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Transcript
The European Union and Other Regional Trade Areas Chapter 15 © 2002 West/Thomson Learning 1 Regional Economic Integration Agreements among geographically proximate countries to reduce/remove tariff and non-tariff barriers to free flow of Goods Services Factors of production Impediments to Regional Integration Painful adjustments in certain segments of economy -- some “losers” Threat to national sovereignty - low skilled, low tech jobs lost (US textiles) countries give up control of some key policies monetary policy, tax policy and trade policy Debate: Trade creation or trade diversion? Economic Case for Regional Integration 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 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 Free Trade Area (FTA): Customs Union (CU): FTA+ elimination of intra-market factor of production movements Economic Union (EU): CM+ common trade policy toward others Common Market (CM): CU+ removes tariffs among members members retain own trade policies toward others full integration of member economies (common policy) Political Union: US political and economic integration European Union 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 Common foreign and defense policy Common citizenship EU parliament with “teeth” created European Union and set path for monetary union 7 European Union 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 Created a full-time President of the European Council replaced the previous rotating presidency Herman Van Rompuy elected for 2 ½ year term Created the position of High Representative of the EU for Foreign Affairs and Security Policy Position is responsible for steering foreign policy and the common defense policy Catherine Ashton appointed for five year term Changes the qualified majority for certain votes by the Council of the EU 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 Fixes the number of Parliament seats at 751 Seats divided among members proportionally – minimum of 6 and maximum of 96 per member state Euro Timetable 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 10 Benefits of the Euro 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 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 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 13 Members of the European Union Austria* Belgium* Denmark Finland* France* Germany* Greece* Ireland* Italy* Luxembourg* The Netherlands* Portugal* Spain* Sweden The United Kingdom 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 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 17 European Parliament v. Council of the EU (E.C.J., G.C. 2006) 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 Commission reached final agt. with US in 2007 18 EU Cases Commission of EC v. Italian Republic: Chocolate labeling reqt. violates obligations under Art. 30 (now Art. 28) 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) 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 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 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 Other Western Hemisphere Associations DR-CAFTA Central American Common Market CARICOM – follow EU model 2006 – Single Market and Economy Treaty Established Caribbean Court of Justice as final ASEAN Association of Southeast Asian Nations 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 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 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 Opportunities Less protectionism; higher economic growth Lower cost of doing business (fewer borders) Threats 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 http://www.europa.eu.int/index.htm http://www.ita.doc.gov