European Union Economic Integration - Essay Example

The members of the European Union have engaged in the process of market integration over the past few decades. The major objective of the integrationwas to promote the elimination of barriers that exist between the member states such tariff barriers. The main basis of integration in the region was the adoption of a common market, a major legislative programme that would eventually result to the elimination of non-tariff trade restrictions. The elimination of these barriers was targeted to create a lager integrated market for goods and services enabling the achievement of the economies of scale. The competition was expected to increase in the integrated market was expected to result to productive allocation of the economic resources. Integration was aimed at providing the investors with incentives to invest in innovations improving the dynamic efficiency of the economy. The consumers in the market benefited from the integration as the prices were low and there was more variety of goods and services. The internal market has played an important role in promoting integration though the potential has not been exploited fully. This paper gives an outlook at the reasons why the states engage in market integration, the benefits and shortcomings. There has been a constant relation between the political system and the legislative system over the past few decades resulting to the implementation and formulation of internal programmes and policies that contribute to integration. Law and politics are seen to interact and this has led to the laying down of policies that lead to the strengthening of the regional integration through increased competition, regional policy and industrial policy as explained by Geradin (2004). This has led to drastic improvements in the agricultural sector, fisheries, social systems and the environment. The level of justice has improved leading to the overall changes in the home affairs of the member states. This has led to the adoption of a common currency and market liberalisation in the region. This is however a representative since in most sectors there is a portfolio of initiatives instead of having a single one encompassing many policies. The European Union was initiated in the 1980s with the publication of the White Paper that mainly dealt with the establishment of a common market. This was mainly to fight against the political, monetary and economic crisis experience in the past decades. The union helped in the restoring confidence in the European market and improving the performance of the companies through competitive and integrated market as stated by Pinder and Usherwood (2007).The potential of the European market was fully exploited through increased competition among the businesses. The potential has however not been fully exploited since recent studies show that the annual per capita growth rate in the European economy has always been below that one in the United States. The common market review provides an opportunity to assess the strategy and give it new direction. The European Union has led to increased interdependence and interaction in the economic and political sectors among the member states. According to Rumford (2002) the primary goal was concerned with identifying the effects on different economies due to introduction of trade liberalisation. This did not explore the political effects though it explored the effects the impact of tariff reduction on government revenue. The complete liberalisation affected the public welfare as the government revenue reduced hence the government could not adequately fund the public sector. Studies have classified the regional integration as a series of stages starting with the free trade area, creation of common markets and ultimately complete integration. The union followed these stages in the integration process but caution is taken since most free trade areas hardly reach the integration stage. The European Union has increased in size over the past few years; it began by having a composition of five member states in the post World War II period. Currently, the union is composed of twenty five member states constituting to a challenge in the administration and functioning. The high composition has benefited the businesses since the number of consumers has increased and this has led to member countries drawing the comparative advantage as stipulated by Berger and Moutos (2004). This has also led to the creation of a more dynamic and efficient market. The union has not been adversely affected and there is no evidence of changes in the labour and product markets. The divergence among the member states has augmented the tensions in area such as migration flows, tax competition and the opening up of the service markets. The European Union member states report the liberalisation and network of the industries which leads to the creation of jobs and economic growth in the economies according to Buruma, Stotle and Runhardt (2007). The progress experienced over the few years can be attributed to the enlargement of the union. In the period between 1992 and 2006 was characterized by an increase in the GDP in the union and all other member states. The levels of employment increased in all the member state as a result of the economic growth and development. The estimate growth in the labour market in this period was reported to 1.4% of the total employment which translates to over one million jobs. These gains are reported to increase with the abolition of trade barriers in the region. The union should abolish the trade restrictions to increase the gains in the member states. There has a level of scepticism on the accuracy and realism of the export in the European model of regional integration among the member states. To understand this we need to analyse how the European model operates in practice. The union operates on so many levels that link the sub-national, national and the institutional framework in the formulation and implementation of policies. The union plays the role of coordination and is the leadership behind the formulation of formulation and initiation of new policies as explained by Rumford (2002). The institutions play an important role in the functioning of the union and to the identity and nature as a contemporary political society. The institutions, political processes and policies have gradually evolved into complex policies of regional integration that are then replicated to other situations in the region. Literature has acknowledged the role that the economic actors play in deepening and strengthening the ties across national borders and the integration of physically adjacent economies. This is due to the emergence of transnational economies, integrated networks of production and expansion of globalisation and these factors mark contemporary phase of regional economic integration. The processes are the products of strategies formulated by private actors and can be distinguished from the ones by political actors in the various national settings to undergo formal regionalism. Formal and political regionalism is different from informal market regionalism and is an important concept in explaining the current trends in the world. Regionalism integration that involves politically distinct organizations requires active participation of the political leadership in all the member states, notwithstanding the constant forces of globalisation and unstoppable market penetration according to Geradin (2004). In the previous decade, the European Union has come up with policies that support the promotion of regional integration and relationship in all the other parts of the world. The Union has held a series of meeting and discussion and come up with strategy papers drafted by the European Commission to set policies for cooperation with other regions. A good example of integration with other parts of the world includes the Cotonou Agreement between various parts of the world. This has led to economies of scale, enhanced competition among nations that stimulates economic growth and employment in all the regions involved as stated by Berger and Moutos (2004). This has led to improved international trade. The main emphasis is on African countries that are seen as markets for their products and the can also they export various products from them. The European Union is seen as a perfect model that can emulated by other regions in the world in order to promote the markets leading to overall growth in the economy. According to Bretherton and Vogler (2006) this has led to growing interest in regional integration in parts of the world such as Asia, Africa and Latin America. This has resulted to cooperation among different parts of the world and strengthened the existing relationships among nations. This is seen as a move to promote peace and cohesion among different nations while contribution in the international trade. There are issues that are associated with this model especially when it comes to exportability. This challenges the capacity and nature of the external policy relations and questions their efficiency and effectiveness. The matters related to international trade are seen to challenge the idea of regional integration when it comes to international relations. The issue of exportability in the European Union can be a challenged on a number of grounds. It is observed that many nations have already established their own distinctive modes of cooperation. In Asia for instance, the regional organizations exist in order to address economic issues and other security issues. In such a region there is no consensus on primacy of a single organisation, no the relevant scope of activities or geographic coverage concerning membership. In Africa, regional organizations cover across the entire continent and many countries belong to different organisations. The objectives of such organizations differ since they mainly emphasize on promotion of peace, security and stability. The main agenda of the European Union can be translated as purely being focus on trade among different nations as explained by Bretherton and Vogler (2006). This challenges the concept of integration at the international level due to varying objectives of the different organizations globally. Economic market integration is reported to have slowed down in the recent few years. The GDP ratio to the intra-European has strongly reduces from the mid- 1990s but it is noted to have stabilised in 2000. It is noted that there was increased activity after the implementation of a common market as stated in by Rumford (2002). The convergence of the price levels between the current members has progressed but within the fifteen initial members it has remained to be almost the same. Though the introduction of the euro boosted trade, the level of dispersion is half that observed in all the member states. Transparency in the union has had a minimal effect on price convergence in the member states though the trend of price dispersion in Europe was similar to that of the United States as observed in the year 2001. The European market has lost attractiveness for the foreign investors in comparison with other fast growing global markets. The geographical shift may have been caused by the changes in the international division of labour. According to Bretherton and Vogler (2006) recent trends show that the market is less attractive to the high technology industries. In order for the European markets to expand their activities in the fast growing world, the companies should integrate and ensure efficiency in their activities. The union has been associated with boosting trade in the region and have maintained the high standards of international trade. It is apparent that there is a comparative disadvantage in the high technology sectors including ICT and also the communication sector. The European Union lags behind top performers in last Innovation Scoreboard in terms of the level of innovation in production. The level of innovation remain weak in a number of ways such as the level of education, the stock of science and technology and the capital and funding to carry out innovations. This is however one of the key areas of weakness in the union together with knowledge of networks and the market conditions as stated by Geradin (2004). Companies in the European market are not encouraged not to invent and the internal market has been seen to discourage innovation. Some markets in specific situations are too fragmented making it clear that a proper intellectual property rights. The public procurement has not been sufficiently exploited and the research field in the union is neglected leading to wastage of resources. This is one of the major reasons why the European market is losing attractiveness to the international investors as compared to the United States and China. Recent studies on the regulation and setting of prices show that there is lack of flexibility on the product markets. As compared to the United States market economy the consumer prices are less flexible. The prices of services are seen to be less flexible downward and this can be attributed to the regulatory conditions in this sector. The rigid price regulations complicate the monetary policies. It is also clear from the surveys that most companies in the area do not have competitive prices and most companies continue to carry out price discrimination as explained by Pinder and Usherwood (2007). Integration has brought positive effects however there is room for improving the conditions that dictate the level of competition within a market. The European Union has changed the conditions within the market leading to competition by the entry of new firms in the market. This reduced the ability of the European businesses to divide the national markets geographically. According to empirical evidence the average of price- cost margins of the sectors most affected by the common market system. The companies were against this and reacted to the decline of profit margins by reducing their costs. These efficiency gains have been obtained through the increase in the markets of other member states. This increased competition has led to the elimination of inefficient firms. This has resulted to average results in the production concentration at the level of the European Union as a whole. This hides the rich diversity across the industries with sectors that are highly concentrated. The union has experience turbulence in the market leadership suggesting that the level of competition of the European market has increased as explained by Buruma, Stotle and Runhardt (2007). There is lack of business dynamism in Europe as the rules and regulations in the Economic Union act as hindrance on the mobility of economic resources to more activities that relate to production of goods and services. Regulatory requirements originate from the local, national and the European Union legislation level. The costs generated at the European Union legislation are generally lower than those at the level of national legislation. This regulation results to risks that hold back the businesses with negative consequences resulting competition in the union as explained by Buruma, Stotle and Runhardt (2007). Dynamism in the business world can be described as the measure in which businesses are allowed to leave and enter into the market. It is observed that it is easier to start a business in the United State than in Europe. This is an indication that the barriers in the market lead to less financial opportunities for entrepreneurs to start their small medium enterprises. The European Union is seen to have made a positive impact on the economies of the various member states. The main objective of the formation of the union was to improve trade among the country in the specific member countries. The union has made major positive developments such as economic growth and increase employment. The union has partially succeeded in achieving its major objectives of the union but has not helped the countries reach their optimum potential. The union need to make some changes in the leaderships and technology sectors. The union should embrace new innovations in the market and encourage the application of high technology in all the sectors. It can be concluded that the reasons why nations join the union have not change up to date and the reasons remain to be for economic stability and interdependence. References Berger, H & Moutos, T 2004, Managing European Union enlargement, MIT Press. Bretherton, C & Vogler, J 2006, The European Union as a global actor, 2nd edn, Routledge. Buruma, T, Stolte, C & Runhardt, R 2007, The future of the European Union: different aspects of the EU as discussed during the SIB Leiden Conference. Sidestone Press. Géradin, D 2004, Competition law and regional economic integration: an analysis of the southern Mediterranean countries, World Bank Publications. Pinder, J, Usherwood, S & Usherwood, SM 2007, The European Union: a very short introduction, 2nd edn, Oxford University Press. Rumford, C 2002, The European Union: a political sociology, Wiley- Blackwell. Read More