EU306 lecture slides9 - REGIONAL POLICY "...the...

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Unformatted text preview: REGIONAL POLICY "...the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favored regions or islands, including rural areas" Treaty Establishing the European Community, 1958 Introduction When deeper European integration took off in the 1950s rural Europe was very poor Europe's rapid economic growth mainly benefitted cities and a few industrial regions Concern for rural Europe a major concern for founders of the EU Introduction (cont.) The problems of poor regions are not historical there are still enormous gaps among the EU15 regions in terms of average incomes These differences are especially visible after the enlargement of 2004 and 2007 Europe's Economic Geography Europe is a highly centralized continent as far as economic activity is concerned For ex. W. Germany + Benelux + NE France + SE England = 1/7 of EU's land but 1/3 of population and of its economic activity This area is the economic center of Europe (the "core") The other regions (the "periphery") have 65% of land, 40% of population but only 20% of economic activity Reg. Land Pop. GD Unemp. Youth % % P % Rate Unemp. (EU27= Rate 100) (EU27= 100) 14 33,2 47,2 74 60,5 95,3 Share of pop. With income above EU27 average 88,8 70,3 Core Interm 21,1 25,5 31,7 101 . Periph 64,9 41,3 21,1 120,8 eral 134,2 18,1 Why Care About the Peripheral Regions? Low economic performance (when compared to other regions) Higher unemployment (especially among the young) Only 20% of people have aboveaverage incomes (compared with 90% for core regions) Geographic Income Inequality The distribution of income per person in the EU is very uneven geographically EU27: Bulgaria and Romania's GDP per capita is $11,100 (2007 estimates of CIA World Factbook) while Luxembourg's GDP per capita is $80,800 EU25: Lithuania's GDP per capita is $16,700 EU15: Greece's GDP per capita is $30,500 Differences exist between the different regions of the EU regardless of when they joined Geographic Income Inequality (cont.) The disparity is even greater when looking at subnational regions Ex. Within the UK, inner London has a per capita income 166% higher than the EU25 average while Merseyside, has 30% lower income than the EU25 average These differences are also visible in other areas such as Spain and Italy The narrowest gap is found in Sweden, however there are still significant differences among the regions Income Inequality Among the Regions Although the differences among nations seems to be narrowing income inequality among the regions is growing From 19831993 regional inequality rose in every member state with the exception of the Netherlands 1990s the trend continued (with the exception of Finland) The enlargement of 2004 and 2007 greatly increased regional income disparity In the EU15, the top 10% rich regions have an average income that is 180% higher than that of the bottom 10% poor regions In the EU25, this number rises to 340% EU Regional Policy Regional Policy arises out of this concern for Europe's disadvantaged regions For the first 3.5 decades of EU's existence this task of helping lessfavored regions was left in the hands of national governments During the 1950s, 1960s and 1970s national governments spent huge sums on rural infrastructure Ex. They built roads, rails and universities in less favored regions and brought electricity and telephone grids to every city, town and village EU Regional Policy (cont.) EU funding to these regions was negligible for a long time 1970 structural spending was only 3% of budget 1980 it rose to 11% In the first decades of the Union, the budget was mostly concentrated on CAP spending EU Regional Policy The accession of the first poor member, Ireland, in 1973 brought about a new fund the European REgional Development Fund (ERDF) but with a minor budget With the accession of Greece, Spain and Portugal the situation was changed EU spending priorities had to be changed to benefit these states The voting power of Spain, Portugal, Ireland and Greece was sufficient to produce a major realignment of EU spending policies EU spending on poor regions rose sharply in the midtolate 1980s EU Budgetary Expenditures, 1965 2006, CAP vs. Structural Funds 100 90 80 70 60 50 40 30 20 10 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 CAP Structural Funds When the issue of monetary union was raised before the Maastricht Treaty, the "poor4" again managed to obtain a significant increase in regional spending Done with the creation of a new fund the Cohesion Fund that could only be spent in Greece, Ireland, Spain and Portugal The justification: tighther economic integration would mostly favor Europe's industrial core so peripheral regions should be compensated by a big increase in EU money for poor regions Between 19861993 structural spending doubled its share of the EU budget The share of the EU budget going to poor regions rises in tandem with the share of poor countries' votes in the Council of Ministers The EU now spends 1/3 of its budget on less favored regions Although politics does play a role in allocation the EU has a set of guidelines, objectives and principles that help channel the spending Instruments, Objectives and Guiding Principles Most EU regional spending is channelled through 5 "funds": 4 Structural Funds and 1 Cohesion Fund These funds have an overall strategy aimed at fighting unemployment and stimulationg growth in poor regions The 4 Structural Funds can be spent in any qualified EU region The Cohesion Fund directly funds individual environmental and transport projects only in Ireland, Greece, Spain and Portugal The Structural Funds 1. 2. 3. 4. The 4 Funds: The European Regional Development Fund The European Social Fund Finances infrastructure, job creating investments, local development projects and aid for small firms Helps the unemployed and disadvantaged people to get back to work (mainly by financing training measures and systems of recruitment aid) Helps to adapt and modernize the fishing industry The Financial Instrument for Fisheries Guidance The Guidance Section of the European Agricultural Guidance and Guarantee Fund Finances rural development measures and aid for farmers, mainly in lessfavored regions What is the Structural Spending Spent on? 1. Objective 1: (70% of spending) basic infrastructure and production subsidies in lessdeveloped regions (regions whose per capita GDP is less than 75% of EU average EU15 about 50 Objective 1 regions 20% of EU 90% of the money is spent on 3 priority "objectives": population Spending of Objective 1: infrastructure (30%) half in transport infrastructure ; human resources (30%) priority in employment policies and education and training systems; aid for the production sectors (40%) 1. Objective 2: (10% of funding) concerns projects in 2. regions whose economies are specialized in declining sectors such as coal mining, fishing and steel production the spending is supposed to support economic and social conversion 18% of pop. Lives in Obj. 2 areas Objective 3: (10% of funding) concerns measures aimed at modernizing national systems of training and employment promotion covers all EU regions except Obj. 1 regions. Eligible measures: active labor market policies to fight unemployment, the promotion of social inclusion and equal opportunities for men and women adn employability via lifelong education systems EXTERNAL TRADE POLICY 1. While the commercial policy originally focused on tariffs and other border measures as they affected trade in goods the policy today is much more diverse External Trade Policy of the EU impinges on 1/5th of world trade External Trade Policy Policies affecting trade in services and the conditions influencing foreign investment have become increasingly important Since tariffs have been reduced due to multilateral trade negotations other policy issues have become important (ex. Intellectual property, technical standards and regulations, competition policy, labor standards and environmental policy) 1. EU commercial policy has developed a highly complex set of trade relations with third countries The resulting hierarchy of preferential trade schemes has been determined by a mixture of trade, strategic and foreign policy concerns in which the conflicting interests of member states, as well as hard bargaining between the Union institutions and the member states, have played an important role 1. EU commercial policy is shaped by the Union's obligations under the WTO Suspension of the Doha Round in 2006 has revived the tension between the EU's commitment to multilateral trade liberalization through the WTO and its ongoing concern with regional and bilateral agreements outside the WTO The Structure of EU Trade The EU is the largest trading bloc in the world Exports of the Union accounted for 18.1% of world merchandise exports in 2004 (the US and Japan accounted for 12.3% and 8.5% respectively) 19952005 EU25 trade volumes increased by more than 6% annually (compared with 2.3% GDP growth) EU Developed World Trade About 46% of extraEU trade is directed towards developed countries The US is the largest trading partner followed by Switzerland Japan Adding intraEU trade to this list we find that more than 4/5ths of the EU's trade is with countries of broadly similar income levels Developing countries account for 43% of extra EU trade (and only 14% of total EU trade) Most developing nations rely far more on the EU as an export market than the EU does on them Ex. In 2004, 22% of India's exports went to the EU, but only 1.8% of EU exports went to India and India's exports accounted for only 1.7% of total EU imports African countries are even more dependent on the EU market Trade with developed countries consists predominantly of trade in manufactured goods Trade with developing countries were based more on primary products In 2004 these goods accounted for 88% of the Union's exports to developed countries and 81% of its imports from them Agricultural products and fuels Imports of manufactured products into the EU from developing nations has also grown The Common Commercial Policy The key provisions of the CCP are contained in Articles 131134 of the Treaty of Rome Article 131: By establishing a customs union between themselves member Article 133: states aim to contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and the lowering of customs barriers to changes in tariff rates, the conclusion of tariff and trade agreements, the achievement of uniformity in measure towards the liberalization of export policy and in measures to protect trade such as those to be taken in the case of dumping or subsidies The CCP shall be based on uniform principles, particulary in regard Instruments of the CCP Tariffs: The most visible element of the EU trade policy is the common external tariff (CET) Higher tariffs are imposed on imports of agricultural products, food, textiles and clothing The EU has also made significant use of various nontariff barriers NTBs include the use of import quotas, voluntary export restraints, discretionary licensing, antidumping duties or prohibitions for health or safety reasons Import quotas on imports of clothing and textiles phased out since 1995 (due to WTO) Quotas on banana imports removed in 2006 Quotas remain in place for imports from nonWTO countries for textile related and other basic manufactures Nontariff barriers: Regulatory Barriers: Products imported into the EU must comply with relevant regulations to meet health, safety and environmental objectives Ex. Product characteristics or their related process and production methods or terminology, symbols, packaging and labelling requirements applying to a product or production method (ex. Noise and emission limits for machinery, labelling requirements such as health warnings or energy consumption levles of household appliances) EU's use of regulations and standards must comply with its obligations under different WTO Agreements Some of the more important trade disputes involving the EU have occurred around the use of regulatory import barriers (ex. Ban on the import of hormonetreated beef, maximum aflatoxin levels in cereals, dried fruit and nuts, and labeling requirements for genetically modified foods Trade Rules for Services EU is an enthusiastic proponent of freer trade in services (as is the case with countries that enjoy a comparative advantage in this area) EU party to the General Agreement on Trade in Services (GATS) negotiated during the Uruguay Round The treatment of public services in the GATS has proved controversial The EU and its member states have market access commitments (such as private education and hospital services) but still retain the right to regulate these activities with a view to achieving public objectives Regional Trade Agreements The EU has many preferential trade agreements The most favorable treatment is given to those countries that either fall into the least developed category or are members of the Cotonou Agreement or have completed bilateral trade agreements with the EU The EU's Network of Preferential Trade Agreements, 2005 Type of trade regime Single Market Customs Union Free Trade Area Name of Agreement European Economic Area (EEA) Countries involved Iceland, Liechtenstein, Norway Turkey, Andorra, San Marino Switzerland, Israel, S. Africa, Mexico, Chile, Faroe Isl. EuroMed Assoc. Agreements Partnership and Co operation Agreements (MFN Treatment) Nonreciprocal contractual preferences Nonreciprocal autonomous preferences Purely MFN Treatment Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palest. Auth., Syria, Tunisia Russia plus members of the CIS 1st generation Mediterranean African, Caribbean, Pacific Countries Agreements Lome/Cotonou Generalized System of Preferences (GSP) Other developing countries plus members of CIS and W. Balkan countries Australia, Canada, Japan, New Zealand, Taiwan, HK, Singapore, USA, S. Korea Welfare Effects of the CCP The EU is generally perceived as having a relatively open and liberal trade policy: It's the world's single largest importer It has relatively low tariff levels on manufactured goods Its extensive network of preferential access agreements The stance it has taken in pushing for futher multilateral trade liberalization through the WTO The estimated benefits from liberalization of the CCP are significant Economists of the GATT in 1994 projected that EU income in 2005 would be higher by $164 billion as a result of the Uruguay Round It is clear that the EU is a major beneficiary of the trend towards global nondiscriminatory trade liberalization Trade Relations With the Main Partners Developing Countries Developing countries are a key trade partner for the EU The present pattern of trade agreements is owed to history and geography (along with economic rationale) Fear of excessive immigration from these areas has given the EU an added incentive to assist their economic development through strong trade preferences (ex. Following the 1995 Barcelona Declaration the establishment of the EuroMed FTA by 2010) Gave a group of African, Caribbean and Pacific (ACP) countries free access to EU markets for manufactures and different primary goods Ex. The Mediterranean Countries are bound to the EU by many ties Prior to the Barcelona program, the Lome Convention was the EU's most preferential agreement with developing countries For most nonACP developing countries the GSP dictates the degree of preferential access for their exports to the EU Ex. Everything But Arms initiative of Feb. 2001 the EU granted duty free and quotafree access for all products from the 50 least developed countries under its GSP with the exception of arms The United States The US is the EU's largest trading partner accounting for 20% of combined extraEU imports and exports EU's economic relations with the US have been based on strong political and cultural ties as well as common economic interests Yet both partners have also entered many states of crises Ex. Trade wars over steel, hormonetreated beef, aircraft noise, subsidies to Airbus, genetically modified products and bananas The most acute and enduring cause of friction trade in agricultural products (EU's refusal to allow imports of hormonetreated beef and its moratorium on approving geneticallymodified crops for sale Japan Trade policy towards Japan marked by resistance to rapid import penetration in a narrow range of product markets Also marked by internal disunity within the EU Ex. UK and Ireland have become important hosts to Japanese Trade deficit between EU and Japan exists investments Countries whose domestic industries compete directly with Japanese goods tend to take a tougher line in the trade policy debate than those for which Japanese sales compete only with other imports (i.e. The high share of Japanese car imports in Ireland (43%) and Denmark (34%) aroused little concern whereas Italy and France were highly resistant to any easing on restraints on Japanese imports despite having significantly lower import shares of 5% and 4% respectively, in the 1990s Japanese market only absorbed 4.4% of EU exports EUJapan economic relations less confrontational than EUUS relations In 2004 7.2% of total extraEU exports came from Japan whle the Trade Policy in a Globalizing World 1. 2. 3. 4. Before the launch of the 2001 Doha Round the EU stated 4 objectives 5. To further liberalize access to markets for goods and services To strengthen coverage in the areas of investment, competition, transparency in government procurement, intellectual property and trade facilitation To ensure that more assistance is provided to developing countries to help with their integratin into the global economy To get the WTO to focus more on issues of public concern such as the environment, animal welfare and food safety, ensuring that trade rules are compatible with the wider interests of society as a whole (possible implicit objective) the EU's desire to shape WTO rules on agricultural trade to enable it to maintain support for the European model of agriculture Trade and Intellectual Property Rights IPR is an increasingly important part of international trade Ex. New medicines, high technology products, creativity and information used to make CDs, videos, books or computer programs, brand names, .... Negotiations on IPR deal not with abolition of barriers but with agreements to set up minimum standards of ownership protection Developed countries, like the EU and the USA are net exporter of IP while developing nations are net importers Therefore, US and EU want stricter property right enforcement Evident in the Uruguay Round Negotations culminated in the Agreement on Trade Related Aspects of Intellectual Property Rights (the TRIPS Agreement) which alongside the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS) forms one of the 3 pillars of the WTO TRIPS negotiations were championed mainly by the USA and EU with much opposition from the developing countries Divisions surfaced again when it appeared that the TRIPS protection would prevent developing nations from gaining access to generic drugs as part of their public health programs Nov. 2001 Doha meeting WTO ministers issued declaration emphasizing that the TRIPS Agreement should not prevent member states from protecting public health 20 year patent protection was given for all inventions whether products or processes and copyright on literary works (including computer programs), sound recordings and films was made available for at least 50 years Trade and the Environment Environmental policy moved to a prominent position on the trade agenda in the 1990s Until then then only environmental concern was the protection of endangered species With the rise of ecological awareness and transfrontier pollution problems such as ozone depletion, acid rain and global warming, trade policy came to be seen as a significant element in a country's overall environmental policy Main trade policy issue here: the use of import restrictions on goods whose production creates negative transborder environmental externalities Best way of ensuring a level playing field among all countries is by some degree of coordination in the environmental policies across countries Trade and Labor Standards The social dimension of increased international trade has received increasing attention Calls for trade barriers to be invoked agains countries that violate minimum labor standards 1995 World Summit on Social Development in Copenhagen identified 4 core labor standards (later confirmed by the 1998 ILO Declaration on Fundamental Principles and Rights at Work) Freedom of association and collective bargaining Prevention of child labor Elimination of forced labor The outlawing of discrimination 1. 2. 3. 4. There is a debate as to the appropriate role of the WTO in achieving these goals 1st WTO Ministerial Conference in Singapore in Dec. 1996 EU among those which suggested that a WTO working party be created to investigate working conditions Proposal was resisted by developing nations Final declaration confirmed that ILO was the competent body to set and deal with labor standards 1999 Seattle Conference was a failure labor standards was one of the major reasons Labor standards therefore do not feature on the agenda of the Doha Round negotiations EU External Trade Policy Conclusions Observations: Despite much liberalization the EU continues to maintain strong defences against sensitive imports Ex. It will probably be a long time before Australia an New Zealand will be able to sell their agricultural produce or India its textile and clothing products into the EU market without hindrance But the direction of change has leaned towards easier access Observations (cont.) The scope for futher negative integraiton (reduction of tariff and nontariff barriers) is approaching exhaustion but there is a growing emphasis on positive integration Regionalism is still a strong focus of EU trade policy but its future direction is unclear Requiring governments to adapt domestic policies and institutions to ensure that expanded trade is not frustrated by differences in regulation, market institutions, technical standards and taxes Linkages between trade issues and other policy areas once considered exclusively in the national domain will grow in importance over time 1. 2. Precise form of EU's future external trade policy will depend on several factors 3. Increasing heterogeneity among EU members is likely to increase the difficulty of reaching consensus on trade policy The maintenance of strong economic growth remains crucial enthusiasm for integration gathers momentum when an economy is doing well Public support and understanding of the benefits of open trade policy can never be taken for granted Public opinion finds it difficult to accept that trade rules might be used to require the EU to import food it deems unhealthy or products which might damage its environment, etc. EU is pushing for trade policy to contribute to sustainable development Current concern: EU's high rate of unemployment 4. Balancing the conflicting interests of domestic lobbies (esp agriculture) as well as of the member states remains an enormous challenge COMPETITION POLICY Overview European economic integration the creation of a single market seeks to remove the barriers which restrict the free movement of goods, services and the factors of production between national economies EU policy applies only to intercountry trade It targets the behavior of individual firms that could otherwise frustrate the process of EU integration through trade in goods and services Competition policy in the EU is governed by the principle of subsidiarity each member state has its own legislation on the exercise of restrictive practices and the abuse of a dominant position within their own countries this legislation takes into account competition set at the European level Aims of the EU Competition Policy The main aim of the EU competion policy is to increase economic well being by: Promoting competition and Creating a deeper European single market which transcends national boundaries However, there are some industries in the EU in which a single, European market does not yet exist (ex. Energy supply, car retailing, telecommunications and postal industries) Competition policy is an integral part of the process towards protecting the consumer and delivering some of the static and dynamic efficiency gains that the creation of the European single market seeks to achieve in the long run Importance of Competition to the Consumer Competition Policy aims to ensure: Wider consumer choice Technological innovation and Effective price competition If achieved, the above aims contribute to both consumer welfare and to the competitiveness of European industry Competition Policy tries to achieve... Company competition rather than collusion Nonabuse of companies of their market power Efficiencies which are passed on the final consumers in the form of lower prices and better products Main Components of EU Competition Policy 1. 2. 3. 4. There are 4 main areas of action of the European competition policy: Antitrust and Cartels Merger Control This relates to the elimination of agreements which artificially restrict competition (ex. Pricefixing agreements, or cartels between competitors) and of abuses by firms who hold a dominant position in the market This pillar of policy controls mergers between firms (ex. A merger between 2 large groups) which would result in the enlarged (postmerger) business dominating the market Market liberalization policy has been behind the introduction of fresh competition in several monopolistic industries in recent years This refers to the control of state aid measures by member state governments to ensure that such measures do not distort competition in the Single Market (ex. The prohibition of a state grant designed to keep a lossmaking firm in business) Market Liberalization State Aid Control European AntiTrust Policy "Dominant Market Position": a firm holds a dominant position if its economic power enables it to operate on the market without taking account of the reaction of its competitors or or intermediate or final consumers In appraising a firm's economic power in the marketplace, the EU Commission takes into account factors such as The firm's market share Whether there are credible competitors Whether the firm has its own distribution network Whether it has favorable access to key sources of supply (ex. Raw materials) Whether the firm controls access to key technology or intellectual property necessary to compete in the market It is not wrong to hold a dominant market position if it is the result of the firm's own effectiveness However if the firm exploits a dominant position to stifle competition this is deemed to be an anticompetitive practice which constitutes abuse The Commission can fine an offending firm upto 10% of its turnover AntiCompetitive Practices Anticompetitive practices are strategies operated by firms that are deliberately designed to limit the degree of competition in a market Such actions can be taken by 1 firm in isolation or a number of firms engaged in some form of collusion. The EU Competition Commission is proactive in investigating allegations of cartel behavior among businesses Since 1998 there have been numerous investigations in industries such as chemicals, banks, airlines, beer, paper production and computer games AntiCompetitive Practices Examples: Can take a number of forms, many of which are subtle. Predatory pricing: firms who have market power in more than one market may set prices below cost in one period in order to drive out rivals and restrict entry. Having done so, it once again raises price... Exclusive dealing: a retailer undertakes to sell only one manufacturer's product and not the output of a rival firm. (Nintendo was fined for this offense in Oct. 2002) Territorial exclusivity: when a particular retailer is given sole rights to sell the products of a manufacturer in a specified area Quantity discounts: when retailers receive progressively larger discounts the more of a given manufacturer's product they sell giving an incentive to push one manufacturer's product at the expense of another Refusal to supply: when a retailer is forced to stock the complete range of a manufacturer's products or else he receives none at all Creation of artificial barriers to entry: ex. High advertising Collusive practices: market sharing, price fixing and agreements on products to be sold Examples of Recent Fines Deutsche Post On 20 March 2001 the Commission found the German postal operator, Deutsche Post AG had abused its dominant position in the market for business parcel services by engaging in predatory pricing DPAG was fined 24 million (a small fine) after DPAG agreed to create a separate parcel company that would buy services from Deutsche Post on the same terms as competitors Deutsche Post has offered large mailorder firms big price discounts if they agreed to send all their parcels through them the leading competitor, American firm UPS complained to the Commission that DP was using predatory pricing by using profits fromits monopoly of delivery of letters to subsidize its business parcel services Recent Fines Michelin On June 2001, the Commission fined French tire maker Michelin 19.76 million for abusing its dominant position in the French market for retread and replacement tires for heavy vehicles Commission found that between 19901998 Michelin operated a complex system of rebates, bonuses and commercial agreements which had the effect of tying dealers to Michelin as their supplier and therefore artificially barring Michelin's competitors from the market Recent Fines European Vitamin Cartel In November 2001, the Commission fined 8 companies a total of 855 million for participating in 8 secret marketsharing and pricefixing cartels affecting vitamin products The companies cost shoppers millions of euros by carving up the market and rigging up the prices for vitamins included in everything from cereals, biscuits and drinks to animal feed, pharmaceuticals and cosmetics The Swiss owned HoffmanLa Roche received the heaviest penalty of 462 million Recent Fines Nintendo In October 2002, the Japanese video games manufacturer was found guilty of ripping off its customers in Europe for most of the 1990s and fined 94million by the Commision This was the 4th largest fine ever and reflected the seriousness of the offense ...
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This note was uploaded on 08/06/2009 for the course INTERNATIO EU306 taught by Professor Itirbagdadi during the Spring '09 term at Izmir University of Economics.

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