1992: What is it and what should be done about it?

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TO most Americans, 1992 is the next presidential election or Olympics after those quadrennial events are completed this year. To most Europeans, even taxi drivers, 1992 is a bold initiative to create a united Europe and to capture the dynamism dreamed of 30 years ago by the framers of the Treaty of Rome. The European Community has enthusiastically embarked upon a process to remove some 300 impediments to the free flow of goods, services, capital, and labor among the member states. That process is to be completed by Dec. 31, 1992. They may not get all of it done, but Europeans claim the process is irreversible. After three weeks in Europe interviewing politicians, policymakers, and academics, I get the sense that Euro-pessimism is turning into Euro-optimism if not quite Euro-phoria. European business leaders speak of its revolutionary effect, a different climate, a new state of mind.

Europeans cite many reasons for it. The Community is fragmented into 12 markets, separated by different national standards and regulations. If those standards and regulations are harmonized, a unified market of over 320 million people, larger than the United States, would be created. Through increased competition, national cartels would be broken down, and consumers would benefit from lower prices and a wider variety of products. European firms could expand and achieve economies of scale to compete better against US and Japanese firms. Competition could wear away the structural rigidities of European social policy.

How has the effort manifested itself thus far? The key was passage of the Single European Act, which became effective a year ago and which provided for qualified majority rule. Now most decisions (except fiscal, labor standards, and immigration) are taken more expeditiously and not on the basis of the lowest common denominator. Almost one-third of the impediments have been acted upon thus far. The momentum is building so that now, according to surveys, a virtual unanimity of European firms is planning for 1992 out of fear or greed. Merger and acquisition activity has accelerated. In France, where only the Communists oppose it, the 1992 effort is being used as a cover to deregulate the economy. Eurocrats are even putting in weekend hours at the Community headquarters in Brussels, something almost unheard of in the recent past.

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But some in Washington and the US business community are concerned that the 1992 effort will lead to an increase in protectionism, to a Fortress Europe. One official referred to it as the ``infernal internal market.''

But a unified, thriving European Community is as much in the US interest as it was 30 years ago. With these reforms, European national income could rise by 5 to 7 percent and up to 5 million new jobs could be created. Europe would be richer and could buy more from abroad and pay more for the Alliance's common defense.

What if it were to fail, and, worse yet, what if the US was seen to be part of the blame? The price of failure would be very high. The frustrated expectations would sour European attitudes toward the US. Protectionism would increase. Little if anything would be accomplished in the Uruguay round of multilateral trade talks. A weaker Europe would be less willing and less able to bear its share of the burden for the common defense. And Community policymakers would turn to the East bloc for markets and support.

The US should welcome the effort. It is a good antidote to the overreaction of the US public about the coming ``Pacific century.'' The Far East is the most dynamic region in the world today, but the Community's population is twice that of Japan and the four Asian NICs combined, and Europe stands as the West's first line of defense against East-bloc aggression.

That isn't to say there is nothing to be concerned about. Non-European interests should watch out to see if Community directives call for reciprocity and establish European preferences to discriminate against outsiders and if the directives provide long phase-in times and safeguards for lagging sectors or for the poorer European countries.

They should see who negotiates regulatory standards for the Community, and on what basis outsiders can get mutual recognition of standards; also, whether the multilateral talks are held hostage to the internal restructuring; and how bilateral quotas on cars and textiles at the national level are converted to EC-wide quotas, and whether the directives are produced in a transparent way or behind closed doors.

What should be done? The administration and some on Capitol Hill have threatened to pursue bilateral or regional agreements in the Pacific if the Community's internal restructuring impedes progress in the multilateral talks. That may be useful as a threat, but if it were carried out, the trading system would fragment and all nations would suffer.

Now is not the time to begin exploring bilateral or regional options. The external consequences of 1992 have not been fully debated or even discovered by the Community as yet. Now is the time for other governments and firms to put pressure on the Community to open up the process to comments and criticism and to make certain that outsiders are not discriminated against. If outside interests wait until the process has been completed, it will be too late. The Community's position will be set in concrete. The 1992 efforts should be made a focal point of the Uruguay Round so that the Comunity feels constrained when reaching internal decisions. Above all, outside interests should be more vigilant in monitoring what is going on in Brussels, where I sensed that international trade consulting and thus real estate are about to become growth sectors, just as they have in Washington.

C. Michael Aho is director of economic studies and director of the International Trade Project Council on Foreign Relations, Inc.

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