The European Union

The Social Chapter: The Maastricht Treaty was signed by all EU member states in December 1992. One section of this treaty is the Social Chapter.  The aim of the Social Chapter is to standardise working conditions throughout the EU so that all workers within the community are guaranteed basic rights. These include the following:

A minimum wage to be paid to all workers.

A maximum working week.

A minimum paid holiday per year.

The freedom to join a union.

Access to appropriate training.

The right to be consulted and informed about company plans

The protection of young workers.

The UK initially opted out of the Social Chapter, when all other EU nations signed it. However, the UK signed up to the Social Chapter after the election of a Labour government in 1997. What might be the implications of the Social Chapter for businesses?

Workers may be better motivated. This should make them more effective and productive employees, able to raise the efficiency of the firm for which they work.

Industrial relations may improve as employees are involved in making company decisions and consulted about the work which they carry out.

It may raise the labour costs of those firms currently employing workers at wages below the minimum level set out in the Chapter. Those firms expecting their employees to work longer than maximum may also find their costs rise as they are required to employ more people.

Higher labour costs may make it more difficult for EU based firms to compete with businesses in low wage countries, such as China or South Korea.

The Single European Market

A major event in the EU’s move towards free trade was the signing of the Single European Act in 1986, which established a SINGLE EUROPEAN MARKET which came into being on 31 December 1992. Despite the existence of a customs union for over 30 years, there were still many non-tariff barriers to trade in the EU. This Act aimed to remove those barriers between EU member countries. The effects of this should be to encourage the freer movement of people, goods, services and capital. Three categories of barriers were removed.

Barriers which prevented entry into markets.For example, differing technical standards were required of products by different member states. This made it difficult for firms to enter certain markets. Also, the practice of public sector contracts being given only to domestic firms prevented free trade.

Barriers which caused firms’ costs to rise.Often complex documents were needed in order to move goods from one country to another. Also, there were long delays waiting to get exports through customs posts.

Barriers which lead to the market being distorted. Such barriers are said to prevent firms from competing on equal terms. They included differing rates of VAT in EU countries and subsidies given by EU governments to domestic industries.

Not all firms have been affected to the same degree by the Single Market. In some industries, very few barriers to trade existed between EU countries before December 1992. Firms operating in such industries have seen little or no changes to their situation. However, in other industries, where trade barriers were high, the Single Market has resulted in major changes for those firms operating within them. What effects has the Single Market had on firms in member countries?

Product standards. Firms have, for example, had to alter their products so that they meet new product standards. Many firms have had to improve the safety aspects of their products in order to meet new EU regulations.

Harmonisation of tariffs and taxes. There have been attempts to harmonise VAT rates throughout the EU. For businesses this may mean that the selling prices of their products rise or fall in line with VAT rate changes. In the UK, a number of products such as childrens’ clothes and books, which had previously not attracted any VAT, now have to face this tax as the UK seeks to fall into line with other EU countries. Attempts have also been made to harmonise EXCISE DUTIES on products such as petrol, tobacco and spirits. This has affected the price at which these products are sold and, therefore, the businesses marketing them.