In Europe, France leads the pro­tec­tion­ist charge

Financial Nigeria Magazine - - Contents - “In Europe, France Leads the Pro­tec­tion­ist Charge” is re­pub­lished un­der con­tent con­fed­er­a­tion be­tween Fi­nan­cial Nige­ria and Strat­for.


·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.

French Pres­i­dent Em­manuel Macron

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