EU power

The EU is a ‘power’ in one sense: its market size. It is the biggest economic space on the planet, the biggest trading region (accounting for about a fifth of world trade), and the biggest region for foreign direct investment (accounting for almost half the stocks and flows of outward and inward FDI). This real economic power has two pillars: the Single Market and the Common Commercial Policy. The EU can promote or restrict access to its internal market, which it uses as a bargaining chip to gain access to foreign markets. It is no accident that internal-market and trade policies are the two most centralised components of EU policy-making. They are as ‘hard’ as EU power gets. And they encourage the EU to export its ‘regulatory model’ to the rest of the world through trade negotiations and other means. That applies to labour and environmental standards, climate change, product and food-safety standards, competition rules, government procurement regulations, all the way to Corporate Social Responsibility, human rights, democracy and animal welfare.

But EU power is severely constrained in every other way. Unlike the United States and China, the EU has no collective military power. Rather it advertises ‘soft power’ through diplomacy, support of international organisations, international law and foreign aid. But this is a bit of a joke — mere postmodern hot air. It is no substitute for hard power. As Les Gelb, the president emeritus of the Council for Foreign Relations in New York, quips, soft power is like foreplay; it isn’t the real thing. Asians are acutely aware of this, for Asian elites are almost without exception hard-boiled realists. They do not buy effeminate soft-power talk. Soft power as a replacement for hard power is in reality the denial of power. For the EU, given its inability to exercise real political and military power in the world, soft power translates into hyperactivity in international organisations and the elevation of process over substance. Bureaucratic running around in international forums is the EU’s foreign policy; it is an end in itself. EU foreign policy is impotence in search of Viagra – that never comes. The EU’s choice of a new president and foreign-policy chief is as vivid an illustration as any of this pathetic reality.

International organisations and multilateralism have their place. But the EU vastly overestimates their importance in terms of their ability to solve global problems. Usually, large-group activity in international organisations is a lot of sound and fury that delivers stalemate, not results. That is the ‘UN way’, and it can also be seen in WTO negotiations, the IMF and the World Bank. More important for global problem-solving, inside and outside international organisations, is small-group cooperation. That usually requires cooperation among big powers that have both hard and soft power. Emerging non-Western powers – China in the lead – must inevitably play bigger roles in these concerts. Since 1945, such cooperation has almost invariably required the initiative and leadership of the United States. Here the EU is incapable of leading or co-leading; and there remains no substitute for US leadership.

The EU also suffers from a paradox. With enlargement and greater market size it is weightier in the global economy. But at the same time its decision-making has become more fragmented, making it more difficult to coordinate national positions and speak with one voice. That decreases its ability to wield collective power abroad. In the one arena where the EU is a global heavyweight — trade policy — competence is divided on several issues, notably services and investment. An enlarged EU makes it extra-difficult to have credible positions in international negotiations on services and investment. The Lisbon Treaty is supposed to overcome these problems by streamlining decision-making. But that may not be the result, especially with greater power for the European Parliament (EP). On trade policy, market-sceptical forces and single-issue fetishists in the EP may complicate decision-making and tilt policy outcomes in a more protectionist direction.

Finally, the global economic crisis has made the EU more defensive and inward-looking. As a rule of thumb, the EU has a more liberal trade policy when the internal market is opening up and integrating. But trade policy becomes more protectionist when the internal market is under stress and deprived of the oxygen of market reforms. That is roughly the situation today. The internal market is buffeted by crisis-induced member-state measures (most obviously on subsidies) that result in protectionism against other member-states. And there is no structural reform agenda. That inevitably makes the EU more defensive with third countries.

EU-China relations

The EU and China have the world’s second most important trade-and-investment relationship (after the transatlantic relationship). The EU is China’s biggest trading partner. China is the EU’s second biggest trading partner and its biggest source of goods imports. European multinationals have poured investment into China and are prominent in east-Asian supply chains (in which China is usually the last assembly stage before finished products are exported back to the West). Such deep commercial relations lead inexorably to commercial and political tensions, as they do in US-China relations.

EU-China relations parallel US-China relations in some ways. The EU, like the United States, claims ‘unfair’ Chinese competition from an allegedly undervalued exchange rate, trade surpluses and hidden export subsidies. And it complains of lack of access to the Chinese market due to weak intellectual-property rights, standards requirements meant to protect domestic producers, and restrictions on services, investment and government procurement. China bemoans its lack of ‘market-economy status’ in the United States and EU, in addition to other protectionist measures such as trade remedies, standards restrictions and peak tariffs.

But the EU and United States also have different approaches to China – with the comparison favouring the United States. First, the EU has tried to copy the US-China Strategic and Economic Dialogue, the high-level forum used to address market-access issues and defuse bilateral tensions. But the EU-China High-Level Dialogue has come to nought. It has not gone beyond official exchanges of established positions and shallow summitry. It has not led to deeper engagement on key issues. That was abundantly clear at the last EU-China summit in November.

Second, the EU is worse than the United States at pushing market-access priorities with the Chinese. The latter take American negotiators seriously because they make concrete demands from a relatively focused priority list. This is backed up by market intelligence and vigorous lobbying by US companies and industry associations. EU negotiators have a reputation for presenting their Chinese counterparts with a long laundry-list of demands rather than a focused priority list. And European companies and industry associations are not nearly as vigorous and effective as their American counterparts.

Third, the EU has a habit of mixing non-trade issues with its trade priorities. Labour and environmental standards, climate change, democracy, human rights, and even animal welfare, keep intruding on the trade agenda, sometimes with the threat of trade sanctions. Some non-trade issues, including human rights, should be raised with the Chinese, but kept on separate tracks from trade, without threatening trade sanctions. Mixing them up allows the Chinese to exploit intra-EU divisions. This often translates into blockage on the trade agenda and supine EU backtracking when faced with Chinese pique and threats on human rights, for example. This relates to a fourth point. The Chinese are generally skilful and successful at exploiting intra-EU divisions, especially among the Big Three.

And fifth, to repeat, the EU has no hard power. That, in combination with all the above, causes Chinese leaders and officials to treat their EU counterparts with less seriousness, and even respect, than their American counterparts. One thing the Chinese do not respect is wimpishness. And there is a strong whiff of that with EU soft power.

Razeen Sally is Director of the European Centre for International Political Economy (ECIPE).

 

This article also appeared here at the ECIPE blog ‘Trade Matters‘.