February 17th, 2016

EU Reform - The Competitiveness Agenda

The final part of the renegotiation being concluded in Brussels is based around the "Competitiveness Agenda", an area where there should be wholehearted agreement; after all, surely no EU country should want to become less competitive. However, tangled up in this agenda are "trade agreements".

When we joined the EU, we gave the EU the power to negotiate trade agreements with other countries on our behalf. This process has slowed down nearly to a full stop, with the deal between the EU and US stuck in a political quagmire. The EU's seeming inability to conclude such deals will doubtless play a big part in the referendum debate we are just about to embark upon.

Competitiveness Agenda

  • Much of the agenda would be carried out in the absence of the renegotiation

  • Whether the agenda has succeeded or not is difficult to judge.

George Osborne’s 3 November 2015 Berlin speech set out more detail as to the UK Government’s EU competitiveness drive. It set out five main headings: Deregulation, completing the single market in services, creating a digital single market and more free trade deals.

  1. Deregulation

The Government is committed to EU deregulations and George Osborne reiterated this saying “we need to tackle the existing body of European regulation – and we should set clear targets for doing so, and powerful mechanisms for delivering them.”

There are signs that the new Commission is sensitive to the political cost of overregulation, and has instituted a number of programs such as the Stoiber report, the Refit program. However, so far at least, there are no signs of reducing the stock of accumulated EU law, just a reduction in speed of the adoption of new law.

  1. Creating a digital Single Market

George Osborne asked in his speech “where, in the age of the internet, is the digital single market?” Although the potential benefits are large, some of the UK Government’ suggestions for a digital single market would require more EU legislation in the form of the harmonisation of consumer law, data law, vat and even company law, some of which may prove politically difficult.

  1. Moving ahead with Capital Markets Union

The UK’s European Commissioner Lord Hill has responsibility for creating an EU Capital Market’s Union. It is believed that removing barriers to cross border fundraising could reduce reliance on bank finance and indirectly help the UK. Areas that are being looked at include harmonisation of financial reporting requirements such as the prospectus directive.

  1. Completing the Single Market in Services

George Osborne argued that “We should complete the single market for services and create millions of jobs in doing so.” Since the Services Directive 2006 failed to live up to expectations there has been wide agreement that unlocking a single market in services could create large benefits for the EU economy. However, there is less agreement when it comes to the difficult decisions required to make it happen in practice, Germany for instance retains 800 regulated professions. In order to gain the full advantage of liberalisation EU states would have to give up protections for a number of domestic professions and trades which presents a considerable political challenge. Rather than thinking in terms of “completing” the market, EU policy makers may decide on incremental reform acknowledging that the further the liberalisation goes, the less the additional benefits and the higher the political cost.

  1. Free Trade deals

George Osborne noted in his speech that “there are trade deals with Japan and America, and an investment agreement with China, waiting to be concluded.”

The Chancellor could have added that the EU has recently begun to negotiate with New Zealand and Australia while continuing ongoing talks with a host of others. Although the list of EU negotiations is long there is a question of compatibility of interests. When the UK joined the EEC it broke off trade contacts with New Zealand and Australia based on importing agricultural goods, it seems improbable even thirty years later that the EU would allow New Zealand butter and beef and Australian wine to compete against their EU counterparts. So the benefits to the UK consumer may be limited.

The bigger question now is whether the EU can actually ever negotiate a new trade deal with anyone? Based on the last few months experience of the EU's inability to conclude a trade deal with the US, legitimate questions are being asked as to whether the system that exists and allows trade deals to be effectively politicised by the European Parliament and others means concluding any new deal with any country going forward looks increasingly more difficult.