Although GATT is a noble effort, it cannot be expected to solve all real and potential problems in international trade. For this reason, countries have from time to time attempted to coordinate their regulatory efforts by developing schemes for economic integration. In general, economic integrations take one of the following forms:
- Free Trade Area—an area in which members have no tariffs among themselves, but each has its own set of regulations with respect to the rest of the world.
- Customs Union—a free trade area in which members have identical tariff rates on each product imported from outside.
- Common Market—a customs union in which the factors of production can be moved freely from one member to another.
- Economic Union—a single economy with one currency and unified fiscal and monetary policies.
As Figure 7.3 shows, the economic integration process is cumulative—each stage adds one more international trade-enhancing feature. Thus, the second stage, Customs Union, is as free as the previous stage, Free Trade Area, with the added advantage that members have identical tariff rates for the external world.
The benefits of economic integration include the following:
- Increased efficiency of consumption as a result of lower prices
- The breakup of monopolistic industry structures as a result of allowing all members to compete for formerly local markets
- Better economies of scale as a result of the enlargement of markets, which permits plants to be larger and production runs to be longer
- Increased efficiency of production as a result of the free movement of factors of production
There have been many attempts at economic integration, most of which were unsuccessful. Table 7.1 presents information on the most successful economic integration today, the European Economic Community (EEC).
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The European Community embraces 12 European countries that have joined together for these purposes: to live in peace after the senseless wars of the past—a goal better achieved by a broad commitment to lasting cooperation than by specific agreements between individual States; to avoid being mere pawns in the tough world of power politics and to be able, instead, to negotiate from strength in the protection afforded by a powerful Community; to enable their economies to develop in conditions of fair competition; to improve living conditions for their citizens and thus ensure social progress. For an area stretching from Shetland to Crete, from Lisbon to Copenhagen, with all the different structures and traditions it encompasses, it is often hard to work out common objectives and to devise measures that will be equally effective for everyone. But the needs and aspirations of broad sections of the population are steadily growing closer, helping to bridge traditional differences. And the solutions to many of today's political and economic problems—of which the current state of the labour market is a reflection—are beyond the resources of any one nation alone. The Treaty establishing the European Coal and Steel Community (ECSC) was signed in 1951, followed in 1957 by the Treaties establishing the European Economic Community (EEC) and the European Atomic Energy Community (Euratom). There were six founder-members: Belgium, France, Germany, Italy, Luxembourg and the Netherlands. Three more countries joined in 1973: Denmark, Ireland and the United Kingdom. In 1981 Greece became the 10th member, and with the accession of Portugal and Spain in 1986, the Community now numbers 12. The institutions of the three Communities—ECSC, EEC and Euratom—were merged in 1967, and the term 'European Community' is now commonly used to mean all three together. |
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SOURCE: Commission of the European Communities, A Journey Through the EC (Brussels: EEC, 1986), 4. |
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