MGMT 450 - ch 10
Demographic Challenges
"Demography is destiny" Demographic trends suggest significant changes in market opportunities, national competitiveness -Major European countries becoming older, less populous -Comprehensive "cradle to grave" social safety nets become more expensive
old EU legislative process
"the Commission proposes, the Parliament advises, and the Council disposes."
Treaty of Lisbon
(or the Reform Treaty), which adopted many of the governance changes proposed by the Constitutional Convention. Important changes included creating a full-time President of the European Council, permitting a reduction in the size of the European Commission, and strengthening the powers of the European Parliament. The Treaty of Lisbon also granted national legislatures the formal right to voice concerns about proposed EU legislation.
Goals of the WTO
-Promote International Trade -Reduce Trade Barriers -Resolve Trade Disputes
REI's Impact on Firms
-Promote competition among firms ->Firms from country A can sell in country B ->Firms from country B can sell in country A -Helps consumers -Attracts FDI seeking insider treatment -All may reap economies of scale -May raise internal and external competitiveness of members firms
WTO challenges
-The General Agreement on Trade in Services (GATS) -Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) -Trade-Related Investment Measures Agreement (TRIM) -Enforcement of WTO Decisions -Deadlock over the Doha Round Negotiations -Opposition to WTO Actions
Uruguay Round
1. Average tariffs fall from 4.7% to 3% 2. Restrict antidumping laws 3. Textile quotas phased out over 10 years 4. Increased intellectual property protection 5. Reduce agricultural subsidies 6. Reduced barriers to trade in services 7. Audio-visual excluded 8. Created World Trade Organization (1995)
Two Exceptions to MFN Principle
1. For LDCs Generalized System of Preferences 2. Regional Economic Integration (REI) arrangements
Treaty of Rome
1957 creates the European Economic Community (EEC) Six members ->Germany, France, and Italy BeNeLux nations
Expansion of the ECC
1973: Denmark, Ireland, and the UK (EC 9) 1981: Greece 1986: Spain and Portugal (EC 12) 1995: Austria, Finland, and Sweden (EU 15) (Norway voted not to join) 2004: ten new members (Cyprus, Malta, Slovenia, seven Soviet bloc) 2007: Bulgaria, Romania 2013: Croatia Ireland joining changed the game let greece, spain, and portugal join for political reasons (support democracy)
Other ways "broke the log jam"
1986: White Paper on Completing the Internal Market 1987: Single European Act--"Europe Without Frontiers"
Single European Act
1987 amendment to the Treaty of Rome mandates adoption of common rules in 279 different areas by Dec. 31, 1992 (EC '92) EC adopts common rules, but the rules are implemented by independent actions of the national governments basically a common market (finally)
European Union
28 member countries (27 members after UK exits in 2019) 512 million people GDP: $17.3 trillion (2017) world's largest trading bloc; world's second largest economy
common market
A common market eliminates internal trade barriers among members and adopts a common external trade policy toward nonmembers. It also eliminates barriers that inhibit the movement of factors of production among members.
customs union
A customs union eliminates internal trade barriers among its members and adopts common external trade policies toward nonmembers. The uniform treatment of products from nonmember countries minimizes the trade deflection problem.
free trade area
A free trade area eliminates trade barriers among its members; however, each member establishes its own trade policies against nonmembers. As a result, they are vulnerable to trade deflection, in which nonmembers reroute exports to the member nation with the lowest external trade barriers. To counter this problem, most free trade agreements specify rules of origin, which detail how a good is classified as a member good or a nonmember good.
political union
A political union is the complete political and economic integration of two or more countries, thereby effectively making them one country. ex/ USA vs independent colonies under the articles of confederation
economic union
An economic union represents full integration of the economies of two or more countries. Members eliminate internal trade barriers, adopt common external trade policies, and abolish restrictions on the mobility of factors of production among members. In addition, an economic union requires its members to coordinate their economic policies in order to blend their economies into a single entity.
The General Agreement on Trade in Services
Another challenge facing the WTO is reducing barriers to trade in services. The Uruguay Round developed a set of principles under which such trade should be conducted.
BeNeLux nations
Belgium, the Netherlands, and Luxembourg
Brexit
Biggest problem facing EU in short-run Symptomatic of the EU's major challenges Can the EU respond to the needs of those who don't benefit from globalization? Will Brexit lead to systematic changes?
What will the EU be in twenty years?
Broad regional market where most efficient and productive firms from Member states grow prosperous, benefiting consumers from increased competition Powerful political entity; all Europeans operate under the same set of laws Where does power reside: in Brussels or the national capitals?
Conflicts with the United States
Common agricultural policy Subsidies to Airbus/Subsidies to Boeing TV broadcasting/film imports Genetically modified foodstuffs
European Economic Area
Common market created by the EU and Iceland, Liechtenstein, and Norway
Governance Challenges
Constitutional Convention July 2003 goal: more powerful EU President and new position of minister for Foreign Affairs Reduce scope of unanimity rule in Council decisions Strengthen powers of European Parliament Rejected by French, Dutch voters in Spring 2005
1993 Treaty of Maastricht: creation of an economic union
Creation of European Monetary Union European Political Union Common defense policies Common foreign policies Cohesion Fund Name in common usage changes from EC to EU
European Monetary Union
Creation of single currency called euro--physically available January 1, 2002 European Central Bank controls monetary policy for 19 countries (all "old" EU but UK, Denmark, and Sweden) (and newcomers Estonia, Latvia, Lithuania, Slovakia, Slovenia, Cyprus, and Malta) Single currency reduces exchange rate risk and hedging costs what goal--fight inflation or fight unemployment?
Maastricht Treaty
December 1991 "the Treaty on European Union" "treaty of Rome of 1991" The most important aspect of the Maastricht Treaty was the establishment of the economic and monetary union. Its major task has been to create a single currency, called the euro, to replace existing national currencies. The creation of the euro reduced exchange rate risks and currency conversion costs of firms doing business in the eurozone. However, creation of a single currency was not without controversy.
European community
Designed to be a common market Actuality: 1957-1992: customs union 1992-1999: common market 2000+: economic union???
Goals of the Treaty of Rome
Eliminate tariffs and nontariff barriers among the members Develop a common external trade policy Improve the mobility of labor and capital within the EEC in short, create a "Europe without Frontiers"
Agreement on Trade-Related Aspects of Intellectual Property Rights:
Entrepreneurs, artists, and inventors have been hurt by inadequate enforcement by many countries of laws prohibiting illegal usage, copying, or counterfeiting of intellectual property. These problems are particularly widespread in the music, filmed entertainment, and computer software industries.
who opposed the WTO?
Environmentalists and human rights activists, for instance, believe that the WTO needs to incorporate more sensitivity to environmental and human needs in its decision making. Labor unions and workers' groups fear that the WTO's decisions weaken their bargaining power and threaten their members' job security.
ASEAN Free Trade Area (AFTA)
Established in 1992 to reduce tariffs on trade between member countries of the Association of Southeast Asian Nations (ASEAN).
The WTO
Established: January 1, 1995 Headquarters: Geneva, Switzerland Membership: 164 Countries
EU governing institutions
European Council—heads of governments (sets EU political agenda) Council of the European Union—national governments European Commission--EU-wide view European Parliament--little power originally, but grabbing new powers European Court of Justice--interprets EU law and national laws affecting the EU
NAFTA
FTA among U.S., Canada, and Mexico (1994) tariffs phased out over 15 years politically sensitive industries excluded energy in Mexico culture in Canada broadcasting, some transport in U.S.
what came after ITO?
GATT
GATT
General Agreement on Tariffs and Trade Formed at the 1947 Havana Conference the deal collapsed after the US was worried about loss of sovereignty
Why is the European Community important to us?
Huge market for U.S. exports Large investment by U.S.-based multinational corporations Increase in European manufacturing efficiencies -Ending of restrictive, conflicting national regulations -Economies of scale Rise of global industries -Two-edged sword
The Mercosur Accord
In 1991, the governments of Argentina, Brazil, Paraguay, and Uruguay signed the Mercosur Accord. These countries agreed to set common external tariffs and to cut internal tariffs on goods that account for 85 percent of intra-Mercosur trade. Bolivia, Colombia, Chile, Ecuador, Peru, and Venezuela later joined Mercosur as associate members.
Ireland's reaction to lisbon reforms
Ireland: feared lessening of powers of smaller countries Threatened Ireland's low corporate income tax rates Irish Catholic Church feared EU might promote abortion and gay marriages Irish farmers fearful that beef import tariffs would be lowered
Functions of the European Commision
It proposes legislation to be considered by the Council. It implements the provisions of the Treaty of Rome and other EU treaties. It protects the EU's interests in political debates, particularly in Council deliberations. It has extensive powers in implementing the EU's customs union, the Common Agricultural Policy (CAP), and the completion of the internal market. It administers the EU's permanent bureaucracy, which employs about 38,000 people—popularly known as "Eurocrats"—two-thirds of whom work at Commission headquarters in Brussels. Because the EU has 24 official languages, its translation budget is more than $1 billion a year. It employs 1,750 linguists, who cumulatively are capable of translating any official language into any other official language—a possible 276 combinations.
Most Favored Nation (MFN) Clauses
Keystone of GATT is reliance on most favored nation (MFN) clauses MFN: one nation treats a second nation no worse than it treats any third nation. All GATT members must use MFN principles in dealing with other GATT members.
Lisbon Reforms
Lisbon reforms (2007) follow "period of reflection": essentially re-do of the Constitutional Convention Rejected by Irish voters in June 2008; approved in 2009 revote
cohesion fund
Means of funneling economic development aid to countries whose per capita GDP is less than 90 percent of the EU average designed to help the poorer regions come up to speed and be more like the rich nations -> Euro was born
What does most of the EU budget go towards?
Most of the budget goes to subsidies aka redistributing money
was ITO successful?
Nah
how does regional integration benefit the national economy but hurt individual sectors?
Negotiating any form of economic integration, therefore, is not easy. Special-interest groups may lobby against it. As a result of such internal political pressures, few economic integration treaties are pure, as most contain some exemptions to quiet politically powerful domestic special-interest groups.
Regional integration from the viewpoint of an individual firm
On the plus side, lowering tariffs within the regional trading bloc opens the markets of member countries to all member country firms. Firms lower their average production and distribution costs by capturing economies of scale as they expand their customer base within the trading bloc. Lower costs also help the firms compete in markets outside the trading bloc. However, elimination of trade barriers also exposes a firm's home market to competition from firms located in other member countries, thus threatening less-efficient firms.
Pros of Economic Integration on Firms
Open Markets of Member Countries Lower Production and Distribution Costs Improve International Competitiveness
What powers has the european parliament gained?
Over the years, the Parliament has used its budgetary powers to enlarge its influence within the EU's governing institutions. It has also gained additional powers under the Maastricht, Amsterdam, Nice, and Lisbon Treaties. Because many Europeans are concerned about the lack of accountability in the EU's programs and the lack of democracy in its decision-making processes, the role of the European Parliament is likely to expand and its powers grow over time.
The EU's sources of Revenue
Own revenues (primarily import duties) VAT-based revenues (complex scheme based on country-based VAT taxes) GNI-based revenues (uniform percentage of members' GNI) (about 2/3rd of total budget) Miscellaneous revenues (interest on deposits, etc.—1% of budget)
Rodrik's Globalization Paradox
Political trilemma of the world economy nation state vs deep economic integration vs democratic politics
co-decision procedure
Procedure that shares decision-making power between the European Parliament and the Council of the European Union These are big checks and balances basically to keep big countries from attacking little countries and keeping all the little countries from ganging up on big countries.
How did the EU eliminate conflicts and make slow progress in creating common market? did it work?
Relied on harmonization: member states should work together to bring regulatory rules closer together Didn't work: each country fought for using its own rules as the EC-wide standard
Roots of the EU
Roots lie in the 1952 European Coal and Steel Commission
Why didn't Norway join the EU
Scared the EU would take control of their fisheries and where they fish
who has control? governance challenges
Subsidiarity -devolution vs. sanctity of internal market Lack of checks and balances -Accountability of bureaucracy? -Parliamentary perks Elitism vs. democracy -European Commission gaining power—but who elected them? -role of European Parliament -EU officials fear referenda
Council of the EU
The Council of the European Union is composed of 28 representatives, each selected directly by and responsible to his or her home government. The Council is the EU's most powerful decision-making body. In most Council decisions, a weighted voting system is used. The allocation of votes is in rough proportion to the population and economic clout of the members. Some Council decisions require unanimous approval. On matters perceived to be less threatening to national interests, Council decisions require only a qualified majority for passage.
European Commision
The European Commission is composed of 28 people, one from each member state, selected for five-year terms. However, their loyalty is to the EU itself, not to their home countries. The Commission is the "guardian of the Treaties."
European council
The European Council consists of the following: heads of state or government from each of the member states, the President of the European Council, and the President of the European Commission. In addition, the EU's High Representative of the Union for Foreign Affairs and Security Policy participates in its meetings. Normally convening twice every six months, the European Council shapes the EU's political priorities and policy agendas. Its decisions are usually based on consensus, unless EU treaties require a different voting rule.
European Court of Justice
The European Court of Justice consists of 28 judges who serve six-year terms. The judges are selected jointly by the governments of the member states. The Court interprets EU law and ensures that members follow EU regulations and policies.
European Parliament
The European Parliament currently comprises 748 representatives elected to serve five-year terms. Seats are allocated in rough proportion to a country's population. Of the EU's governing bodies, the Parliament was originally the weakest, playing only a consultative role in EU policy making. Has gained powers over time
Enforcement of WTO Decisions
The enforcement power of the GATT was notoriously weak. Under WTO rules, a country failing to live up to the agreement may have a complaint filed against it. If a WTO panel finds the country in violation of the rules, the panel will likely ask the country to eliminate the trade barrier. If the country refuses, the WTO will allow the complaining country to impose trade barriers on the offending country equal to the damage caused by the trade barrier. Furthermore, the offending country is not allowed to counter-retaliate by imposing new trade barriers against the complainant.
Doha Round
The failure of the WTO to break the deadlock over the Doha Round negotiations has raised some concerns about future reductions in trade barriers and the future effectiveness of the WTO.
Trade-Related Investment Measures Agreement
The trade-related investment measures (TRIMS) agreement in the Uruguay Round is but a modest start toward eliminating national regulations on FDI that may distort or restrict trade.
cons of economic integration on firms
Threaten Less-Efficient Firms Harms Specific Sectors in the Economy Affects Powerful Special Interest Groups
International Trade Organization
To ensure that the post-World War II international peace would not be threatened by trade wars, representatives of the leading trading nations met in Havana, Cuba, in 1947 to create the International Trade Organization
WTO trading principles
Trade... -without discrimination -freer -predictable -more competitive -beneficial for less-developed countries
European Free Trade Association
Trading bloc in Europe that works closely with the EU to promote intra-European trade; current members are Iceland, Liechtenstein, Norway, and Switzerland
Fiscal barriers to completing the internal market
VAT rates duty-free shoppes
GATT vs WTO
WTO has stronger enforcement powers ->Under GATT, nation had to agree to be penalized for trade sins ->Under WTO, injured nation can impose penalties on sinning nation WTO has broader mandate ->Services; TRIPs; TRIM
Economic Challenges
Weakened macroeconomic tools -"One size fits all" monetary policy -Stability and Growth Pact-3% of GDP deficit -Lacks US interregional stabilizers Weak crisis management mechanisms -EU slow to respond to Global Recession of 2008-9 -State aid; national champions Labor markets and social Europe -Structural unemployment a challenge -Strong social safety net vs. role of free market
screwdriver plant
a factory in which little transformation of a product is undertaken
Asia-Pacific Economic Cooperation (APEC)
an international trade alliance that promotes open trade and economic and technical cooperation among member nations includes 21 countries from both sides of the Pacific Ocean. It was founded in 1989 in response to the growing interdependence of the Asia-Pacific economies.
Treaty of Nice
became effective in February 2003. It continued the integration process by making modest adjustments in the EU's governance arrangements. For instance, the treaty reduced the number of areas where unanimity is required for Council approval; yet, more significant steps were needed to reform the EU's decision-making processes. Therefore, EU members established a Constitutional Convention to resolve these conflicts. Unfortunately, the proposed Constitution was defeated in May 2005.
Stated goal of the treaty of rome
create a common market
Economic Community of West African States (ECOWAS)
created by 16 West African countries to promote regional economic cooperation. Although these groups were established during the 1970s and early 1980s, they have not had a major impact on regional trade. Intra-Africa trade to date accounts for less than 12 percent of the continent's total exports. This is due to inadequate intraregional transportation facilities and the failure of most domestic governments to create economic and political systems that encourage significant regional trade.
5 convergence criteria
criterial imposed on EU members wishing to adopt the Euro as their national currency 1. inflation rate <1,5% avg 3 EU countries w/ lowest rates 2. long term int rate <2% higher than avg lowest 3 in EU 3. must be member of ERM II for 2 years 4. govt budget deficit <3% its GDP 5. outstanding govt debt <60% its GDP
Physical barriers to completing the internal market
customs control border paperwork enforcing national regulations
rules of origin
detail how a good is classified as a member good or a nonmember good. regulations determining which products qualify for preferential status within a regional trading bloc
Political goal of EU
economic integration a means to restore Europe's historical geopolitical primacy
Southern African Development Community (SADC)
free trade area created by 12 Southern African countries
rules of origin very important in NAFTA
generally, substantial transformation required 62.5% local content in autos "yarn forward" in textiles side agreements on labor and environment
mutual recognition
legal concept created by the European Court of Justice; implies that if one EU member determines that a product is valid for sale within its borders, then other EU members must also recognize its validity and allow it to be sold within their borders
Growth and stability pact
limits annual govt deficits of eurozone participants to no ore than 3% of GDP
Cassis de Dijon case
mutual recognition (policy adopted by one member state should be recognized as valid by all other member states) Story: German law said couldn't import bc didn't have 20% alcohol so not a liquor EU said NO France says it is legit therefore under the treaty of rome, YOU have to agree that is legit too
trade deflection
nonmembers reroute exports to the member nation with the lowest external trade barriers.
Caribbean Basin Initiative
overlaps two regional free trade areas: the Central American Common Market and the Caribbean Community and Common Market. The CBI permits duty-free import into the United States of a wide range of goods that originate in Caribbean Basin countries, or that have been assembled there from parts produced in the USA. However, politically sensitive goods have been excluded from the CBI, such as textiles, canned tuna, apparel, and petroleum.
real goal of the treaty of rome
peace and prosperity
5 Forms of regional economic integration
political union economic union common market customs union free trade area
Tobin Tax
popular name of a currency transaction tax, propose by James Tobin in the 1970s, as a means of reducing destabilizing trades, slowing down speculation, and promoting more long-term investing.
Technical barriers to completing the internal market
product standards mobility of labor testing requirements
UK's position aka Economic goal of EU
promote economic efficiency through free trade
Economic and Monetary Community of Central Africa (CEMAC)
promotes regional economic cooperation in Central Africa.
GATT -> General Agreement on Tariffs and Trade
provided a forum for trade ministers to discuss policies and problems of common concern. In January 1995, it was replaced by the World Trade Organization, which adopted the GATT's mission.
European Central Bank
responsible for controlling the monetary policy for all EU countries adopting the Euro as their currency
The Andean Community
resulted from a 1969 agreement to promote free trade among Bolivia, Chile, Colombia, Ecuador, and Peru. Venezuela joined the pact in 1973, but Chile dropped out in 1976. During its first 20 years, however, the agreement was not very successful. In 2005, the Andean Community negotiated a cooperative agreement with Mercosur members.
problem with trade deflection
screwdriver plants (factories assembling parts mfg'd elsewhere, with little value added)
Treaty of Amsterdam
signed in 1997. Its most important components include the following: a strong commitment to attack the EU's high levels of unemployment; a plan to strengthen the European Parliament; and the establishment of a two-track system, allowing groups of members to proceed with economic and political integration faster than the EU as a whole.
Central America-Dominican Republic Free Trade Agreement
signed in 2004. It reduced tariffs, NTBs, and investment barriers among the United States, El Salvador, Costa Rica, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
powers when co-decision process is not used
the process is simpler and the Parliament's power is weaker.
Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER)
took effect on January 1, 1983. Over time, it has eliminated tariffs and NTBs between the two countries. The CER has also fostered cooperation in marketing, investments, tourism, and transportation. Most analysts believe the CER has been one of the world's most successful free trade agreements.
unanimous approval vs qualified majority
unanimous approval->such as entry of new members, taxation, foreign and security policy initiatives, and amending EU treaties. On matters perceived to be less threatening to national interests, Council decisions require only a qualified majority for passage.
Harmonization
voluntary adoption of common regulations, policies, and procedures by members of a regional trading bloc to promote internal trade
Association of Southeast Asian Nations (ASEAN)
was established in 1967 to promote regional political and economic cooperation. Its founding members were Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. During the 1990s, Cambodia, Laos, Myanmar, and Vietnam joined. ASEAN increased its stature in the world market in 2003 by signing a free trade pact with China, with the first set of tariff cuts commencing in 2004. To promote intra-ASEAN trade, members established the ASEAN Free Trade Area (AFTA), in 1993