Comprehensive Essay on the European Economic Community?

1. The Nature of EEC:

Europe’s most comprehensive attempt at economic integration was marked by the formation of the European Economic Community (EEC). In a treaty signed in Rome on March 24, 1957, six nations of Western Europe, viz., France, Germany, Italy, Belgium, Netherlands and Luxemburg agreed to merge their separate economies into one single economic unit by establishing a ‘common market’ area also known as the “Inner Six” arrangement.

This six-country arrangement for the creation of a “common market’ area is popularly known as the European Common Market (ECM) which came into being on January 1, 1958.

Objective:

The board mission of the Common Market as defined in the Treaty of Rome is to form a customs union of the six signatories in order to have a large market areas, leading gradually, by the end of the transition period (roughly 1970), to an economic union, and ultimately to a complete political integration – a Federation of Europe. However, the immediate objective of the EEC was to achieve the advantages of increased specialisation and division of labour by making the unified area of “Inner Six” a more powerful unit which ensures the harmonious development of economic activities, continuous and balanced growth, increased stability, a more rapid improvement in the standard of living and closer relations between its component states.

Custom Union:

Establishment of a customs union of the six member countries is the crucial provision under the ECM. This customs union signified the composition of a single customs territory of the participating nations as against the customs territory of each individual nation.

In such a customs union there is complete freedom for the movement of goods and services between the outside world and the partner countries. In a customs union, the members adopt a uniform tariff policy applicable to the outside world, and all tariffs between members are to be abolished.

Economic Integration:

The purpose of the Common Market is not limited to the creation of a customs union. It aims at a much broader economic union. The avowed objective of the Treaty of Rome includes free mobility of labour and capital within the Economic Community and harmonisation of national economic policies of the member States, to promote throughout the Community a harmonious development of economic activities and closer relations between its member nations.

To accomplish all these, the member States are committed under the Treaty of Rome to:

1. The removal of customs duties and import-export quotas between each other;

2. The establishment of a common tariff and commercial policy for the outside nations;

3. The abolition within the Community of obstacles to the free movement of labour and capital;

4. The inauguration of common agricultural and transport policies;

5. The establishment of a system ensuring competition in the Common Market;

6. The adoption of procedures for coordination of the economic policies of member nations and for remedying their balance of payments disequilibrium. Basic goals in the coordination process include external balance, full employment and price stability;

7. The coordination of legislation of member states for the smooth functioning of the Common Market;

8. The establishment of a European Social Fund for easing the readjustment problem of workers experiencing unemployment as a consequence of trade liberalisation;

9. The creation of a European Investment Fund which will give financial aid to the industrialists to improve workers’ conditions in the underdeveloped regions of the component states. Another purpose of such a Fund is to help in financing projects of European importance;

10. The association of dependent overseas territories within the Economic Community. Hence, an Overseas Development Fund was also established in 1958, empowered to provide loans for projects in the affiliated overseas territories.

Above all, under the Treaty of Rome, provision was made to admit new membership, full or associate. As such, for instance, in 1961, England and Denmark negotiated for full membership which, however, did not materialise. Under the provision for associated membership, however, Greece was accepted as an associated member of ECM in 1961.

2. Organisation :

The European Economic Community is a kind of super-government in economic affairs and relations of the Community. Like any government, there it has specific agencies to execute, to legislate and to settle disputes.

Its principal administrative body is the European Economic Council. It is sort of economic cabinet of the six component states. It has one member from each of these six states. It functions as an executive agent of the Community. It has to make day-to-day decisions, formulate rules of conduct, make new legislation and good members to carry out the provisions of the Treaty.

To assist the Council, a nine-man European Commission is set up. The Commission has to look to the application of the Treaty, study special problems and make recommendations to the Council.

A Monetary Committee is also formed as an advisory body to watch over balance of payments and such other matters of the Community.

In addition, the European Economic and Social Committee is created as an advisory body, which consists of representatives of industry, workers, farmers, etc.

The Assembly of 106 members is created for the legislative purposes of the Community.

A Court of Justice is also set up to adjudicate disputes.

3. The Impact of EEC :

In short, the Common Market had important impacts – economic, political and social – on the individual members. But the economic impact of the Common Market on the development of entire Europe and other countries is also not insignificant. The growing prosperity of the Common Market areas (of six nations) could hardly be ignored by the rest of the world. For them, progress of the EEC area represented both competition and opportunity.

4. European Free Trade Association (EFTA) :

The United Kingdom did not join the ECM. Hence, in 195,9 due to the fear of adverse effect on her trade by the Common Market, the U.K. formed a rival group known as European Free Trade Association (EFTA). EFTA comprised of seven members: the U.K., Austria, Denmark, Norway, Portugal, Sweden and Switzerland, popularly designated as the “Outer Seven.”

Its main goal was to reduce tariffs among the member countries. Thus, initially in 1960 mutual tariffs were reduced by 20 per cent. However, under EFTA each nation retained its own external tariffs. It also did not provide for the free movement of labour or capital.

As a result of EFTA’s leadership, however, the U.K. instituted powerful negotiations in 1961 for membership in the Common Market. She, however, demanded special terms and concessions in regard to future dealings with members of the Imperial Preference System, with the other EFTA nations and such other matters like her domestic agricultural programmes. EEC members did not want to bow down just for the sake of expansion of membership. Hence, the result was deadlock in negotiations.

5. The EEc: 1992 Reforms:

The European Community (EC) is a glaring example of an economic integration through, the membership of the customs union. EEC raised from original 6 nations in 1957 to 12 nations by 1987.

A customs union was achieve by the EEC by 1970 yet it did not succeed in creating a common market until 1985. In 1985, a detailed programme was charted to achieve real economic integration through common market.

In recent years, the 1992 plan envisaged great unification of the European community by introducing the following reforms:

1. Simplicaitifon of border growing by relaxing internal border controls. Since 1993, the EC dominated its customs check at borders.

2. Removal of technical barrier to trade.

3. Removal of government procurement obstacles with the EC commission taking more control of this problem. This myjces public procurement more competitive among the member.

4. Removal of hindrances to capital movement with the opening up of the financial services such as banking and insurance.

5. Permitting the professionals such as lawyers, accounts, etc to practice anywhere within the EC.

6. Removing the differences in tax systems by adopting standardised system of a value-added tax in the community.

Foreign multinational corporations actually find an advantage in 1992 EC reforms in their favour in competing with many EC firms as they have already been treating the EC as a unified market since long.

In short, with 1992 reforms for further unification the EC furnishes a living example of programme towards economic integration in the pocket of global economy and trade.

The Cecchini Report 1988, claimed that the member countries of the EC would benefit by the 1992 plan, with a one-time boot to GDP spread over a number of ears of 4.5 per cent to 6 per cent, a gain of 2 million new jobs, and price-reduction by about 6 per cent. To some critics like Baldwin Flam this is an overestimation. In their opinion, gain is to be 2 per cent rise in GDP and a million job creation.

The potential welfare gain of forming a common market by the EEC are measured by Cecchini Report (1988).

The 1992 programme, however, created some suspicions among the European Economic Community (also called European Unions’) major trading partners the Japan and the United States. It was referred to as a protecionist step towards creation of ‘Fortress Europe.’ The basic fear was that with the minimisation of its internal barriers the European Union might tend to raise its external barriers. Several misgivings held by the trading partners of the EU were confirmed by the evidences, such as:

(i) The EU insisted that foreign producers have to monitor their exports in certain sensitive industries (such as Japanese cars, American Television after 1992, programme, etc.) for an undefined period of time.

(ii) The anti-dumping measures of the EU.

(iii) Insistence on guaranteering the use of total input components upto 60-80 per cent by the foreign companies establishing their production plants in the European Union.

(iv) The EU’s reluctance to liberalise agricultural and cinematic products.

(v) The EU’s new industry policy focussed electronic, aircraft and computer sectors of self- sufficiency.

Against, the pessimistic protectionist interpretation, there was also an optimistic view held by some. It is argued that in the long run, the economic growth of the EU envisaged under the 1992 programme would be equally shared by the foreign companies. Besides, it is not in the interest of the EU to pursue protectionists policy as the union is not against globalisation. Moreover, its exports and inward investment are of a very high order.

The EU contributes one-fourth of the total world’s exports, which accounts for about 15 per cent of its gross domestic product. Almost 40 per cent of foreign direct investment (FDI) of the developed countries goes to the European Union.