Evaluating impact on third countries
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Scope
Does the option affect third countries with which the EU has preferential trade arrangements?[1]
Definition
Regional Trade Agreements (RTAs) amongst developing countries or between developed and developing countries, can contribute to the participation of developing countries in the global economy and reinforce the multilateral trading system provided they are outward-oriented and lead to lower external trade barriers. South-South integration can enhance efficiency, increase competition between peers in development, enable economies of scale, increase attractiveness to Foreign Direct Investment (FDI) and secure greater bargaining power. Last but not least regional integration can contribute to the consolidation of peace and security.[1]
The power of regional integration is enhanced when co-operation goes beyond border measures and is extended to deeper integration, including the convergence of domestic policies such as investment and competition policies; regulatory convergence and/or the adoption of harmonised or common standards, including where appropriate environmental standards; the development of regional financial services and the co-ordinated provision of infrastructure such as regional telecommunications, energy and transport networks. The regional dimension can provide an incentive to put in place sound policies and institutions for example for macroeconomic stabilisation, social protection and conflict resolution that could otherwise be difficult to achieve at the national level. It is also possible to save resources when institutions and capacity building can be set up at regional level. This applies to many trade-related areas such as standards, intellectual property protection and the whole range of trade facilitation measures, including customs procedures.[1]
For a long time the EU has advocated and supported South-South integration, in parallel to greater integration of developing countries in the multilateral trading system, as part of a development strategy to overcome the limitations of small economic size and vulnerability. Yet, it should not be overlooked that the positive effects of integration can only be realised when the overall policy framework and the governance and security situation are conducive to such integration (as is the case with trade reform in general). Therefore, given the limitations in these areas, many past initiatives have not yet fulfilled their expectations.
The EU has increasingly been involved in RTAs with developing countries. Agreements have been concluded with almost all countries of the Southern Mediterranean, South Africa, Mexico and Chile . There are many advantages to linking developing countries with a large industrial country or trade block. The strong points of such North-South integration include: locking-in of reforms, stable access to large markets, improved governance, facilitation of FDI flows and technology transfer. While multilateral trade liberalisation and rule making within the WTO system remains the major trade policy priority of the EU, this can be articulated with bilateral and regional agreements in order to better pursue both trade opening and development objectives. Among the conditions necessary to create such a positive articulation are: full compatibility with multilateral rules; appropriate flexibility in their design and implementation, tailored to the level of development of the parties; a high degree of regulatory convergence taking due account of legitimate objectives and the specific situations of countries; rule making going beyond the basic multilateral rules; as well as, in most cases, effective regional integration among the EU's partners themselves.[1]
North-South and South-South integration can be mutually reinforcing. Better access to a developed market can be an incentive for developing countries to overcome resistance to open their own markets to each other, while making them more attractive for investment flows, which can strengthen their own competitiveness. By the same token, the effective integration of the developing economies makes them a more credible partner for the developed countries.
Therefore, in its ongoing RTA initiatives (with Mediterranean countries, Mercosur, the Gulf Co-operation Council and the Economic Partnership Agreements (EPAs) under the Cotonou Agreement) the EU promotes what can be called a South-South-North approach which aims to combine the strong points of North-South integration with the positive aspects of South-South integration. This approach also reduces the hub-and-spoke effect when a large trading block engages in separate agreements with a large number of countries. It must be clear, however, that this approach must maintain a high level of ambition in order to be successful, especially in terms of going beyond traditional free trade.[1]
Result
EC related information:
Other information:
Indicators:[1]
The following Eurostat Structural Indicators (Economic Reform) are relevant to address the key question:
-Market integration:
The following Eurostat Sustainable Development Indicators (Global Partnership) are relevant to address the key question:
- FDI to developing countries, by income group
- Official Development Assistance, by income group
- EU imports from developing countries by group of products
- EU imports from least-developed countries by group of products
- Total EU financing for developing countries, by type[1]
See also
References
This text is for information only and is not designed to interpret or replace any reference documents. The text is adapted from IAstar, European Commission internal report