Study Guide: The European Union

Multinational market regions: groups of countries that seek mutual economic benefit from reducing interregional trade and tariff barriers La Raison d’Etre Successful economic union requires favorable economic, political, cultural, and geographic factors as a basis for success. Major flaws in any one factor can destroy a union unless the other factors provide sufficient strength to overcome the weakness. Economic Factors.

Every type of economic union shares the development and enlargement of market opportunities as a basic orientation; usually, markets are enlarged through preferential tariff treatment for participating members, common tariff barriers against outsiders or both. Enlarged or, protected markets stimulate internal economic development by providing assured outlets and preferential treatments for goods produced within the customs union and consumer benefits from lower internal tariff barriers among the participating countries Political Factors

Political amenability is another prerequisite for the development of a supranatural market arrangement, and must have general compatibility. Political elements are equally important Geographical and Temporal Proximity Although this category is not absolutely imperative for cooperating members of customs unions such closeliness does facilitate the functioning of a common market. More important than geographic is changing time zones. Transportation and trade are more likely to be interrelated if they are close in geographic location. Cultural Factors.

The more similar the culture the more likely an agreement is to succeed, because members understand the outlook and viewpoints of their colleagues. FORMS OF MULTINATIONAL GOUPS Regional Cooperation Group The most basic economic integration and cooperation is the “regional cooperation for development (RCD)” governments agree to participate jointly to develop basic industries beneficial to each economy. Each economy makes an advance effort to participate in the financing of a new joint venture and to purchase a specified share of output of the venture.

Example: is the project between Colombia and Venezuela to build a hydroelectric generating plant on the Orinoco River. They share jointly in construction costs, and they share the electricity produced. Free Trade Area Requires more cooperation and integration than the RCD. It is an agreement between two or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries while members maintain individual tariff schedules for external countries. Customs Union Represents the next stage in economic cooperation.

It enjoys the free trade area’s reduced or eliminated internal tariffs and adds a common external tariff on products imported from countries outside the union. The customs union is a logical stage of cooperation in the transition from an FTA to a common market. Common market Agreement eliminates all tariffs and other restrictions on internal trade, adopts a set of common external tariffs, and removes all restrictions on the free flow of capital and labor among member nations. Thus a common market is joint marketplace for goods as well as for services (including labor) and for capital.

It is a unified economy and lacks only political unity to become a political union. Political Union A political union is the most fully integrated form of regional cooperation. It involves complete political and economic integration, either voluntary. The “commonwealth” of nations is a voluntary organization providing for the loosest possible relationship that can be classified as economic integration. A commonwealth can best be described as the weakest of political unions and is mostly based on economic history and a sense of tradition.

Head of state meet every three years to discuss trade and political issues they jointly face, and compliance with any decisions or directives issued is voluntary. EUROPEAN INTEGRATION Despite the ongoing global economic problems affecting it. Of all the multinational market groups, none is more secure in its cooperation or more important economically than the European Union EU. From its beginning, it has made progress toward achieving the goal of complete economic integration and, ultimately, political union. Although they were not so reluctant to give up their sovereignty.

Germany started requiring beer sold in Germany to be brewed only from water hops, malt and yeast. EUROPEAN UNION The EU has three legal instruments: 1. Regulations binding the member states directly and having the same strength as national laws 2. Directiveness also biding the member states but allowing them to choose the means of execution 3. Decisions addressed to a government, an enterprise, or an individual, binding parties named. Over the years the EU started gaining increasing amount of authority over its member states.

The council of ministers is the decision making body of the EU; it is the council’s responsibility to debate and decide which proposal of the “single European act” to accept as binding on EU members. The council can enact into law all proposals by majority vote accept for tax rates, on products and services, which requires unanimous vote The European Parliament originally had only a consultative role treat passed on most Union Legislation. It can now amend and adopt legislation, though it does not have the power to initiate legislation. It also has extensive budgetary powers that allow it to be involved in major EU expenditures.

The Economic and Monetary Union, a provision of the Maastricht treaty, established the paraments of the creation of a common currency for the European Union, the euro and established a timetable for its implementation. In 2002 a central bank was established, conversion rates were fixed, circulation of euro banknotes and coins was completed and the legal tender status of participating members banknotes and coins was canceled. The Amsterdam Treaty increases authority for the institutions of the European Union and is designed to accommodate the changes brought about by the monetary union and the admission of new members.

EXANSION OF THE EUROPEAN UNION The process of enlargement was for a long time the most important item on the EU’s agenda. Ten new countries were added in 2004 and some ahead of schedule. Bulgaria and Romania entered as planned in 2007, and talks with Turkey, Macedonia, and Croatia are continuing. Beyond the current economic doldrums, a broader preoccupation for the European Inion is the prospect of illegal immigrants from former Soviet states surging across poorly guarded borders of the newer and/or candidate states and making their way further west within the EU.

This could cause problems civilly between people or neighboring states. Furthermore the European union fears a flood of cheap labor even if the borders are closed; it wants a long transition period before freedom of movement of labor, whereas the applicants say their citizens should be allowed to work anywhere in the EU once they are members. In 2007 the European Union celebrated its golden anniversary. Most people would agree that it has been a tremendous success, delivering peace and prosperity to hundreds of millions of people that previously had lived with frequent wars and accompanying economic and social hardships.

In 2008-09 global recessions has posed daunting short term challenges to the integrity of the union though; and early recovery stalled in late 2009, and Ireland, Portugal, Spain, and particularly Greece are experiencing continuing problems. The long term challenges facing the union in the next 50 years appear to fall into three categories 1. Improving the unions economic performance 2. Deciding how to limit the political aspects of union 3. And deciding about further enlargement LO4: Evolving patterns of trade as eastern Europe and the former Soviet states embrace free-market systems Eastern Europe and the Baltic States

* New business opportunities are emerging almost daily, and the region is described as anywhere chaotic with big risks place with untold opportunities. * Both descriptions fit as countries continue to adjust to political, social, and economic realities of changing from the restriction of a Marxist-socialist system to some version of free markets and capitalism. Eastern Europe * Dangerous to generalize beyond a few points about Eastern Europe because each country has its own economic problems and it’s at a different stage in its evolution from a socialist to a market-driven economy.

* Most Eastern Europe countries are privatizing state-owned enterprises, establishing free market pricing systems, relaxing import controls, and wrestling with inflation. * Czech Republic moved quickly to introduce major changes, seemed to have fared between countries such as Hungry, Poland, and Romania, which held off privatizing until the government restructured internally. * Most countries in the region continue to make progress in building market-oriented institutions and adopting legislation that conforms to that of advanced market economies.

Czech Republic, Hungry, the Slovak, and Poland all joined the OECD which means they accept the obligations of the OECD to modernize their economies and to maintain sound macroeconomic policies and market-oriented structure reforms. The Baltic States * Estonia, Latvia, and Lithuania are good example of the difference that the right policies can make. * All three countries started off with roughly the same legacy of inefficiency industry and Soviet-style command economies. * Estonia- privatized companies and land, struggling banks fail, and adopting the freest trade regime of the three countries.

* Lithuania and Latvia have made steady progress by gov bureaucracy, corruption, and organized crime-common problems found in the countries of the Soviet Union. * These issues represent the most significant hurdles to US trade and investment. The Commonwealth of Independent States * Europe and Asia has one other trade group that has emerged and persisted since the dissolution of the Soviet Union: The Commonwealth of Independent States (CIS). * The first Soviet republics to declare independence were the Baltic States, which quickly gained recognition by the Western nations.

* The CIS is a loose economic and political alliance with open borders but no central government. * The main provisions of the commonwealth agreement are to repeal all Soviet laws and assume the powers of the old regimes; launch radical economic reforms, including freeing most prices; keep ruble but allow new currencies; establish a EU style free trade association; create joint control of nuclear weapons; and fulfill all Soviet foreign treaties and debt obligations. * Exhibit 12. 5 Shows the 12 CIS fundamental Market Metrics Africa.

* In part stimulating by increasing foreign direct investment, particularly from China for infrastructure projects, prospects for enterprise south of the Sahara are on the upswing. * African countries have been picking up nicely over the past few years. * Ethiopia, Angola, and Malawi each experienced annual growth rates greater than 8% between 06-11. * Despite this great news, Africa’s multinational market integration activities can be characterized as a great deal of activity but little progress. * All the countries on the continent have joint the Africa Union (AU).

* There has been little economic integration on this continent because of political instability. * The United Nations Economic Commission for Africa (ECA) has held numerous conferences but has been hampered by governmental inexperience, undeveloped resources, labor problems, and chronic product shortages. * The Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC), and the East African Community (EAC) are the three most active regional cooperative groups.

* The SADC is the most advanced and viable of Africa’s regional organization, its 14 members encompass a landmass of 6. 6 million square kilometers containing abundant natural resources and a population of over 200 million. * Exhibit 10. 6 is African Union Countries and Other Market Groups Fundamental MKT Metrics. * South Africas economic growth has increased significantly now that apartheid is official over and the United Nations has lifted the economic embargo that isolated that nation from much of the industrialized world.

* South Africa has a developed infrastructure and has potential to being the newest big emerging market (BEM). * The internet also facilitated education, a fundamental underpinning for economic development. Middle East/North Africa (MENA) * The unprecedented and ongoing political turmoil in MENA region accelerated dramatically in 2011 and has yielded an associated economic disaster in several countries in the region. * The long term consequences for international trade are unknown as of yet. * There are both positive (greater press freedoms) and negative (new economic sanctions targeting Israel) stories emerging.