Towards a more autonomous EU
Dorottya Tornai // 28 October 2020
The European Council President Charles Michel envisions a more “autonomous” (i.e. economically self-sufficient) EU. However, this pursuit of economic independence, under the guise of ‘strategic autonomy’, is not only unnecessary but also comes with costs: the impediment of global free trade and increased costs for consumers.
The idea of ‘European strategic autonomy’ (ESA) is not a new concept. The notion dates back to the European Union’s 2016 Global Strategy programme, which targeted the development of Europe’s stance on foreign policy. It aimed at improving decision-making authority simultaneously with autonomy of action to advance peace and security worldwide. Therein, ESA has been anchored to matters of foreign policy such as defence and security policy. But now, beside aiming for the EU to become a global security provider and ESA acting in the domain of hard security, the EU would like to achieve a higher degree of sovereignty in operational, economic, technological and industrial realms under the concept of strategic autonomy.
The concept of a more autonomous EU gained momentum after the COVID-19 crisis. Advocates of more protectionist economic and industrial policies have become louder following the outbreak. For instance, Macron emphasised that medical equipment shortages have to be solved through local production, rather than depending on supply from China. However, what we have seen in the last decade is that companies have realised the hazards of overreliance on Chinese companies and reacted to the crisis by choosing alternative suppliers in their region. Hence, instead of the diversification of imports, domestic production has increased in response to the pandemic.
Despite the fact that market forces have already created an environment where European companies are onshoring supply chains, the Council has decided to continue with its plan of stronger economic sovereignty. Charles Michel announced that future access to the EU market will only be ‘open to those who respect its standards’. Under respect one must understand due diligence requirements through supply chains to ‘identify, prevent, mitigate and account for abuses of human rights.’ To facilitate compliance, regulations at the EU level have to be implemented. Thus, European corporations will have to carry out analytical and consultative work assessing the sustainable strategy of the company and conduct due diligence throughout the supply chain to check whether they correspond to fundamental freedoms and environmental objectives of the EU.
Without discrediting the importance of government intervention to advance the adherence to fundamental freedoms, there are possible downsides to these protectionist policies, especially in the face of a pandemic. Evidence suggests that implementing non-tariff barriers – such as the above-mentioned regulations – does not foster economic activity. On the contrary, it is a significant contributor of weak economic growth in global trade. Evidence suggests that weak GDP growth after the 2007 financial crisis coincided with a surprisingly weak global trade growth. The underlying reason can be found in international macro-economic development, more precisely in the increased introduction of non-trade barriers and higher administrative costs. A free trade policy with lower tariff and non-tariff barriers leads to the expansion of the potential market for businesses and products, and a more efficient international division of labour. Implementing protectionist trade policies in the time of economic decline results in an even weaker global trade and economic growth.
A more protectionist policy would have consequences for consumers. In a globalised world, European companies are heavily dependent on supply chains outside the continent. The disruption caused by COVID-19 on supply chains could imply the need for more national production. Still, commitment to corporate responsibility and local production comes with high complexity of standards. Firstly, small- and medium-sized companies struggle to adhere to the new due diligence requirements. Secondly, the replacement of more competent and cheaper alternatives to local ones would cause further impediments in the supply chain and increased costs. Moreover, the product safety and sustainability regulations would further add to the production costs. In addition to higher prices, consumers could face less variety on the market if the global supply chain was obstructed by non-tariff trade barriers.
Overall, if European strategic autonomy gained momentum this year due to its perceived effectiveness to tackle economic decline in the face of the pandemic, then we might be on the wrong path. A more strategically autonomous EU is redundant at best, but economically harmful at worst.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).