Europe & Trade

Updated: May 28

Because Google Adsense deemed this website to have too little content for ads, I'll be posting my top 25 undergraduate papers. This was another paper for the economics of the European Union class. This paper is about the European common market in action.



Dalhousie University

POLI 2219

February 14th, 2019


Economic integration is a prime goal for a project of governance which takes a technocratic methodology. The overall economic benefits are undeniable to anybody with expertise in economics who have observed the models. Economic integration as a whole is a goal that must be achieved through a process. Sometimes that process involves starting with a preferential trade agreement. While sometimes the route can be different, such as in the case with the evolution of the European single market. Both preferential trade agreements and the European single market have advantages and disadvantages. What exactly does economic integration mean?

Economic integration is the unification of economic policies between countries through the abolition of tariffs or non-tariff barriers so there can be an increase in trade.(1) That increase in trade is supposed to lower prices and create greater abundance by comparative advantage which raises standards of living. However, the European single market had to evolve. Going from fully closed economies to fully open economies overnight is difficult due to intangible barriers, which is why there exist different kinds of trade agreements.

One example is a preferential trade agreements. It gives trading blocks that grant preferential access to specific products from the states that participate. Under preferential trade agreements, tariffs are reduced but not abolished.(2) Preferential trade agreements can be seen as an essential step towards an entirely free trade area. Some preferential trade agreements are multilateral, meaning 3 or more parties. While some are bilateral, meaning only two parties. At the moment, the European Union has a bilateral preferential trade agreement with the ACP.(3) The ACP is a group of African countries along with some in the Caribbean and Pacific. But as far as the single market goes specifically, its evolution mostly happened through multiple treaties in the ’90s.

The evolution of the European single market came from the European Economic Community adopting the Single European Act which was to create a single market five years after it was signed, 1992. To ensure it wouldn’t create a race to the bottom, meaning member states wouldn’t instil poor labour laws and decreasing wages to attract firms, universal health and safety regulations and standards had to be created.(4) The Maastricht Treaty came in 1992 which created the Economic and Monetary Union, paving the way for the common currency seven years later. The Amsterdam treaty in 1997 abolished physical barriers which incorporated the Schengen Area5, bringing open borders across many member states which makes the flow of goods, services, labour and capital considerably easier.6 Those four freedoms sound nice, but what are some general observable benefits of the increased trade like under preferential trade agreements?

General economic benefits that arise from preferential trade agreements involve an abundance of resources via comparative advantage and lower prices from increased competition. In the example of the North American Free Trade Agreement, there was a significant increase in economic growth for the United-States in the following years.(7) NAFTA also helped to lower food prices through the increased competition in the massively increased amount of trade.(8) So the benefits exist to anyone who is looking hard enough. But in the case of the European Union, which member states stand to benefit the most from the four freedoms?

Comparing trade advantages among member states can be difficult. What can be used as a universal measuring stick? The existence of the single market with free trade gives us perhaps one potential figure of use which is foreign direct investment. Investment is an important figure because it's one of the variables used in calculating Gross Domestic Product. The higher the investment, the higher the GDP. Generally, we would expect member states who are fiscally responsible, that is, hold a balanced or surplus government budget, to receive more investment. Perhaps that intuition comes from seeing balanced government budgets as a sign of stability. We would also expect member states that use the euro to be seen on an even playing field as far as investment goes.

The United Kingdom is an example of a member state with high foreign direct investment, but a budget deficit. However, that is a member state which uses a different currency, the Pound. That difference can change how investors view the stability of a member state. As for member states with a total even playing field, the ones that use the euro, the Netherlands and Germany have a high amount of foreign direct investment while holding surpluses in their government budget(9) whereas Greece and Italy are examples of two member states with deficits that have relatively low amounts of foreign direct investment.(10) Perhaps there exists a sentiment among investors that you are more likely to get a return on investment in member states that have a surplus in their government budget. That is an example of benefits to specific member states. Bit what is an example of a benefit that everyone shares from the single market? And where is it headed in the future?

One of the most exciting examples as far as results from the single market is arguably the decrease in the price of flying for Europeans. For North Americans, purchasing flights can sometimes be seen as the most expensive part of ones travel. However, due to the increase in competition from free trade in the European single market, flight prices have diminished significantly.(11) A shining example of the potential that free trade can bring to a market. Moving forward the European Union is trying to make sure member states are more fiscally responsible as the Greek debt crisis threw a wrench into the monetary and economic union aspects of the European Union.(12)

The economic integration of the European Union has been a process that has granted many benefits. Economic integration can be defined as the unification of economic policies between countries through the abolition of tariffs or non-tariff barriers so there can be an increase in trade. While preferential trade agreements don’t abolish all tariffs, they are a very light form of a single market with the intention of increasing trade and creating more abundance. The evolution of the European single market occurred mostly in the ’90s through treaties and agreements establishing different elements that can allow the flow of not one, but all components of free trade.

Those components are the free flow of goods, capital, services and labour. The benefits of free trade and the European single market specifically involve the lowering of prices due to an increase in trade and the abundance that was created. One of the most impressive examples is the price of flights in Europe. However, when it comes to comparing individual member states, the benefits of higher investment appear to be going to those who have fiscal responsibility. Perhaps because the balanced budget is seen as a token of stability. That difference cannot be understated as investment is a key component of a nations GDP. We can expect the European Union to try to lower the chances of financial destabilization in the future such as the destabilization in Greece.




Bibliography


"What Is Economic Integration? Definition and Meaning." Dictionary of International Trade. Accessed February 14, 2019. https://www.globalnegotiator.com/international-trade/dictionary/economic-integration/.


"What Is Preferential Trade Agreement (PTA)? Definition and Meaning." Business Dictionary. Accessed February 14, 2019. http://www.businessdictionary.com/definition/Preferential-Trade-Agreement-PTA.html.


"The Countries of Africa, the Caribbean and the Pacific (ACP)." Europa. Accessed February 14, 2019. https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/general-aspects-preferential-origin/arrangements-list/countries-africa-caribbean-pacific-acp_en.


“30 Years of the Single European Market”. Stefano Micossi. Page 12. College of Europe. 2016


“The European Union: Economics, Policies and History.” Page 133. Senior Nello, S., London: McGraw Hill Higher Education, 2012.


Laursen, Finn. "The Founding Treaties of the European Union and Their Reform." Oxford Research Encyclopedias. May 16, 2018. Accessed February 14, 2019. http://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-151.


"NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth and Jobs." U.S. Chamber of Commerce. October 27, 2015. Accessed February 14, 2019. https://www.uschamber.com/report/nafta-triumphant-assessing-two-decades-gains-trade-growth-and-jobs.


Thompson, Stuart. "Lower Prices and Increased Productivity: Many of NAFTA's Benefits Are Invisible to Consumers." Financial Post. August 11, 2017. Accessed February 14, 2019. https://business.financialpost.com/news/economy/lower-prices-and-increased-productivity-many-of-naftas-benefits-are-invisible-to-consumers.


"COUNTRY COMPARISON :: BUDGET SURPLUS (+) OR DEFICIT (-)." The World Factbook. Accessed February 14, 2019. https://www.cia.gov/LIBRARY/publications/the-world-factbook/rankorder/2222rank.html


"COUNTRY COMPARISON :: STOCK OF DIRECT FOREIGN INVESTMENT." The World Factbook. Accessed February 14, 2019. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2198rank.html.


Becker, Kraig. "Ever Wonder Why Europe's Flights Are So Much Cheaper than Canada's? - Travel Blog by FlightNetwork." Flight Network. August 1, 2014. Accessed February 14, 2019. https://www.flightnetwork.com/blog/ever-wonder-europes-flights-much-cheaper-canadas/.


Amadeo, Kimberly. "Understand the Greek Debt Crisis in 5 Minutes." The Balance Small Business. Accessed February 14, 2019. https://www.thebalance.com/what-is-the-greece-debt-crisis-3305525.



1 - "What Is Economic Integration? Definition and Meaning." Dictionary of International Trade.

2 - "What Is Preferential Trade Agreement (PTA)? Definition and Meaning." Business Dictionary.

3 - "The Countries of Africa, the Caribbean and the Pacific (ACP)." Europa.

4 - “30 Years of the Single European Market”. Stefano Micossi. Page 12. College of Europe. 2016

5 - “The European Union: Economics, Policies and History.” Page 133. Senior Nello, S., London: McGraw Hill Higher Education, 2012.

6 - Laursen, Finn. "The Founding Treaties of the European Union and Their Reform." Oxford Research Encyclopedias.

7 - "NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth and Jobs." U.S. Chamber of Commerce.

8 - Thompson, Stuart. "Lower Prices and Increased Productivity: Many of NAFTA's Benefits Are Invisible to Consumers." Financial Post.

9 - "COUNTRY COMPARISON :: BUDGET SURPLUS (+) OR DEFICIT (-)." The World Factbook.

10 - "COUNTRY COMPARISON :: STOCK OF DIRECT FOREIGN INVESTMENT." The World Factbook.

11 - Becker, Kraig. "Ever Wonder Why Europe's Flights Are So Much Cheaper than Canada's?

12 - Amadeo, Kimberly. "Understand the Greek Debt Crisis in 5 Minutes." The Balance Small Business.