Chapter 1 Introduction
1.1 Research Background
How trade policy is made in a country is a question of both academic and practical significance. An in-depth understanding on this topic is particularly beneficial to exporters, importers and policymakers in China to take advantage of global market opportunities, evade business risks and shape mutually beneficial trade relations with partner countries. Seeking an answer to this question becomes even more necessary amid the current gloomy atmosphere over the global trading system caused by the resurgence of protectionism and unilateralism.
The European Union (the EU) comprising 28 European member states (soon 27 after the withdrawal of the United Kingdom) is the world’s largest trading powerhouse in terms of both trade in goods and trade in services, and it is the first-ranking trading partner of China. In 2017, the total size of EU-China merchandize trade amounted to 644 billion U.S dollars, exceeding that between the U.S and China, with each being the other’s largest source of imports and the second largest export destination. It is widely acknowledged that trade serves as the cornerstone of EU-China relations. With the continuing rise of China’s industrial competitiveness thanks to economic restructuring and embrace of technology innovation and a better connectivity between the two ends of the Eurasia continent driven by the “Belt and Road” initiative, a positive prospect lies ahead for Chinese exports to the EU market.
However, though claiming itself an advocate and defender of free trade, the EU has been quite active in using protection measures against international competition. The EU is a frequent user of anti-dumping measures, filing anti-dumping instigation per year on average. Its Common Agriculture Policy provides massive protection for European farmers on a regular basis. Its high-standard but complicated market regulation system keeps producing non-tariff barriers to trade of various categories.
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1.2 Research Question
This paper attempts to take a closer look at how European businesses, through their political lobbying, intervene in the making of trade policy by the EU with the aim to shape the policy outcome in a way that could secure and advance their self-interests but may simultaneously deviate from the public welfare and assess the actual impact their action has brought about on the trade policy outcome. This paper puts its interests in one of the traditional aspects of trade policy—protection against import to examine from a macro standpoint whether the lobbying from business interests of the EU for more protection leads to more restrictive trade policy.
To analyze the relationship between business lobbying and trade policy on protection which tends to be sensible in theory but highly ambiguous in reality, this paper combines qualitative analysis and quantitative empirical test to present a picture as complete as possible of trade policy lobbying by business interests in the EU. Bearing in mind the unique EU institutional framework within which business lobbying and trade policymaking takes place and drawing on existing literature, the qualitative analysis starts by discussing the key features of the business interest representation in the EU public policy sphere and the key patterns of business political action. It proceeds with the description of the EU trade policy process and the institutional power of public and private actors in this specific policy area. Given that business lobbying is in essence an interaction between public and private sectors, it is necessary for the qualitative analysis to take a multi-disciplinary approach that covers political science, public policy and microeconomics to explain the dynamics of business lobbying in the EU.
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Chapter 2 Literature Review
2.1 Business Lobbying and Business Lobbying in the EU
The nature of lobbying as an interaction between public policymakers and societal interests enables scholars from different academic disciplines to approach this complex phenomenon in their respective theoretical and methodological frameworks, producing a growing body of literature that is characterized by its multidisciplinary perspectives. When it comes to the lobbying of public policymakers by business interests which has been the dominant form of lobbying in most countries, the multidisciplinary feature of the academic literature stands out even more with studies undertaken in a wide range of areas such as politics, public policy, economics and corporate strategy. Some key contributions in this vast literature that are of high relevance to the subject of this study are presented and reviewed in this chapter.
2.1.1 The Access of Business Lobbying to Policymakers in the EU
Several studies have attempted to provide EU business lobbying with a proper theoretical framework that fits the multi-level governance system peculiar to the EU and has satisfying explanatory power for the various patterns of business lobbying in the EU. One of the prominent attempts is made by Bouwen (2002a) who develops a theoretical account for the access of different forms of business interest representation to specific EU institutions. Drawing on exchange theory and resource dependence theory of inter-organizational relationships, Bouwen defines the business lobbying of EU policy makers as a process of resource exchange based on the resource interdependence relationship between business interests and EU policymakers. Within this particular relationship of interdependence, the EU policymakers rely on external resources from private sectors in the policymaking process that are crucial for developing legitimate and effective policy proposals and taking correct decisions while business interests need the offer of access granted by EU policymakers in order to be able to take part in the policy-making process and influence it. The basic resources to be exchanged, as Bouwen notes, are information including Expert Knowledge, Information about the European Encompassing Interest and Information about the Domestic Encompassing Interest.
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2.2 Business Lobbying and EU Trade Policymaking
In the literature of trade policymaking, three general analytical approaches can be identified—system-centered approach, state-centered approach and society-centered approach, each of which focuses on one of the three main sources of trade policy-international factors, domestic institutional factors and social factors, respectively (Gst?hl and de Bièvre, 2017, p.129). System-centered approach relates a country’s trade policy to international economic system and the distribution of power therein. Trade policy is viewed as a reaction to the challenges and opportunities arising in the international economic system. Unlike the system-centered approach which emphasizes the impact of external factors, state-centered approach and society-centered approach draw attention back to domestic factors, but they differ in their answer to the question of which domestic actors shape trade policy. State-centered approach views trade policy as being shaped predominantly by public actors wielding state power within the specific domestic political institutions, whereas society-centered approach attributes trade policy to the influence of various private actors organized into interest groups on the preference-neutral public decision-maker. While all these approaches have contributed to the study on trade policy in the EU, as this study aims to assess the role of business interests in EU trade policymaking, this section tries to identify the shortcomings of state-centered approach and review the progress in society-centered approach to EU trade policymaking.
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Chapter 3 Business Lobbying in the European Union ................................. 25
3.1 Business Interests in the Interest Representation System of the EU .......................25
3.2 Organization of Business Interests at the EU Level ...................................31
3.3. Lobbying Strategy of Business Interests .....................................34
Chapter 4 The EU Trade Policy and Business Lobbying on Trade Policy .......... 36
4.1 EU Common Commercial Policy .................................36
4.2 Decision-Making System for the Common Commercial Policy ..............................40
Chapter 5 Theoretical Framework—the “Protection for Sale” Model ................ 43
5.1 Theoretical Logic of the G-H Model .............................43
5.2 Formal Derivation of the G-H Model ...............................44
Chapter 7 Empirical Results
The empirical model is estimated with the two sets of political organization dummies determined by business interest groups’ frequency of participation in Civil Society Dialogue and lobbying meetings with Commission trade policymakers, respectively, with 4 thresholds set for each channel. Comparing the results of the two channels can shed light on the relative effectiveness of different channels in lobbying for protection. The OLS estimates for business lobbying through Civil Society Dialogue is reported in Table 2.
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Chapter 8 Conclusion
8.1 Findings of the Research
Relying on an empirical model derived from the Grossman-Helpman “Protection for Sale” model on endogenous tariff formation and the latest data on trade, manufacturing industries and business lobbying in the European Union, this study finds empirical support for the notable role of business interest lobbying in shaping protective trade policy in the EU. The results of the empirical research, with its consistency with the theoretical predictions of the “Protection for Sale” model, demonstrate that business interest groups who lobby the trade policy authority of the European Commission either through the institutionalized scheme of Civil Society Dialogue organized by the Directorate-General for Trade or more direct communication of lobbying meetings with senior trade officials in the European Commission have a better chance to influence the trade policy preference of the Commission and to be offered with a higher level of non-tariff protection from import competition. On the other hand, however, the empirical research shows that a significant positive correlation does not exist between the frequency or intensity of business lobbying through the two channels mentioned above and the level of non-tariff barriers in the EU, which is in contradiction with the theoretical idea of the “signaling” effect of informational lobbying.
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