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Irish taxpayers will have to foot multi-billion Statoil bill – Aftenbladet.no


Farmer Willie Corduff is just one of the Irish taxpayers that have to pick up Statoils bill on the Coribb-project.

The cost overrun is mainly due to poor handling of local residents’ protests. Locals complain of lack of dialogue with the oil companies, little information, and fear of getting a pipeline almost under their houses.

The intense protests have delayed the project and made it more expensive.

Boomeranged

Paradoxically enough, though, it is the Irish themselves who must foot the bill for the extra due the country’s legislation.  Losses for companies are tax-deductible.

Ireland’s favourable tax policy means Statoil’s losses could actually be very small. Losses, capital costs, and exploration costs can be written off against future income in their entirety, while the tax rate is only 25 per cent.

Irish tax havens

Ireland has long been known to have very favourable tax rules for companies. Both the IMF (International Monetary Fund) and organisation Tax Justice Network defines the country as a tax haven – a term often associated with palm-treed islands in distant waters.

Standard corporation tax in Ireland is 12.5 per cent, which has successfully tempted Internet giant Google to establish its European headquarters in the country. Apple has also received criticism for using the Irish’ tax regime to evade taxes. Apple top Tim Cook had to answer to the US Congress regarding the practice last week.

Norway pays nothing

Statoil’s multi-billion kroner loss falls to the Irish to pay in its entirety, while Norwegian taxpayers remain unencumbered. It would have been different had the project been in Norway.

Companies can write off about 78 per cent of their losses here. This rate may be reduced if the government succeeds in getting its planned tax changes through.

In return, the Norwegian government receives 78 per cent of the hydrocarbon industry’s profits.

“There’s no doubt the tax system is attractive for oil companies. It must be this way, however, to draw companies here. Very few significant discoveries have been made in this country and the outlook for revenues is uncertain. In many ways, Ireland is where Norway was before the Ekofisk discovery in the ‘60s,” says Fergus Cahill, head of the Irish Offshore Operators’ Association.

The oil companies decided

Many among the Irish population are sceptical to the favourable tax regime for oil companies. Padraigh Cambell is a former rig worker and has been a spokesperson union Siptu. He knows Irish history oil well.

“What taxation authorities drew up in the ‘80s was based on what the oil companies said. They dictated the terms; 25 per cent tax and 100 per cent depreciation. All expenses 25 years back in time can be written off, as well as gifts, sponsorships, everything! Politicians said that this would be good for Ireland, but now the situation is that the supply business happens from Scotland, for example. So the oil-related costs can then be written off in Ireland. We want the Norwegian model. We want jobs for Irish ports, Irish companies, and Irish workers,” says Mr Campbell.

The controversial gas pipeline from the Corrib field comes ashore near the town of Rossport, northwest Ireland. Several residents in the town neither believe Ireland will benefit from the Corrib field because depreciation rules are so favourable, nor that the country will not get tax revenues.

“People in Norway will benefit from the project through Statoil. We’re not going to profit from it because of the Irish tax rules,” says farmer Willie Corduff.

Fergus Cahill in the Irish Offshore Operators’ Association disagrees.

“I know this is a popular argument among some opponents of the hydrocarbon industry in Ireland. Calculations by the authorities show that tax revenues from commercial fields will be substantial – even in relation to the present system,” Mr Cahill says.

Modified in 2007

The Irish government has announced a review of the tax system in the autumn. However, there is nothing to suggest that this will result in the country approaching the tax system as it presently is in Norway.

“I struggle to understand how anyone can expect we’ll have a Norwegian tax system without having Norway’s amounts of commercial discoveries,” newspaper The Irish Times reported Ireland’s Energy Minister Pat Rabbitte saying at a hearing earlier in May.

The system was also changed in 2007. Authorities then introduced a surplus tax of up to 15 per cent that could bring the total tax rate up to 40 per cent, depending on the project’s profitability. The change was not retroactive, and has no significance for the Corrib project Statoil is involved in.

25-year deadline

Statoil’s annual report on its 2011 operations in Ireland shows total national losses of EUR 1.3 billion (almost NOK 10 billion), but that this can be written off against future taxable income.

In 1997, Statoil also recorded an approximately EUR 159 million (NOK 1.2 billion) loss in the Connemara area of ​​Ireland, when it was determined that the field was not commercial. Irish rules are designed so that losses and expenses can be written off against taxes for 25 years after they are incurred. This means that Statoil can also write off the Connemara loss against tax on future profits from Coribb field.

The corresponding limit in Norway is ten years.

Head of Information Bård Glad Pedersen at Statoil does not wish to comment directly on how the favourable tax terms have or have not influenced their decision to continue their operations in Ireland, but writes in an e-mail that:

“It is common that costs and losses can be offset against future income. The tax system in Ireland does not differ significantly from taxation in the other countries in this area. We make investment decisions on a commercial basis, and the framework conditions are included as a factor in these reviews.”

Shell’s statement

Shell, operator of Coribb field, has the following comment:

“All companies in Ireland can write off investment costs against profits, and the partners in Coribb field are no exception. Oil and gas companies must, however, pay 25 per cent tax instead of 12.5 like other companies in the country. Ireland also receives tax revenue from the hundreds of people who are employed in connection with the project,” Shell Ireland press officer Fiona McGuinness writes in an email.

via Irish taxpayers will have to foot multi-billion Statoil bill – Aftenbladet.no.

The Irish oil situation


What’s going on with Ireland’s natural resources? Many people believe that our government have given our oil away, and that ownership and control of the oil belongs completely to the various oil companies. Have our government really given it away? There’s so much speculation and spin around the whole topic – no one seems to be able to give a clear assessment of the situation. When confronted, politicians do what they do best – avoid answering questions. Isn’t it time we had some transparency?

On a recent trip to Oslo, I spoke with an engineer who worked on the first oil finds in Norway. Before Norway began producing their own oil, it was a poor country which mainly produced timber and fish. The illusion that the Norwegians initially knew how to produce oil needs to be smashed. There is a distinction between a drilling/exploration licence and a licence to extract/produce. When Royal Dutch Shell declared itself capable of producing oil in the North Sea, the Norwegian government said “great, now it’s a joint venture”. Essentially, they said “this is Norwegian oil and if you’re going to take it out of our territory – it is going to be a joint venture – we’re in.”

Norway didn’t become a wealthy country overnight. When the oil industry was in its infancy in Norwegian waters back in the 1970s, the Norwegians paid dearly; people don’t work for free. For example, each barrel worth $109, Shell say “we want $87 of that because we need to recover our huge investment.” This is where government need to be strong in their negotiations and get the best deal for the state. The Norwegians learned quickly and invested heavily in education and over time have become leading experts in oil exploration and production. Where did they attain this knowledge?

In the 1970s, engineering professionals from the Gulf of Mexico (the birthplace of off-shore drilling) and Britain came to Norway with their expertise. It wasn’t long before Shell and other companies were in the North Sea. The Norwegians participated; they watched and learned the techniques of the industry and since the 1980s have been exploring and producing around the globe with their own company, Statoil. Their main political objective has been to ensure that the values on the Norwegian Continental Shelf (NCS) benefit the entire country.

It appears that a country would be better off to put out contracts to drill and extract the oil out to tender; however, the industry is not structured this way. Off-shore oil production by its nature is very costly because the crude oil extracted has to be refined. To save on transportation costs, the oil company builds a platform to refine the oil at sea. It takes three years and costs billions to complete this project. Once the oil is refined, it can then be piped to the mainland or more favourably into huge tankers, which can then be shipped across the globe to the highest bidder.

Who makes the lion’s share of the profits? Of course, the company who makes the biggest investment into the research, scientific work, development, drilling, production, and when they get the oil up and out of the sea bed, the share that the country gets depends on the contract made between the oil companies and the government of the country. Shell is a company who often invests 100% of the costs of exploration and then leases out drilling rights to companies who come in and produce. Shell and the government negotiate the terms. The Irish government appear to be gravely inept at bargaining with multinationals. One only has to look at the IFSC and the minuscule rate of tax they pay the state. Why don’t we demand more?

If we want to emulate the Norwegians success, we must be willing to invest wisely in ascertaining the necessary knowledge and educating professionals in the field thus creating our own company, which we could appropriately name, Emerald Oil. However, this will be impossible for us to do because we are paying billions of euros to unsecured bondholders in Europe, and to our International bailout masters.

The International Monetary Fund (IMF) has given us a bailout package along with European financial institutions. The IMF has a reputation for being repaid through the sale of a country’s natural resources; asset stripping is their forte. Their ability to manufacture and offload massive debt onto countries, and then take control of their state assets has been fine-tuned over the last 50 years, from Latin America to Africa to Asia. Our energy reserves alone are worth potentially trillions and anything else is a bonus for them. They succeed via complicit government and elite that is thrown a few bones to keep them accustomed to the life they live. What they don’t like is a well-informed, educated public, capable of engaging in critical thinking. Let us be critical, vocal, resolute and disobedient, and demand more.

One hates to be pessimistic, but it looks like we’ve been set up and are about to be completely robbed of our natural assets. Wouldn’t we be better off to leave our oil in the ground until we’re ready to profit from it? The IMF and co are expecting to be repaid with the sale of Ireland’s forests, cheap oil, and cash payments in the form of further cuts in public spending. Austerity doesn’t work; it has never worked anywhere, ever. We should have already repudiated this toxic debt, which is not ours, and left the euro. Only then can we create better opportunities for future generations on this abused island. Support the campaign to Own Our Oil http://www.ownouroil.ie.

via The Irish oil situation | Irish Student Left Online.

via The Irish oil situation | Irish Student Left Online.

Collusion Course: Machinations of the Double-Headed Beast


Would would have thought that oil barons — of all people! — would be involved in dirty back-room dealings to gorge their gobs with even more swill from the trough? From the Guardian:

“The London offices of BP and Shell have been raided by European regulators investigating allegations they have ‘colluded’ to rig oil prices for more than a decade. The European commission said its officers carried out ‘unannounced inspections’ at several oil companies in London, the Netherlands and Norway to investigate claims they may have ‘colluded in reporting distorted prices to a price reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products … It warned: ‘Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers.'”

Of course, these manipulations of “self-policing” mechanisms for setting prices are endemic across the economic heights commanded by our most illustrious financial and industrial elites, as Matt Taibbi noted last month. And I’m sure the dastardly deeds of the oil companies in fixing prices will be dealt with just as harshly and thoroughly as the recent Libor scandal was: with a few chump-change fines that put not the slightest crimp in the criminals’ operations nor impeded their ready access to the inner circles (and outer fundraisers) of government power.

So while continuing a fierce vigilance against the relentless encroachments of an unhinged, unrestrained and openly murderous government, let us also recognize that the “free market” — often posited as some kind of purer alternative to the state, a mystic realm where the free play of individual desires and activities combine ineffably to produce the best of all possible worlds — is, and always has been, a rigged game where vicious predators seek tyrannical control, by hook, crook and vast corruption, shackling the “free play of individual desires and activities” in every way possible to squeeze out more unjust advantage for themselves.

Of course, the “state” and the “free market” are simply two halves of the same rough beast. The modern “free market’ is the result of massive, continual and pervasive state intervention on its behalf — that is, on behalf of the vicious predators exercising tyrannical control of economic activity — while the state is in practice little more than a vehicle for elite aggrandizement. (Yes, even in America, even from the very beginning. For more, see this piercing piece by Arthur Silber, in which he points us to the remarkable book by Terry Boulton, Taming Democracy: “The People,” the Founders, and the Troubled Ending of the American Revolution,  which I highly recommend .) If they don’t get you with one head, they’ll get you with the other.

Or as the old song says: “nobody save you now.”

via OpEdNews – Article: Collusion Course: Machinations of the Double-Headed Beast.

via OpEdNews – Article: Collusion Course: Machinations of the Double-Headed Beast.

Gender Equality in European Research


In April, the European Commission released its latest snapshot of the representation of women in science. The message that emerges from the oddly named report, She Figures 2012: Gender in Research and Innovation, is hardly surprising: Women are still underrepresented in science. The gap appears to be closing—slowly—but more needs to be done if it is to close completely anytime soon.

Some of the report’s main findings:

On average, in 2009 in the 27 E.U. countries, 33% of all researchers were women. There was a very wide range, however: Women were the least well-represented in Luxembourg, Germany, and the Netherlands (21%, 25%, and 26%, respectively) and best represented in Latvia and Lithuania, which in 2009 had (and presumably still has) more female researchers than male researchers. In Bulgaria, Portugal, Romania, Estonia, Slovakia, and Poland, at least 40% of researchers were women.

Between 2002 and 2009, the number of female researchers grew more quickly (5.1% annually) than the number of male researchers (3.3%) in the E.U.-27. “[W]omen seem to be catching up with men over time,” the report says. Yet, “it must be remembered that the growth rate for women is on a smaller base than that for men so that if it is merely sustained and not radically increased, it will still take a long time to significantly improve the gender balance in research.”

In the E.U.-27, 40% of researchers in both higher education and government were women, but only 19% of researchers in the for-profit sector were women. There are signs that the gap is closing in all three sectors. For example, in 2002, 35% of researchers in higher education were women, but by 2009 that number had risen to 40%.

In 2010, across the E.U.-27, women earned 46% of the Ph.D. degrees across all scientific fields (which, according to the report’s definitions, include not just the natural and social sciences but also the humanities). Between 2002 and 2006, the number of female Ph.D. graduates increased faster than the number of male Ph.D. graduates—but in 2006, the number of women earning those degrees stopped growing and the number of men earning degrees started to decline.

Women accounted for 64% of all 2010 Ph.D. recipients in education, 56% in health and welfare, and 54% in the humanities. Among Ph.D. graduates, gender was approximately balanced in social sciences, business, and law (49% women), and in agricultural and veterinary sciences (52% women). But just 40% of Ph.D. graduates in the natural sciences, mathematics, and computing were women, and in engineering, just 26%.

The report found that 44% of entry-level academic researchers were women—just below the percentage of Ph.D. graduates. For intermediate-level academic positions that number fell to 37%. Just 20% of senior professors were women. And while the representation of women in the professoriate increased at all levels between 2002 and 2010, “[t]his positive progress is nevertheless slow and should not mask the fact that, in the absence of proactive policies, it will take decades to close the gender gap and bring about a higher degree of gender equality.”

Zooming in, similar trends could be found in the natural sciences and engineering, which the report lumps together. In these fields, the representation of women was 35% at the Ph.D. level, 32% in entry-level faculty positions, 23% in intermediate-level positions, and just 11% among full professors. While the proportion of female scientists and engineers went up between 2002 and 2010, the rise was less pronounced in these fields than it was overall.

The report’s authors calculated a “glass ceiling index” (GCI) for various countries, an indicator of how hard it is for academic women to reach full-professorship. (A value of 1.0 would indicate full equality with men.) On average, throughout the E.U.-27, the GCI was 1.8 in 2010—slightly more favorable to women than in 2004, when the GCI was 1.9. Romania was the closest to gender equality with a GCI of 1.3. Cyprus had the worst GCI (3.6), followed by Lithuania and Luxembourg.

Across the E.U.-27 in 2010, just 10% of universities had a female rector.

In 2010, 36% of E.U. scientific and management board members were women. The data seem to show that gender-based quotas work: Sweden, Norway, and Finland, where the share of female board members was 49%, 46%, and 45%, respectively, have such policies. In contrast, in Hungary, Cyprus, Lithuania, Italy, Luxembourg, and the Czech Republic, less than 20% of board members were women.

In most countries, men had a higher success rate than women in securing funding. The gender gap varies from 1% (Belgium and Portugal) to 11% (Austria). In Slovenia, Bulgaria, Luxembourg, Iceland, and Norway, women had higher success rates than men.

The report’s authors conclude that continued and expanded measures are necessary if progress is to continue. “There is no evidence of spontaneous reduction of gender inequality over time. All these policies, and many more, are needed to ensure that constant progress is made towards gender-equality in research and scientific careers.”

“Some people think that if we just wait, it will get better, and that’s one way in which the She figures are extremely important,” says Curt Rice, vice president for research and development at the University of Tromsø in Norway, an E.U. associated country. “They show us that … if we believe it’s important to have women at the top, then we must act.” Rice led an initiative at the University of Tromsø that contributed to boosting the number of women in professorship positions from 9% to 30% in a decade. (You can read our Q&A with Rice here.)

The 159-page report was put together by the Directorate-General for Research and Innovation of the European Commission in collaboration with the Helsinki Group on Women and Science. Since 2003, the report has been published every 3 years.

The complete She Figures 2012 report is available on the European Commission’s Web site.

via Gender Equality in European Research | Science Careers.

via Gender Equality in European Research | Science Careers.

Exploiting ‘Irish oil’ at what cost?


Exporting oil has made Norway one of the wealthiest countries in the world.

But in the Germanic way, they have retained ownership of the natural resource and invested their wealth in building a sustainable economy and society.

Arguably, wind is Ireland’s oil. Our geographic location means we have highly lucrative consistent wind that will keep turbines turning and generating a consistent energy supply.

But what price will we have to pay to exploit this resource and what guarantees are there that we can make the most of the resource like the Norwegians.

The early signs are ominous and recent history tells us that Governments here tend to sell the family silver below cost and at a heavy price to communities.

Offaly and the other midland counties have, the experts tell us, the capacity to generate power. But at what cost?

While the county could benefit from wind power, littering Laois with hundreds of giant turbines is already angering communities. Farmers, we are told, will benefit, but are they being bought off cheaply.

Cash-strapped County Councils must act in the best interest of the community but also help to develop a resource. It is a difficult balancing act. It must also avoid the attraction of backing turbines to raise finance.

Exporting the energy generated to Britain is likely to irk some but it is the economics of this plan that we should be concerned about. Are we selling off our power on the cheap so that another country grows economically?

Should we not be harnessing wind energy to develop our own economy? Surely Irish business would flourish if it could avail of cheaper home-grown electricity.

The story of the Corrib Gas fields off Mayo does not reflect well on Government policy. There was no policy then so the gas was sold off quickly and cheaply. Hopefully wind energy is not a repeat performance.

via Exploiting ‘Irish oil’ at what cost? | Shell to Sea.

via Exploiting ‘Irish oil’ at what cost? | Shell to Sea.

Scandinavia avoids the financial crisis


While many western countries are still reeling from the widening economic crisis and some southern European economies are regarded as basket cases, Scandinavia has been weathering the global financial storm surprisingly well.

Economists and governments in other less-favoured economies are now starting to ask why it is that Scandinavian economies have been able to avoid the economic turmoil so successfully.

One crucial factor is that some Scandinavian countries received an early inoculation against the kind of boom and bust that has derailed larger and apparently more robust economies, which are still floundering since the US-led housing crash and subsequent financial crisis.

What can Ireland learn from the Scandinavian model?

“At the beginning of the 1990s, Norway, Sweden and Finland experienced a banking crisis when the housing bubble burst in the same way that other western economies have now been experiencing,” says Steinar Juel, the chief Norwegian economist at Nordea. “Sweden and Finland subsequently implemented good policies in banks together with new fiscal policy rulings.”

However, it is inaccurate to lump all of Scandinavia’s economies together under the assumption that all are equally robust or subject to the same pressures. Norway’s robust economy, for instance, is underpinned by its oil industry, which has benefited massively from the global rise in oil prices.

“The Norwegian economy is showing few signs of weakness and we see no reason to change our optimistic view of the economy going forward,” says Eric Bruce, an economist who also works for Nordea.

“Growth looks set to be high, but with increased labour immigration, an overheating of the economy and sharply rising costs will probably be avoided. Wage growth will be much higher than in neighbouring countries, but not so high as to push inflation above target.”

Strong wage and employment growth, coupled with low inflation, are boosting consumer purchasing power in Norway, with the result that consumption growth in the first half of this year was very high after last year’s weaker-than-expected trend. With an initial high level of savings and a sustained strong labour market, economists and market watchers see consumption growth continuing unabated into the next year.

Even at a time when many of Norway’s export markets are floundering, Norwegian companies continue to expand globally.

Companies in Scandinavia’s other economies are also pressing ahead with overseas expansion. Sweden’s Ericsson, the world’s largest mobile network equipment maker, is working with Mobile Communication Company of Iran to expand its network. Ericsson’s growing investment in Iran comes at a time when many western companies have stopped doing business there because of international sanctions.

But lacking Norway’s buffer of oil reserves Sweden may still be facing tougher times ahead.

Last month, Sweden’s pony-tailed finance minister Anders Borg, announced that he might have to cut the country’s growth estimates following the adverse effect of Europe’s debt crisis on the country’s exports.

According to economists, however, Sweden has been surprisingly resilient to the global turbulence and is significantly strengthened by consumer growth.

“Household finances are generally stable. A low inflation level and pay rises jack up households’ purchasing power,” says Torbjorn Isaksson, an economist at Nordea.

It is expected that real disposable income in Sweden will rise by about 2 per cent a year until 2014.

Economists are also looking towards growth in consumer spending to boost Denmark‘s economy. Danish economists predict that the economy will expand at a rate of 0.7 per cent this year, 1.9 per cent next year and 2.1 per cent in 2014.

Finland, however, is facing a slowdown in consumer spending growth, with economic activity decreasing across the board after the first quarter of this year.

Nevertheless, Nordea expects the Danish economy to gradually return to growth this year.

No one is certain that Scandinavia will continue to weather the global financial storm. But economists remain confident that their social systems will act as a stabiliser.

“When companies face difficulties and lay off staff, the government gives them money to live on and helps them find another job. This is focused to keep the economy on at an even level through difficult times,” Mr Juel says.

Strengthening social networks could be difficult medicine for some western economies to swallow. But it should be remembered that many of the social safeguards existing in non-Scandinavian economies were put in place as a direct response to financial crises in the last century.

pf@thenational.ae

Topic Finland Norway Sweden

The facts s to why Finland Norway Sweden re doing ok

Norway Underpinned by high oil prices and exports of related equipment and services, Norway’s problems are those of success. Growth is predicted to be high, but increased labour immigration will reduce the risk of costs rising sharply and the economy overheating. It is predicted that wage growth will be much higher than in neighbouring countries, but not so high as to push inflation above target. However, strong economic growth could mean higher interest rates over the next couple of years.

Sweden Despite a weakening labour and export market since the global financial crisis, Sweden’s economy is proving to be remarkably resilient. The country’s GDP and employment rose again during the first half of this year. Nevertheless, the global economic situation has forced the Swedish finance minister Anders Borg to reduce the country’s growth targets.

Denmark Although Denmark’s economy has been languishing when compared with Norway and Sweden, activity has remained at about the same level since the autumn of 2010. But it is widely expected that the economy will gradually start to grow again this year, accelerating to 2.1 per cent in 2014. The expected reversal of economic trends will be driven by growing consumer spending.

Finland With its economy no longer propelled by mobile phone maker Nokia, which once accounted for half the value of the Helsinki stock exchange, Finland faces difficulties typified by a slowdown in consumer spending, a growing public sector deficit and an export market that is not expected to start to recover until next year. Nordea has lowered its forecast for economic growth next year from 1.6 per cent to 1.2 per cent. In 2014, growth is expected to be 2.8 per cent.

Tony Glover

The fact that Scandinavian countries have onerous tax systems and generous state welfare benefits seems to contradict accepted economic wisdom in other parts of the world, such as in the United States and the United Kingdom, where the role of the state is generally being rolled back where possible in response to the global crisis.

“Denmark, Finland, Norway and Sweden all belong to the exclusive club of countries with top ratings from the major credit rating agencies. These countries have status as safe havens in financial markets,” says Helge Pedersen, the global chief economist at Nordea, a financial services group in the Nordic and Baltic region.

Welfare State  the Scandinavian model click on the link below

Click to access wp11_01.pdf

via Scandinavia avoids the financial crisis – The National.

via Scandinavia avoids the financial crisis – The National.

North American Free Trade Agreement and the European Union Compared


STATISTICAL ANALYSIS

The North American Free Trade Area, is together with the European Union, one of the largest manageable trade areas in the world. For all of its successes, the European Union is more than a customs union, it is a free mobility space for all European nationalities, which makes it the template, a model for progress.

Let us compare for the early 1990s:

(a) the 15 countries comprised in the European Union (data for which here include three countries that were to join in January 1995),

(b) the six Eastern European countries likely to join the European Union in the long term under the Europe Agreement,(1)

(c) the EU constituencies; 27 countries to date (2011),

(d) EU and NAFTA countries compared,

(d) major world trading blocs, especially Mercosur which is being courted by both NAFTA and EU, and

(f) the NAFTA schedule for managing the opening of duty-free trade by item for each of the three countries.

Data on the major trade blocs are included in order to show the context in which NAFTA and EU discuss expansion. The Europe Agreement to unite the continent east and west was signed on October 5, 1992, at Luxembourg; and the EU’s negotiations to develop a special relationship with Mercosur have acquired importance by mid-1994 as Mercosur debates how closely to try to relate to NAFTA.

Comparison is presented in five tables. Tables 1, 2, and 3 cover population, GNP, GNP/C, and export share in GNP for the EU, Eastern Europe, and NAFTA. Table 4 covers the same data for major trade blocs. Table 5 shows the relative importance of the major trade blocs, using the USA as reference point. Table 6 presents the current situation of economic blocs as through statistics for six countries, Japan standing as its own economic bloc.

Table 1 allows us to examine the ranges in country size for population. Reunited Germany has the largest population, 81 million. Italy and the U.K. follow as the second and third largest countries, virtually tied at 58 million persons. Germany’s population is 207 times larger than the smallest country–Luxembourg has only 389,000 persons. In terms of GNP, Germany is 134 higher than that of Luxembourg

Given such disparities in size, is it “fair” that the EU member countries have disproportionate voting rights which are weighted in favor of small countries? (For shares of voting rights, see Appendix A.) One good argument for such weighting is that Luxembourg has the highest GNP/C of EU’s (US$ 35,260) and the highest export share in GNP (94%). Spain has a larger population (39 million) but has EU’s lowest export share in GNP (17%). Such complexities explain why weighted voting rights are not as arbitrary as first glance might have us believe. In any case big countries have enough votes that it takes the votes of many small countries to reach the present blocking minority of 23 votes, a total which once the EU reaches 15 countries will be 26 votes. (2)

Table 2 shows ranges in size for the six countries of Eastern Europe seeking to join the EU. Poland has the highest GNP (US$ 75 billion), much higher than that of EU member Ireland (US$ 42 billion). Unfortunately Poland is weak in exports, which amount to 19% of its GNP. Hungary’s advantage is due to its earlier leadership among the former communist countries in carrying out economic reform, its GNP/C being 54% higher than that of Poland.

The relationship of Poland to “smaller” countries is interesting. Although Poland has 4 times the population of Bulgaria’s 9 million, Poland has the lowest export share of GNP. Bulgaria has the second largest export share in GNP (45), after the Czech Republic, which leads both in export share in GNP (58) and also in GNP/C (US$ 2,440) as compared to the rest of the Eastern European countries.

With regard to the two poorest countries seeking to join the EU, the poor economic performance of Romania is noteworthy. The Romanian GNP is hardly double that of the Slovak Republic (US$ 10 billion), yet the two countries are equal in GNP export share (28%). Romania’s trade with Eastern Europe collapsed in 1991 along with the COMECON trading organization. Subsequent growth in trade with the West has been slow, and current-account deficits of more than US$ billion have been recorded in each of the last four years. In terms of population, Romania is 4 times larger than that of the Slovak Republic (5.3 million). The legacy of a high-inflation environment and modest growth accounts for the Romanian currency’s very small purchasing power. Despite all theses shortcomings Romania became a full member of EU in ten years, that is December 1st, 2007.

The Slovak Republic with its small population and economy calls our attention. How can it hope to compete in an expended EU? Although its population is only 5 million and its GNP is only US$ 10 billion, Slovakia has a relatively high level of export in GNP, 60% higher than the larger Romania.

Given the above disparities, interests within the EU have been divided into five “constituencies.” (3) (See Chart 1.) The “Core” constituency is France and Germany (which founded in 1951 the European Coal and Steel Community to rebuild war-torn Western Europe). To this core are appended Belgium, Holland, and Luxembourg, too close geographically and too small economically to avoid being drawn into the orbit of power.

The second EU constituency is made of the “free traders” Britain and Denmark (both of which joined the EU in the early 1970s). Britain leads the way to open a common market of goods, services, capital, and people while at the same time trying to prevent the rise in Europe of any singly powerful country.

The EU third constituency involves the poorer, newly democratic members admitted in 1980s (Greece, 1981; Portugal and Spain, 1986), each seeking to modernize their economies in order to guarantee against a resurgence of any authoritarian rule. This expansion widened the gap between richer and poorer countries, the latter including Ireland and to some extent Italy.

The fourth constituency involves Eastern Europe, which freed itself from Russian rule after 1989. It sees admission to the EU, proposed for the year 2000 by Germany, as guarantee against the resurgence of Russian authority in the region.

The fifth EU constituency involves the European Free Trade Association (Austria, Finland, Norway, Sweden), which has realized, except for Norway, that it must not be left out of the EU as it expands to include even Eastern Europe. Indeed Austria may move directly into the Core.

Given the divergent interests of these five constituencies, two models offer future direction to solve the problem of disunity within unity. The British model, which seeks to give more or less equal weight to, the concentric circles depicted in Chart 1, thus encourage cooperative diversity; and the German-French model, which seeks to move forward with monetary union and unified foreign policy focused on the center circle in Chart 1. The idea that Britain may resist France and Germany by refusing to join the EU monetary union has prompted The Economist to write:

If Britain stays out, only to change its mind later {as it did about the EU], it leaders may seem as silly as Churchill now seems, for this comment on the founding of the European Coal and Steel Community 43 years ago: ‘I love France and Belgium but we must not allow ourselves to be pulled down to that level.” (4)

Turning now to a comparison of the EU and NAFTA, several factors emerge. The population of the two trade blocks is about the same (363.3 million for NAFTA, 345.0 million for the 12 EU countries, and 368.8 for the 15 countries in 1992). With regard to economic differences, Germany emerges as having the biggest sheer economic power, followed by France and Italy within the EU.

Noticeable is that the USA has the highest GNP among all countries (US$ 5.9 trillion) and the highest GNP/C within NAFTA (US$ 23,120).

Comparing the countries with lowest export share of GNP in each unit, NAFTA’s Mexico with only 14% has much less than the EU’s Greece, which stands at 23%. Romania and the Slovak Republic have twice Mexico’s export share in GNP.

With regard to the power of population and GNP, the index in Table 5 is based on the fact that the most important country is the USA, which equals 100. while Mexico has one-third of the U.S. population, but only 5% of GNP.

Table 5 shows why Japan is often seen as the economic “enemy” of both NAFTA and the EU, its power being concentrated in one county which has established a web of trade dependency worldwide. Its GNP/C is 21% higher than that of the USA.

Japan’s accumulation of world trade capital is one of the reasons why so many other countries are trying to compete globally by implicitly forming trade blocks. NAFTA gives the USA, Canada and Mexico the possibility of expanding international and international trade at Japan’s expense.

The USA dwarfs most of the Western hemisphere in terms of GNP, except for Canada, which reaches 84.3% of the U.S. total. (See Table 5.) Although the European Union is 48% larger in population than the USA, its GNP/C is only 89% of the U.S. amount.

In establishing itself as FTA linchpin in the Americas, (5) Mexico has done so in spite of the fact that it has only one-third of the U.S. population, 5% of the U.S. GNP, and 15.3% of the U.S. GNP/C at the same time, however the NAFTA framework enhances Mexico’s tremendously as U.S. business investment has arrived with new impetus beginning in 1994, especially after the national “defeat” of the Chiapas rebels in August at ballot boxes almost everywhere in Mexico.

In relation to the USA, Mexico’s GNP/C exceeds by 3.5% that of Mercosur’s 12.8% share of the USA’s GNP/C, while Germany, with about the same population as Mexico, has 96% of U.S. GNP/C, raising the average for the EU to 80% of the same figure.

To further this comparison, let us note the fact that since 1994 the New York Times (NYT) is carrying a regular comparison of the NAFTA-EU-Japan economic situation for competition (See Table 6.) To represent the EU, the NYT gives Britain and Germany; to represent NAFTA, it gives all three partners; to represent global competition, it gives Japan.

The bottom line for global competition is shown in the 1993 manufacturing wage gap given in Table 7. With five leading countries of Western Europe trying to compete under a burden of hourly scale averaging nearly US$ 21, Japan and the United States nearly tied in the US$ 16 hourly range, and the Asian “tigers” (Taiwan, Singapore, South Korea, and Hong Kong) averaging about US$ 5 hourly, two facts are clear. Mexico with its US$ 2.41 hourly manufacturing average is the attractive partner wherein factories can be established in the Western Hemisphere. Eastern Europe with its US$ .90 is the equivalent area of the future for the European Union.

Although Germany is moving important manufacturing funds into Romania, for example, the EU has yet to formally bring Eastern Europe into a formal relationship like that enjoyed by Mexico with NAFTA. Eastern Europe as a whole (except for the Czech Republic) awaits the opening of it economies, which remain largely non-market as is shown in Appendix B.

The NAFTA model for opening its three countries over 15 years provides a much easier process than that faced by Eastern Europe of having to integrate into the EU on a complete basis and mostly all at once. The effect of NAFTA integration on Mexico, the USA and Canada is shown in Table 8, which divides the process into the following time frames for elimination of tariffs: immediately as of January 1, 1994, and within 5, 10 years, and 15 years.

With regard to immediate action by Mexico, it eliminated duties on all U.S. and Canadian products not made in Mexico, that is on 43 percent of its purchases in those two countries. Although most of Mexico’s purchases seemingly come from the USA (63.4 percent in 1992) and little from Canada (1.0 percent), the reality is that much of the Canada-Mexico trade is lost statistically when it passes through the USA where it becomes incorporated into U.S. trade data.

The USA took immediate action to eliminate duties on nearly 50 percent of Mexican imports and Canada 19 percent of Mexican imports. Canada’s actions involved a complete opening to Mexican textiles (including thread, cloth, and clothing), which in 1992 reached about 17 million dollars in value. (Mexican textile exports to the USA were 56 times greater.)

CONCLUSION and Positive Outcomes, as well as updates on NAFTA

NAFTA and the EU differ greatly in three major ways. The EU goes beyond NAFTA’s trading plan to include free movement of citizens as workers and students; and EU seeks eventual unification of such potentially controversial areas as currency, foreign policy, and military coordination.

The second difference is that NAFTA has the trading edge to expand beyond Mexico into Latin America. Not only do the USA and Mexico have large trade experience with the region that dwarfs that of the EU, but Mexico has made the many agreements that at once make expanded trade possible as well as require it to make multilateral sense of its many bilateral agreements. Canada has far to go in developing trade beyond the USA, and both countries face stiff competition from Japan. Under Mexico’s leadership in bringing about the integration of the Americas, however, NAFTA seems well positioned to compete with the EU as it takes its first serious steps to develop relations with Mercosur.

The third major difference is that the “core” for NAFTA is the USA, for EU it is two countries. With Mitterrand’s term coming to an end in France and Jacque Delors not only retiring as the unifying head of the European Commission but declining to be the front-runner to replace Mitterrand as president of France, the question is whether or not Germany can count on either a dynamic concept of the EU or France as traditional ally as it seeks ever greater EU unity on all fronts.

via North American Free Trade Agreement and the European Union Compared | olgaandrei.

via North American Free Trade Agreement and the European Union Compared | olgaandrei.

U.S. Prosperity Slides in Index That Ranks Norway No. 1 – Bloomberg


The U.S. slid from the top ten most prosperous nations for the first time in a league table which ranked three Scandinavian nations the best for wealth and wellbeing.

The U.S. fell to 12th position from 10th in the Legatum Institute’s annual prosperity index amid increased doubts about the health of its economy and ability of politicians. Norway, Denmark and Sweden were declared the most prosperous in the index, published in London today.

With the presidential election just a week away, the research group said the standing of the U.S. economy has deteriorated to beneath that of 19 rivals. The report also showed that respect for the government has fallen, fewer Americans perceive working hard gets you ahead, while companies face higher startup costs and the export of high-technology products is dropping.

“As the U.S. struggles to reclaim the building blocks of the American Dream, now is a good time to consider who is best placed to lead the country back to prosperity and compete with the more agile countries,” Jeffrey Gedmin, the Legatum Institute’s president and chief executive officer, said in a statement.

The six-year-old Legatum Prosperity Index is a study of wealth and wellbeing in 142 countries, based on eight categories such as economic strength, education and governance. Covering 96 percent of the world’s population, it is an attempt to broaden measurement of a nation’s economic health beyond indicators such as gross domestic product.

The Legatum Institute is the public policy research arm of the Legatum Group, a Dubai-based private investment group founded in 2006 by New Zealand billionaire Christopher Chandler.

Global Prosperity

The report shows that even amid the worst financial crisis since the Great Depression, global prosperity has increased across all regions in the past four years, although the sense of safety and security is decreasing amid tension in the Middle East and fear of crime in Latin America.

Norway and Denmark retained the pole positions they held last year in the overall prosperity measure, while Sweden leapfrogged Australia and New Zealand into third. Canada, Finland, the Netherlands, Switzerland and Ireland rounded out the top ten. The Central African Republic was ranked bottom.

In its sub-indexes, Legatum named Switzerland the strongest economy and home to the best system of governance. Denmark is the most entrepreneurial and New Zealand has the best education, while health is best in Luxembourg and Iceland is the safest. Canadians enjoy the most personal freedom and Norwegians have the greatest social capital.

Hard Work

With President Barack Obama and Republican challenger Mitt Romney tussling for the White House, Legatum said the U.S. economy declined two places from last year to 20th. It found that 89 percent of Americans believe hard work produces results, up from 88 percent last year, and the government’s approval rate dropped to 39 percent from 42 percent.

Plagued by the euro-area debt crisis, 24 out of 33 European nations have witnessed a decline in their economic score since 2009, according to Legatum. On the prosperity scale, Greece recorded the biggest drop in 2012, falling 10 places since 2009 to 49th. Spain held on to 23rd place.

The U.K remained 13th, one place ahead of Germany, and Legatum predicted it will overtake the U.S. by 2014 as it scores well for entrepreneurship and governance. Nevertheless, the status of its economy remains a weakness as it slid five places to 26th on that score and job satisfaction is low.

Asian Scores

In Asia, Hong Kong, Singapore and Taiwan all ranked in the top ten for their economies and the top 20 overall. So-called tiger cub economies Vietnam and Indonesia also rose. Indonesia experienced the largest gain in prosperity of any country since 2009, jumping 26 positions to 63rd.

Switzerland, Norway and Singapore topped the economy sub- index, which measures satisfaction with the economy and expectations for it, the efficiency of the financial sector and foundations for growth. In a gauge of entrepreneurship, Denmark ran ahead of Sweden and Finland for the strength of innovation and access to opportunity.

Switzerland also topped the rankings for best government. It was followed by New Zealand and Denmark in a measure determined by the effectiveness and accountability of lawmakers, the fairness of elections, the participation of people in the political process and rule of law. The highest marks for education went to New Zealand, Australia and Canada.

Luxembourg, the U.S. and Switzerland were graded the best for health treatments and infrastructure as well as preventative care and satisfaction with the service. Iceland, Norway and Finland topped the chart for safety and security; Chad, Congo and Afghanistan ranked the lowest on that index.

Canadians, New Zealanders and Australians enjoy the most freedom and social tolerance, Legatum said. Norway, Denmark and Australia had the highest scores for social capital as monitored by social cohesion and family and community networks.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

via U.S. Prosperity Slides in Index That Ranks Norway No. 1 – Bloomberg.

via U.S. Prosperity Slides in Index That Ranks Norway No. 1 – Bloomberg.

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