The European Union in International Trade

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The European Union in International Trade

• Grainne Tuohy
• School of International Business

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Lecture Outline

• Regional shares in world merchandise trade
• Preferential Trading Arrangements (PTAs)-
  definition, different types
• The effects of PTAs
• PTAs in the international economy APEC, NAFTA ,
  the EU
• EU External Trade Policy
• The WTO and Preferential Trading Agreements

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Regional Shares in world trade

• Tabular data DG Trade/WTO
• The EU the worlds leading trader?

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World Trade

• 50 years - world trade has grown 17 fold,
  production has quadrupled and per capita income
  has doubled
• EU is the worlds largest trading partner
• - accounts for over 1/5 of all exports
• -following SEM is one of the worlds most
  open markets
• - 320 million citizens future enlargement

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Leading Exporters

• US 16.8 share of world
• EU 20.1 share
• Japan 9.6

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Preferential Trading Arrangements

• Greater integration of world economies
• PTAs - tighter form of interconnection based on
  regional groupings of countries
• Trade Blocs - encourage trade amongst members but
  are they trade fortresses ?
• Forms of trade blocs FTA CU CM
• Why establish trade blocs?

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Economic Integration

• Free Trade Area reduce tariffs and quotas on
  trade between members but no CET
• Customs Union FTA plus CET
• Common Market CU plus common system of taxation
  common system of laws regulations free
  movement of capital labour open public
  procurement practices
• Monetary Union Economic and Monetary Union?
  Europe?

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The Effects of Customs Unions

• Static Effects trade creation trade diversion
• Dynamic Effects Economies of Scale
  External Economies of Scale Greater
  bargaining power Greater competition
  diffusion of technology
• Dynamic Disadvantages regional disparities
  increased monopoly power diseconomies of scale
  and admin costs

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Economic Integration

• Internal dynamic? minimal or maximal forms are
  the only stable levels. Why?
• Increased interdependence gt reduced ability to
  pursue independent policy - spillover effects gt
  gains and losses arise gt require co-operation gt
  greater integration
• Gains from coordination harmonisation of policy
  instruments and targets

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Preferential Trading in Practice

• Developing Countries
• Latin America - LAIA Andean Pact Central
  American Common Market MerCoSur
• Asian Free Trade Association

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NAFTA

• Established in 1993 - US, Canada Mexico
• Abolish tariffs no new NTBs existing NTBs in
  textiles and agriculture stay
• NAFTA FTA not a CU
• Gains - significant for Mexico less for US and
  Canada - job losses?
• FTAA?

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APEC

• ASEAN NAFTA China Australia New Zealand
• Likely to remain a FTA due to the very varied
  interests goals of participants

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The EU Customs Union or Common Market?

• A CU but is it a CM?
• Objective - peace welfare
• The CU stage in the EU 1958-85
• Article 3 of the TEEC gt member states shall
  remove customs duties quantitive restrictions
  on intra-EC trade and establish a CET
• Common Policies - agriculture and transport

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The Common Market Stage

• Mid 1980s - 1992
• Initial intention - to adopt common competition
  rules remove technical obstacles to trade -
  laws, regulations etc
• Market Segmentation different national
  standards, regulatory barriers to market entry,
  restrictions on trade of goods, services and
  factors, border controls public procurement
  practices

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The Single European Market

• 1985 White Paper on dismantling trade barriers
• The Single European Act 1986
• Remove internal barriers to trade
• Economic Social Cohesion
• Principle of mutual recognition

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The Benefits Costs of SEM

• Trade creation
• Reduction in direct costs border delays and
  administrative costs
• Economies of scale
• Greater competition

• Structural adjustment costs
• Regional disparities
• Monopoly power
• Trade diversion
• Loss of national sovereignty

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EU External Trade

• EU external trade as a of GDP has grown slowly
• Intra - EU trade has grown significantly -
  accounts for 60 of total trade for average EU
  country
• Bulk of EU external trade is intra-industrial in
  manufactures
• EU is the largest exporter of commercial services
  - 25 of total

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EU external trade

• Share of imports to GDP has increased since the
  completion of the SEM
• Degree of openness 12.4
• EU is almost as open as the US 13.4 and
  significantly more open than Japan 9

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Common Commercial Policy

• The Common External Tariff (CET) forms an
  integral part of the CU
• CET has been progressively reduced as a result of
  GATT rounds - averages 5 on manufactures
• Non Tariff Barriers important role in
  international exchange - Uruguay round
• High Barriers agriculture, textiles and
  clothing,high RD products

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The WTO preferential trading

• WTO same fundamental principles of GATT
  non-discrimination most favoured nation
  clause liberalisation fairness in competition
• Preferential trading an exception to the MFN
  principle
• Regionalism and multilateralism coexistence or
  conflict?

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