European Union: Market Profile
Major Economic Indicators http://developed-markets-research.hktdc.com/business-news
Recent Developments
- Croatia
acceded to the EU on 1 July 2013, signifying the latest enlargement of
the Union after the entry of Bulgaria and Romania on 1 January 2007.
Now, the EU is a trading bloc of 28 countries.
- However,
the UK voted to leave the EU in a historic referendum held on 23 June
2016 and triggered the formal exit process on 29 March 2017. This,
together with the snap general election held on 8 June 2017, has not
only spawned instant repercussions across the global financial market,
but also unleashed ambiguities over the future arrangements for Brexit.
As Britain will remain in the EU until the conclusion of an exit
agreement, significant changes may take time to unfold.
- For
the EU as a whole, the loss of the UK, a leading financial centre and
one of the few comparatively fast-expanding economies in Europe, will
definitely have negative repercussions on EU growth. The union would
further suffer from the absence of an influential supporter of trade and
service liberalisation.
- More seriously, the UK
departure could lead to a domino effect that threatens the whole EU,
spurring some other member states to push for their own membership
referendums. Even if no other member states ultimately choose to leave,
any intensified anti-EU sentiment will hinder the further integration
and development of the union, which may translate into a less lucrative,
yet more difficult, market for the rest of the world.
- All
EU member states adopt common external trade policy and measures, which
affect their trade relations with Hong Kong/the Chinese mainland.
Meanwhile, following Lithuania’s embracement of the euro as their new
legal tender on 1 January 2015, 19 EU members have adopted the euro as
their legal tender.
- Hong Kong’s total exports to the
EU increased by 4% to US$40.2 billion in the first eleven months of
2017, while its imports from the EU rose by 7% to US$33.1 billion.
- As
one of the most popular investment destinations, the inflows of foreign
direct investment (FDI) to the EU amounted to US$566 billion in 2016,
with China’s contributing US$10 billion. As of the end of 2016, China’s
total stock of FDI in the EU exceeded US$69 billion, up from US$1.3
billion in 2006. Accounting for 2% of EU’s inward FDI stock, China,
including Hong Kong, was the 5th-largest non-EU FDI investor (after the
US, Switzerland, Canada and Japan) in the bloc in 2016.
- To overcome the low investor confidence and therefore weak investment, the European Council and the Parliament
has endorsed the Investment Plan for Europe, including the decision to
set up a European Fund for Strategic Investments (EFSI) which has become
operational since mid-2015. According to European Commission
estimations, the Investment Plan has the potential to add €330 to €410
billion to the EU's GDP and create 1 to 1.3 million new jobs in the
coming three years. More information on the investment plan and the
relevant regulations can be found at the European Investment Bank.
- To
accommodate greater synergies, 15 of the 28 EU member states have
signed Double Taxation Agreements (DTAs) with Hong Kong, including
Austria, Belgium, the Czech Republic, France, Hungary, Ireland, Italy,
Luxembourg, Malta, the Netherlands, Portugal, Romania, Spain and the UK,
while negotiations with Latvia, Cyprus, Finland and Germany are in
progress.
- Moreover, Hong Kong has signed Investment
Promotion and Protection Agreements (IPPAs) with Austria, the
Belgo-Luxembourg Economic Union (consisting of Belgium and Luxembourg),
Denmark, Finland, France, Germany, Italy, the Netherlands, Sweden and
the UK.
EU Membership
The EU, before 1
May 2004, consisted of 15 developed countries in Western Europe, namely
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the
United Kingdom.
On 1 May 2004, the EU enlarged into Central and
Eastern Europe and the Mediterranean, and 10 countries in the region,
including Cyprus, the Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia and Slovenia, joined the EU as its
member states.
Croatia acceded to the EU on 1 July 2013,
signifying the latest enlargement of the Union after the entry of
Bulgaria and Romania on 1 January 2007. Yet the UK notified the EU of
its decision to quit the EU on 29 March 2017. For now, the EU is a
trading bloc of 28 countries, with Germany, France, the UK and Italy
remaining the four biggest economies, which together account for about
two-thirds of the total EU output.
Current Economic Situation
So
far, the EU economy has demonstrated resilience as it maintains the
course of growth and job creation, thanks to a number of favourable
factors such as acceleration in exports, a weaker euro, lower
deflationary pressure and a continued support of accommodative monetary
policy and fiscal stance. The new cycle of EU structural funds and a
growing number of projects approved under the umbrella of the
Investment Plan for Europe
moving into the implementation phase have also helped some Member
States to expedite their economic development plans and reforms.
Overall,
after 2.0% growth in 2016, the EU economy is set to expand by a faster
pace in 2017 and 2018, while eurozone’s GDP growth will also quicken to
2.1% this year and 1.9% next year, compared with 1.8% in 2016. This
steady expansion should remain driven by domestic demand, thanks to the
falling unemployment rate to 8% in 2017, the lowest since 2009.
Investment, despite continued improvement in financing conditions, is
expected to stay weak as firms would likely adopt a “wait and see”
approach, given the uncertainties related to Brexit, the Catalonian
referendum in Spain, the post-election developments in some major Member
States, as well as the uncertainty over future US external policies,
plus the spectre of terrorism, heightened geopolitical tensions and the
lingering immigration problem.
Trade Policy
All
EU member states adopt common external trade policy and measures.
Meanwhile, 19 EU members, including Austria, Belgium, Cyprus, Estonia,
Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and
Spain, have adopted the euro as their legal tender.
Quotas
No
quotas are imposed on textiles and clothing exports, as well as
non-textile products exports from Hong Kong and the Chinese mainland at
present.
Scheme of Generalised Tariff Preferences
The
EU’s new scheme on generalised system of preferences (“GSP”) entered
into effect on 1 January 2014. The new GSP focuses preferences
exclusively on those countries that do need them. The number of GSP
beneficiaries has been reduced from 178 to 92 compared to the previous
scheme. The Chinese mainland has graduated from the EU’s GSP since 1
January 2015, while Hong Kong has been fully excluded from the scheme
since 1 May 1998.
Anti-dumping Measures
The EU is legally required under
World Trade Organization (WTO)
rules to start treating the Chinese mainland as an industrialised
“market economy” before the end of 2016, meaning it is no longer
permitted to apply the tougher trade measures against the Chinese
mainland by reason of its classification as a “non-market economy”. In
response to the deadline of 11 December 2016 and the filing of a
WTO
case against the EU by the Chinese mainland on 12 December 2016, the EU
reached breakthrough on the reform of EU Trade Defence Instruments
(TDIs) abolishing the distinction between market and non-market
economies, while trying to keep tariffs on dumped goods at a similar
level as today. As the Chinese mainland’s challenge of the EU AD
methodology at the
WTO could take years, even up to 2021,
during which the EU would be able to continue to treat the Chinese
mainland as a non-market economy.
The EU has initiated
anti-dumping (AD) proceedings against certain mainland-origin products.
As it now stands, there are a number of Chinese mainland-origin products
are subject to EU’s anti-dumping duties, including bicycles, bicycle
parts, ceramic tiles, ceramic tableware and kitchenware, fasteners,
ironing boards and solar glass, which are of interest to Hong Kong
exporters. As at end-December 2017, the EU did not apply any AD measures
on imports originated from Hong Kong.
Other Measures
To
combat the spread of the Asian longhorn beetle, the EU introduced in
July 1999 emergency controls on wooden packaging material originating in
the Chinese mainland. Wood covered by the measures must be stripped of
its bark and free of insect bore holes greater than 3mm across, or have
been kiln-dried to below 20% moisture content.
For health reasons,
the EU has adopted a Directive on the control of the use of nickel in
objects intended to be in contact with the skin, such as watches and
jewellery. Following the emergency ban adopted in December 1999, the EU
has adopted a Directive to ban the use of some phthalates in certain PVC
toys and childcare articles on a permanent basis, which came into
effect from 16 January 2007. In addition, the EU has adopted a Directive
to prohibit from September 2003 the trading of clothing, footwear and
other textile and leather articles which contain azo-dyes, from which
aromatic amines may be derived.
On the other hand, the EU has
adopted a number of Directives for environmental protection, which may
have an impact on the sales of a wide range of consumer goods and
consumer electronics. Notable examples include the Directive on Waste
Electrical and Electronic Equipment (WEEE) implemented in August 2005,
and the Directive on Restriction of Hazardous Substances (RoHS)
implemented in July 2006. On 3 December 2008, the
European Commission (EC) presented two proposals: one for a recast RoHS Directive and the other for a recast WEEE Directive.
The
recast RoHS Directive was published on 1 July 2011 and entered into
force on 2 January 2013. The new Directive continues to prohibit EEE
that contains the same six dangerous substances as the old RoHS
Directive. Nonetheless, the new Directive will widen, as from 22 July
2019, the current scope of the previous RoHS Directive, by including any
EEE that will have fallen out of the old RoHS Directive’s scope, with
only limited exceptions.
Another important law for Hong Kong
companies to grapple with concerns waste EEE, i.e., the WEEE Directive.
With the formal approval on 7 June 2012, the recast WEEE Directive
entered into force on 13 August 2012, while Member States have until 14
February 2014 to transpose the new directive into national law. In
brief, the recast WEEE Directive will see Member States subject to
higher collection/recycling targets (i.e. 45% collection rate as of 2016
and 65% as of 2019) and a wider scope of measure covering essentially
all electric and electronic equipment, while establishing producer
responsibility as a means of encouraging greener product designs.
On
the heels of the recast RoHS and WEEE Directives, the EU’s new
framework Directive for setting eco-design requirements for
energy-related product (ErP) is now in place. The ErP Directive is no
longer limited to only EEE (as it was under its predecessor, the
energy-using product, or EuP, Directive), but potentially covers any
product that is related to the use of energy, including shower heads and
other bathroom fittings, as well as insulation and construction
materials.
Moreover, REACH, an EU Regulation which stands for
Registration, Evaluation, Authorisation and Restriction of Chemicals,
entered into force in June 2007. Among others, it requires EU
manufacturers and importers of chemical substances (whether on their
own, in preparations or in certain articles) to gather comprehensive
information on properties of their substances produced or imported in
volumes of 1 tonne or more per year, and to register such substances
prior to manufacturing in or import into the EU.
Following the
entry into force of the new Toy Safety Directive (Directive 2009/48/EC)
on 20 July 2011, the Official Journal of the EU published on 11 August
2011 references to two important safety standards concerning electric
toys (EN 62115:2005 and its amendment EN 62115:2005/A2:2011) and two
previous standards on the mechanical and physical properties of toys and
a standard on the flammability of toys.
Hong Kong's Trade with the EU [1]
Hong
Kong’s total exports to the EU increased by 4% to US$40.2 billion in
the first eleven months of 2017, following a 1% decrease to US$42.4
billion in 2016. Major export items in January-November 2017 included
telecommunications equipment & parts (shared 29% of the total),
computers (8%), electrical apparatus for electrical circuits (6%),
semi-conductors, electronic valves & tubes (5%), pearls, precious
& semi-precious stones (5%), toys, games & sporting goods (4%),
articles of apparel, of textile fabrics (4%), jewellery (3%), electrical
machinery & apparatus (3%), watches and clocks (3%), electric power
machinery & parts (3%), and parts & accessories of office
machines/computers (3%).
On the other hand, Hong Kong’s imports
from the EU rose by 7% to US$33.1 billion in the first eleven months of
2017, after decreasing by 4% to US$34.2 billion in 2016. Major import
items in January-November 2017 included pearls, precious &
semi-precious stones (shared 7% of the total), non-electric engines
& motors & parts (5%), travel goods & handbags (5%),
aircraft & associated equipment; spacecraft & parts (5%),
jewellery (4%), silver & platinum (4%), telecommunications equipment
& parts (4%), semi-conductors, electronic valves & tubes (4%),
perfumery, cosmetics or toilet preparations (excluding soaps) (3%),
fresh, chilled or frozen meat & edible meat offal (3%), measuring,
checking, analysing & controlling instruments & apparatus (3%),
medicaments (including veterinary medicaments) (3%) and milk and cream
and milk products other than butter or cheese (3%).
EU's Involvement in the Hong Kong Economy
Many
EU companies have used their operations in Hong Kong as a springboard
to other Asia-Pacific markets, especially the Chinese mainland. As of
June 2017, there were 452 EU companies with regional headquarters in
Hong Kong, while another 705 had regional offices.
The EU is one
of the major sources of foreign direct investment in Hong Kong.
According to the latest available figures from the
Census and Statistics Department, the total stock of direct investment from the EU amounted to US$157 billion (or HK$1,217 billion) as at the end of 2016.
The
EU is well represented in trading, finance, insurance, retailing,
transportation and other sectors of the Hong Kong economy. Major
companies with EU interests include the
HSBC, Standard Chartered
Bank, Barclays Bank, Inchcape, ICI (China), Prudential Portfolio
Managers, Marks & Spencer, British Airways, Commerzbank AG, Deutsche
Bank, BASF, L’Occitane, Lufthansa German Airlines, Siemens, TÜV
Rheinland, BNP Paribas, Credit Agricole, LVMH Asia Pacific Ltd, Parfums
Christian Dior Far East, Air France, ABN AMRO, P&O Nedlloyd (H.K.)
Ltd., Philips Hong Kong Ltd., Shell Hong Kong Ltd, Banco di Roma and
Ericsson Limited.
Reflecting
EU’s widespread interests locally, there were more than 29,000 EU
nationals resided in Hong Kong as at the end of 2017.
[1]
Since offshore trade has not been captured by ordinary trade figures,
these numbers do not necessarily reflect the export business managed by
Hong Kong companies.
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