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European Affairs
Special Report: Implications of European Enlargement
U.S. Business Fears Gridlock in Brussels
By Gary Litman
The really astounding aspect of EU enlargement is that through changes in the European Commission, through political upheavals, through dozens and dozens of governments in Central and Eastern Europe, through economic boom and bust, the European Union has persevered. It has managed to make enlargement an irreversible process reminiscent of the concept of "manifest destiny" that helped spur the United States to become a continental-scale power.
It is amazing to see the European Union's relatively young institutions working so relentlessly to achieve something that may or may not bring enormous economic benefits, but that definitely carries political risks and requires a lot of work. With its persistent efforts, the European Union has matured and won the admiration of the U.S. business community.
For American companies, the pursuit of enlargement has been proof that the European Union works. If it can sustain an operation with so many players and so many risks, it is an institution that deserves a lot of respect. No corporate CEO could manage such a process.
Recently, however, U.S. businesses have started to express some concerns. The unease began a year or two ago when it became clear that the European Union was considering an en masse enlargement of up to ten new members at once, rather than admitting the most advanced economies of Central and Eastern Europe one by one.
The reasons for concern are very simple. The economic benefits of EU enlargement - at least for American companies - are already there. Yes, there are some problems: our truck manufacturers, for instance, still face a 30 percent tariff differential in competing with EU manufacturers and some of our agricultural suppliers are unhappy about the expansion of EU-type restrictions on biotech products and the possible expansion of the Common Agricultural Policy to new members. But those are relatively small problems.
For the majority of American companies, this is one market that is fairly accessible, in which trade is growing, although slowly, and in which U.S. investment is welcome. Unlike South America or the Middle East, it is not a problem area. It is a place where opportunities that arose seven or eight years ago have been gradually harvested by the more able, non-risk-averse American companies.
Our major economic partner, however, is the European Union in the shape of the Brussels-regulated single market as it is today. We agree with the French employers' association, Medef, which says that the top priority for enlargement must be to ensure that the influx of new members does not destabilize the existing European Union.
That is our priority, too. We want the European Union to be functional. We want decisions to be made; we want regulations to be implemented in a consistent and transparent manner even if we do not like them. We want the European Union to continue to grow economically, to offer a competitive regulatory model, to compete with us in third markets, and to be our creditor and our market. We want not just a Europe "whole and free," but one that is "whole, free and prosperous."
What we fear is that the European Union has now become so deeply involved in this political drive towards major enlargement that it will not be able to catch up with its own political ambitions. That might produce gridlock in Brussels. Let us imagine that three or four years from now there will be a lot of new people in the European Parliament. Will it be an effective institution that effectively supports a deeper single market?
Frederik Bolkestein, the Commissioner responsible for the single market, recently produced a scorecard for the implementation of EU regulations. Spain had met 70 percent of its obligations, Germany 60 percent and Italy 50 percent. We will now have to add countries that have emerged from communist regimes, that do not have a lot of depth in their civil services, and that do not have institutions that can implement highly complex reforms. Yes, the acquis communitaire, the whole corpus of EU laws and regulations, will be transplanted to the new member states, but it cannot take root - at least not soon.
A few years from now, the best and the brightest from Central and Eastern Europe will represent their countries exceptionally well in European institutions. But when they go home, they will face their peers, who will not have developed a European outlook, who will not have the heritage, the capacity or the knowledge to develop different points of view and different agendas.
We knew there might be a problem when we realized that there is not a single business group in the Central and Eastern European candidate countries that effectively represents business interests. After 12 years of transition to a market economy, there is not a single organization that knows what enlargement is going to bring or to cost, or how to lobby its own government, let alone, for instance, the Commission, with its vast legal and technical resources.
These supposedly representative business organizations cannot even deal with each other. There are a lot of rival, small groups. Governments in the Central and Eastern European candidate countries cannot understand what their business community wants or needs. It is not accidental that almost all the major privatization undertakings in Central and Eastern Europe became political landmines - and many governments stepped on them. I shall not even mention the inadequacies of the labor unions.
This is not a reflection of anything wrong with Central and Eastern Europe, a region at the beginning of its ascendance to functioning market-based democracy. It is a reflection of the excessively ambitious political agenda outstripping institutional progress in Brussels. That is our concern. The last thing American companies want to see is gridlock in Brussels. Washington is bad enough.
At the same time, many people are counting on economic growth in Central and Eastern Europe to help create a prosperous Europe. But the new members will have to abide by the criteria of the Maastricht Treaty, which is anti-growth. Basically, in order to meet the terms of the treaty, the Central and Eastern Europeans will have to limit their growth to three to maybe five percent a year. At that rate, they will always be exceptionally poor.
There are bound to be serious political implications if the new members increasingly come to understand how prosperous Western Europeans have become, while they themselves are getting poorer and having to bear the cost of an enormous burden of new regulations.
I am not complaining about the fact that Poland will not be buying American poultry because of new EU procedures. The point is that the new members may simply not have the capacity to cope with the thousands of new regulations that must be observed and the new consultative bodies that must be reckoned with.
Right now, Brussels works. To our amazement, many American companies say they are full of admiration for the quality of the civil service in Brussels. Three, four or five levels down the bureaucracy, you find competent people again and again. That will not be the case in Central and Eastern Europe for some time. That is why the idea of admitting all these nations in one fell swoop, for whatever reason, strikes American companies as a matter of some concern.
We do not buy the argument that if the European Union fails to admit a particular applicant state, that country will implode and fall back into the orbit of Moscow. If a candidate country has such a weak political infrastructure that it will not survive outside the EU framework for another decade, it may be that it is not ready for EU membership. Candidates should be admitted to the European Union on merit, and not as a matter of right to compensate for historic injustices. On the other hand, we applaud the European Union for making most of the economic benefits of membership already available across the new Europe.