Business, Economics and Jobs

The EU takes on the world


The EU doesn't have the clout it once did.


Dean Mouhtaropoulos

BRUSSELS, Belgium — Still bruised and bloodied by three years of domestic brawling over the debt crisis, the European Union is now flexing its muscles for a spot of international pugilism.

Since the start of the year, the EU has been hurtling towards a trade war with China over Brussels’ demand that all airlines flying into Europe pay a levy to offset carbon emissions.

On Thursday, India said it was joining China in demanding its carriers boycott the EU scheme. Both countries are part of an unlikely alliance that includes the United States, Cuba, Russia and Saudi Arabia, and that has already indicated it could take coordinated retaliatory action against Europe.

Undeterred, the European Commission this week signaled it could be opening another trade battle with the rest of the world, when it unveiled plans to restrict access for foreign firms to Europe’s 420-billion-euro-a-year market for government contracts. 

“The EU should no longer be naïve,” said Michel Barnier, the EU’s internal market commissioner. “The commission will remain vigilant in the defense of European interests.”

Read more: Is the worst of the euro crisis over?

There is fear, however, that the newly macho EU has taken on fights it just can’t win.

China has reportedly threatened to retaliate against the plan to tax its airlines by suspending orders for $14 billion worth of jetliners from European plane-maker Airbus. Facing a recession and record unemployment, Europe just can’t afford to take hits like that.

Airbus was so worried it teamed up with bitter rival Boeing to urge the EU for a rethink. “Stop it now. Don't go down the road of a trade war," Airbus CEO Tom Enders urged the EU on Friday.

The EU insists it won’t give in to economic bullying. The carbon levies are crucial for tackling global warming, it says, and will stay in place unless there’s a worldwide aviation emissions agreement.

“This is not a question of wanting a fight, it’s a question of being serious about climate change,” says Isaac Valero Ladron, the EU’s climate change spokesman.

“We are not going to cave in to any threats. The fact we have an economic crisis does not mean that the environmental crisis has gone away,” he told GlobalPost.

Read more: What women really want: income equality

Faced with overwhelming international opposition however, it’s hard to see how the EU can emerge victorious in this battle. However worthy its ideals, Europe no longer has the economic or political clout to cajole emerging powerhouses into following its views.

“Europe doesn’t seem to have understood the shift in power. They think it’s taking place, when the reality is, it has already taken place. They can be so 20th-Century,” says Shada Islam, head of policy at the Friends of Europe think-tank.

While the Europeans look certain to be pushed into a compromise on airline emissions, Islam recognizes they have a point on the potentially much bigger issue of government contracts.

Barnier told reporters this week that the EU has opened over 80 percent of its market for public tenders to international competition. The figure in the United States is just 32 percent and in Japan 28 percent, he complained, while the likes of China and India barely give European firms a toehold.

Hard-pressed European industries are losing an estimated 12 billion euros annually due to such protectionism, Barnier said.

In reply, the EU’s head office wants to empower European governments to exclude foreign companies from tenders — if their homelands impose similar limitations on European firms.

Read more: Europe's Polish plumber problem

Brussels denies that’s being protectionist. Instead, it says, the new measures will scare the likes of China, Brazil and the US into opening up public-sector contracts to European competition, multiplying opportunities as the EU seeks to export its way out of recession.

“The proposal will increase the leverage of the European Union in international negotiations,” said EU Trade Commissioner Karel de Gucht. “The carrot is always better received, if the counterparts know that there could also be a stick.”

In many parts of Europe, however, there’s concern that waving the stick could have exactly the opposite effect — triggering a punishing backlash for European companies.

British commentators immediately attacked the proposal as a protectionist sop to French President Nicolas Sarkozy, who is promoting “Buy European” provisions as part of his re-election campaign. Barnier was formerly a French government minister under Sarkozy.

Berlin too is uneasy. A German government paper leaked to the Financial Times warned the proposals would “damage the credibility” of the EU as it seeks to counter trade barriers elsewhere.

“The Commission’s proposal would create a “fortress Europe” at a time when the EU is depending on open markets to work our way out of the crisis,” the German document said, according to the London business daily.

With the proposal needing approval from a majority of the 27 EU member governments, it seems as if Europe’s plan to take on the world will first provide the spark for another internal dustup.