Summer School Europe Inside Out

Summer School Europe Inside Out EU External Trade Policy in Times of Regional Trade Agreements Prof. Dr. Jan Van Hove KU Leuven and INFER 1

Structure Europe s Recent Trade Performance in a Global Perspective EU External Trade Policy as motor behind globalization Implications for the Future 2

EU External Trade Policy in Times of Regional Trade Agreements EUROPE S RECENT TRADE PERFORMANCE IN A GLOBAL PERSPECTIVE 3

Evolution in world exports, production and GDP, 1950-2012 (level 1950=100) 35000 30000 25000 20000 15000 Exports Production GDP 10000 5000 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 4

Evolutions in World Trade Trade is an important phenomenon and a crucial reflection of globalization World trade boosted, in particular in recent decades thanks to many driving forces Policy = liberalisation of world trade Transportation: reduced costs, new technologies (including e.g. ICT) Entrepreneurship New players (e.g., emerging countries, multinationals ) New products, innovation etc. The global financial crisis of 2008-2009 caused a major disruption in global trade. 5

Total World Exports (billion USD), 2005-2012 (source: WTO (2013)) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 6

15.0 Annual growth in World Exports and World GDP (source: WTO, 2014) 10.0 5.0 0.0-5.0 1950-60 1960-70 1970-80 1980-90 1990-00 2000-10 2005-12 2010-12 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Exports GDP -10.0-15.0 7

Crisis and Global Trade Historical disruption due to the global crisis 2008-2009: sharp decline in world trade BUT: equally surprisingly fast recovery! Causes of the crisis (cfr. literature): Changes in world demand Reductions in capital expenditures Restrictions in trade finance Vertical specialisation and internationalisation of production 8

Crisis and Global Trade Given the spectacular recovery, should we decide that world trade is again what it used to be? Well actually it is not! 9

The Crisis and Exports by Region Level in 2005Q1=100 Source: WTO (2012) 10

Regions shares in global exports (source: WTO, 2014) 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 2005 2012 5.0 0.0 North America South and Central America Europe CIS Africa Middle East Asia 11

The Crisis and Imports by Region Level in 2005Q1=100 Source: WTO (2012) 12

Watching Europe (1) 50.000 45.000 40.000 Share of each region in total world exports 35.000 30.000 25.000 20.000 15.000 10.000 5.000.000 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 North America South and Central America Europe CIS Asia Other countries Declining position of Europe versus Fast rise of emerging economies, in particular Asia 13

Watching Europe (2) 1800 1600 1400 Evolution in total EU trade + evolution in intra-eu27 and extra- EU27 trade 1200 1000 800 600 400 200 0 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 Total EU27 export Intra-EU27 export Extra-EU27 export 1. Intra-EU trade is very important for EU! 2. Similar crisis-effect on intra-eu and extra-eu trade, although extra- EU trade shows better recovery! 14

Watching Europe (3) 80 70 60 Evolution in the percentage of intra- EU27 and extra EU27 exports in total EU27 exports 50 40 30 Intra-EU27 export Extra-EU27 export 20 10 0 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 Gradual, but clear tendency that extra- EU exports become more important 15

Watching Europe (4) 80 70 60 Evolution in percentage of intra-eu27 and extra-eu27 imports in total EU27 imports 50 40 30 Intra-EU27 import Extra-EU27 import 20 10 0 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 Analogous to exports: gradual, but clear tendency that extra-eu imports become more important 16

Europe in Global Trade World trade used to be dominated by western countries, but gradually emerging markets are taking over. The global crisis 2008-2009 seems to reshape global trade pattern: winners and losers! The crisis strengthens, rather than causes, this pattern. In particular, the share of Europe in world trade is declining, making the non-eu markets increasingly crucial for EU exporters and importers. Nevertheless, for now, the EU internal market remains the main market for EU traders. and EU remains a very important trader in the world economy! 17

Global trade network (2012, billion USD, source: WTO, 2014) Origin Destination World North America South and Central America Europe CIS Africa Middle East World 17930.00 3035.10 787.13 6564.00 549.82 580.02 713.76 5333.41 North America 2371.35 1151.41 216.93 379.92 17.98 37.67 75.05 488.25 South and Central America 749.63 186.80 201.85 127.53 8.25 20.94 17.02 172.10 Europe 6384.75 492.49 123.90 4382.83 245.35 210.79 208.29 642.56 CIS 805.25 37.05 7.09 430.00 148.69 13.85 20.30 126.81 Africa 630.01 73.86 30.33 240.44 1.77 80.89 17.12 159.68 Middle East 1349.43 118.02 10.79 148.19 7.15 39.38 115.65 731.58 Asia 5640.05 975.46 196.23 855.09 120.65 176.51 260.32 3012.45 Asia 18

12.0 10.0 TOP 10 Exporters of the World (2012, % in total world export, source: WTO (2014)) 8.0 6.0 4.0 2.0 0.0 19

TOP 10 Importers of the World (2012, % in total world imports, source: WTO (2014)) 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 20

TOP 3 Exporters en Importers (EU as a whole, only extra-eu, 2012, source: WTO, 2014)) 15.0 10.0 IMPORT 5.0 0.0 Extra-EU (27) China United States 20.0 15.0 10.0 EXPORT 5.0 0.0 United States Extra-EU (27) China 21

Geographical Orientation of EU Trade What are the main EU trading partners? (outside EU) 22

20 TOP-15 EU Export Partners 18 16 14 12 10 (2014, % of total EU exports, Eurostat (2015)) Transatlantic exports remain dominant! Neighbouring countries are important trading partners. 8 6 Emerging economies become important destination markets. 4 2 0 23

18 TOP-15 EU Import Partners 16 (2014, % of total EU imports, Eurostat (2015)) 14 12 10 8 Emerging markets become really main import partners. US and neighbours are much less important. Imports strongly driven by energy. 6 4 2 0 24

Trade Balance Is the EU trade balance in equilibrium? And did the crisis affect the EU trade balance? 25

Evolution in EU28 Trade Balance (billions euro, Eurostat (2015)) 300 200 100 0-100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-200 -300-400 Total EU Trade Balance (Goods & Services) Total EU Trade Balance (Goods) Total EU Trade Balance (Services) 26

EU Trade Balance: Main Findings EU trade balance shows a clear deficit, but recently recovery. Deficit was reduced during and after the global crisis. Deficit is caused by trade in goods and compensated by trade in services. Mainly driven by energy imports (and global energy prices) No problematic deficit! 27

Trade Balance EU27 Member States (mio euro, Eurostat (2012)) 200000 150000 100000 50000 0-50000 -100000 United Kingdom Spain Greece Poland Austria Cyprus Bulgaria Latvia Estonia Slovakia Czech Republic Belgium Ireland Germany -150000 28

12 10 8 Evolution in Current Account Balance (% of GDP, source IMF) Total EU trade balance is only slightly negative. Hence trade deficit with some Asian countries, in particular with China, can easily be absorbed (<-> USA!). Note: within Asia, especially India has a substantial trade deficit. Hence: crisis contributed to a restoration of global trade balances. 6 4 2 0-2 -4-6 -8 2004 2005 2006 2007 2008 2009 2010 2011 2012 EU27 USA China India Japan South Korea 29

Sectoral Specialization What are the main sectors of EU exports and imports? Any crisis effect? 30

Composition of EU Trade in Goods (2012, mio euro source: Eurostat, 2014) 2000000 1500000 1000000 500000 0-500000 Lack of endowments (raw materials and energy) cause a trade deficit in the corresponding sectors almost completely compensated by trade surpluses in other sectors. Jan Van Hove (2014) - The European Business Context Exports Imports Balance 31

Main Sectors Industrial exports and imports remain very important Energy imports are very substantial. Same import as export sectors are important Hence: substantial degree of intra-industry trade and hence (horizontal and vertical) diversification in traded goods. Hence: substantial and increasing degree of competition in many sectors and products 32

Sectoral EU Export Performance Concept of revealed comparative advantage (RCA) Values larger than 1 indicate an advantage Values smaller than 1 indicate a disadvantage Focus on the period 2008-2010 to look for crisis effects (European Competitiveness Report) EU performance relative to the world 33

EU RCAs (source: European Competitiveness Report, 2012) 2007 2008 2009 2010 Manufacture of food products 1.2 1.12 1.1 1.09 Manufacture of beverages 1.61 1.58 1.62 1.71 Manufacture of tobacco products 1.52 1.55 1.61 1.67 Manufacture of textiles 0.81 0.76 0.69 0.67 Manufacture of wearing apparel 0.76 0.76 0.76 0.74 Manufacture of leather and related products 0.96 0.9 0.91 0.88 Manufacture of wood and of products of wood and cork, except furni-ture; manufacture of articles of straw and plaiting materials 1.15 1.17 1.18 1.16 Manufacture of paper and paper products 1.28 1.3 1.35 1.35 Printing and reproduction of recorded media 1.2 1.61 1.79 1.88 Manufacture of coke and refined petroleum products 0.83 0.84 0.77 0.79 34

EU RCAs (source: European Competitiveness Report, 2012) 2007 2008 2009 2010 Manufacture of chemicals and chemical products 1.13 1.14 1.16 1.16 Manufacture of basic pharmaceutical products and pharmaceutical preparations 1.47 1.54 1.54 1.65 Manufacture of rubber and plastic products 1.18 1.21 1.18 1.19 Manufacture of other non-metallic mineral products 1.22 1.19 1.18 1.15 Manufacture of basic metals 0.92 0.88 0.82 0.86 Manufacture of fabricated metal products, except machinery and equipment 1.18 1.2 1.16 1.2 Manufacture of computer, electronic and optical products 0.6 0.6 0.57 0.57 Manufacture of electrical equipment 0.98 0.98 0.98 0.97 Manufacture of machinery and equipment n.e.c. 1.14 1.17 1.18 1.16 Manufacture of motor vehicles, trailers and semitrailers 1.22 1.22 1.3 1.28 Manufacture of other transport equipment 0.85 0.87 1.15 1.21 Manufacture of furniture 1.27 1.23 1.2 1.13 Other manufacturing 0.8 0.81 0.75 0.77 35

EU Export Performance by Sector Clearly the EU has a comparative advantage in: Paper and printing/ reproduction industries Food-beverage-tobacco (cfr. cultural goods ) Wood industry Chemicals and in particular pharmaceuticals Cars Some metal products Some machinery Crisis did not fundamentally alter the EU s revealed comparative advantages only some minor changes in 2009 (up and down)! 36

EU Export Performance by Sector Clearly the EU has a comparative disadvantage in: Textiles Leather Petroleum products Basic metals Basic machinery These patterns are in line with the theoretical predictions: EU has a comparative advantage in capital- and knowledge-intensive sectors. It has a comparative disadvantage in labour-intensive sectors. However: a lot of intra-industry trade! Hides differences across EU member states! 37

Growth in intra-eu exports, 2001-2012 (year 2001=100, source: Eurostat, 2014) 450 400 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom 38

Slovakia Lithuania Latvia Bulgaria Poland Romania Czech Republic Cyprus Estonia Slovenia Hungary Netherlands Germany Sweden Austria Spain Greece Portugal Belgium Denmark Italy Luxembourg Malta France Finland United Kingdom Ireland Level of intra-eu exports in 2012 relative to 2001 (=100) 0 50 100 150 200 250 300 350 400 450 39

Growth in intra-eu exports, 2001-2012 (year 2001=100, source: Eurostat, 2014) 400 350 Selection of Countries 300 250 200 150 100 50 Germany Ireland Greece Spain France Italy Portugal Romania United Kingdom 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 40

Growth in extra-eu exports, 2001-2012 (year 2001=100, source: Eurostat, 2014) 900 800 700 600 500 400 300 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom 41

Latvia Slovakia Lithuania Estonia Czech Republic Poland Romania Bulgaria Hungary Greece Portugal Slovenia Netherlands Spain Cyprus Luxembourg Belgium Malta Germany Austria Denmark Italy Sweden United Kingdom France Finland Ireland Level of extra-eu exports in 2012 relative to 2001 (=100) 0 100 200 300 400 500 600 700 800 900 42

Growth in extra-eu exports, 2001-2012 (year 2001=100, source: Eurostat, 2014) 450 400 350 300 250 200 150 100 50 0 Selection of Countries 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Germany Ireland Greece Spain France Italy Portugal Romania United Kingdom 43

Comparing EU member states Similar pattern in intra-eu and extra-eu trade performance, extra- EU trade has increased more. Similar crisis effect on all EU member states. Substantial variation in trade performance of EU member states Most striking: Strong export performance in new EU member states, both intra-eu and extra-eu, in new EU member states: 1) catching-up process cfr. integration in the EU economy 2) but also strong export performance in European as well as global markets = renewed competitiveness! 3) Focus on EU market remains strong. 44

Comparing EU member states Diversity among crisis countries (PIGS, PIIGS) Ireland (export platform economy) shows weak export growth performance. Greece and Portugal do remarkably well. Spain does better than Italy. Some large economies, in particular France, UK, Italy do not perform very well in terms of export growth. Role of deindustrialisation and lack of competitiveness. Also Finland does not perform well cfr. general problems in the Finnish economy. Export performance strongly related to economic growth performance. 45

Relationship between Economic Growth and Export Growth Performances in EU27 Export Performance (growth between 2001 and 2012, level 2001 = 100) (2012 vs. 2001) 600 500 400 300 200 100 0-30 -20-10 0 10 20 30 40 Change in Convergence to EU Average (% Change in GDP per capita (PPS) level compared to EU28 average, 2012 versus 2001) 46

EU External Trade Policy in Times of Regional Trade Agreements EU EXTERNAL TRADE POLICY AS MOTOR BEHIND GLOBALIZATION 47

EU External Trade Policy Important steps in EU external trade policy: 1968: establishment of the European Customs Union Free trade among European Economic Community member states: formal barriers to trade disappear Common external trade policy, i.e. policy towards non-ecc countries 1986: European Single Act Establishment European Single Market (gradual) removal of technical barriers to trade: major accomplishment, but still an ongoing job! Liberalisation of services provision (and trade) 48

EU External Trade Policy Institutional responsibilities: European Commission European Commissioner for external trade (currently: Cecilia Malmström ) Directorate-General for Trade (DG Trade) Strong interaction with the member states (cfr. national interests) Increased role for European Parliament since the Treaty of Lisbon EU External Trade Policy in practice: Decisions about use of trade policy instruments But more importantly: international negotiations on (multilateral and bilateral) trade agreements: aiming at better market access for EU firms in non-eu markets! 49

Main Principles of EU Trade Policy EU = member of the World Trade Organisation (WTO) Forum to discuss multilateral trade liberalisation Based on principles of Most Favourite Nation Equal (national) Treatment European Commission responsible for EU trade policy (EU customs union since 1968) However: more recently, clear shift to regionalism Due to slow progress/ failure of the WTO negotiations in the latest Doha Development Round Due to worldwide popularity of regional trade agreements 50

Main Principles of EU Trade Policy Reflection of preferences by EU member states Balanced trade policy, a compromise Regional trade agreements (including the EU!!!) allowed by the WTO under art. 24 of the GATT Why? Building blocks for multilateral trade (vs. stumbling blocks ) EU external trade policy more offensive than defensive : more oriented towards promoting exports than towards limiting imports. Picture of Fortress Europe only holds for agriculture, and even then Key objective: MARKET ACCESS FOR EU FIRMS 51

Main Principles of EU Trade Policy Hence EU external trade policy NOT about protecting the EU economy ( protectionism except for agriculture and a few exceptions) MAINLY about improving market access for EU firms and products on global markets Reducing formal barriers to trade Reducing informal barriers to trade too! 52

Main Principles of EU Trade Policy Active use of trade defence instruments Anti-dumping, anti-subsidies and safeguards Makes trade policy relatively sophisticated Especially directed towards Asia (and mainly China!) Asian countries are becoming users of these instruments too! Some recent cases: E.g. solar panels, agglomerated stone with China E.g. glass fibres with India and Indonesia E.g. steel fasteners with China and Malaysia -> Main affected sectors: chemicals, textiles, iron and steel 53

How important are Tariffs in actual Trade Policy? Tariffs decreased worldwide = result of WTO! But: Still the main trade policy instrument (cfr. tariffication policy of the WTO) Fundamental instrument in many other trade policies too (e.g., trade defence) Still very relevant in some sectors, in particular agriculture Example: EU external trade policy 54

Summary EU Tariffs (source: WTO, 2014) Summary Total Ag Non-Ag WTO member since 1995 Simple average final bound 5.2 13.7 3.9 Binding coverage: Total 100 Simple average MFN applied 5.5 13.2 4.2 100 2012 Non-Ag Trade weighted average 2011 2.7 8.6 2.3 Ag: Tariff quotas (in %) 11.3 Imports in billion US$ 2011 2,171.4 130.6 2,040.8 Ag: Special safeguards (in % ) 23.9 55

60.0 50.0 EU Tariffs by Sector (source: WTO, 2014) 40.0 Average Applied MFN Tariff (2012), in % 30.0 20.0 10.0 0.0 56

700 600 EU Max. applied MFN Tariffs by Sector (%, source: WTO, 2014) 500 400 300 200 100 0 57

Summary Tariffs EU faces on Exports (2012, %, source: WTO, 2014) Agricultural products Simple Average MFN Tariff Weighted Average MFN Tariff 1. United States 7.1 2.2 2. Russian Federation 18.7 17.8 3. Japan 26.5 11 4. Switzerland 39.6 16.4 5. China 15.8 11.3 Non-Agricultural products Simple Average MFN Tariff Weighted Average MFN Tariff 1. United States 3.5 1.1 2. China 8.9 7.8 3. Switzerland 2.3 1.4 4. Russian Federation 9.4 9 5. Turkey 4.4 4.1 58

Most Recent EU Trade Policy: Trade Defence Defending EU firms against unfair practises by foreign firms/governments Within the WTO framework EU = active player, especially against emerging countries In terms of trade and welfare effects: very similar to tariffs 59

Number of New Investigations and Reviews regarding Anti- Dumping and Anti-Subsidy by EU Commission (EC (2013)) 40 35 30 25 20 15 New Investigations Reviews 10 5 0 2009 2010 2011 2012 60

2009 2010 2011 2012 Argentina 0 0 0 2 Belarus 0 0 1 0 Bosnia and Herzegovina 0 1 0 0 Brazil 0 0 0 0 China 7 10 8 7 India 2 3 3 2 Indonesia 0 1 0 3 Iran 2 0 0 0 Kazakhstan 0 0 1 0 Korea 1 0 0 0 FYROM 0 0 0 1 Malaysia 2 1 0 0 Oman 0 0 2 0 Pakistan 2 0 0 0 Russia 0 0 1 0 Saudi Arabia 0 0 2 0 Taiwan 1 0 0 1 Thailand 2 1 0 1 Turkey 0 0 1 1 Ukraine 0 0 0 1 U.A.E. 2 0 0 0 USA 0 1 2 0 TOTAL 21 18 21 19 New Anti-dumping and Anti-Subsidy Investigations initiated by the EU by Country of Export (EC (2013)) 61

Main Principles of EU Trade Policy Strong focus on regional trade agreements Lack of progress in multilateral negotiations Easier to control than multilateral trade talks More flexible in terms of topics More strategic in terms of gradual liberalisation, exceptions etc. Strong focus on large and emerging economies: US and large emerging countries: agreements with South Korea, Singapore, Canada (CETA), negotiations with USA (TTIP), Japan, India, Malaysia, Thailand, Vietnam etc. = reflects the fact that main partners and emerging countries are a top priority for the EU = creates new trade opportunities for the future Similar RTA-trend in many other countries! 62

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EU Regional Trade Agreements Strong trade creation effects are expected from Transatlantic Trade and Investment Partnership (TTIP) = a comprehensive agreement between the EU and the US on trade and investments More than just a trade agreement! Dealing with liberalisation of trade in services and, often related to that, regulatory barriers to trade will be challenging 64

EU Regional Trade Agreements Classical regional trade agreement (RTA) Focus on free trade, i.e. reducing formal barriers to trade, in particular tariffs Recent EU RTAs: increasingly focus on: Informal barriers to trade, e.g. Country of origin rules Fair competition for European business on foreign markets Trade-related issues, e.g. Intellectual property protection Environmental protection In two directions!!! -> so stimulates both exports and imports for the EU 65

Overview of EU RTAs (1) source: DG Trade (2016) Faroe Islands - 01 January 1997 Norway - 01 July 1973 Iceland - 01 April 1973 Switzerland - 01 January 1973 The former Yugoslav Republic of Macedonia - Stabilisation and Association Agreement, 01 May 2004 Croatia - Stabilisation and Association Agreement, 01 February 2005 Albania - Stabilisation and Association Agreement, 01 April 2009 Montenegro - Stabilisation and Association Agreement, 01 May 2010 Bosnia and Herzegovina - Interim Agreement on trade and trade related matters, 01 July 2008 Serbia - Interim Agreement on trade and trade related matters, 01 February 2010 Algeria - Association Agreement, 01 September 2005 Egypt - Association Agreement, 01 June 2004 Israel - Association Agreement, 01 June 2000 Jordan - Association Agreement, 01 May 2002 Lebanon - Interim Agreement, 01 March 2003 Morocco - Association Agreement, 01 March 2000 66

Overview of EU RTAs (2) source: DG Trade (2016) Palestinian Authority - Association Agreement, 01 July 1997 Syria - Co-operation Agreement, 01 July 1977 Tunisia - Association Agreement, 01 March 1998 Chile - Association Agreement and Additional Protocol, 01 February 2003 (trade) / 01 March 2005 (full agreement) Mexico - Economic Partnership, Political Coordination and Cooperation Agreement, 01 July 2000 South Africa - Trade, Development and Co-operation Agreement, 01 January 2000 CARIFORUM States - Economic Partnership Agreement, Provisionally applied Ivory Coast - Interim Economic Partnership Agreement, Pending Cameroon - Interim Economic Partnership Agreement, Pending Korea - New Generation Free Trade Agreement, signed 06 October 2010 Papua New Guinea and Fiji Interim Partnership Agreement, May 2011 Iraq Partnership and Cooperation Agreement, signed on 11 May 2012 Central America - Association Agreement, signed 29 June 2012 Peru - Colombia - Free Trade Agreement, signed 26 July 2012 Canada- EU (2014) Customs Unions with Andorra (1991), Turkey (1995) and San Marino (1992) 67

Debate on TTIP (and other Trade Agreements) 68

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Bilateral Trade Agremeents: to be or not to be? ADVANTAGES Deep, fast and efficient way of trade liberalisation with a specific partner Potentially substantial trade creation effects Ad hoc approach and flexibility Dynamic effects (e.g., strong link with investments, innovation, ) DISADVANTAGES Strong trade diversion, hurting other trade partners (vs. multilateral trade liberalisation) -> discriminatory and inefficienty way of liberalisation Complex and non-transparent web of agreements -> longterm consequences? Potentially unequal effects on the import and export side -> ambiguous welfare effects 76

TTIP: why so sensitive? Familiarity with the partner New type of trade agreement -> future template in US-EU trade negotiations Touches upon long-standing issues (e.g., in food sector, different approaches in chemical and pharma sector) Strong competitors Both strong economies with global political power Some proposals are (too) far-reaching 77

TTIP: why yes? SOCIO-ECONOMIC ARGUMENTS Very important bilateral trade relation A relatively small liberalisation will have large absolute effects PLUS: liberalisation in other sectors, notably services = argument within the traditional approach of trade liberalisation Flexibility w.r.t. topics and timing Going beyond traditional trade liberalisation Gradual approah can soften consequences Positive welfare effects (?) 78

Impact Assessment of RTAs Many people interested in the impact of RTAs (policy makers, companies, trade unions, employees, customers, researchers, etc.) Hard to measure the impact of RTAs 2 Methodologies stand out: Ex ante analysis: based on simulation in a general equiilbrium model Ex post analysis: based on analysing differences in RTAtrade and non-rta-trade in a partial equilibrium model 79

TTIP: why yes? STRATEGIC ARGUMENTS Global context: Lack or progress in the World Trade Organisation Rise and performance of new players in the world economy Idea of global standards is attractive Global = US-EU standard in the TTIP thinking = argument within new trade liberalisation 80

Economics of Regulatory Differences Home Market Bias Regulatory Differences Adaptation Costs for Producers Higher Price, Less Choice or Late Availability for Consumers Unfair playing field for Companies Less Trade or Investment Price Differentiation Inefficiencies maintained 81

Evidence of Transatlantic Regulatory Differences Differences in regulations as well as in regulation philosophy EU regulatory hunger versus market-oriented approach in Anglo-Saxion countries Regulations as instrument of strategic trade policy Some regulatory differences are merely red tape! 82

Regulatory Cooperation Various kinds of regulatory cooperation possible NO cooperation, but ACCEPTANCE of differences = mutual recognition Full harmonization common regulations (new or existing ones) Partial harmonization: agreement to differ on some aspects Cfr. process of building the EU internal market 83

Regulatory Cooperation Economic Perspective: Adaptation Cost Perspective: full harmonization is the best option General Welfare Perspective: it depends Evaluation of trade-off between fundamental aims of regulation and its potentially devastating impact on trade = long and hard process at detailed levels! 84

Some Conclusions on the TTIP Debate Hard to predict the (exact) impact of TTIP Because ex-ante simulations are not always reliable (and very sensitive to the assumptions made) Because exact content of TTIP is unknown Regulatory liberalisation has clear advantages, but full liberalisation would violate different preferences and traditions in the EU and the US Regulatory liberalisation can take many forms, going from mutual recognition till full harmonization. 85

Some Conclusions on the TTIP Debate Objections against regulatory cooperation/liberalisation shouldn t determine the final judgement of TTIP. TTIP is about more than regulations. Tariff liberalisation and reducing red tape is still very useful! TTIP should be a framework agreement rather than a very precise agreement. Fast trade & investment deal = bad trade & investment deal! Reconciling trade facilitation and other welfare goals takes time! 86

EU External Trade Policy in Times of Regional Trade Agreements IMPLICATIONS FOR THE FUTURE 87

Some Conclusions and Discussion Europe s absolute trade performance is very strong, but Europe s relative position in the world is deteriorating. The crisis accelerated that trend. Emerging markets are becoming relatively more important. Global markets are increasingly important for EU companies. Cfr. top priority in EU trade policy: market access! -> extra-eu exports are increasing, absolutely as well as relatively. From European business to Global business: substantial part of emerging markets exports are driven by western multinationals. 88

Some Conclusions and Discussion Most EU countries recovered rather well from the crisis, even countries severely hit by the crisis. However: substantial differences in export growth performance Strong catching-up in Central and Eastern Europe, for exports as well as imports. Especially strong performance within the EU Will these countries be able to translate that success into more global business? Crisis did not fundamentally change Europe s comparative advantages and disadvantages. Hence the specialization pattern was not affected by the crisis. 89

Some Conclusions and Discussion The old Europe is searching for a new position in a changed global context. Defensive strategy: relying on its traditional competitive advantages Offensive strategy: preparing the EU economy for the future Recent evolutions in Europe s performance in a global business context point to substantial and many challenges. Coping with new players Defending existing products or developing new ones? (role of technology and innovation) More active policy stance required? 90

Some Conclusions and Discussion EU has a tradition of trade openness (active role in World Trade Organisation, active negotiators of bilateral trade and investment deals ) will trade openness save Europe s future? Fear for globalization At least, globalization will lead to structural shifts in the EU economy with consequences for jobs, welfare, company structures, production dynamics, location reallocations, dynamic specializations etc. 91