EU Cohesion and Commercial Policies: Impact and Evolution

Posted on Feb 12, 2025 in Business Administration and Management (BAM)

EU Cohesion Policy: History and Evolution

The Cohesion and Regional Policy (CRP) aims to correct interregional disparities between countries and across the EU. Differences in income per capita and unemployment have widened with the process of enlargement.

History of CRP

  • 1957-1974: The Treaty of Rome had a limited regional dimension, with the European Social Fund (ESF) as the only instrument. The 1973 enlargement and economic crisis prompted a focus on reducing disparities and addressing problems in agricultural areas.
  • 1975-1987: The European Regional Development Fund (ERDF) was created as a budgetary instrument for regions lagging behind and industrial regions in decline. This period also saw enlargement (Spain, Portugal, Greece) and the European Single Act, initiating the creation of the Structural Funds.
  • 1988-1999: The Structural Funds (EAGGF, ESF, ERDF) were reformed and integrated into a global cohesion policy. The Maastricht Treaty reinforced economic and social cohesion, creating the Cohesion Fund and the Committee of the Regions.
  • 2000-2006 (Agenda 2000): This period saw a shift in attitude, preparation for the enlargement (12 countries), creation of pre-accession instruments, and fiscal austerity.
  • 2007-2013: The aims were competitiveness, technological advances, and environmental protection.
  • 2014-2020: EU regional policy helped deliver the Europe 2020 strategy objectives (smart, sustainable, and inclusive growth), emphasizing research and innovation, the digital agenda, SME competitiveness, and a low-carbon economy.

CRP Co-financing

Structural Funds (2000-2006) (ERDF, ESF, EAGGF-Guidance): Co-financed three main objectives:

  1. Promoting development and structural adjustment in less developed regions (regions with <75% EU average GDP, sparsely populated areas).
  2. Economic and social restructuring of areas in crisis (industrial decline, rural underdevelopment, urban areas in difficulty). Requirements included unemployment rate and employment indexes > EU average; and factors like criminality, poverty, and education.
  3. Development of human resources. Requirements: groups with special difficulties in the labor market.

Cohesion Fund (2007-2013): Aimed at Member States (MS) with GNI <90% of the EU average (national level). Recipients were the 12 new MS, Portugal, Spain, and Greece.

New Regional Policy (2007-2013)

Focused on promoting growth and jobs. Funding was allocated to three main objectives:

  1. Convergence (reducing regional disparities): Accelerating convergence in less developed regions and MS. Requirements: regions with <75% EU average GDP, MS with <90% EU average GNI. Funding: ERDF, ESF, CF (81.5%).
  2. Regional Competitiveness and Employment: Strengthening competitiveness and employment, promoting economic change, and adjusting the labor force. Requirements: not covered by the Convergence objective and phasing-in regions. Funding: ERDF, ESF (16%).
  3. Cross-border and Inter-regional Cooperation: Cooperation across borders, transnational and interregional. Requirements: populations living in those areas. Funding: ERDF (2.5%).

Five European Structural and Investment Funds (2014-2020)

Structural Funds, Cohesion Fund, EAFRD, and the European Maritime and Fisheries Fund contributed to the growth goals of the Europe 2020 strategy. The EU Solidarity Fund is also significant.

Objectives (2014-2020):

  1. Investment in growth and employment (former convergence and regional competitiveness). Requirements: Less developed regions (GDP <75% EU average), transition regions (GDP 75-90%), more developed regions (>90%), and countries with GNI <90% EU average.
  2. European Territorial Cooperation.

In conclusion, the CRP has had positive results in terms of GDP per capita and decreasing unemployment disparities, although disparities increased with the last enlargements. Achievements include support for investment in SMEs, construction of roads, improved access to the labor market, better broadband connection, and environmental protection.

EU Budget Expenditure

The financial perspective sets budgetary ceilings for major expenditure categories. Up to 2006, it included 7 or 8 main headings:

  1. Agriculture (EAGGF-Guarantee)
  2. Structural operations (Structural Funds and Cohesion Fund)
  3. Internal policies
  4. External action
  5. Administrative expenditure
  6. Reserves
  7. Pre-accession strategy
  8. Compensations

Evolution until 2006: A decrease in agricultural spending until 2000, an increase in structural operations, internal policies, and external action, a slight reduction in administrative expenditure, and a new expenditure item: pre-accession.

2007-2020: Main headings for an EU of 27 members:

  1. Smart, Sustainable, and Inclusive Growth (44%): Competitiveness and cohesion for growth and employment.
  2. Preservation and Management of Natural Resources (43%): CAP, rural development, and environmental measures.
  3. Citizenship, Freedom, Security, and Justice (1%).
  4. EU as a Global Partner (6%): All external action, including pre-accession and former reserves.
  5. Administration (6%).
  6. Compensations (<1%).

The Budget and the Member States

Some countries are net contributors, and others are net recipients (excluding administrative expenditure and TOR).

Allocation of Expenditures by MS:

  • Absolute terms: Large disparities; main recipients are large countries, those with significant agricultural areas, and those less developed regionally and nationally.
  • Relative terms (% GNI): The order varies (size loses importance).

Conclusion: Expenditure has a redistributive function, but treatment isn’t uniform among those with higher incomes.

Allocation of Revenues by MS:

  • Absolute terms: Main contributors are the largest, richest countries.
  • Relative terms (% of GNI): Order changes, main contributors are less developed countries.

Conclusion: The own resource-based system doesn’t seem appropriate to guarantee equity; it has a limited redistributive capacity.

Net Contributors:

  • Absolute terms: Germany is the largest contributor, and the main beneficiaries are the EU-12.

Assessment: The budget has a direct redistributive impact, and a reduction in the relative size of the budget is observed after the last enlargement. Budgetary balance estimates are merely an accounting exercise of the financial costs and benefits each MS derives from the Union and give no indication of other benefits gained from EU policies.

Common Commercial Policy

The EU will open its market to imports from outside provided its trading partners do likewise.

Autonomous Trade Policy: Instruments established unilaterally following WTO rules:

  • Common External Tariff (CET) (progressive reduction)
  • Export regulations (liberalized for WTO countries)
  • Import regulations (liberalized)
  • Trade defense (anti-dumping and anti-subsidies)
  • Generalized System of Preferences: A preferential tariff system allowing exemption from general rules (Most Favored Nation – MFN).

Conventional Trade Policy: Network of agreements with individual countries and regions.

The EU has participated in international trade liberalization negotiations (GATT to WTO), relations with developed and developing countries, and implemented a new trade and development strategy with its 79 partners in the Africa-Caribbean-Pacific (ACP) group of countries aimed at integrating them into the world economy: The Cotonou Agreement. The EU also has agreements with Asia, Mexico, Chile, etc.

Evolution of Intra and Extra-Community Trade

EU-15 (1960-2000): Increase in intra-trade as a percentage (both exports and imports):

  • 1960-1970: Large increase in trade among EU MS due to the creation of a customs union (static effect: trade creation). No enlargement.
  • 1970-1980: General slowdown (both imports and exports). Proliferation of non-tariff barriers due to the economic crisis, despite the first enlargement (UK, Denmark, Ireland). For imports, a small reduction in the weight of intra-EU trade due to rising prices of raw materials and energy.
  • 1980-1990: Further increase in intra-trade, larger in imports than in exports, with the removal of non-tariff barriers (SEA) and new enlargement (Spain, Portugal, Greece). Recovery in imports due to the fall in oil prices.
  • 1990-2000: Reduction of intra-trade despite German reunification and the 4th enlargement (Sweden, Finland, Austria). Difficult period with wars and the currency crisis, plus the dismantling of tariff and non-tariff barriers to trade with other countries. Bilateral agreements were signed.
  • 2000-2010 (EU-27): Decrease in intra-trade for both exports and imports for similar reasons to the previous period.

Conclusion: Intra-trade has increased proportionately, and extra-trade has decreased proportionately. Enlargement and deepening of integration seem to have made the EU a closed block against third countries.

Degree of Openness

The degree of openness ((Exports + Imports / GDP) x 100) has increased over the decades. An increasing percentage of GDP is exchanged with countries outside the EU (tariff dismantling process within the GATT and WTO, plus bilateral agreements). EU countries trade more among themselves but also with third countries. There has been an increase in overall trade. In terms of static effects: trade creation > trade diversion.

Conclusion: The EU doesn’t seem to be an increasingly closed block against third countries. Regionalism and multilateralism are not necessarily incompatible. The EU has followed a model of open integration.