Understanding the legal status of the world's largest business market: the European Union.

Abstract

A great deal of confusion exists as to the legal status of the European Union (the EU) today. The EU is widely recognized as the latest phase in the economic evolution of the Common Market initiative which began in the 1950's. However, the general public is unaware of the steps the EU has already taken toward political union (i.e., nationhood), and the depth of the EU's commitment to achieving an enduring form of European political union.

Introduction

Recently, the European Union's gross national income in purchasing power parity has grown to the point where it is slightly larger than that of the United States, the world's second-largest market [1]. At least for now, the European Union represents more potential business sales than any other market in the world. Combined, the gross national income in purchasing power parity of the European Union and the United States comprises more than half of the world's gross national income. Therefore, by understanding both markets, a business executive today is well-prepared to take advantage of more than half the sales opportunities in the world.

Now that the EU has become the largest market for international trade, most business executives find themselves unprepared to take advantage of the opportunities presented by this gigantic market. Certainly, business executives are adapting to the international nature of business today. They realize that international issues currently pervade nearly every aspect of a business, today, regardless of whether it is large or small. Unfortunately, this does not help them understand how to do business effectively in a particular market.

Markets such as China, India, Japan, the United States and the European Union each have a different legal, regulatory, social and economic framework that business executives must understand in order to do well in each of these markets. It does not help business leaders to understand only aspects of the U.S. market when they must make business plans and strategies for other markets.

Also, experience and training in general aspects of international business does not prepare a business leader to do well in the European Union because of the specific peculiarities of the EU market. Business success in the EU depends on a business leader's ability to understand, specifically, the European Union. Business leaders must understand what the EU is, how it operates, and how it affects their business.

This article focuses on what the European Union is. It explains the true nature of the EU and provides a greater depth of understanding it by exploring its historical development, and providing perspectives that allow a business executive to understand the European Union as Europeans do.

The Members of the European Union

The European Union consists of 25 member states. Six members were founding members of the European Economic Community, which sought to create a "Common Market" in Europe that would allow the free passage of goods, services, capital and labor across national borders of each member with the same ease and consistency as would occur if they carried goods within a single state. The six members are Belgium, France, Germany (which, at that time, was called West Germany since a portion of today's Germany was separated from West Germany after World War II and became a separate state known as East Germany, which was part of the Soviet Bloc), Italy, Luxembourg and the Netherlands [2].

The European Economic Community continued to develop until it became the European Union in 1993. At that time, six additional members had already joined the European Economic Community, bringing its membership to 12. These new members were Denmark, Ireland, Great Britain, Greece, Portugal and Spain. Three additional members joined the EU in 1994, bringing its membership to 15. These new members were Austria, Finland and Sweden. Finally, 10 new members joined the EU in 2004, bringing its present membership to 25. These newest members were Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia [3].

The European Economic Community continues to exist as part of the European Union. It represents the "single market" that has been achieved among its members. The European Union is a broader term representing additional developments in areas such as political union, legal rights and infrastructure.

It is also important to understand that the Euro is an important development that is intended to further solidify political and economic union within the European Union. The Euro is the "single currency" that replaces currencies previously issued by the central banks of the 13 EU members that choose (and qualify) to issue the Euro. These members are: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain [4]

Defining the European Union as an Entity

The preceding "hard facts" about the European Union are not difficult to understand, although they are essential for doing business in the EU. The greatest area of confusion for business executives seems to involve the current political status of the EU. Even business executives who understand basic elements of the EU believe that it is merely the fulfillment of the economic plan to create a Common Market in Europe. This plan originated in the 1950s and has been quite successful, but the economic market that has been created remains only one aspect of the European Union.

It is more accurate to understand the EU as a political entity with a government, laws, an economic market and much more. The political, legal and governmental aspects of the EU are a mystery to most business executives. Most are unaware of the advancements that the EU has made toward becoming a nation-State. Most business executives are not aware that EU leaders are committed to making it a permanent political union that replaces national governments and parliaments as the highest level of lawmakers and regulators of business in Europe. Some are surprised to learn that, at least for now, this situation already exists with respect to most business activities in Europe.

In order to understand the full political nature of the "Union" that the European Union has formed, one must understand what a political union is. Independent entities form a political union when they create a new government with authority to act for the previously independent entities [5]. In some cases, such as the Russian Federation, portions of the political union can have autonomous governments or even be republics. In other situations, such as the union of England and Scotland in 1707, the previously independent entities are simply subordinate provinces or regions of the new political union (e.g., Great Britain). This was also done by the 13 American colonies in 1789 after achieving independence from Britain. These colonies remained independent of Britain and each other for over a decade until they chose to create a political union known as the United States of America [6].

In each case, the political union is formed when the previously independent entities relinquish important sovereign powers to the government of the newly created union.

The distinction between the nation and a political union must be understood in order to understand the European Union or any other entity that is, or seeks to be, a political union. A nation has been defined as a "people, or aggregation of men, existing in the form of an organized rural society, usually inhabiting a distinct portion of the earth, speaking the same language, using the same customs, possessing historic continuity, and distinguished from other like groups by their racial origin and characteristics, and generally, but not necessarily, living under the same government and sovereignty [7]. Therefore, the Sikh nation exists in the Punjab region of India, the Kurdish nation exists in Turkey, Iraq, Iran and Syria, various Native American nations exist in the Americas, and a wide variety of other nations exist within political unions that people colloquially call nations. This is understandable. After all, a world organization called the "United Political Unions" just wouldn't seem the same as one called the "United Nations".

The phrase "nation-state" is meant to refer to political unions as well as nations that possess final sovereignty over the people and land they govern. Therefore, while Kurdistan does not exist as a nation-state, we may refer to it is a nation. Ireland may be spoken of both as a nation-state and a nation. The United States is a political union, a nation-state, but its people are diverse and lack the distinct racial origin and characteristics of a nation.

For our purposes, the word "State" can be used interchangeably with "nation-state." A State has been defined as "a people permanently occupying a fixed territory bound together by common-law habits and custom into one body politic exercising, through the medium of an organized government, independent sovereignty and control over all persons and things within its boundaries, capable of making war and peace and of entering into international relations with other communities of the globe" [8]. Therefore, a State or nation-state includes both political unions and nations that have achieved sufficient sovereignty to satisfy this definition. Canada, Italy, Brazil and all other members of the United Nations satisfy this definition. Again, the name United Nations explains this organization to the average person with a certain clarity that the phrases "United Nation-States" or the "United States" would not.