In Europe, France leads the protectionist charge
Highlights
·France will call for changes to the EU internal market that better protect some sectors of the economy.
·Paris wants the Continental bloc to further insulate itself from foreign competitors, and to guard France from competition with its fellow EU members.
·France's economic proposals will meet resistance from several countries on various issues, which will likely require Paris to make compromises to see parts of its agenda through.
Since its formation in late June, France's new government has been sending mixed signals about its views on the economy. On one hand, Paris has offered up plans to make its economy more competitive by reforming labour laws and cutting public spending. On the other, it has proposed barriers to the acquisition of companies in strategic sectors by investors outside the European Union, has attacked a scheme allowing Eastern European labourers to work in France and has blocked an Italian takeover of a French shipyard. These moves have raised concerns, both within and outside France, that Paris will pursue the type of protectionist measures that Brussels has opposed from the United States. And as the debate about the eurozone's future continues to unfold, the question of whether the European Union needs additional protection from external – and in some cases, internal – competition will shape the Continent's agenda in 2018 and beyond.
The Pull of Protectionism
President Emmanuel Macron is hardly the first French leader to promise to protect his country from competition from abroad. During the 19th century, France – a large agricultural producer – struggled to compete with heavily industrialized countries such as Germany and Britain, which made Paris more prone to safeguarding its economy than were its Northern European neighbours. To some extent, the French state's historically prominent role in the economy is also a legacy of its absolutist monarchy, when an omnipotent central government ruled the nation. Even after the French Revolution, the country continued to rely on the state for political leadership and economic guidance. The concept of popular sovereignty that the revolution introduced, moreover, remains a defining feature of the French political identity. As a result, many French voters are sceptical of globalization because it threatens to weaken the state, undermine the country's national identity and sovereignty, and erode democratic accountability by granting more power to private (and in many cases, foreign) actors.
These beliefs, in turn, influence French politics. Far-right and far-left political forces have called for the closure of the country's borders to foreign companies and the introduction of national preference mechanisms – stances that proved popular in France's presidential election earlier this year. Moderate forces, meanwhile, support the idea of a free market. But many believe that the French state cannot completely abandon its role in the economy and that the country's most vital sectors (including agriculture and other strategic industries) should be sheltered from rivals abroad.
Not only do these views shape national politics, but they also influence France's perspective on the European Union. To the far right and far left, Continental integration is just another form of globalization eating away at French sovereignty. Moderates, however, see it differently. To them the bloc is a tool with which to manage globalization, protect France from its negative side effects and increase Paris' clout in international affairs. Macron's recent vow to strengthen "the Europe that protects" reflects this standpoint, which guides the policy decisions of his government at large.
A Two-Layer Strategy
In pursuit of its economic goals, France is pushing for new regulations in the European Union's internal market, where goods, people, capital and services move freely, that would better preserve certain European (and at times, French) sectors. Paris' approach is twofold. First, it seeks greater protection from foreign competition for the Continent as a whole. To that end, the French government has suggested the introduction of a "Buy European Act," which would make it more difficult for companies outside the European Union to secure public contracts on the Continent. Furthermore, Macron has proposed a reform that would make it tougher for investors outside the bloc to buy companies in strategic industries. That measure is fuelled by fears that countries
such as China could gain access to sensitive knowledge and technology by purchasing European firms.
Though such regulations already exist in several EU states, France hopes to create a bloc-wide safety net that members can invoke in negotiations with foreign investors. The European Commission has begun studying ways to enact a tougher screening process for external buyers looking to acquire strategic European firms, and Brussels is even mulling the idea of blocking sales that involve foreign companies backed by state subsidies or that are motivated by political aims rather than market forces. The commission is expected to present its recommendations on the matter in September.
The second prong of Paris' strategy seeks to protect France from competition with its fellow EU members. The French government has called for Brussels to revamp the Continent's posted workers system, which permits labourers from EU states to temporarily work in other member states while paying taxes and social contributions to their home countries. Because of this program, employees from countries with lower wages, such as Poland and Romania, can work in higher-paying countries such as France and Austria for less money than citizens of the host country. From Paris' perspective, this encourages unfair competition and "social dumping" within the European Union.
Meanwhile, France is working to put an end to the kind of deals that allow high-tech companies to operate in countries such as Ireland and Luxembourg while paying low taxes. The European Commission has suggested the introduction of an EU-wide system for calculating firms' taxable profits, an idea Paris has backed. If approved, the system would enable companies to file a single tax return for all activities conducted within the bloc. But France has even bigger aspirations and hopes to enact a minimum corporate tax rate across the Continent. The move would certainly be controversial, though, because the power to collect taxes is a sovereign right that few member states would be willing to give up.
Allies and Opponents
Of course, France will find some partners in its efforts. Southern European states such as Italy, Spain and Portugal, whose economies are not as competitive as those of their northern neighbours, tend to have a favourable view of protectionist measures. These countries are likely to support calls to devalue the euro in order to boost exports, to keep subsidies in place in sensitive sectors and to protect agricultural industries in free trade negotiations with other nations.
Germany will back some of France's proposals as well. Berlin shares Paris' fear of outside investors making inroads into some of the Continent's most important companies. Last year, a Chinese firm's purchase of German robotics manufacturer KUKA ignited a debate in Germany about the future of the country's tech sector. Berlin is also eager to level the playing field for European businesses; the German government has complained that the Continent's firms have a harder time investing in and exporting to China than their Chinese counterparts do in Europe. Moreover, Germany has supported France's push to close EU tax loopholes. But Berlin's positions on some of these issues could change after German general elections on Sept. 24, especially if the pro-business Free Democratic Party joins the country's next ruling coalition.
The European Commission has shown itself to be willing to adopt a protectionist bent in the bloc as well, at least in certain areas. In June, Brussels slapped new antidumping measures on Chinese steel, accusing Beijing of unfairly aiding its exporters. This is not the first time Europe and China have gone head-to-head on the issue, either; Chinese solar panels and automobile parts have met similar pushback from Brussels in the past.
In addition to these potential allies, however, France is likely to find some challengers. Northern European countries such as the Netherlands and Sweden have historically endorsed market-driven initiatives and resisted protectionist measures. True to form, these states will probably object to France's quest for new regulations in the EU internal market. Early signs of this impending dispute began to emerge at an EU summit in June, when Macron asked for permission to include a call to increase control over foreign investment in the summit's written conclusions. The request triggered opposition from Northern European countries, as well as small economies like Greece and Ireland, that feared the move would undermine foreign investment. In fact, Macron's appeal generated so much controversy that the summit's conclusions merely vowed to discuss the issue again down the road.
The European Commission likewise has criticized France's Buy European Act, warning that it could disrupt the bloc's internal market. In May, commission Vice President Jyrki Katainen cautioned against the creation of "artificial rules" that would "force people or local authorities to only buy European products without a reason." Meanwhile, France's push to reduce "social dumping" within the European Union risks ratcheting up tension between Eastern and Western Europe. In principle, Eastern European countries do not have the power to block the overhaul of the posted workers system if their Western European peers unite behind it. Eager to keep the bloc's current tensions from escalating, however, Brussels will probably search for a compromise between the two camps. As a result, the posted workers scheme may be revamped to minimize its impact on labour markets, even if it is unlikely to be scrapped completely.
Little of France's vision for the future of Europe's internal market is new. But the United Kingdom's looming departure from the bloc means that future rounds of negotiations on the subject will take place in a much different context. London has long stood against protectionism and has criticized excessive regulation within the European Union. Without it, the bloc's free market faction will lose an influential voice in future debates. Even so, France does not have the power to reshape the bloc on its own, regardless of its political and economic prominence on the Continent. And while there is room for compromise on several of the issues it has brought to the table, the talks that ensue will carry the risk of widening the rifts already pulling the European Union apart.
The European Commission likewise has criticized France's Buy European Act, warning that it could disrupt the bloc's internal market.