What are the main advantages and disadvantages of exporting goods within the EU?

Alfonso Llanes, Master Degree in International Development

Answered just now

EU membership which allows the free movement of goods within the trading block can be appreciated when comparing the domestic trade of a large country like the United States when crossing boundaries of individual state rules. This would be the equivalent of domestic trade in the EU among national members. The individual’s national membership interest might be better served by action taken within the EU at a collective level like WTO trade accords,

The free movement of goods has been one of the most significant advantages of EU membership. However, there are clearly occasions when national industry and specific sectors have been disadvantaged for the greater good.

Advantages of a Common Market

• Commerce in the EU has expanded exponentially because of the fewer boundaries which has led to a greater predictability in the logistics of goods resulting in better planning of production schedules, lower inventory levels and maximization of economies of scale. Overall, it has helped large European manufacturers to consolidate their production into economies of scale
• Free circulation of manufactures are not subject to customs duties when crossing EU borders thus, reducing cost because goods are either duty free or are manufactured in the EU and duties are paid once at the place of entry instead of paying duties every time a border is crossed.
• Rules of origin are only statistical data points for goods in free circulation if manufactured in the EU or duty has been paid at the port of entry.
• Customs clearance is minimized which reduces administrative and transport costs as well as documentary requirements and delays that are kept to a minimum.
• The overall impact of these advantages is to lower the cost of trading goods in a common market.
• There are concerns that the lack of inter-border controls it is more difficult to supervise trade and prevent fraud, and/or the movement of prohibited and restricted goods that avoid paying VAT and Excise taxes.
• It is more difficult for the government to keep track of goods that need be concerned with as long sections of the common frontiers are unguarded-increasing the likelihood of smuggling. Once in the EU this would be virtually impossible to detect for instance, the sale of un-inspected horse meat and/or the spread of disease in trees and plants.
• EU free trade also makes national security more difficult to enforce effectively for all the reasons mentioned before.
• Intrastate paperwork is still required although it is regarded as an unnecessary administrative accounting burden but the commercial evidence of a transaction has to be stated for the statistical record.

Disadvantages of EU Membership

• Because of a growing membership and greater economic divergences with the WTO and WCO there are serious concerns that agreements would be more difficult to achieve and take longer than when within the EU.
• Brexit has caused a great deal of turmoil within the EU because the general perception is that the free movement of merchandise has benefited UK businesses, specially, larger ones who have profited the most.
• In theory, all businesses should benefit from EU trade, however, official statistics indicate that only 15% of UK businesses are engaged in any form of international trade which is a significant but not decisive percentage. Also, choice, availability and supply have been expanded, nonetheless, in many cases the same or similar goods are available from outside the EU.
• Free movement of EU goods is not free of fraud and it is probably more difficult to detect like tobacco and alcohol which trade avoiding taxation affecting the brewing industry and undercutting legitimate trade. Statistics indicate that EU trade is twice as much with each other as a result of the single market. The impact of this has been that per capita income is estimated to be 6% higher than if the UK had not participated in this increase of trade.
• The UK has benefitted from Customs facilitations as liberal transit rules do not required guarantees to certain customs regimes, particularly those which have economic impact. These benefits will cease when the UK exits the EU.
• For private individuals the single greatest benefit is to buy goods for personal use without the need to pay tax when returned to the EU country of origin. The issue of taxation within the EU remains unresolved because of variations in VAT rates between individual countries and how it creates huge problems for companies trading across the EU seeking to maximize the benefits of a centralized customs clearance.
• Harmonization of rates seems as beneficial for EU trade-providing a level playing field. Nonetheless, one of the most noteworthy examples is the interpretation of Temporary Storage regulations between countries and move more towards a stricter regulatory system closer to the German model, which involves transit and withholding entries until goods have been moved from the border to the Temporary Storage Facility. In Holland they have established a trial under which the goods move within Temporary Storage avoiding the need to use Transit and so, speeding the movement of goods.
• A Union Customs Code (UCC) which has taken at least 10 years to pass is the Lisbon Treaty which was renamed the Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process. This an action and development plan devised in 2000, for the economy of the European Union between 2000 and 2010 that delegated provisions for Implementation and functioning of the UCC.

One more trade related issue that needs to be underlined is the benefit of trade treaties under EU sponsorship under a common block as the one being currently negotiated with the USA. As part of a large trading block, member countries enjoy greater influence than would be the case if negotiating as an individual nation. Moreover, for countries outside the EU, it is more attractive to negotiate with a more economically large blocks than a treaty negotiated by each country.