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Most countries have found it difficult to do business isolation without being in an economic bloc. The difficulties experienced have escalated the need to form economic group. Economic integration occurs when countries experience pressure to join forces and operate under a common market with a controlled business environment.
Such pressures have resulted into several economic integrations such as European Union, Common Wealth, OPEC, and African Economic Community among others.
All these integrations have had many positive impacts on the member countries. As member countries, trade freely amongst themselves or under certain tariffs agreements, they accrue benefits. This essay strives to illustrate how the European Economic Community has affected European businesspersons.
Impact of European Custom Union
A customs union is a kind trade bloc where member states operate in a free market while they form uniform external tariffs. The European Union is a custom union that allows members to operate freely amongst themselves. Chalmers (11) asserts that the European Union treaty required all tariffs to be abolished among the member countries.
This treaty obliges members to operate freely or to form a free market zone. In addition, the treaty advocates free movement of goods, services, capital and labor within the member states.
There was also an agreement to harmonize trade laws where differences existed (Chalmers 12). Further agreements ensured that private competition barriers did not transcend national barriers. Similarly, countries fiscal regimes were not to discriminate imports.
The inclusion of the above agreements in the treaty affects business both positively and negatively. Any business that conducts its affairs within the market enjoys an increased market size. Due to the free market agreements, European organizations can freely sell products across Europe without any restrictions.
On the same note, in case a firm wishes to import raw material from another member country, it can do so cheaply since all import levies are withheld. The same applies to labor and capital market operations. The free market makes it easier to outsource them at local cost.
On the other hand, the custom union has exposed many businesses to stiff competition from firms from other countries within the union, which are also keen or willing to take advantage of the lucrative local market.
The intensification of competition drives local market prices down while firms are forced to produce quality products to avoid losing market. All this means an increase in production cost that reduces the profit margins of the organization. Thus, as the market conditions become tight and tighter, only the best in the market will survive; the rest of the organizations will be compelled to close down.
Right of Establishment
The European Economic Community has also elaborated vividly on the requirements of establishing a new business entity. The treaty provides that any business firm has the freedom of establish or open branches in any member country (Alberto 44). He further says that business organizations have the rights similar to those of natural persons within the Community.
However, the “golden share” provision curtails the freedom of establishment (Alberto 45). The “golden share” allows the member to deny formation of any organization that infringes the health, public policy or national security. Apart from the above excuse clause, the rest of the treaty reinforces the argument against any discrimination against establishment of the organizations.
Moreover, a firm is only required to attain all the requirements of establishing organization in the host country just as local firms do when they apply. Once these conditions are met, the organization is to be allowed to run freely in its entire lifespan.
The freedom of establishment provides opportunity for the firm to set up operations in the host country. The freedom of establishment reduces the strenuous processes that limit ease at which organization are set up.
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Without this treaty, foreign firms would be subjected to many rigorous bureaucratic formalities that ought to be met. Once these restrictions are abolished it becomes easier for a firm to relocate and establish in some other country speedily. Hence, any businessperson from the EU has the liberty to open an organization, merge or acquire a new firm without any restrictions anywhere within the EU.
It is worth noting that the freedom of establishment attracts potential business to ventures in any worthwhile market. For instance, when a firm in Germany wants to expand to serve its customer in France, it can easily do so without engaging in many formalities.
On the other hand, many aspiring business will establish their branches in any area that offers a comparative advantage. For instance, if France is rich in iron ore, firms dealing with iron apparatus in Portugal will open branches in France to acquire competitive edge.
On the same note, mobility of capital would imply that there would be stiff competition that will only allow well-established firms to survive while the weak organizations will be absorbed or crippled down.
The other issue that will affect business operations is technological mobility. Stable organization will invest on modern technology in order to increase production.
The augmented production will earn the firm economies of scale enabling the firm to sell its products at lower prices i.e. to assume low price leadership. Hence, local firms will find it difficult to retain their share of the market unless they develop better production mechanisms to offer substantial competitive impetus.
History, Law and Taxation
European Union has a long history that cuts back to the 1950s. Throughout this period, the union has been restructuring itself to improve trade status as well as amending law and taxation policy that govern its operations. All the changes have been effected to improve business transactions and eliminate trade barriers. In 1972, the EEC opted to amend taxation law because Italy was imposing tax on the exports of art treasuries.
This was contrary to the EEC treaty and it was felt that amendment was inevitable to evade such instances in the future. The countries were therefore compelled to abolish completely any customs that existed amongst themselves (Moens and Trone 383). Kiekebeld (65) points out much controversy played out due to countries imposing taxes that contravened the EEC treaty.
It was agreed that no independent country was entitled to enforce any tax on exports without consulting with other members to determine whether such a move was indistinguishable with the agreed provision of the treaty.
The historical amendments to the EEC law and taxation policy have enabled improvement in free movement of labor, capital, goods and services. The changes effected overtime have only increased mobility of factor components.
Therefore, all business managers and investors ought to seize the opportunity presented to increase their market dominance. However, failure to realign operations and business processes would mean that the organization faces imminent danger of being brought down due to stiff competition.
The formation of the European Economic Community has presented numerous business opportunities to business managers to diversify organizational operations. The reality of the custom union not only provides unexploited potential but it also facilitates realization of cheap outsourced resources.
Similarly, the right of establishment reduces the bureaucratic rigidities that obscured easier establishment of firms in other countries. However, all these opportunities present untold challenges to dismally performing firms since they cannot withstand stiff competition associated with it.
To avoid being wound up due to intensified competition, managers and entrepreneurs need to invest in best practices i.e. better and effective production methods.
Chalmes, Damian. European Union Law: Text and Materials. Edinbough: Cambridge University Press, 2006.
Kiekebeld, Ben, J. Harmful Tax Competition in the European Union. Alphen: Kluwer International, 2004.
Alberto, Maria. European Economic Law. 2nd Ed. Alphen: Kluwer Law International, 2009.
Moens, Gabriel and Trone, John. Commercial Law of the European Union. Heidelberg: Springer, 2010.