The world’s most ambitious free-trade area is colliding with a surge in economic nationalism.
Unfettered trade is the law of the land across the 28-country European Union, and Emmanuel Macron won the French presidency in May on a campaign of more European unity, not less, proudly posing with the EU’s blue and gold flag.
In July, though, Mr. Macron nationalized a French shipyard to block its takeover by Italian company Fincantieri SpA, citing what he called “national interest.” The takeover went ahead three months later, after Mr. Macron secured unusual guarantees for the French state. He supports limiting employment from lower-paying countries such as Poland and Romania. A French food-labeling rule co-written by Mr. Macron when he was economy minister has gutted dairy imports from Belgium, Sweden and Germany. All six countries are members of the EU.
Italy outlawed the much-coveted words “Made in Italy” from any food products that contain imported ingredients. That means Baci hazelnut-filled chocolates, first made in 1922 in the Italian city of Perugia, can’t be labeled as Italian because their cocoa comes from Africa. Across the rest of Europe, Baci are still marketed as “the true Italian chocolates.”
The chocolate production line at Baci, in Perugina, Italy. Photo: Baci Perugina
These new barriers are overturning a generation of moves toward trade liberalization—and driving countries further away from a well-functioning common market. Trade hurdles increase the cost of existing and potential new businesses, disrupt cross-border supply chains and discourage multinational investments.
“Sometimes, the local measures taken for naive reasons create lots of unintended consequences,” says Marco Settembri, the chief executive of Nestlé SA in Europe, the Middle East and North Africa (Nestlé makes Baci). He worries that political leaders take the single market for granted.
Europe’s single market is one of the most significant postwar economic achievements, and it celebrates its 25th anniversary in January. It began one year before the North American Free Trade Agreement, which President Donald Trump is attempting to renegotiate. Products, services, labor and capital freely move across Europe, which, with more than 500 million consumers, would be the world’s largest economy by output and demand.
In practice, implementation in each of these areas has varied widely, with goods—until recently—moving mostly freely and services less so.
Many economists say standardization fostered by the EU has lowered costs for producers and consumers alike. Labor unions and small businesses counter that it bestows overwhelming advantages on corporate behemoths.
The EU rode out a string of recent crises more resiliently than even optimists had predicted a year ago. A debt crisis, a wave of migrants, the U.K.’s decision to quit the bloc and the popularity of anti-EU politicians have only dented the EU so far, while stiffening the resolve of many EU supporters.
In many ways, though, the single market remains a work in progress, partly because national regulations vary from country to country. Not all EU rules are translated into national laws, some rules can be interpreted differently and the EU’s single-market rules are enforced less strictly than its competition rules.
That is one explanation for the new proliferating trade barriers. Last year, the European Commission, the EU’s executive arm, launched more than three times as many legal actions against alleged violations of single-market rules compared with 2015.