in the Constitution: the British economy is growing faster than that of the EU as a whole, and the level of unemployment is much lower. The British economic model resembles the American very closely, in that it is based on free market principles. The goal is to make the UK economy as competitive as possible, precisely in order to meet the challenge of globalisation and take advantage of it. Hence the UKs rejection of protectionism. It favours continued GSP treatment for Indian exports of textiles and clothing, for example.

The EU economic model is very different. The aim of the EUs founding fathers, in the early 1950s, was to unite the peoples of Europe, in order to keep them from fighting each other. European unity was to be achieved through economic integration - a single, unified market with a single currency - followed by political integration. The two went hand in hand - as in the United States.

Sixty years of peace have helped European economic integration become a reality. But, they have also strengthened nationalist sentiments in all EU member countries. The European identity is being submerged by the various national identities. As a result, the economic and political integration promoted by the first-ever EU Constitution is being called into question.

The path to economic integration was never very smooth, of course; it was constantly hampered by economic nationalism. The present hullabaloo over Chinese textile and clothing exports to the EU is evidence of this. The fact is that the 1972 Multifibres Arrangement (MFA) provided the EU with the opportunity to integrate its scattered and deeply fragment textile and clothing industry. But, economic nationalism ensured that the opportunity was never seized. The votes of textile workers counted in national elections far more than in votes to the European Parliament.

Will the EU now start to unravel, as the process of economic integration is reversed This is very unlikely: the economic cost of breaking up the single European market and abolishing the single currency, the euro, would simply be too great. What is more, economic integration is working: ask the people of Ireland, Spain and Portugal, and more especially the citizens of the eight Central and East European countries that joined the EU 13 months ago.

The economy clearly will be the focus of the fierce struggle between the 25 EU countries, which the rejection of the EU Constitution by France and the Netherlands has brought into the open. Exporters in India and other Asian countries will be its first victims, as armers and manufacturers in the original member states struggle to protect themselves from competition from the 10 new member states - and from the southern Mediterranean countries which enjoy preferential access to the EU market.

It is now clear that the revised generalized system of preferences (GSP) scheme will not come into force on July 1, despite a WTO ruling which requires the EU to reform its GSP scheme by July 1. And, demands for protection against Asian exports are bound to grow. The largest manufacturer of electronic products in Lithuania, one of the new member states, has teamed up with a Czech company to ask the EU to take anti-dumping action against Chinese exports of TV parts. The silver lining to this particular cloud is that the UK will hold the EUs rotating presidency for the 6-month period beginning July 1. The next India-EU summit, to be held in New Delhi in September, will therefore bring together Manmohan Singh and Tony Blair. They will adopt the Action Plan for implementing the strategic partnership between India and the EU. All of which points to business as usual - but only up to a point.