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EU Accession; doing business in an expanding Europe
[Part 1][Part 2] |
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On 1 May 2004, the European Union (EU) expanded to a total of 25 countries by adding 10 new member states: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. All members are part of the customs union and subject to the same anti-trust rules and internal market rules, while trade agreements will be negotiated as one block. However, border controls will continue between western and eastern European countries and it will depend on the new member states ability to secure exterior borders to determine whether border checks should be lifted. Another exception is that none of the new states are qualified to join the single currency EURO so national currencies will be maintained.
In terms of size and population, the EU territory now stretches from Ireland's Atlantic coast to the Russian frontier and encompasses 455 million people. The enlarged EU will account for 20% of world trade, 46% of global FDI outflow and 24% of global FDI inflow. The European tour of Chinese Prime Minister Wen Jiabao and signing of four EU-China agreements reflect the growing relationship between the EU and China. Many American and Asian businesses have already established operations within the new EU member states in Eastern Europe to take advantage of lower labor costs and be more competitive throughout the EU. However, despite the increased opportunities that the EU expansion offers, Chinese companies should consider various aspects that may have an impact on their business when determining their strategies for the European market.
Major differences still exist between the economies of the newcomers versus the original EU15. The most substantial differences and the importance of logistics in an expanded Europe are:
Production structure
Currently, the EU15 economies' service industry accounts for 70% of GDP, versus the 65% of the new countries, which have gradually shifted to more service oriented industries. However, the most significant difference is evident in the financial and business services industry (28% versus 17%) and the fact that manufacturing or trade is still the largest sector in some of the new accession countries.
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Labor cost and productivity
Cheap labor coupled with low tax rates is prevalent in the Eastern European countries, which will influence corporate decisions to move eastward in the hope of benefiting from tax advantages. On the other hand, the downside of lower wages is that labor productivity is considerably lower. |
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Labor productivity per person, 2002 (EURO) |
| EU25 |
51,900 |
| EU15 |
57,600 |
| Cyprus |
n.a. |
| Czech Republic |
16,900 |
| Estonia |
12,000 |
| Hungary |
17,000 |
| Latvia |
12,000 |
| Lithuania |
10,700 |
| Malta |
n.a. |
| Poland |
16,900 |
| Slovakia |
13,300 |
| Slovenia |
25,400 |
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GDP
Growth rates of 5% to 8% of the acceding countries are expected to far outstrip those of the original 15 member states. However, total GDP in figures show that the original EU15 countries amounted to 9,170 billion EURO in 2002, while the combined GDP of all acceding countries only amounted to 440 billion EURO and is less than that of the Netherlands alone. The new member states will receive substantially more in subsidies and other financial support than they will contribute. |
GDP 2002 |
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