International Trade Policy. The European Community

Throughout recent history, various tariffs and other trade barriers have been imposed by countries for reasons other than to build up local industry by discouraging foreign competition. Tariffs have been imposed for political reasons—so that a country could reward its friends or penalize its enemies.

In the late nineteenth and early twentieth centuries, the ideal of free trade was compromised by economic nationalism. The numerous high tariffs enacted by the United States and the various European countries restricted the flow of international trade substantially. Tariffs and other restrictions on international trade were widely blamed for creating and escalating the Great Depression of the 1930s.

The European Community.Since World War II. European economic nationalism hasgiven way to increasing economic cooperation. Under theauspices of the European Community (EC), the countries of Western Europe have eliminated virtually all barriers to free trade and free enterprise among themselves.These efforts have been critical to the recent economicdevelopment of Western Europe.

Experimentation with international cooperation in trade began in 1944 with the establishment of Benelux, a customs union consisting of Belgium, the Netherlands, and Luxembourg. In 1952. this group joined with France. West Germany, and Italy to form the European Coal and Steel Community (ECSC). which provided for the elimination of trade and production barriers in the manufacture and distribution of steel and related products. The six members of the ECSC extended their jurisdiction into all sectors of their economies in 1957. thereby creating the European Economic Community (EEC), or Common Market, now called the European Community (Figure 9-11).

Figure 9-11 The European Community. The European Community grew out of the European Coal and Steel Community, which was established in 1952. Today, the EC forms one of the world's largest economic and political blocs

In 1973, the United Kingdom. Ireland, and Denmark joined the European Community. Greece joined in 1979, and Spain and Portugal followed suit in 1986. The expanded EC gradually eliminated tariffs and established cooperative pricing policies. In 1985, it issued a White Paper on market reform. The goals of the White Paper included the complete elimination of trade barriers among member countries, the free flow of labor and capital among them, the establishment of a common currency, and improved cooperation in transportation and communications. At this point, however, not all of these goals have been realized.

Although all of the members of the EC have approved these goals in principle, several factors have impeded their implementation. The EC's primary source of revenue is a value-added tax on manufactured goods. The tax is not the same for all industries; moreover, it varies widely from state to state.

Agreement on economic policy has been hindered as well by continuing economic disparity between the prosperous industrialized areas of Europe and less developed regions. Representatives of less developed regions within the EC have argued that economic unification will not benefit them as much as it will the wealthier regions. In response, the EC has taken positive steps to eliminate regional disparities among its members. Special programs have provided aid to chronically depressed regions, including southern Italy, western Ireland, and southwestern France. Agriculture in Ireland, Denmark, and Greece was afforded special protection when these countries joined the EC.

Concern that traditional cultural and linguistic patterns within Europe may be disrupted by economic integration has also been expressed. These fears have impeded the development of a common political union. During the 1980s, the first European Parliament was elected, with representatives from each of the member nations meeting in Strasbourg. The Parliament does not yet have full jurisdiction over international issues, however. The European Court of Justice, sitting in Luxembourg, is similarly constrained; its decisions have moral force but lack true jurisdiction within the EC member countries.