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Journal ArticleDOI

German Foreign Economic Policy in the Age of Globalisation

01 Jan 1998-International Spectator (Taylor & Francis Group)-Vol. 33, Iss: 1, pp 79-99

Abstract(1998). German foreign economic policy in the age of globalisation. The International Spectator: Vol. 33, Nation and Integration in Italy and Europe, pp. 79-99.

Topics: Foreign policy analysis (72%), Policy studies (65%), Foreign policy (64%), Globalization (56%), German (53%)

Summary (3 min read)

Introduction

  • German Foreign Economic Policy in the Age of Globalisation Georg Koopmann HWWA-Diskussionspapier 56 HWWA-Institut für Wirtschaftsforschung-Hamburg 1998 ISSN 1432-4458 5 CONTENTS.
  • Main Lines of Development in German Foreign Economic Policy 14 IV International Competitiveness and Domestic Competition: The Role of Competition Policy 16 V Foreign Economic Policy Implications of Subsidisation, Technology Promotion and Regulation 19 VI Export Promotion and Import Policy 22 VII Reforming Foreign Economic Policy 26 Notes 31 References 39 6 7.

I The Scope, Levels and Constraints of Foreign Economic Policy in Germany

  • Enhancing the competitiveness of German firms on foreign markets and preserving the attractiveness of Germany as a business location to foreign investors are the twin objectives of foreign economic policy (FEP) in Germany.
  • Its scope extends far beyond conventional “border“ measures to encompass a broad range of “domestic“ policies, such as competition policy, technology policy, and the policies of regulation and subsidisation, as these policies are increasingly relevant in terms of international competition.
  • Policy on the underlying order (“Ordnungspolitik”), setting out the legal framework and underlying economic institutions; Competition policy, safeguarding individual economic freedom; Market policy, ensuring that markets function properly, also known as The latter consists of.
  • Even though each individual industry promotes the policy it favours in this area, there is a fairly large degree of coordination at the top of the BDI through its Foreign Trade Committee .
  • The European “factor” in German FEP varies with the policy area at hand.

II Germany’s Position in International Trade and Investment

  • Since the end of the (short-lived) post-unification boom in 1992, there have been more frequent and vocal complaints in Germany about a lack of international competitiveness on the part of German industry and a declining ability of the country to attract internationally mobile factors of production such as capital, technical knowledge and entrepreneurial commitment.
  • This corresponds with increasing shares of dynamic growth regions in other parts of the world, in particular Pacific Asia and Latin America, and of eastern European countries.
  • 13 Similar trends occur in the field of investment in knowledge capital which is a special element of the general direct investment process.

III Main Lines of Development in German Foreign Economic Policy28

  • After the Second World War, de facto sovereignty in trade policy was returned to the German government in November 1949.29 (West) Germany quickly became a leader in trade liberalisation within the OEEC (which preceded the OECD).
  • Structural and related foreign economic policy in Germany in this second phase, which 15 lasted until the early 1980s, was based on the Principles of Sectoral Structural Policy (Grundsätze der sektoralen Strukturpolitik; BMWi 1968).
  • A second - and more important - route through which considerations of international competitiveness, and thus industrial and foreign economic policy, may enter competition policy in Germany is ex post authorisation by the Minister of Economics of mergers prohibited by the Federal Cartel Office.
  • Pure export cartels must “serve to protect and promote German exports“ (Section 6 (1) of the GWB, own translation), that is, they must be intended to strengthen the competitive position of the domestic member firms vis-à-vis their foreign competitors (Bundeskartellamt 1981, p. 134).
  • In another four cases approval was denied.

V Foreign Economic Policy Implications of Subsidisation, Technology Promo-

  • From a theoretical viewpoint, subsidies may be justified by market failure due to externalities, entry barriers or asymmetrical information.
  • It has been shown, for instance, that the sectoral structure of R&D subsidies in Germany stands in marked contrast to the pattern of R&D externalities, or spillovers,44 as an overwhelming share of the aid payments goes to the aerospace industry which for its part is only an insignificant source of technological spillovers to other businesses.
  • Airbus Industrie - a joint venture between France, Germany, the United Kingdom and Spain - can be seen as an exercise in international competition policy as well as in strategic trade and industrial policy aimed at international “rent-shifting“.
  • On balance, regulation in Germany seems to impair rather than enhance commercial opportunities and thus diminish the attractiveness of Germany as a business location.

VI Export Promotion and Import Policy

  • In the “classic“ areas of trade policy, which concern direct intervention on the export or import side of trade with goods, the German government has traditionally been committed to an open international trading environment and non-discrimination among trading partners.
  • The federal government thereupon suspended the measure, which was intended to last until 1998, as from January 15, 1992.60 Relief for financing exports is provided in the form of low-interest loans with interest rates which remain below market interest rates.
  • Finally, a key instrument of market-oriented export policy in Germany is the provision of export-related information by the Bundesstelle für Außenhandelsinformation (Federal Office for Foreign Trade Information), the Außenhandelskammern (Chambers of Foreign Trade) and the official German representations abroad which together form the three-pillar system of trade promotion in Germany.
  • With regard to public procurement, the very low percentage of contracts awarded to foreign businesses suggests that true liberalisation is still a far cry off in this area.62 Complaints raised by foreign companies constitute a further indicator.

VII Reforming Foreign Economic Policy

  • Globalisation and the related intensification of international competition is hardly the principal reason for the economic ills that have plagued Germany in recent years.
  • Among the policies more directly related to foreign-economic transactions, competition control, technology promotion, subsidisation, import restriction and export enhancement are prominent.
  • The idea of an “open international subsidy club“ for hightechnology development has also been proposed (HWWA, IfW, NRC 1996, p. 206 ff.).
  • IMF, Direction of Trade Statistics, Yearbook 1997, also known as 22 Source.

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Content maybe subject to copyright    Report

German Foreign
Economic Policy
in the Age
of Globalisation
Georg Koopmann
HWWA-Diskussionspapier
56
HWWA-Institut für Wirtschaftsforschung-Hamburg
1998
ISSN 1432-4458

5
CONTENTS
I The Scope, Levels and Constraints of Foreign Economic Policy in Germany 7
II Germanys Position in International Trade and Investment 10
III. Main Lines of Development in German Foreign Economic Policy 14
IV International Competitiveness and Domestic Competition: The Role of
Competition Policy 16
V Foreign Economic Policy Implications of Subsidisation, Technology Promo-
tion and Regulation 19
VI Export Promotion and Import Policy 22
VII Reforming Foreign Economic Policy 26
Notes 31
References 39

6

7
I The Scope, Levels and Constraints of Foreign Economic Policy in Germany
Enhancing the competitiveness of German firms on foreign markets and preserving the
attractiveness of Germany as a business location to foreign investors are the twin objec-
tives of foreign economic policy (FEP) in Germany. Its scope extends far beyond con-
ventional border“ measures to encompass a broad range of domesticpolicies, such as
competition policy, technology policy, and the policies of regulation and subsidisation, as
these policies are increasingly relevant in terms of international competition. German
FEP is implemented at the national, supra-national (i.e. European) and international (i.e.
WTO, OECD, G7, etc.) level under a number of constraints.
1
Internationalisation of do-
mestic economic policies also calls for FEP to be analysed in terms of international sys-
tems or institutional competition. The rivalry that occurs is between the immobile factors
of production in different countries (including the legal, economic, social and political
system), which vie for the only really mobile factor of production, namely capital (in-
cluding technical knowledge).
In theory, FEP in Germany is the externalcomplement of market-oriented structural
policy in the internaleconomy. The latter consists of:
Policy on the underlying order (“Ordnungspolitik), setting out the legal framework
and underlying economic institutions;
Competition policy, safeguarding individual economic freedom;
Market policy, ensuring that markets function properly.
Structural policy concurs with growth and stabilisation policies that must not interfere
with private decisions on what to produce and how to produce it. The basic tenet of
German FEP accordingly is non-discrimination between foreign and domestic market
participants. In practice, however, deviations from this baseline- and from the model
of market-oriented structural policy in general - have been frequent in Germany.
At the national level, an important part in German policy is played by the “median
voter, upon whose vote any Party wishing to form the next government depends, and
who is generally regarded as oriented towards stability and security, but with a dislike of
structural adjustment and mobility (Peters 1996, p. 95). The federal structure of Ger-
many also entails a prominent role of the individual states (Länder) in foreign economic
policy which often leads to measures that are inconsistent with the framework outlined
above.
2
Finally, and most important, pressure is exerted by industry associations and a

8
wide variety of lobbyists. Granting specific concessions to such groups is rational for po-
litical decision-makers if the costs of the measures taken can be shared out among larger
groups which are less well informed and less well organised.
3
However, institutional structures may limit the impact of special interests. A useful ana-
lytical tool in this context is the notion of encompassingnessas proposed by Olson.
4
In
the field of trade policy, political-economic analysis of FEP in Germany has indeed
shown a high degree of encompassingnessof the organisations acting on the demand
and supply side of protection. From this, one would expect a rather liberal policy stance
to prevail.
Industrial business in Germany is organised in the Federation of German Industry (Bun-
desverband der Deutschen Industrie/BDI) which comprises branches as diverse as preci-
sion engineering, chemicals and clothing. It represents industry as a whole vis-à-vis the
government on all issues of interest to it, including foreign economic policy. Even though
each individual industry promotes the policy it favours in this area, there is a fairly large
degree of coordination at the top of the BDI through its Foreign Trade Committee
(Außenwirtschaftsausschuß). The BDI position on trade policy is thus as one might pre-
sume: Free trade is a good thing(Weiss et al. 1988, p. 49).
5
German labour unions by
and large share this broad view of trade policy which is based on the recognition that in-
dustrial jobs in Germany to a high degree depend on exports. This attitude characterises
powerful individual unions like the metal workers union (IG Metall) as well as the (less
powerful) umbrella organisation (Deutscher Gewerkschaftsbund/DGB).
Views - and underlying structures - on the demand side of protection largely match with
features on the supply side where the Ministry of Economics takes the lead. Its industry
department, with individual industry desks that are often sympathetic to specific protec-
tionist demands, faces with other departments, in particular the departments on Foreign
Economic Policy (Außenwirtschaftspolitik) and on Economic Policy (Wirtschafts-
politik), and with the top of the Ministry, which are committed to liberal trade
6
.
The Europeanfactorin German FEP varies with the policy area at hand. The leeway
available to Germany in pursuing its own research and technology policy has not yet
been substantially restricted by the increasing significance of Community programmes in
this field, as these are still relatively minor in quantitative terms. With regard to subsi-
dies, over and above R&D support, Germany has traditionally been a strong advocate of
strict control at the Community level. This policy stance, and Germanys modest subsidi-

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