THE SLIPPERY SLOPE OF A BUY EUROPEAN ACT

The idea according to which the EU should consider a 'Buy European Act' as a retaliation measure against the 'Buy American Act' recalls the protectionist policies that help to drag down the world's economy in the 1930s. The EU isn't going to find its way out of the recession by throwing walls up around particular industries or pursuing protectionist policies. 

There is a question mark over the extent to which protectionism can work at a high level. Of course, if you say 'Buy American' or 'Buy European', that can have an impact. But what are these goods if they carry the brand names of European companies and are made in India or China? What's the effect of buying European in that case?

In any case let us indicate  that 'Buy American' provisions have to comply with US trade treaty obligations. They include a waiver for goods and services coming from the 36 countries (including EU countries)  involved in the WTO Government Procurement Agreement (GPA). This said, the touchstone of whether a measure is protectionist is not whether it violates WTO obligations. It is whether it constraints trade or disrupt the globals supply chain. For the EU to start throwing up protectionist measures which turn their backs on the very global supply chain its policies helped to create really is unacceptable.

Perhaps a better proposal would be for the EU to launch a 'European Recovery and Investment Act' as did the US back in 2009 when it introduced the 'American Recovery and Investment Act'. The aim of the 'European Recovery and Reinvestment Act' would be designed to cushion the fall in demand caused by the Eurozone financial crisis and the subsequent decline in consumer and business confidence, household wealth and purchasing power and access to credit. The 'European Recovery and Reinvestment Act' should be part of a comprehensive EU policy response to the turmoil that is gripping Europe. The purpose of the 'European Recovery and Reinvestment Act' would be

• To preserve and create jobs and promote economic recovery throughout the EU;
• To assist those most impacted by the recession
• To provide investments needed to increase economic efficiency by spourring technological advances in science and health;
• To invest in transportation, environmental protection and other infrastructure that will provide long term benefits.

The objective must not be to 'retaliate' against others or embark on protectionist policies but rather  to do what is necessary to get Europe back on its feet!