European integration : Where do we stand? What are the Challenges? By Dr. Peter Moser Director of the Research Unit for Economic Policy,Professor for Economics at the University of Applied Sciences HTW Chur, Switzerland September 16, 2008 during 1.30-4.00 pm At Meeting Room, 2 nd Floor Faculty of Business Administration, Chiang Mai University page 1
Activities page 2
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Evaluating the Guest Speaker 1. The guest speaker s presentation style. 4.08 excellent 2. The quality of reading material/visual aids. 3.83 most satisfied 3. The guest speaker s general manner when dealing with the group. 4.00 most satisfied 4. How well the guest speaker listened and understood? 3.75 most satisfied 5. The guest speaker s enthusiasm about the topic/session. 3.92 most satisfied 6. How well the guest speaker answered any questions that were asked? 7. Whether the guest speaker allowed enough time for discussion/ questions 4.25 excellent 4.00 most satisfied Overall evaluating the guest speaker 3.98 most satisfied page 5
Evaluating Course Content 1. Did you find the course informative? 2. Was all the material covered relevant? 3. Was the length of the course adequate? 3.92 most satisfied 4.00 most satisfied 4.08 excellent Overall evaluating course content 4.00 most satisfied page 6
Evaluating the Training Environment 1. The room was suitable for this type of training. 4.08 excellent 2. The room was satisfactory in terms of temperature and light. 3.92 most satisfied 3. The refreshments and lunch provided were appropriate. 4.00 most satisfied 4. The administration of the course was sufficient in terms of information, confirmations and assistance. 4.00 most satisfied Overall evaluating the training environment 4.00 most satisfied page 7
Handout European Integration Where do we stand? What are the challenges? What can other regions learn? Dr. Peter Moser Professor of Economics University of Applied Sciences HTW Chur, Switzerland page 8
University HTW Chur is located in the middle of Europe Page 9
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Faculties and Fields of Competencies of HTW Chur Construction and Design Information Science Telecommunications and Electrical Engineering Management Media Regional Development 1400 Students Tourism 850 Bachelor Students Page 11
My main points on European integration 1. The weight of the EU in the world 2. The main achievements 2.1. Peace 2.2. Common market 2.3. The Euro 2.4. Agricultural and foreign trade policy 3. The major challenges 4. What can Asia learn from the EU? Page 12
Extension of the European Union, 2008 Page 13
1. The weight of the EU in the world EU US China Population (in millions, 2008) GDP (in billion PPP USD, 2007) Growth of GDP (at current prices, 1996-2006) Exports (of merchandizes and services in billion USD, 2006) Gold medals at the olympic games in Beijing 498 305 1 326 14 712 13 844 6 991 2.2 3.0 8.4 1 995 1 435 1 060 87 36 51 Page 14
The view of the Global Competitiveness Report (2007/08) Ranking Country Ranking Country 1 USA 20 Belgium 2 Switzerland 22 Ireland 3 Denmark 25 Luxembourg 4 Sweden 26 Ireland 5 Germany 27 Estonia 8 Finland 29 Spain 9 UK 33 Czech Republic 10 Netherlands 34 China 15 Austria 38 Lithuania 16 Norway 40 Portugal 18 France 46 Italy Page 15
2. The main achievements of the EU: Peace (1 st step) Rotterdam, 1940 Page 16
Custom union vs. free trade agreement: The EU custom union prevailed and included the EFTA-countries in 1973 IS IRL UK DK NL B D L N S EEC-9 FIN P F I CH A EFTA-7 E GR Page 17
Peace (2 nd step): A divided Europe has been united East German Guard Towers Page 18
The EU supported the transformation of the countries of Eastern Europe to constitutional democracies and market economies. until 1989 since 2007 Page 19
2.2. The common market as a pacemaker The four freedoms 1. Free trade for goods 2. Free trade for services 3. Free movement for persons 4. Free movement for capital And two supportive policies Competition policy Regional policy Page 20
Free trade for goods Creation of a custom union Elimination of custom duties and fees among member countries No discrimination with respect to taxes Adoption of common custom tariffs applied to third country imports Abolition of non-tariff barriers Elimination of quantitative restrictions Elimination of measures having equivalent effects to quotas: Rule of origin or mutual recognition Harmonization Elimination of internal border control (Schengen) Coordination of value added taxes Coordination of police control Page 21
Example: Banking services Mutual recognition of banking permissions A banking permit of only one member country is necessary for providing banking services in the EU. Harmonization Banks need a capital of at least 5 million Euro and a capital ration of 8% of the risk bearing assets. Banking supervision Banks have to be supervised by their national banking supervisers for the whole business in the EU. Page 22
Free movement for persons Free movement of workers Free access to employment Right to stay after employment Right to reside freely for students, pensioners (and EU-citizens in general?) Freedom of establishment Freedom to exercise an occupation Right to establish a firm, subsidiary or branch Principle Equal treatment (employment, social security, taxation,...) Recognition of diplomas and equivalent qualifications Harmonization of certain qualifications (e.g. medicine, pharmacy, architects) Page 23
A disputed issue: Trade creation vs. trade diversion Member countries Third countries Competitive Markets (Viner) Imperfect competition Trade creation Trade diversion Lower prices due to more competition economies of scale Trade diversion Stronger competition from suppliers of member countries Page 24
Evidence of trade effects: Gravity models 1. In general no trade diversion: Exports from the EU to third countries and imports of the EU from third country are higher than explained by the usual variables. Exports to third countries increased from 6.9% of EU GDP in 1992 to 13.7% in 2006. (external trade creation!) 2. Internal trade creation: Trade between EU members is also higher than explained by the usual variables (recent research suggest doubling after 15 years) 3. Exception agriculture: Some trade diversion took place with respect to agriculture, particularly with the accession of the UK. Page 25
Increasing trade within regions 1980 1990 2000 2006 EU 61 66 66 66 NAFTA 34 41 56* 54* MERCOSUR 12 9 20 16 Andean 4 4 8 10 ASEAN-6** 17 19 24 24 Intra-regional trade (average of exports and imports as a % of a region s world trade. * Exports only. ** Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand Source: WTO 2003, 2007 Page 26
With who should Thailand enter FTAs? Share of Import Share of Export ASEAN (6 and 4) 19.6 20.9 China 10.6 9.0 Japan 20.1 12.7 Korea 4.0 2.0 India 1.3 1.4 Australia 2.7 3.3 United States 6.7 15.0 EU (25) 8.7 15.4 WTO, trade policy review of Thailand, 2007, data for 2006
Unfounded fears: Labor mobility is low 1. Labor mobility within the EU is weak. Only about 1.5% of the EU-population lives in another EU-country. Polish Immigrants are leaving the UK again. 2. Within the EU, white collar workers make more use of the freedom to move than blue collar workers. 3. Reasons for the low degree of mobility: Income convergence, labor market regulations, language barriers, family considerations. 4. Immigration into the EU is important. There are twice as much non EU foreigners in the EU than EU-citizens living in another EU-country. Page 28
Supportive policies 1: Competition policy Cartel agreements Prohibition of agreements that prevent or restrict competition: division of markets price fixing exclusive purchase or supply Case: Lift and escalators (Otis, Kone, Schindler, Mitsubishi), fine of 990 m. Dominant market Position Prohibition of the abuse of dominant market positions Examples: restricting output price discrimination limit competition in another market Case: Microsoft (497m ) Merger control The Commission can block or alter the terms of a merger. Criteria: Merger leads to market dominance 20 prohibitions: GE and Honywell MCI and Sprint Volvo and Scania Gencor (South Africa) and Lonroh Page 29
Supportive policies 2: Regional policy Index, EU-25 = 100 < 30 30-50 50-75 75-100 100-125 >= 125 Canarias (E) Guadeloupe Martinique RÈunion (F) (F) (F) Guyane (F) AÁores (P) Madeira (P) 1. Funds for 2007-13: 347 billion or 37% of EU budget 2. For regions with GDI lower than 90% of EU- 27 average 3. European Investment Bank Kypros SIG16 Page 30
2.3. The European Monetary Union 15 EU-countries are member of the euro zone 5 EU-members have pegged their currencies to the euro 23 states and territories have currencies that are directly pegged to the euro including 14 countries in mainland Africa The euro has a 25% share of global foreign exchange reserves Page 31
The Euro is a success story so far Inflation rate are not much above target rate of 2 % Exchange rate fluctations to the USD are in the normal range Economic shocks have been mostly symmetric Trade effects are about 9%, but also for non- Eurozone countries However, the real test may come soon Page 32
2.4. Agricultural and foreign trade policy Textiles and clothing Transport equipment Leather, rubber, shoes & travel gds Chemicals and photographic supplies Electric machinery Non-agricultural articles n.e.s. Mineral products, precious stones Metals Non-electric machinery Wood, pulp, paper and furniture 12 22 17 23 14 14 12 10 10 10 Average High Dairy products Grains Live animals and products thereof Tobacco Coffee and tea, cocoa, sugar, etc. Fruit and vegetables Beverages and spirits Fish and fishery products Oil seeds, fats, oils and their products Other agricultural products Cut flowers and plants 19 26 75 71 76 76 101 114 150 192 210 0 50 100 150 200 250 Source: WTO s Treade Policy Review, EU 2004. Page 33
Not only the EU is protecting its farmers Applied average tariff rate for agricultural goods (2007) Average bound rates for agricultural goods in the WTO EU 15.0 15.1 United States 5.5 5.0 China 15.8 15.8 India 34.4 114.2 Thailand 22.1 40.2 WTO, Trade profiles 2007 Page 34
The EU has been reforming its agricultural policy substantially Billion euros 45 40 35 30 25 20 15 10 Market supports Direct payments Major reform steps: massive shift from price support to direct payments linked to environmental and food safety conditions (cross compliance) Prices are market driven, but still protected by tariffs 5 0 1991 2001 EU cut export subsidies, since no longer needs to dump surpluses on world markets Page 35
EU foreign trade is based on preferential treaties and in other regions with Mexico Chile South Africa Others in negotiation Page 36
4. The major challenges of the EU 1. Further enlargements? Membership of Turkey, Ukraine, Conditions are clear: functioning market economy, democracy, the rule of law 2. Institution building EU is between international organization and federal state (complex decision making, missing leadership) Difficult to set up a simple constitution that is supported by its citizens 3. Interlinking regional trading blocks EU was the pioneer in preferential trade agreements Complex rules of origins Page 37
Preferential trade agreements are wide spread Page 38
4. What can Asia learn from European Integration? Stepwise economic integration creates huge opportunities for firms and rises the welfare of countries. Economic interdependence supports mutual understanding and therefore promotes peaceful methods of solving conflicts. European Integration is based on rules that are applied uniformly by the European Court of Justice. Are Asian country ready for such an approach? European integration is based on some degree of solidarity among different European regions (regional policy). Political integration is much more difficult to achieve: The EU is not developing to a United States of Europe. Page 39