Opinion of the Committee of the Regions on 'The global challenge of international trade: a market access strategy for the European Union` (97/C 116/03)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on the global challenge of international trade: a market access strategy for the European Union (COM(96) 53 final);

having regard to the European Commission's decision of 11 March 1996 to consult the Committee of the Regions on this matter, in accordance with Article 198c, first paragraph, of the Treaty establishing the European Community;

having regard to its decision of 12 June 1996 to allocate the preparation of this opinion to Commission 1 for Regional Development, Economic Development, Local and Regional Finances;

having regard to the draft opinion (CdR 353/96 rev.) adopted by Commission 1 on 22 November 1996 (rapporteur: Mr Tindemans),

adopted the following opinion at its 16th plenary session of 15 and 16 January 1997 (meeting of 15 January).

1. Introduction

1.1. To date, European policymaking on the development of world trade has paid too little heed to the regional impact of international trade policy.

1.2. The EU has an open economy in which many jobs depend directly, and even more depend indirectly, on exports. Furthermore, millions of jobs are directly dependent on foreign investment.

1.3. Since the entry into force of the first internal market directives, however, regional and social differences have widened and pressure on employment conditions and the labour market has increased.

1.4. Since the period 1966-1988 many poor regions have made no economic progress whatsoever and in some regions the situation has even got worse. The social differences between developed and lagging regions have become greater.

1.5. In the White Paper on European Social Policy, the Commission therefore states that: 'The globalization of trade and production, the huge impact of new technologies on work, society and individuals, the ageing of the population and the persistent high level of unemployment are all combining to put unprecedented strains on the economic and social fabric of all the Member States`.

1.6. Against this background the COR would look beyond the bounds of trade and raise the following questions in this opinion:

2. General comments

What are the consequences for the regions, their people and businesses of an open international trading system with increasing competition?

2.1. The Commission argues the need for a strategy because the prosperity of the EU is largely dependent on foreign trade and investment. An open world market provides the consumer with a greater variety of supply, but is likely to be accompanied in the years ahead by increasing competition from imports on the Community market. This must be seen in a broader context since, in a globalized economy, relocation based on comparative advantage and free trade may bring activities back to Europe, with a positive fallout for business development and employment in the EU.

2.2. Regarding requests for protection or government support, the Commission stresses that an outward looking policy has greater growth potential. Exports account for one fifth of the trade in goods. Direct investment by Europe in third countries accounts for more than one third of foreign direct investment worldwide. The stock of FDI in Europe amounts to $460 billion. Millions of jobs depend on it.

2.3. The EU must strive for better market access in third countries, at the same time continuing gradually to open up its own market. Active support for European business will be essential to this process.

2.4. European firms should be able to compete on the same terms and not be hindered by trade barriers. Trade in goods and services is increasingly accompanied by investments and networking operations between companies. Global resourcing aims at an optimal allocation of research, development and production facilities.

2.5. International industrial cooperation is leading to more and more strategic alliances and ever freer circulation of goods, services, capital and persons. The creation of a favourable environment for the optimal use of local advantages is a Commission objective.

2.6. Firms must endeavour to maintain a presence on third country markets and secure their future market share.

2.7. The internal EU market is facilitating economic integration and structural adjustment because it is aimed at a level playing field for all EU firms.

2.8. Benefits to foreign competitors should therefore be matched by efforts to ensure EU business opportunities on third country markets. The Commission's role in this should be reviewed. Firms encounter a multitude of obstacles abroad. Therefore the EU must strive to achieve improved market access in third countries in parallel to the continued progressive opening of its own market.

2.9. For the central and eastern European countries, the avenue to market access must be the implementation of the Europe Agreements designed to prepare the way for their accession to the EU. For other countries, such as the CIS countries, this must be done as part of their accession to the WTO. In the case of other regions, negotiations should be used to reduce tariffs and remove trade barriers.

2.10. The active support of European business is essential for this policy. A strategy for improved market access must result in more effective Community action and tangible benefits for European industry, including SMEs in particular.

2.11. Objectives of a European Commission strategy:

a) The EU's trading partners must fulfil their obligations. In view of the vast expansion of the subject matter covered by the WTO, this now applies to intellectual property and services too. Obviously the EU must comply rigorously with its own WTO obligations;

b) Existing instruments for opening up markets must be exploited to the full;

c) The Community must also act against other barriers to economic flows, be they trade or investment, which do not fall under the traditional concept of 'trade barrier` (discriminatory national laws on investment, untransparent trade practices, denial of access to distribution infrastructure, etc.).

d) Business needs to be informed about possible ways of pressing for the reduction of trade barriers, as well as of trade policy instruments aimed at protecting the Community against unfair trading practices such as dumping or export subsidies.

3. Specific comments

The COR'S view on the consequences of the above-mentioned strategy

3.1. The COR will endeavour to sketch out what it considers to be the consequences of such a strategy for the regions, their people and businesses, taking as a starting-point:

- 18 million unemployed in the EU

- a social situation which, according to Mr Santer, is about to explode

- the fact that even the OECD is saying that market forces on their own are not a panacea for continuing high unemployment.

3.2. Consumption/production: global - regional

3.2.1. The question is whether the regions are physically in a position to handle free trade on a global scale. The transport infrastructure in heavily populated areas is already under severe strain. An increase in transport flows as a result of an increase in world trade definitely has a number of adverse consequences for the environment. (more transport = more carriage by road or air = more roads/more airports or aircraft movements = more pollution + excessive noise).

3.2.2. In addition it is becoming increasingly clear in some regions that the economic fabric is unravelling because the EU's borders are now open to products from low-wage countries. The external competition is therefore severe. Company managers are under pressure to relocate production plants to low-wage countries to safeguard the survival of the company. This is taking place at the same time, however, as major shifts in employment within the confines of towns and regions themselves. The consequences for social cohesion in these regions are very serious. Unemployment among certain groups in EU society has become structural.

3.2.3. If, however, a regional authority pursues a proactive employment policy and tries to prop up an industry, it comes up against EU regulations which prohibit such state aid (e.g. Volkswagen in Saxony). The European Parliament too is becoming increasingly concerned at the impact of the free trade policy on European businesses (witness the Parliament's statement on extra levies on Asian shoe imports). In view of the generally acknowledged fact that, in an open global market, competition will get even keener in the medium term, the COR fears that for the time being there is no end in sight to company restructuring and the consequent shift in employment within regions and between the rich and poor regions of Europe.

3.2.4. The COR would, moreover, stress that international trade, as a classic form of globalization, has risen more steeply than global GNP since 1950. Over the last few years we have seen a shift in favour of the developing countries. Europe, however, has not been able to maintain its relatively strong industrial position in competition with other parts of the world. For this reason there is, in the COR's view cause for concern over future developments.

3.2.5. For political as well as economic reasons, every effort must be made to open up markets to the central and eastern European countries. By liberalizing its markets, the EU can show these young democracies that the highly developed countries of the West attach great importance to their integration into western Europe. Clearly a number of transitional measures are needed to avoid social conflict.

3.2.6. Closer coordination between trade, industrial and regional policy is therefore required so that more attention can be paid to the impact on employment and social stability, e.g. in the light of expansion towards central and eastern Europe. More account must also be taken of the relationship between environment and trade policy. To this end, there must be coordination at EU level.

3.2.7. The Committee would like to see the following long-term developments:

- Production and consumption should dovetail again at regional level so that goods transport takes place in 'regional` trading blocs. The aim must be to produce goods and make them available to the consumer at reasonable distances. (explanation: regions is taken to mean regions on a global scale: West + East Europe = a region; Asia = a region, etc.)

One way of encouraging such a development is to internalize the external costs of transport, such as environmental damage.

- Knowledge/know-how to be exchanged/traded on a large scale, at world level. In this way the most advanced knowledge can be 'exported` without pollution or job losses in one's own region. At the same time other regions are given the opportunity to build up their own regional economy with this new knowledge.

3.2.8. In the medium term the Committee naturally realizes that there has to be a stable development of the world trading system to stimulate the economies of the poor countries (e.g. Africa) and underpin world peace.

3.3. Regional economic balance

3.3.1. Free trade at global level must go hand-in-hand with a regional economy in which firms are encouraged to cooperate within their own region, and with a more long-term strategy for employment and innovation based on their own community.

3.3.2. Research (Porter) shows that it is absolutely vital in a global economy for clusters of inter linked production factors to be located close to each other. Even in an information-dominated age, skilled co-workers, extensive networks of suppliers, etc. actually perform better if they are located near each other. It would therefore seem sensible not to regard further industrial relocation too readily as a natural transitional process in the switch to a knowledge-intensive economy.

3.3.3. Both for the sake of employment and for environmental/transport reasons, it would not be desirable for the EU ultimately to be dependent on imports from other parts of the world for many goods. Over the last decade it has been jobs in industry especially which have been lost in the EU and thus led to structural unemployment. The loss of jobs in manufacturing leads in the long term to an irrecoverable loss of jobs in commercial services, in view of the many links between these sectors.

3.3.4. To this end the Committee would like to see the following long-term strategy: 'global approach on local level`. This means that every region, county or province, together with the major companies/multinationals located there, must encourage a proactive approach to participation in the global economy, by developing a common regional strategy for internationalization, and creating the infrastructure necessary for this (centres of knowledge, training institutes, banks, road, waterway and rail transport links, information technology, etc.).

3.3.5. For the EU such a policy means that every region should mould its economy around the strengths peculiar to that region. This may mean, therefore, that within certain industrial sectors a restructuring within Europe is still needed. In so doing however, regions must ensure that their economy is sufficiently diversified, so that they are not too dependent on a single industrial sector.

3.3.6 All these proactive regional strategies must come together to form a powerful common European economy which can compete on the world market and retain Europe's key industries within its own borders.

3.4. Employment/unemployment

3.4.1. Trade policy will require continuous adjustment from Europe's regions. Industry faces permanent competition. Prosperity is increasing, but so is pressure on employment and productivity. Europe's regions will have to take up this challenge by ensuring that their workforce is able to withstand foreign (i.e. non-EU) competition.

3.4.2 Regions must have the courage to accept and support the sectoral specialization of firms. Thus training programmes will be needed to provide workers with the skills required by the regional economy.

3.4.3 European regions will also have to accept that some industries will disappear from their own region in order to flourish elsewhere in Europe. Such regions will have to redefine their economic strengths and restructure.

3.4.4 On the other hand, EU regions are faced by the paradox of prosperity: erosion of public services, rising crime, congested traffic, urban squalor, and high unemployment. At the same time European consumers are profiting from the 'outsourcing` of products to low-wage countries to provide us with cheaper products. In developing international trade, it is important to take into consideration the local and regional effects of measures, at least in the short term, so that regions can adjust their economies and production to new conditions. It should also be possible in the short term to facilitate the adjustment of EU regional economies to new conditions through the use of appropriate transitional periods.

3.4.5. Bearing in mind that the European market is in fact saturated, national and regional authorities must prepare Europe's citizens for a change of emphasis from material growth to improved immaterial welfare alongside the already high level of affluence (health care, education, environment). This means that, underpinned by the public's desire for improved welfare, the authorities must create jobs in those sectors providing services desired by Europe's people in the interests of a better environment. In this way those made redundant in industry will be employed in the new services regarded as necessary by Europe's citizens.

3.4.6. To be able to finance such jobs, the Committee calls for measures on a European scale to switch taxes away from labour to environment, consumption (added value) and capital. This will, however, be possible only in a market open to international competition. (In the Netherlands, for instance, the profits of the 50 biggest employers grew explosively between 1991 and 1995, while over the same period new jobs rose only marginally).

3.4.7. At the same time it must be made clear to citizens that firms on the European market are fully entitled to use their profits for new investments outside Europe. Such an approach addresses the need gradually to iron out different levels of prosperity in the various parts of the world without losing the support of Europe's own citizens.

3.4.8. In this way European companies/multinationals will be able to start up in new parts of the world and thus create regional employment there. Concurrently such a strategy requires a sound home base with solid know-how in Europe's regions in order to support the multinationals in their global approach.

3.4.9. The Committee therefore sees 'small scale on a large scale` as a possible long-term strategy:

- sectoral industry-specialization per region

- create conditions within regions for new types of companies (telecom-infrastructure/knowledge-infrastructure/etc.)

- regional programmes to retrain workers for both new, internationally-oriented jobs and regionally-oriented jobs

- stimulate regional activity in favour of regional products and low-skilled workers (transport/shop assistants/caring for the elderly/leisure)

- major infrastructure projects, by means of public/private investment, which help the regional economy to develop

- a balanced spread of activities within the regions.

3.5. Financial markets: global - regional

3.5.1. The Committee would stress the importance of embarking on economic and monetary union, as expressed in detail in its opinion of 18 September 1996. It must also be pointed out that global trade may in time lead to a global currency. At present trade is suffering from the fluctuations of the dollar and there are worries about competition from the yen.

3.5.2. The Committee also agrees fully with the Commission that there must be a global level playing-field for multinationals, with freedom for investment. We in Europe must realize that some of the profits made by our regional economies will disappear in investments in other parts of the globe. In the Committee's view, however, this is part of a natural process of levelling out social and economic development on a world scale.

3.5.3. There is already an accelerating shift in economic activity from the trade in goods to foreign direct investment. The Commission, however, only addresses trade with too little attention on direct investment. The Committee would stress that it considers foreign investment to have been the most dynamic element in the world economy over recent years.

3.5.4. The Committee would, however, also stress that every business activity is based on human relations in which trust and commitment play a large part. Physical presence and personal contact are essential for this. The network of marketplace relations is one of the success stories of the regional Asiatic economies. The Committee therefore considers it important to emphasize that in Europe too a decentralized government policy and a firmly entrenched regional banking system can provide support for the business community in the regions. Regional stock exchanges could make it easier for small and medium-sized businesses to gain access to financial markets.

3.5.5. However, the globalization of financial markets, with maximization of profits for shareholders, can act as a brake on regional investment and employment, especially in the case of investments in high-risk innovative developments. These are, of course, considerably less profitable for shareholders. For this reason the Committee considers it important to stress that supervision and consultation models are needed to ensure that the stock markets function responsibly in the interests of Europe's economy. An effective policy is also needed for venture capital.

3.5.6. Relatively free trade should therefore be accompanied by social stability and social cohesion.

3.5.7. Possible long-term strategy: 'global financial system for multinationals` plus 'from maximizing profits to making the best use of profits` and 'finance locally, network globally`

- a banking system firmly rooted in the region, close by firms operating regionally (perhaps regional stock exchanges)

- a 'global system` for multinationals operating internationally

- making the best use of profits: profit is necessary, but some should go into long-term investment and innovation, at global level.

3.6. Global, national and regional management of the economy

3.6.1. The positive and negative consequences of the globalization of the economy strike the regions fairly forcefully. The globalization of trade has robbed the regions of a number of instruments. Information technology means that every individual in the world can communicate, pay, buy goods, etc. The influence of national authorities over globalization is declining because geographical frontiers have disappeared and money is circulating worldwide.

3.6.2. The issue is therefore whether national states can still make their own choices on inflation, growth and employment. Now that the relevant markets cover ever more territory and firms are increasingly resorting to international cooperation, the strength of national competition policy instruments is visibly waning. Firms attempt to strike price-fixing agreements, to carve up markets and secure their current market position against potential competitors. At all events, more than half of large-scale mergers are clearly designed to improve the market position of the firms concerned. Economic policy has been deprived of an important task: establishing the rules of international competition to complement the traditional system of trade. International competition policy and trade policy go hand-in-hand, as ought to be the case in a consistent system. At the same time the role of the regions is expanding where they cluster around powerhouse industries. This transcends Member State borders. In the Committee's view, therefore, another structure and another approach are needed for the management and support of the European economy by the governments.

3.6.3. Accordingly the Committee calls for a study of how a cooperation model can be developed enabling governments to reassert their control, yet also participate in the global economy. Creative solutions must be found with which to develop a regional policy. Thus there will be a need for tax measures which, through the regions, translate into new jobs in the public services sector. Better coordination is urgently needed between industry and the financial sector, aimed at a long-term strategy at European level.

3.6.4. The Committee urges the European Commission to bring the existing programmes to support joint ventures entered into by firms from different countries more into line. This can be a suitable way of effectively penetrating the markets of each other's countries, and offers advantages in terms of production, employment and reciprocal imports and exports, without encountering obstacles in the form of tariff barriers. In this way obstacles are in fact removed.

3.6.5. We should also not lose sight of the fact that a balanced and uniform European market is essential if Europe is to strengthen its international position. The principle of mutual recognition of technical standards for example is usually not applied, so that tests and inspections are constantly being carried out in every Member State. Moreover, the results of national inspections are usually not automatically recognized in other Member States.

4. Conclusions

4.1. The Committee of the Regions broadly supports the Commission Communication on the global challenge of international trade: a market access strategy for the European Union. The Committee considers that:

a) every region will have to contend continually with the restructuring of its economy;

b) globalization of know-how and financial markets can contribute to the growth and expansion of businesses and of employment in services in the EU;

c) the regionalization of goods production and transport could help (i) to alleviate transport and environmental problems and (ii) to boost employment in industry in the EU (less skilled). This also results in products which are tailored to the needs of local/regional consumers;

d) the European Commission urgently needs to coordinate trade, industrial, regional and social policy;

e) efforts must continue to open up central and eastern European markets and in all countries in which European companies have interests or enjoy business opportunities;

f) every region must develop a proactive approach in order to participate in the global economy;

g) Europe must find an answer to the 'paradox of prosperity` (high unemployment, environmental pollution, crime), and funds must be found for this by shifting taxation from labour to the environment, consumption (added value) and capital;

h) company profits cannot go on growing explosively while employment rises only marginally;

i) Europe must switch from maximizing profits to making the best use of profits: some profits must be used for long-term investment and innovation at both global and local level;

j) better coordination is needed between industry and the financial sector, aimed at a long term strategy at European level and here it is absolutely essential to stimulate international cooperation - not only industrial but also economic - in the broader sense;

k) a web of association of states, regions and local authorities, with democratic legitimacy, must be brought into being; this is needed for the monitoring/management by government of the European economy;

l) ultimately this will lead to a model in which the globalization of trade and economy goes hand-in-hand with a global strategy at local level ('glocalization`).

Brussels, 15 January 1997.

The Chairman of the Committee of the Regions

Pasqual MARAGALL i MIRA