ORGANIZATIONAL DYNAMICS AND INTERNATIONAL
COOPERATION
ARIZONA STATE UNI3ERSITY
OMT 440 - INTERNATIONAL BUSINESS
WEEK 3
LEARNING OBJECTIVES.
1.
The importance of international institutions for business decision-makers
2.
Global and regional international institutions
3.
The UN as an institution, based on institutional theory and in terms of its structure
4.
Objectives of the IMF and World Bank
5.
Discuss the impact of the EU and its future challenges
COOPERATION BETWEEN COUNTRIES:
The world has become an increasingly interconnected and interdependent place in
complex ways. Business is a business activity that requires being in a state of order and
stability. For domestic business, order and stability have generally been provided by the
government of the country concerned with the tools of law and governance. For international
business, the order and stability require various international political, legal, and economic
institutions, which are developed by cooperative agreements from countries in the world.
Knowledge of the institutions that have been developed to date are indispensable to
international business, for many reasons. The first reason is that the institutions exist to
ensure peace and stability among the world's nations, conditions that are very much in place
important to the conduct of international business. The second reason is that the institution is
an important source of data and information about the markets, trade, investment, and
demographics of each country in the world. Another reason is that the institution also issues
regulations that are adhered to by its member countries.
Some institutions are worth discussing because of their importance to international
business activities. Some of these institutions cover all countries in the world, while others
are regional in scope. Most institutions are comprised of state governments, although there
are some institutions with non-state members. Most institutions can be categorized by their
activities, i.e. political, when it comes to the administration and management of the state, or
economic, when it focuses on finance, trade and business, although many institutions often
cover a wider range of activities. Some institutions worth discussing are those with a political
focus: United Nations, NATO, CSTO, ASEAN. Economic-focused institutions include:
WTO, IMF, OECD, OPEC, G8. In addition to institutions, economic cooperation that leads to
economic integration between countries, such as NAFTA, European Union, APEC and so on
are also discussed.
INTERNATIONAL ORGANIZATIONS UNITED NATIONS:
The United Nations was established as an international political organization in 1945
after the end of World War II, with headquarters in New York, U.S.A. The main purpose of
the organization is to promote world peace and stability. Although it is a political
organization, many of its functions of the UN is concerned with business activities. The UN's
activities are carried out by five organizational organs: The General Assembly, the Security
Council, the Economic and Social Council, the International Court of Justice, and the
Secretariat.
The General Assembly is the body of the UN that consists of all UN member states,
with one country, one vote, regardless of the size, population, wealth, and power of the
country. The Security Council is a 15-member UN body, with 5 permanent members (China,
France, Russia, the United Kingdom, and the United States of America), and has veto power,
while the other 10 non-permanent members are elected from the members of the General
Assembly for 2 years. ECOSOC (the Economic and Social Council) is a UN organ that deals
with economic and social issues, such as trade, transportation, industrialization, economic
development, population growth, housing, racial discrimination, social welfare, women,
children, and so on. The ICJ (the International Court of Justice) is the body that makes
decisions on legal disputes between countries. The Secretariat is the executive administrative
staff of the UN activities, and is headed by the Secretary-General. In addition, the UN has
established many bodies that facilitate international business transactions, such as the
International Civil Aviation Organization, and produced international agreements and laws,
such as the Universal Declaration of Human Rights.
Several programs were established on a permanent basis under the coordination of the
General Assembly, each with its own objectives. These programs include:
1.
UNCTAD: United Nations Conference on Trade and Development
2.
UNEP; environment program
3.
UNDP: UN development program
4.
UNHCR : office of the UN high commissioner for refugees
5.
UNICEF: the UN children's fund
6.
OHCHR : office of the UN high commissioner for human rights and so on
Several permanent bodies were also established under the coordination of the UN
Economic and Social Council, including :
1.
ILO: International Labor Organization
2.
FAO: Food and Agriculture Organization
3.
UNESCO : educational, scientific and cultural organization
4.
WHO : world health organization
5.
World Bank Group: IBRD, IDA, IFC, MIGA, ICSID
6.
IMF: International Monetary Fund
7.
and so on
MULTILATERAL DEVELOPMENT BANKS:
Multilateral development banks are international lending institutions owned by member
countries, and operate primarily with developing countries to promote economic and social
progress. The term multilateral development bank refers to the five existing international
development banks, namely: (1) World Bank Group, (2) African Development Bank, (3).
Asian Development Bank, (4) European Bank for Reconstruction and Development, and (5)
Inter-American Development Bank Group. Multilateral development banks provide financing
for development activities through several financial facilities, namely:
1.
Long-term loans based on market interest rates. Banks borrow on international capital
markets to raise funds and re-lend to governments in developing countries.
2.
Very long-term loans which are loans with interest rates that are below market rates.
The facility is financed through direct contributions from governments in donor
countries.
3.
Grants, which are mainly provided in the form of technical assistance, consultancy
services, or project preparation.
The Asian Development Bank, African Development Bank, Inter-American
Development Bank, and European Bank for Reconstruction and Development are regional
banks for developing countries in Asia, Africa, Latin America, and Eastern Europe and the
former Soviet Union. The Asian Development Bank experienced funding difficulties, as
developed countries demanded that developed Asian countries play a greater role. The
African Development Bank, on the other hand, had difficulty recovering its loans, as most of
the African countries that borrowed were unable to repay the loans.
THE WORLD BANK GROUP:
The world bank group consists of: (1) World Bank (International Bank for
Reconstruction and Development), (2) IFC (The International Finance Corporation), (3)
MIGA (The Multilateral Investment Guarantee Agency), 4 IDA (The International
Development Association), (5) ICSID (The International Center for Settlements of Investment
Disputes). The World Bank Group is headquartered in Washington D.C., U.S.A.
The International Bank for Reconstruction and Development (IBRD) is one of the five
institutions that make up the World Bank Group. IBRD is an organization that was formed
with the original mission to finance the reconstruction of countries devastated by World War
II, in Europe and Japan. This mission has now changed considerably, to fight poverty by
financing developing countries (Africa, Asia, Latin America) to develop their own countries.
IBRD provides loans to governments, public agencies, always with a government
guarantee of repayment. Funds from the World Bank are raised by issuing bonds on the
global capital markets. These bonds are typically highly rated (AAA), as they are backed by
the capital of its member countries, as well as by the sovereign guarantees of the borrowing
countries. As such, the IBRD can lend at relatively lower interest rates than other commercial
lending institutions.
The International Development Association (IDA):
It is a part of the World Bank that specializes in helping the world's most impoverished
countries. IDA was established to be responsible for providing long-term, interest-free loans
to 80 of the world's poorest countries. Since its establishment, IDA has provided loans and
donations of about $7-9 billion per year. While IBRD gets its funds from the world's financial
markets, IDA gets its funds from contributions from the world's rich countries. Other
revenues come from IBRD's share of profits and repayment of IDA loans.
IDA provides loans for the development of basic education, basic health care services,
water supply and sanitation, environmental protection, business climate improvement,
institutional reform and infrastructure. These projects are expected to pave the way for
economic growth, job creation, income generation, and improved living conditions.
The Multilateral Investment Guarantee Agency:
MIGA is an organization within the World Bank Group that provides political risk
insurance. Its purpose is to promote direct investment into developing countries. MIGA
provides guarantee against non-commercial risks to protect cross-border investments in
developing member countries. The organization provides protection to investors against the
risks of non-exchangeability of the country's currency, and restrictions on transfer,
confiscation, war, security disturbances, and terrorism, breach of contract, and non-
recognition of financial responsibility for debt repayment. Cover against these risks can be
purchased individually or in combination. MIGA's coverage may include (1) Investments in
new business/plant establishment, (2) Contributions of new investments related to expansion,
modernization, or financial restructuring of existing projects, (3) Acquisitions involving
privatization of state-owned enterprises, (4) Existing investments with high development
impact if the investor demonstrates long-term commitment to the project. With these
safeguards, MIGA enables the development of water, electricity and other infrastructure basic
infrastructure in addition to boosting state revenue from taxes and generating training
programs.
The International Finance Corporation:
IFC promotes sustainable private sector investments in developing countries. IFC is a
source of cross-border financing through loans and capital for private sector projects in
developing countries. IFC promotes the development of sector private sector development
that sustainable private sector development by primarily: 1. financing private sector projects
and companies located in developing countries, 2. helping private companies in developing
countries mobilize finance in international financial markets, 3. providing consulting and
technical assistance to businesses and governments. IFC's advisory services focus on five
areas: access to finance, business environment analysis, environmental and social
sustainability analysis, infrastructure, and organization Company. Some IFC-funded projects
have been controversial, a.k.a. a $9 million investment to upgrade a slaughterhouse owned by
Brazil's largest cattle company, a $200 million loan guarantee for palm oil production in
Indonesia that ignores its own environmental and social protection standards.
ICSID (International Center for Settlement of Investment Dispute):
The organization has an Administrative Council chaired by the President of the World
Bank, and a secretariat. ICSID provides facilities for conciliation and arbitration of
investment disputes between member states and individual investors. ICSID is expected to
encourage an increase in international investment.
International Monetary Fund (IMF):
The IMF was established with the initial objective of ensuring the stability of the
international monetary system, i.e. the international system of exchange rates and payments
that enables countries and their populations to transact with one another. A stable
international monetary system is necessary to promote sustainable economic growth, improve
living standards, and reduce poverty. The IMF headquarters is located in Washington D.C.,
U.S.A.
Specifically, the IMF's objectives are: (1) Promote international monetary cooperation,
(2) Facilitate expansion and balanced growth in world trade, (3) Promote exchange rate
stability, (4) Assist in the establishment of multilateral payment systems, and (5) Provide
resources to members experiencing balance of payments problems.
To maintain stability and prevent crises in the international monetary system, the IMF
regularly examines in depth the economic policies and performance of each of its members
and the interaction of these policies with other countries. Within this framework, the IMF
regularly assesses the global outlook in its World Economic Outlook, financial markets in its
Global Financial Stability Report, and developments in public finances in its Fiscal Monitor
and regularly publishes the state of regional economies. In addition, the IMF regularly
discusses the state of the world economy as well as the state of regional economies periodic
discussions on the development of exchange rates between world currencies.
In providing financial assistance, the IMF provides funds to help member countries
improve their balance of payments. A policy program must be designed by each assisted
country that is supported by loan funds from the IMF on the condition that the continuation of
financial support is based on the effective implementation of these policies and programs.
To support the official foreign exchange reserves of each member country, the IMF
issues SDR (Special Drawing Rights). Special Drawing Rights (SDR) is an international
reserve asset that can be used to support the official foreign exchange reserves of each
member country.
The IMF also offers technical assistance and training to help member countries
strengthen their capacity to design and implement effective policies. Technical assistance is
offered for several areas, including tax policy and administration, expenditure management,
monetary and exchange rate policy, supervisory and regulatory systems of banking and other
financial institutions, legal frameworks, and statistical data.
The IMF is funded by its member countries through the payment of quotas, which
reflect the economic strength of each country. By early 2011, the quota had reached US$740
billion. The IMF's activities are sustained by interest income from its members' loans.
Bank For International Settlements (BIS)
The BIS is an international organization that regulates cooperation among central banks
and international financial institutions, and acts as a central bank and other bank services for
central banks in each country or bank services for other international organizations. The BIS
is headquartered in Basel, Switzerland.
As an organization of central banks, the BIS seeks to make monetary policy more
transparent and predictable among its member central banks. While monetary policy is self-
determined by each sovereign country, it is influenced by the banking institutions in each
country. To keep monetary policy in line with economic realities, and to be able to carry out
monetary reforms in a timely manner, especially when simultaneously carried out by all its
member countries, the BIS seeks to coordinate such policies. In particular, the BIS has 2
specific objectives: capital adequacy regulation and making reserve requirements transparent.
In terms of capital adequacy, it is the role of the BIS to determine the capital adequacy
requirements for banks in each of its member countries. Reserve policy is important,
especially for consumers and the domestic economy. To ensure sufficient liquidity and limit
liability, banks cannot issue money without limit. To make bank customers safe to deposit
and borrow, banks are required to hold reserves. Reserve policies are difficult to standardize
as they depend on local conditions and are industry- or region-specific.
The functions of the BIS are thus: (1) A forum for international monetary cooperation,
(2) A research center, (3) A bank for the central bank of each country, (4) An agent or
guardian for various international financial arrangements.
World Trade Organization (WTO):
The WTO is an international organization designed to liberalize trade among the
world's countries, and establish rules for trade among countries. The organization is
headquartered in Geneva, Switzerland. The organization has 153 member countries (2010)
that account for 97% of total world trade, as well as 30 observer countries, which are
countries that mostly want to become members of the WTO. The WTO works on the basis of
core agreements that have been negotiated, signed and ratified by most of the world's
countries.
The functions of the WTO include: (1) overseeing the implementation, administration
and operation of the agreements, (2) a forum for negotiation and dispute settlement, (3)
reviewing and improving the trade policies of countries, (4) ensuring the unity and
transparency of trade policies through observations in global economic policy making, (5)
helping less developed countries, and countries with less income to make the transition in
adjusting to the rules and disciplines of the WTO through technical cooperation and training,
(6). As a center of economic analysis and research, with regular analysis of world trade
through its publications and research reports.
According to the agreements that have been taken at the WTO, principles have been
formulated as the basis of the world trading system. These principles are the basis of the
multilateral trading system which is then formulated in detail. These principles are:
1.
Trade is conducted without discrimination. This principle is known as an aspect of the
MFN (most favored nations) principle. All WTO members must apply the same
conditions to all trade with other members. In addition, in the principle of non-
discrimination there is an aspect of national treatment policy, namely that imported
goods must be treated the same as domestically produced goods (after entering the
domestic market).
2.
Trade is conducted freely. All barriers to trade should be sought to be removed or
lowered. Such barriers include tariffs and non-tariffs.
3.
Trade must be predictable. The tariff and trade policies of a country's government must
be stable and transparent, so that businesses can anticipate appropriately.
4.
Trade must be more competitive. While the WTO advocates trade liberalization, it also
understands that there are complex trading relationships between countries. Therefore,
the agreements that the WTO supports are those that create fair competition.
5.
Trade should favor developing countries, promoting economic development and
reform. Most WTO members are developing countries, and many agreements have
been made in which developed countries provide market access for products from
developing countries, and increase technical assistance.
The WTO is governed by a ministerial conference that meets every two years, a
General Council that implements the decisions of the ministerial conference and is
responsible for the day-to-day operations of the organization, and a Director-General who is
the head of the WTO appointed by the ministerial conference. The General Council
establishes various bodies that deal with various committees in the field,
a.l. : (1). Council for Trade in Goods, (2). Council for Trade-Related Aspects of Intellectual
Property Rights, (4). Council for Trade in Services, (5). Trade Negotiations Committee.
Organization for Economic Cooperation and Development (OECD):
The OECD is an organization that was originally a group of developed countries that
aimed to promote economic progress in its member countries. However, membership of the
OECD later became open to all countries that have a commitment to a free market economy
and plural democracy. The organization is headquartered in Paris, France. Membership of
the OECD currently stands at 30 countries, almost all of which are European countries and
the USA, while only Japan and Korea are from Asia.
The OECD provides information on economic and other activities to all its member
countries and facilitates socio-economic policy discussions. The organization also publishes
extensive research on international economic and business issues. The OECD also issues
various guidelines for business, including the Code of Conduct for multinational companies,
the Code of Corporate Governance as a guideline for good business governance.
Association of Southeast Asian Nations (ASEAN):
ASEAN was established in 1967 in Bangkok by 5 founding countries: Indonesia,
Malaysia, Philippines, Singapore, Thailand. Since then, member countries have increased, so
that today ASEAN consists of 10 countries with the addition of: Brunei Darussalam,
Vietnam, Laos, Myanmar, and Cambodia. The ASEAN secretariat office is located in Jakarta,
Indonesia.
The purpose of establishing ASEAN is to :
1.
accelerate economic growth, social and cultural development through cooperation
based on common ground to strengthen the basis for a prosperous and peaceful ASEAN
community.
2.
promoting regional peace and stability through awareness of justice and the role of law
in interstate relations by following the provisions of the United Nations.
3.
Promote active cooperation and mutual assistance in matters of mutual interest in the
fields of economy, culture, engineering, science and administration.
4.
provide assistance to each other in the form of training and research facilities in the
educational, professional, technical and administrative spheres.
5.
cooperate to achieve more effective agricultural activities, industry, development of
trade, including the study of commodity trading issues, improvement of transportation
and communication facilities, and improvement of the living standards of the people.
6.
promoting the study of ASEAN.
7.
maintain close and mutually beneficial cooperation with existing international and
regional organizations that share the same goals, and seek all possibilities to strengthen
cooperation among member states.
In the relationship between each member state, the following principles have been
agreed upon:
1.
mutual respect for the sovereignty, freedom, equality, territorial integrity and national
identity of all member states.
2.
The principle that each country has the right to govern itself free from outside
interference, subversion or coercion.
3.
the principle of mutual non-interference in the internal affairs of each country.
4.
the principle of resolving any differences or disputes by peaceful means.
5.
principle will not use threats or violence
6.
principles of effective cooperation among members.
ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)
Petroleum is an irreplaceable natural resource, and is the foundation of world
civilization today. This natural resource is only available in a few countries, especially in
developing countries. Realizing the importance of petroleum and to utilize this natural wealth
for their countries by obtaining a fairer sales value, OPEC was formed.
OPEC's members are Middle Eastern countries (Iran, Iraq, Kuwait, Qatar, Saudi
Arabia, United Arab Emirates), African countries (Algeria, Libya, Nigeria), and Latin
American countries (Venezuela). Since its establishment, Indonesia was the only Asian
country to become a member, but later left OPEC due to the amount of oil imports. Indonesia
has exceeded its exports. Some countries that, despite exporting large amounts of oil, such as
Mexico, Norway, Russia and the United Kingdom are not members of OPEC.
Since its establishment, OPEC has managed to increase the price of oil from US$3 per
barrel in 1973, to US$35 per barrel in 1980, to US$40 per barrel in 2000, and now in 2014
the price of oil is US$100 per barrel. OPEC's strength can be seen from the fact that the oil
reserves controlled by OPEC account for 68% of the world's total oil reserves.
GROUP OF EIGHT (G8) AND GROUP OF 20 (G20).
The G8 is a group of leaders from 8 developed countries who meet regularly to discuss
important world issues. The G8 member countries are: USA, U.K., France, Germany, Italy,
Japan, Canada, and Russia. The organization has no office or staff, but meets regularly every
year in rotation at the premises of one of the member countries.
The issues discussed have expanded to cover a wide range of issues facing the world.
The G8 is important because it consists of developed countries whose policies greatly
influence the rest of the world.
The G8 is often the target of criticism, as it consists of a group of developed and
wealthy countries, so all of its agendas are often accused of being an attempt to preserve the
power of the rich countries in the world. In addition to these reasons, and various
considerations, a group of countries known as the G20 was also formed, which is an
organization with 20 major developed and developing countries, which are estimated to be is
a collection of countries that play a major role in the future development of the world.
The G20 consists of major countries and associations of countries on each continent,
namely the Americas (U.S.A., Canada, Mexico, Argentina, Brazil), Europe (France,
Germany, Italy, Russia, U.K., and European Union), Asia (China, Japan, Korea, India, Saudi
Arabia, Indonesia, Turkey), Africa (South Africa), and Australia (Australia). The G20 is a
group that covers 2/3 of the world's population, 85% of the world's GDP, and 75% of world
trade, so it is worth saying that it is an organization of major countries and associations of
countries.
INTERNATIONAL ECONOMIC COOPERATION:
Since the end of World War II, cooperation between countries has increased rapidly. It
started with cooperation in the form of free trade areas, which can develop into custom
unions, into common markets, and possibly into economic integration. Such cooperation is
important for businesses, as it indirectly affects the markets and costs of their business
activities.
A Free Trade Area is a cooperation in which tariffs are eliminated for trade between
members, while each member is free to have its own tariff agreements with other non-
member countries. A Custom Union is one in which tariffs are eliminated between members,
and each member adds a similar tariff to that of other non-members. In the form of a common
market, the cooperation is organized as a custom union which also includes the removal of
restrictions on the mobility of capital and labor. While complete economic integration is the
highest degree of cooperation between countries with the economic and political integration
of the member countries.
Such cooperation is believed to increase the prosperity and welfare of each member of
the cooperation group concerned. This can be seen from the data in Table 3.1 below which
shows data from business cooperation blocs and some of the major countries in world trade.
The grouping of countries in economic cooperation will increase the population, which
means the number of consumers, and GDP, which also means an increase in the number of
potential sales.
ASEAN FREE TRADE AREA (AFTA)
After years of being just a plan, AFTA has finally begun to be realized. With a scheme
called Common Effective Preferential Tariff (CEPT) for AFTA, then Considerable progress
has been made in reducing intra-regional tariffs. More than 99% of products on the CEPT
Inclusion List have been reduced to 0 - 5% tariffs in ASEAN-6 countries, namely Brunei,
Indonesia, Malaysia, Philippines, Singapore, and Thailand. The other four countries, namely
Cambodia, Laos, Myanmar, and Vietnam have also achieved nearly 80% of products on the
CEPT Inclusion List with 0 - 5% tariffs.
Products that have not yet reached the CEPT-AFTA scheme are products included in
the Highly Sensitive List and General Exception List. Various non-tariff barriers are also
being resolved, including the verification process, the definition of Non-Tariff Measures, the
preparation of a database for all NTMs, and the elimination of all unnecessary and unfair
non-tariff measures.
ASEAN-CHINA FREE TRADE AREA (CAFTA):
CAFTA is a free trade agreement between China and ASEAN countries. The Free
Trade Agreement has been in effect since January 1, 2010, and is the world's largest
population-covering trade agreement, and third in GDP after the European Union and
NAFTA.
This Free Trade Agreement has reduced tariffs on more than 7,800 product categories,
or 90% of imported products, to 0%. This reduction has been enforced in China, and
6 ASEAN member states, namely Brunei, Indonesia, Malaysia, Philippines, Singapore and
Thailand. The remaining four member states are planned to follow suit in 2015. The average
tariff of Chinese products sold to ASEAN countries has fallen from 12.8% to 0.6%, and The
average tariff on ASEAN products sold to China has dropped from 9.8% to 0.1%.
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA):
NAFTA is a free trade agreement between the USA, Canada and Mexico. Since the
establishment of NAFTA, the three member countries have achieved significant benefits, and
trade between the member countries has increased dramatically. NAFTA is a free trade
agreement with the largest total GDP in the world, and covers the largest area in the world.
Despite these significant benefits, trade disputes continue to occur between the three
member countries, including over forest products from Canada, environmental management
in Mexico, and illegal immigration from Mexico to the U.S.A. Membership expansion is also
planned to include other Latin American countries.
ASIA PACIFIC ECONOMIC COOPERATION (APEC):
APEC was established in 1989 with the aim of promoting open free trade and economic
cooperation in the Asia Pacific region. Although APEC is an organization that does not have
statutes and regulations that bind its members, and decisions are made by consensus, it does
have a permanent secretariat office in Singapore. APEC has 21 members and is not based on
countries, but economic groups. The current members of APEC are: Australia, Brunei,
Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New
Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, U.S.A.
and Vietnam. The goal is to achieve free trade and investment in Asia Pacific by 2010 for
industrialized countries and by 2020 for developing countries. To achieve this goal, APEC
focuses on three areas, namely: (1) Trade and investment liberalization,
(2) Business facilitation, and (3) Economic and technical cooperation. Achievements in these
three areas will enable APEC members to strengthen their economies by pooling resources in
the Asia Pacific and achieving efficiency. Tangible benefits are expected through increased
training and employment opportunities, increased product choice in the market, cheaper
products and easier access to international markets.
Trade and investment liberalization will reduce and eventually remove tariff and non-
tariff barriers to trade and investment. Liberalization focuses on opening markets to increase
trade and investment among members, thereby generating economic growth for APEC
members and improving their living standards.
The business facilitation area focuses on lowering business transaction costs, improving
access to information and formulating policies and strategies to facilitate growth and open
free trade. It helps Asia Pacific exporters and importers to meet and do business more
efficiently, thus lowering production costs and resulting in increased trade, cheaper products,
and more job opportunities as economies expand.
Economic and technical cooperation provides training and cooperation to build capacity
in APEC members to take advantage of global trade opportunities. It builds capacity at the
institutional and individual levels to help APEC members acquire the skills necessary to
fulfill the economic potential available.
EUROPEAN UNION (EU):
The European Union is an international institution that currently consists of 28
countries that are committed to developing economic and political cooperation. The EU
began as a customs union, then developed into a common market or often referred to as the
European Economic Community (EEC), and has now developed again towards achieving
economic integrity and leading to political integration. With the development towards
political integrity, the EEC became the EU in 1993 to reflect this. The EU is an organization
based on law, all EU activities are based on formal agreements between countries, voluntarily
and democratically approved by all its members. These formal agreements also define the
objectives that the EU seeks to achieve in its various fields of activity.
The EU is a huge international organization, encompassing 28 countries that have
become a single body that encompasses almost the entire economic, industrial and population
power of continental Europe. The EU has a population of 511.4 million people, most of
whom are highly educated, an area of nearly 4 million square kilometers, a GDP of US$15.8
trillion and a per capita income of US$31,000 in 2013. A very large body and very rich, and
very advanced.
EU membership is open to all European countries if they respect the principles of
independence, democracy, human rights and fundamental freedoms, and are law-abiding.
Acceptance as a member depends on meeting the following criteria:
•
Countries with stable political institutions that ensure democracy, adherence to the law,
human rights, and value the protection of minorities.
•
The country has a functioning market economy and the capacity to handle competition
and market forces in the EU.
•
The country has the capacity to comply with its obligations as a member, including
implementing the objectives of political, economic, and monetary unity.
•
Agree to the adoption of all European legislative products and their effective
implementation through appropriate administrative and legal structures.
The EU has the right to decide whether or not a country can be accepted as a member,
and when it can be accepted.
Currently, there are 6 countries in membership candidate countries, and 2 countries in
potential candidate countries. Membership candidate countries are countries that have
applied to become members of the EU, and fulfill all the requirements for EU membership,
but are still in the process of integrating EU legal products into their own laws. Potential
candidate countries are countries that have applied for EU membership, but have not yet
fulfilled the requirements of EU membership as a member of the EU.
Countries in membership candidate countries status are: (1) Albania, (2) Iceland, (3)
Montenegro, (4) Serbia, (5). Republic of Macedonia, and (6). Turkey. While the countries in
potential candidate countries status are: (1) Bosnia and Herzegovina, and (2) Kosovo. The
table below shows the list of EU member states to date.
The EU organization consists of 3 main institutions, and various bodies with separate
roles. The main institutions of the EU are :
1. The European Parliament, which represents EU citizens and is directly elected.
2. The Council of the European Union, which represents the governments of each
member state. The President of the Council rotates between member states. Member
states express their interests through the Council of the European Union. European
Union. The general policy of the EU is determined by the European Council, which is a
combination of the leaders of each member state and the leader of the EU.
3. The European Commission, which represents the interests of the Union as a whole.
Members of the European Commission are appointed by each member state
government.
In principle, the Commission proposes laws for the EU, and the European Parliament
and the Council approve and adopt them. The Commission and member states then
implement them, and the Commission ensures that the laws are properly applied and
enforced. Other institutions that play a vital role are:
1. The Court of Justice of the EU, the court for EU law
2. The Court of Auditors, is the institution that examines the finances of the EU's
activities.
Other institutions and bodies of the EU are :
1. The European Central Bank, which is responsible for Europe's monetary policy.
2. The European External Action Services (EEAS), assists the High Representative of
the Union for Foreign Affairs and Security Policy. It conducts general foreign and
security policy, as well as ensuring consistency and coordination of the EU's external
actions.
3. The European Economic and Social Committees represent society, employers, and
workers.
4. The Committee of the Regions represents local and regional authorities.
5. The European Investment Bank finances EU investment projects and helps SMEs
through the European Investment Fund.
6. The European Ombudsman investigates complaints of administrative misconduct by
EU institutions and bodies.
7. The European Data Protection Supervisor protects the privacy of people's personal
data.
8. The Publications Office publishes information about the EU.
9. The European Personnel Selection Office conducts staff recruitment for EU
institutions and bodies.
10. The European School of Administration conducts training in specialized areas for EU
staff.
The EU has made many achievements, including the establishment of the European
Monetary Union, which is a group that defines a single currency (the Euro) among its
European member states. The use of a single currency reduces the cost of business activities
among countries that adopt it, as there are no currency exchange fees, and no risk of
exchange rate fluctuations among its members. In addition, the Schengen area was also
successfully established, which is countries that exempt travel controls among its member
countries. This facilitates the mobility of movement of people between the adopting
countries, and lowers the cost of mobility.
EMU membership is not binding on EU member states, nor can any European country
become an EMU member without first becoming a member of the EU, the same is true for
Schengen membership. EMU and Schengen memberships to date are shown in Table 3-3 and
Table 3-4 below.
The impact of the EU on global business activity is enormous. The EU accounts for
about 20% of world exports and imports, and about 30% of foreign direct investment. The
EU is the world's second largest economic power, and the world's main source of foreign
direct investment. Such economic power has been able to influence laws and regulations in
the world. The EU has become an important trading partner for many developing countries,
and a source of technology and information for many countries in the world.
PRACTICE QUESTIONS
1.
What do you know about cooperation between countries?
2.
According to your analysis, what are the benefits of International Organization and
Cooperation?
3.
What are the economic benefits that developing countries like Indonesia gain from the United
Nations?
4.
Based on the material you have read. What is the purpose of the World Bank Group and what
impact does it have on the economies and politics of the countries of the world?
5.
In your analysis, what benefits has Indonesia gained economically from being part of
ASEAN?
6.
Do you think the Free Trade Area policy can support the economic development of
developing countries? Give your reasons!
7.
In 2020, the UK left the United Nations. Analyze what economic impact will the UK have
after leaving the EU?
