Stages of International Economic Integration

Industrial FTA: EFTA (exclude agriculture)

Full FTA  

FTA →CU: inevitable (otherwise, nonmembers take advantage of differing tarffs among member countries)

(EEC became a common market in 1992).

CU →Common Market (slow. Common heritage, language and culture will expedite this process.)

FPE also facilitates the formation of a common market. This transition to a common market is desirable in order to prevent nonmember countries from taking advantage of different wages and taxes. Nonmember countries invest in the countries where taxes and wages are lowest. E.g., Japan builds TV factories in Mexico, rather than in the US.

CM → Economic Union (relatively easy, because of economic gains from a single currency)

(Single constitution. No diplomatic rights for individual states.)

In contrast, EU has four branches. The legislative and executive powers are split among three branches of EU, excluding the European Court. As more members join, institutions of EC will inevitably evolve.

We learned democracy from the Greeks, who invented it around 500 BC, but Amerian women gained voting right only 1920s.

Governing institutions were modeled after the Roman model, although Roman's Republic was replaced by an empire subsequently.

2. Council of Ministers

3. European Parliament

4. Court of Justice 

Number of members = Initially, 20. As EU expands, the number of commissioners increased, especially due to accession of 10 central and easter Europen countries.

Rule (2000): Each nation should have a commissioner until the 27th member joins, in which case the numer of commissionsers will be less than that of member states.

Today, there 27 Commissioners plus the President.

F, G, I, Sp, UK = 2

others = 1

terms = 5 years  
its staff = 15,000  
Must be independent of their national governments.

It now has a President. Other Commissioners act like the Secretaries in the US. Each commissoner specializes in one area (e.g., agriculture and reral development)

The Commission's Role initiates proposals for legislation--3 objectives European interest = what is best for the Union as a whole, rather than for individual sectors or countries.

Consultation = consult as widely as is necessary

Subsidiarity = the Union takes action only if it becomes more effective than if left to individual member states.

insure that Union legislation is correctly applied by member states.

The commission can fine individuals, firms, and organizations for infringing the Treaty law. One group of firms was fined ECU 248 million.

Manager and Negotiator of Union policies 
manages EC's finances and budgets (ECU 80 billion)

negotiate trade and cooperation agreements with other countries or group of countries.

It is not clear who makes executive decisions.

Needs to be restructured into upper and lower houses in lieu of Senate and the House of Representatives.

Simplicity determines the function of the organization.

If a mistake occurs, it is not clear who is resonsible, or how to correct it. 

In this sense, United Nations, as currently organized, is like EU's council of ministers.

(In the future, if it is to be properly run, United Nations should be supported by World Court and World Parliament. Without these two organizations, there are no checks and balance in the Untied Nations, which was established as the political complement to GATT and IMF after WWII.)  

Presidency: from July 1, 1995, rotates every six months in a sequence (not alphabetically). arrange and preside over all meetings.

Council makes final decisions, but can do so only on proposals made by Commission.

Decisions are made by unanimous vote for some, and others by a qualified majority vote rule.

Decision Making is based on three pillars.

• regulations: are directly applied without the need for national measures.
• directives: bind member states as to the objectives, but permit national authorities to choose the form and the means.
• decisions: binding upon those to whom these are addressed, including all member states or individuals.
• recommendations and opinions: nonbinding.

Unanimity rule: each nation has veto power. In case a country invades another, there is no way to punish the rogue country. No sanctions can be imposed.

This is one reason why EU will not accept Turkey.

Germany = 99, .... Luxembourg = 6.

Now 736 members (as of 2010).

Meeting places = meeting alternates in three cities (Strassbourg, Luxembourg, Brussels)

cooperation procedure: allows Parliament to improve a proposed legislation by amendment.

co-decision procedure: shares decision making power equally between the Parliament and the Council.

draws members from individual countries.

term = 6 years

They are independent of member states.

preliminary rulings by courts in the member states. Court of Justice is not a court of appeal. National courts decide the case while observing the principles of Community law.

After the hearing, the advocate general delivers an independent opinion in open court. But it is not binding, and is not always followed by the Court.

The judges arrive at their view in closed discussion, and then delivers their judgment in open court.

The Court has the sole power to decide whether the actions of the Commissions and Council are constitutional. The court's judgments are binding throughout the community, including all individuals, business firms, national governments and other Community institutions.

For more information, see Europa document on Institutions of the European Union.This page provides direct links to various institutions of the European Union.

(1) Free Trade in Industrial Products: there are no longer tariffs or quotas on trade of industrial goods. Still there are some NTBs such as state monopolies, different tax systems, different customs classifications.

(2) Free Trade in Agricultural Products: Each country came into EEC with its own domestic farm program. The Rome Treaty does not spell out Common Agricultural Policy. By 1964 they adopted Common Grain Policy (at least for grains).

The EC is still the largest importer of farm products in the world and the US is the largest exporter. US agricultural policy is aimed at opening up foreign markets except in dairy products. The single most important element of Europe's trade policy, from America's viewpoint, is the Common Agricultural Policy (CAP). It is a price stabilization policy for agricultural commodity markets. Price stabilization program was adopted in the United States when the Commodity Credit Corporation was established in 1933.

Farmers suffer from price instability and lobby for price stabilization. In theory, CAP is designed to protect farmers by insuring stable prices. In practice, CAP as well as US farm price stabilization programs are subsidy programs, i.e., target price is above unit cost. (Initially, Europe's program did not have acreage restrictions, but now it does, imitating US programs.)

Target Price = base price for grains to be established annually to protect European farmers.

(Intervention Price = the price at which the Community will buy from domestic producers.)

Threshold price = target price less transportation and marketing costs of imported grains.

Variable Import Levy = Threshold price - world price.

These programs produce huge surpluses such as "milk lakes" and "butter mountains" costing $14 Billion a year.

(i) Differing industrial standards (e.g. frequency standards for TV sets), safety rules. A representative of Phillips (a large Dutch firm) said that his firm had to make 9 different types of television sets for European companies

(ii) limitation of movements of workers. Differing licensing requirements for doctors, lawyers and other professionals.  

"Schengenland" is an area of free circulation of citizens of seven Member States signatories to the Schengen Agreement: Belgium, the Netherlands, Luxembourg, France, Germany, Portugal and Spain. No need to show passports. (France still continues temporary passport control)

Italy (1990) and Greece (1992) signed. Austria joined in 1995.

(i) European Union citizens and legal EU residents of the 15 Member States could travel throughout the bloc without showing their passports from the end of 1996.

(ii) Visa with no territorial restrictions (visitors can stay up to 90 days per six-month period.

(iii) Nonmember country national with a residence permit valid in one Schengen country may travel on a valid passport without a visa, for up to 90 days per six-month period to other Schengen ountries.