Caroline Burleigh // 19 May 2017

On May 10, 2017, the European Commission published its reflection paper on Harnessing Globalisation. It is the second paper in a series initiated by the previous White Paper on the future of Europe, which provided citizens with 5 potential scenarios of the shape that the EU could adopt in the future. Whether one is in favour of more or less EU, it can hardly be denied that the bloc is in need of refurbishment. Yet, the title of the Commission’s most recent reflection paper appears ambiguous: To “harness” could be interpreted as “controlling” and “making use” of globalisation. Whilst politicians and citizens making better use of the dynamics of globalisation would be a step in the right direction, attempting to control this inevitable phenomenon is not. Indeed, an extensive study conducted by the Istituto Bruno Leoni delineates the numerous benefits of globalisation.

Since the phenomenon of globalisation causes nations to become ever more interconnected and interdependent, the EU can be regarded as a form of regionalisation within globalisation. In fact, the European project has prompted nation-states to cede a significant amount of macroeconomic decision-making powers to the supranational level. Likewise, monetary affairs are dealt with by the European Central Bank, and financial regulations are also formulated at the European level. The need for effective inter-state cooperation amongst European nations has never been higher.

In today’s world, this statement can be applied to the global level as well. Hence, the belief that a nation can temporarily opt out of globalisation and insulate itself from the world in order to protect its economy and national sovereignty, is simply out of touch with current times. Globalisation has allowed for the free movement of capital – also known as financial globalisation – and thus created new opportunities for investment, innovation and growth. The Internet and other innovative technologies are ubiquitous and further expanding into various domains of daily life.

On a positive note, the reflection paper adequately underlines that “global interaction is centuries old, reflecting a human instinct to find new opportunities, discover new people and places, and exchange ideas and goods”. In short, globalisation is not a new phenomenon. Furthermore, it is no longer exclusively spurred by trade and capital flows, but – nowadays more than ever – accelerated by technological innovation and knowledge. The reflection paper also qualifies globalisation as “a positive force for change” and demonstrates this viewpoint with adequate data on the movement of goods, people, capital and ideas – values that have become intrinsically European.

Although the abovementioned reflection paper presents solid data, it only superficially mentions key issues, such as the internal dimension of globalisation, or the EU’s approach to corporate taxation. For instance, the reflection paper acknowledges the existence and effects of international tax havens, without addressing the internal-EU dimension of the tax evasion phenomenon. However, the Commission’s attempts to introduce a common consolidated corporate tax base (CCCTB) across the bloc were not met with success: the former would entail a common corporate tax regime which adds up all profits and losses of a company’s activity across the EU, in an effort to combat the tax avoidance strategies of some multinational corporations. Yet, finding a common solution remains difficult, given unanimity amongst the EU28 is required for the introduction of the CCCTB. Unanimity surrounding this matter, might be unattainable, since a CCCTB would represent a turn away from tax competition, by hindering Member States to attract foreign capital via favorable tax regimes. Understandably, this would be a concerning development for nations like Ireland and Luxembourg, which have managed to thrive off of the comparative advantage of low corporate tax regimes.

A similar issue addressed by EPICENTER, is the frequent inefficiency of so-called ‘mixed agreements’ within the European Common Commercial Policy (CCP).  According to the Treaty of Lisbon, mixed agreements require ratification by both EU institutions and all Member States, which can create an unnecessarily lengthy process, or even make it impossible to reach consensus. The recent EU-Canada deal, that was nearly capsized by the Belgian regional Parliament of Wallonia, is a prime example of this inefficiency. In contrast, ‘EU-only trade deals’ solely require ratification by the European Commission, the Council of the EU and the European Parliament. Since trade was shown to make European countries better off, and the FTA between the EU and South Korea provides evidence that comprehensive trade agreements tend to increase trade volumes between signatory parties, EPICENTER suggests that Member States should consider moving towards an EU-only trade policy to foster functionality. In fact, the reflection paper itself suggests that global trade openness has boosted economic growth and prosperity within the EU (p.8).

As honorable as it may seem for European politicians to care about their citizens’ globalisation inspired worries, the EU should not be afraid to further liberalise trade and lower tariffs. According to a 2016 Bertelsmann Stiftung study cited in the reflection paper (p.9), 45% of Europeans consider globalisation an overall threat. Yet, instead of giving in to these fears, politicians should reflect on ways to better educate citizens in accordance with the need of today’s globalised world, so that they may be better equipped to reap its benefits. Germany’s dual vocational training is a step in the right direction: by promoting cooperation between schools and the private sector, it ensures that students acquire the skills actually sought after by companies. Estonia’s “e-school system” might be a less known, but equally promising example: the aim is to prepare a future generation more capable and tech-savvy than ever, by teaching students to adequately use digital technology.

Thus, rather than “protecting” and “harnessing” citizens from the dynamics of globalisation, European institutions and Member States should promote true openness, should create a more sound business-friendly environment and should start equipping their own people with better tools.