Eu Essay Research Paper INTRODUCTIONThe external policy

Eu Essay, Research Paper

INTRODUCTION

The external policy of the EU is generally considered to consist largely of trade negotiations on various bilateral and multilateral stages. There is much debate over the effectiveness of policy with respect to the developing world; in the context of this discussion I have used the term ‘developing world’ in its widest sense, although I will most commonly focus on the Mediterranean counties, ACP, and Latin America. It should also be made clear that for these purposes I will not be drawing too much on historical background, rather examining the issue over the last fifteen to twenty years, and how the changes in political climate within Europe may be affecting the developing world in the future.

It is interesting to note that this essay comes at a time when increasing pressure from the USA and other member of the WTO to liberalise trade are in direct opposition to the talks currently being held on the successor to the Fourth Lom Convention. This in turn comes into some conflict with the Union’s own goals of increasing its scope as a Single Market, and makes for an apparently unyielding division of loyalty

This essay falls naturally into two main sections; I shall concentrate first on External and then Internal policy of the EU. In the first section I shall devote some time to exploring the economic arguments surrounding the individual trading preferences granted to many developing countries, before looking more closely at the wider implications of such systems and how some countries stand to gain more than others from the system.

The second section covers the far-reaching effects of internal EU policy on the developing world, touching briefly on the implications of the Common Agricultural Policy before analysing the effects (both realised and potential) of widening and deepening the Union in terms of the developing countries.

I hope to demonstrate that, despite being a complex and multi-faceted issue, the overall conclusion must be drawn that the EU policy over the recent past has been lacking in any real worth in aiding development in the Third World.

EXTERNAL POLICIES OF THE EU

One of the problems of trading relations as exemplified by the Lom Convention of 1975 is that, despite ostensible being a co-operative arrangement, it is patently clear who the dominant partner is. Inclusion of the safeguard clause, and the EU’s perceived willingness to make use of it means there is uncertainty in developing markets, which hinders investment and therefore growth.

Furthermore, the EU has placed significant limitations on which goods are to be traded freely and which incur tariffs. Those industries which threaten weaker European industries face barriers to trade, however the process of deindustrialisation in the West has meant that these tend to be older primary and secondary industries which are precisely those on which developing countries are likely to concentrate. Tsoukalis rightly points out that free access for industrial exports means very little if there is “little to export” . This could seem to make the gesture of trading preferences seem rather more hollow; nevertheless, the EU remains the most important source of foreign capital for many third world countries .

Most studies on trade effects of EU policy yield a positive result for developing countries, however the broad consensus is that the benefits are at best marginal and short term in nature; that is to say, the growth of exports in a particular nation has been shown to be determined by that country’s export supply conditions (degree of outward orientation in business strategy, bureaucratic constraints, activity of investors etc.). However it has also been shown that in those countries where export conditions were indeed favourable, the existence of beneficial trading agreements contributed to the degree of growth success achieved .

The complex network of preferences and agreements which has built up over time in the EU, coupled with the reliance of the EU on trade agreements as foreign policy tools has meant that an increasing number of preferential trade agreements have been formed. These agreements are self-replicating as each new accord creates further disadvantaged partners or erodes existing advantage. The general proliferation has devalued them for each individual, making EU policy less effective on a country-to-country basis.

Pomfret shows that there is welfare gain to the developing country from a preferential trade agreement; It is shown that even without the increased exports, welfare gain to the developing country is achieved through a General System of Preferences on the part of the EU. This is also a satisfactory policy as it can be implemented without any change in economic or business structure in the domestic economy, and is also available to the government as ‘no-strings’ aid if they choose to implement an export tax equivalent to the preference level .

There is no firm conclusion over whether trade creation as a result of EU preference policy is outweighed by trade diversion; the EC’s own figures suggest that the one will cancel the other. However it is accepted that diversion will occur in markets for low-value, non-differentiated, price-elastic goods which indicates that the average developing economy will lose out on trade in manufactures to EU counties . However in the case of primary commodity exports the elasticities of price are smaller, so the trade creation effect will be greater. The effect of this is likely to be that existing trade patterns are strengthened, and diversification of the developing economy is constrained . This will make it more difficult for the developing nation to move away from a heavy reliance on one or two primary products with a risky market base. Finally, from a purely economic point of view, it should be remembered that any trade diversion represents a global loss of efficiency and mis-allocation of resources .

Hallett’s rather serious concern is that the emergence of an ever-closer union in Europe will have negative effects the developing nations, not through net effects on output and trade, but through the obstruction of diversification, and diversion of investment to the EU .

One of the problems in inherent in the system is that of asymmetrical benefit amongst developing nations; for example the Caribbean has been less successful than Africa in exploiting the Lom Convention , and the two tier import regime agreed upon by the EU in the wake of the banana disputes is still favouring ACP countries above ALM (Asian and Latin American). Whilst this is clearly good for ACP, the policy cannot necessarily be said to be helping all developing countries to develop. The EU has fostered preferential trade agreements with all Mediterranean countries except Albania and Libya; examples of asymmetrical benefit are plentiful. The EU was accused in the 1970s of creating a ‘Pyramid of Privilege’ in its network of trade relations whereby the ACP are the preferred nations with the Euro-Med. countries second and the rest of the developing world being considered last. In recent years ACP importance has declined relative to others (although only slightly) and South Asians have lost out to Latin Americans (mostly as a result of the accession of Spain and Portugal into the Community in 1986) . Although the pattern may be less marked now than in the conceptual ‘Pyramid’, the question remains; should we be examining who benefits from EU policy rather than whether anyone indeed does?