Chapter 22 External Economic Relations

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Chapter 22External Economic Relations

• Alasdair R. Young

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External Economic Relations

• Europe and the global economy
• External economic policies
• Trade policy making in the EU
• Europe and global economic governance
• External economic policies as foreign policy tools

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Introduction

• External economic policies
• Tariffs on imports
• Restrictions on cross-border services/investment
• Currency exchange policy
• EU has adopted an external economic relations
  policy with rest of world
• EU important player in shaping global economic
  governance

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Europe and the global economy

• EU is worlds second largest economy (measured in
  PPP)
• Most European trade occurs between member states
• EU receives large amount of FDI, especially
  intra-EU flows
• Euro is second world reserve currency (c. 20 of
  foreign exchange reserves)

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Top 10 EU traders, including intra-EU trade, 2004
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Top 10 world hosts of and homes to FDI, 2004
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External economic policies

• Trade
• Foreign direct investment
• Development policies
• Monetary policy

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Trade policy making in the EU

• The location of authority over foreign economic
  policy shifted to EU, but remains contested
• EU institutional framework affects both
  negotiating position and negotiating leverage
• EU trade policy largely insulated from societal
  interests (except agriculture), but this is
  changing

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Europe and global economic governance

• EU is example of international economic
  governance
• EU is strongest advocate of multilateral trading
  system
• Europe does not play a strong role in global
  financial governance due to member state
  membership of IFIs

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External economic policies as foreign policy tools

• EU uses access to its market as means to
  influence third country domestic policies
• Uses positive conditionality
• Also negative conditionality e.g. Human Rights
  and Democracy Clause
• Differences between member states can hamper the
  impact of this approach