From the internal to the external dimensions of European integration

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From the internal to the external dimensions of
European integration

• Luc Soete
• UNU-MERIT,
• University of Maastricht
• The Netherlands

Centre dAnalyse Strategique, Europe in the
Global Economy Conference, Paris, 22-23 November
2007, Paris.
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Three reflections

• The internal integration process of the EU has
  also led to a significant policy diversion in the
  direction of internal market dimension
• The external dimensions of the EU as follow-up of
  the internal dimensions
• The knowledge dimension and Lisbon as the last
  major attempt at internal economic
  transformation. Quid about the external
  dimensions of Lisbon?

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1. European integration

• A history of success and failure of industrial
  policy with as central driver the pursuit for
  scale economies
• Central European problem one of scale (M.
  Abramowitz in the 50s)
• From the origin of the European Community for
  Steel and Coal to sun-rise industries
  microelectronics
• From the Single Market to Lisbon with research
  ERA, ERC, ETP, EIT
• Only two areas of formal European supremacy over
  member states
• Competition policy as countervailing power to
  industrial integration
• Monetary union as countervailing power to fiscal
  independence
• Lisbon as an attempt to correct some of those
  institutional biases
• Employment policies given the wide diversity in
  unemployment, employment participation, training
• Research, innovation, education left out of
  original integration process

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External dimensions ignored, seen today as result
of internal progress

• Trade diversion not just one effect of economic
  integration there are also other diversion
  effects
• Missed external opportunities particularly in new
  areas not part of initial integration agenda
• Network services, unused European heterogeneity
• Research, education, innovation
• Globalisation as part of the EU internal
  narrative
• Defines ultimately the EU negatively
• The EU appears not as a player in this game
• Choice made at 50th EU anniversary to start
  acting as a global player so as to be able to
  influence (Jacques Barrot)
• Environment setting of norms and standards
• Migration (neighbourhood policies)
• Peace

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Different external agendas

• Global agenda (developing countries emerging and
  less emerging economies)
• Scale?
• Return to normalcy in terms of power (G-8
  meetings who invite a Chinese and Indian
  representative)
• Solve the problem in the IMF of representation
• Address the African situation
• Interaction between the global and internal
  agenda
• Different location of countries (Portugal,
  Ireland, Bulgaria, Estonia or Slovakia)
• Different cultures in EU more or less strongly
  internationally integrated Enlargement has added
  global bits and pieces of interest to the EU
• In new world, Lisbon agenda has today by
  definition internal/external implications

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Emerging economies

• Major impact on world trade.
• Richard Freeman compared the entry of BRIC in WTO
  as a doubling of the world labour force
• Thirty years of adjustment probably required,
  global reorganisation of trade flows
• Affects all countries EU, US but also other
  developing countries
• Implications for global demand of price inelastic
  goods energy, raw materials, agriculture.
  Reversal of immiserizing growth concerns
• BRIC as a set of very different countries in
  terms of
• Industrial structure
• Human resources and research capability

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Researchers per 10,000 persons employed
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Science and technology indicators
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Transatlantic agenda

• Transatlantic agenda
• 80 of regulation that plays a role on global
  markets is either US or European inspired
• Both EU and US are the world regulators/standard
  setting agencies. When they disagree little
  progress is made (e.g. sustainability)
• Being challenged?
• Regulatory cooperation or competition (having
  advantages of diversity of regulation)
• How do we relate to the rest of the world (should
  EU/US form a front? We are under treat. We have
  at our disposal the means to keep the old order)
  
• Real assets of Free Trade agreements is the
  regulatory framework

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Regional global agenda

• Neighbourhood agenda
• Strange dilemma highly volatile region around us
  but the EU is clearly the central power in that
  region.
• EU engagement is a rather erratic one
  achievements not very great) misconceived
  policy?
• Some of those countries can become members
  anti-chamber for membership, some others not.
  This is a recipe for disaster. Need to rethink it
• Two main engagements migration and energy
• Much richer and different demography than our
  neighbours with no EU migration policy
• 70 to 80 of world energy reserves are in our
  neighbourhood with no common EU policy (energy
  produced by state owned firms)
• Oil has always had a strong foreign policy
  dimension in other countries not in Europe.
  Problem of not having a European state.

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2. Global Knowledge challenge

• Research (global in some fields, see ERC move and
  individualisation of search for research talent)
• Education very differentiated in terms of
  bilateral international relations (Bologna
  agreement spread to 36 countries)
• Technology/innovation (local competitiveness
  Lisbon logic strong internal focus employment,
  increased tradability of technology output
  (licences, firms driven, etc.)
• Different public-private involvement with on the
  public side a national tax payer obsessions
  (geographically bounded)
• Rapidly growing different costs factors
  researchers costs in China (10 to 20 of
  US/Europe) as opposed to manufacturing (30)
• Different mobility factors researchers/highly
  skilled much more mobile. Issue of common
  attractiveness EU blue card, mobility need for
  totally different instrument

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EU firms becoming global how the external
dimensions overtake

• Division of labour inside companies? Global
  production value chains
• CEO of large companies are saying they are global
  companies. Those companies are benefiting from
  globalisation thanks to technology.
• How to insure that Europe remains a place that is
  attractive to some parts of the chain. They will
  keep in Europe whatever is reflected in
  locational advantages
• Many countries adopting a strategy to speed up
  the transition to a knowledge economy.
• Open knowledge areas. Case of China, close to
  ours. China wants to raise its standards, need
  massive knowledge transfers from Europe to China.
  Double edge, improving crucial expertise but
  will then be in competition with Europe
• What are conditions for us to transfer knowledge
  that will be a win win situation for us.

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Mutual globalization and localization of knowledge

• Globalization of ST importance of international
  access of exchange of codified knowledge, global
  scientific communities, where knowledge is
  shared.
• But at the same time strong localization of
  knowledge knowledge appears a joint production
  factor (codified and tacit knowledge) subject to
  different local increasing returns and global
  access features
• As a result dramatic increase in knowledge
  hotspots also within EU
• Agglomeration effects in knowledge increasingly
  at level of tacit knowledge accumulation, hence
  crucial importance of universities
• Up to now US and to a lesser extent other
  Anglo-Saxon universities (Canada, Australia, UK)
  have acted as global attractor poles for
  international scientists and engineers (see
  rankings)

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Open research, open innovation open Europe?

• Knowledge as an essential input as problem
  solving tool for EU/global problems ranging from
  agriculture, health, to energy saving, climate
  change to migration
• In many of those areas global research and global
  implementation is essential for EU citizens
• Puts a direct challenge to closed nature of
  Lisbon/Barcelona targets (1 public funds and 2
  private funds), building on internal reform
  agenda?
• Is also part of a broader shift in the
  recognition of the importance of individual
  research talent as opposed to institutional
  research support
• Move towards grant portability both ERC and
  national research councils with ERC likely to be
  superior to national research councils because of
  scale advantages.
• Need for a Common Research Policy as mirror
  picture of CAP

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EUs failures and the Doha Round Failure

• In the absence of the service directive,
  international access to service markets was an
  essential request of EUs major high-tech service
  incumbents (finance, insurance, telecoms,
  logistics, business services, etc.).
• The so-called Singapore Issues (government
  procurement, investment, competition and trade
  facilitation) represented a crucial addition to
  the multilateral trade negotiations.
• The omission though in 2004 of those, for the EU
  most commercially relevant Singapore Issues (the
  2004 July Package), left Europe's offensive
  interests with little reason to organize
  politically in favour of an agreement.
• The July Package rearranged the balance of
  political economy forces within the European
  Union against a new WTO agreement.
• A new round of optimism

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Conclusions strategic cooperation

• Multilateral or bilateral? Arena to be emphasized
  
• Lisbon is about European competitiveness
• Attractiveness is a central issue in there
• To support companies to go global, problem of
  access to global markets
• Use free trade agreements to open new markets
  allows Europe to exploit its standards as global
  standards, bilateral agreements
• Go farther in this strategic dialogue, influence
  internal Chinese implementation of Lisbon agenda.
  Subtle way of soft power Comprehensive strategic
  partnership
• Multilateralism Doha round and EU
  responsibilities, financial disturbances, reform
  Breton Woods
• Sustainability issues (Bali conference)
• Development insights in multilateral framework
  is also very weak