session 4 - trading blocks-european economic union

7/27/2019 Session 4 - Trading Blocks-european Economic Union

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TRADING BLOCKS

EUROPEAN ECONOMIC

UNION

MS. INDRAYANI DEEKSHIT


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TRADING BLOCKS - COVERAGE

Various forms of economic integration

Formation of Trading BlocksConditions for success

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TRADING BLOCKS LEARNING

OBJECTIVE

Understanding the underlying logic

Factors responsible for successObjectives and functioning of various

Trade blocks

EU / NAFTA / ASEAN / EFTA / LAIA /SAARC / APEC / MERCOSUR / ANDEAN

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BENEFITS OF ECONOMIC

INTEGRATION

Business opportunities created

Unnecessary competition avoidedMinimises economic consequences ofpolitically independent countries andpolitical boundaries

Small economies are grouped into alarger single economy and market

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BENEFITS OF ECONOMIC

INTEGRATION

Resources are pooled, increasing

efficiency and productivity.Financial Resources are pooled for

large-scale operations

Size of market increases.Economic activity increases

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TYPES OF ECONOMIC

INTEGRATION

Free Trade Area No barriers between

participating countries.

Customs Unions Members abolishtariffs or charge low rates. There is auniform commercial policy reg. non-members.

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TYPES OF ECONOMIC

INTEGRATION

Common Market All member

countries lower / abolish tariffsandadopt uniform commercial policy of

restrictions / barriers with non-

members. There is free movement ofHuman Resources and Capital.

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TYPES OF ECONOMIC

INTEGRATION

Economic Union - All member countries

lower / abolish tariffs andadopt uniformcommercial policy of restrictions / barriers

with non-members. There is free

movement of Human Resources and

Capital. The countries achieve uniformity in

Monetary and Fiscal Policy among markets.

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TRADE CREATION

Occurs when lower-cost partner

countrys imports displace higher-priceddomestic production, thereby

decreasing costs of production and

consumer prices within the country.

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TRADE DIVERSION

Occurs when lower-cost partner

countrys imports from outside theblock are displaced by higher-cost

imports from within the block.

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EUROPEAN UNION

In 1952 - West Germany, Italy, Belgium,Netherlands and Luxembourg formed the

European Coal and Steel Community (ECSC).

Aim of ECSC was to eliminate import duties andquotas on coal, iron ore, steel and scrap and

regulate trade between member countries.

1957Facility was extended to all commodities.

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EUROPEAN COMMON MARKET

(EEC European economic

community)

EEC Originally comprised of 6 countriesFrance, Federal Republic of Germany, Italy,Belgium, Netherlands and Luxembourg.In 1973 UK, Ireland, Denmark joined.

In 1981 Greece joined.

In 1984 Portugal and Spain joined.In 1986 Austria, Finland & Swedenjoined.

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EUROPEAN COMMON MARKET

AND THE EUROPEAN UNION

It became the European Union withintroduction of uniform monetary policy,common currency and fiscal policy.In 2004 Cyprus, Czech Republic, Estonia,Greece, Hungary, Latvia, Lithuania, Malta,Slovakia and Slovenia joined EU.

As on 2005 total of 25 countries becamepart of EU

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EUROPEAN UNION

Requirements for joining EU :

Country should be a European one

Country should be Democratic

EU consists of ECSC, EEC and EuropeanAtomic Energy Commission ( Euratom )

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MAIN OBJECTIVE OF EUROPEAN

ECONOMIC UNION

The setting up of a common market to promote,throughout the community :

-a harmonious development through economicactivities

- a continuous and balanced expansion

- an increase in stability and accelerated raising of

the standard of living and- closer relations between the member states

belonging to it.

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ACTIVITIES OF EUROPEAN

ECONOMIC UNION BASED ON

OBJECTIVES

Elimination of customs duties andquantitative restrictions with regard to export

/ import among membersEstablishment of common customs tariffs andcommon commercial policy with regard tonon-members

Abolition of all obstacles related to movementof persons, services and capital amongmember countries

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OBJECTIVES

Formulation of common policy for

agriculture and transportEstablishment of system to ensurecompetition

Application of programme in order to co-

ordinate economic policies

Application of procedures and programmeto control disequilibrium

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OBJECTIVES

Approximation of legislation of member

governmentsEstablishment of European Social Fund

Establishment of European InvestmentBank for mobilisation of fresh resources

Development of association with thecountries to promote economic and socialdevelopment

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IMPORTANT MILESTONES IN

ESTABLISHMENT OF EEC

1958 Rome Treaty setting up EEC &

Euratom1973 UK, Ireland, Denmark join EEC

1981 Greece joins EEC.

1986- Spain, Portugal join.1990 Fall of Berlin Wall

1992 Maastricht Treaty signed

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IMPORTANT MILESTONES IN

ESTABLISHMENT OF EEC

1993 Single market comes into force

1994 Single market of 19 countries formed

European Economic Area ( EEA )1995 Austria, Finland, Sweden join EEC.

1999- New currency Euro introduced.

2004 Czech Rep., Estonia, Hungary, Latvia, Lithuania,

Malta, Poland, Slovak Rep. and Slovenia join EEC2007 Bulgaria & Romania join. Progressively, Cyprus,Malta, Slvenia, Slovakia adopt Euro

2010 & later Greek default looms large

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ORGANISATION OF EUROPEAN

ECONOMIC UNION

EUROPEAN COUNCIL AND ITS

SUPPORTING FRAMEWORK

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EUROPEAN

COUNCIL

COURT OFJUSTICE

COURT OFAUDITORS

EUROPEANCOMMISSION

EUROPEANPARLIAMENT

ADVISORYCOMMITTEE


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UNION

EUROPEAN COUNCIL

Main Administrative body.Each member country represented

Presidency held for 6-mth period byrotation

Committee of permanent representativesCorper acts as Secretariat and takesdecisions

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UNION

EUROPEAN COUNCIL

Makes routine decisionsFrames rules of conduct

Prepares new legislation

Enables members to carry out provisionsof Treaty

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UNION

EUROPEAN COMMISSION

Assists the CouncilExecutive body of EU

Members have a 4-year tenure

Each commission is entrusted one or moreEU Policies

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UNION

COURT OF JUSTICE

Adjudicates disputes regarding agriculture,social security and competition policy

Also adjudicates disputes between

members

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UNION

COURT OF AUDITORS

Audits EEC budgetsMonitors expenditure

Lays down procedure for collection of

duties and levies

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UNION

EUROPEAN PARLIAMENT

European Commission consults EuropeanParliament which :

provides consultation and information toCommission

approves or rejects draft budget preparedby Commission

dismisses Commission, if necessary

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UNION

ADVISORY COMMITTEES

Economic & Social Committee representsactivities like employers, employee unions,liberal professions etc.

Monetary Committee examines monetaryproblems

Consultative Committee on Coal and steelIndustry studies problems of coal & steelindustries

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FUNCTIONING OF EU

COMMON AGRICULTURAL POLICY

Green Rate for member countries. Supportprice is converted into the National price atthe Green rate

Farmers free to produce as much as they can

Free movement of Agricultural productsImports allowed only if Demand > Supply.

If Supply > Demand, subsidies for exports

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FUNCTIONING OF EU

IMPACT OF COMMON AGRICULTURAL

POLICYRich farmers became richer

Unemployed farmers did not seek

alternative employmentConsumers did not get lower prices

But self-sufficiency in agriculture achieved

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FUNCTIONING OF EU

COMMON FISHERIES POLICY In 1970.

Market created for fresh, frozen &preserved fish

Common market standards were set and

facilities were for trading among membersEqual access to fishing areas was provided

to nationals of EU Countries

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EVOLUTION OF THE EUROPEAN

MONETARY UNION

Started in March 1979 with foll. Features :

Exchange rate mechanism to help membercountries to regulate inflation and interest rates

European Currency Unit, as a weighted averagebasket of all currencies in the EU as a means ofsettlement between member countries, with official

rate being calculated on a daily basis

European Monetary Co-operation Fund, to act as aclearing house for member countries

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MONETARY UNION

Factor mobility Free movement of

persons. Services and capital amongmember countries

Regional Development Policy - to promote

balanced development and removedisparities. Financial assistance provided to

backward regions

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MONETARY UNION

European Investment Bank set up in 1958,

to provide loans and guarantees to membergovts. for development of backward regions

and for modernisation, conversion and

development projects as well as for

projects where members have a common

interest

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MONETARY UNION

European Social Fund for providing

vocational training and creation of jobs forjobless and anti-poverty programmes

European Regional Development Fund

set up in 1958 for providing loans fordevelopment of backward regions,

infrastructure and industrial service

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MONETARY UNION

Common Transport Policy

For removal of obstacles for common market place

Integration of transport facilities

Organization and control of transport system

The EEC could not achieve the set objectives

completely, due to issues involved in infrastructurepricing, entry controls for transportation

EU emerged as one market from 01.01.1995becoming the largest, single market

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INTRODUCTION OF A COMMON

CURRENCYTHE EURO

On 1st Jan 1999, Exchange rates of

participating countries were irrevocably setand 11 currencies became sub-division of

Euro, which was used for electronic and

credit card transactions since 1999.

New Euro Bank notes were introduced in

2002.

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INTRODUCTION OF A COMMON

CURRENCYTHE EURO

12 member countries have adopted EuroBelgium, Germany, Greece (which joined in 2001),

Spain, France, Ireland, Italy, Luxembourg,Netherlands, Austria, Portugal and Finland.

Further, among the later entrants Slovenia,Cyprus, Malta, Slovakia & Estonia have also adopted

Euro taking total no. to 17 out of 27 members.Denmark, Sweden, UK are members but are notpart of single currency.

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ESTABLISHMENT OF EUROPEAN

CENTRAL BANK

ECB was established in 1998 to maintain

price-stability & conduct single monetarypolicy.

National Central Banks alongwith ECB are part

of the Euro system.

The primary objective of ECB is to decide and

implement monetary policy, conduct forex

operations and operate payment system

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ROLE OF NATIONAL CENTRAL

BANKS IN INTRODUCTION OF EURO

Introduction of Euro

Manage changeoverCreate necessary support system

Withdraw legacy currency

Provide advice.

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THANK YOU

session 4 - trading blocks-european economic union

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