- The largest and most comprehensive regional economic group
- began by abolishing internal tariffs
- formation of European Parliament and the euro make it the most ambitious of all the regional trade groups
- Need for greater cooperation among their countries to help speed up recovery after World War II
- European Economic Community (EEC): brought together the European countries into the most powerful trading bloc in the world
- European Community, then EU.
2. Organizational Structure:
- EU encompasses many governing bodies, including:
* European Commission:
- provides the EU's political leadership and direction.
- comprised of commissioners nominated by each member government and approved by the European Parliament for five-year terms of office.
- president of the commission is nominated by the member governments and approved by the European Parliament.
- commissioners run the different programs of the EU on a day-to-day basis rather than serve as representatives of their respective governments.
- drafts laws that it submits to the EP and the Council of the European Union
* European Council
- comprised of representatives of each member country whose interests it represents
- along with EP, is responsible for passing laws and making and enacting major policies, including those in the areas of security and foreign policy.
- respective ministers of each country meet periodically to discuss issues
- presidents/prime ministers meet up to four times a year to set broad policy
* European Parliament
- composed of 754 members from all member nations
- elected every five years
- membership is based on country population
- three major responsibilities: legislative power, control over the budget, and supervision of executive decisions.
- members are grouped by political affiliation rather than nationalities
- approve legislation presented by the commission, which is then submitted to the council for adoption
* European Court of Justice
- ensures consistent interpretation and application of EU treaties.
- cases can be brought to the court, which serves as an appeals court for individuals, firms, and organizations fined by the commission for infringing treaty law.
* European Central Bank
3. Antitrust investigations
- the EU has been very aggressive in enforcing antitrust laws in the high-tech area, where IP is a sensitive issue
- Ex: 2009 Microsoft allows users of its Windows software to have the option of choosing which browser they want to use. Google agrees in 2013 to change how it displays search results in Europe.
4. The Single European Act and the Lisbon Treaty
- Single European Act of 1987: designed to eliminate the remaining barriers to a free market, such as customs posts and different certification procedures, rates of value-added tax, and excise duties.
- the Act also results in closer cooperation in trade, foreign policy, and the environment.
- remaining barrier: labeling. the EU is considering mandating country-of-origin labels for products sold in the EU to protect companies the currently manufacture in Europe. (public safety and product quality).
- The Lisbon Treaty: goes into effect on December 1st, 2009
* Strengthen the EU's governance process and improve its ability to make and implement decisions.
* Some view it as part of an agenda to create a stronger federalist union that reduces national sovereignty.
5. Monetary union: the euro
- 1992: members of the EU sign the Treaty of Maastricht to establish a monetary union
- Is administered by the European Central Bank
- Was established on January 1, 1999
- Resulted in new bank notes in 2002.
- 2013, 17 of the members have adopted the Euro, with only Denmark, Sweden, and the UK opting out of the common currency. Does not include eight of the new entrants to the EU.
- non EU members also use the euro.
- threats to the euro: inability of some countries to meet their external debt obligations forced other European countries to come to the rescue
6. The Schengen Area:
- Schengen Agreement of 1990: allows citizens to cross internal borders without having to go through border checks.
- Not including EU members: UK, Ireland, Romania, and Bulgaria
- Includes non-EU members: Iceland, Norway, and Switzerland.
- New member Croatia intends to join in 2015.
- May 2004 expansion has been its larges and included Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia.
- 2007: Bulgaria and Romania
- 2013: Croatia becomes the 28th member
- official candidates for membership: Iceland, Turkey, Montenegro, Serbia, and former Yugoslav Republic of Macedonia.
- other potential candidates: Albania, Bosnia and Herzegovina, and Kosovo
- In March 2013, the euro area unemployment rate was 12.1 percent and in the EU it was 10.9 percent. In Spain, it was over 27 percent.
"The EU has made Europe a much more cohesive economy, which is good when things are going up. But when things are going down, the multiplier is very strong.
An outgoing tide lowers all ships."
8. Bilateral Agreements:
- EU signs bilateral agreements with Pan Arab Free Trade Area & Japan
9. The Transatlantic Trade and Investment Partnership
- U.S. and EU have the world's largest trading relationship and account for nearly half of the world's economic output
- the new agreement would eliminate remaining tariffs and boost trade between the regions and aid in harmonizing product standards between them.
- negotiations began in 2013, but challenges arose:
* French wanted to continue providing subsidies and quotas to support its film and music industries and thus exclude the cultural industries from any future trade talks.
* U.S. farmers were upset about European agricultural safety standards and viewed them as protectionist.
10. How to do business with the EU: implications for corporate strategy
1) determining where to produce:
- one strategy is to produce in a central location in Europe to minimize transportation costs and the time it takes to move products.
- costs are highest in central Europe.
2) determining whether to grow through new investments, through expanding existing investments, or through joint ventures and mergers:
- Ex: Toyota joined with PSA Peugeot-Citroen to build a new factory in the Czech Republic and take advantage of the European carmaker's supplier network.
- European market is still considered fragmented and inefficient, so mergers, takeovers, and spinoffs must continue in Europe.
3) balancing "common" denominators with national differences
- the national differences are wider in the EU than it is between U.S. states
- widely different growth rates
- smaller nations like Ireland and Belgium's attractiveness to FDI grew due to membership in the EU.