Lecture 19: Regional groupings no. 1: The EU
Regional groupings and globalization.
Today and next week we will be studying
regional integration, which is about the formation of regional trade blocs and their possible
evolution into suprastate entities. Among these the most developed is the European Union, which
we’ll look at today, NAFTA or the North American Free Trade Agreement, the regional group
with which most Americans are familiar, and the ASEAN Free Trade Agreement or AFTA,
which we’ll discuss next time. As we look at regional integration, there are three main questions
that I want you to keep in mind: first, as we’ll discuss in a few minutes with the EU, does the
process of integration involve a sort of necessary progress from one stage to another, from
simpler to always deeper levels of integration, or can the process stop or even go into reverse?
Second, to what extent are we moving beyond the nation-state of the last few centuries into
different kinds of political entities? Third, what is the relationship between regional integration
and regional groupings, on the one hand and globalization: is the regional grouping a
steppingstone to globalization or a shield against it?
The zero level of integration.
Looked at schematically, there are five levels of regional
integration: the free trade area, the customs union, the common market, economic union and
finally, complete political integration. I want to start with the zero state, in which each country
has its own laws and regulations, including tariffs and other trade laws. As we saw, trade laws
are the results of games between lobbyists representing different interests seeking protection and
legislatures, and the outcome of these games is likely to be a hodgepodge of all sorts of different
tariffs on different products, with a different hodgepodge in each country depending on how the
political games among producers and legislators have worked themselves out. The GATT and its
successor, the WTO, basically set a ceiling on tariffs higher than which the tariffs of the
individual countries cannot be set, but below that ceiling each country can have its own
hodgepodge; and of course there are classes of products, such as agricultural commodities, that
are not covered by multilateral trade treaties at all.
Western Europe left the zero stage with the Treaty of Rome in 1958, and began creating
an economic union. There were two main reasons for doing so, one economic and the other
political. The economic motive was to help Europe’s recovery from World War II, and the