|Photo by Danumurthi Mahendra|
After a long period of economic prosperity in advanced and developing countries, the 2008 financial market meltdown and subsequent global and Euro crises came as a shock. The limitations of orthodox market governance approaches were starkly revealed, the global economy remains fragile, and few policy reforms to address the imbalances and loopholes that led to the crisis have been undertaken. The EU could drive a more holistic reform process, while articulating its vision of a sustainable 21st century growth trajectory.
Despite the Euro crisis, the EU single market is still the world’s largest trader and investor. This is not expected to last past 2020, so the EU needs to use its leverage in the global economy while it still can. There are several levers that European policymakers can pull. Two stand out, both for their potential impact on the framework conditions for global economic exchange, and for the fact that if they are to be pulled successfully, collective action at the EU-level is needed: first, responsible trade; and, second, global financial policy coordination, particularly with regard to tax havens.
The EU could win friends and influence people, and lead by example, including by taking the following steps:
Articulate a sustainable development vision with regard to trade, financial coordination and taxation issues
- Adapt to the realities of Global Value Chains (GVCs): existing trade and investment mechanisms need better alignment. There are examples of poor understanding of how the EU trades within GVCs, including recent anti-dumping actions over imported solar panels.
- Upgrade existing trade and development mechanisms to incentivise sustainable development: social and environmental standards should not be lower or less enforceable in Free Trade Agreements (FTAs) than the EU’s General System of Preferences (GSP+). The EU-US Transatlantic Trade and Investment Partnership (TTIP) presents a unique opportunity to better align trade and development mechanisms. Areas of harmonisation between the US and EU include standards, but also rules of origin.
- Develop impact assessments and promote dialogue: when seeking to upgrade developing country trading partners to new FTAs it is important to update existing business dialogue and mechanisms for monitoring progress. This is not only important for trading partners, but also within and amongst EU member states, so that appropriate flanking and sensitising measures required by new trade liberalisation can be designed. Current reliance on Sustainability Impact Assessments (SIAs) to assess the pros and cons of ‘hypothetical’ trade and investment agreements is weak.
- The Bali package agreed at the recent WTO Ministerial needs to be implemented. Resources for trade facilitation (aid for trade) should be additional to ODA. The EU could lead by example by responding effectively to calls from the LDC group on rules of origin and implementation of the services waiver, including through broadening and deepening its GSP.
Work with partners on coordinating the governance of global financial markets and the reform of international financial institutions
- There is a need for transparent, widely accepted triggers for economic policy coordination. Existing EU shock facilities need updating to new realities and an ex-ante rather than ex-post approach. Using triggers to guide policy interventions before they arise would avoid the need for bailouts later.
- Address illicit financial flows out of and into developing countries, including measures to improve the exchange of tax information and transparency. Recent changes to the Savings Tax Directive and the Administrative Cooperation Directive can extend automatic exchange. By reaching internal agreement with EU member states and associated countries, the new leadership would lend the EU the credibility necessary to push for a global standard.
- The 2012 Financial Action Task Force (FATF) recommendations are the most progressive worldwide standard on increasing financial transparency. The new EU leadership should continue to push member states and associated countries to meet FATF standards, particularly requiring companies to disclose ownership information, making this accessible in public registers and making tax crimes a predicate offence. Steps towards this are already being taken under the fourth revision of the Anti-Money Laundering Directive.
Domestic and global reform processes must go hand in hand. Europe needs to lead by example and assume a new, more positively influential role within a multi-polar global economy. In order to do this, it needs to get its own house in order and articulate a new vision of growth and development. Such prescriptions may seem pie-in-the-sky. But as the new Commission takes office, we need to ask ourselves what the alternatives are. We can muddle along, hoping that everything will be fine but fearing that it will not; we can give up on internationalism and retreat into our shells, a move that would foster inefficient isolationism and dangerous nationalism; or we can try again at the global level to strike a series of deals that make a difference.