Business in the European Union (EU)

Q. Evaluate the principle of free movement of goods and services within the European Union in relation to the distinction between harmonised and non-harmonised sectors.

When it comes to International trade, the aim of most economies is to have free movement of goods and services, at least with trading partners. One of the important features of the EU market is that goods that are lawfully placed in the internal market can move freely within the of the European Union market. The principle of free movement of goods and services within the European Union involves the removal of trade barriers (including tariff-based restrictions, custom duties, restrictions on quantities imported) between the member states.

Several products in the EU market are subject to harmonised rules that protect consumers, and environment. Harmonised rules prevent the adoption of possibly divergent national rules and ensure the free circulation of products within the EU. While some sectors are still governed by national provisions, the principle of free movement of goods ensures that these provisions do not lead to the creation of unjustified barriers to trade.

Harmonised sectors are subject to common rules across the EU. They provide a clear and predictable legal framework for businesses. If manufacturers follow these rules, their products can be sold freely in the market. Harmonization of rules often help businesses, especially across borders, as it reduces compliance costs and simplifies the process of adhering to requirements. Harmonized rules provide a very transparent and predictable set of legal rules that businesses need to follow, and the benefit to manufacturers is that their products can be sold freely within EU if they follow these rules.

Non-harmonised sectors do not fall under the purview of common EU rules and may come under the national rules. Non-harmonised are regulated by national regulations (or may not be specifically regulated at all). However, these sectors also stand to benefit from Treaty provisions governing free movement of goods, in case the national rules are seen as creating undue barriers to trade. Trade in non-harmonised sector depend on the “mutual recognition” principle as per which products that are legally produced in one EU country Member State should be able to move freely throughout the EU.

The right to the free movement of goods is one of the fundamental principles of the Treaty on the Functioning of the European Union (TFEU). The New Legislative Framework (NLF) which was adopted in 2008 further strengthened the free movement of goods and market surveillance mechanism.

For certain industries, such as tourism, EU treaties exclude full harmonisation of tourism laws in the Member States, and only provides financial support, coordinates or supplement the actions of the Member States. However, the aim of the EU commission would be to introduce greater harmonisation in more business practices.

Q. Discuss how businesses are impacted by the existence of the European Monetary Union. Reference to the functions and instruments of the European Central Bank should be included.

Answer:

The Economic and monetary union (EMU) was one of the objectives of the European Union (EU) which was announced decades back (as early as the 1960s) but it was only pursued with a lot of vigour from the eighties onwards. The decision to form the EMU was a step to further integrate the economies of the various member states, and was also considered a major political milestone on the way to EU integration.

The EMU succeeded the European Monetary System (EMS), and went on to establish the common currency called euro. There are economists who believe that countries that share a single currency and where economic policies are more coordinated are likely to perform better in the long run, and that is what the EMU has been trying to do.

Here are the main activities of the EMU:

• Coordination of economic and fiscal policies between the various member states of the WU.
• Promote the use of a single currency (Euro) and the euro area among the member states
• Ensure the single market runs smoothly to promote business and trade.
• Independent monetary policy run by the European Central Bank (ECB).
• Supervise and monitor the major financial Institutions within the euro area

Today, all the EU Member States are part of this economic union (EU) and almost all the countries (except a few) have adopted the common currency Euro.

Here’s how businesses are impacted by the EMU.

EMU helps provide benefits such as bigger market size, and helps improve the internal efficiency and robustness of the EU economy; these provide more opportunities for increased growth and employment.

In all countries, the central bank formulates and monitors the monetary policy, which involves influencing interest rates and exchange rates to benefit the host country. This is usually done by controlling the supply of money in the economy. Now if each EU country has its own monetary policy and if they use the same currency, it will make the EU single market less effective, benefits would be fewer and trade will also hit bottlenecks.

Under EMU, monetary policy is centralized and independent, and it is closely coordinated to improve trade. The monetary policy is set by the European Central Bank (ECB) with the primary objective being price stability; the ECB also acts as central supervisor of financial Institutions in the euro area. The ECB operates within the framework developed by the Economic and Monetary Union (EMU). Interest rates inside the Euro are set by the ECB and members states of the EU have to accept such monetary decisions that are taken by the ECB.

While the EMU is designed for better economic governance in the euro area, experts also point out to flaws in the EMU, with Greece being the most high-profile example of the flaws in the EMU.

Over the years, the ECB has been involved in drafting blueprints for improve the EMU and the exercise resulted in the publication of a roadmap named “Completing Europe’s Economic and Monetary Union”, which is also known as the Five Presidents’ Report (as the report reflects the personal deliberations and discussions of the five Presidents – Presidents of the European Commission, Euro Summit, Eurogroup, European Central Bank, European Parliament).

Useful Sources

• https://ec.europa.eu/growth/single-market/goods/free-movement-sectors_en
• https://mkm.ee/en/objectives-activities/internal-market-european-union/free-movement-goods
• https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/economic-and-monetary-union/what-economic-and-monetary-union-emu_en

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