December 4, 2019 / 12:36 PM / 6 days ago

BREAKINGVIEWS - EU single market is better exported than muzzled

EU flags flutter in front of the European Commission headquarters in Brussels, Belgium October 2, 2019.

LONDON (Reuters Breakingviews) - The first act of superhero movies has the protagonist slowly waking up to their new powers, perhaps trying them out on a few unfortunate toughs. That’s roughly where the European Union is in its industrial tussle with China. Thanks to the Netherlands, the bloc might finally get serious. 

Mona Keijzer, the Dutch economy minister, wants Brussels to apply its state aid principles to foreign firms, the Financial Times reported on Wednesday. Her plan would allow the EU to stop foreign state-backed companies from undercutting European rivals or buying them out. The not-so-subtle dig at China’s telecom giant Huawei Technologies and trainmaker CRRC would effectively export the EU’s restrictions on corporate aid to Beijing.

The plan would have a cost. Europe imported almost 400 billion euros of Chinese goods last year, Eurostat data shows. The biggest three categories were telecommunications equipment, at about 60 billion euros, roughly 35 billion euros of computer equipment, and 15 billion euros of children’s toys, games and the like. If companies producing those goods were judged to be benefitting from state aid, Brussels may decide to slap on a punitive duty. 

Some EU countries and industries would object to higher prices. Others would claim hypocrisy, since the bloc’s own antitrust authorities have waved through dicey-looking state aid projects benefitting French, German and British chipmakers. Berlin wants new subsidies on electric-battery projects for carmakers and suppliers.

Yet higher costs are preferable to the hollowing out of European industry. The Dutch plan looks easier to execute than the European Commission’s carbon border tax idea, which would see foreign importers shoulder emission costs. And it’s much better than a recently floated Franco-German plan for Brussels to weaken antitrust rules to create regional champions, as they tried to with rail giants Siemens and Alstom, before competition authorities stopped them. Rather than circumventing key tenets of the single market, Keijzer wants to strengthen it by enforcing Europe’s state aid principles elsewhere. 

That’s the right approach. Europe has 500 million consumers, far more than the United States, and accounts for 15% of worldwide goods imports. China can’t ignore a market of that size, particularly amid a trade war with America. As Europe’s REACH regulations on potentially hazardous chemicals show, the bloc’s rules can become a de facto near-global trading standard. Brussels has a hidden trade superpower. Time to use it.

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