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The Economics of European Integration (Winter Term 2020) Assignment 3 What are the implications of using the euro as a common currency for: · eurozone members' monetary policy? · eurozone members' fiscal policy? · eurozone members' financial sector regulation? The assignment on one side of a single sheet of paper is due at 2pm on Thursday 23rd. July - no extensions. PowerPoint Presentation The EU since the 2007 Lisbon Treaty Thursday 16 July 2020, 11.10 – 1pm The EU in the Global Economy Before 1990: trade policy was used for foreign policy purposes (to favour preferred partners) and in response to domestic policy pressures (to support farmers and other producers facing import competition). 1990: the final round of GATT multilateral trade negotiations, the Uruguay Round, was in danger of collapse. The grand rescue bargain between the USA, the European Communities, Japan and Canada included agreement by the Europeans to drastically reform the common agricultural policy and to phase out one-way preferential treatment of trade partners. Both commitments were met, although it took several years into the 2000s. Note: in the 1990s and 2000s EU priorities = completing the Single Market (EC92), German reunification, monetary union, expansion to include Eastern Europe. In the twenty-first century: the EU in search of a new approach to trade policy → the 2015 Trade for All strategy - confirmed abandonment of using trade policy as foreign policy and that the goal is to open the EU to trade in support of participation in global value chains. Since 2017: as the USA withdrew from its leadership position in promoting the liberal multilateral trading system, the EU has become more proactive in that promotion Working with other major trading nations & China(?) but it is a work in progress and interacts with completing the Single Market in new areas (especially internet related) Completing the Single Market Officially the EC92 program was completed with the 1993 Maastricht Treaty In fact, much still needed to be done – on a “brick-by-brick” basis Jacques Pelkmans: Why the Single Market remains the EU’s Core Business (2016) Mario Mariniello et al. The Long Road towards the European Single Market (2015). estimated trade costs on goods ↓ 20%, but on services only by 7% → 2006 Services Directive, which was contentious and incomplete in part due to the heterogeneity of the services sector and entrenched vested interests opposed to change and 2015 Digital Single Market Many EU publications and action plans emphasize the big picture, e.g. the November 2015 action plan of the EU Commission to create A Deeper and Fairer Single Market A Deeper and Fairer Single Market (November 2015) actions agreed to deliver results for: Consumers: The Commission will take action to ensure that consumers seeking to buy services or products in another Member State, be it online or in person, do not face diverging prices, sales conditions, or delivery options, unless this is justified by objective and verifiable reasons. The European Commission and European Consumer Centres frequently receive consumer complaints involving unjustified differences in treatment on grounds of nationality or residence. SMEs and start-ups: Start-ups contribute a lot to the economy, but a number of entrepreneurs leave Europe because they can’t bring their innovative ideas to the market. Efforts are under way in the context of the Investment Plan and the Capital Markets Union to ease access to finance for SMEs. In addition, the Commission intends to simplify VAT regulation, reduce the cost of company registration, put forward a proposal on business insolvency and make all information on regulatory requirements accessible in a single digital gateway Innovative services: The Commission will develop a European agenda for the collaborative economy. New business models bring benefits to citizens and companies alike and help optimising the use of existing resources. However, questions arise whether existing regulations are still fit for purpose or whether new rules are needed. At the same time, we need to make sure that public policy objectives such as consumer protection are respected and tax and labour law complied with. Professionals: The Commission will improve the opportunities for businesses and professionals to be mobile across borders. It will improve the recognition of professional qualifications and facilitate the cross-border provision of business services, construction and other services that generate growth. Taken together, these actions will make it easier for companies and professionals to access new markets, allowing them to grow from small national actors into larger European players. Supporting all this, the Commission will work hand in hand with Member States and market participants to create a real culture of compliance for Single Market rules. Particular attention will be paid to the services sector and to public procurement, which is essential to spend taxpayer money efficiently. The Commission will strengthen mutual recognition to open up more opportunities to companies that want to expand cross-border. It will also reinforce market surveillance in the area of goods to keep non-compliant products from the EU market. And it will propose a market information tool, which will allow the Commission to collect comprehensive, reliable and unbiased information from selected market players with a view to improve the Commission’s ability to monitor and enforce EU rules in priority areas. New trade technologies and the policy challenges for THE EU 1. The Role of New Technologies in Modifying the Nature of International Trade and its Management. Focus on Internet no impact of internet connectivity on trade to 1995 positive relationship of internet connectivity & trade after 1997 [Caroline Freund and Diana Weinhold (2004): On the Effect of the Internet on International Trade, Journal of International Economics 62(1), 171-89.] New element = transfer of data – concerns about cybersecurity, privacy 2. Policy Implications In WTO, e-commerce not adequately covered by GATT or GATS working group on e-commerce established 1998 – ineffective so far difficult to achieve consensus within WTO Major trading nations turned to including e-commerce in trade agreements, e.g. TPP and EU+ agreements EU Digital Single Market initiative in May 2015 The Internet and Economic Behaviour Internet access shifts costs in five ways: Lower search costs – better matching of buyers & sellers over a wider area Lower replication costs – many customers’ needs can be satisfied quickly – assuming common standards permit interoperability Lower transportation costs → ↓importance of distance, although distance still seems to matter Lower tracking costs → new pricing tools (and also concerns about privacy) Lower verification costs → ↑willingness to trust unfamiliar trade partners Goldfarb and Tucker (2019): Digital Economics, Journal of Economic Literature 57(1), 2-43. The Internet and Costs of doing International Trade Internet use →↓ trade costs Communications facilitate accurate description of orders and conditions Evidence that SMEs using email export more Supports GVC interactions Tracking of transport allows firms to predict arrival of supplies with greater certainty Trade costs = money + time + uncertainty Especially in GVCs, just-in-time delivery is crucial – otherwise ↑inventories →↑costs e-documentation can reduce border-crossing time e-technology can improve port efficiency Impacts can be a-symmetrical between large/small firms, near/distant trade partners, extensive/intensive margin of exports Implications for GVCs Internet makes GVCs more efficient, although it is unclear whether better information flows strengthen the bargaining power of the lead firm or of decentralized firms previously lacking information Greater division of labour along international value chains bigger role for services (at a minimum as glue) more links in the chains are provided online New value chains may emerge, based on data transfer The Internet and the Composition of International Trade Amazon Web Services is venturing into machine learning for agriculture. Computers are programmed to identify the best use of statistical tools to draw information from large quantities of data (i.e. over 200 terrabytes) from satellites, other sensors and weather stations, to make better predictions on growing environments for agriculture, and hence providing tailored recommendations on how farmers should schedule their planting, and on the types and quantities of inputs to use (such as fertilizers, pesticides, etc.). This venture into machine learning for agriculture and cloud computing is predicated on future trade in services. Technology should also permit better forecasting of demand and supply and hence of international trade to smooth volatility. The location of computers for the data gathering and of the computers carrying out the machine learning could be anywhere and the exchange of information online. Thus, important inputs into efficient rice production and trade will be in the cloud rather than captured by the usual output and trade statistics. Pig Data – Big data is becoming important in livestock farming. In 2018, Weiyang, opened two state-of-the-art pig farms in eastern China where sensors track 170,000 pigs. Alibaba offers similar services to pig farmers in Sichuan Province monitoring each pig allows them to grow under the best conditions, avoiding illness (by monitoring the tone of a sick sow's bleat), disease & accidental death (by the squeal of a piglet over which the mother has rolled). Foreign suppliers use data from the monitors to organize their supply chains and minimize inventories, e.g. DSM a Dutch supplier of feed uses monitors to check stocks and quantities of feed in Chinese pig farms and to alert farmers of need for new orders and of current prices. export of feed from the Netherlands to China is traditional trade, but the flow of information - a valued service export - is not recorded in trade data. Technical improvements are expected to provide facial recognition of the individual pigs that can be analyzed to assess well-being, effects of diet and other data that may be valuable in improving the sector's efficiency. The analysis could be carried out anywhere. The means of payment will not necessarily be synchronous or equal to the value of the service, as is assumed in trade data, e.g. for the farmer the service price could be built into the price of equipment maintenance or of input supplies. Big Data and Artificial Intelligence Big data may be a valuable tradable item in itself Use to train AI Is privacy irrelevant if the data is valuable in itself rather than for its knowledge of a person? EU is concerned about Efficiency of e-commerce, data flows, etc → digital single market (2015) EU’s DSM aimed to abolish regulatory barriers that create digital borders In 2015 only 1.7% of EU enterprises used advanced digital technology – and 41% used no digital technology at all, only 7% of SMEs engaged in cross-border e-commerce And there was a large digital divide between the EU15 and the post-2000 new members But worried about privacy - General Data Protection Regulation (2016) Why is Data Movement so Important? - and why do policy positions differ? For the oligopolistic or monopolistic firms that dominate many areas, the goal is the freest flow of data and they are opposed to any data localization – a position generally supported by the USA. Commonly contrasted to: China emphasis on cyber security → data localization requirement EU emphasis on privacy → effective condition of data localization But differences not so stark: TPP chapters on e-commerce kept in CPTPP Similar chapters in EU-Canada & EU-Japan Evolution of China’s domestic legislation related