The European Union and Business

1
The European Union and Business

• Is it all we are told it is?

2
The EU - 1

• Customs Union
• Common External Tariff
• Freedom of movement of people, product and
  capital
• Advantages - firms have free access to markets
  which would otherwise be protected

• Firms have access to most appropriate factors of
  production
• firms have access to large markets
• firms are protected from outside competition
• increased internal competition

3
EU - 2

• Disadvantages -do we buy from lowest cost sources
• others have open access to our markets
• sheltered from real competitive forces
• marketing strategies to suit all

• So what makes for international competitiveness?
• Trading blocs
• costs of production
• corporate cultures
• trading agreements
• clubs e.g WTO

4
International Competitiveness

• NAFTA
• Former Eastern Europe - new markets,
  opportunities, we have expertise to sell
• BUT - forms, political instability, low incomes,
  infrastructure, economic conditions

• E.g Russia - now changing laws on contract and
  property
• Developing Countries - NICs, low income
  countries,
• new world economic order - what of China?

5
Globalisation - 1

• Growing importance of international trade
• rise of MNCs
• global strategies/competitive advantage
• technical changes
• transports costs falling

• De-regulation
• liberalisation of trade
• standardisation of consumer tastes
• growth of emerging markets
• greater consumer awareness

6
Globalisation - 2

• Think - competition, consumer expectations,
  economies of scale, location,mergers and market
  control
• other agreements e.g joint ventures, franchises

• MNCs avoid protectionist policies, standardise
  markets, transfer capital, profits and skills
• balance of payments?
• Social responsibility?
• Interference in domestic affairs?

7
Impact on UK Business?

• Better motivated workers?
• Improved Industrial Relations?
• Improved Productivity?
• But will labour costs increase?
• Will competitive ness be reduced?
• Will we lose trade?
• Will it force difficult economic decisions on us/
• Is it value for money?
• What of the Single Currency?

8
Business and the Euro?

• What of those outside the zone?
• Might it impact on their export prices and may
  imports from within the zone appear to less
  expensive?
• Will bigger units drive costs down and exclude
  the smaller producer?
• Will small suppliers of big business have to use
  Euros?
• Retailers in tourist areas?
• Subsidiaries of large firms? Banks?

9
Single Market- 1

• Free access to market 400m and rising
• Access to factors integration?
• Protection from external competition CET
• Increased competition (Internal)
• Drive for efficiency and common standards
• Common currency
• Transparency of prices

10
Single Market - 2

• Consumers will decide on price and non-price
  factors
• BUT will choice continue to expand?
• Will costs fall?
• Reduced market shares as competition increases
  less economies of scale?
• Lack of efficiency as barriers protect?
• Can all tastes be satisfied too diverse?

11
Single Market - 3

• Will the marketing mix have to be changed?
• Problems with expansion beyond 25?
• So, does it have other less obvious power to
  change things?
• Greater freedom to move?
• End of tariffs, quotas, government subsidies,
  harmonise taxes, reduce transaction costs?

12
Single Market - 4

• We now have to tender for large public contracts
• Will we move towards EU wide qualifications?
• Will decisions become more centralised?
• Will trade creation grow? replace high cost
  domestic production with imports from a more
  efficient EU partner?

13
Single Market - 5

• Will trade diversion increase switch purchases
  to high-cost suppliers?
• If we are to increase economic welfare then
  internal producers will have to be as efficient
  as external producers?
• Does a Customs Union offer dynamic market
  conditions? Inelasticity of demand and supply of
  commodities affected by CET
• Will EU reduce monopoly power?

14
Single Market - 6

• Will EU increase drive for R and D and
  innovation?
• Will it push for economies of scale and what of
  diseconomies?
• Will growth be balanced peripheral v core
  areas?
• Structural problems?
• Increased mobility of labour
• Power of mergers/takeovers?

15
Single Market - 7

• What of price fixing?
• What of predatory pricing?
• What of need to monitor corporate behaviour and
  application of Social Charter and Health and
  Safety?
• Where will free factors, such as labour and
  capital flow?
• Will EU unemployment rates vary?
• Can all new members afford to adopt social
  policies?

16
Single Market - 8

• Signed 1986
• Non-discrimination between imported and domestic
  goods
• Mutual recognition of products but acceptance of
  different standards
• Burden of Proof
• 4 big areas removal of frontier controls,
  technical barriers, public procurement and fiscal
  frontiers

17
Single Currency - 1

• Needed to reduce uncertainty
• Bring harmonisation within monetary and fiscal
  regimes
• To reduce use of exchange rate manipulation
• Control money expansion within member states
• Competitive de-valuations

18
Single Currency - 2

• Started with ERM UK left in Sept 92.
• Maastricht Treaty decides on currency stability
• Monetary Union designed to create common
  inflation and interest rates within member states
• Integrate financial sectors, so developing
  greater freedom of capital

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Single Currency - 3

• Membership based on meeting convergence criteria
  and accepting political rules
• Price stability no more than 1.5 above average
  of three best performing members
• Interest Rates no more than 2 above average of
  the three member states with lowest inflation
  rates in previous year
• Gov deficit no more than 3 of GDP.

20
Single Currency-4

• Public Sector Debt Control must not exceed 60
  of GDP
• Reduced transaction costs
• Reduced uncertainty
• Price transparency
• Lower interest rates
• Lower inflation and unemployment
• Euro a powerful currency, greater parity with ,
  integration of financial markets, greater market
  liquidity, sounder fiscal policy

21
Single Currency - 5

• Gains? one catalogue price, one bank account,
  less formalities, stability, enhanced competition
  as prices remain stable, integrated bond markets,
  stricter discipline in tax issues
• BUT at what costs?
• Loss of economic sovereignty
• Asymmetric shocks
• Lack of convergence two speed Union?

22
Single Market - 6

• Different labour market regulations
• Different growth rates
• What if one country gets out of synch?
• What if monetary flexibility required?
• Structural differences between countries we
  export 52 to EU, Germany 56, France 63

23
Single Market - 7

• Different housing market mortgage debt in UK
  57 of GDP, 33 within rest of EU
• More vulnerability to oil price hikes?
• Can it be sustained as enlargement continues?
• Can Regional Policy cope

24
The future?

• Can the poorer nations be accommodated?
• Common Agricultural Policy?
• Greater political cohesion needed?
• Managing the Euro?
• Huge trading block?
• Trade-offs winners v losers