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 Germany’s 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 “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. 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 “external“ complement of market-oriented structural
policy in the “internal“ economy. 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 “encompassingness“ as proposed by Olson.
4
In
the field of trade policy, political-economic analysis of FEP in Germany has indeed
shown a high degree of “encompassingness“ of 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 European “factor” in 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 Germany’s modest subsidi-
