To make sure that EU does what it sets out to do, a number of European community institutions were set up; these include the European parliament, the commission, the Council of the European Union, the European Court of Justice, and other institutions of a consultative character like the committee of regions. Decision making in the council of ministers is based on qualified majority ratting. The UK, France Italy and Germany have the most votes with 10 votes each.
Being in the EU opens up the door for many large businesses wishing to expand into European markets, since the EU was formed it made it illegal for contractors to favour local companies, Border controls were removed which made it easy to transport both goods and labour throughout the EU. It also eliminated trade barriers in insurance and banking.
Businesses based in the UK now buy cheaper products and raw material from within the EU due to the absence of taxes imposed on imports. This makes them work more effectively and productitivety increases.
Businesses have access to larger markets which encourage them to expand and gain increased benefits from economies of scale. This makes them more competitive with businesses in non-member countries. It also helps improve the economy of the UK, as businesses will be paying more tax.
The European Union has greater power than individual nations to negotiate lower trade barriers with other trading blocs. This enables businesses with in the EU to buy products from out side the EU at a lower and cheaper prices while selling their products at a profit; this is why membership of the EU is important to businesses. With out the EU businesses would have to pay higher prices when buying from other nations and some times be forced to sell their products at very low prices, not making enough profit.
However being in the EU also affects businesses negatively; the formation of the EU encouraged other nations to form further trading blocs. This increased the level of protectionism and discouraged trade between non-member nations; this depresses businesses in the UK as they find it hard to get access to better quality and cheaper resources.
Businesses in the UK suffer from being forced into buying products from other members of the EU rather than cheaper external sources. An example of this is since we joined the EU businesses have been forced to reduce trading links with Australia and New Zealand and buy more expensive products from inside the EU. This means they have to spend a lot of money on resources, they in turn have to put up prices of their product to make up for the costs, making the final product/service very expensive for the public.
Because the EU is still accepting new members (growing) taxes might be increased to help new members reach the required standards. An increase in taxes will have a large impact on UK businesses, as they might have to pay out more money in form of taxes or the public spending will go down.
Because trade barrier are removed other businesses in the EU have access to the UK markets, this can be considered as a disadvantage to businesses in the UK, as competition will increase and were customer have a choice businesses have to spend more money on product differentiation and marketing, unless they have customer loyalty.
Main policies of the European Union
Social policy
The European Union social policy covers a wide area comprising free movement of workers and social security for migrant workers, equal treatment for men and women, labour law, working conditions and health and safety at work, public health programmes, elderly people, poverty, social exclusion and the least-privileged groups, disabled people employment and vocational training, especially for long-term unemployed and young people and social protection.
The European Union has established minimum standards for health and safety at work and for equal treatment between men and women. In the past years the European Social Fund spent more than ECU 5.6 billion on trying to help people back into work, on training, counselling and other measures to boost employment. Although progress was made, the social policy of the European Union has been, nevertheless, marked by diverging national interests and values of the member states.
If a business fellows the above it’s seen as being a good place to work and will attracted the best applicants who are well qualified and suited fro the jobs. This make the business more effective, improves its efficiency and leads to quality out as people know what to do. This might help the business again a competitive advantage over its competitors.
If businesses in the UK break any of the above directive of EU law legal action can be taken against them and this can lead to large fines being paid out. It also damages the reputation of the businesses and may some customer to discontinue buying your products.
Environmental policy
Despite more than 25 years of Community environmental policy, successful, on its own terms, general environmental quality in the European Union is not recovering significantly. However, there has been real progress in some areas, e.g. river quality and acidification but it is getting worse in others, e.g. waste. Environmental policy cannot alone provide the sustainable development set up as a goal in the Amsterdam Treaty. Economic sectors have to change and carry their part of the responsibility for sustainability.
With the issues of global warming raising everyday, the public are getting environmental minded and will tend to buy products that don’t affect the environment; the EU introduced the Eco-Label which is used on products that have a low impact on the environment during their life cycle.
The EU also encourages the use of environmental taxes (fines) were the pollute pays this could damage the reputation of a businesses if it’s seen as a polluter.
Common Foreign Policy
The EU treats all other nations in the world in the same way as it treats its own member states - promoting harmony, progress and unity among the world family of sovereign nations.
Using proven policies and programmes that are truly nourishing and life-supporting, foreign policy and foreign aid will promote only progress and self-sufficiency and never increase long-term debt and dependency for any nation. For this reason, foreign aid will always be linked to educational programmes that develop full creative potential and provide essential training and skills.
Competition policy
Competition policy is essential for the completion of the internal market. Its aim is to allow businesses to compete fairly and freely in all the Member States. Competition policy seeks to encourage economic efficiency by creating a climate favourable to innovation and technical progress. It protects the interests of consumers by allowing them to buy goods and services under the best conditions. It also makes it possible to ensure that any anti-competitive practices by companies or national authorities do not hinder healthy competition.
EU competition policy guarantees the unity of the internal market and avoids the monopolisation of certain markets by preventing business from sharing the market via protective agreements. Markets can come to be monopolised as a result of restrictive agreements or company mergers. It attempts to prevent one or more businesses from improperly exploiting their economic power over weaker businesses. It also prevents Member States governments from distorting the rules by discriminating in favour of public enterprises or by giving aid to private-sector companies.
This makes it easy for UK businesses to compete with other multinational organisation, with the multinationals abusing their dominating power by becoming monopolies. Sales are made by the businesses that prove to customers that its products are the best.
However if businesses abuse their power legal action can be take against them under the EU competition policy leading to large fines. Also the EU competition policy means that UK businesses may have to change ways in which they conduct business with their customer.
Monetary policy
The European Monetary Institute was set up in 1994. It is responsible for developing the framework for monetary and exchange rate policy. The monetary authority of the central Bank is made up of the European central bank and the national central banks of the countries that participate in the European monetary Union. The European central bank is responsible for making sure that members states keep there interest rates in line with the European central bank. The EMU aims to stabilise member states currencies. So far 11 out of the 15 member states permanently fix their exchange rates and the single currency was brought in.
The importance of the Euro as a single currency is based on its scope that it affects all the economic agents of the countries that accede to the third stage of the EMU and that it is a currency with influence on other countries, including those which do not form part of the EU.
The existence of the Euro as the single currency favours the single market. And has a great import on businesses that operate in the EU.
The Euro reduces the degree of uncertainty among the currencies of each nation with respect to the exchange rate, this improves the quality of information with which businesses uses to make there decisions like when to sell there products.
Since all the EU nations have a single currency European trade will have a low cost to businesses as they don’t have to buy the currency or worry about the exchange rates since they all use the same money.
When a member state is put of the EMU, this means tighter control on interest rates which means spending by customers which is good for businesses, when people buy more this increase sales and profit levels helping the business to gain a large market share.
Greater prices transparency when all goods are labelled in a single currency, this provokes an increase in the level of competition in the single market. When price stability is obtained this can have large benefits for businesses as they are able to control their production costs, for the public administration and for consumers.
However its not all good for businesses in the UK if the UK joined the Euro as strict control on the economy may lead to increased unemployment which is bad new for businesses, if people don’t work they don’t have enough money to buy the businesses products, this may lead to poor sales.
The European central bank changing interest rate may not favour the UK and might affect international trade, as businesses in the UK will also trade out side the EU. If the interest rate goes up and the exports are too expensive for foreign buyers than the businesses will have less sales and might lose out on other markets.
Markets with in the EU
Since the remove of trade barriers trade between the 15 member states trade has increased leading to growth of the market and more competition between businesses. These markets include the agricultural market, electrical machinery, apparatus and appliances, specialised industrial machinery, labour market, raw materials, banking and services. The UK attracts high levels of investments from companies from all areas of the EU. Overall labour costs in the UK continue to be among the lowest in the EU. The UK is most known in the EU for services, its effectiveness in this sector and it has the most competitive telecommunications market in the EU, with the lowest costs.
For the last few years the exports into the EU have declined, this is mainly because of the increased value of the pound in recent years, reducing the UK’s ability to compete in the Markets. Evidence of the UK’s inability to compete effectively can be seen as there has been a fall of exports to Germany bearing in mind that Germany accounts for approximately 13% of UK export of goods.
The table below shows exports from the UK to EU markets (million Euros)
In 1998 you can see a decrease of 64 million Euros in the food, drinks and tobacco export to the EU, however there is an increase of 343 million euros worth of food drink and tobacco exports to the EU.
There is also a decline in the amount of ram material and exports as you can see figures fall from 2415 million euros in 1998 to 2069 million in 1999, the difference is 346 millions. Generally participation of the UK in the EU markets has increased over the last three years as UK businesses and industry grow and continue to compete and gain competitive advantages over other businesses.
The table below shows exports from the EU to the UK (million Euros)
From the figures in the table above showing imports into the UK from the EU that figures have increased from year to year. The UK is buying more products than its selling to the EU. This may be due to the ever growing value of the pound, as its value increases exports become more expensive for other nations in the EU while imports are cheaper for UK businesses as they get more for every pound they send. This is reflected in both tables above from the totals you can see that the UK imports more than it exports.
Major exporters in the EU market
The major exporters and importers in the EU are Germany, the UK, France, Spain, Italy and Greece.
France is the UK’s third largest export market; it has a broad industrial base which contributes 30% to the country’s national output. Major industries include food processing which is a result of the successful agricultural sector, transport equipment, the aerospace industry, chemical, electronics, telecommunications and defence equipment. France receives 70% of its electricity from nuclear power stations and the development of this industry has enabled France to become an exporter of surplus power. French heavily trades with the UK, major exports are mainly food products i.e. diary products, fruits and wines.
Germany is the UK’s largest export market; its key industries in manufacturing sector are engineering, electrical & motor manufacturing, aerospace, electronics, computing, telecommunications, and chemical, coal, shipbuilding and steel making remains major though declining industries.
An example of a company that operates and has office in all the major EU markets (different states markets) is Vauxhall/Opel. This company is one of the most successful automobile companies in the EU. The company is market leader in Greece, number two in the UK, Italy and Spain and number three in Germany.
Another company that trades in all the above EU countries in the telecom service is Vodafone. Vodafone is the world’s largest mobile telecommunications network companies. The company delivers innovative and compelling mobile services to all its customers throughout the EU.
As you can see from the table above Vodafone is a market leader in all the countries above, with little competition from other nation companies.
The table below shows population in millions for these countries
From the table above you can see that out of the six countries Germany has the highest population, followed by the UK, France and Italy. Greece has the least population with only 10.4 million people almost seven times less than Germany.
Spain
Spain is a constitutional monarchy in the south-west of Europe, occupying the greater part of the Iberian Peninsula, and bordered on the north by the Bay of Biscay, France, and Andorra; on the east by the Mediterranean Sea; on the south by the Mediterranean Sea and the Atlantic Ocean; and on the west by Portugal and the Atlantic Ocean.
Spain has a population of 40,037,995 the overall population density is about 79 people per sq km. Spain is increasingly urban with 77 per cent of the population living in towns and cities.
Any consideration of Spanish culture must stress the tremendous importance of religion in the history of the country and in the life of the individual. An index of the influence of Roman Catholicism is provided by the fervent mystical element in the art and literature of Spain, the impressive list of its saints, and the large number of religious congregations and orders. The Catholic marriage is the basis of the family, which in turn is the foundation of Spanish society.
Fiestas are an outstanding feature of Spanish life. They usually begin with a high mass followed by a solemn procession in which venerated images are carried on the shoulders of the participants. Music, dancing, poetry, and singing often enliven these colourful occasions.
Spain has traditionally been an agricultural country and is still one of the largest farming producers in Western Europe, but since the mid-1950s industrial growth has been rapid. A series of development plans, initiated in 1964, helped the economy to expand, but in the later 1970s an economic slowdown was brought on by rising oil costs and increased imports. Subsequently, the government emphasized the development of the steel, shipbuilding, textile, and mining industries. Today, Spain has a gross domestic product around two thirds that of the leading western European economies. Spain derives much income from tourism. The GNP in Spain in 1999 was some US$583 billion.
Greece
Greece, officially known as the Hellenic Republic, is a country in south-eastern Europe, occupying the southernmost part of the Balkan Peninsula and numerous islands. It is bordered on the north-west by Albania, on the north by the Former Yugoslav Republic of Macedonia and Bulgaria, on the north-east by Turkey, on the east by the Aegean Sea, on the south by the Mediterranean Sea, and on the west by the Ionian Sea. The total area is 131,957 sq km, of which about one fifth is composed of islands in the Aegean and Ionian seas. Athens is its capital and largest city.
The estimated population of Greece is about 10,623,835, giving an overall population density of about 81 people per sq km. The population of Greece is very large in relation to the size and economic capacity of the country. Both the birth rate and the death rate have declined in recent years, and in the mid-1990s the annual rate of population growth was estimated to be less than 1 per cent. About 60 per cent of the population is urban. Much of the urban population is concentrated around Athens, around Salonica in Macedonia, in western Pelopónnisos, and on the islands. Corfu, Zákinthos, and Khíos are among the most densely populated islands.
Agriculture plays an important role in the Greek economy. New industries established in the period after World War I were, to a large extent, destroyed during World War II and the subsequent civil war. Development of the manufacturing sector of the economy since then has been hampered by the lack of fuel and difficulties in utilizing the hydroelectric potential of the country. By 1970, however, the contribution of manufacturing to the annual national output surpassed that of agriculture for the first time. Two major sources of income for Greece are shipping and tourism. The production of crude oil from fields in the northern Aegean Sea began to aid the economy in the early 1980s. Greece became a full member of the European Community in 1981. GNP in 1999 was US$127,648 million.
The chart below shows exports from the countries in US dollars
From the graph above you can see that the UK is the biggest export followed by Spain and then Greece
The graph shows how much the three countries import
Despite that the UK is the biggest export out of the three countries, it is still the biggest importer plus it imports more than it exports. When it comes to imports Greece imports almost three times more products than it exports. Spain’s are also more than its exports but by a smaller percentage compared to the other nations.
The chart shows the total population of the three countries
Again as you can see from the graph above the UK has higher population of about 59,647,790 million people, compared to Greece which has a total population of about 10,623,835 million people and Spain with 40,037,995 million people. This might explain why the UK exports/imports more than any of the other countries; with this population it needs a large number of resources.
Advantages of European trade
Comparative advantage
Comparative advantage is the idea that countries can benefit from specialising in the production of good at which they are relatively more efficient at. This enables nations like the UK to specialise in services and helps consumers within the country to gain the maximum benefits from international trade. In this way countries with in the EU can produce products/services that they are most efficient at and then later trade with each other this benefits every one in each of the countries.
Its also means that resources can be managed easily and not wasted and it promotes trade between the nations as they export and import from each other. When countries specialise on producing a single product they can invest a lot of money into research and development of these products leading to products of high standards. This also increases productivity of the EU as a whole and it might be seen by other nations outside the EU as producing high quality products which in turn means that there market share will increase.
Economies of scale
Economies of scale are factors that cause average total costs to be lower in large-scale operations than in small-scale ones. Internal economise of scale occur when businesses that are increasing output are also managing to cut costs. The cost of producing each unit falls because factors inputs can be more efficiently. Economies of scale are divided into internal and external economies.
European trade might help companies cut costs internally through firms being able to diversify and go into new EU markets which have more potential to grow; this helps increase sales and profits and may provide a possibility for a business to become a market leader.
Technical economies, businesses can now import or upgrade such as the use of automated equipment where it is more cost effective than labour; this is only feasible when fixed costs of the machine can be spread thinly over many units of output. The EU has provided a large market for goods and services enabling businesses to produce more and move out of their declining markets into new EU markets.
Purchasing economies, because businesses know that they have a larger market and there is increased demand for their products, they buy in bulk and enjoy the benefits of bulk buying. For example obtaining suppliers of material and components at lower unit costs. Thereby cutting variable costs.
Financial economies come from the lower costs of capital charged to large businesses by providers of finance. Banks charge lower rates of interest and equity investors are more willing to accept low dividend yield from bigger businesses. This is because larger companies are usually more diversified and less vulnerable to liquidation than small companies.
External economies come about when costs fall due to growth of the industry and not just individual firms. For example if an industry is concentrated in one geographical area it is likely that a pool of labour will be attracted and trained, by institutes that will have specialised skills useful to the whole industry and from which each firm will benefit. Here we can see EU trade creating employment for a large number of its population and reducing the number of people unemployed, this in turn improves the economy of that particular country and the EU in general.
A large grouping of firms concentrating in a certain area will attract a network of suppliers, whose own scale of operation should yield economies such as lower component costs.
Free market
In a market were businesses are free to move labour, goods, insurance and banking services without paying taxes or facing border controls, business with in that area is more favourable. As a result more companies will try to gain access to the new markets. This means that there is a lot of competition, which may lead to better quality and cheaper products.
Another advantage of EU trade is that it harmonies taxes and trading standards making international trade easier. Because the countries trade with each other this reduces the likely hood of political conflict between them.
