The "Value" of Europe in the World of Global Value Chains Signe Ratso Director DG Trade, European Commission
Outline Europe's role in World Trade Changing Nature of World Trade Main factors of Competitiveness Value Added of European Goods and Services Role of trade in growth and jobs EU trade agenda
The EU is the world's biggest trading power Countries who have the EU, the US, China or Japan as their most important trade partner EU as first trade partner US as first trade partner China as first trade partner Japan as first trade partner 3
EU remains a trading power 15.5 % of world trade (in goods) in 2011 First exporter 14.9% (2011) Largest importer 16,1% (2011) EU-27 received 241.7 bn in FDI 2011 (ranking 1 st before US 226.9 bn) 4
Europe has broadly maintained its position Trade in merchandise (% of global trade) Trade in services (% of global trade) 30% 30% 25% 25% 20% 20% EU excluding oil and gas 30% 30% 25% 25% 20% 20% 15% 15% 15% 15% 10% 10% 10% 10% 5% 5% 5% 5% 0% 0% 0% 0% EU China US Japan 5
M Major changes in World Trade More trade in Global and Regional Value Chains Economies of scale more important EU Single Market effects 86% of EU exports based on domestic value added 55% of VA of EU exports come from the services sector
Estonian trade in Value-added terms Estonia well integrated into regional and global VC 67% domestic content in exports Foreign content highest in metals, electrical equipment,textiles and clothing 50% of Estonian exports reflect services Highest VA exports to the US
Changes in World Growth Centres By 2015 95% of world growth outside Europe, 1/3 of it in China Asia an important hub for Regional Value Chains Asian economic cooperation about to change global economic architecture
Regional Value Chains in Asia on the Rise
Europe's Response Gross trade flows matter less than trade in VA R&D, innovation, business services with high VA content, quality management help to climb up the value chain FTAs with new growth centres help to benefit from regional VC
Europe's ability to add value in global supply chains is key iphone 4S: where is it made? Estimated costs of components: $ 188 $ 80 South Korea $ 23 United States $ 21 $ 16 Chinese Taipei Germany $ 48 Other Assembly costs: $ 8 China Source: IHS isuppli, OECD (2012) 12
Member States' export performance varies Export performance 2000-2010 Changes in the share of the world export market (in %, 2000-2010) Changes in the share of the total exports of EU countries (in %, 2000-2010) 170 150 130 110 % 90 70 50 Gains 30 10 FR UK IT ES NL BE SE AT DK EL FI PT IE CY MT EU US JP -10 DE PL CZ RO HU SK LU BG SI LT LV EE China Losses -30 13
Competitiveness starts with the Right Policies at Home All EU Member States benefit from the Single Market still their competitiveness varies Domestic policies like education, labour market, R&D, innovation and attractiveness to business matter EU 27 doing largely better than EU 15
EU investments into R&D R&D by the private sector much lower than that of its competitiors OECD, Main Science and Technology Indicators, 2011
Innovation moving to China
EU Trade Agenda Bilateral agreements State of play Ukraine Mexico Cariforum Euro- Med EFTA Turkey Balkans South Korea Central America Columbia Peru Cameroon Ivory Coast Eastern & Southern Africa Singapore Papua New Guinea Fiji Chile South Africa Agreements in force Negotiations concluded 18
Bilateral agreements the way ahead Canada Eastern partners United States Euro-Med Gulf countries 5 African regions Thailand India Malaysia Vietnam Japan Other ASEAN Pacific Mercosur Negotiations ongoing Negotiations under consideration 19
EU trade agenda is really ambitious Share of EU trade covered by Free Trade Agreements (FTAs) 100% 75% 65% 50% 48% 25% 24% 30% 0% 2006 (Re-launch of FTAs) Today (completed FTAs) Tomorrow (including on-going negotiations) Beyond tomorrow (including negotiations to be launched) 20
Trade contribution to Growth and Jobs All planned FTAs' contribution to the EU GDP over 2% - the size of the economy of Austria or Denmark More than 2 mn jobs (1/10 of currently unemployed)
Engaging with developed economies: the examples of the US and Japan Most integrated and largest economic relationship in the world Massive levels of mutual investment stocks: 2 800 bn, 15 million jobs Potential to boost EU GDP by 1% Unique opportunity to open up a major economy and boost our presence in Asia Potential to boost EU GDP by 0.6% Very ambitious preparation and mandate for negotiation Huge potential on regulatory aspects Non-tariff barriers and regulatory aspects also important 22
Engaging with emerging economies: the examples of China and India A challenging relationship but clear mutual interest Strongest growth in EU exports in recent years Biggest potential: 1/3 of global growth in the next 15 years Focus on investment, IPR and procurement Opportunity to anchor a large emerging economy in a significant trade agreement High level of protection against EU interests; high prospects Challenging negotiations: now depending on India's capacity to deliver 23
Exports and job creation across the EU % of total employment (2007) EU average: 10% Around 25 million jobs in Europe are directly dependent on our exports to the rest of the world Source: European Commission IPTS-Sevilla (N. Sousa et al. forthcoming study)
Exports are key for job creation in EU 30 25 18.6-27.1 Mio jobs 9.3-12.1% of total employment 27.1 14% 13% 20 12.1% 12% 18.6 11% 15 10 9.3% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Employment generated by exports % / total employment 10% 9% 25
EU Countries take advantage of extra EU exports in 2 ways - Directly from their own exports - Indirectly from the exports of other MS through the intra-eu supply chain (SPILLOVER) 26
Benefits from Spillover Effects Germany is the centre of the bilateral spillovers New/small Member States main spillover recipients Estonia a net recipient of spillover (28.000 jobs created in Estonia vs 9000 jobs in other MS Largest shares in trade with FI,SE, DE)
Conclusion EU is still a trading power but its position is not secured forever Growth and innovation are moving out of Europe In order to remain competitive the EU should increase its attractiveness via completing its Single Market (services), boosting competition, undertaking necessary structural reforms (inc in MS) concerning labour, education etc. and taking advantage of its ambitious trade agenda Link R&D and innovation more to the business sector Improve business climate (less red tape) Quality management at micro level