The European Union and the Outlook for Trade

By Anderson, Donald | Business Economics, July 1995 | Go to article overview

The European Union and the Outlook for Trade

Anderson, Donald, Business Economics

The european economy today is in large part the indirect product of the program to create a single market in the European Community by the end of 1992. The 1992 program, which was conceived in the mid-1980s and began in 1987, was stimulated by the perceived sclerosis of the European Common Market, particularly in comparison with evidently more dynamic economies elsewhere. These included the United States, whose record of employment creation contrasted well with mounting unemployment in Europe. A further stimulus was considerable fear of the competitive effectiveness of Japan, whose industries were becoming increasingly sophisticated. Japan's exports to Europe were also responsible for a growing number of voluntary export restraint agreements between Japan and European industries as the less-efficient European industries attempted to protect themselves in ways more effective than those provided for under the General Agreement on Tariffs and Trade (GATT).

The 1992 program was in some way a reflection also of the pressures that had led to the establishment of the GATT Uruguay Round in 1986 and had a number of features in common: the improvement of market access, the extension of free trade to services, freedom to tender for government contracts in other countries, and transparency. In place of the Uruguay Round's emphasis on the rules for the conduct of international trade, however, the 1992 program sought to harmonize relevant economic and legislative conditions in order to facilitate cross-border activity and create a market with common economic characteristics. One major feature of the Uruguay Round omitted from the 1992 program was trade in agriculture. The possible reduction in agricultural subsidies, however, was included.

Although stimulated by trade factors, the 1992 program went somewhat further. It comprised some 280 measures in pursuit of six objectives that have been summarized as follows:(1)

1. Goods and services: Removal of remaining nontariff barriers to visible trade. Simplification of customs procedures and elimination of vehicle checks. Harmonization of technical standards and health/safety regulations, with mutual recognition of certification. Closer alignment of VAT and excise duties. Removal of barriers to trade in financial and other services.

2. Factors: Free movement of capital, with removal of exchange controls. Alignment of savings taxes. Free movement of labor, with mutual recognition of qualifications.

3. Competition: Common rules on regulation, takeovers, state assistance to industry, patents and copyrights, company accounting and disclosure of information. Opening up of public procurement to competitive tender. Reduced intervention in agriculture.

4. Development and integration: Infrastructure projects, especially high-speed rail and road links and integrated telecommunications. Cooperative R&D, especially in microelectronics and information technology. A common energy policy.

5. Monetary integration: Exchange rate alignment; convergence of key economic criteria followed by adoption of a single currency and creation of a European central bank.

6. Social protection: Adoption of a Social Charter incorporating freedom of movement, fair wages and conditions of employment, vocational training, collective bargaining, consultation over technological change and company restructuring, protection of children, elderly and disabled people.

Of these six objectives, the framework for achieving most of those relating to the creation of a single market per se - the first four - is now in place, although implementation is behind schedule. The attempts at the fifth, monetary integration, have so far been extremely disruptive to the real economy, in part because of inept political management. Both it and the sixth objective, the Social Charter, are highly controversial, particularly in the United Kingdom. They were instrumental in the difficulties encountered in the endorsement of the Maastricht Treaty, the legal instrument for the adoption of the completed program in 1992, whereby the Community became the European Union (EU). …

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