WTO Chief Pascal Lamy: Competitiveness Must Drive European Growth

Article excerpt

Europe is struggling to find its place in the new global economy because of 'domestic' issues, not external factors (like a rising China or trade disadvantages). On the contrary, the external climate favors European growth - if Europe can improve competitiveness and find its niche.

Editor's note:This is the second of two articles based on Pascal Lamy's recent talk to the Paris-based Notre Europe think tank, of which Mr. Lamy is the honorary president. Yesterday: "World must change the way it measures trade flows"

To explore the prospects for Europe in a global economy in the grip of change and development, we first have to put to bed two cliches that too often foul the debate and prevent it from making any progress.

The first cliche argues that Europe is a victim of the new international division of labor. All the available figures show us that that view is mistaken. In the change in production methods that we have witnessed over the past 20 years and more, Europe is coming out of things far better than either the United States or Japan.

Europe's market share of international trade has remained more or less stable throughout this period, hovering around the 20 percent mark, while the US and Japanese market shares have shrunk substantively. The European Union's foreign trade surplus in the industrial sphere has trebled over 10 years, hitting somewhere in the region of 200 billion euro.

But as we have seen, that same period has witnessed major progress on the part of the emerging countries, with China heading the list. The countries of Europe, Germany in particular, are especially well placed to benefit from their comparative advantages at a time when the emerging countries have to import considerable quantities of manufacturing technologies and goods. So we can hardly call Europe a victim; indeed, so far it has rather profited from the globalization process.

The second cliche: Europe is naive in that it allows itself to be taken advantage of and overtaken by its trading partners, and the porous nature of its borders is said to be the most obvious demonstration of this state of mind.

In point of fact, these statements cannot withstand even the most modest analysis of the facts and figures. Europe's borders are neither more nor less porous than those of comparable developed countries. This applies to traditional trade barriers, customs duty and quotas, but also to such commercial protection measures as anti- dumping rules and countervailing duties, or to technical quality, food safety, and environmental safeguard standards.

Europe is no more naive than its trading partners that enjoy a comparable level of development.

Europe's problem - its weak growth and crippling unemployment - are thus not simply linked to international trade but to different factors, and thus we should not be seeking solutions to that problem in a fallback commercial policy built on increasing the number of obstacles to trade.

The prices of European products have tended to become increasingly less competitive over the past few years. Salary levels are sometimes mentioned as being one of the causes for this, but there is absolutely no point in comparing hourly wages without relating them to the productivity of the working hour.

Where competitiveness is concerned, the fact that a European worker earns far more than his Chinese counterpart is of little consequence so long as that higher hourly wage level is reflected in greater efficiency and greater productivity. Thus when we look at salaries, we have to set them against worker productivity.

Having said that, it is glaringly obvious that Europe's hourly productivity is currently being eroded, particularly compared with the US. The euro's high rate of exchange against the dollar in recent years has also had a far from negligible impact on European products' loss of competitiveness in the world's marketplaces. …