European Business by Neil Harris (auth.)

By Neil Harris (auth.)

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Trade therefore occurs between countries to increase their prosperity, which is usually measured by the growth of Gross National Product (GNP), either in total or per capita. Trade offers the opportunities of larger markets which enable firms to achieve lower unit costs of production. They do this by exploiting internal economies of scale in the bulk purchase of raw materials and components, and in production and marketing. Additionally, firms are at times able to exploit external economies of scale such as shared research and development costs arising from the location of similar firms close to each other.

This came into effect in 1985, with Greenland being given the status of an associated overseas territory. In 1986 Spain and Portugal became the eleventh and twelfth members. The reunification of Germany in 1991 brought the former German Democratic Republic (GDR) or East Germany into the EC. In November 1993 Germany became the last nation to ratify the Treaty on Union (also known as the Treaty on European Union or, more commonly, the Treaty of Maastricht, after the Dutch town where it was negotiated in December 1991) and the European Community consequently became known as the European Union.

Unit costs are lowered by each car producer concentrating on a few models rather than producing a wide range of different products, which would incur higher production costs. Additionally, since car producers are multinational organisations, many cars are manufactured with components produced in a number of different countries. Ford cars are assembled from components supplied by a number of different EU plants for example, which further generates intra-industry trade; Renault supplied engines to Volvo in the past; Volkswagen have supplied components to Seat in Spain and Skoda in the Czech Republic.

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