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A global challenge
In today’s increasingly competitive and globalized economy, UK and US business relations have never been more important. The US is Britain’s largest single market and is the leading destination for British overseas investment, amounting to some $251m in 2004. The global economy is in constant flux. European and US businesses need to ensure that they are well placed to take advantage of this. Huge emerging consumer markets in Asia and South America continue to increase global interdependence and innovation across the world. These are all changes we – Europe and the US – should embrace. We cannot and should not seek to freeze the global economy as it is now, or was in some imagined golden age. We all benefit from effective competition. And we should see this as a positive sum game.
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But we cannot ignore the economic challenge from countries such as China and India, especially in increasingly in the high valueadded sectors such as IT, as well as in manufacturing. We face increased competition for investment, as India and China are now key destinations for foreign direct investment – there has been a drop in inward investment into the EU15 since 2000, compared with strong rises in China and India. There is also the knowledge economy challenge. East Asia’s universities are already beginning to challenge the US as well as European universities in the global league tables. As the pace of change increases, we have a responsibility to ensure that the new global economy is delivering for all. We must collectively fulfil our responsibilities to give a lead on building a sustainable global economic order. There are two major areas where we must make progress.
First, on securing a Doha deal. It is the strongest signal we could send to the developing world that we are prepared to practise what we preach. There were positive signs at the World Economic Forum in Davos that the momentum is picking up again, and it is welcome that formal negotiations are now restarting. The announcement that President Bush would seek to extend US Trade Promotion Authority ahead of its expiry at the end of June also demonstrates that reaching agreement is a shared priority. Second, in taking effective action to tackle climate change. We need to be visionary in looking towards the low carbon economy of the future. There will be opportunities here too; setting the standards for greener products gives our companies a head start in responding to the consumer demand to find individual ways to leave a smaller carbon footprint. We need to improve the EU Emissions Trading Scheme so that after 2012 we can have an effective, predictable, market-friendly mechanism to tackle climate change. And if we in the developed world are able to set a good example, we will be better able to persuade China and India that they can burn the coal that they need for energy supplies, while keeping their own emissions down.
There are close trade links between the US and the UK. With its outstanding economic performance, strong research and technology base, and a highly skilled workforce, it is no surprise that the UK was the number-one recipient of US foreign direct investment in 2004, receiving $302bn – representing some 28% of total US investment in the EU.
The UK is also well placed as the stepping stone for US businesses looking to invest in Europe. We offer inward investors access to the world’s largest free trade area, providing UK businesses with access to a market of nearly 500 million consumers. The EU and US trade relationship already accounts for almost 40% of world trade – bilateral trade amounts to over $1bn a day. Investment links are even more substantial – over $1bn trn a year. Almost 10, 000 US companies are located across the whole of the EU and over four million jobs on each side of the Atlantic depend on this investment. And the driving force for this opportunity is the European single market; the foundation of the EU’s competitive position. The opportunities that this provides ensure that the EU is an attractive place to do business. Europe attracts more foreign direct investment inflows than the US. In 2005, the US attracted €100bn compared to €430bn in the EU15. And enlargement to an EU of 27 countries has strengthened the single market. We have had good GDP growth across the EU; GDP in the Eurozone as a whole has increased by 6% since 2003.
Growth remains strong and significantly higher in our newest partners; in the 10 partners who joined in 2004 this was 5.4% in 2006 and an average of 5.0% over the last five years. But we still have high growth, high-job-creating economies in the more established EU15 countries too. Ireland, for example, remains amongst the strongest in terms of GDP growth among the EU members as a whole. Historically, Europe has placed most emphasis on cross-border trade between EU member states as a driver of growth. But in an increasingly globalized world, Europe’s ability to face outwards, to compete globally is ever more important. That is the direction that the single market needs to move.
The UK government has been arguing the case for a strong EU focus on economic reform since 1997. We need to remove barriers to the single market in areas where business and citizens want to see delivery. We are identifying what steps we need to take, in Brussels and nationally, to strengthen European growth, and ensure it generates more jobs. We are also modernizing social protection. And in all of this, we need to take account of the global competitive dimension. Making the single market work better is a priority of the European Commission, under its President José Manuel Barroso. The Commission is conducting a fundamental review of the single market, placing a new emphasis on improving the implementation and enforcement of single market rules. And there is an opportunity here for business to identify where that action is most needed.
This means continuing to open up European markets, including the markets for services, energy, postal services and television. And taking action to enforce the single market rules, even in politically sensitive cases – Commission action against Microsoft is a high-profile example; national energy companies may be next. Where the single market rules are not strong enough, or not enforced, greater use of competition policy will make it clear to companies that further opening is coming, and they can no longer hide behind protectionist national barriers. The Better Regulation agenda has been firmly grasped by the Commission. This means getting regulation right for business and citizens. Achieving environmental or social objectives, and at the same time cutting out the obsolete rules to reduce the burden on business. Good EU regulations can replace 27 sets of national rules and is therefore deregulatory.
Creating a more effective regulatory framework is key to the EU’s competitiveness – potentially adding 6% to EU GDP. It is also an important demonstration of how the EU can deliver for businesses and citizens. This is an ambitious agenda for the EU and we hope to see good progress under the German Presidency. Most importantly, we, the EU and the US need to recognise our mutual interests and act on them. Removing barriers brings mutual opportunity. Moving towards a deal on the so-called “open skies” agenda between the EU and the US, would bring some of the consumer and competition benefits to transatlantic travel that we’ve enjoyed within the liberalized EU airline market. And it means advancing the EU–US transatlantic dialogue. The German Chancellor, Angela Merkel, made headlines on her recent trip to Washington with her call for a “common transatlantic market”. An EU–US market without barriers is a visionary aim, one which leaders on both sides of the Atlantic have often discussed. This is a complex and difficult issue. And clearly securing a Doha deal remains our top priority. But we also know that there are huge gains to be made if we could reduce even some of the nontariff barriers to greater transatlantic trade.
In the meantime, Chancellor Merkel highlighted a number of areas where we can make further progress, including patent law, industrial standards and access to stock markets. And there is much more that the US and Europe can do together to maximise opportunities to our mutual advantage.
Europe and the US have much in common in facing up to new challenges and opportunities. There’s a lot we could – and should – do together to maintain the momentum and show how a freetrading, outward-looking economic order can improve the lives of everyone around the world. Deepening economic cooperation between the US and EU would be an encouraging step towards a more flexible and efficient global economy and would serve as a worldwide example of how to respond positively to the challenges of globalization.
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