The European Union
Policy coherence

In Discussion Paper No. 1105, Research Fellow Jordi Gual assesses the consistency of EU industrial policy, competition policy and trade policy. This is undertaken from the perspective of the optimal deployment of economic policies as prescribed by economic analysis, and takes into consideration the legal mandate and institutional constraints imposed by EU treaties and regulations. The first part of the paper analyses the optimal use of the three policies, and the contradictions which may arise even in a theoretical world where policies can be deployed without statutory or institutional restrictions. Analysis of the consistency of trade, competition and industrial policies requires an assessment of EU policy objectives and of the scope of Union and Member State policies. The paper assesses the main contradictions inherent in the statutory and institutional design of EU policy. It suggests some changes in policy assignment and implementation which could increase efficiency by alleviating the most harmful policy conflicts.

The analysis shows that as a result of the limited policy tools available to the Union, trade and competition policies have to fulfil several competing goals. This multiplicity of objectives leads to non-optimal interventions. Policy inconsistencies also arise between EU trade and competition policies and the industrial policy of Member States. Current policy practice leads to inefficient outcomes both in mature and sunrise industries. These inefficiencies could be reduced with a reinforcement of integration policies, notably state aid control. The paper argues that the current institutional arrangements allow for a strengthening of centralized industrial policy, which could be utilized to achieve more efficient outcomes.

The Coherence of EC Policies on Trade, Competition and Industry
Jordi Gual

Discussion Paper No. 1105, January 1995 (IO)