EU POLICY PAPER

EU Policy Paper

EU Policy Paper

Q1: Is the further emergence of global competitors (e.g. India or China) going to threaten the economic competitiveness of the EU?

1. Executive Summary

This policy paper is maintained for the attention of Benita Ferrero-Waldner, European Commissioner responsible for External Relations with European Union's (EU) trade partners (the partner countries) and European Neighbourhood Policy. It aims to provide the evidences supporting that the further emergence of global competitor, namely China (based on the anti-competitive trade measures), is going to threaten the economic competitiveness of EU. In order for both the world's big players to build the relationship under the influence of globalisation, concentrated on the reciprocal benefits, the necessary steps need to be undertaken.

It was not until the end of the Second World War that globalisation again reappeared. Trade barriers between the major trading countries were lowered, and technological breakthroughs in transportation and computer technology, combined with liberal reforms in the majority of countries in the 1980s and 1990s, allowed individuals greater freedom to travel, trade, and invest across borders (Sutherland, 2008, 28). With the fall of communism at the end of the 1980s, one could again speak of a globalised world, made the more meaningful by the decision of developing countries like India and China to begin to participate in the global economy (Sally, 2008, 69).

2. Further Emergence of China and Economic Competitiveness of the EU

2.1. Trade Deficit, unfair trade practices and other challenges

China is where globalisation is now. The same companies that withdrew and/or refused to do business in China in the 1990s as a result of the rampant human rights violations were among the first to re-enter the country in the early years of the 21st century. Although there is a view that China has changed its social practices, a more compelling argument is the pragmatic one—that is, that MNCs today simply cannot afford not to be in China; China holds too much of a stake in the global marketplace and workplace as a result of its huge and growing population (Payne, 2006, 33). In addition, the MNCs in China today tend to assert that the best way they can influence responsible social practices is by being there.

The effect of having China in the global marketplace is proving increasingly profound in that it is changing how companies view their role in the market. Ferrari, for example, is confronting a significant challenge to its business model (Mattli, 2008, 17). The company previously stated that it would never increase its level of production, in spite of increasing demand, to protect the exclusivity of its cars. Demand for Ferrari cars, however, has recently spiked far beyond anticipation. This is in large part due to the increasing affluence in China, which is creating a new, large class of wealthy Chinese businesspeople who are placing orders. This problem of supply and demand is further exacerbated by the steadily growing Chinese population (Marchand, 2007, 91). The challenge Ferrari confronts, along with many others, is how to handle this ...