Transcript European Integration

European Integration
Dr. Tatiana Romanova
School of International Relations
St. Petersburg State University
Tallinn, March 2010
Day 3

Economic Integration
Stages of Economic Integration
CU – is a group of countries
eliminating tariffs for intra-group
trade and unifying their
national tariffs into a
common external
tariff for trade
with third countries
Custom
Union
Free Trade
Area
Economic and
Monetary
Union
Common
Market
Custom union: the essence
C
FTA
A
No custom duties for the
goods that are produced
in A or B but custom
control is preserved for
the goods of third
countries + countries
preserve their custom
policies for third
countries
Bring economies
together but does not
C
Custom Union
A
B
An important
precondition
for the
single market
First step to the
product market
integration
B
No custom control
between A and B at all
for any good
+
Common tariff and
common policy
towards C and other
third countries
(common tariff and
common commercial
THE CUSTOMS UNION
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Article 25
Customs duties on imports
and exports and
charges having
equivalent effect shall
be prohibited between
Member States. This
prohibition shall also
apply to customs duties
of a fiscal nature.
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Article 26
Common Customs Tariff
duties shall be fixed by
the Council acting by a
qualified majority on a
proposal from the
Commission.
Two components of the CU
Custom Union: mechanism
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1958 – two new treaties
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Very detailed timetable with 3 periods and
percentage cuts for each
QMV in the Council for the timetable!!!
Automaticity!!
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4 stages of transfer to CU each – 4 years, first period can be
extended to 6 years before QMV comes into use
Still unique strictness although the last provision created a
sense of uncertainty
Slight flexibility but
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Idea: to reduce taxes by 60% during first 2 periods
every tariff had to be reduced by 5% if a sensitive good
(normally 25% in each period)
All tariffs, higher than 30% had to be reduced by 10% each
time
Custom Union: mechanism
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Even agricultural goods and products of commercial state
monopolies are taken into account
No going back because of
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Simultaneous tariff and quota removal (as well as measures of
similar effect) except for certain derogation for health and
environment
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Automaticity (percentage and timetable)
Across-the-board coverage rather than discretion per tariff
Prohibition of unilateral re-imposition of quotas
No derogation for quotas
This strictness was combined with the calls on MS to reduce
tariffs unilaterally  used twice by the 6  actual transition
took 10,5 years
Certain flexibility of exchange rate for France (economic costs
of political wish to have France in)
Common tariffs and quotas
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More politicised than internal liberalisation
Protective value  strong lobby
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In the end: arithmetic average of all MSs’ tariffs

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F, IT  reduced their tariffs, Benelux  increased, Germany –
in-between
All kinds of adjustments and exceptions are introduced
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Means shifting from one set of values to another set of values
Arguments around the level of individual tariffs, around the
tariffs at different stages of production, around the overall
restrictive effect
Mixture of basic rules and negotiated adaptation
As for quotas for third countries – no clear specification:
MS have to secure as high a level of uniformity as
possible between themselves
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No bite and no enforcement in the rule
Custom Union: timeline
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1968 – tariff union is
completed:
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all custom duties between
the MS are abolished
Common tariff was set
Facilitated by high growth
and low unemployment
1972 – introduction of CCP
1958-1972: trade between
MS increased by the factor
of 9
Trade growth within the EU
Custom Union: timeline
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1968-85 – progressive introduction of common custom
legislation
Common rules of origin
 Common warehouse rules
BUT: independence of Custom authorities of EC MA (1979 –
special Commission programme to work with this problem)
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Two logics:
Economic approach
(market integration as a
benchmark) 
All artificial economic
frontiers for a product
to be removed
Policy approach
(would carry the notion of a
CU to its logical conclusion)
 union custom rules and no
internal control
Limited by the Treaty and require revision of the legal basis
Custom Union: timeline
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1988 – Single Administrative Document: simplification
and substitution of 150 documents
1993 – single market
end of collecting excises/VAT between the Member States
 End of custom clearance between MS and queues at the
borders
 real custom union
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1994 – Custom code – consolidated Community
custom legislation, framework for EC export and
import procedures
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Balance between freedom of trade and the necessity to
control the process
Trade creation vs Trade
diversion
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Viner and Bye
Trade creation – replacement of
expensive domestic production by
cheaper imports from a partner
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Beneficial
Does not affect the rest of the world
Trade diversion – the replacement of
cheaper imports from the outside world
by more expensive imports from a
partner
In terms of world allocation: TC is
beneficial to welfare while TD worsens
the allocation
The
combination
of the two
determines
the real value
of the CU
CU always
gives rise
to both
Dynamic effects
Modify the picture of the combination between trade
diversion and trade creation
 Scale economies
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Investments
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Increased size of the market for both firms and industries
operating below optimum capacity before integration occurs
Can be a potential loss
Influence on location
Investment diversion vs investment creation
More efficient allocation of CU resources and transfer
among CU partners to ensure a pareto improvement
Dynamic effects
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The polarization effect
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Decline either in relative or absolute terms of the
economic situation of a particular participation nation
or of a specific region within it due to the benefits of
trade creation becoming concentrated in one region or
to the fact that an area may develop a tendency to
attract factors of production
Differences between the regions  vicious and
virtuous circles (location effect)
As trade barriers fall location becomes increasingly
sensitive to production cost differences
Dynamic effects
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The effect on economic efficiency and the smoothness
with which trade transactions are carried out
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Intensified competition
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due to enhanced competition and changes in uncertainty
In the 1950s many observers – opinion that the economy is
not efficient due to numerous public interventions, public
regulations, border protection and occasionally high
traditional patterns of organisation of industry  need for a
cold shower of competition
Decrease of prices for consumers
Development of intra-industry trade
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The bulk of EU trade
Loss of political control
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No further MSs’ control over national
market and no ability to protect it from
the external competition
Possible increase of unemployment and
instability
New arena for the business 
empowerment of the business
Externally: Common
Commercial Policy
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The EEC become an attractive market
// they have to negotiate in
the international arena
2 pillars:
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Common tariff
Common trade policy:
 Trade negotiations
 WTO negotiations
 Instruments of trade defence
MS are no longer in control
Formation
of the CCP
Key Lines of Confrontation
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Community competences (Uruguay round)
Control over the Commission (Art 133 Committee)
National interests
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Free trade (north) vs protectionism (south)
Support of producers (France) vs support of consumers
(Germany)
EP to get some power
Geographical priorities of trade:
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US (UK, the Neth, Ireland)
CEE (Germany, Austria)
Developing countries
Stages of Economic Integration
Free Trade
Area
Custom
Union
Internal
Market
Economic and
Monetary
Union
Internal market
Internal Market
Freedom
of goods’
movement
Freedom
of labour
movement
Common economic Space
Freedom
of services
movement
Freedom
of capital
movement
Key principles of the Common / Internal Market
The basis of the law of economic integration
Is based on the Community treaty
Exclusive EC competences
Is one of the most developed parts of the Community law in
terms of decisions and Courts cases
Internal market
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Change in the approach from elimination of tariffs and
quotas and legal harmonisation to legal approximation and
mutual recognition  Positive and negative integration
(because otherwise cumbersome and too technical)
Subsidiarity
Amounts to more than just economics (i.e. free circulation
of goods)
Many suggested measures went into the heart of the
national economic sovereignty:
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Fiscal harmonisation
Monetary policy
Capital movement
State subsidies
Industrial standards
Binding timetables
Short deadlines
Internal Market
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Two logics:
Economic approach
(market integration as a
benchmark) 
All artificial economic
frontiers for a product
to be removed
Broader interpretation
Policy approach
(would carry the notion of a
IM to its logical conclusion)
More restricted interpretation
Limited by the Treaty and require revision of the legal basis
SEA – choice for the policy approach
Freedom of goods movement
Art 23 of the EC treaty
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All export and import tariffs are forbidden
All measures that are equivalent to tariffs and quotas are
forbidden
Elimination of discriminative taxation
All quantitative restrictions between member-states are
forbidden
All measures equivalent to quantitative limitations between
member-states are forbidden
Possibilities to limit free circulation of
goods
Public morality
 Protection of health and life of people, plants and
animals
 Concerns of public order and public security
 Defence of national heritage
 Defence of trade and intellectual property rights
BUT
 These measures cannot be a means of selective
discrimination or hidden trade limitation
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Freedom of people’s circulation
Different categories:
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Freedom of labour movement and movement of members of their
family
Freedom of establishment
Freedom of entrepreneurs’ movement
 Freedom of establishment of legal entities and other non-legal
entities
Registration in one MS is enough to be recognised as a legal entity in all
MS
Constitutional treaty fixed it together with 4 other freedoms
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Freedom of movement of non-working people for long-term
purposes (pensioners, students)
Some secondary acts
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Freedom of movement on the basis of the Schengen agreements
Freedom of labour movement for non-EU citezens
Freedom of labour circulation
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Freedom of movement around the territory of MS to look
for jobs
Freedom to stay in a MS after the end of working period
Right to take a real employment proposal
Right to stay in a territory of another MS for the purpose
of search for a job for a period upto 3 months (is being
extended till 6 months)
No discrimination is possible towards MSs’ citizens
Two Other Freedoms
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Services:
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An activity of commercial, industrial activity or activities of people of
liberal occupations
Can be furnished in a MS of establishment or in another MS
Some services are governed by separate directives
 In the absence of this legislation no company can be
discriminated
Liberaliastion of bank and insurance services
 // to liberalisation of financial flows
Boldstein directive
 To limit the red tape and increase the flow of services
Capital
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Freedom to invest resources in another state
Freedom to conduct all financial operations linked to investments
Internal market
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Common market basis:
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Non-discrimination
Mutual recognition
Proportionality and
subsidiarity
Reversing the burden of
proof on MS distorting
competition
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Weak points:
•State procurement
•Intellectual property
•Tax systems approximation
•Technical Barriers
•Not complete legal
approximation (environment)
•Slow implementation
Monitoring:
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In reality economy
additionally grew only
by around 1%
relocation and effect
came at the time of
recession in Europe
National authorities
Commission and Court:
 Commission: annual report on
the functioning of common
market and implementation of
community legislation
 In case of violation –
Commission letter, then Court
 As of 1993 – the Court can
financially punish any state
psychologically: 1992 programme
– Commn market became a reality
Internal market
F
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P
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Legal approximation
Mutual recognition
Non discrimination
Competition law
F
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P
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Common
agricultural
policy
Competition policy
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Competition theory
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A.Smith 1776: no limits to trade
XIX century - monopolisation
USA: Sherman law
W. Europe:only after the IIWW
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Different traditions of competition
1970-1980 Europe – spread of Chicago school ideas of laissez-faire.
An instrument
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To create a single market at the level of Community (prevent
difficulties of getting to the national level)
To enforce effective competition to prevent high concentration and
abuse of dominant position
To support fair competition – aid to small and medium business
To realise social goals: fight against unemployment
To improve international competitiveness of transnational corporations
Competition policy
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Anti-trust: (= US) – competition between companies
1. art. 81:Prohibition
 to fix the price or other conditions (cases against
Volkswagen 1998, Mercedes Benz 2001)
 To limit and control production, markets, technical
development and capital investments
 To divide markets and sources of supply
 To apply unequal conditions to similar transactions
 To conclude contracts with additional obligations that are not
linked to the essence of conflict
2. art. 82.: abuse of dominant position
3. mergers’ regulation – did not initially existed because 1950s
sought to
Competition policy
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Fight against state aid (purely European)
1. state grants and guarantees, tax-exemption, interest rates’
exemption…
Exceptions:
 Social aid (unemployment,
environmental costs)
 Research and technology
 Fight against natural disasters
 Aid to undeveloped regions
 Projects of European interest
 Protection of cultural heritage
Commission had to
be notified
conducts system
analysis
Can always stop
2. Limits to public property + liberalisation: art. 86
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Services that represent common interest: transport, energy, telecom,
post …
High prices and low quality
Principle: competitive segments + infrastructure – of common interest
Flanking Policies
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Regional and Cohesion Policy
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Environment Policy
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As of 1970s
To do away with regional differences
As of 1970s but legitimised in the SEA
Research and Technology Policy
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As of early 1980s, legitimised in the SEA
and Maastricht Treaty
Common Agricultural Policy
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Huge part of the budget (over 50%)
Substantial number of people and territory
involved
Symbolic importance in the amount of the
competencies transferred to the EC level
Directly influences the formation of the internal
market and its successful functioning
Biggest food industry
Third important employer in the EU
Formation
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France: agriculture to play a particular role in Europe:
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Principles of CAP ( Strese, July 1958 and approved in 1962):
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No price regulation  huge circulation
Reliance on import  weakness
People have the right to food
Social and environmental concerns
Strong agricultural lobby
Common market with common prices
Community preference
Financial solidarity
Agriculture is excluded from competition law
Gradual spread of CAP to all products
1962 – EAGGF: 2 sections
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guarantees – to support CAP
guidance – structural fun in agriculture
Price setting
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Indicative price (balance in the Community market)
Threshold price (entrance price) – for third countries
Price of intervention – guaranteed price for all producers
of the Community
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As a rule 90% of indicative price
EC buys all the extra and preserves it
Annual price setting by the Council of Ministers:
technocracy
Constant enlargement of the number of regulated products
Strong influence of different groups of interest
Formation
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1965 – empty chair crisis
1970 – transfer to Community financing
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Positive: growth of productivity, market stabilization, protection of
farmers
Отрицательно: over-production at the expense of tax-payers, more
subsidies to bigger farmers, not environmentally friendly, increase of
expenditures in agriculture, against liberalisation processes in the
world
1973 enlargement: Ireland against UK – 2 poles
Fontainebleau 1984 – political obligation to decrease
agriculture subsidies
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1988 – first Delors package – obligation not to increase spendings
on agriculture by more than 74% of GNP growth
1992 reform
McSherry 1991:
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Decrease spending on cereals and beef
Compensation to farmers for the loss of income but no further link
between the amount that is produced and compensation that is
paid
Obligatory set aside – 15% (except for small farmers)
1992 – changes are adopted because of
Uruguay round (I world importer and II world exporter)
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EU against the US and South America
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Gradual decrease of tariffs and enlargement of market accessк
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Decrease of subsidies
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Decrease of farmers’ support
Enlargement
Introduction of euro
World conmpetition
Today
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Continuation of the reform:
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WTO new round:
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Non-commercial aspects of agricultural policy: environment, food safety
Special policy to third countries
Decrease of tariff and custom duties
Currently: further reform
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Competition in the EU and in the world
Fair standard of life for rural population
More environmental and structural actions
Food safety
UK vs. agriculture-producing countries
Post-2013 debates
Fair standards
Food security
Green agriculture
Food vs. biofuel