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Trade Flows Within The European Union

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The European Union is a huge player in the game of global trade. It holds one of the biggest and most important positions in the global trade of goods, services, and investment. While a sizable portion of its trade activity is extra-European Union trade, or trade between member states and the rest of the world, it is important to consider the profound economic impact of intra-European Union trade, or trade from member state to member state. With time, intra-European Union trade and its structure within the European Union has become one of the most significant effects of the European Union on its member states. In this paper, I will discuss some history of intra-European Union trade, its evolution over time, and some outcomes of the creation of the “single market”. I will also address the state of intra-European Union trade in the modern day, and its significance for individual member states, the European Union as a whole, and the broader global trade economy.

Intra-European Union Trade has evolved rather dramatically over time, as has the European Union itself. In order to understand the landscape of trade within the European Union, it is important to first understand the history of the European Union and the market integration process. Leading up to the 1950s, there had been some progress towards a common trade market in Europe, such as the elimination of quotas and the lowering of customs barriers. However, many mark the true beginning of the process in 1957 with the Treaty of Rome and the creation of the European Community as the start of a concerted effort to create a “single market”. The goal of the European Union itself, centered around intra-European Union trade, would become to create seamless market integration in Europe and to allow for the free movement of goods, services, capital, and human beings across European borders. In the coming years, there was more incremental progress towards lowering the barriers of intra-European Union trade. Most notably, the Common Agricultural Policy in 1962 that further standardized and subsidized the agricultural industry, the removal of customs duties, and the liberalisation of industrial products in 1968. These small changes were somewhat of a precursor to the extensive breakdown of trade barriers that would come later. Despite the existence of the European Community and small movements towards a trade economy without barriers, there were still many sizable obstacles present preventing free trade between members of the European Community. National laws and regulations were not yet standardized, which required much stricter customs policies and even sometimes required certain countries to entirely block the goods of another country if standards for things like hygiene, quality, or manufacturing techniques were not met. The process of creating the single market did not happen in a vacuum, so of course the global economy played an important role in the ebbs and flows of the market integration process. The European Community was no exception to the effects of the oil crisis that swept the world economy in 1973, and some member countries were forced to instate non-tariff barriers to trade, such as harsh technical or commercial regulations. Individual countries were hesitant to take part in the free movement of capital, and wanted to protect their individual currencies for the purpose of public or private investment. To make matters worse, the trade system in place between European countries was also starting to distort competition in Europe. Because tax systems across Community members were disparate, competition could not be adequately monitored and upheld. The European Community had made small steps to creating a single market and opening up intra-European trade, but these incomplete aspects of the common market were preventing it from becoming truly integrated and stopped the expansion that leaders hoped would follow.

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The European Community came back together in 1986 to sign the Single European Act, which would work towards the completion of market integration in several stages, with the hope of the process being complete by 1993. Progressively, barriers between European Community members were removed to allow free movement of individuals, goods, services, and capital. The types of individuals allowed to move freely across borders became more broad to include not only businessmen or paid employees, but students and pensioners as well. Harsh customs requirements on goods were reduced and subsequently removed entirely, as the Community market started to recognize more universal norms for manufacturing requirements and quality standards. Opening up the services sector was more difficult and took more time, but began with the liberalization of some transportation sectors, maritime industries, and railroad industries in 1986. Competition regulation, state aid policy, and innumerable other laws were put into place to aid in the integration of the European market.

As was the original goal set in 1986, the 12 member states of the European Community at the time signed the Maastricht Treaty in 1993 to create the European Union and propell even further the creation of the single market. The European Union continued to evolve, and occasionally struggle, in the coming years following economic shocks like the fall of the Berlin Wall in 1991 and the adoption of a single currency and the eurozone in 1999. Although this certainly did not mark the end of progress and evolution for the European Union, all of these events and changes were huge milestones in the process of opening up intra-European Union trade and making it what it is today.

This history and goals of the creation of the single market within the European Union sets up the proper context to understand modern intra-European Union trade patterns. The goal of reducing barriers to trade between European Union member states was to boost economic growth in Europe by creating more competition, synthetically producing higher levels of productivity and innovation because of that increased competition, and exploiting economies of scale. The benefits that the European Community believed would come with the creation of the single market were extensively tested, predicted, and analyzed even before it technically began. One of the most notable pre-integration studies, the Cecchini Report from 1988 predicted that the single market would boost the broad GDP of the European Union between 4.25% and 6.5% after 5-6 years, and in turn lower prices, increase consumer welfare, and create 2 million jobs across the Community. These gains to GDP were predicted to be due to removal of trade barriers, increased market access, exploitation of economies of scale and intensified competition, as mentioned earlier. According to Stehrer et al., many other studies conducted before the creation of the single market predicted less dramatic increases in GDP, but increases nonetheless. Researchers, economists, and politicians alike were hopeful that the creation of the single market would have significant and long lasting positive effects on the internal trade patterns of the European Union, create more specialization, and stimulate the economy as a whole.

As time has gone on, researchers and economists have debated whether or not the single market and reduction of trade barriers has been successful in reaching this goal or not. According to Stehrer et al., the creation of the single market has not created the dramatic specialization, dynamic economy evolution, or trade stimulation to the degree that was initially expected. Stehrer does point out, however, that it is very difficult to properly measure the impact of the creation of the single market due to the abundance of variables at play, and that the process of eliminating trade barriers is far from over and could still show new effects in coming years. The European Union itself highlights on their website that even today the process of removing trade barriers is still continuing, and that they are still working to standardize things like member state tax systems, financial services markets, and e-commerce regulations. As the single market becomes more and more realized in the coming years, the true scope of its impact will become clearer. The evolution that the creation of the single market has triggered for trade flows within Europe and the European Union is undeniable.

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