Political And Economic Protectionism - The Spectre Haunting Europe

Speech given by Minister for Europe, Dr Denis MacShane, 19 March 2005

A spectre is haunting Europe. The rise of political and economic protectionism is now a new threat to the future of British and European prosperity. The twin challenge of facing down both economic and political protectionism is now an urgent priority for any forward-looking British government.

Political protectionism takes the form of the isolationist politics of calling on Britain to say No to Europe. Economic protectionism takes the form of saying no to increased trade and competition in the service sector where 70 per cent of Europe’s economy is based.

For centuries, British business has needed an economically healthy Europe to buy our goods and services, to send people and capital to the UK to help grow our economy, and to trade in every sphere of economic activity from tourism to culture.

I first worked in Birmingham in 1970. Then Britain’s second city saw its main calling in metal-bashing. Today’s Birmingham has been transformed through the renaissance of the city centre which attracts European business as never before.

A few months ago I went to the old Lucas factory beside the Hawthorns stadium in West Bromwich. Instead of the former Lucas products I found a building humming with energy in its new form as a factory and warehouse for making Indian food and exporting it all over Europe.
In every capital of Europe there are Asian restaurants opening up. I want to see Britain and West Bromwich to have as much of the market as possible for supplying this growth in Indian restaurants and Indian foods on Europe’s supermarket shelves.

But if we turn our back on Europe, why should anyone keep buying from us?

Countries like Norway and Switzerland outside the EU not only have to implement most – and in the case of Norway all EU directives – they have to pay hundreds of millions of Euros to Brussels for the privilege of doing business in Europe.

And each Swiss or Norwegian firm has to fill in a 12 page form with 50 questions on each page in order to trade with the EU.
People talk about the bureaucracy in Brussels but the European Commission employs just 24,000 people a little less than half the total number of employees of Birmingham City Council.

The total EU budget is about 1 per cent of Europe’s combined income – around 100 billion Euros or a quarter of the Pentagon’s budget.
85 per cent of all that money is returned to national governments and spent by national ministries. And, yes, sadly, many national ministries, including in Whitehall, cannot justify every cent spent on agricultural subsidies or some aspects of EU spending allocated by national ministries.

So when it is difficult for accountants to sign off on EU spending the blame lies entirely with national ministries. The propaganda against Europe is wonderful to read. Anti-European politicians tell more myths and fantasy about Europe than you can find in Harry Potter or the Da Vinci Code.

My favourites include the claims that the Queen would be replaced, that Britain’s army, foreign policy and taxes would be controlled from Brussels or that the vast majority of our legislation comes from Europe.

On the last point I asked the House of Commons Library – whose independent researchers have impartially to serve all parties – to investigate this claim. According to the House of Commons the amount of legislation in the UK which originates from Europe amounts to around 9 per cent of UK laws passed.

For example, it required 26 separate pieces of UK legislation in the form of Statutory Instruments to implement an EU directive to on the sound level and exhaust system of motor vehicles.

A great deal of EU legislation is related to the Common Agricultural Policy – the price of olives or the support prices for sugar.

I expect that each national state would have to bring out the same or very similar regulation and laws. Do we really want forty different sets of laws in Europe regulating the chemical industry or is it better to have one sensible regulation that allows British companies in the chemical industry to operate anywhere in the EU? Love it or hate it, the EU works for business. Before Europe’s frontiers came down, the tax system alone required 60 million customs clearance documents annually: these are no longer needed. Goods now move freely across Europe. The axing of customs duties saves British businesses around £135 million a year.

What else has the EU done for us? It’s only thanks to EU competition laws that Easy-Jet and Ryanair are able to transport thousands of travellers each day for low fares, rather than allowing member states to protect their national carriers. The European Court of Justice ruled that other EU countries could not continue to refuse British beef after the BSE affair and thereby helped restore trust and prevent protectionism. How would we have achieved any of this without international laws that all 25 EU members have to obey?

I hope that everyone is getting the E-111 form from the Post Office so that if there is an accident while we are on holiday in other EU member states we get free care in hospitals rather than having to take out separate hospital insurance which would be the case if the protectionists win out and Europe reverts to a set of nation states without common agreements like the E-111 system.

For some of course it is better to live in the world of Euro myths rather than European truth. We have got used to living with anti-EU hostility in the UK but there is now a rising tide of Euro protectionism across Europe which presents serious threats to Birmingham firms and the jobs of scores of thousands of West Midlands workers who depend on trade with Europe for their livelihood.

There are powerful voices in Europe arguing that Europe needs less not more trade.

70 per cent of the European economy is based on services. But only 20 per cent of trade in Europe is based on services – retail, tourism, professionals, employment agencies, leisure, education, beauticians, video games, web-sites and all the new forms of economic activity that will grow in importance in the 21st century.

London and Brussels would like to encourage growth in cross-European trade in services. But now there are powerful voices arguing that efforts to open up and increase the dynamism of Europe’s service industries should be slowed down or shelved. We need to take on this new, insidious form of protectionism.

But how can the British government stand up for your best interests in negotiations on EU directives if our voice is weakened by the sneering euroscepticism our European colleagues see if they look at the British press? Take the Services directive - potentially the most important EU project since the establishment of the Single Market in 1992. This has the potential to lower barriers to trade within the services sector – which contributes nearly three quarters of Britain’s GDP – and will have a strong focus on better regulation. By working with our EU partners we have the chance to make a real difference for small businesses looking to expand in the EU - the largest single market in the world, with over 450 million consumers. We have to get it right - and we’re on the case. But it will not help us achieve this aim if the voice of Britain is one that snipes from the sidelines.

The business of Birmingham and other great cities in Britain is business. But to do business in Europe we need to agree the new rule-book in the form of the new constitutional treaty and at the same time take on the economic protectionists who want to reduce rather than increase trade.

To be sure, there is a lot about the European Union that grates with small businesses in this country. Concerns about red tape, and Digby Jones’s protests at gold plating of EU laws by Whitehall officials are justified.

That’s why the UK Government is at the forefront of the push for a better European regulatory environment.

We’re not alone in this desire. Better regulation is a key priority for the new Barroso Commission with Gunther Verheugen, Commissioner for Enterprise and Industry declaring better regulation as his 'personal trademark'.

There are thousands of pages of EU so-called acquis communitaires which are past their sell-by date. As Britain takes on the presidency of the EU in the second half of this year we will make better and fewer regulations from the EU a top priority. But Britain’s voice against economic protectionism on the continent will be all the stronger if we reject political protectionism at home. The referendum on the EU Constitutional Treaty presents Britain with a turning point. Do we pull up the drawbridge – or do we work for a better, more efficient, more democratic EU, along the lines that successive British governments have long advocated? British businesses deserve an EU that works for them, with Britain at its heart, influencing its decisions, strengthening its institutions and shaping its future.

Saying No to Europe in Britain will encourage Europeans who want to say No to Britain doing business in Europe.. It is time for Britain’s business leaders to take on No sayers and keep sending a signal that Britain is open for business from Europe and Europe is welcome to visit, invest and create jobs in Britain.