Risk, positive integration and system friction: the single European market and world trade

Abstract

Conclusions: This paper argues that an increasingly important aspect of the EU’s trade policy is the external impact of internal rules adopted for regulatory rather than trade reasons. The most trade-impeding of these rules tend to cluster where the regulatory differences, particularly with regard to risk management, among the member states are most pronounced. Trade-barriers stemming from such measures are particularly difficult to resolve for two reasons: 1)they may not contravene international rules and 2) there is particularly strong political resistance to policy change. Trade barriers stemming from the EU’s regulation of risks may not contravene multilateral rules, because those rules strike a balance between permitting protection and prosecuting protectionism. Such exceptions to free trade are a necessary part of the deal for making extensive behind-the-border liberalisation politically acceptable. In this sense they are an extension of the compromise of ‘embedded liberalism’ between liberal internationalist orthodoxy and domestic interventionism that permitted the creation of the Bretton Woods System (Ruggie, 1982: 209). This paper, while preliminary and unrepresentative, suggests that both EU and WTO rules favour letting a guilty party go free rather than convicting an innocent. Consequently, governments retain a significant degree of regulatory autonomy despite deeper integration. Even where the EU’s measures contravene international rules, the EU has often been resistant to policy change. Although this paper has focused on the EU, such resistance to policy change is not unique to the EU and may be common to more divided systems of government, of which the United States is the other prime example. Political resistance to change and the trade-barriers’ roots in profoundly different regulatory approaches mean that negotiated solutions to such trade barriers are highly unlikely. Although governments readily resort to the WTO’s binding dispute settlement proceedings in many areas, with respect to such politically sensitive issues they proceed with considerable caution. The related combination of legitimate exceptions to free trade and the cautious prosecution of some regulatory trade barriers by governments mean that a degree of trade friction will be an enduring feature of international trade. Thus ‘system friction’ would seem to be an inevitable consequence of deeper integration. Arguably, this is not too heavy price to pay for political acceptance of the project of further trade liberalisation. Show more