Edited the processes of regional economic integration impact on european automotive industry

TABLE OF CONTENTS TABLE OF CONTENTS i INTRODUCTION 1 I THEORETICAL BASIS OF REGIONAL ECONOMIC INTEGRATION IMPACT ON EUROPE AUTOMOTIVE INDUSTRY 2 1 1 Regional economic integration 2 1 1 1 Definition of. TABLE OF CONTENTSTABLE OF CONTENTSiINTRODUCTION1I. THEORETICAL BASIS OF REGIONAL ECONOMIC INTEGRATION IMPACT ON EUROPE AUTOMOTIVE INDUSTRY21.1. Regional economic integration21.1.1. Definition of Economic Integration21.1.2. The Advantages of Economic Integration21.1.3. The Costs of Economic Integration21.2. European automotive industry31.2.1. The automotive industry has been one of the most significant growth engines for economic welfare in Europe31.2.2. Economic contribution of European automotive industry31.2.3. Environmental contribution4II. Regional economic integration Impact on European automotive industry42.1. Data Collection42.2. About 2016 Baseline52.3. Major impacts Impact on European automotive industry92.3.1. Tariffs on parts and components92.3.2. Nontariff barriers92.3.3. Change in demand for parts and components from car manufacturers102.3.4. Impact of removal of EU import tariffs and reduction of NTBs on parts and components102.3.5. Impact of removal of partners’ import tariffs and NTB on EU parts and components11CONCLUSION12REFERENCE13  INTRODUCTIONThe automotive industry represents a significant share of output and employment in the European Union. The continued process of global economic integration implies growing incomes in emerging markets near Europe and further afield. At the same time, new car manufactures have entered the stage and compete in the global markets. In addition, the supply chains have become even more integrated and growing global in scale. Recently, domestic demand in Europe for new cars and other motor vehicles has dropped due to the global financial, economic crisis starting from 20082009 and Covid19 Pandemic. Trade volumes have dropped in response to the drop in demand. At the same time, demand for new cars has been less affected in emerging markets during the crisis, and consumption and trade patterns are shifting towards fastgrowing markets outside Europe. Consequently, access to these overseas markets is becoming ever more critical both for trade flows of final goods and for the organization of the supply chain. This presents the European automotive industry with new opportunities and new challenges in the home market and abroad. While the EU automotive industry has many strengths in skills, leadership, technology and brands, there is also an overcapacity compared to domestic consumption and current export levels. The industry is struggling to maintain production levels in the face of the declining sales in Europe resulting from the economic downturn. Trade barriers (tariffs and nontariff barriers) are depressing these opportunities for the EU automotive industry and making it more difficult to access and take part in the growth in foreign markets. Similarly, the EUs tariffs and nontariff barriers are discouraging foreign competitors from further success in the European market and worldwide due to The process of Regional Economic Integration. I. THEORETICAL BASIS OF REGIONAL ECONOMIC INTEGRATION IMPACT ON EUROPE AUTOMOTIVE INDUSTRY1.1. Regional economic integration1.1.1. Definition of Economic IntegrationAccording to Richard E. Baldwin1, Economic integration is an arrangement among nations that typically includes reducing or eliminating trade barriers and the coordination of monetary and fiscal policies. Economic integration aims to reduce costs for consumers and producers and increase trade between the countries involved in the agreement.Regional economic integration is when two or more countries agree to eliminate economic barriers to enhance productivity and achieve greater economic interdependence.Economic integration is sometimes referred to as regional integration as it often occurs among neighboring countries.1.1.2. The Advantages of Economic IntegrationThe advantages of economic integration fall into three categories: employment trade benefits and political cooperations.More specifically, economic integration typically leads to a decrease in the cost of trade, improved availability of goods and services and a more comprehensive selection of them, and gains in efficiency that lead to greater purchasing power.Employment opportunities improve because trade liberalization leads to crossborder investment, market expansion, and technology sharing.Political cooperation among countries also can improve because of more robust economic ties, which provide an incentive to resolve conflicts peacefully and lead to more excellent stability.1.1.3. The Costs of Economic IntegrationDespite the benefits, economic integration has costs. These fall into two categories:Diversion of trade. Trade can be diverted from nonmembers to members, even if it is economically damaging for the member state.Erosion of national sovereignty. Economic unions typically must adhere to precepts on trade, monetary policy, and fiscal policies established by an unelected external policymaking body.Because economists and policymakers believe economic union leads to significant advantages, many institutions attempt to measure the degree of economic alliance across countries and regions. The methodology for measuring economic integration typically involves multiple financial indicators, including trade in goods and services, crossborder capital flows, labor migration, and others. Assessing economic integration also includes measures of institutional conformity, such as membership in trade unions and the strength of institutions that protect consumer and investor rights.1.2. European automotive industry1.2.1. The automotive industry has been one of the most significant growth engines for economic welfare in EuropeThe European automotive industry has been on a successful trajectory and has become a global leader and driver of Europes growth and prosperity. Both the passenger car as a cornerstone for individual mobility and the commercial vehicle – as the backbone of the European economy contribute tremendously to society, environment, economic welfare, and growth in Europe.1.2.2. Economic contribution of European automotive industryThe automotive sector is an indispensable industry with attractive job opportunities and a growth engine of Europes economy. The turnover generated by the sector represents approximately 7 percent of the EUs GDP, and tax contributions related to the industry total EUR 410 billion in the EU15 nations alone, equaling roughly 6 percent of their total taxable income2. With more than 5.4 million cars exported in 2017, the European automotive industry values over 40 percent of the global automotive value share. Commercial vehicles resolve Europes economy, transporting 75 percent of all landcarried goods and 90 percent of value transported. With average profitability of ~7 percent return on sales in 2017, the industry is economically robust but with a distinct gap to highly profitable industries, which achieve an average of ~22 percent return on sales.1.2.3. Environmental contribution The automotive industry also contributes to environmental welfare – even if at first this seems contradictory as the number of cars Europewide rose by >50 percent over the last 20 years2. At the same time, however, the industry was relatively thriving in keeping the detrimental influence on the environment of the steep increase in the number of vehicles on the road in check – mainly through effective emission reductions. With almost a 36 percent reduction in CO2 emissions since 1995, todays European new cars are far more efficient than ones from 20 to 25 years ago. In the same time frame, commercial vehicles CO2 emissions per km have fallen by 14 percent. NOx emissions have been decreased for new vehicles by ~90 percent and by ~95 percent for commercial cars since the early 1990s. Despite the significant reduction of commercial car emissions, however, the transport industrys growth causes a higher share of transport sector emissions than 20 years ago. Today, the transport sector accounts for roughly 24 percent of the EUs greenhouse gas emissions compared to 17 percent in 1995.II. Regional economic integration Impact on European automotive industry This chapter estimates the impact of possible Regional Economic Integration on the European market for passenger cars. 2.1. Data CollectionIn order to simulate the impact of REI, this assessment uses detailed sales data from 2016. The data contains sales quantities and list prices for all vehicles sold in a given market in that year. While the information on prices is available for each specific variant of the models sold, sales quantities are only recorded at the model level, which means that the analysis must be conducted at this level. In the case where several variants of the same model exist, the price of the cheapest variant is used.In terms of geographical coverage, this study has data for nine EU countries and most partner countries. The sales data for the EU market allows us to simulate the predicted changes to local sales and import flows. Supplementing this with the data for the partner countries further allows us to predict changes to EU export flows and thereby to total EU production. The latter is defined as changes in local sales on the EU market and changes in the volume of cars exported from the EU.

TABLE OF CONTENTS

TABLE OF CONTENTS i

INTRODUCTION 1

I THEORETICAL BASIS OF REGIONAL ECONOMIC INTEGRATION IMPACT ON EUROPE AUTOMOTIVE INDUSTRY 2

1.1 Regional economic integration 2

1.1.1 Definition of Economic Integration 2

1.1.2 The Advantages of Economic Integration 2

1.1.3 The Costs of Economic Integration 2

1.2 European automotive industry 3

1.2.1 The automotive industry has been one of the most significant growth engines for economic welfare in Europe 3

1.2.2 Economic contribution of European automotive industry 3

1.2.3 Environmental contribution 4

II Regional economic integration Impact on European automotive industry 4

2.1 Data Collection 4

2.2 About 2016 Baseline 5

2.3 Major impacts Impact on European automotive industry 9

2.3.1 Tariffs on parts and components 9

2.3.2 Non-tariff barriers 9

2.3.3 Change in demand for parts and components from car manufacturers .10

2.3.4 Impact of removal of EU import tariffs and reduction of NTBs on parts and components 10

2.3.5 Impact of removal of partners’ import tariffs and NTB on EU parts and components 11

CONCLUSION 12 REFERENCE 13

The automotive industry represents a significant share of output and employment in the European Union The continued process of global economic integration implies growing incomes in emerging markets near Europe and further afield At the same time, new car manufactures have entered the stage and compete

in the global markets In addition, the supply chains have become even more integrated and growing global in scale

Recently, domestic demand in Europe for new cars and other motor vehicles has dropped due to the global financial, economic crisis starting from 2008/2009 and Covid-19 Pandemic Trade volumes have dropped in response to the drop in demand At the same time, demand for new cars has been less affected in emerging markets during the crisis, and consumption and trade patterns are shifting towards fast-growing markets outside Europe Consequently, access to these overseas markets is becoming ever more critical both for trade flows of final goods and for the organization of the supply chain This presents the European automotive industry with new opportunities and new challenges in the home market and abroad

While the EU automotive industry has many strengths in skills, leadership, technology and brands, there is also an overcapacity compared to domestic consumption and current export levels The industry is struggling to maintain production levels in the face of the declining sales in Europe resulting from the economic downturn

Trade barriers (tariffs and non-tariff barriers) are depressing these opportunities for the EU automotive industry and making it more difficult to access and take part in the growth in foreign markets Similarly, the EU's tariffs and non-tariff barriers are discouraging foreign competitors from further success in the European market and worldwide due to The process of Regional Economic Integration

I THEORETICAL BASIS OF REGIONAL ECONOMIC INTEGRATION IMPACT ON EUROPE AUTOMOTIVE INDUSTRY 1.1 Regional economic integration

1.1.1 Definition of Economic Integration

According to Richard E Baldwin[1], Economic integration is an arrangement among nations that typically includes reducing or eliminating trade barriers and the coordination of monetary and fiscal policies Economic integration aims to reduce costs for consumers and producers and increase trade between the countries involved in the agreement

Regional economic integration is when two or more countries agree to eliminate economic barriers to enhance productivity and achieve greater economic interdependence

Economic integration is sometimes referred to as regional integration as it often occurs among neighboring countries

1.1.2 The Advantages of Economic Integration

The advantages of economic integration fall into three categories: employment trade benefits and political cooperations

More specifically, economic integration typically leads to a decrease in the cost of trade, improved availability of goods and services and a more comprehensive selection of them, and gains in efficiency that lead to greater purchasing power

Employment opportunities improve because trade liberalization leads to cross-border investment, market expansion, and technology sharing

Political cooperation among countries also can improve because of more robust economic ties, which provide an incentive to resolve conflicts peacefully and lead to more excellent stability

1.1.3 The Costs of Economic Integration

Despite the benefits, economic integration has costs These fall into two categories:

Diversion of trade Trade can be diverted from nonmembers to members,

even if it is economically damaging for the member state

Erosion of national sovereignty Economic unions typically must adhere to

precepts on trade, monetary policy, and fiscal policies established by an unelected external policymaking body

Because economists and policymakers believe economic union leads to significant advantages, many institutions attempt to measure the degree of economic alliance across countries and regions The methodology for measuring economic integration typically involves multiple financial indicators, including trade in goods and services, cross-border capital flows, labor migration, and others Assessing economic integration also includes measures of institutional conformity, such as membership in trade unions and the strength of institutions that protect consumer and investor rights

1.2 European automotive industry

1.2.1 The automotive industry has been one of the most significant growth engines for economic welfare in Europe

The European automotive industry has been on a successful trajectory and has become a global leader and driver of Europe's growth and prosperity Both the passenger car - as a cornerstone for individual mobility and the commercial vehicle – as the backbone of the European economy contribute tremendously to society, environment, economic welfare, and growth in Europe

1.2.2 Economic contribution of European automotive industry

The automotive sector is an indispensable industry with attractive job opportunities and a growth engine of Europe's economy The turnover generated by the sector represents approximately 7 percent of the EU's GDP, and tax contributions related to the industry total EUR 410 billion in the EU-15 nations

alone, equaling roughly 6 percent of their total taxable income[2] With more than 5.4 million cars exported in 2017, the European automotive industry values over 40 percent of the global automotive value share Commercial vehicles resolve Europe's economy, transporting 75 percent of all land-carried goods and 90 percent of value transported With average profitability of ~7 percent return on sales in 2017, the industry is economically robust but with a distinct gap to highly profitable industries, which achieve an average of ~22 percent return on sales

1.2.3 Environmental contribution

The automotive industry also contributes to environmental welfare – even if

at first this seems contradictory as the number of cars Europewide rose by >50 percent over the last 20 years[2] At the same time, however, the industry was relatively thriving in keeping the detrimental influence on the environment of the steep increase in the number of vehicles on the road in check – mainly through effective emission reductions With almost a 36 percent reduction in CO2 emissions since 1995, today's European new cars are far more efficient than ones from 20 to 25 years ago In the same time frame, commercial vehicles' CO2 emissions per km have fallen by 14 percent NOx emissions have been decreased for new vehicles by ~90 percent and by ~95 percent for commercial cars since the early 1990s Despite the significant reduction of commercial car emissions, however, the transport industry's growth causes a higher share of transport sector emissions than 20 years ago Today, the transport sector accounts for roughly 24 percent of the EU's greenhouse gas emissions compared to 17 percent in 1995

II Regional economic integration Impact on European automotive industry

This chapter estimates the impact of possible Regional Economic Integration on the European market for passenger cars

2.1 Data Collection

In order to simulate the impact of REI, this assessment uses detailed sales data from 2016 The data contains sales quantities and list prices for all vehicles sold in a given market in that year While the information on prices is available for

each specific variant of the models sold, sales quantities are only recorded at the model level, which means that the analysis must be conducted at this level In the case where several variants of the same model exist, the price of the cheapest variant is used

In terms of geographical coverage, this study has data for nine EU countries and most partner countries The sales data for the EU market allows us to simulate the predicted changes to local sales and import flows Supplementing this with the data for the partner countries further allows us to predict changes to EU export flows and thereby to total EU production The latter is defined as changes in local sales on the EU market and changes in the volume of cars exported from the EU

The nine EU countries for which this assessment has data are the following: Germany, UK, France, Italy, Spain, Belgium, Netherlands, Greece and Portugal In terms of sales volumes, these countries account for most new car sales in the EU In

2016, these markets alone accounted for 86 percent of EU local and 81 percent of the sales of imported new cars

2.2 About 2016 Baseline

Table 1 contains the quantities of local sales, imports, exports and production

of new vehicles in the nine EU countries data, and the equivalent values scaled up

to EU-level Import quantities refer to the total imports of new vehicles from

non-EU countries, while exports refer to non-EU new cars to all potential REI partners

Table 1: Number of vehicles, 2016

(from world) (to all potential REI partners)

EU Production

To indicate the relative importance of all potential partners in terms of trade flows in 2016, the quantity of EU imports and exports are broken down by origin and destination in Figure 1 and Figure 2

Figure 1: Share of vehicles (no.) imported by origin, 2016

Source: LMC Automotive (2017), European Automotive Industry Outlook

In terms of imports (Figure 1), the most important partners are Japan, Korea, the US and India, which accounted for 92 percent of the number of cars imported into the EU in 2016 Vehicles imported from Japan include, among the most important, those produced by Mazda, Toyota and Suzuki From Korea, notable car producers exporting to the EU include GM and Renault, while BMW, Mercedes, and Chrysler export from the US Finally, cars imported from India are produced mainly by Hyundai

On the other hand, countries such as Malaysia, Canada, and Mexico are minor players in terms of EU imports of passenger cars The likely impact of a potential REI with one of these countries on the domestic EU market is minimal

The picture in terms of exports is somewhat different The most critical market in the US, solely accounting for 44 percent of the number of vehicles exported from the EU to the potential REI partner countries In addition, several of the countries which accounted only for a minor share of EU imports, such as Canada and Mexico, are relatively important export markets Therefore, a possible REI with Canada and a potential revision of the REI with Mexico, in terms of NTBs, will be significant for the EU

2,43% Other

,02%

0 Malaysia

,02%

0 Canada

,08%

0China

,19%

0Russia 0,32% Mexico

1,80% Brazil

,32%

5

Turkey ,38%

8India

,67%

12US

,93%

30Korea

,27%

40Japan

.

Figure 2: Share of vehicles (no.) exported by destination, 2016

Source: LMC Automotive (2017), European Automotive Industry Outlook The value of the production of parts and components in the EU was €234 billion, according to Eurostat production statistics in 2016 Imports of parts and components totaled a little over €20 billion in 2016 The detailed analysis shows that around half of that import came from REI partners as non-inward processing trade (IPT) and the other half from non-REI partners outside Europe or as IPT imports from REI partners

On the demand side, domestic demand for parts and components in the EU was €211 billion in 2016 and EU exports were €46 billion, as shown in Chapter 2 Around €21 billion was EU exports to the REI countries covered in this study, cf Table 2

Table 2: Summary of European parts and components industry

Description production EU imports from Non-IPT

REI countries

EU other import

EU domestic demand

EU exports to REI countries

EU other exports

Total

,84%

25Other

,32%

0India

,61% 3 Mexico

,76%

4Korea 4,77%

Mercosur

,68%

5 Canada

6,70%

Other Asia

7,45%

Ukraine Singapore +

Colombia + Peru + Central America + 7,49%

Euromed

,09%

15Japan

44,12%US

So looking at the total supply of parts and components in the EU, we find that supplies from the REI countries in this study constitute around 4 percent of the total supply (excluding IPT)

Looking at total demand, exports to the REI countries covered in this study are around 10 percent of total demand Domestic demand is the largest source of demand for the EU's parts and components producers account for more than 80 percent of total demand in 2016

EU's import of parts and components is mainly from Japan, China, Korea and the US Of the REI partners analyzed in this study, the top-3 import sources for the EU (Japan, Korea and the US) accounted for more than three fourth (76 percent)

of total imports from the REI partners in 2016 The largest product category is gearboxes amounting to almost 20 percent of the total imported value of the 19 parts and components products covered in our analysis Other top-5 products include tires (new), body parts, engines (with spark-ignition >1000 Cc) as well as the product group "other parts."

EU's export of parts and components is concentrated on much the same group of countries as imports However, it is more evenly spread across countries, with considerable exports destined for Central and South America Together with the US, Japan and Korea account for around 55 percent of the total EU export to potential REI partners, with the US taking top position The US is followed by Brazil, Mexico, Japan and Korea Together the top-5 countries constitute 77 percent

of EU's exports to the covered REI countries

Concerning products, EU's exports to the REI partners again span most of the 19 products covered in the analysis except retreated tires, where there is limited trade with the REI partners The same top products described above are found on the export side (gearboxes, body parts and other parts), but engines (with spark-ignition >1000 Cc and diesel engines) also make up a considerable share of EU's export to the REI partners covered The top-5 products make up 70 percent of the total EU export to the REI countries covered in the study