A2 External Influences The European Union. The EU n A free trade area with no internal barriers to trade and a common external tariff. n Free movement.

A2 External Influences

The European Union

The EU

A free trade area with no internal barriers to trade and a common external tariff.

Free movement of good/services, labour and capital.

The aim is to develop economic and political stability and prosperity

History 1945 - Conclusion of 2nd world war, aim to avoid future wars 1952 - Creation of European Coal and Steel Community (ECSC) -

Treaty of Paris (Belgium, Holland, Luxembourg, Italy, France and later West Germany)

1957 - Treaty of Rome - formation of a free trade area with a common external tariff, original 6 enjoyed strong economic growth

1973 - UK, Ireland, and Denmark decide to join. 1992 - Single Market the European Community - development of a

common market with free movement of all factors of production 1993 - Maastricht Treaty- creation of European Union to develop

greater unity 1995 - Membership up to 15, Austria, Finland, Greece, Portugal, Spain

and Sweden joining at various points 1999 - Euro adopted by 11 countries 2001 - Greece adopt Euro 2004 - New members = Cyprus, Czech republic, Estonia, Hungary,

Latvia, Lithunia, Malta, Poland, Slovakia, and Slovenia. 2007 – Bulgaria and Romania join

The Single Market

Building one internal market was intended to launch Europe as an economic superpower

As member states got rid of obstacles to trade, companies would start to enjoy new economies of scale

More cross-border competition would wipe out inefficient firms

Institutions of the EU The European Commission - proposes EU policy and

legislation.

The Council of Ministers - Agrees to adopt legislation.

Both institutions can impose their will upon the union through: Regulations - which must be obeyed and primacy over national

laws Directives - require members to introduce legislation in their

parliaments They may also make recommendations and give their opinion

The European Parliament - Enforces the legislation

Student Task: Who are the current members?

Write a list of what you feel are the 27 EU members.

The European Union members

The European Union

Trade Flow:  exports

$813bn  imports

$801bn

Candidate countries

Croatia

Former Republic of Macedonia

Turkey

Albania, Bosnia, Kosovo, Montenegro and Serbia are expected to join in future

Implications of the EU for business

Value of membership depends on level of trade with EU

Removal of barriers to the four freedoms of movement people, goods, services, and capital within the EU

Barriers were: regulatory, technical, legal, bureaucratic, cultural and protectionist (e.g. tariffs)

Social Chapter

Element of Maastrict TreatyAims to harmonise working conditionsEnsures workers can: Join a trade union and take industrial action Be consulted and informed about company plans Equal treatment for males and females Minimum wage and maximum working hours Minimum 4 weeks paid holiday

Student Task: Produce a spider diagram with the advantages and disadvantages of this social chapter (10 minutes)

The EU - Positive implications

Bigger market - 450 million

Economies of scale opportunities = lower costs and more specialisation

More competition = more efficiency + innovation

More opportunities for mergers and joint ventures

Encourages inward investment - looking to avoid external tariff of EU

Greater mobility of labour = bigger supply

Free movement of factors of production and investment = set up in cheaper locations

The EU - Negative implications

Increase in legislation

Increased competition in Europe and domestic market

Skilled labour and investment may be attracted to other countries

Low wage rates in countries such as Poland = fierce competition as costs lower

The EuroThe Euro

Introduced on 1 January 1999

12 countries have adopted it and currencies were fixed together

These 12 countries are called the Eurozone

The Euro

Positive implications -

No exchange rate transaction costs

No uncertainty with fluctuations in exchange rates

Price transparency = easy comparison

Easier planning

Further union with rest of EU to become part of large economic super power

The Euro Negative implications -

40% of UK trade with non-EU countries

Loss of ability to decide interest rates and control business cycle

UK business cycle not in sync with EU

Firms have opportunity to put prices up

Costs of changeover, pricing and wage systems

UK is a net importer for EU

Need more focus on improving own countries services

A2 External Influences

Pan-European strategy and EU expansion

Objectives

By the end of the lesson all students should have:

Revised their knowledge of the EU and the Euro

Understood what a pan-European strategy is

Discovered the importance of emerging markets such as Eastern Europe along with the positive and negative implications

Pan-European Strategy

An approach which regards all markets within Europe as similar to one another( a ‘European’ market)

Discussion point: Will this be a successful approach? (discuss in pairs)

The aim is to achieve economies of scale

Evidence suggest markets across Europe are differentiated and fragmented

Cultural and language barriers

Emerging markets and Eastern Europe

Emerging market - an international area that has the potential to grow and develop in terms of productive capacity, market opportunities and competitive advantage.

E.g. Eastern Europe with the introduction of capitalism after the fall of communism in late 1980s

EU Expansion to the East - Potential candidates

Joined in 2007

Expansion into the East of Europe

At least six countries are waiting in the wings to join the European Union.

Bulgaria and Romania have signed accession treaties and have now joined in 2007

Croatia and Turkey started accession talks on 3 October 2005. Turkey could complete them in 10 years, Croatia in five.

Expansion into the East of Europe

The other four Balkan countries have been told they can join the EU one day, if they meet the criteria.

These include democracy, the rule of law, a market economy and adherence to the EU's goals of political and economic union.

BBC Video - http://search.bbc.co.uk/cgi-bin/search/results.pl?tab=av&q=Eu%20membership&recipe=all&scope=all&edition=d

Student Activity

Read the case study on Tesco expanding in Europe (page 387) and complete the following tasks: (25 minutes)

1. Produce a spider diagram detailing the benefits and disadvantages of establishing supermarkets in Central and Eastern European countries of the EU. (see page 386 for guidance)

2. Essay style question: To what extent might Tesco’s success be even greater if the UK adopted the Euro. (15 minutes)

Positive implications with Eastern Europe (an emerging market)

New market with large population

Big opportunities for new products and well established brands

Cheaper labour

Less stringent government control

More labour - UK currently experiencing skill shortage e.g. BUPA hiring carers from Poland and Czech Republic

Negative implications with Eastern Europe (an emerging market

Lower incomes

Immature political systems = unstable and unpredictable trading conditions

High inflation = low confidence in currency

Difficult to raise finance in these countries

Poor infrastructure