European Union as a Trading Block

Group 6

Introduction• The European Union (EU) is a political and economic union

of 27 member states, located primarily in Europe. It was established by the Treaty of Maastricht in 1993 upon the foundations of the pre-existing European Economic Community

• With almost 500 million citizens, the EU generates an estimated 30% share of the world's nominal gross domestic product (US$ 16.8 trillion in 2007)

• The EU has developed a single market through a standardised system of laws which apply in all member states, guaranteeing the freedom of movement of people, goods, services and capital .It maintains a common trade policy, agricultural and fisheries policies, and a regional development policy.

• Sixteen member states have adopted a common currency, the Euro

EU population in the worldPopulation in millions, 2007

497

1322

128 142

301

EU China Japan Russia United States

The area of the EU compared to the rest of the

worldSurface area, 1 000 km²

EU China Japan Russia United States

16 889

9327 9159

4234

365

How rich is the EU compared to the rest of the world?

EU China Japan Russia United States EU China Japan Russia United States

10 793

1 326

3676

468

10 035

24 700

6 400

27 800

10 000

37 300

Size of economy: Gross Domestic Product inbillion of euros, 2006

Wealth per person: Gross Domestic Productper person in Purchasing Power Standard, 2007

History & Formation:

• The Treaty establishing the European Coal and Steel Community, ECSC (Paris Treaty)

• The Treaty establishing the European Economic Community, EEC (the Treaty of Rome)

• The Treaty establishing the European Atomic Energy Community (Euratom)

• The Treaty on European Union, EU (the Maastricht Treat)

• Key intergovernmental conferences resulted in: The Single European Act (SEA) The Treaty of Amsterdam The Treaty of Nice

Criteria required to meet to be a member of

EU(Copenhagen Criteria)

Defined at the 1993 Copenhagen European Council

• A stable democracy which respects human rights and the rule of law

• A functioning market economy capable of competition within the EU

• The acceptance of the obligations of membership, including EU law.

Decision- making Institutes:• European Parliament (EP), which represents the EU’s

citizens and is directly elected by them

• Council of the European Union, which represents the individual member states

• European Commission, which represents the interests of the Union as a whole.

This ‘institutional triangle’ produces the policies and laws that apply throughout the EU.

In principle, it is the Commission that proposes new laws, but it is the Parliament and Council that adopt them.

European Parliament

• Elected every 5 years• Three places of work: Brussels (Belgium),

Luxembourg and Strasbourg (France).• Parliament has three main roles

• Passing European laws

• Democratic Supervision

• The power of the purse.

The Council of the European Union

• The Council was set up by the founding Treaties in the 1950s.

• It represents the member states, and its meetings are attended by one minister from each of the EU’s national governments

• The EU’s relations with the rest of the world are dealt with by the ‘General Affairs and External Relations Council.

Different Council Configurations

• General Affairs and External Relations,• Economic and Financial Affairs (Ecofin),• Justice and Home Affairs,• Employment, Social Policy, Health and• Consumer Affairs,• Competitiveness,• Transport, Telecommunications and Energy,• Agriculture and Fisheries,• Environment,• Education, Youth and Culture.

The European Commission

• It is the EU’s executive arm• Independent of national governments• It drafts proposals for new European laws, which it

presents to the European Parliament (EP) and the Council

• It has four main roles: • Proposing new legislation,• Implementing EU policies and the budget, • Enforcing European law,• Representing the EU on the international stage.

The Court of Justice

The Court of Justice:• Dates back to the very first of the EU Treaties, the ECSC

Treaty of 1952• The Court has the power to settle legal disputes between

EU member states, EU institutions, businesses and individuals

• The Court is composed of one judge per member state, so that all 27 of the EU’s national legal systems are represented.

• Court of First Instance: for actions brought by private individuals, companies and some organizations, and cases relating to competition law

• The European Union Civil Service Tribunal: for disputes between the European Union and its civil service

Other Constituents

• The European Court of Auditors

• The European Economic and Social Committee

• The Committee of the Regions

• The European Investment Bank

• The European Central Bank

• The European Ombudsman

• The European Data Protection Supervisor

Economy & Budget

• it the largest economy in the world by nominal GDP and the second largest trade bloc economy in the world by PPP valuation of GDP.

• It is also the largest exporter of goods, the second largest importer, and the biggest trading partner to several large countries such as India, and China.

• 170 of the top 500 largest corporations measured by revenue (Fortune Global 500) have their headquarters in the EU

• A total outlay of of €120.7 billion for the year 2007 and €864.3 billion for the period 2007-2013 has been planned

Single Market

• Two Core Objectives: single market customs union • The single market involves the free circulation of

goods, capital, people and services within the EU• Free movement of capital is intended to permit

movement of investments such as property purchases and buying of shares between countries

• The free movement of persons means citizens can move freely between member states to live, work, study or retire in another country

• The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis

• the customs union involves the application of a common external tariff on all goods entering the market

Monetary union – Introduction of Euro

• 1999 - Introduction of Euro as an Accounting Currency. Formation of Eurozone

• 2002 – Adoption of Euro as the official Currency by 11 Countries

• 2009 – 16 Countries have joined Eurozone• All other countries are legally bound to join EU

• Purpose: Easing Travel Price Transparency and low interest Rates Protection against International shocks

The EU in World Trade

The EU in World Trade

Others50,6%

China9,6%

Japan6,6%

United States16,0%

EU2517,1%

SHARE IN WORLD TRADE IN GOODS (2006)

Source: Eurostat

EU2526,0%

United States18,4%Japan

6,9%China3,8%

Others44,9%

Source: Eurostat

SHARE IN WORLD TRADE IN SERVICES (2005)

AMAJOR

TRADINGPOWER

The EU in World Trade

30,028,1

10,2

5,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

EU25 United States Japan China

Share of GDP in world GDP (2005)share = GDPi / GDPw

The EU in World Trade

18,2

20,3

56,4

18,2

EU25

Japan

China

USA

Degree of insertion in world economy (2005)RATIO Total Trade = (Imports+Exports, excl. Energy)/GDP

EU Trade Policy – Basic Features

• Objective : A competitive European economy in an open world trade system organized by multilateral rules

Multilater

al

Bilateral/Regional

Unilateral

EU Trade Policy – Basic Features

• Multilateral :Mostly implemented in the framework of the WTO aiming at promoting market access with rules, in the context of effective global governance.

• Bilateral: The EU has concluded bilateral agreements with third countries and regional areas. 121 countries potentially linked to the EU by regional trade agreements, many negotiated in the 1990s.Example – Economic Partnership Agreements in negotiation with ACP

countries (Cotonou) Free Trade Agreements with EFTA, EEA, Euromed, Mercosur

(in negotiation), Mexico, South Africa Customs Unions with Turkey, Andorra and San Marino Partnership and Cooperation Agreements with Russia and

Ukraine

EU Trade Policy – Basic Features

• Unilateral measures are adopted in the interest of development and political stability

• Key Initiatives: General System of Preferences (GSP): Duty free

Access/tariff Reduction “Everything But Arms” initiative (EBA):Duty free

Access to imports from LDC’s Asymmetrical preferences : For economic or political

stability of a particular region

Example : EU – China Relationship

• China’s Economic Revival

• China’s Economic Return• A new Trading Power• A Major recipient of foreign investment• A stable growing china is in Euerope’s interest.• Challenges of Sustainable growth

EU – China Trade and Economic Relationship

• Benefits Of openness• Mutual Benefits• EU exports• EU investment in China• Chinese investment in Europe• The Price Effect

• Impact Of Competition• Adjustment in Europe • Technological Change• Investment Restriction• Trade Deficit

• Problems Faced by EU• Intellectual property and legal rights, forced

technology transfers.• Subsidies• Excessive saving depresses demand for imports• Environmental, social and safety conditions• Distorting the market for global trade in natural

resources

EU’s Response and Priorities for Action

• Insisting On openness• Enforcing China’s WTO Obligation• Liberalizing beyond WTO Obligations

• Leveling the Playing Field• Combating forced technology transfers, piracy

and counterfeiting• Subsidies, banking reform and trade restrictions

on raw material and energy foods.

• Supporting European Companies• Protecting European IPR• Supporting European Business in China• Language Training• Strengthening the commission on the ground

• Defending EU’s Interest• WTO dispute settlement• Using anti-dumping and anti-subsidy

instruments

EU’s Other Trade Preferences

• The EU is the world’s main provider of trade preferences for developing countries.

• ‘Preferences’simply mean that the goods imported into the EU from developing countries are given a special low or zero rate of customs duty. This provides an incentive to traders to import products from developing countries and helps these countries to compete on international markets.

• EU currently has preferences for 178 developing countries under the Generalised System of Preferences (GSP) scheme, quota and duty free access for all products from the 50 poorest countries under the ‘Everything But Arms’ (EBA) initiative.

Cont..

• Also Bilateral and preferential agreements exist with Chile, Mexico, Mediterranean countries, South Africa and countries in balkan regions, while full or interim Economic Partnership Agreements will be effective as from January 2008, granting duty and quota free access to many countries in Africa, the Caribbean and the Pacific, in place of the unilateral trade regime under Cotonou that expired on 31 December 2007.

• EU has focussed on Making Trade and Development of various countries an important feature: Kenyan horticulture is set to go from bloom to boom following the EU’s decision to allow the import of Kenyan-certified horticultural products.

• Bangladesh depends on the textile sector for most of its export earnings. An EU program is helping the country to make the most of the clothing market.

Cont..

• EU-backed programmes have helped Dominican bakers to enter new markets, boost productivity and enhance their competitiveness.

• Since 1998, the European Commission has been supporting the development and structuring of the Madagascan lychee trade which has captured 70% of the lucrative Christmas market in Europe – a market worth some €12 million.

• Ukrainian consumers are increasingly demanding high-quality food products, even when they are out of season. The country also has the potential to become a regional food hub. An EU project is helping Ukraine to branch out into these fruitful areas.

Cont..• The countries of West Africa generally lack a common

quality system necessary to develop a fully functioning regional market and promote integration.An EU-funded project is helping to lay these foundations.

• The island nation Mauritius is dependent on fi shing for much of its livelihood. That is why the EU has been supporting its plans to become a fishing hub.

• An EU programme helps the Southern African Development Community (SADC) to build intra-regional business bridges, as well as links with European enterprises.

Cont…• An EU-funded programme sought to boost the

competitiveness of the Ugandan private sector by supporting enterprise-level activities centred on the use or acquisition of know-how.

• An EU-backed project is working to combat rural poverty in Paraguay by creating synergies between the different links in the organic cotton production chain.

• The ex-Soviet republics in Central Asia are facing challenges in managing their borders, particularly the illicit movements across them. An EU-funded project seeks to enhance border management and boost trade along these frontiers.

EU Trade Policy – How it Works

• The Trade Defense Instruments: instruments to ensure fair trade and defend the interests of European companies.

• have been designed in line with specific WTO agreements recognizing the right of members to counter unfair practices Anti-dumping: measures created to counter dumping

practices Anti-subsidy : measures designed to combat

subsidies Safeguards: A WTO member may restrict imports of

a product temporarily if its domestic industry is seriously injured or threatened with injury caused by a surge in imports

Offensive trade policy instruments

• The Trade Barriers Regulation (TBR) gives EU industry the opportunity to lodge a complaint with the Commission when encountering trade barriers that restrict their access to third country markets

• Market Access Strategy of which the EU’s Market Access Database provides: information about market access conditions in non-EU countries;

• Monitoring of third country trade defence measures

Trade Barrier Regulation

• Came into effect on 1 January 1995,• It is a legal instrument that gives the right to EU

enterprises, industries or their Associations as well as the EU Member States

• Applies not only to goods but also to services and intellectual property rights

• Conditions for lodging a complaint:• a non-EU country enforces a trade barrier which

adversely affects exports from EU Member States; or• a non-EU country enforces a trade barrier which

adversely affects the EU market

The Whole ProcessThe complainant discusses the problem with EC, Directorate General for Trade

The EC sends the complaint to the EU Member States for their comments.

The Commission decides whether the complaint is admissible within 45 days of the complaint being lodged.

The Commission’s decision is published in the Official Journal of the EU in order to inform all those that may be affected by the barrier, including the country having imposed it.

Barriers or Obstacles to Trade

• An obstacles to trade is defined in the Regulation as “any trade practice adopted or maintained by a third country in respect of which international trade rules establish a right of action”.

• International trade rules are primarily those established under the World Trade Organization (WTO) or, since February 2008, those contained in bilateral Free Trade Agreements.

The ultimate aim of the TBR is to eliminate the obstacle to trade, and re-establish a level playing field.

Scenarios that might be the result of a successful TBR complaint.

• Satisfactory steps taken by third country• Formal agreement with third country• Initiation of international (WTO or other) dispute

settlement procedure

• The TBR is, therefore, an instrument which effectively provides industry with an indirect access to the rights deriving from the WTO Agreements.

Since 1996, 25 TBR examination procedures have been initiated.

How is TBR different than other instruments? The TBR is the only trade policy instrument which

gives the right to an individual company to present a complaint to the European Commission.

EU Trade Policy - Competitiveness

The Lisbon Agenda• A more focused objective to achieve more and better

jobs in a more innovative, dynamic and attractive Europe

• to concentrate efforts on a limited number of essential core tasks

• to set up a new system of clear and direct governance

• Maintain the WTO at the centre of the international trading system

• Propose a new generation of free Trade agreements• Strengthen intellectuels property enforcement• Open up public procurement abroad• Reinforce the EU Market Access Strategy• A reflection process on EC trade defence• Ensure that policy making process factor in global

competitiveness challenges

EU Trade Policy - Competitiveness59,8

-22,2

46,4

49,0

-31,1

4,8

8,4

5,9

-13,0

148,9

29,4

69,0

77,4

-43,1

2,8

7,4

7,2

1,0

Manufacturing

Machinery

Transport equipment

Chemicals

Textiles and clothing

Iron and steel

Paper and articles of papers

Non-metal. Mineral

Other products 20002006

Trade Balance (Billions euros)

Trade Balance

• -600

• -500

• -400

• -300

• -200

• -100

• 0

• 100

• 200

• 1992• 1993• 1994• 1995• 1996• 1997• 1998• 1999• 2000• 2001• 2002• 2003• 2004

• EU25

• USA

• Japon

• Chine

Comparative trade balance trends (bn euros)

EU Trade Policy- WTO Context•WTO EU, member key actor•1 State/1Vote

Trade Pillar

•Bretton Woods, IFIs + BIS EU indirect role (MS on the board)•1 dollar/1 vote

Financial Pillar

•ILO, MEAs, WHO, FAO, EU member, participant or•Codex Alimentarius ITU, WIPO... observer•1 state/1 vote

Normative Pillar

WTO Context

For every enlargement of the EU, the provisions of

Art. XXIV:5 and Art. XXIV:6 of GATT 1994 have

to be respected.

• The evaluation is carried out by the WTO Secretariat, based on data submitted by the

Commission.

• The Commission notifies the modification and withdrawal(s)

of the schedules of the (enlarged) customs union

before accession.

• Following the notification, concerned WTO partners may make claims for compensation in case their MFN trade (in a certain product) is negatively

affected by enlargement.

• The European Commission evaluates the

claims, and if accepted, enters into negotiations to

settle the claim.

The EU is one of the key players in the WTO

WTO Context

• The overall effect of EU enlargement for trade in (nonagricultural and agricultural) goods will be beneficial for third countries.

•Nevertheless, for some tariff lines, the acceding countries may have had lower tariffs prior to adopting the Common External Tariff of the EC, possibly triggering compensation claims.

•The scale of compensation on particularly sensitive lines could be significant.

•To minimize the possibilities for compensation claims, acceding countries are advised not to autonomously lower any duties in the pre-accession period.

•Lowering of bound duties can trigger claims. Reductions in applied rates can create difficulties in negotiations and, more importantly, increase trade flows on which compensation is calculated.

Strengths

• No tariffs or trade barriers• Guaranteed trade within the EU trading bloc• Creates sustainable economic growth• Common Values• Recognition & credibility• Influence• Independence• Cost reduction• Expertise

Weaknesses

• Institutions – no clear division• No constitutional treaty• No geographical delimitation (borders)• Democratic deficit• Financial limitations• Diversity of interests which might sometimes

compete• Lowest common denominator• Communication problems• Poor quality of outcomes • Possibility of one organisation dominating the others

Opportunities

• Enlargement process• Dialogue / cooperation with ENP countries• Counter-balancing the US• Mutual learning• Creation of consensus • Learn how to negotiate

Threats

• Increased EU-US dichotomy• China, India competitors• Passive participation of some members • Poor communication• Bureaucracy• Lack of transparency

Thank You