For the French, proximity breeds fear

Written by Malcolm Subhan | Updated: Jun 25 2005, 05:30am hrs
No to plumbers from Poland Yes to IT professionals from India No to T-shirts from India and China Yes to T-shirts from Bangladesh The French voters, who decisively rejected the first-ever Constitution for the 25-nation European Union (EU) on May 29 were voting in fact to keep their jobs. According to a Gallup poll conducted two days later, 31% of those who voted No did so because they feared the Constitutions negative effects on the job situation, while another 25% voted No because there is too much unemployment in France. Fear of unemployment is particularly strong within the EUs 15 older member states, especially since the EUs enlargement a year ago, which added eight much poorer East and Central European countries (plus Malta and Cyprus) to the EU. Because wages are much lower in these eight countries, they represent an important pool of cheap labour. Hence, fears of Polish plumbers invading France, fears which are exacerbated by the fact that jobs from the wealthier EU countries, like France, are moving to these poorer EU countries as companies transfer production and outsource services to them.

Fears of companies relocating within the EU and, worse yet, to non-EU countries, were clearly reflected at a conference organised by the French Institute of International Relations, in collaboration with the Brussels-based European Economic and Social Committee (EESC) on June 17. (All 15 European members of the India-EU Round Table are drawn from the EESC) The conference accepted relocation within the EU as a fact of economic life, but saw relocation to countries such as China and India as a far more serious long-term threat to the competitiveness of EU companies, both large and small.

The EUs trade supremo, Peter Mandelson, referred to these fears in a speech he gave in Washington, US, on June 17. In the space of a decade, China and India have emerged as challenging, dynamic competitors. Industries are moving to Central America and Asia, he declared. There is much fear on both sides of the Atlantic, he went on, that we have somehow given away too much in the name of free trade - exchanged old certainties for cheaper clothes or cars. For the EUs chief spokesman on trade, the benefits of trade liberalisation are widely spread and only vaguely appreciated. The costs are borne by a vulnerable - and vocal - few, who may be hit very hard.

As the EUs chief trade negotiator, Peter Mandelson remains an important bulwark against the rising tide or protectionism in the EU. But, the events of the last fortnight or so have demonstrated that his hands are tied by his political masters. He is currently engaged in a trial of strength with them on an issue of crucial importance to India. Mandelson wants Indian exports of textiles and clothing to be granted GSP treatment under the EUs revised generalised system of preferences (GSP) scheme. He is opposed by some 13 countries, led by France. The outcome of this trial of strength is still in doubt, even though the EU must introduce its revised scheme on July 1, as required by a WTO ruling.

Exclusion from the EUs GSP scheme is not the only threat facing Indian textiles and clothing. Euratex, the powerful Brussels-based lobby representing European textile and clothing manufacturers, has now turned its attention to the EUs imports of Indian textiles and clothing since January 1. Euratex had concentrated on Chinese textile and garment exports for two reasons: First, they were entering the EU in far greater volume than Indian exports and secondly, it was much easier to restrict Chinese exports under the terms of Chinas accession to the WTO. Having forced Mandelson to impose import quotas on 10 categories of Chinese textiles and clothing, Euratex feels it can now concentrate on Indian exports.

The demands for protection against Asian manufacturers could well be extended to similar demands as regards Asian, including Indian, agricultural exports. In short, EU governments may insist that Mandelson take a hard line as regards the agricultural negotiations in the Doha Development round of trade negotiations. If so, the outlook for the crucial meeting of WTO trade ministers in Hong Kong in December is bleak.

The fact is that unless the EU and US in particular give their whole-hearted political backing to the Doha round, it could well fizzle out next year.

The prospects for a breakthrough in Hong Kong are not very good. Subsidies still account for 30% of farmers incomes on average in the OECD countries, with the EU well ahead of the US and Japan: EU producer subsidies amounted to $133 billion.

Last year, as compared to under $50 billion in Japan and the US, according to a study by the OECD secretariat in Paris. The UK has made it clear that it wants EU farm subsidies sharply reduced, and the money thus saved invested in scientific research and technological development. France is not the only EU country strongly opposed to Tony Blairs demands; so is the UKs immediate neighbour, Ireland - not to mention the EUs Central and East European members.

All in all, the rising tide of protectionism in the EU is posing a threat to trade.