Analysts: French "Buy European Act" Could Start Trade War

Analysts: French "Buy European Act" Could Start Trade War

A call for a “Buy European Act” by French President Nicolas Sarkozy based on a US law that obliges use of domestically-made products in public contracts, could prove troublesome, economists warn.

The proposal, made in a speech that also called for tighter borders to keep illegal immigrants out of Europe, was part of a flurry of promises designed to help Sarkozy catch up with Socialist frontrunner Francois Hollande before a presidential vote in late April and May.

Sarkozy said European companies should have priority when European states award contracts, but economists warned that the measures, while perhaps smart politics, would face stiff legal and political challenges.

If Europe embraces protectionism “it will be difficult to sustain it against countries like China whose borders we want opened,” said Christophe Destais, deputy director of the Paris-based CEPII economic think tank.

Measures boosting investment should be “non-protectionist”, the EU Financial Services Commissioner Michel Barnier said, while adding that the European Union was working on achieving better reciprocity on investment from trading partners.

Thibault Lanxade from France’s MEDEF business lobby supported the idea of an Act but warned that France and other nations had made a commitment to the World Trade Organization in 1994 to compete fairly on public contracts.

And preferring Europeans could dash existing efforts towards getting China to join WTO agreements on attributing public contracts, warned Patrick Messerlin, professor of economics at the Institut d’Etudes Politiques in Paris.

But WTO or not, Europe would certainly face problems if European companies were officially prefered.

The current dust-up between the EU and China over a Brussels carbon emission tax could be a indicator of conflicts to come, said Shahin Vallee of the Bruegel Institute.

The EU carbon tax imposed on airlines came into effect on January 1, but more than two dozen countries, including China, Russia and the United States, have opposed the EU move, saying it violates international law.

Airbus parent company EADS alleged that China has blocked plane purchases by Chinese companies in reaction to a disputed European carbon tax.

Economist Alexandre Delaigue told Liberation newspaper that the Buy American Act, created in the 1930’s at the height of the Great Depression, triggered a wave of trade reprisals.

And riddled with exceptions, the US version often fails to satisfy its intended beneficiaries, said Messerlin who also warned that preferring more expensive local companies would do little to help national finances.

And economist Destais wondered whether it was even possible in the 21st century to distinguish local companies from foreign ones.