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French election: Macron to assert trade policy changes

Europe / 12-05-17 / by
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When “neither left nor right” presidential candidate Emmanuel Macron swooped to power with a landslide win over far-right opponent Marine Le Pen, European political analysts breathed a second sigh of relief this year.

In the battle between nationalism and globalism, nationalism lost again, following the Dutch election in March, which pushed out the far-right People’s Party for Freedom.

However, despite being the most pro-Europe candidate in the French race, Macron is not a fanatical free trader. The former banker has some strong nationalistic stances that, if implemented, will impact trade flows in and out of both France and the European Union.

One of the most contentious issues in the election debate has been France’s labour market. With unemployment sitting at over 10% and a slowly growing economy, the country’s strict labour laws have been blamed for the stagnation. The laws that govern hiring, firing, pay and working hours are disliked by businesses but strongly defended by the unions. Pro-business Macron’s plans to reform the sector include introducing flexibility to the country’s flagship 35-hour working week and to give businesses the autonomy to negotiate specific deals on working hours and pay.

While the business community is urging Macron to make these changes a priority, workers largely blame globalisation for high unemployment. The only contender in the first round to openly support trade pacts such as the EU-Canada Comprehensive Economic and Trade Agreement (Ceta), the president-elect has faced a backlash against his pro-globalisation stance. During a visit to his hometown Amiens, in the run up to the elections, which is set to have a factory relocated to Poland, he was confronted by burning tyres and angry protestors.

“The big question is whether it will be implemented or not. Non-wage labour cost in France, as a percentage of labour cost, is one of the highest in the EU. Anything he can do to relieve these costs should be positive,” says senior principal economist at IHS Markit, Diego Iscaro.

“If implemented the reforms should make the French economy more competitive, which will be good for trade and exports and will also help support domestic demand – which is good for exports for France’s trade partners.”

In a further bid to help French companies become more competitive, Macron is also pushing for a reduction in corporate tax rates to bring them on par with a European average of 25%.

“It is an indispensable measure to attract businesses in France and support the competitiveness of our companies,” he says in his manifesto, adding that the country would apply a harmonised European level to avoid a race to the bottom.

“Buy European Act”

On the European front, Macron is a staunch supporter of the EU and its overall free trade agenda – but on the right terms. He has argued that EU regulation of international competition has been “imperfect” and that monitoring of foreign direct investment and penalties for anti-dumping measures are not adequate. In an interview with the BBC he went as far to say that allowing a dysfunctional EU to continue would be an act of “betrayal” and could lead to ‘Frexit’.

One of his more notable proposals for reform on the trade front has been the proposal of a “Buy European Act”. In his manifesto, Macron outlines defending an act that will allow access to European public procurement markets to companies that have at least half of their production in Europe.

The proposal has not rallied much support so far. European Commission vice-president, Jyrki Katainen, has warned against the idea, saying the EU could not “afford to restrict public procurement” and that he discouraged “artificial rules”.

In the UK, the proposal is largely seen as a manoeuvre to stop British businesses winning contracts post-Brexit. Macron has previously described the UK’s departure as a “crime” and pledged to be “tough” on the leavers.

Defence against Asia

The president-elect is also pushing for reform that will help the position of local businesses against Asian exporters such as China. He says the “protection of European industry” must be a major focus and calls for tighter European control over foreign investment to allow for protection of the region’s more strategic companies.

The issue has been in the spotlight as some of Europe’s biggest businesses have been forced to share ownership and know-how with Chinese companies if they want to sell or operate in China. Meanwhile, in Europe, Chinese investors are free to buy up strategically important companies. In a recent paper, the EU Chamber of Commerce (EUCC) in China, points out that the country’s latest plans, as outlined in China Manufacturing 2025 (CM2025), are pressuring European businesses to hand over advanced technology in exchange for short-term market access, and will likely to lead to an abundance of Chinese goods spilling into European markets in the future.

Macron, and EU member states before him, are calling on the European Commission to demand “the principle of reciprocity” to countries that close the door to EU investors in their markets and for strengthening of anti-dumping measures.

“There are anti-dumping fees but Macron thinks these are not high enough,” says Iscaro.

“One of the main critics of reciprocity and FDI was the UK. From that perspective, with the UK leaving the EU, he might make some progress on that. But there’s two sides to the coin. China is significantly more protected, but I don’t think the EU has the luxury of saying no to Chinese FDI. It’s quite an important source.”

Parliamentary challenges

Forming a parliamentary majority is the more immediate challenge that lies ahead for Macron, who has never held elected office. His new political movement, En Marche! (On the Move), was only set up a year ago and despite his landslide win, scepticism from both voters and other politicians is evident.

According to an Ipsos survey, 43% of voters for Macron said they voted for him to stop Le Pen from getting to power. Meanwhile 33% said they liked his promise of “political renewal” and only 16% said they backed his programme.

In his victory speech Macron didn’t shy away from addressing these facts: “To those who have voted for me to bar the National Front, I know it’s not a blank cheque. I am aware of our disagreements. To those who voted for Le Pen, they have expressed anger and disarray. I will do everything so that they no longer have any reasons to vote for the extremes.”

The onus is now on the president-elect to get mainstream parties to form a majority behind his En Marche movement in June’s National Assembly elections. Critics point out that even in succeeding to do so, France could still face fractious coalition politics and government instability.

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