European Union, Trade Agreements & International Economics - PDF

Here's the content of the image converted into a markdown format: # "EUROPEAN UNION AND EU SINGLE MARKET" The EU was established to promote peace and economic cooperation after the devastation of World War II. **Key Milestone:** The Treaty of Rome (1957) created the European Economic Community (E...

Here's the content of the image converted into a markdown format: # "EUROPEAN UNION AND EU SINGLE MARKET" The EU was established to promote peace and economic cooperation after the devastation of World War II. **Key Milestone:** The Treaty of Rome (1957) created the European Economic Community (EEC), the forerunner to the EU. It started with 6 countries and expanded to 27 member states. The UK left the EU in 2020 (Brexit). The three institutions that are under the EU: 1\. European Commission: Proposes legislation and enforces EU laws. 2\. European Parliament: Represents EU citizens and legislates. 3\. European Council: Sets the political direction of the EU. ## EU SINGLE MARKET It was the Single European Act of 1986 and officially came into effect on January 1, 1993. It has the free movement of goods by removing barriers. It promotes economic integration, improves competition, and drives economic growth by creating a borderless economic area. **The Four Freedoms:** 1\. Free Movement of Goods (Trade Across Member States) 2\. Free Movement of Services (No Heavy Restrictions to Operate) 3\. Free Movement of Capital (Freely Move Money Across Borders) 4\. Free Movement of People (No Need for VISA/Permit to Travel EU) ## **KEY ISSUES** 1. Inconsistent Regulations Across Members 2. Lack of Even Enforcement of EU Laws 3. Regulatory Freedom in Selected Countries 4. Invites Innovation but Also Increases Competition 5. Regulation of Imports and Exports ## **WHAT THE EUROPEAN UNION AIMS TO HARMONIZE** * Fragmented national tax systems * Separate national markets for financial services, energy and transport * Varied e-commerce rules, standards and practices between EU countries * Complicated rules on the recognition of vocational qualifications ## PROPOSED SOLUTIONS * Focus on "Legal Harmonization" of the European Union * Member States should align laws * Establish timeline for implementing the most crucial Single Market reforms * Implement sector-specific and horizontal policies in a new regulatory regime * Allow coalitions of willing countries to advance in certain areas # "THE REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP (RCEP)" The RCEP was established to enhance cooperation and expand regional value chains. It has 10 members of ASEAN along with 5 partners (Australia, China, Japan, Korea, and New Zealand), 25% in global exports and imports, 30% in global population, and 30% in global GDP. ## OVER - ALL OBJECTIVES 1. Eliminate Tariffs 2. Streamline Trade Rules 3. Enhance Regional Supply Chains 4. Boost Economic Growth 5. Support Digital Trade ## KEY OBJECTIVES 1. Trade Modernization 2. Comprehensive Scope 3. High Quality Standards 4. Mutual Benefits and Flexibility ## KEY ISSUES * Risk of increased damage to agriculture due to imports * Undermines Local Farmers as it gives access to Foreign Agricultural Products * Wage gap between skilled and unskilled workers * Decline in semi-skilled jobs in ASEAN as the income from trade goes to high-skilled workers along with the impact of COVID 19 ## PROPOSED SOLUTIONS * Improve the competitiveness of local producers * Lower Tariffs and Buy Investment * Regulatory Measures * Shift to High Productivity Industries to Employ Workers * Introduce Wage Adjustments in Agriculture # "THE AFRICAN CONTINENTAL FREE TRADE AGREEMENT (AFCFTA)" The largest free trade area in the world composing of 55 African countries and 8 regional economic communities (RECs). ## KEY OBJECTIVE To create a single market for goods and services, facilitate the movement of people and encourage economic integration within African nations. ## EXPECTATIONS 1. Eliminate trade restrictions among its members 2. Implement regulatory frameworks 3. Create an open market for goods and services 4. Encourage foreign investments 5. Boost technological progress to increase productivity 6. Strengthen the global competitiveness of its members 7. Support industrial growth 8. Establish a single market in the long term ## KEY ISSUES * Non-Tariff Barriers * Difficult customs procedures and administrative delays * Regulatory inconsistencies * Inconsistent digital and administrative platforms * Infrastructure Deficiencies * High transport costs and inefficiencies in logistics * Weak regional transport avenues * Ineffective Implementation * Implementation of AFCFTA has been uneven across the continent. ## PROPOSED SOLUTIONS 1. Governments should invest in roads, railways, and trade hubs to make cross-border trade faster and cheaper. 2. Governments should streamline customs procedures 3. Governments should provide low-interest rate loans 4. Establish an AFCFTA Arbitration Court # "US - MEXICO - CANADA AGREEMENT (USMCA)" A free trade agreement implemented on July 1, 2020, involving the United States, Mexico, and Canada. This agreement succeeded the prior NAFTA (North American Free Trade Agreement) with the aim of stimulating a more balanced and mutually beneficial trade, creating better conditions for fair trade, liberalized markets, and economic growth in North America across sectors. The agreement was made to be mutually beneficial particularly for workers, farmers, ranchers, and businesses in North America, to highlight vital points of the agreement. 1. Leveling the playing field for American workers, improving rules of origin for automobiles, trucks, and other products. 2. The agreement is made to the benefit of American farmers, ranchers, and agribusinesses in an effort to modernize and strengthen food and agricultural trade in North America. ## USCMA VS NAFTA USCMA and NAFTA has the same goals, but USCMA has increased zero-tariff qualifications, enhanced trade, and oversaw term compiance and good regulatory practices, and has also created provisions for: 1. Small Businesses/SMEs 2. Labor Provisions 3. Digital Trade 4. Biopharmaceuticals ## BENEFICIARIES OF THE USCMA 1. Agriculture - US Farmers 2. Manufacturing - Workers and Manufacturers 3. Services - Service Providers 4. Businesses - Investors ## CHALLENGES AND FLAWS 1. Geopolitical Tensions (Rivalry between US & China) 2. Economic and Market Competition (e.g. China and Vietnam) 3. USMCA's Sunset Clause (Investment Risk) 4. Investor - State Dispute Settlement / ISDS (Weak Business Confidence) ## PROPOSED SOLUTION 1. Abolish the 25% tariff on Mexico and Canada 2. Implement Excise tax exclusively on Fentanyl # "BRICS" BRICS is an acronym representing a group of countries comprised of Brazil, Russia, India, China, and South Africa. It is an intergovernmental organization formed to enhance economic cooperation among emerging economies. The organization accounts for almost half (46%) of the world's population and is considered a counterpart and alternative to the G7 bloc of the biggest countries in the world. ## BRICS' PRIMARY OBJECTIVE To encourage partnership, economic growth, and development among its member states. The organization aims to challenge the dominance of Western countries in global governance. ## BRICS' FOCUS 1. Economy: Economic initiatives include the New Development Bank, the Contingent Reserve Arrangement, and the BRICS Payment System. 2. Society: Civil BRICS Forum promotes communication between governments and civil society 3. Education: BRICS + Universities Association for student exchange programs, joint research and innovation, and policy dialogues on higher education. ## BENEFITS OF BEING IN BRICS 1. Access to a Large Market 2. Investment Opportunities 3. Cultural Collaboration ## DRAWBACKS 1. Non-FTA in Nature 2. Disproportionate Economic Influence 3. Differing Interest and Sentiments ## KEY ISSUE 1. Income Inequality ## PROPOSED SOLUTION 1. Focus on policies regarding redistribution of income 2. Coordinate through trade agreements # "ASEAN Economic Community" ## Implementation and Rationale **1992:** Establishment of the ASEAN Free Trade Area (AFTA), which laid the groundwork for deeper economic integration. **2003:** ASEAN leaders formalized the vision of the AEC as a pillar of the ASEAN Community, alongside the Political Security and Socio-Cultural pillars. **2015:** Formally established AEC (initially targeted by 2020 but was later accelerated to 2015) ## Objectives: * Single Market and Production Base * Competitive Economic Region * Equitable Economic Development * Integration into the Global Economy To achieve its goals, the AEC concentrates on the following areas: * Trade Liberalization: Eliminating tariffs and non-tariff barriers to facilitate seamless intra-regional trade. * Investment Facilitation: Creating a conducive environment for both domestic and foreign investors through transparent and consistent policies. * Financial Integration: Promoting freer movement of capital by harmonizing financial regulations and developing regional capital markets. * Labor Mobility: Facilitating the movement of skilled professionals by recognizing qualifications and streamlining visa processes. * Infrastructure Development: Enhancing connectivity through the development of regional infrastructure projects in transportation, telecommunications, and energy ## ASEAN + FTA ASEAN+ FTAs refer to the Free Trade Agreements (FTAs) that ASEAN has signed with key external partners. These agreements, also known as ASEAN+1 FTAs, aim to strengthen economic integration between ASEAN member states and major economies in the Asia-Pacific region. ### Rationale * ASEAN economies sought to reduce trade barriers and create preferential trade arrangements with large economies to boost exports and attract foreign direct investment (FDI). * ASEAN+ FTAs aimed to integrate production networks and facilitate seamless movement of goods and services across borders. * To compete with larger economic blocs like the European Union (EU) and the North American Free Trade Agreement (NAFTA), ASEAN partnered with major economies to strengthen its global position. * The FTAs focused on eliminating tariffs and simplifying customs procedures to lower the cost of trade. * By diversifying trade partnerships, ASEAN aimed to reduce dependency on any single economy, ensuring stability against global economic shocks. ### 1. ASEAN – China Free Trade Area (ACFTA) #### Implementation * Proposed by then-Premier Zhu Rongji in 2000, aiming to strengthen economic ties between China and ASEAN, particularly in manufacturing and agriculture. * The agreement was signed in 2002 but officially launched in 2010 #### Rationale and Objectives * ACFTA is one of the world's largest free trade areas by population. The agreement aims to eliminate tariffs on a majority of goods, enhance trade in services, and promote investment between ASEAN member states and China. Key features include: * Elimination of tariffs on approximately 90% of products traded between ASEAN and China. * Liberalize various service sectors, including finance, telecommunications, and tourism. * Protect and promote investment, ensuring a more secure environment for investors ### 2. ASEAN - Japan Comprehensive Economic Partnership (AJCEP) #### Implementation * Established under then-Prime Minister Junichiro Koizumi, after the establishment of ACFTA. #### Rationale and Objectives * The AJCEP was initiated to strengthen economic ties between Japan and ASEAN by enhancing trade, investment, and regional cooperation. Japan sought to secure stable supply chains, counter China's growing influence in the region, and expand market access for its industries. * Gradual elimination of tariffs and reduction of non-tariff barriers (NTBs) such as import restrictions and technical barriers to trade. * Promotion of Japanese foreign direct investment (FDI) in ASEAN. * Improved market access for service industries, including finance, technology, and professional services. * Facilitating seamless supply chains by improving customs procedures and logistics efficiency. * Enhancing trade facilitation measures to reduce costs and delays in cross-border transactions. ### 3. ASEAN - Korea Free Trade Area #### Implementation * Initiated in 2005 by South Korea, led by then-President Roh Moo-hyun, in collaboration with ASEAN leaders and officially signed in 2006. It came into effect in 2007, with tariff reductions and trade liberalization measures gradually implemented over the following years. #### Rationale and Objectives * AKFTA was established to strengthen economic ties between ASEAN and South Korea by reducing trade barriers, promoting investment, and enhancing regional integration. * Trade Liberalization - Gradual elimination of tariffs on goods and reduction of non-tariff barriers. * Investment Promotion - Encouraging South Korean investments in ASEAN's manufacturing and service sectors. * Market Access Expansion - Facilitating greater trade in goods and services between ASEAN and South Korea. * Economic Cooperation - Enhancing collaboration in technology, infrastructure, and human resource development ### 4. ASEAN - Australia - New Zealand Free Trade Area (AANZFTA) #### Implementation * Implemented in 2010, it aims to create a single economic region encompassing approximately 663 million people with a combined GDP of around USD 4 trillion as of 2016. The AANZFTA is a comprehensive FTA between the Association of Southeast Asian Nations (ASEAN), Australia, and New Zealand (AANZAFTA, n.d.) #### Rationale and Objectives * Tariffs will be gradually reduced to at least 90% of products within set timelines. * Goods will move more smoothly with simplified customs rules, transparent procedures, and flexible rules of origin. * Restrictions on trade in services will be gradually reduced, allowing businesses better access to regional markets. * The movement of business people involved in trade and investment will be made easier. * Investors will receive legal protections, including a dispute resolution system for fair treatment. **Impact:** two-way trade between New Zealand and ASEAN grew by over 74%, making ASEAN one of New Zealand's top four export destinations (Ministry of Foreign Affairs and Trade, n.d.) ### 5. ASEAN - India Free Trade Area #### Implementation * Effective January 2010, ASEAN Member States and India have agreed to open their respective markets by progressively reducing and eliminating duties on 76.4% coverage of good #### Rationale and Objectives * Service Sector Growth - Improve transparency, market access, and regulatory cooperation in services. * Investment Facilitation - Protect investors with fair treatment and compensation policies. * Sectoral Development - Promote cooperation in industries like agriculture, energy, transport, and technology. **Impact:** ASEAN-India trade surpassed the $70 billion target in 2011-2012 to reach $79 billion, trade had been growing at over 22% since 2006. ### 6. ASEAN – Hong Kong, China Free Trade Area (AHKFTA) #### Implementation * Came into effect on June 11, 2019, for Vietnam, Laos, Myanmar, Singapore, and Thailand, with the remaining ASEAN countries completing the ratification process later. It aims to enhance economic cooperation, reduce taxes, and increase investments (Medina, 2019) #### Rationale and Objectives * Tariff reduction - reduce custom duties on goods from Hong Kong * Reduce restriction - remove restrictions on foreign capital participation and the number of people employed * Longer stay for business travellers - Hong Kong business visitors will be able to stay in an ASEAN country for 90 days * Better investment protection - Thailand, Vietnam, and the Philippines will also allow Hong Kong firms to take 50 percent or full ownership of firms **Impact:** By 2023, ASEAN became Hong Kong's second-largest merchandise trade partner (HK$1,131.7 billion) and fourth largest services trade partner (HK$111.4 billion in 2022); Investment flows also grew. ## KEY CHALLENGES 1. Weak Commitments 2. Slow Implementation 3. Changes on National Legislations 4. Insufficient Technical Capacity and Financial Resource 5. Non-Tariff Barriers 6. Limited Public Awareness and Engagement ## CASE STUDY ### Increased Competitiveness of Indonesia's Rubber Exports After The Enactment of ACFTA (Asean-China Free Trade Agreement) #### Context: Indonesia's Rubber Industry * 2nd largest producer globally (~25% of world production) * 85% of rubber plantations are run by smallholder farmers * Major export destinations: China, US, Japan, EU * Key products: Technically Specified Natural Rubber (TSNR), Standard Indonesian Rubber (SIR) * Importance of Indonesia's rubber industry in the global market ### Why Did Indonesia's Rubber Export Value Decline? #### a. Trade Liberalization Exposed Structural Weaknesses * Increased Competition from Thailand and Vietnam * Thailand, as the largest producer, maintained competitive pricing. * Vietnam improved productivity and quality faster than Indonesia. #### b. China's Changing Rubber Demand * ACFTA gave China better access to ASEAN rubber but also allowed China to diversify its supply base. * China increased its rubber imports from Thailand and Vietnam, which had higher-value processed rubber and stronger government subsidies for production. * China's Shift to Domestic Production #### c. Price Volatility and the 'Commodity Trap' * ACFTA did not shield Indonesia from the volatility of rubber prices, which fluctuated due to: * Changes in China's industrial policies * Shifts in global demand due to economic downturns * Unlike Malaysia and Thailand, which moved up the value chain (e.g., producing tires and latex gloves), Indonesia remained stuck in raw rubber exports, limiting its ability to benefit from ACFTA in the long run. #### d. ACFTA's Tariff Cuts Did Not Offset Non-Tariff Barriers * NTBs—such as China's quality standards, environmental regulations, and import quotas—became more influential in shaping trade flows. ### Effects on Smallholder Farmers and Local Industry * 85% of Indonesian rubber farmers are smallholders → price fluctuations hurt their income. * Production costs remained high despite lower trade barriers. * Limited government support for replanting programs compared to Thailand and Vietnam. ### ACFTA and Indonesia's Trade Deficit with China * By 2010, trade balance tilted in China's favor. . * Indonesia imports more processed rubber than it exports in raw rubber ## PROPOSED SOLUTIONS * The Investment Coordinating Board (BKPM) must continue supporting the capital production of farmers through the people's Business Credit (Kur) but still needs improvements to better support rubber farmers (e.g. enhanced deductions, tax cuts etc..) * Adhere to international quality standards by investing on technology that would help solve low productivity and rubber sap challenges, financed through government subsidies. * Unlike Malaysia and Thailand, which moved up the value chain (e.g. producing tires and latex gloves), Indonesia remained stuck in raw rubber exports, limiting its ability to benefit from ACFTA in the long run. ## ASEAN Economic Community (AEC) and ASEAN+ Free Trade Agreements (FTAs) * ASEAN Economic Community (AEC) and ASEAN+ Free Trade Agreements (FTAs) have played a crucial role in driving regional economic integration, increasing trade flows, and enhancing investment opportunities especially in 2008 to 2009, but greater steps are needed for AEC to be a competitive bloc ## Indonesia's Rubber Competitiveness * Although the competitiveness of Indonesian rubber is still positive and worth exporting, it has been declining since 2006. The decline of competitiveness of Indonesia's rubber must not reach negative values as it may impact their economy through: 1. Decrease in prices to remain competitive 2. Decrease in production as demand decreases and prices continue to fall 3. Rubber farmer crisis, a decrease in competitiveness may lead to a crisis for rubber farmers 4. Macroeconomic impact, a significant decline in the industry could have a negative impact on regional economies