European Union & global economy: lessons to be learned

Consumers in the world accept European products because of the strong quality tradition. However, regardless of heritage’s importance, European industry is also an excellent example of the path the European companies follow in adapting to the future challenges; in doing so they create jobs and business opportunities for people in the EU states.

Over the next twenty years, the share of European growth will reduce to 10 per cent of the global, i.e. about 90 per cent of the world’s growth will happen outside of the European Union’s borders.

Therefore, the first lesson, Karel De Gucht, European Commissioner for Trade underlined, is that the industry’s “target market” is the global economy and markets. Knowing the advantages of the European Single Market, the companies expect something similar in the outside world. That’s not going to happen; and more European companies are obliged to meet global challenges.

The second lesson is competing on quality, as products and services’ quality is becoming ever more important to export success. Producing high-value added goods is essential for any developed economy as high-value goods which incorporate skills and experience allow for well-paying jobs for people with such skills and that experience.

Finally, the lessons show the importance of intellectual property. European economy has to protect both individual company trademarks and so-called “geographical indications” (e.g. more than 300 geographical indications in the EU are linked to spirits, both Scotch and Irish whiskies as well as Cognac, Polish vodka, Orujo de Galicia and many others). One can say that intellectual property is “monetizing quality”; it is essential for the European economy’s model that industry specializes in the high value tasks of global value chains.

Governments’ decisions

For the European business to gradually adapt to the changing world, an important role belongs to governments in forcing companies understand and prepare for the challenging future.

 The EU member states’ governments (and the European Union’s trade policy, in particular) have to facilitate the connections that could bring prosperity back to Europe, argued the Commissioner. That means making sure Europe has an open economy, so that companies that are part of global value chains can gain access to the best quality goods and services from around the world, at the best prices.

 For European industry, for which local production and local ingredients are so important, access to internationally traded goods and services does play a role, whether those are capital goods, transport, logistics or finance. That is essential for Europe’s broader competitiveness, as well.

 However, in the European economy it is not just political decisions made in the EU that count.

Governments around the world make decisions that affect European business as well, e.g. like levying a discriminatory excise duty or using unfair methods to value goods at the border (e.g. India’s 150% tariff on spirits). And by getting in the way of European exports, they undermine companies’ ability to bring growth back home to Europe.

European Union’s trade policy

The underlying goal of the European Union’s trade policy is to make sure that those decisions are made in a fair and balanced way. There are some priorities in this: the first one is that of the World Trade Organisation, WTO. The multilateral trade system has been through a difficult decade, and the issues at the core of the Doha Round are still not resolved.

But a system that allows the EU to deal with so many partners at the same time – that establishes uniform rules for almost the entire world economy and that is backed up by the world’s best international dispute settlement system must be preserved and expanded.

 In December 2013in Bali, WTO members showed they understand this. The deal on trade facilitation reached there will directly benefit several industry sectors while simplifying customs and border procedures across the world. The member states now need to make sure that deal is implemented, and get to work on what remains to be done.

 The second priority for EU trade policy is to complete an unprecedented agenda of bilateral free trade agreements. The virtue of these negotiations is two-fold; on the one hand, they allow the EU states to move ahead with opening markets with those countries which are willing, rather than be held back by those who are more reluctant.

 This has allowed the Commission to put in place deals with Korea, Columbia, Peru and Latin America. It is what has brought European companies closer to achieving final deals with Canada and Singapore and being engaged in major initiatives with the United States, Japan, India, Mercosur and several ASEAN countries.

 This priority of the free trade agreements is important because it allows the EU to go deeper, tackling more of the issues that affect businesses. It also allows the EU to promote the enforcement of intellectual property rights in Latin America and tackle discriminatory technical labeling regulations around the world.

 The final priority is enforcement, which is necessary because negotiations have no value if the agreements reached are not put into practice.

As the report highlights, the EU case against the Philippines’ discriminatory excise duties is one example of how the WTO’s dispute settlement system can be very effective. The EU is committed to using that system whenever it is necessary; the EU is also committed to using its trade defence measures when those are required.

 These legal tools are complemented by the EU’s Market Access Strategy, which uses all channels of trade diplomacy to help the EU institutions to focus governments’ minds on problems that need to be solved. This approach has allowed to resolve issues around distribution in Vietnam and push for progress where difficulties have arisen in China and Russia.

Conclusion

The EU’s comprehensive strategy is to make sure the European member states are well placed for developing prosperity as the world changes. The Commission is able to put this strategy into practice for as long as the European people understand the way European economy functions with all the benefits from being part of an open global system.

Most people do see that the rise of vast new economic powerhouses is also the rise of vast new markets for European goods and services. But many people also see that globalisation presents challenges for Europe, most of all the need to adapt to rapid changes and deal with new competitors.

 As the recent European elections have confirmed, some people wish to react to these challenges by shutting “European doors”. The Commission’s view is that it would be a disaster for the European Union. That means it is very important that people understand how open markets help industries to be successful.

 People need to know that shoppers in China and the United States are buying high-quality goods from all across Europe. And they need to know what that means for their local economies.

“It is certainly the role of politicians to tell the whole story”, concluded the Commissioner.

Source: European Commission, Karel De Gucht, European Commissioner for Trade: Speech/14/503 “Thriving in a global economy”, 25 June 2014.

Source: http://www.baltic-course.com/eng/analytics/?doc=93382

Weekly overview: International Economic Trends

Myanmar score progress on Business Environment

Apart from the sky-high property prices and poor legal and regulatory frameworks, The International Business Times reported that Myanmar is apparently making good progress in terms of fostering a conducive business environment.

On 8th January, the global risk analysis firm Maplecroft published a “good business environment” list highlighting Senegal, Guatemala, Mozambique and Rwanda, along with Myanmar, as the countries with the greatest improvements over the last five years.

The International Times wrote that all five nations are commended for their progress“in encouraging foreign investment, including moves to strengthen corporate governance, reduce regulatory hurdles, combat corruption and improve rule of law.”

Myanmar, in particular, has come a long way from its position as the riskiest nation in 2012. It was singled out as the nation with the most significant improvements from a year ago owing to key reforms from its civilian government, which only took over  the country’s leadership reins from the military in 2011.

The International Times added that reform steps by the civilian government “included enhancing investor protection and implementing a new foreign investment law in March 2013, which began to tackle important issues such as foreign ownership limits and land leasing rules”.

According to Maplecroft, Myanmar’s reforms have been so effective that if it continues to keep to up its reform-momentum over the next one to three years, the country might even be removed from the “extreme risk”  category.

Singapore-listed companies with significant economic exposure to Myanmar, such asYoma Strategic Holdings(SGX: Z59) andInterra Resources (SGX: 5GI), might stand to benefit from increased economic activity in the nation as it develops.

Slight growth in European Union

According to Eurostat, the statistical office of the European Union (EU), GDP growth of the 17 members of the Eurozone fell by 0.3% during the third quarter of 2013, compared to the same period last year. By contrast, GDP growth across the whole of the 28-member EU grew by 0.2% year-on-year for the third quarter of 2013.

The Eurozone’s year–on-year decline in GDP for the third quarter of 2013 was less than the 0.4% contraction which had previously been predicted by Eurostat. GDP rose by 0.1 % in the Eurozone in the third quarter of 2013, as compared to the second quarter.

Nevertheless, Bloomberg reported that European stocks had posted its first full-weekly gain of 2014, “as data showed U.S. and German unemployment fell and Ireland returned to the bond market after completing a bailout program”.

The Stoxx Europe 600 Index (comprising 600 different large, mid, and small cap companies in 18 European countries) climbed 0.7 percent to 330. This is the highest that the Stoxx has reached since May 2008, according to the Bloombergreport.

The European Central Bank has pledged to keep interest rates low, and that has been seen as a strong force that helped the index to gain 17% in 2013, “its best year since 2009”.

In a sound bite provided by Bloomberg in the same report, Michael Kapler, an equities portfolio manager at Mittelbrandenburgische Sparkasse in Potsdam, Germany, said that “In an environment of low interest rates at least in Europe, supportive central banks like the ECB, and better economic data coming out of Europe and the U.S., there’s a good chance markets will head higher in the next few months.

Retail investors who are interested and wish to take advantage of the seemingly-improving economic climate in Europe can do so through the locally traded Lyxor Europe 10US$ (SGX: JC5).