HND European Business
HND European Business
Recently I have been seconded to the chamber of commerce for 6 months. As the political debate on Europe continues and in the light of the forthcoming general election in the UK, I have been given the project of producing a pamphlet for distribution to local business and organisations.
The pamphlet has to explore various issues and I have been sent an e-mail from my Boss Stating the following
(“With regard to our earlier meeting and the discussions re the EU pamphlet please ensure that you address the following issues :”)
- Identify the major advantages and disadvantages of EU membership to the UK economy
- Explore one area of economic activity in the UK which EU membership has and does effect
- Discuss how EU institution can benefit a UK organisation and suggest how and at which stage in the legislative
- Analyse the attractiveness of EU membership to potential members and assess how the recent enlargement may affect UK business in general and a specific organisation in particular
European Union membership could also be a catalyst for solving the UK problems
EU membership would lead to improved relations between the EU
European Enlargement - advantages for existing EU members
The main advantages for the UK are generally thought to be:
Export Potential – commercial opportunities from enlarging the Internal Market
a) Classic trade creation effects of increasing the size of a customs union
b) Accession countries are small – but have grown more quickly than EU(15) in recent years and have much faster growth potential (higher trend growth rates The long run economic potential of the accession counties is much greater than their current size
c) If living standards increase – export potential for consumer goods industries is huge
d) much recent FDI Foreign Direct Investment into accession countries has concentrated on retailing, banks and hotels!
Exploitation of economies of scale from supplying to a larger market
a) Gains in productive efficiency / increasing returns to scale
b) Exploitation of principle of large minimum efficient scale in many industries
Foreign Investment and Incomes and Profits
a) FDI into accession countries will provide a net flow of interest profits and dividends - boosting a country’s GNP and supporting the balance of payments
b) FDI flows likely to supplement rather than reduce domestic capital spending
c) FDI will speed up the transformation of accession countries
a) Potential cost savings when importing raw materials and components from accession countries (improving the terms of trade for developed EU countries)
A more diverse European labour market
a) Opportunities for British and other EU(15) businesses to import lower cost skilled labour in areas where there are severe labour shortages
b) Migration of labour from accession countries may help to offset longer-term effects of ageing populations / slow growth of population of working age
c) Increased opportunities for EU people to travel, live and work in Central, Eastern and Southern Europe
d) Successful integration of appellant countries may reduce the surge of economic migrants seeking employment in the existing EU from eastern European countries
a) European Round Table of Industrialists estimates that enlargement could create 300,000 jobs across current EU Member States
Higher EU economic growth
a) Independent research suggests that accession of the 7 largest Central European candidates could increase UK GDP by £1.75 billion
b) There is significant economic potential around new growth areas like Warsaw, Budapest and Prague
A cleaner environment
a) Accession countries have spent huge sums in securing improvements to air and water quality to meet more stringent EU standards – reduction in cross-border pollution will have positive externalities
This is a preview of the whole essay
Enlargement will be a catalyst for further economic reform in the EU
a) Reforms to the CAP
b) Spur to countries to reform their labour markets in the face of increasing low-unit labour cost competition from accession economies
European Enlargement - advantages for existing EU members
There are three significant potential costs of enlargement:
European Enlargement - disadvantages for existing EU members
There are three significant potential costs of enlargement: (disadvantages)
(1) The costs for public finances
(2) The costs of labour market disruption (including higher unemployment) and
(3) The costs of wage competition.
In many ways the costs of enlargement (including the effects on the total EU budget) are driven by political rather than economic factors – i.e. how generous the existing members of the EU are prepared to be to accession countries. Several “controls” have been put in place during final negotiations on accession – most of them relating to regional aid, CAP funding the limitations on the free movement of labour within the EU.
1) Budgetary Costs for the EU
a) Accession will increase the budgetary contributions of existing members
b) Steps have been taken to limit the fiscal costs to EU (15) countries from enlargement
i) Farm subsidies for new member-states will be gradually phased in over a period of nine years. The EU farm budget will increasing by only 1% per year until 2013 to offset inflation
ii) Limits to Structural Funds: Accession countries will receive 25bn euros in structural aid over the first three years
iii) Net Contributions: The EU will ensure that accession countries do not pay more into the EU budget than they get back, between 2004 and 2006
c) Long Term Need for Higher Regional Subsidies:
i) If full enlargement occurs, the EU will become a club of mainly small countries – with the prospect of a widening “wealth-gap” between rich and poor regions
- GDP per head for the EU(15) in 2000 (adjusting for purchasing power parity estimates) was Euro 22603
- GDP per head for EU(25) in 2000 was Euro 19661
- The 10 accession countries in 2000 had a GDP per head (PPP adjusted) of just 48.2% of the average of the newly enlarged 25 nations of the EU
ii) Of the 105 million inhabitants of the applicant states, more than 98 million live in regions whose current GDP is less than 75% of the average of the enlarged Union
(1) 48 regions within EU (15) have per capita incomes less than 75% of the EU average (the threshold figure for regional funding). These regions have an average GDP per head of 65% of the EU mean
(2) Expanding the EU to 25 nations increases the number of regions with per capita income < 75% of the EU average to 85 (135m people - 30% of total EU population). These regions have an average GDP per head of just 53% of the EU average
iii) Poorest regions can claim the highest regional / social funds
(a) Accession countries will dominate regional funds (implying less for relative poor areas within EU (15) such as Spain, Greece and Portugal. Spain is trying to maintain the EU subsidies to its poorer regions, which are due to receive nearly two-thirds of all available structural and cohesion funds under the current EU budget agreement
(b) Total EU regional funding budget will have to increase massively to meet growing economic and social requirements if relative poverty / inequality within the EU get worse
2) Labour Market Issues
- Fears of higher structural unemployment among accession countries – which might lead to large immigration of labour into higher-income countries as well as increasing political and social tensions
i) Unemployment in accession countries is already well above the EU average – much of it is long term
ii) No guarantee that unemployment will fall following integration with the EU
iii) High unemployment creates large economic and social costs and will put accession countries under increasing fiscal pressure (rising budget deficits)
b) Fears that enlargement will lead to a huge surge in economic migration from East to West
i) Will there be an increase in labour migration from accession countries to the west in search of employment? (Social dumping?)
ii) Concerns about organised crime and illegal immigration from Russia, Belarus and the Ukraine through weak Eastern European borders
iii) In Germany, Austria and Italy (countries that border accession states) there are intensive political debates about controlling the flow of migrants from former Eastern Europe.
Explore one area of economic activity in the UK which EU membership has and does effect
'The advent of the euro has created one of the single biggest trading zones in the industrialised world
The effect on UK exporters to the eurozone has been felt especially strongly in terms of pricing. This can be seen when looking at the experiences of individual firms. The chemical manufacturer exporting to every eurozone country finds that whereas before the euro, only 20 of their 800 customers paid the same price; after the launch of the euro, all their customers should in theory be charged the same price (before transport costs are considered).
The impact on price is not limited to just the question of transparency. Those firms that use psychological price points as part of their marketing mix have had to re-think their pricing policy. For example, food producers selling to large supermarket retailers in France and Belgium may be put under pressure to cut their prices, in order to find one that remains psychologically attractive.
The list of UK retailers who are willing to accept euro as payment for goods or services has grown to include more than half of Britain's leading high street names, including Marks & Spencer, WH Smith and Safeway. And with 13m tourists from the eurozone expected to spend £4bn in Britain next year, retailers are anxious to permit payment in euro. Sainsbury's, Asda and others have even introduced trolleys with euro coin slots.
From the consumer viewpoint, a British teenager was feeling very positive about the new currency, when he changed his pocket money into euro and went to shop at a Debenhams store in London. Debenhams accepts euro as well as pounds, but the computer system in the store thought the single currency was worth two and a half times more than its actual value. As you might imagine, he went back several times to get full value from his shopping trip.
The Effects of ‘Eurocreep’
UK businesses are now living with the direct effects of the euro.
- A number of large companies in the UK now do much of their business in euros.
If you compete with them, your customers may require you to price in euros, so they can make comparisons.
If you do business with them, you may have to invoice or pay in the euro.
- All businesses based in euro countries will now have to conduct their business in euros.
- Cross-European tendering will now be done in euros.
For example, where the opportunity to compete has to be open to companies throughout the EU (e.g. government or local authority tenders).
- UK-based companies with overseas customers will find it advantageous to price in euros, as well as in sterling.
They will undoubtedly be asked to accept payment of invoices in euros.
Discuss how EU institution can benefit a UK organisation and suggest how and at which stage in the legislative
There are many benefits to UK organisations through EU enlargement
- Bring down barriers to trade and business. UK companies will benefit from access to the largest single market for trade and investment in the world, with around 500 million consumers.
- Increase the purchasing power of the new Member States and thus the demand for EU goods and services.
- Increase the international competitiveness of UK companies. They will benefit from cheaper inputs, a larger and more diverse labour market, and additional opportunities for technology transfers and greater economies of scale.
- Benefit UK consumers. It will give them access to a wider range of goods and services at lower prices.
- In the longer term, act as a bridge, increasing economic engagement with states on Europe's southern and eastern boundaries.
The Council of the European Union is the main decision making body. Together with Parliament, it has the power to make decisions on legislation and the budget of the EU. The Council is also known as the Council of Ministers as a government Minister from each member state attends the Council. The Minister attending varies according to the subject under discussion. For instance they will talk about tax harmonisation, Agriculture and Fisheries policies. Regional Development Fund,
EU institutions can benefit UK organisations like Boots, Tesco, British Airways, And Virgin Rail, in the legislative process of tax harmonisations.
How EU institutions benefit UK organisations
- It would remove barriers to the freedom of goods, services, people and capital in the Single Market by creating equal conditions in all Member States, e.g. a proposal in 2002 for a harmonised diesel duty would create fair conditions for truck drivers across the EU.
- If VAT was the same rate across all Member States, it would enable companies to set one price EU wide, and save on administration costs.
- An even level of VAT would also be fairer on EU consumers. For instance, the cost of alcohol in France and England would be more equal. Such a situation might reduce the incentives to smuggle and possibly reduce criminal activities that tend to surround products that have wildly varying prices because of tax differences.
- As other barriers to movement are removed, if corporation taxes are not harmonised, they may become increasingly used as a method of competition between countries. If corporation taxes are set lower and lower, it will leave a tax shortfall which will need to be made up by the ordinary tax payer.
- Tax fraud would be reduced by better monitoring taxation on investments.
- Right: The fuel protests over the amount of duty compared with the rest of the EU caused a widespread shortage at petrol stations across the UK in 2000.
Analyse the attractiveness of EU membership to potential members and assess how the recent enlargement may affect UK business in general and a specific organisation in particular
Top 10 Benefits of EU Enlargement and attractiveness
Enlarging the EU will make Europe more attractive more secure, more prosperous and more effective. Here’s how:
- More prosperity – Independent research suggests that EU enlargement could increase EU GDP by 11 billion euros a year, UK GDP by £1.75 billion a year and add 1.5% a year to the candidates’ GDP. This means more jobs and prosperity. Other research estimates that the 2004 enlargement will create over 300,000 new jobs in original EU member states and around 2 million new jobs in the new member states.
- Opportunities for consumers – Enlargement will mean access to a wider range of goods and services – all meeting EU health and safety standards – and at lower prices. It will also open up new opportunities to travel, live and work anywhere in Europe.
- More trade – European companies will benefit from access to the largest single market for trade and investment in the world. This market now contains approximately 450 million consumers - around 70 million more before 1 May 2004 – and is larger than the USA and Japan combined. Since 1990, UK trade with the new member states has increased by 400%, compared with a 43% increase in UK trade with the rest of the world.
- The fight against terrorism – The EU’s latest anti-terrorist measures, such as the European arrest warrant, common definition of terrorism and increased intelligence sharing, will be more effective when they apply to an enlarged EU of 27 rather than just to the original 15 member states.
- Combating international crime – Enlargement will boost co-operation between present and future member states on tackling organised crime, drug trafficking and people smuggling. Candidates are bringing their police forces and border controls up to EU standards and will participate in EU anti-crime institutions, such as Europol.
- Enhanced stability and security – The prospect of enlargement has already made a real difference to the political stability and international security in Central and Eastern Europe and the Eastern Mediterranean. This includes new constitutions and the entrenchment of parliamentary democracy after years of Communist rule.
- A cleaner environment – The new member states have made major improvements in air and water quality to meet EU standards. This will reduce cross-border pollution.
- A louder voice in the world – With a population of 450 million, the EU is now bigger than the USA and Russia combined. This should increase its weight in international negotiations and action.
- Democracy and human rights – Membership criteria demand stable institutions that guarantee human rights, democracy, rule of law and respect for and protection of minorities. This improves and maintains the standard of living for many citizens across Europe as candidate countries align their legislation and practices to EU standards.
- Motor of EU reform – Enlargement prompted the Agenda 2000 package of internal policy reforms agreed at the Berlin European Council in 1999, and the institutional reforms agreed at the Nice European Council in December 2000. It will continue to provide pressure for further reform to improve the effectiveness and transparency of the EU. Since 1990, UK trade with the new member states has increased by 400%, compared with a 43% increase in UK trade with the rest of the world.
ATTRACTIVENESS OF EU MEMBERSHIP---
1. Economic. Higher living standard through free access to the biggest market, inflow of investments from EU with contemporary know-how of technology, management, world markets. Grants from Regional Development Fund, other programmes for structural changes of economies and, of course, harmonized economic legislation.
2. Political. National security, genuine democracy, free choice of political system (from constitutional monarchy through presidential to truly parliamentarian), safeguarding of the nation state.
3. Cultural - linguistic. Inclusion and interaction with world culture, enhancing thereby its own, spreading and affirmation of the Ukrainian language, hence greater individual and collective self respect and respect by other nations.
- Government Policy on EU Enlargement (http://www.fco.gov.uk/eu/enlargement)
- Additional Government Policy on EU Enlargement (http://www.dti.gov.uk/ewt/enlargement.htm)
- Guide to Enlargement (http://www.europe.org.uk/info/enlargement/default.asp)
Individual country profiles: