Monday, 7th January 2008
Global competition and the EU
The expiry of import quotas on textiles from China has caused panic in parts of the EU with many politicians calling for renewed quotas, tariff barriers and embargoes.
This is entirely the wrong approach to take. The EU can compete globally with high tech, top of the range goods, even in the textile sector. But we cannot hope to compete with low tech, bottom of the range goods like tee-shirts from China. There is no use pulling up the drawbridge at the first sign of competition. Protectionism is for what? To protect low paid jobs. It would be far better to help low paid workers get off the carousel of low skilled-low paid jobs through re-training and re-education.
Trade Commissioner Peter Mandelson’s bra wars and shoe wars made the EU into an international laughing stock. By imposing draconian tariff barriers and quotas on Chinese textiles and shoes he was acting like King Canute, trying to turn back the tide of globalisation. After years of urging China to join the WTO, how embarrassing to have them – a totalitarian state – lecturing us on the benefits of free trade!
We cannot fight against globalisation. In fact we should welcome it. There are 800 million new middle class citizens in India, China and Brazil, all with significant spending power and all eager to buy western goods. Let’s make sure it is European goods they buy.
If Europe is to escape from the current economic malaise then major structural reforms are necessary. Three key areas are ripe for reform: (1) We must complete the Single Market, opening up more businesses to competition. (2) We must invest more in research and development (R & D) and education. The EU spends 1.8% of GDP on R & D, while the US spends over 3%. (3) We must seek changes in the labour market and welfare state reform so that public sector funding can be slashed. Number (1) is the EU’s responsibility. Number (2) is a shared responsibility between the EU and the Member States. Number (3) is the responsibility solely of Member States.
Adam Smith, the great Scottish economist and philosopher, developed the theory of ‘comparative advantage’. His theory is as relevant today as it was more than two centuries ago. What Smith knew was that in a fiercely competitive market, the best, the top of the range, the innovative, will always survive. That’s why Scotch whisky, Scottish cashmere, Harris Tweed, Scottish farmed salmon and many other famous Scottish brands are sought after worldwide. There is no point in scrambling around at the lower end of the market trying to compete with China and India in the manufacture of tee-shirts, bras and shoes. It is far better for us to secure the top end of the market and protect our copyright against imitation and fakery from outside.
If we want a prosperous Europe for our citizens, Europe must adapt to the global economy and perform better. Economic reform and the creation of a stimulating business environment should be at the top of our agenda, instead of footering around with , red tape, bureaucracy and EU constitutions.
