Question

After completing the MGM4154 course you have been offered a job as secretary of the international trade division of a newly independent Latvian country of 10 years from the Soviet Union. Your section chief asks you to do a study on the benefits of joining the European Union as an entity in the EU. Provide your opinion on the pros and cons to your division chief when it comes to regional integration. Provide executive summary in TWO PAGES.

Answer 1

Introduction:

European Union serves for country-members as a means for coping with globalization challenges and achieving greater prosperity and wealth (European Council, 2000). Different definitions of integration are found in relative literature.

They come to the conclusion that European integration is a process, during which a single market is created by eliminating all economic and non-barriers, influencing political and economical climate (Tsoukalis, 1997; Mussa 2000). The integration process is defined as the gradual elimination of economic frontiers between independent states, resulting the economies of these states to function as one entity (Molle, 1990). We can distinguish six forms of economic integration.

Beginning with the Preferential Trading Area where a region becomes a block trade of countries with lower taxes and tariffs, secondly we have the free trade area, in which regional initiatives are the principal means for eliminating trade barriers such as tariffs, quotas and others. The third form of economic integration refers to customs unions, where countries adopt common external trade policies towards non-members. Common market is the fourth step along the path of economic integration, where barriers that inhibit the movement of factors of production – labour, capital and technology – among its members are eliminated. An example is the European Community (EC), which is informally known as the Common Market. The fifth form refers to Economic and Monetary Union where the major goal is the coordination of economic policies among country-members. Actually at the end of 1992, we have the establishment of the free single market when the Maastricht treaty was signed by removing the physical (borders), technical (standards) and fiscal (taxes) barriers among the member states. These barriers obstruct the freedom of movement of the four factors of production. Various researchers use the alternative terms of single market such as internal market or integrated market. Although these terms can be considered as synonyms, we can argue that the Internal Market is not completed yet. Indeed, creating a genuinely integrated market is not a finite task but rather an ongoing process requiring constant effort, vigilance and up-dating. Finally, the highest

(sixth) level of economic integration refers to political and economic union such as the United States of America, or the United Kingdom.

1. Benefits of Joining the European Union:

01. The European Union creates an allied front against outside aggression.
The past 50 years in Europe have been some of the most peaceful out of the last 1,000 years of history. There have been fewer wars fought on the continent then at any time since the reign of the Roman Empire over the region. The European Union creates stability because all of the nations belonging to the agreement (or NATO) work together for their mutual good. Although this does increase their operating costs because there are domestic and international governments which require funding, it makes everyone safer as well.

Europe has always had to balance the extremes in the past, from economics to religion, and that has not always been successful. Now that everyone is in economic cooperation at some level, the EU makes the smaller countries become international competitors.

2. There are more jobs and higher wages across Europe because of the EU.
Even with the uncertainty of the Brexit circumstances ongoing, there are more employment opportunities, better wages, and a higher-skill workforce available in Europe today because of the EU. Because there are 28 different countries that are part of this governing body, they can create a single market together which gives them more scale to use when negotiating international trade deals.

This advantage makes it easier for local producers to export their items at a fair price while receiving imports as needed that don’t break their budget. About 10% of the jobs in Europe are directly linked to the EU right now, and that doesn’t even count the import-export positions which exist.

3. The European Union takes eco-friendly policies seriously.
When one European nation decides to manage the environment more effectively, then they can make a small impact with their eco-friendly stance. If all 28 members come together to follow the same policies, then it can be a process which helps to change the world. Before the EU became a formalized government, about half of the areas on the continent met water quality standards. Now that figure is well above 90%.

Communities are putting in the resources necessary to rebuild their ancient squares, clean up their beaches, and create safe areas for exploration. Public transportation options are becoming more available. Even dedicated bike paths and lanes help to keep costs down in the EU. These benefits are also something that tourists love to see, which means they are more likely to come and spend money there.

4. Industrialization’s evolution has evolved dramatically because of the European Union.
During the rebuilding years in Europe after World War II, food was scarce and jobs were rare. Even the assistance provided by the Americans was not enough in some countries to help make ends meet. By 1951, the times dictated a cooperative relationship to help the continent get back onto its feet. Just six years after the conclusion of the war, Italy, Germany, and France (former enemies) came together with Belgium, the Netherlands, and Luxembourg to create an economic pact that helped to re-industrialize the continent.

This relationship became the foundation of the European Union because of the stipulations that were in place to maintain this lucrative membership. There had to be a guaranteed democracy, respect for human rights, the ability to introduce competition, and financial resources to meet the obligations of the relationship. It is this path that the current EU follows as well.

5. Freedom of movement.
Citizens of all member states are free to move from one member country to another. They can travel, study, work or live in any EU state of their choice. If they choose to move within the Schengen Area, which comprises 26 European countries, they can do away with using a passport, visa or other travel requirements. This is because the Schengen Area is considered a single country for international travel purposes and only uses a common visa policy. This provides citizens of Member States plenty of options to travel, find work, study and relocate whenever and wherever they choose.

6. Better jobs and workers’ protection.
British citizens, for example, have the option to work locally or at any of the EU countries, which means more job opportunities to choose from. This is especially true that global manufacturers are moving their businesses to EU countries because of lower operating cost. So imagine what would happen if Britain breaks off from EU, effectively cutting off their access to Member States and employment offers.

EU has also developed the Working Time Directive that protects the rights of workers employed in any of the EU member countries.

• Weekly work hours must not exceed an average of 48 hours, including overtime.
• Every 24 hours there should be a minimum daily rest period of 11 hours that must be used consecutively.
• Those working longer than 6 hours are entitled for a rest break.
• In addition to the daily rest of 11 hours, there should be a minimum of 24 uninterrupted hours of rest for each 7-day or one week period.
• There should be at least 4 weeks of paid leaves per year.
• Those working nights are entitled to extra protection, including free health assistance, transfer to day work under certain circumstances, an 8-hour limit on heavy or dangerous work, and an average of 8 hours of work per 24-hour period.

Although the directive has negative implications on certain jobs, such as the armed forces, managing executives, and mobile workers, it is generally beneficial for a majority of employees. Temporary workers are also entitled to the same basic work conditions are those working full-time.

Free movement of labour also resulted in a flexible job market. Whatever employment gap that a particular country or region is experiencing, can be filled by immigrants. Nursing and plumbing jobs in the UK, for example are filled by foreign workers. The increase in employment also resulted in the increase of a country’s real GDP and productive capacity.

7. Access to health benefits.
EU citizens are provided with the EU Health Insurance Card that gives them access to emergency healthcare whenever they need it, while visiting any Member States. What is even better is that whatever rules that applies to locals will also apply to the visiting citizen, effectively providing peace of mind.

8. Lower prices of goods and services.
Operating as a “single market”, there is a need to find an average price for all products sold and exchanged within member countries. This resulted in lower prices that are further reduced with the absence of custom tax. Usually, goods transported or sold between states and countries are charged with custom tax, but because the EU has an integrated economy, no such charges apply.

Also, there are no charges on customs and excise duties on goods brought from shops in any Member State and then brought home, provided that it is for personal use. New rules are also implemented to protect consumers from car price cartels. This means cars can be imported from EU countries with lower prices without being charged exorbitantly. Phone charges have also been regulated, allowing citizens of Member States to enjoy lower charges when traveling abroad. Based on the 2007 EU legislation, receiving a call will cost a maximum charge of 10p per minute, while outgoing calls will cost no more than 30p per minute. Sending texts, on the other hand, will cost around 25p to 9p.

9. Development of underdeveloped member regions.
Some states of the EU are economically deprived. In a bid to narrow the disparities between developed and underdeveloped regions in Member States, the EU has developed structural funds that come in two types. One is the European Regional Development Fund designed to create infrastructure and support investment in job production, and the European Social Fund that invests in training measures to help unemployed and disadvantaged members of the population to enjoy a working life.

2. Pros of joining in the European Union:

1. Enhancement of market opportunities (increased market).

2. Reduction of trade barriers or even elimination of either tariff or non-tariff barriers.

3. Reduction of business cost.

4. Reduction of costs of new market entry.

5. Free movement of employers/employees across borders to find and take up employment.

6. Strengthening of international accounting standards.

7. Transparency in business operations and business performance.

8. Facilitation of business operations by increasing the intensity of competition.

9. High growth rates.

10. Peace and stability.

11. More FDI and trade flows trough enlargement.

12. Faster growth of consumer incomes (due to GDP growth)

13. Stabilization and strengthening of institutions.

14. Increase the administration capabilities and respect for the role of law.

15. Exploitation of the wage cost advantages in central and eastern European countries (CEECs).

16. Greater international integration and policy cooperation.

17. Improvement of investment climate and business environment.

18. Better regulations to start-up and more creatable investment decisions and business operations, avoidance of bureaucratic and selective behaviour of administration in obtaining licenses.

19. Easier technology transfer.

20. New markets will provide new ideas for CEEC entrepreneurs.

21. Strengthen company management and capital markets.

22. Countries will not deal with different trade regimes and custom regulation.

23. Challenges from structural found eligibility for the new EU members.

Cons of joining in the European Union

1. The cost of adoption of all EU norms and standards by enterprises.

2. Migration issues – increased criminality.

3. Fear that the highly skilled would emigrate from the accession countries to the EU.

4. Fear that the enlargement will encourage the relatively unskilled to leave the accession countries to take up employment in the EU.

5. Fear that the wages would be depressed in the EU.

6. Fear that the unemployment would rise in the EU.

7. For example, the Norway reluctance towards membership is related to the perceived compromise of Norwegian identity with a constant struggle for political independence, society and highly subsidized welfare model and broad and diverse EU community.

8. Challenges for the poorest of the EU member states such as Greece, Spain and Portugal due to structural funds adjustment perspective.

9. Enlargement negative impact on Spain and other weak EU economies from trade, FDI, migration and structural/cohesion funds adjustment perspective.

10. Costs for improvement of legislature.

11. Cost of compliance with European principles.

12. Cost for total modernisation of the industrial potential.

13. Deteriorate security and EU resources (require vast resources the coordination of policies, needs establishment of bridge gaps in economic development while alleviating structural discrepancies by subsidizing infrastructure and agricultural reform but “even with modifications to the present European institutions, a larger and more diverse European Union is likely to be a weaker union).

14. Fears for loosing economic advantages and compromising culture standards, religion and tradition.

15. Threats to domestic producers market position. Loose of market share for local companies and especially for the SMEs due to the increased competition, and the participation of foreign companies.

16. The transition cost can be very high for weak countries with bad economies and environments.

17. Greek and producers from other weak economies will need to import new equipment and technologies from advanced countries Germany and France. This extra cost may lead to a decrease of the producer surplus.

18. Many of the EU businesses attach higher risk to invest in the accession countries due to weakness in the business infrastructure both the hard infrastructure but, especially, the soft business environment.

19. For example, The French are against compromising French independence and possible integration of countries that they are not European in essence, such as Turkey.

20. EU benefits are already achieved for the EU applicant countries before their entrance.

21. Advanced countries may pay the fine tuning of the weak countries for several years.

22. Another kind of bureaucracy may exist in the European Union context (centralized system).

Conclusion:

The European Union might be good for some of its members, but bad for others. Unfortunately, an EU exit also comes with pros and cons, which calls for strategic planning, regardless of which direction to take — better off out or in. No form of government is perfect because humanity is an imperfect race. We will make mistakes more often than not. When we come together in the spirit of cooperation, then there are higher levels of accountability present in society. It becomes easier to avoid problems or correct issues so that everyone has a fair chance at success. That is what the European Union does exceptionally well.

The EU is also facing many problems on all sides with its membership. There are the ongoing negotiations for Brexit with the UK, Hungary is in open revolt against the policies instituted by the government, and the United States is trying to negotiate a better deal on trade. Italy is borrowing at 130% of its GDP as well, which is second only to Greece – which is finally coming out of a problem with austerity. With the advantages and disadvantages of the European Union, there are many positives to consider from a relationship standpoint. The issue of economics is a very different question, since each member has unique needs that a continental body cannot always meet. That is why there will always be some level of discontent in Europe, despite the overall gains.