Thomas Friedman observed in his classic book The Lexus and the Olive Tree that “the world has become an increasingly interwoven place. Today, whether you are a country or a company, your threats and opportunities increasingly derive from who you are connected to.”

The UK and the US have always understood this. In today’s increasingly competitive and globalised economy, the UK’s relationship with the US only grows in importance. As a former Trade Minister, I know quite literally just how much the transatlantic relationship matters. Bilateral trade between the US and the UK is worth over $100 million per annum. The US is the largest investor in the UK, with about 14,000 investors. In 2004/5, The US dominated FDI in the UK, with 466 projects – itself a 47% increase on 2003/4. As a proportion of total US investment in the European Union, the UK hosts as much as Germany, France, the Netherlands and Ireland combined.

In return, the UK offers one of the best environments in the world to do business – thanks to our unrivalled economic performance, emphasis on research and technology and skilled, flexible workforce comprising world-class managers and leaders.
These strengths also make the UK a natural bridge to invest in Europe. The UK offers its investors access to a single market that currently has 450 million consumers. The EU and US already have the largest trade and investment relationship in the world. Trade between the two generates about $2.5 trillion in commercial sales a year and together they account for 51% of international trade.

But Europe still has huge untapped potential as a place to do business. With the enlargement of the EU in 2004, the 10 new member states have brought a real appetite for stimulating economic growth and embracing freedom. Research has suggested that, through enlargement, the GDP of the original 15 member states could be boosted by €11 billion every year and that over 2 million jobs will be created in the new member states. A new wave of tax competition has also been sweeping Europe, in particular the “new ten”.

Further enlargement of the EU also offers access to even wider markets. One of the main achievements of the UK’s recent Presidency of the European Union was to confirm Turkey’s prospects as a future member of the European family. Turkey’s membership would mean that the single market would stretch to include a vibrant, forward looking country with a majority-Muslim population of 70 million people and with its historical links to the Middle East and Asia.

So the potential is there. But to maximise it, we need to recognise, as Friedman did, the changing nature of the global economy. As Minister for Europe, I have been arguing for a Global Europe, for a Europe that looks outwards as well as inwards and for a Europe that fully engages with all of its partners. The economic challenges we are all now facing are of an unprecedented scale and significance. The rapid growth of emerging economies such as China and India pose a serious threat to the economic dominance of both Europe and the US. We cannot afford to be complacent. We all – but particularly in Europe – must modernise our regulatory frameworks and invest in innovation or risk being sidelined.

I do not pretend that the environment within the EU is always conducive or easy for external investors. But the changes that have been occurring within the EU over the last five years, and in particular under our EU Presidency last year, are paving the way for deregulation and the opening up of markets to international competition.
The UK government well understands what is important to businesses when they make a decision to invest overseas. I therefore want to underline the UK government’s commitment to building the best framework in the UK for external investment for companies who want to make the transition to Europe. As part of that commitment, we have been the natural leaders in the European debate for reform in the areas that really matter to you.

This is finally producing real results. For example, this year the European Commission agreed to strengthen the use of impact assessments, to screen and withdraw a third of pending legislative proposals and to repeal, codify, recast or modify 1,400 legal acts over the next three years. There are also numerous examples of where EU level legislation has opened up markets and forced through competition, driving up standards, addressing market failures and improving access to goods and services, e.g. the REACH (Registration, Evaluation and Authorisation of Chemicals) Directive, agreed last year under our Presidency. These measures facilitate competition and contribute towards making the EU a more attractive place to do business.

In 2000, EU leaders committed themselves to an ambitious programme of far-reaching economic reform to make the EU the most competitive and dynamic knowledge-based economy in the world – the so-called Lisbon strategy. Member states agreed to make their labour markets more flexible, to stimulate innovation, encourage entrepreneurs, spend more on research and development and complete the single market.

That is still the ultimate objective. But when we took stock last year, halfway through the programme, the conclusion was sobering. While some countries – the UK included – had moved forward through implementing Lisbon, the EU as a whole still had not gone far enough or fast enough. Our internal market was still not fully liberalised 20 years after the Single European Act.
But the strategy has resulted in some notable successes since 2000, such as the opening of national markets for energy and banking. The Lisbon strategy has also encouraged EU members to implement the best reform models, which has resulted in some countries already overtaking the US on many indicators of innovation, education and competitiveness.

Better regulation, increasing competitiveness and how to successfully respond to the challenges of globalisation have also been dominant and successful themes of the EU’s financial services agenda. The UK strongly supports the market opening objectives of the proposed EU Services Directive and welcomes the European Parliament’s vote in favour of the Directive. The Internal Market has boosted EU GDP by €875 bn over 10 years, generating 2.5 million jobs.

Productivity gains will be driven by investment in new research, in education and in sustainable technology. Europe needs to become more productive and innovative and invest in new technologies, rather than supporting unsustainable industries that others can do better, cheaper and faster. As part of the UK’s EU Presidency, we held an Informal Summit for EU leaders at Hampton Court, South West of London, specifically to focus Europe’s attention on the correct priority areas for the future: key areas such as R&D and higher education. As a result, there will be a 75% increase in EU spending on Research and Development between 2006 and 2013.

The UK has enjoyed unprecedented levels of growth and macro-economic stability since 1997. We also have the highest employment levels and lowest unemployment for a generation. But in order to increase our productivity and increase opportunity for those who are not currently in the labour market we are concentrating on raising skills levels and active labour market measures. In the UK, we have extended R&D tax credit to encourage business to invest in R&D and small, high-tech enterprises, giving a £400 million boost to business. In the UK government investment in science has more than doubled over the past eight years.

I firmly believe that there is no future in protectionism or closing the door on the global economy. The current WTO Trade Round, the Doha Development Agenda (DDA), is central to this. It aims to reduce trade barriers in agriculture, industrial goods and the services sector. The DDA offers huge potential for boosting global growth, not only by adding billions of dollars to the global economy, but also by lifting millions out of poverty.

In such an environment, an enlarging and reforming Europe offers many attractive opportunities for US businesses. And with such an important political and economic relationship existing between the UK and the US, the UK is ideally placed both now, and in the future to provide a stepping stone to Europe.