The Economics of European Integration (Winter Term 2020) Assignment 2 The creation of the Single Market is often described as a step towards deeper European integration. How would you define “deep...

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The Economics of European Integration (Winter Term 2020) Assignment 2 The creation of the Single Market is often described as a step towards deeper European integration. How would you define “deep integration” in one sentence? Give three examples of policies to promote deeper integration within the European Union. Using the beaker diagram (below), explain why labour migration can increase total output and which groups are winners and losers from labour migration. The assignment on one side of a single sheet of paper is due at 5pm on Tuesday 14th. July - no extensions. Relations with Non-members Relations with Non-members Competition Policy Thursday 9 July 2020, 11.10 – 1pm Competences From the start the EU has had exclusive power to set trade policy agreement on tariff ↓, but early issues included differing national interests on post-colonial relations differing attitudes towards other non-members → trade policy and foreign policy overlapping (e.g. on relations with Greece and Turkey) → problems of pyramid of preferences (partners worried about their place in the hierarchy) and complexity, As CET↓, tariff preferences became less relevant. Moreover, in the transition from GATT to WTO (1995), preferential tariffs came under greater scrutiny – esp one-way preferences. 2015 Trade for All – a new vision of trade policy towards non-members Old-style Trade Policies: The Pyramid of Preferences EC had no common foreign policy – used trade policy to strengthen external ties: EC-EFTA free trade in manufactures (1972) Global Mediterranean Policy (1972) Yaoundé (Lomé) Conventions provided special treatment to ex-colonies in Africa, the Caribbean and the Pacific Generalized System of Preferences (1971) MFN tariff only applied to seven trading partners in 1970s. non-market economies had worse than MFN treatment Yaoundé & Lomé Conventions The 1963 Yaoundé Convention systematized relations with former colonies and the 1975 Lomé Convention extended it to include ex-British colonies – referred to as the African, Caribbean and Pacific (ACP) countries - and open to non-ex-colonies: Generally free access for manufactures, s.t. RoO of c50-60% (& excluding t&c) CAP products excluded, except for a special regime for sugar Some stabilization schemes for minerals, Note 1: manufactures not important for most ACPs, and RoOs were a large burden (e.g. to Mauritius) Note 2: other terms fairly ad hoc (as was ODA) The Generalized System of Preferences (1971) The EU was a promoter and supporter of GSP as an exception to GATT rules on non-discrimination, but when it came to devising the EU’s GSP scheme, it had little to offer. To keep Lomé beneficiaries distinct, EC GSP tariffs were 0 Criticism of both GSP and Lomé tariff preferences = easy access for aircraft etc, but not for t&c or ag – the two things that low-income countries are most likely to export. a problem with donor-determined assistance – developing countries would benefit more from low MFN tariffs in relevant goods (starting to happen since 1995 – slowly). The Global Mediterranean Policy Relations with Mediterranean countries grew haphazardly: Algeria part of France in 1957 Greece association agreement in 1961 Turkey association agreement in 1963 Portugal in EFTA (free trade in manufs after 1972) Maghreb agreements → Mashrek agreements What about Israel, Cyprus and Malta? 1972 Global Mediterranean Policy Free trade in manufactures (largely unilateral) Special arrangements for CAP products Problems of the Pyramid of Preferences The EU used preferential treatment as a foreign policy tool to favour some countries, but: partners worried about their place in the hierarchy And with ↓CET and limited flexibility on CAP, there was little room for manoeuvre. Complexity = a trade barrier, MFN tariffs were almost least-favoured (applying to 7 partners, who were generally close allies!) Formation of WTO (1995) promised firmer treatment against discriminatory policies, such as the Lomé Convention Meanwhile . . . The EU was preoccupied in the 1970s and 1980s and 1990s The Snake and EMU (tomorrow’s class) Absorbing new members (1973, 1981, 1986, 1995) Implementing the Single Market program (EC92) 1986-92 Reacting to the end of Communism in Eastern Europe (1991 onwards) Etc. What to do about trade relations with non-members was reactive, at best. The Cotonou Partnership Agreement, 2000 The Lomé Convention, which had been renewed and extended to 2000 was WTO-incompatible because it was neither a FTA nor was it extended to all developing countries (i.e. GSP). Negotiations were difficult because the ACP countries wanted to retain preferential access to EU markets did not want to open their economies to free access to EU goods The outcome was a hybrid “partnership agreement” devoted to development goals but light on specifics The African, Caribbean and Pacific (ACP) Countries The Economic Partnership Agreements (EPAs), which have replaced the trade regime of the Cotonou and Lomé Conventions, intend to support trade diversification by shifting ACP countries' reliance on commodities to higher-value products and services. The majority of ACP countries are either implementing an EPA or have concluded EPA negotiations with the EU. the EPA process involves seven regional configurations: West Africa, Central Africa, Eastern and Southern Africa (ESA), East African Community (EAC), Southern African Development Community (SADC), CARIFORUM, and the Pacific region. although negotiations are often bilateral with individual nations Development policy rather than trade policy? Generalized System of Preferences - today In 2012 the EU reformed its GSP scheme in order to focus support on developing countries most in need. The GSP provides a general GSP arrangement and two special arrangements:   The "Standard GSP" grants duty reductions for circa 66% of all EU tariff lines to countries of low or lower-middle income status, which do not benefit from other preferential trade access to the EU market. there are currently 30 Standard GSP beneficiaries.   The Special Incentive Arrangement for Sustainable Development and Good Governance ("GSP+") grants complete duty suspension for essentially the same 66% of tariff lines as the Standard GSP, for countries especially vulnerable in terms of their economies' diversification and import volumes. beneficiary countries must ratify and effectively implement 27 core international conventions. As of November 2016, there were nine GSP+ beneficiaries (Armenia, Bolivia, Cabo Verde, Georgia, Mongolia, Pakistan, Paraguay and the Philippines).  The Everything But Arms ("EBA") special arrangement grants full duty-free, quota-free access for all products except arms and ammunition, for countries classified by the UN as least-developed countries. there are currently 49 EBA beneficiaries. EEC-EFTA free trade in manufactures With deepening (EC92 program), proposal in 1988-9 was to replace the 1972 FTA by the more comprehensive European Economic Area, The EEA Agreement was signed on 2 May 1992 by the then seven EFTA and twelve EC members. Meanwhile, however, Austria had applied for full EEC membership in 1989, followed by Finland, Norway, Sweden, and Switzerland between 1991 and 1992 (Norway's EU accession was rejected in a referendum).  On 6 December 1992, Switzerland rejected the EEA agreement in a national referendum (and then froze its EU application). Switzerland’s relations with the EU now rest on bilateral agreements  On 1 January 1995, three ex-members of the EFTA (Austria, Finland and Sweden) joined the EU. Today the contracting parties to the EEA are 3 of the 4 EFTA member states and the 28 EU members. Relations with European Non-members The European Economic Area (EEA) Agreement with Iceland, Liechtenstein and Norway, permits these countries to participate in the internal market for free movement of goods, services, capital and labour. The EU also has customs unions with Andorra, San Marino and Turkey. with Switzerland, the EU has several bilateral agreements covering, inter alia, trade in industrial and agricultural and processed agricultural products, public procurement, research, taxation of savings, technical barriers to trade, and free movement of persons. Trade and Investment Pre-2007 trade was an EU competence, investment a national competence Individual EU countries signed bilateral investment treaties (BITs) whose terms vary → attempts to coordinate BITs and trade and investment (e.g. in 2007 Lisbon Treaty) Although the Australia-EU FTA, now being negotiated, excludes investment because it is not an EU competence Problem = in a world of GVCs, any policy may affect competitiveness and trade. Trade for All: Towards a more responsible trade and investment policy - adopted by the Commission on 14 October 2015 Trade for All The new trade policy supports: the growth of global value chains, the increased importance of services trade, the growth of e-commerce, which is seen as a promising area for more opportunities for SMEs to expand their markets The EU wants to integrate investment rules into its broader trade agreements; prior to the entry into force of the Lisbon Treaty investment protection agreements were negotiated exclusively by EU member States. a challenge for the EU's reformed investment policy is to ensure dispute settlement procedures are fair and independent (as reflected in FTAs with Canada and Viet Nam). The new trade policy addresses growing concerns of the general public on transparency and perceived challenges to certain societal values. any agreement will not require EU members to reduce the level of any public services such as water, education, health and social services. The Commission will encourage the Council to disclose negotiating mandates, publish draft chapters submitted to its negotiating partner, and reveal finalized texts earlier. Also: the EU will step up its efforts to promote a fact-based debate within the member States and enhance its dialogue with civil society. the EU wants to do more to show the impact of an FTA after it has been applied. EU's applied MFN tariff summary, 2016 Number Simple ave(%) Tariff range (%) standard deviationShare of duty-free lines (%) Share of non-ad valorem tariffs (%) Total 9,414 6.3 0-695.5b 12.1 26.1 10.6 HS 01-24 2,456 14.2 0-695.5b 21.7 15.3 38.3 HS 25-97 6,958 3.7 0-35.6 3.7 30.0 0.8 By WTO category WTO agricultural products 2,075 14.1 0-695.5b 23.7 19.1 46.4 Animals and products thereof 351 19.4 0-132.5 21.3 15.1 68.7 Dairy products 151 35.6 2.8-695.5b 65.0 0.0 100.0 Fruit, vegetables, and plants 508 13.0 0-169.9 13.9 11.8 16.9 Coffee, tea, and cocoa and cocoa preparations 47 11.3 0-18.7 6.7 14.9 51.1 Cereals and preparations 230 14.9 0-76.9 11.9 8.7 80.0 Oilseeds, fats, oil and their products 174 6.0 0-103.5 10.4 35.6 6.9 Sugars and confectionery 44 26.8 0-172.7 37.5 4.5 88.6 Beverages, spirits and tobacco 305 12.8 0-76.8 15.9 18.0 55.4 Cotton 6 0.0 0-0 0.0 100.0 0.0 Other agricultural products, n.e.s. 259 5.8 0-168.7 16.0 51.0 22.0 WTO non-agricultural products 7,339 4.3 0-26.0 4.4 28.1 0