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IMPACT OF EUROPEAN INTEGRATION : WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA?

This study explores the impact of European integration on Latin and Central America, focusing on the internal market, cohesion, enlargement, economic and monetary union, and trade effects. The findings highlight the potential benefits and challenges for these regions as they interact with the European Union.

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IMPACT OF EUROPEAN INTEGRATION : WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA?

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  1. IMPACT OF EUROPEAN INTEGRATION:WHICH RELEVANCE FOR LATIN AND CENTRAL AMERICA? MARCO LOPRIORE Atlas Study Visit Montevideo, November 5, 2002

  2. TODAY’S AGENDA • Internal market - Impact on prices, benefits for companies - FDI and trade • Cohesion - Impact on closing development gap - Macroeconomic impact on trade balance • Enlargement - Impact on trade with Central and Eastern Europe - And with Mediterranean area • Economic and Monetary Union • Macro impacts • Regional

  3. INTERNAL MARKET

  4. INTERNAL MARKET – CECCHINI REPORT 1988 (A) • Delays at frontiers for custom purposes, administrative burdens impose costs on trade, restrictions on competition for public purchases, Restrictions on financial and transport sector; • Empirical estimates: frontier formalities cost 1,8 % of value of intra EU traded goods; technical regulations cost 2% of companies total cost; • Forecasted: Increase in GDP of 5% or 20-30% intra EU trade • Too optimistic ?

  5. INTERNAL MARKET (A) • Impact on public purchase: imports of public sector from 6% in 1987 to 13% in 1997; • Impact on peripherical regions: (Portugal, Ireland, Greece); • Prices are becoming more similar(except for motor vehicle - see table); • Large industries reap benefits: in particular from smaller countries (Greece, Finland, Denmark, Ireland); • Difficulties of SMEs (higher fixed costs);

  6. CAR PRICE DIFFERENCES IN EUR10:annual average of difference of highest to lowest price in % • The introduction of the euro has not yet had an impact on manufacturers’ pricing policies: • the highest price can still differ more than 25% from the cheapest country within the euro area

  7. PARTICIPATION OF LARGE COMPANIES IN INFRASTRUCTURE PROJECTS

  8. INTERNAL MARKET(B) • EU attracted 44% FDI in 1990 compared to 28% in 1980; • While mergers / acquisitions doubled between 1991 and 1999, only 30% between 1986-1995 were between 2 different Member States; • Foreign businesses reaping benefits? • US companies produced in 1997 48% of value added and 44% of jobs in UK and respectively 44% and 33% in NL;

  9. EU INTEGRATION AND TRADE • Pattern of trade tend to become more similar as EU become more interdependent; • Intra industry trade is high for all EU; • Exception for Greece, Ireland and Portugal where it is low because of their development gap in the productive structure;

  10. INTRA-EU TRADE INTEGRATION • BLUE (B + L), IRL and NL intra-EU trade GDP ratio is higher than 30%; • Small MS intra-EU trade GDP ratio is higher than Large MS ratio; • D,E,F and I intra-trade GDP ratio is lower than 15%;

  11. COHESION

  12. REDISTRIBUTING INCOME BETWEEN COUNTRIES AND REGIONS Million €

  13. MAP OF EUROPE:THE MODEL CENTRE-PERIFERY THE PENTAGON: London, Paris, Milan, Munich, Hamburg • 20% of territory; • 40% of population; • 50% GDP of EU

  14. TRADE EFFECTS OF COHESION POLICY(see next table) • 25% of the Cohesion Fund returned to rich countries through imports; • in 1999 this estimation has reached an average of 35%; • Structural funds have an impact on trade balance in cohesion countries • In a short term: Greece and Portugal increased their imports towards rest of Europe; • In a long term: the trade balance will improve;

  15. MACRO ECONOMIC IMPACT OF SF: Trade balance variations in % relative to GDP

  16. FOREIGN DIRECT INVESTMENT AND STRUCTURAL FUNDS (1989-1993) % of GDP

  17. ENLARGEMENT

  18. TRADE IMPACT OF ENLARGEMENT • CEEC are already oriented to EU since 1990 - Trade between EU and CEEC grew 20% annually; • Export compatibility; • Benefits for border countries: Germany, Italy, Austria; • But strong growth from Portugal, Ireland, Switzerland and Spain; • UK is compatible but not using it; • Regional effects and frontier regions?

  19. Tabella: Similitudini nelle strutture commerciali tra paesi della UE e paesi PECO negli anni 1993 e 1997 Country EU exports and CEEC imports ("Trade creation") EU imports and CEEC exports ("Trade diversion") 1993 1997 1993 1997 Austria - 0.98 - 0.92 Germany 0.98 0.96 0.69 0.86 Greece 0.31 0.39 0.53 0.48 Ireland 0.78 0.81 0.51 0.71 Italy 0.94 0.92 0.72 0.86 Sweden - 0.94 - 0.90 United Kingdom 0.93 0.95 0.67 0.87 SIMILARITIES IN TRADE STRUCTURESBETWEEN EU MEMBER STATES AND CEEC (1993 and 1997)

  20. IMPACT OF EUROMED PROCESS(see next table) • Free-Trade Area 2010; • 4 of 15 EU Member States are benefiting (F, I, G, UK); • EU invest to improve production process of traditional sectors: • 80% of textile FDI • 50% of Motor vehicle FDI (sector particularly sensitive to trade zones – Turkey) • US however important presence: • 50% of telecoms FDI ; • 41% chemicals FDI; • 48% beverages FDI;

  21. Tabella: Principali investitori europei e stranieri nei vari settori dell'economie mediterranea Sectors Principle investors Larger European countries Telecommunications USA (50%); UE (41%) France (15%); UK (6%) Tourism UE (42%); USA (40%) Arab Countries (15%) France (21%); Italy (6%) Car UE (50%); USA (28%); Japan (16%) Italy (23%) IT UE (46%; USA (41%) Germany (13%); Italy (13%); France (12%) Chemical USA (41%); UE (40%) Germany (10%); France (8%); Italy (7%); UK (7%) Textile/clothing UE (80%; USA (19%) Italy (40%); France (24%) Food /beverage USA (48%); UE (28%; Switzerland (10%) France (16%); Denmark (7%) NL (5%) Petrol and gas resources UE (49.5%); USA (38%) France (10%); Italy (10%); UK (7%); NL (4%) MAIN EUROPEAN ANDFOREIGN INVESTORS IN SECTORS OF MEDITERRANEAN ECONOMIES Fonte: Università Bocconi, FDI in the Mediterranean countries, Ottobre 2000

  22. Economic and Monetary Union

  23. MORE STABILITY THROUGH EMU • Enhanced stability in all EU countries through coordination and surveillance of economic policies (Ireland, Germany) • Price inflation reduced from 20% in Greece and 13% in Portugal in 1999 to less than 5% in 2000. • Lower transaction costs (no exchange costs, risk) with the euro brings increasing market integration and growth: especially for EU countries wich trade a lot with other Euro-area countries

  24. CONCENTRATION AND SPECIALISATION WITHE EMU ? • Regional specialisation in US – see manufacturing sector in Lake district – Chicago, Theories of Mundell • Euro and Single Market will bring the same in Europe? • Vulnerability to sector-specific shocks (assymetric) • Studies show no fast specialisation/concentration • Ireland only very specialised in IT industries

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