Ireland 67.1 3.63
Italy 1181.0 56.73
Luxembourg 13.9 0.43
Netherlands 348 15.81
Portugal 144.8 9.92
Spain 645.6 39.17
Sweden 175 8.91
United Kingdom 1252 59.11
Aspiring member states are
Czech republic 116.7 10.28
Hungary 75.4 10.19
Poland 263 38.61
Turkey 425.4 65.60
Treaties
The treaties that established the European Union are:
Treaty if Rome (1958)
The Treaty of Rome of 25 March 1957, which established the EEC, set up institutions and decision-making mechanisms through which both national interests and a Community view could find their expression.
ECSE Treaty (1952)
The treaty establishing the first European Community, the European Coal and Steel Community or ECSC, was eventually signed in April 1951, opening up the door to Europe.
Single European Act (1987)
The Single European Act, which amended the Treaties, established a procedure with two readings in Parliament and two in the Council. Known as the cooperation procedure, it gives Parliament a bigger say in a wide range of policy areas, notably the single market.
Maastricht Treaty (1993)
The Maastricht Treaty strengthens Parliament's hand even further by granting it joint decision-making powers with the Council in specific areas: freedom of movement for workers, freedom to set up businesses, freedom to provide services, the single market, education, research, the environment, trans-European networks, health, culture and consumer protection
Amsterdam Treaty (1999)
The Amsterdam Treaty strengthened the European Parliament's legislative role by extending the co-decision procedure with the Council to new areas such as public health, transport policy, freedom of movement of people, and certain provisions in social and employment policy.
Nice Treaty (2000)
Economic Theories
In general, economic theory suggests that the freer the trade among countries the more joint their welfare will be.
Free Market
The trade arrangements and factors of mobility that make up the European Market are known as the ‘four freedoms’. They are:
The free movement of people
The free movement of goods
The free movement of services
The free movement of capital
The four freedoms, which makes up the free market allows countries within the EU to move around without being charged tariffs. An example would be if a UK business that operates in Germany, but their products were manufactured in England, no charges would be involved in moving the goods from England to Germany to be sold. The same principle applies to the other freedoms.
Any business that operates in Europe but based outside the EU has to pay tariff charges, this barrier has forced many businesses to base themselves in the EU to avoid the charges.
Comparative advantage
The theory of comparative advantage states that the economic welfare of all EU countries improves if they trade among themselves easier. If a country is more efficient at producing all goods than another country, if each country specialises in the production of one good that it is more efficient and best at producing then trade should benefit both countries. If one country has a comparative advantage in many areas then it can have damaging effects.
Economies of scale
The larger the economy of scale the smaller the unit cost of your company. Economies of scale occur when larger firms are able to lower their unit costs. Larger firms may be able to buy in bulk, organise production more efficiently, raise capital more and all of these represent economies of scale. But it works the other way as well, the smaller the economy of scale the larger your unit costs are. For this reason it can take a long time to establish your business in Europe as it is so hard to compete.
The impact of EU policy and legalisation
The single currency
All EU’s 11 members adopted the single currency (the Euro) on the 1st January 1999. It coexisted with the member’s then current currency until 2002 when the Euro became the only legal tender. Only 4 members decided not to join and they are Greece, Sweden, Denmark and the UK.
The Euro meant that money in all its forms can move freely across the borders between member states and that changes of exchange rates between them are abolished.
UK businesses that trade in Europe are liable to accept payment in Euros. They have to ensure that all automatic payments/standing orders in Euro-zone currencies are converted to the Euro and when comparing results with other firms, the results should be shown in Euros to get a clear interpretation of how the company compares.
With the single market programme it has removed all of the physical barriers to trade and developing a common transport policy. With the elimination of barriers to trade has helped businesses to decide whether to set up in the EU as with the single currency a business could buy supplies all over Europe, searching for the cheapest/best quality and payment would always be made in the same currency, the Euro, and no exchange rates would be applied. This is a major factor for a business to decide when pondering whether to set up in the EU. But this could have a damaging effect on UK suppliers, who are already being out priced by European suppliers supplying UK businesses.
As long as the UK remains outside the single currency it will have an affect on UK businesses, good and bad. Exchange rates and the value of the pound compared to the Euro are always changing and this effect UK exports and imports. Exports to Europe are effected because European countries may see it as too much hassle to change money and pay rates. The cost of a shipment for one month could be higher/lower the next month for the same amount of produce and there is no stable price, whereas dealing with another country within the single currency abolishes this. Buyers may turn elsewhere and drive the UK exporters out of business. The problems of exchange rates and the value of the pound also affect UK importers buying from countries with the Euro, but it won’t have the same effect as importers had before the single currency when each country in the EU had their own currency.
Competition policy
Competition policy of the EU dates back to 1962, where its objectives were centred on promoting a dynamic competitive environment. Aiming to enhance both consumer welfare and techno-industrial advancement. It can prevent firms that have a dominant position (a monopoly) from abusing their position, but they don’t prevent dominant positions, as the community likes to see large European firms capable of competing with the largest foreign firms in the world market. It puts scrutiny on the operating potentials of monopolies, cartels that tend to dominate the market with mergers. Mergers are monitored and are only given the go-ahead once the commission has looked at the case and there is still enough competition in the market. This prevents companies from entering into price-fixing and market-sharing agreements between member states. The Maastricht treaty article 85 has outlawed firms that abuse their dominant positions in the market from fixing prices and controlling trade between the member states.
Workplace issues
The employment and social policies that govern the EU is there to improve the quality and standard of living for all. The policy fights against all forms of discriminations that seek to promote integration amongst the workforce. The treaty of Amsterdam and the Maastrict treaty promote a series of social policy priorities at Community level, especially in the area of employment. These treaties focus on the promotion of employment with the objective of reaching a high level of employment without undermining the competitiveness of the market.
To ensure that the EU is taken steps to a social Europe the Treaty of Maastricht had taken social policy one-step forward with the adoption of the Social Policy. This was signed by the twelve countries, which were Member States at the time, noting that eleven Member States all except the United Kingdom wished to continue to make significant progress. Labour market issues in the EU states vary with each country around Europe. Each has different working hours, public holidays, paid holidays, minimum wage, sick pay, maternity leave, and termination of contracts.
The Amsterdam and Maastricht treaty support equality between men and women and provides and promotes the employment and social policy that governs the EU focuses on providing certain rights for its workforce in such matters as:
- Workers’ health and safety;
- Working conditions;
- The integration of persons excluded from the labour market;
- The information and consultation of workers;
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Equality between men and women with regard to labour market opportunities and treatment at work.
- Social security and social protection of workers;
- Protection of workers where their employment contract is terminated;
- Representation and collective defence of the interests of workers and employers
- Conditions of employment for third country nationals legally residing in Community territory;
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Financial contributions for promotion of employment and job creation.
If a UK business is looking to base it self in Europe, the country they are looking at must be examined carefully as these rules will have to be followed. If the country has shorter working hours and more public holidays and say a 2-hour lunch break, this must be taken into account to determine efficiency. It may be cheaper to manufacture a product in a certain country but with fewer working hours the profit margin might not be as large as first thought.
The impact of cultural difference
The European Union must take cultural aspects into account in all its activities. The customs and cultures of member states vary enormously through language, religion, and tradition, moral and social concepts.
The EU cultural policy is concerned with the legislation that makes up the economic development and these cultural aspects are:
- The free movement of workers and of goods and service
- Taxation
- Copyright
- Competition policy
In order to enter and set up a business within the EU states UK businesses must be aware of the cultural difference of each member state and they must follow the legislation that protect cultural differences. To ensure that they are not infringing themselves when relocating or starting a business in the EU businesses have to be careful when choosing the name of products, making sure that names and logos don’t have another meaning in a different language and are not offensive to any race, religion, sex or country. The same goes for the ingredients of products. For example, there would be no use introducing a new product that contains pork to a country whose population is largely Jewish. The product obviously wouldn’t sell and it could be deemed offensive, giving the company a bad image. Businesses also have to take this into account when packaging and advertising their products. If managers are British then they need to be trained in how to deal with the country’s culture, habits and norms so that a good working environment is achieved. They have to look at employment laws to make sure that the free movement of workers and goods and services fall within the right policies.
Conclusion
UK businesses need to look at the opportunities that the EU has to offer with the way today’s market and economy are going they need to look into the opportunities of opening businesses abroad and to see the benefits it will make. Some key factors they have to look into is the currency unification as most of the EU members are now using the single currency the Euro. Businesses have to continue to follow the policies that make up the EU without losing the competitive edge and continue to meet the demands of different markets and adapt products to fit into each member state.
Bibliography
Grahame Thompson, Governing the European Economy, Great Britain, Sage Publication Ltd, London, 2001
Elizabeth Bomberg and Alexander Stubb, The European Union: How does it Work? New York, Oxford University Press, 2003
