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1. Trading Up: An EU Trade Policy for Better Market Access and Resilient Sourcing

Author:
Fredrik Erixon, Oscar Guinea, Philipp Lamprecht, Oscar du Roy, Elena Sisto, and Renata Zilli
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s competitiveness could be substantially improved by a trade policy that facilitates more trade and other forms of cross-border exchange. The evidence is clear: the EU trades less with the rest of the world than would be expected given the size of its economy. With 85 percent of global growth happening outside of the EU – and with an increasing share of all new technologies, innovations, patents, human capital, and R&D expenditure emerging in other parts of the world than Europe – the EU needs to find better ways to integrate with international markets. It is now becoming urgent for the EU to revive its international trade policy. Europe’s increasing detachment from global markets lead to two major economic concerns: deteriorating market access and less capability to build economic resilience. Market access can be defined as an export challenge, as EU firms face increasing trade barriers that hinder their ability to sell products and services abroad. These barriers ultimately limit the EU’s ability to scale up production, specialise, and increase R&D spending. Economic resilience is an import challenge. To become more resilient, the EU must diversify its sources of supply, particularly for critical raw materials, and secure a stable and frictionless access to foreign high-end goods, services, and technologies. The next five years present a critical opportunity for the EU to address the challenges limiting the contribution of international trade to EU’s competitiveness. This Policy Brief outlines seven trade policy recommendations that tackle the lack of market access and address the need for economic resilience. These policy recommendations are there for the EU to take: they are realistic and achievable. The EU has the power to make these seven policy recommendations a reality.
Topic:
Markets, Treaties and Agreements, European Union, Trade, and Resilience
Political Geography:
Europe

2. Keeping Up with the US: Why Europe’s Productivity Is Falling Behind

Author:
Fredrik Erixon, Oscar Guinea, and Oscar du Roy
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The European Union stands at a crossroads. For decades, the EU’s productivity growth has consistently lagged the United States, leading to slower growth in living standards and decline in global economic power. While short-term factors like the strong US fiscal expansion have widened the gap in nominal GDP growth in recent years, the fact is that Europe has trailed the US economic development for several decades and the root of the problem lies in deeper structural issues within the European economy. Four major forces fuel this productivity divide. Firstly, the EU’s investment in research and development (R&D) pales in comparison to the U.S., leading to fewer patents and a slower pace of technology-fuelled innovation. Secondly, Europe trails America in the stock and growth of intangible capital investments, which are crucial for adopting and diffusing new technologies that drive productivity. Thirdly, the EU market exhibits slower business creation and destruction compared to the US. This rigidity hinders the flow of resources towards the most productive firms. Lastly, despite boasting higher levels of trade openness, the EU attracts less Foreign Direct Investment (FDI) than the US, curbing its access to cutting-edge global technologies and expertise. To close the gap, European policymakers should implement a comprehensive strategy for faster productivity growth. The first step is turning up the dial on R&D spending, targeting 4-5 percent of GDP by 2040. Next, Europe should prioritise investments in intangible assets and lay down the digital infrastructure that will underpin future growth. Revitalising the single market is also crucial: reducing internal and external market barriers for services, the primary vehicle for trading intangible assets. Moreover, the EU should foster a market environment that encourages entrepreneurship and facilitate the entry and exit of firms so resources cascade towards the most productive sectors. By harnessing the strengths of the single market and implementing these recommendations, European policymakers can propel the EU towards a more competitive and prosperous future.
Topic:
Markets, European Union, Productivity, and Economic Competition
Political Geography:
Europe, North America, and United States of America

3. Future-proofing the EU’s Investment Attractiveness: A Bold Reform Agenda for Competition Enforcement, Taxation and Digital Policy

Author:
Matthias Bauer, Dyuti Pandya, and Oscar du Roy
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Reducing the deterrent effects from EU and Member State laws in three key cross-sector policy areas – competition policy, business taxes and VAT, and digital policies – could significantly enhance the business environment within the Single Market and boost the EU’s attractiveness to both domestic and foreign investors. The EU’s future competitiveness is at risk due to a significant disparity in investments, particularly in technological innovation, compared to the US. Despite having a larger population and labour force, the EU lags behind in large business activities, with US firms consistently outspending their European counterparts in key tech-intensive sectors such as software, computer services, pharmaceuticals, and biotechnology. Moreover, China and other emerging nations are rapidly catching up, dramatically diminishing the EU’s relative economic and political influence on the global stage. The urgency for the EU to bridge these gaps is more critical than ever (Section 2). The EU’s profound investment gap highlights a systemic advantage for the US in fostering innovation and economic growth. The EU’s regulatory complexity, largely driven by legal fragmentation in horizontal policies, further exacerbate the situation, deterring cross-border activities reducing the region’s attractiveness to global investors (Section 3).
Topic:
Markets, Reform, European Union, Digital Economy, Investment, and Digital Policy
Political Geography:
Europe

4. Online Platform Regulation and Investment Attractiveness: A Look at the EU, the UK and Impacts on Small Open Economies

Author:
Matthias Bauer, Vanika Sharma, and Oscar du Roy
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Small trade- and investment-oriented economies like the United Kingdom (UK) should carefully consider whether to regulate online platform services based on presumptions rather than evidence that consumers are being harmed. Flimsily enforced platform regulation can have a chilling effect on investments in business expansion and innovation, particularly in technology-adopting industries. Several countries around the world are designing new competition policies that specifically target large digital platforms. The theory behind these policies is grey. There are political concerns about the impact of various aspects of platforms on society, especially regarding the collection and safety of data. However, practices that harm consumers – traditionally a key motivation of competition enforcement – are very rare. Indeed, the success stories of large tech platforms demonstrate that they offer strong benefits and conveniences to millions of business users across a wide range of industries. Marginal costs of supply, high-quality services, continuous technological advancements, and platforms’ ability to drive productivity growth have enabled especially small businesses to thrive and compete in domestic and international markets. Against this background, it is highly questionable why some governments, with the backing of power-seeking competition regulators, are aiming to legally interfere in services provided by large technology companies. An important consequence that has so far received little attention from policymakers and competition authorities is the impact of platform regulation on a country’s investment attractiveness. It is obvious that bans and restrictions on corporate conduct cause regulated companies to abstain from investments and establish new business elsewhere. What is less clear is the effect of regulation on investments by companies that extensively adopt platform services to reduce costs, speed-up innovation, and expand market opportunities. In this policy brief, we argue that access to integrated and internationally traded platform services is increasingly important for a country’s investment attractiveness, even more so for smaller countries. Access to advanced technologies and the utilisation of network effects create a virtuous cycle of economic opportunities, investments, value creation, and trade. Discretionary and presumption-based competition enforcement, as adopted in the EU, risks hurting smaller countries in particular. The EU has chosen the path of proscriptive and protective policymaking with the DMA to achieve industrial and trade policy goals rather than defending competition in the Single Market. UK competition policy risks being driven by institutional interests and ideological considerations, which could potentially lead to the adoption of a regulatory landscape that is even more restrictive than that of the EU, undermining Britain’s ambitions for economic and innovation leadership.
Topic:
Markets, European Union, Regulation, Economy, Investment, Trade, and Online Platforms
Political Geography:
United Kingdom and Europe