| “The economic relationship
between the United States and Europe is, by a wide margin,
the deepest and broadest between any two continents
in history – and those ties are accelerating.”
So stated a recent study on the changing shape of
the transatlantic economy. The European Union (EU) and
US together account for 51% of international trade,
79% of outward investment and 62% of inward investment.
Annual UK-US trade alone is worth over $100bn.
These are impressive figures, but we cannot afford
to be complacent. Growing competition from the economic
giants – China and India – and other emerging
economies pose a serious challenge to the transatlantic
dominance of the world economy. Unless we improve our
competitiveness, our economic performance will at best
stagnate and at worst decline.
Over the past eight years, the UK government has focused
on long-term structural reform of labour markets and
tax and benefit systems, and on ensuring monetary and
fiscal stability by giving independence to the Bank
of England, by building a new monetary and fiscal framework
and by cutting our national debt. As a result, the UK
is enjoying the longest period of sustained economic
growth on record, the lowest inflation and the lowest
sustained interest rates for 30 years. UK unemployment
has fallen to 5%, the lowest of the G7 economies. The
UK now has two million more people in work since 1997.
But if we are to sustain our economic growth and competitiveness,
we need to be more enterprising and creative. The government
has taken a wide range of measures to make it easier
to create and maintain new businesses. We have cut capital
gains tax, corporation tax and small business tax. We
are reducing regulation – in particular in inspection,
audit and enforcement regimes – and we are investing
heavily in education and vocational training to improve
the skill level across the workforce.
We are setting up a National Council for Graduate
Entrepreneurs and are offering graduates of the world’s
top 50 business schools the opportunity to come to the
UK to seek employment. We are also forming a new transatlantic
partnership with the US Administration to encourage
further enterprise between our two nations. To remain
competitive, we must also develop our high-tech and
science-based industries and services. With 1% of the
world’s population, we have over 11% of the world’s
most cited scientific papers.
Last year, the government published a 10-year investment
plan to boost science, engineering and innovation. We
have more than doubled government investment in science
over the past eight years. This year the budget stands
at £3bn. We are increasing investment in graduate
and postgraduate engineering, science and technology
education and research. Equally important, we are encouraging
greater collaboration between universities and business,
so that R&D gets translated into new business.
We have extended R&D tax credit to encourage business
to invest in R&D and small, high-tech enterprises,
giving a £400m boost to business. We now have
almost 100 science and technology experts working in
45 UK diplomatic missions in 26 countries, taking forward
the science agenda.
Britain is one of the world’s most open trading
nations. We believe in free trade. We have a historic
global reach. We speak the business language of the
world. The UK telecommunications industry is one of
the most advanced in the world, as is the UK’s
financial and professional services sector. The UK insurance
industry is the largest in Europe. As such, the UK and
the US are natural business partners. Working in partnership,
we are also in a strong position to win the argument
for economic reform in Europe.
The EU is the US’s most important trading partner.
EU–US trade generates $2.5tn in total commercial
sales a year and employs over 12 million people. Over
half of the UK’s trade is with the EU. Over three
million jobs in Britain are linked to exports of goods
and services to European partners. Together, the countries
of the EU account for a quarter of the world GDP and
a third of world trade. Together, they are an immensely
powerful economic force in the world. But to remain
so, EU economies need to be more open and less rigid.
In 2000, EU leaders committed themselves to an ambitious
10-year programme of far-reaching economic reform to
make the EU the most competitive and dynamic knowledge-based
economy in the world by 2010, capable of sustainable
economic growth and with more and better jobs and greater
social cohesion – the so-called Lisbon strategy.
The UK has led the way in pushing forward the Lisbon
agenda. This year marks the half-way point in the strategy.
We have made some progress, but much more needs to be
done. The Commission’s Spring Report, published
on 2 February 2005, highlights jobs and growth as the
immediate challenge for the EU and the key to meeting
all three Lisbon goals: economic, social and environmental.
The focus on jobs and growth is absolutely right.
The EU needs more flexible labour markets. We must,
therefore, ensure that every proposal for new legislation
is subjected to a rigorous assessment of its impact
on jobs, competitiveness and growth. We need to strike
a balance between protecting workers, ensuring routes
into the labour market for vulnerable workers and maintaining
sufficient flexibility for business.
Regulatory reform is a key priority for the six EU
countries who have held or will hold the Presidency
between 2004 and 2006: Ireland, the Netherlands, Luxembourg,
the UK, Austria and Finland. We are all committed to
working closely with the EU institutions to make better
regulation. I am delighted that President Barroso has
made cutting EU red tape a Commission reform priority,
too. During the UK Presidency, beginning in July, we
will focus on improving the assessment of new legislative
proposals to ensure that they encourage, not stifle
economic growth; simplifying existing EU rules and promoting
greater use of alternatives to regulation.
We will also work to strengthen the Single Market
by introducing a more pro-active competition policy
and further reforms to state-aid rules. We are determined
also to make progress on a Single Market for services
as well as goods. This directive is, potentially, the
most important EU project since the establishment of
the Single Market in 1992. It has a strong focus on
better regulation and aims to cut excessive bureaucracy
preventing businesses offering services across borders
or opening premises in other member states. Extending
the internal market to the services sector, which represents
60% of EU GDP, will be of enormous benefit to business
and consumers alike. In the financial services sector,
our focus will be on completing the Financial Services
Action Plan in a way that protects and promotes UK and
EU competitiveness and ensures that agreed measures
are effectively implemented and enforced.
We will work to implement the recommendations of the
EU Employment Taskforce to deliver more and better jobs
and we will promote greater enterprise and innovation
through the creation of new European Centres of Enterprise.
Removing barriers to trade and opening up EU markets
are essential, not only for our own economic growth,
but that of all our international trading partners,
particularly in the developing world.
Making progress on the important agreement –
reached in summer 2004 by World Trade Oganisation members
– to begin the process of dismantling export subsidies
on agricultural produce, under the Doha Development
Agenda, is also a key objective for the UK this year.
We will also take forward the work started at the EU–US
Summit last year to promote further EU–US economic
co-operation and to develop a strategy to tackle barriers
to trade and investment, based on the findings emerging
from consultations between the US, the Commission and
member states.
Differences of opinion over Iraq undoubtedly soured
the political relationship between the US and Europe.
But I do not believe that the economic relationship
suffered at all. Indeed, US companies invested nearly
$87bn dollars in Europe in 2003 – an increase
of 30.5% over 2002 – while European companies
invested almost $37bn in the US, a 50% increase over
2002.
The new Europe of 25 nations and 450 million people
offers a vast new market for US business. The UK has
been instrumental in shaping the new Europe. The new
European Constitution will make the EU less integrationist
and more reformist.
It is our kind of Europe. French commentators have
dubbed the new treaty “La Britannique” and
the future Europe as “the great British Europe”.
As the US’s closest political and economic ally
and as a leading power in the new Europe, the UK is
ideally positioned to help the US expand its economic
partnership with Europe.
As the Prime Minister said last year: “Britain
is proud of its alliance with America, clear in its
role in Europe and a tireless advocate of a strong bond
between the two.”
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