European Union Enlargement: Tulips, Trade and Growth

UK Minister for Europe, Rt Hon David Lindington MP speaks on the opportunities of further EU enlargement to the UK, the Netherlands and Europe.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon David Lidington CBE

Your Excellencies, distinguished guests, ladies and gentlemen. I am delighted to have this opportunity to speak to you on my first visit to The Hague as the British Minister for Europe. It is a pleasure to be here at the VNO-NCW, as a guest of both this institution and Clingendael, the Netherlands Institute of International Relations.

I know that the VNO-NCW is a very effective representative of Dutch business and industry at both home and abroad, serving in the interest of more than 115,000 individual enterprises. I understand you have an office in Brussels and represent Dutch companies through the OECD. It is no surprise to me that you hold such an international outlook: for it is firmly in the Dutch, as it is in the British tradition, to look beyond your borders for economic opportunities.

That international outlook is embodied by the excellent work carried out under Professor de Zwaan’s direction at Clingendael. The institute rightly has an esteemed reputation for its insightful analysis of global politics. It also has a history rich with links to the world of trade and commerce. The magnificent Huys Clingendael is home to the Institute and which I hope one day to visit, was built in the seventeenth century for the Doublet family, several of whom held the office of Treasurer General in what was the Republic of the Seven United Provinces. I am grateful that your co-hosting with VNO-NCW has provided me with such a fitting platform from which to speak about international politics and trade.

Bilateral relations

Trade has, of course, played an enormously important role in the development of both our nations. As a keen historian, I know well that relations between Britain and the Netherlands have in the past been stretched at times to breaking point as both nations sought commercial advantage over the other, principally through establishing supremacy over lucrative maritime trade routes. Three Anglo-Dutch Sea Wars in the 17th century, and a fourth in the 18th century, are testament to the importance that both countries placed on international trade. Even when not coming to blows, the fervour with which we defended our national economic interests has long been a feature of both our bilateral relations.

Indeed, that single-mindedness, which I think it is fair to say is a trait in both the Dutch and British national characters, has at times even intruded into the normally urbane civilized discourse of international diplomacy. In 1826 the British Foreign Secretary George Canning sent a coarse rhyming despatch to his good friend the British Ambassador to The Hague, Sir Charles Bagot. In it he announced a Franco - British retaliation for the earlier Dutch decision to impose a 20% duty on foreign ships and cargoes calling at Dutch ports. Canning had had enough of obdurate negotiations in London with the Dutch Ambassador Falck, and he made clear that in his opinion the Dutch were over-asking. He wrote:

In matters of commerce the fault of the Dutch
Is giving too little and asking too much;
With equal protection the French are content
So we’ll clap on Dutch bottoms a twenty per cent.
Twenty per cent,
Twenty per cent,
Nous frapperons Falck with twenty per cent.

Now I can reassure you that today Ambassador Arkwright receives no such colourful instructions from London. Nor would he need to. The great commercial rivalry between our countries has been replaced today by a strong and enduring partnership.

Today our trade relationship is thriving. Bilateral trade is worth approximately £47 billion - up 20% from just a year ago. Exports are up, imports are up, and investment is up. It is no surprise that the Netherlands is Britain’s third largest overseas market after Germany and the USA. But we are keen to develop this even further. That is why the British and Dutch Deputy Prime Ministers launched the UK/Netherlands Strategic Business Dialogue in November last year. It is the only one of its kind and it will further strengthen the commercial relationship between our countries.

Ours is a partnership geared towards succeeding in the modern world. We share the same economic ambitions. If we are to meet the challenges of globalisation, tackle the threat of recession and secure growth, we need even greater efforts to stimulate business and to liberate competition. We want to complete the Doha Development Round this year. We want to make rapid progress on completing the EU Single Market: work which is still unfinished. We want to see a strong and sustainable economic recovery across Europe and, selfishly, we want to see Britain and the Netherlands lead that success.

And the partnership extends beyond economics. We cooperate on a range of global issues from counter-terrorism and combating piracy to managing climate change. Of course we are still each fervent in pursuit of our national interests, but those interests are increasingly shared so that we can work together to safeguard national and international security and build prosperity for the benefit of all our citizens. In the 21st century ours is a relationship of close cooperation, rather than fierce competition.

Approach to Enlargement

As Britain’s Minister for Europe, I see the similar approach that our countries take towards membership of the European Union. We are both coalition governments, a somewhat novel experience in our case, arguing within Europe for a focus on economic growth, while pushing for a lean European Union budget that delivers for our citizens in a time of economic constraint.

We share this view because, notwithstanding the serious economic challenges facing our continent and the world, an effective European Union remains a region of opportunity. Above all, for countries like the Netherlands and Britain, whose economies rely heavily on export success and on an ambitious approach to investing in emerging markets.

For both our countries, the opportunity lies not in a European Union standing still, let alone becoming introverted, but from being part of a dynamic European Union that is on the move and which is active in exercising its transformational power. And it’s that dynamic, outward-looking aspect of the European Union that I want to talk about today. In particular, I want to set out Britain’s resounding commitment to an ambitious agenda for European enlargement.

In principle, this is an area on which both our coalition governments share much common ground. We recognize that further enlargement will entrench stability, prosperity and security across the continent of Europe. It will spread the core values upon which both our nations are built: democracy, human rights, and the rule of law. But, like the Dutch, we are hard-headed and pragmatic in our approach, believing that conditionality is crucial in order to protect the credibility of further enlargement, and to ensure that the foundations of the European Union remain strong.

So, the British Government supports European Union membership for all European countries which want to join and - this is a vital point - which are able to meet the accession criteria. We share the Dutch Government’s position that future membership depends upon a ‘strict but fair’ application of the accession criteria. Indeed, I am rather fond of your Government’s expression:

“Eerst rode lijnen, dan pas de rode lopers,”

which in English can be rendered as “first the red lines, and then the red carpets”.

But the voices speaking out against further enlargement are growing in volume. Opinion polls suggest that the Dutch public have become increasingly critical of further EU enlargement in recent years. In the autumn of 2008, according to Eurobarometer figures, nearly 80% of Dutch respondents thought EU membership was a good thing. The percentage that thought the Netherlands benefited from membership was nearly as high. In contrast, however, the support for future enlargement was less than 50%. Compared with the turn of the century, there has been a sharp fall in the number of supporters of enlargement.

There is a fear that the European Union would not be able to absorb more member states, that the budget would become too imbalanced, that the bureaucracy would become too slow. I understand those reservations, but I do not share them. Because I firmly believe that in a changing world, where economic and political weight is swinging eastwards, the European Union will remain strong only if it is outward-looking and continues to grow.

Stabilising effect of Enlargement / ENP

Last month in Vienna, I gave a speech in which I emphasized the profoundly stabilizing effect that enlargement has had on Europe and the significant weight that continued enlargement would give the European Union on the world stage. I argued then that the European Union’s single greatest success, even greater than the achievement of the Single Market, had been the entrenchment of democracy in the countries liberated by the fall of the Berlin Wall in 1989. That was a time of great change. A time that I regard as perhaps the most exciting and welcome set of international events in my entire lifetime. Freedom, the rule of law, and democracy successfully took root in countries where they had long been denied. The key to this was the magnet of attraction that is the European Union and the vital support and encouragement that was offered to those countries which were casting off decades of totalitarian rule. I am pleased to know that a number of Ambassadors of these countries in the audience today.

Two decades later and we are again witnessing history being made on Europe’s borders. Once more Europe has a pivotal role to play in helping its neighbours develop the building blocks of prosperous, stable and free societies. The people in Sidi Bouzid, in Tahrir Square, in Benghazi and elsewhere in the region called for a new reality to match their aspirations and Europe needs to respond with ambition and clarity of purpose. We will do this through a re-energized European Neighbourhood Policy which supports home-grown political and economic reform. At the same time we should be tougher and more rigorous with our neighbours - we should not patronize, but neither should we shy away from promoting universal values and responding vigorously when they are violated.

I believe that the ongoing events in North Africa and the wider Middle East reinforce the arguments I made in Vienna. They remind us of the great value of extending the European Union’s reach: its ability to spread democracy, human rights and the rule of law. To improve the lives of millions and to build a stable European neighbourhood.

EU as engine for economic growth

But today I want to focus on making the case for further enlargement in a different context, that of business, trade, and economic opportunities.

The starting point is that membership of the European Union provides the UK and the Netherlands with access to a Single Market that is vital to the prosperity of both our countries. With 500 million consumers generating a total Gross Domestic Product of more than £10.5 trillion it is the world’s largest single market and has been a key driver for economic growth in the UK, in the Netherlands and in the rest of Europe. By some estimates EU countries currently trade twice as much with each other as they would have done in the absence of the Single Market.

The British Government has made driving up exports and deepening inward investment central to achieving a sustainable economic recovery in our country. Being a member of the Single Market underpins those efforts: no less than half of the overall stock of Foreign Direct Investment to the UK now comes from elsewhere in the European Union; trade with the European Union amounts to almost 1/3 of our annual GDP, EU member states comprise 7 of the UK’s top 10 overall trade partners; and roughly 3.5 million jobs, or 10% of the United Kingdom’s workforce, are either directly or indirectly involved in the export of goods or services to European Union countries.

Member States right across Europe, including the Netherlands, benefit in exactly the same way. This is why we must support and strengthen the Single Market, widening its remit to focus on the digital economy, on energy, on low carbon development and on the much needed further liberalisation in the services sector: it is the only way that we can see off the challenge to our competitiveness from both the emerging economies and the US.

And when European companies succeed on the world stage, it is because greater competition within the Single Market has fostered the innovation that is key to success in a global economy. This is particularly the case for those small and medium sized enterprises, for whom the European Union serves as an effective starter market for new exporters.

Enlargement an opportunity not a threat

Now one clear way of strengthening the Single Market would be to enlarge it. As we have seen in the past decade, this can bring huge economic benefits.

The accession of new member states to the European Union in the last decade opened up new export markets for British companies. Between 2004 and 2008, British exports of goods and services to the Czech Republic increased by over 50%, amounting to an additional £700m. For Poland they also more than doubled, bringing over £2billion of increased exports to the UK. Taken as a whole, UK exports of goods and services to the 12 new member states were worth over £11.6 billion in 2009, almost three times the £4.5 billion of exports ten years previously.

This success story was mirrored across Europe. The enlargement of the Single Market by an extra 104 million consumers, a population increase of around 32%, increased the sales markets of the old member states. Indeed, according to a report last year on enlargement commissioned by the Dutch Government and Parliament:

“Of all the old member states, the Netherlands has benefited the most from enlargement. It has generated nearly €11 billion in additional income, or more than €650 per inhabitant.”

Absorption capacity

That report, drafted by the Advisory Council on International Affairs, looked at the cost and ability of the European Union to absorb new Member States. In these straitened economic times, it is quite right to consider the issue of absorption capacity when we discuss further enlargement.

I believe this is one of the critical reasons for ensuring that prospective member states meet the strict but fair accession criteria. This includes having the capacity to cope with competitive pressures and market forces within the European Union and aligning domestic legislation with EU standards in 35 different sectors or “chapters”. Meeting these rigorous criteria for accession ensures that the applicant country makes the reforms which are necessary to build a sound economic climate in the long-term.

Croatia is now in the final stages of its accession negotiations, having closed 28 of the 35 chapters. Like many other countries Croatia is still suffering from the impact of the economic crisis. And she faces some difficult choices on issues such as restructuring of shipyards and reform of the judiciary. But the government has shown commendable determination in continuing its reform efforts and we look forward to welcoming Croatia into the European Union as soon as possible. Given the relatively small size of Croatia’s economy its accession is unlikely to have a major impact on the overall EU budget. And any short-term costs of accession needed be considered alongside the benefits that will be accrued through stability in the Western Balkans and through increased trade and investment flows.

A balance should also be struck on the effects of further enlargement on migration and labour markets. We must not be naive about this. What is clear is that the UK economy benefitted a great deal from the influx of skilled labour after 2004 and 2007. Independent research suggests that around one million immigrants have arrived in the UK from the eight central European countries admitted to European Union in 2004. Those immigrants were willing to work on average four hours longer per week than British born workers. This helps benefit the UK and Netherlands as workers are able to fill gaps and meet businesses needs, and then move on when work becomes scarcer. I understand the concerns of some professions, of plumbers and electricians, who are seeing their prices undercut by those from Eastern Europe. I have seen this for myself in my constituency. But I have also seen consumers benefit from cheaper goods and services.

Nevertheless, the European Union is careful to ensure that free movement of workers is managed so as not to disrupt old Member States’ labour markets. In Britain we have committed to applying transitional controls as a matter of course for all new Member States, and these could include - if necessary - imposing temporary controls on the movement of workers and their families as we have in the past. But I stress that these measures are about managing further enlargement, not impeding it.

The business case for prospective Member States

The experiences of the last decade show that further enlargement makes good business sense. It removes barriers and facilitates trade, allowing European consumers to more easily buy Dutch and British products and services. Enlargement also increases the international competitiveness of British and Dutch companies as they benefit from cheaper inputs from a larger and more diverse labour market, and from additional opportunities for technology transfers and greater economies of scale. Countries like ours, whose economies rely upon trade, should be among the first to make the case for continuing to accept prospective member states, provided they meet the necessary accession criteria.

Now the accession criteria do not require countries to pitch a business case for membership but, by way of conclusion, I want to make the case for two countries on opposite sides of our continent.

First, let us consider Iceland. Only a short while ago its economy was booming, and it has the fundamentals in place to ensure that it can bounce back to prosperity. Iceland has already taken the first steps to economic recovery and membership will help to consolidate this. Membership would open Iceland’s economy to foreign investors and I think that there are exciting opportunities there, particularly in the energy sector. We know that Europe is striving to reach its target of 20 % of energy from renewable sources by 2020. Iceland has the potential to help us realize that goal. Iceland already derives more than 80% of its energy from renewables, notably geothermal and hydropower, and the Icelandic government estimates that 75% of Iceland’s potential energy supply remains undeveloped.

Finally, at a time when investors are increasingly looking east, Europe’s gaze surely falls upon the abundant economic potential of Turkish membership. Turkey is already Europe’s 6th and the world’s 16th largest economy. And it continues to grow at a rapid rate: the OECD predicts that by 2017 it will be the third fastest growing emerging economy anywhere in the World after China and India. By 2050 Goldman Sachs predicts that Turkey’s economy will be the 9th largest in the World.

The European Union already has a Customs Union with Turkey, although this only covers trade in manufactured goods rather than services or agricultural products and so on. In 2010, 42% of Turkey’s trade transactions by volume were with the European Union and 70% of Turkey’s foreign direct investment was from the European Union. Full accession would resolve many of the current problems that businesses are experiencing with the Customs Union Agreement and further increase Europe’s share of Turkey’s rapidly growing market. Indeed a study by the Social and Economic Council of the Netherlands suggested that full accession could see a 50% increase in Dutch exports to Turkey by 2025.

Turkish membership would boost the European Single Market and would play a major part in Europe’s long term prosperity by adding significant clout to our common external trade policy. Turkey is keen to be closely associated with European Union efforts to negotiate Free Trade Agreements with countries like India. And last October, Turkey joined Germany, Indonesia and the UK in co-sponsoring an expert group to look at ways of unblocking the Doha Round of WTO negotiations.

I know that people here will recognize Turkey’s huge economic potential. Indeed, the Netherlands has a proud tradition of recognizing commercial opportunities in the East. The VOC pioneered international trade in the 17th century and of course it was from Turkey that tulips arrived in the Netherlands a century earlier, dazzling the population and triggering the world’s very first speculative bubble.

Now I am not suggesting that Turkish membership would have a similar bubble impact, because as the figures demonstrate the economic benefits for Europe would be significant and sustainable in the long-term. But if we are to realize them, we must focus on Turkish accession as something that - in time - really can and should happen. The British government believes that the European Union must work hard to keep Turkey’s accession process on track

Too often in the UK and the Netherlands the debate about the European Union is dominated by its most trenchant critics. The great benefits that membership affords our nations, many of which I have spoken about today, are easily overlooked and we only hear about the down sides. Such negativity breeds fear and suppresses creativity, turns us inward and makes us defensive. I would rather that we work together to create a positive, confident agenda for the European Union: building on its strengths; exploiting natural British and Dutch talents; and revitalising our traditional outward-looking globalist approach.

Enlargement is central to that approach. It is the momentum that has driven forward so much of Europe’s progress. And not just for the acceding members, but for existing member states too. So I believe it’s time to take a dispassionate look at the case for enlargement - the business case. I hope that what I have said today convinces you that enlargement is a project worth political as well as business investment. Because I believe that it is time for businesses to make their voice heard in this political debate. It is time to grasp the opportunity in the entrepreneurial spirit which has been the inspiration for Dutch, as for British, success over the centuries. As the current Dutch coalition agreement says, to be a leading presence in the world requires “entrepreneurship and not being afraid to break new ground”. Let us make that journey together.

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Published 9 March 2011