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21. How to de-risk: European economic security in a world of interdependence

Author:
Jean Pisani-Ferry, Beatrice Weder di Mauro, and Jeromin Zettelmeyer
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Pandemic-related supply disruptions, the energy crisis provoked by Russia’s invasion of Ukraine and economic coercion by China have put economic security high on the European Union policy agenda. The question is how exactly the EU should ‘de-risk’ its external economic relationships without foregoing the benefits of trade. The standard answer is that it should identify product-level trade dependencies, mainly on the import side, and reduce them, mainly through diversification of suppliers, while otherwise maintaining maximum trade integration. This Policy Brief argues that this answer falls short. First, product-level dependencies cannot be identified reliably even with sophisticated analysis and data. As a result, both ‘missed dependencies’ and ‘false positives’ are inevitable. Second, external shocks and coercion could be propagated through exports, productive assets held abroad and financial channels as much as through imports. The analysis has five main implications Import de-risking should focus on a few product categories for which the costs of supply interruptions would be unquestionably large. This reduces false positives. De-risking and/or buffers to deal with exports and financial coercion require more attention. De-risking must be complemented by raising resilience against all shocks, whatever theirorigin. This requires a deeper and broader European single market. De-risking and resilience must be complemented by deterrence. A sufficiently high probability of chronic trade conflict – or one very large conflict – may justify reducing overall integration with a large trading partner, on both the export andimport sides. EU economic security policies have been right to emphasise the reduction of import dependence on chips and critical raw materials, and the creation of a powerful legal instrument to deter coercion (the Anti-Coercion Instrument). In most other respects, there is room for improvement.
Topic:
European Union, Risk, Trade, Imports, Economic Security, and Interdependence
Political Geography:
China and Europe

22. Using the financial system to enforce export controls

Author:
Benjamin Hilgenstock, Elina Ribakova, Guntram Wolff, and Anna Vlasyuk
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Russian imports of battlefield goods that are subject to export controls, including from Western producers, have surged since mid-2022 and reached levels close to those prior to Russia’s full-scale invasion of Ukraine. Russia thus continues to be able to acquire critical foreign components that it needs for its military industry. These imports occur via mainland China, Hong Kong, Turkey and the United Arab Emirates, while other countries including Armenia, Georgia, Kazakhstan and the Kyrgyz Republic have also seen massive increases in imports from the EU and other coalition countries that likely end up in Russia. The implementation and enforcement of export controls faces major challenges, which are multifaceted and centre around complex supply chains, lack of transparency in documentation and opaque financial structures. The issues are familiar from anti money laundering (AML) and countering financing of terrorism (CFT) frameworks, where much progress has been made in the last two decades. A similar approach could help in rendering export controls effective. We propose: First, financial institutions could be tasked to play a role in the monitoring of the trade in export-controlled goods and the blocking of illicit transactions, building on their experience with due diligence in financial transactions. Second, non-financial companies could learn from banks’ efforts in the AML/CFT sphere to implement proper due-diligence procedures and to ensure export controls compliance. Public-sector investigations and appropriate fines are critical to increase the incentives for firms to act. Technology sanctions are going to be part of the economic statecraft toolbox for the foreseeable future. The Russia case will test their effectiveness and credibility, or lack thereof.
Topic:
Sanctions, European Union, Exports, Trade, Imports, Financial Systems, and Russia-Ukraine War
Political Geography:
Russia and Europe

23. A "new Washington consensus"

Author:
Johannes Späth
Publication Date:
01-2024
Content Type:
Special Report
Institution:
Austrian Institute for International Affairs (OIIP)
Abstract:
This oiip trend report delves into the shift in the U.S. and the EU towards protectionist foreign trade policies, diverging from traditional free trade principles. Despite initial expectations of a return to free trade under President Joe Biden, the administration has maintained and expanded protectionist measures, emphasizing a labor-centered approach with import tariffs. This departure is situated within a broader global context, reflecting a growing alignment on economic security policies and strategic autonomy between the transatlantic partners. The phenomenon, termed "polite protectionism," reveals bipartisan support, influencing upcoming elections. The text elaborates on the evolving dynamics of global trade, highlighting the multifaceted motivations and consequences of the contemporary protectionist trend.
Topic:
Free Trade, Trade, Protectionism, and Joe Biden
Political Geography:
Europe, North America, and United States of America

24. Assessing the International Interlinkages and Dependencies of the EU27 ‘Energy-renewables’ Ecosystem

Author:
Francesca Guadagno and Robert Stehrer
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The energy-renewables ecosystem (ERES) plays a particularly important role in the green transition. This paper analyses its relevance in EU member states and the competitiveness for the EU27 as a whole vis-à-vis other global players and identifies structural dependencies and vulnerabilities. It does so by drawing on the Joint Research Centre’s FIGARO dataset and detailed trade data, and by developing a novel approach that adapts input-output indicators to the analysis of industrial ecosystems. A number of key findings emerge from our analysis. First, the ERES is particularly relevant in new member states, Austria and Germany. At the global level, the EU27 is the second most important exporter after China. Second, in 2020 the EU ecosystem was dependent on imports of coal and lignite from Russia, as well as on a variety of other products from China (including medium- and high-tech electronic products). Third, analysis on the basis of detailed trade data indicates that a few products in the ERES supply chain are delivered by only a handful of countries, which could indicate some vulnerability. Most of the partner countries supply some products that may be characterised as ‘risky’, but China is a main source of such products.
Topic:
European Union, Trade, Renewable Energy, Strategic Autonomy, Green Transition, and Dependency
Political Geography:
Europe

25. Still in the Fast Lane? How can EU-CEE Get its Groove Back?

Author:
Tomáš Slačík
Publication Date:
09-2024
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This report revisits the growth and convergence performance of the 11 EU member states in Central, East and Southeast Europe (EU-CEE11) over the past few decades, examining the underlying drivers, structural changes and the outlook. The review aims to assess the sustainability of the current economic model and identify areas for economic policy to focus on boosting growth. The findings show that convergence has significantly slowed since the global financial crisis, with value added growth declining in virtually all industries. This slowdown is attributed to structural rather than cyclical factors, with total factor productivity (TFP) being the main driver as well as the primary culprit behind the deceleration. Since medium-term growth projections for the region are not optimistic, the EU-CEE11 countries must make substantial efforts to improve their economic models. Key areas to focus on include energy, underutilised labour and improving human capital. While still very competitive, the manufacturing sector needs to move towards higher value added activities.
Topic:
European Union, Economic Growth, Trade, Regional Economy, and Convergence
Political Geography:
Europe

26. The Granular Trade and Production Activities (GRANTPA) Database

Author:
Sebastien Bradley, Javier Flórez Mendoza, Mario Larch, and Yoto V. Yotov
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper introduces the Granular Trade and Production Activities (GRANTPA) database, which covers international trade flows for 3,124 products and 247 countries over the period 1995-2019 as well as domestic trade flows and production data for the same number of products and years for a subset of 35 European economies. The original data sources that we employ are Eurostat’s Comext and Prodcom databases. A gravity application delivers a large set of product-level ‘home bias’ estimates, which cannot be obtained without domestic trade flows. The average estimates on the standard gravity variables in our model (e.g., distance) are comparable to those from the related literature. However, our disaggregated estimates are very heterogeneous across products, thus highlighting the importance of our new database.
Topic:
International Trade and Finance, European Union, Trade, Production, Gravity Data, Structural Gravity, Home Bias Estimates, and Disaggregated Gravity Estimates
Political Geography:
United Kingdom, Europe, Turkey, Norway, Serbia, Iceland, Montenegro, and North Macedonia

27. From Carrots to Sticks, to Carrots Again? The EU’s Changing Sustainable Trade Agenda

Author:
Victor De Decker
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
Although sustainability criteria include references to human, social and labour rights as well as broader environmental concerns, this policy brief will focus on measures related to carbon emission reduction in relation to the Paris Agreement. This policy brief consists of three parts. First, there will be an overview of how Trade and Sustainable Development (TSD) chapters have gained prominence in European Free Trade Agreements. The second part will be dedicated to the autonomous, unilateral EU initiatives the Carbon Border Adjustment Mechanism (CBAM) and the Corporate Due Diligence Directive (CSDDD). To conclude, there will be a brief analysis of how the EU is working within a multilateral setting on the issue of climate change. In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development, a landmark framework renowned for its far-reaching vision encompassing 17 Sustainable Development Goals (SDGs) and 169 targets. These goals collectively constitute the “universal policy agenda,” aiming to address global challenges and foster inclusive economic growth. Notable among these goals is the promotion of sustainable international trade, identified as a pivotal policy instrument contributing to overarching SDGs. The 2030 Agenda positions international trade as “an engine for inclusive economic growth and poverty reduction” while actively contributing to the broader pursuit of sustainable development.
Topic:
Climate Change, Economics, European Union, Trade, Sustainability, and Energy
Political Geography:
Europe

28. Figures on the Billiard Table: EU-China Dynamics in the Wake of the 2024 European Elections

Author:
Bart Dessein and Jasper Roctus
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
While still a powerhouse in its own right, Europe’s relative influence on the world stage has been diminishing over the last few decades. Data, for example, highlight a significant shift in global trade patterns away from the old continent. According to a recent Brookings’ calculation, South-South trade had by 2009, i.e., around the time of the global financial crisis, increased from 10.9 per cent to 25.0 per cent worldwide. South-South trade thus surpassed North-North trade for the first time in world history. Today, 35.0 per cent of global trade is accounted for by South-South merchandise trade, and just 25.0 per cent of global trade is North-North trade. One important factor in this is a surging China-Africa trade. With China’s bilateral trade with Africa rising from 2.7 billion dollar in 1990 to 209 billion dollar in 2022, China has now become Africa’s single largest trading partner.
Topic:
Bilateral Relations, Elections, European Union, Trade, and Strategic Partnerships
Political Geography:
China, Europe, and Asia

29. EU-Pacific Talks | Charting the course for Ukraine: Reassessment of the Indo-Pacific

Author:
Zuzana Augustova
Publication Date:
01-2024
Content Type:
Special Report
Institution:
Europeum Institute for European Policy
Abstract:
During the next debate in the EU-Pacific Talks series organised by EUROPEUM Institute for European Policy, participants engaged in a lively debate covering various aspects of the Russian attack on Ukraine. They also discussed the potential impact on the dynamics of the Indo-Pacific region and the ability of allies and partners to navigate their Indo-Pacific commitments. Read what our guests discussed in this report by Zuzana Augustova.
Topic:
Security, European Union, Trade, and Russia-Ukraine War
Political Geography:
Europe and Indo-Pacific

30. Protection of Geographical Indications in Trade Agreements: Is it worth it?

Author:
Charlotte Emlinger and Karine Latouche
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper estimates the impact of the inclusion of GIs in bilateral agreements on French exports of foodstuffs. We rely on a unique dataset of firms and products concerned by Geographical Indications (GIs) in the French agri-food industry (excluding wine) for 2012-2019, merged with firm-product-destination level data from French Customs and the French National Institute of Statistics. Controlling for market and firm characteristics, we compare the exports of GI firms with those of non-GI firms before and after the signing of the 13 agreements (25 destination countries) that include a list of GIs to be protected. We show that the protection of GIs in EU RTA helps French firms to reach new markets and to sell their products at higher price, but it depends on the level of protection provided by the agreement.
Topic:
Treaties and Agreements, Bilateral Relations, European Union, and Trade
Political Geography:
Europe