Download Chapter 15 The EU and Regional Trade Areas

The European Union and
Other Regional Trade Areas
Chapter 15
© 2002 West/Thomson Learning
1
Regional Economic
Integration
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Agreements among geographically
proximate countries to
reduce/remove tariff and non-tariff
barriers to free flow of
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Goods
Services
Factors of production
Impediments to
Regional Integration
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Painful adjustments in certain
segments of economy -- some
“losers”
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Threat to national sovereignty -
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low skilled, low tech jobs lost (US
textiles)
countries give up control of some key
policies
monetary policy, tax policy and trade
policy
Debate:
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Trade creation or trade diversion?
Economic Case for
Regional Integration
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Stimulates economic growth in
countries through FDI and free
trade
Countries specialize in those goods
and services efficiently produced.
Additional gains from free trade
beyond international agreements
such as GATT and WTO.
8-2
Political Case for
Economic Integration
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Economic interdependence creates
incentives for political cooperation
and reduces potential for violent
confrontation.
Together, the countries have the
economic clout to enhance trade with
other countries or trading blocs.
8-3
Levels of Economic Integration
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Free Trade Area (FTA):
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Customs Union (CU): FTA+
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elimination of intra-market factor of production
movements
Economic Union (EU): CM+
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common trade policy toward others
Common Market (CM): CU+
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removes tariffs among members
members retain own trade policies toward
others
full integration of member economies (common
policy)
Political Union: US
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political and economic integration
European Union
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European Coal and Steel Community
(1952)
Treaty of Rome (1957) created
European Community
Single European Act (1987) set 1992
deadline of achieving single market
Maastricht Treaty (1991) European
common currency adopted 1/1/99
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Common foreign and defense policy
Common citizenship
EU parliament with “teeth” created
European Union and set path for monetary
union
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European Union
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Treaty of Amsterdam: 1999
(incorporated the principle of
freedom of movement from the
Schengen Agreement)
Treaty of Nice: 2000, voting rights
in preparation for enlargement
Treaty of Lisbon: 2009 – amended
existing treaties to establish a new
legal framework for the enlarged
EU
EU Structure after the Treaty of Lisbon
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Created a full-time President of the European Council
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replaced the previous rotating presidency
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Herman Van Rompuy elected for 2 ½ year term
Created the position of High Representative of the EU for
Foreign Affairs and Security Policy
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Position is responsible for steering foreign policy and the
common defense policy
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Catherine Ashton appointed for five year term
Changes the qualified majority for certain votes by the Council
of the EU
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As of Nov. 2014, qualified majority must be a double
majority of at least 55% of the member states (15 of 27)
and members representing at least 65% of the EU’s
population
Expands areas of co-decision between the Council and the
European Parliament
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Fixes the number of Parliament seats at 751
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Seats divided among members proportionally – minimum
of 6 and maximum of 96 per member state
Euro Timetable
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January 1, 1999: Euro single
currency is born
1999-2002: National currencies
continue to exist and work in
parallel; Euro as “virtual currency”
2002: switch to single currency;
Euro in circulation
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Benefits of the Euro
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Lower transaction costs for individuals /
business
Prices comparable across the continent;
increased competition
Rationalization of production across
Europe to reduce cost
Pan-European capital market
Increase range of investment options
available to both individuals and
institutions
Costs of the Euro
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Loss of monetary policy control at national level
 ECB sets interest rates and determines monetary policy
 ECB is not under political control; issues instructions to
national central banks
EU is not an optimal currency area
 Not enough similarities in the underlying structure
of
economic activity (e.g., Finland vs Portugal)
 Interest rates may be too high in depressed regions or too
low for economically booming regions
 May need to deal with this through fiscal transfers from
prosperous to depressed regions
 Member Deficits Threaten Stability and Require “Bailouts”
– Greece, Ireland, Spain(?), Portugal(?)
Economic issues may come in conflict with political issues
Monetary Union Criteria
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Budget deficit no greater than 3%
of GDP
Public debt no greater than 60%
GDP
Price stability (inflation controlled)
Long term interest rates within 2%
of the best 3 countries
Exchange rate stability
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Members of the European Union
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Austria*
Belgium*
Denmark
Finland*
France*
Germany*
Greece*
Ireland*
Italy*
Luxembourg*
The Netherlands*
Portugal*
Spain*
Sweden
The United Kingdom
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Cyprus*
Czech Republic
Estonia*
Hungary
Latvia
Lithuania
Malta*
Poland
Slovakia*
Slovenia*
Bulgaria
Romania
* Countries that have adopted
the Euro as the common
currency of the EU
The European Union:
500 million people – 27 countries
Member states of the European Union
Candidate countries
EU population in the world
Population in millions, 2007
1322
500
309
128
EU
China
Japan
142
Russia United States
Law-making within the EU
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Regulations vs. directives
 Directive: Binding as to result, but left to
members to choose form and methods
 Regulation: Binding in entirety, applies
directly to all members
Role of
 Council: Decides to adopt regulation or
directive
 Commission: Proposes action to Parliament
 Parliament: may amend or reject measures
on single market, consumer protection,
environment, health, education, culture
Court of Justice: interprets and applies EU
law; reviews member actions for compliance
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European Parliament v. Council of
the EU (E.C.J., G.C. 2006)
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Facts: EU Commission negotiated agt. with US over
compliance with EU data protection directives
 US imposed notification reqts. on airlines – PNRs –
for security concerns
 Council placed draft agt. before Parliament
 Parliament believed Commission had exceeded its
powers and violated directive
 Parliament brought suit to annul agt. and
Commission decision on adequacy
Decision: ECJ annulled agt. and decision
Reasons: Decision on adequacy not within scope of
Directive
 Council decision not validly adopted based on Art. 95
EC
 Effective date of decision delayed until 9/30/06
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Commission reached final agt. with US in 2007
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EU Cases
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Commission of EC v. Italian
Republic: Chocolate labeling reqt.
violates obligations under Art. 30
(now Art. 28)
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National Farmers’ Union and
Secretariat general: French
restrictions on UK beef violate EU
Directive 89/662 and Decision
98/256
Commission of EC v. Italian Republic
(ECJ 2006)
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Facts: Challenge to Italian law restriction debt
recovery services
 Local license required for each of 103
provinces and must have premises in each
province
 Price scales set by local police authority
 EC – regulations restrict freedom of
movement and freedom to provide services
 Members can regulate services – but must
be consistent with EU principles
 Regulations make it difficult for
transnational firms to operate in Italy incompatible with Arts. 43 EC and 49 EC
Cotonou Agreement
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2000
EU, African, Caribbean and Pacific
countries
EU had GSP program since 1971
and in effect until 2007
2007 new “partnerships” will begin
ANCOM: Andean Community
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Bolivia, Colombia, Ecuador, Peru;
Chile is Associate Member
Cartagana Agreement, 1969: One
of oldest still in existence
Population: 120 mm (14% of
hemisphere)
GDP: 2005: $745.3 billion (includes
Venezuela)
Changed from FTA to customs
union in 1992
The Mercosur Accord
1988: Argentina, Brazil; 1990:
Paraguay, Uruguay; 2006: Venezuela
 Associate Membership Granted to
Andean Community Members
1995: Agreed to move toward a full
customs union.
 Population: 220 mm
 GDP: $1 Trillion
 Trade doubled in first 3 years
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Other Western Hemisphere
Associations
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DR-CAFTA
Central American Common
Market
CARICOM – follow EU model
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2006 – Single Market and
Economy Treaty Established Caribbean Court
of Justice as final
ASEAN
Association of Southeast Asian
Nations
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Created in 1967
400 million citizens
Economic, political and social
cooperation
Brunei, Indonesia, Malaysia, the
Philippines, Singapore, Thailand and
Vietnam, Laos, Myanmar and Cambodia
Asia Pacific Economic
Cooperation
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Founded in 1989 to ‘promote open trade
and practical economic cooperation’.
‘Promote a sense of community’.
18 members
GDP: $13 trillion (1995)
50% of total world income
40% of global trade
Other Trade Areas
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African trade areas (AEC,
COMESA, SADC)
Arab League
Gulf Cooperation Council
Greater Arab Free Trade Area
Commonwealth of
Independent States Free Trade
Area
29
Implications for Business
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Opportunities
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Less protectionism; higher economic growth
Lower cost of doing business (fewer
borders)
Threats
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Cultural differences persist
Increased price competition within blocks
Across-trading-block rivalry can increase
barriers
Improvement of competitiveness of many
local firm within the blocks
Web Sites
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http://www.europa.eu.int/index.htm
http://www.ita.doc.gov