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Long Term Restructuring Effects

Restructuring or dynamic effects occur with the creation of a customs union because firms, workers and governments react to new situations and adapt the structure of production and the economy. Firms faced with increased competition will try to lower their costs to stay in the market and increased technical efficiency due to increased competition can have a welfare effect, exceeding many times the limited static effect. An establishment which can produce larger quantities cheaper than smaller ones and is constrained in its outlets by a market of limited size, would profit from the extension of the market, for example, by a customs union. The justification for the creation of a customs union on the point of economies of scale depends on the net effect for the entire customs union and their division between the partners.

Advantages of a customs union internal to the company depend on the size of the company, its growth rate and its learning curve. The larger the company the more efficient is its production and the stronger is its negotiating position. They are also more able to build up stable market positions in export countries. The growth rate of companies tends to have a positive effect on efficiency. Fast-growing firms have the most up to date machinery etc. but they tend to be less flexible in their response to entirely new markets. The learning curve indicates that companies learn to produce more efficiently by the production of greater numbers. Expansion permits producers to offer products of higher quality that are better adapted to specific consumer needs and demand will increase. Also, when a customs union puts a company in a better position, the positive influence is not confined to that company but extends to all related suppliers and buyers. That effect will be greater the better the various parts of the economy are equipped to respond to the impulse.

As barriers such as tariffs, quotas etc. are eliminated, domestic producers have to reduce their price to the level of the partner country. Excess profits will disappear and inefficiencies like overstaffing will have to be reduced. Consumers gain from these price reductions as they obtain more goods at lower prices and producers offset the loss by price reductions.

High Stakes for Europe: The 1992 Challenge

In the integrated Community market post-1992 a dramatically new environment awaits consumers and producers alike. The removal of a whole range of non-tariff barriers, i.e. government protection in procurement markets and a plethora of differing product standards leads to an immediate downward impact on costs. More substantial gains will be generated by completion of the EU internal market. There will be a new and pervasive competitive climate and firms can exploit new opportunities and make better use of available resources.

There are four major consequences which are expected from the combined impact of the removal of barriers and the subsequent boost to competition:

* a significant reduction in costs through the reorganisation of business and economies of scale



* improved efficiency within companies due to the downward pressure on costs due to more competitive markets

* new patterns of competition since real comparative advantages will play a determining role in market success

* increased innovation because new business products will be generated by the dynamics of the internal market.

These effects will be spread over differing time spans but the overall effect will be an increase in the competitiveness of business and the general economic welfare of the consumer.

The consumer will no longer be confronted with enormous price differences depending on their country of residence, as is the case in today's Community. Due to the reduction in costs, the level of this price will be on the downward journey. The consumer will also be faced with a wider choice as a result of market integration and increased competition leading to differentiating products as well as economies of scale.

Strengthening European competitivity leads to the reconquest of the European market, but failure to do so will not mean that the challenges of the European market will not be mastered. They will, but not by the Europeans.


Date: 2016-01-14; view: 698


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UNIT VIII. CUSTOMS UNION | I. Choose the words to complete the article. It may be necessary to change the form of the given words.
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