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European Union: Market Profile

Major Economic Indicators

Table: Major Economic Indicators of European Union
Table: Major Economic Indicators of European Union

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.
  • The UK voted to leave the EU in a historic referendum held on 23 June 2016. This 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. At member state level, those with stronger trade, investment and financial links to the UK, such as Ireland and the Netherlands, would be most affected.
  • More seriously, the UK departure could lead to a domino effect that threatens the whole EU, spurring some other member states, notably Italy, France, the Netherlands, Sweden and Denmark, 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 decreased by 0.2% to US$16.3 billion in the first five months of 2016, while its imports from the EU slid by 11% to US$13.4 billion.
  • As one of the most popular investment destinations, the inflows of foreign direct investment (FDI) to the EU amounted to US$257.6 billion in 2014, with China’s contributing US$9.8 billion. As of the end of 2014, China’s total stock of FDI in the EU exceeded US$54 billion, up from US$3 billion in 2008. Investment from Hong Kong, however, is far from significant.
  • To overcome the low investor confidence and therefore persistently 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. The Investment Plan is based on three strands. First, mobilising sources of investment finance to deliver at least €315 billion of additional investment over the next three years, and making better use of public money to attract private investors. Second, making sure this extra finance contributes to growth in ways that are adapted to each sector and geography. And third, measures to improve the investment environment in Europe and thereby trigger knock-on effects. 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, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Romania, Spain and the UK, while negotiations with 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. 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

Helped by a conjunction of positive factors such as low oil prices, a weak euro, the ECB’s accommodative monetary policy and a more accommodative fiscal stance, the EU is estimated to see sustained GDP growth in 2016. The rebound of consumer spending after years of belt-tightening measures and the expected pick-up of investment amid favourable financing conditions continued to be the major drivers. Yet high unemployment, sustained deflationary pressures, deleveraging, the “Brexit” repercussions and geopolitical disturbances including the continuation of sanctions and countersanctions with Russia and the inflow of refugees from the Middle East remain the major downside risks. On the whole, the EU economy, after expanding by 2.0% in 2015, is forecast to edge down to 1.6% in 2016.

At country level, the German economy, thanks to a solid labour market, a pick-up in public spending and favourable financing conditions, is forecast to see GDP growth of 1.6% in 2016 and 2017, although the increased geopolitical tensions arising from the inflow of refugees from the Middle East, the Russian-Ukrainian crisis and debt spiral in Greece serve to cool down the country’s export growth.

As for France, low oil prices and tax cuts for low income earners are favourable to private consumption, and easing credit conditions as well as the recent supportive economic strategies are conducive to private investment. All in all, the French economy, on the back of little improvement in export performance, is expected to see growth accelerating to 1.3% and 1.7% in 2016 and 2017, respectively. However, the recent Paris terrorist attacks and its impacts on tourism and consumer sentiment can complicate the growth prospects.

In the UK, the decision to leave the EU on 23 June 2016 will certainly lead to a prolonged period of uncertainty, one that will weigh heavily on the country's economic performance. The heightened uncertainty over the new arrangements between Britain and the EU is expected to discourage investment inflows as foreign companies may prefer investing in other EU countries, as an alternative to the UK, in order to guarantee free access to the Single Market. As a result of falling investment and sluggish consumption, the UK economy, despite an easing sterling, is forecast to see a marked slowdown to 1.1% in 2016 and a more significant downturn in 2017.

On the other hand, the near-term growth forecasts for most of the debt-ridden EU countries are also improving, thanks to better labour-market conditions, easing credit conditions and more sustainable fiscal budgets and external debt levels. Given their bold actions in correcting macroeconomic imbalances and implementing economic reforms, all EU economies except Greece are expected to see growth in 2016 and 2017. For instance, the projected GDP gains in Italy, Portugal and Spain, for instance, range from 1.1% to 2.6% in 2016 and 1.3% to 2.5% in 2017. Along with the ongoing refugee issues and Greek debt and political crisis, deflationary pressure, however, is a major cause for concern in the eurozone.

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. 


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. Under the new scheme, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded US$4,000 for four years in a row. As a result, the number of the countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU’s GSP scheme since 1 May 1998.

Anti-dumping Measures

The EU has initiated anti-dumping (AD) proceedings against certain mainland-origin products. Currently, 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-March 2016, the EU did not apply any AD measures on imports 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 decreased by 0.2% to US$16.3 billion in the first five months of 2016, following a 2% decrease to US$43.0 billion in 2015. Major export items in January-May 2016 included telecommunications equipment & parts (shared 25% of the total), computers (7%), electrical apparatus for electrical circuits (6%), pearls, precious & semi-precious stones (6%), articles of apparel, of textile fabrics (4%), semi-conductors, electronic valves & tubes (4%), jewellery (4%), electrical machinery & apparatus (4%), watches and clocks (3%), electric power machinery & parts (3%), parts & accessories of office machines/computers (3%), optical goods (3%) and toys, games & sporting goods (3%).  

On the other hand, Hong Kong’s imports from the EU slid by 11% to US$13.4 billion in the first five months of 2016, after decreasing by 9% to US$35.7 billion in 2015. Major import items in January-May 2016 included pearls, precious & semi-precious stones (shared 8% of the total), non-electric engines & motors & parts (6%), travel goods & handbags (5%), jewellery (4%), telecommunications equipment & parts (4%), milk and cream and milk products other than butter or cheese (4%), measuring, checking, analysing & controlling instruments & apparatus (3%), passenger motor cars (3%), semi-conductors, electronic valves & tubes (3%), perfumery, cosmetics or toilet preparations (excluding soaps) (3%), fresh, chilled or frozen meat & edible meat offal (3%) and silver & platinum (3%).

Table: Hong Kong Trade with the EU
Table: Hong Kong Trade with the EU

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 2015, there were 452 EU companies with regional headquarters in Hong Kong, while another 693 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$131.4 billion (or HK$1,019.2 billion) as at the end of 2014.

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 some 30,520 EU nationals resided in Hong Kong as at the end of 2015.

[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.

Content provided by Picture: Louis Chan