EU Fortress B

8/3/2019 EU Fortress B

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INTERNATIONAL BUSINESSThe Emergence of EuropeanUnion Fortress

Issues and Challenges fromMalaysia firms/industries/policymakers perspectives


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Trading Blocs

a preferential economicarrangement among a group of

countries

member countries of the European Union

member countries of the NorthAmerican Free Trade Agreement


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Levels of Economic Integration

The Free Trade Area

The Customs Union

The Common Market

The Economic Union


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Definition

Agreement between two or more (usuallyneighb

oring) countries to remove trade barriers,

and reduce or eliminatecustoms dutyonmutualtrade. A customsunion

(unlike a free trade area)generally imposes a common external-tariff (CTF)on imports

from non-member countries and (unlikea common market) generally does not allowfree

movement of capital and labor among membercountries.
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The Common Market

no trade barriers among member nations

no restriction on the movement of labor,

capital, or technology across borders

member countries establish common tariff

and trade barriers against nonmembercountries


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The Economic Union

has all the characteristics of a common market,and,

harmonizes monetary policies

harmonizes taxation

harmonizes government spending

establishes a common currency - the Euro


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Austria Belgium

Bulgaria

Cyprus

Czech Republic

Denmark Estonia

Finland

France

Germany

Greece Hungary

Ireland

Italy

Latvia

Lithuania

Members of European Union 27 countries

LuxemburgMaltaNetherlandsPolandPortugalRomaniaSlovakiaSloveniaSpanSwedenUnited Kingdom


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500 million citizens Generated nominal world gross product about

30% or equivalent to USD 18.4 trillion in 2008.

European Union 27 countries


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Purpose of EU:

two strategic economic goals for the years

to 2010

creating the most competitive and dynamic

knowledge-based economy and

Rapidly raising living standards in the 10

new EU countries.


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Implications of the Integrated

European Market:

Expected economic growth from:

Eliminating transaction costs

Economies of scale will be attained asproduction becomes concentrated

More intense competition from EUcompanies


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Implications of European

Integration:

Operations from one country can befreely expanded to other countries.

Products can be freely sold acrossborders to potentially 320 millionconsumers.


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Exports and imports of goods within the euroarea increased from about 26% of GDP in1998, the year before the adoption of thesingle currency, to around 32% in 2006.


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Fortress Europe May Develop!

Suspicion raised by trading partners of Europeclaims that the integration of the EU may result inincreased restrictions on trade and investment by

outsiders.

Protectionism -any policy that is intended to shield domestic industries from

import competition (Dolan and Lindsey, 1994, p. 826).


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Fortress Europe May Develop!

Internally the EU would have created a free andunified market; externally extensive tradebarriers would continue to discriminate against

non-membersIf such a Union were to emerge, it would be moreinward looking and, because of its size andpotential for increasing intra-regional trade,

relatively isolated from the world trading system.


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the EU has lowered tariffs on a wide range of

manufactured goods in accordance with the

General Agreement on Tariffs and Trade (GATT)-

negotiated reductions.

Both GATT and the World Bank confirm theincreasing use of non tariff barriers (NTBs) by the

EU as part of a global trend known as the new

protectionism


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According to the World Bank, non-tariff

protection has been increasing much faster in the

EU than in other developed areas and by 1986

over half of EU imports were affected by NTBs.


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The GATT review of EC trade policy reveals the

nature and extent of EU protectionism.

The review confirms that while tariff barriers have

come down, a more extensive although less

conspicuous web of protection has been created bythe increasing use of NTBs.


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Non Tariff Barriers (NTBs).

Antidumping Laws.

Voluntary Export Restraints (VERs)

Buy European

User Protection Environmental Protection


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Anti-dumping laws

These enactments punish foreign producers for selling

their goods in the EU (or other countries) for less than the

cost of production,or for less than they sell in other

markets.

antidumping duties are allowed under WTO ruleswhen there is material injury or threatened injury to acompeting domestic industry from sales by anexporter made at unfairly low prices.

EU is among the top five heavy user of antidumpingduties.


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Antidumping

WTOs statistic shown from 1980 to 1988 EU

initiated 303 antidumping investigationagainst other countries.

Imposed 193 definitive antidumpingmeasures

Over 30% of total number of EU antidumping

cases are initiated against East Asiancountries.

EU antidumping investigations against EastAsian countries decreased substantially from

60% in 1991 to 11 % in 2001.


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The share of EU antidumping investigation

targeting East Asian Countries (1991-2003)


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Quotas,

sometimes take the form of voluntary restraint

agreements. The problem with voluntary

restraint agreements is that they are not voluntary.

Kept Japanese car sales in Western Europecapped at 10 to 15 percent of themarket.(from 1993 to 1999)

Various quota restrictions limit the amount of

foreign textiles, ice cream, cheese and numerous

other products that can enter the EU (Bovard,

1991).


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Buy European

clauses which give preference to Europeanbids, so long as they are not more than 3 per

cent more expensive than the bids from thirdcountries


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Data Protection Legislation Directive (DPL) -1995

The effect of this Directive on the business ofMNCs is still unknown but a few authors foresee

major problems for MNCs doing business inEurope.


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User Protection

EU has a very strict regulation in importingthe foods, electrical home appliance, toys andothers to protect the users in EU

Example:

Toy must have safety feature to protect thechild and does not consist of toxic element on

the surface of the toy. All the electrical home appliance must obtain

EC licenses

(Product Safety requirement)
http://product%20safety.ppt/http://product%20safety.ppt/


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Environmental Protection

No PVC in the packaging

Encouraging the recyclable material


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Carbon Border Taxes

A looming issue is the potential imposition ofcarbon border taxes on some imports. These

would compensate for the disadvantage ofdomestic producers that are subject to taxeson their carbon emissions when their foreigncompetitors are not.

France favors such action.


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Group 1 Investment Protectionism

Traditional old fashioned protectionism

preventing, in particular, the acquisition of

land by foreigners. Austria, Poland, Romania.


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Group 2 - Investment Protectionism

Security protectionism preventing acquisitionsof defense related companies

The Czech Republic (military weapons),France (military weapons, nuclear energy,private security services, encryptiontechnology), Germany (military weapons,encryption technology, operation of certainsatellites),


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Legislation preventing acquisition in otherstrategic industries.

This group includes industries which are notdirectly relevant for security purposes butwhich are regarded in the respectivecountries as being of specific nationalimportance.

Energy (Italy, Ukraine, Spain),pharmaceuticals industry,(Romania, France)


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Legislation preventing acquisition in industries to protect thepublic interest.

Industries are protected due to fear of foreign political influence

or to protect citizens against the dangers of gambling.

The broadcasting industry is protected in certain countries(Austria, Poland, Slovak Republic, Ukraine)

foreign investment in the lottery and gambling industry requirespublic consent in several countries (Czech Republic,France,

Poland, Romania, Slovak Republic).


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No discrimination by law. The UnitedKingdom and the Netherlands do not havespecific rules preventing the acquisition of

shares or assets by foreigners. Nevertheless, those( and other) countries

have regulations in certain sectors thatrequire the consent of the regulator if there is

any change of control or, sometimes, asubstantial investment by a third party.

In the UK, the government could generally

intervene in cases of national security.


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Economic Links between EU & ASEAN

Relatively weak as compare to US andJapan.

Is getting more important due to economydiversification of ASEAN countries

-- by Dent. Christopher M


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EU Stake in ASEAN

ASEAN has become an increasingimportant economic partner for EU

ASEANs share of extra-EU imports risingfrom 2.4% in 1983 to 6.5% by 1996.

Share of extra-EU exports rose from 3.1%

to 6.4%


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EU Stake in ASEAN

As the techno-industrial capabilities ofcertain Southeast Asian producers have

increasingly approached their Europeancounterparts, EU deploy defensivemeasure to prevent the competition in EU.


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Market Access and Competition

Due to strict regulation, the Asian exporterfound difficult to access the EU market.

The strict safety regulation also cause theproduct cost increase and consequently lowerthe competitiveness of Asian products


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Seafood Malaysia to EU

European Union (EU) worked in closecollaboration with Malaysia's HealthMinistry, Agriculture and Agro-Based

Industries Ministry and MalaysianFisheries Development Board toimplement measures to address thefood safety management and hygiene

issues to comply with the EU'srequirements.


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Challenges and Issues to do business with EU

Marketing strategy

Firms need to active in publishing promotional

literature (catalogues, price lists, product information,etc.) in European business journals and in Europeanlanguages.

They need also to be more inclined to exhibit at

international trade fairs and receive visits fromEuropean customers


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Product development strategy

Firms were modifying their products to take account

of European standards and technical regulations


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Market position strengthening and staffrecruitment and development strategy

This was a combination of the two previous strategieswith additional emphasis on the recruitment anddevelopment of staff to deal effectively in theEuropean trading environment


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Short-term structural investment and stafftraining strategy

Training of staff regarding European standards andtechnical regulations together with the internalreorganization or rationalizations of its activity


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Collaborative distribution strategy

The establishment of a joint collaborative/

partnership/co-operative agreement with anotherorganization in order to distribute each others output


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Long-term structural investment strategy

Internal rationalization and reorganization with the

emphasis on investment in new plant and machinery


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Knowledge acquisition strategy

Pay for advice on a consultancy basis or take advice

from a trade association or professional body on atleast some aspects of the Single Market


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TheEnd

EU Fortress B

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