When and how the international organization creating these association of states was born and became what it is today. It’s evolution has been rather fortuitous because the European Founding Fathers. They did not necessarily foresaw how significant their creature would have become.
Let’s make a step back in history. If I ask you, the legacy of which war was an important driving force behind the creation of what is now called the European Union. What would your answer be? The Thirty Years War, World War I, World War II, or the Cold War. Well, the right answer is World War II. In the aftermath of World War II, and with the aim of securing peace between Europe’s victorious and vanquished nations, all European leaders were facing the very same challenge.
How can we ensure peace and prosperity for our people? It is the then French Foreign Minister, Robert Schuman, who was helped by one of his advisers, Jean Monnet, who laid down the foundation stone of the EU. In the famous Schuman Declaration of May the 9th, 1950, in the famous Salon de l’horloge, Quai d’Orsay, Paris. He identified a right recipe on how to achieve the political goal of peace and prosperity. In particular, Shuman stated that, the coming together of the nations of Europe requires the elimination of the age-old opposition of France and Germany.
Any action, he said, must be in the first place concern France and Germany, either for propose that Franco-German production of coal and steel, whose control. It being the main source of conflict between these two nations for many centuries, be placed under The control of a common authority.
A super-national entity made of national representatives within the framework of an organization open to the participation of other countries of Europe. The pooling of coal and steel production should have immediately provided for the setting up of a common foundation for economic development. As a first step in the federation of Europe. It will change the destinies of those regions which have long been devoted to the manufacture of munitions of war, of which they have been the most cost in victims.
The Schuman Declarations continued, the solidarity in production, this established, will make it plain that any war between France and Germany becomes not merely unthinkable. But materially impossible. The setting up of this powerful productive unit open to all countries willing to take part and bound ultimately to provide all the member countries with the basic element of industrial production on the same terms.
We lay a true foundation for their economic unification. This would constitute a historic initiative for our organized and vital Europe which was indispensable for civilization with a which the peace of the word could not be maintained.
To sum up. In order to achieve the political end of piece and prosperity, the founding fathers of Europe decided to rely on economic means. Six founding states, Belgium, Germany, France, Italy, Luxembourg. and the Netherlands, passed originally signed, the so called Treaty of Paris. And constituted, the European Coal, and Steel Community. Which enter into force on July 23, 1952.
A few years later, since this project was so successful, the six leaders, the very same six leaders, decided to meet again and this time it was in Rome. In this time they set up a European economic community, which involved building a wider common market covering not only coal and steal, but all goods. And even workers, services and capitals. All factors of production had to be included in such a project.
So, for instance, the custom duties meaning the tariffs that they were due every single time a product was crossing the border, were abolished among the six countries. And these, of course, push and promote the trade in agriculture.
So, on these bases, I have a question for you. So what is a Customs Union? A free trade area, like NAFTA, the North American Free Trade Area, or a free zone like the Dubai Airport, or an area in which goods and products circulate freely? The last option, an area where taxes are no longer imposed among its members’ territories. Let me explain that. A free trade area, which is the first step of economic integration among different states, generally consists of an arrangement made among different territories. They might be European countries, they might be Asian countries, or countries in the south of the world, who decides, deliberately, to eliminate all duties which are due when goods cross their borders? This is what we define an FTA. All goods will circulate freely within this regional integration agreement. That’s how we call it in general. And this will still allow each country, country. A country, B country, C or D to impose their own external duties. The taxes imposed on the goods coming from the outside of that particular area.
So let’s imagine that the orange is getting in territory of country Z are going to be subject to custom duty of 10 per each ton of oranges. But when these oranges, they are imported into country B. They will only be subject to custom duty of 5 per ton. As you can imagine quite easily, what is going to happen in this scenario is that most of the trade is going to get into Country B because once the oranges get into the Country B at very low custom duty price.
Well, these oranges will enjoy free movement and will get also into country z by somehow, saving some money. In order to avoid these kind of situation. In order to upgrade a Free Trade Area towards what we call A custom union. What we do is to enable country A, B, C, D and Z to also establish what we call a common external tariff. That means that all products in this case oranges getting into this area, regardless to where they’re going to get in, into this particular region. They’re going to be subject to the same external tariff that is quite likely to be 7 sort of an average of the different external duties apply by each country. So the overall solved of a custom union, is an arrangement which is much more integrated than an FTA, because it creates one, instead of several custom territories. Also, vis-a-vis, the outside trade work.
Now that you know the distinction between an FTA and a customs union, let me tell you a little bit more about what is a free trade zone. A free trade zone like the Dubai, the one existing in Dubai is a secluded area within a country where goods may land in view of their storage, handling or reconfigurations. And these goods are not subject to customs duties. So free trades zones are organized around major seaports or international airports, which are areas that basically have many geographic advantages for trade. Just think about the Dubai Airport free zone.
We can sum up all what I’ve been saying until now and trying to further add elements on, on the nature of European integration by showing you this graph. Here in this graph, you can see the basic element of economic integration. You have different steps. The first step is the Free Trade Area that we saw together, the elimination of tariffs between the different countries and reduced non-tariff barriers.
We have a customs union, which is nothing else but an FTA, which is somehow upgraded. Because we create a common external tariff, therefore one custom tariff instead of 28 in the case of the European Union. But the different stages of economic integration can go even further. And this is certainly the case of the European Union, which is not only a Customs Union, but is also a common market, meaning that we have a customs union.
Plus a selection of policies that enable the free movement of all the capitals, of the factors of productions like we said good services but also labor in capital, in the promotion of some common standards across those territories. On top of the common market, if we want to further upgrade these form of economic integration, we can have an economic union. Where we have common economic policies and institutions on top of a common market, and we can also further upgrade by having a monetary union, what the European union has today. Relies on that monetary union. And we can go further and further by also adding what the European Union is trying to do these days by setting up a banking union, all the way towards what we call political union.
Meaning a level of integration in which these different countries will get so close on to another to give rise to the emergence to the United States of Europe.