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EU Law Goods The Substantive Law of the EU, Barnard CHPATER 1 The Importance of Free Trade

1. Introduction

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Free trade --> specialization --> comparative advantage --> economies of scale which maximize consumer welfare and ensure most efficient use of worldwide resources.
* "Maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy..." Adam Smith

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Trade translates individual advantages for many countries into maximum productivity for all.

2. Theory of Comparative Advantage.

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Ricardo 1817: Specialization results in higher productivity ( UK Portugal) cloth/wine example. Jackson, "It is not the difference of absolute advantages but of comparative advantage that gives rise to gain from international trade." Free trade also produces dependancy. Prosperity of countries are now interlinked. And countries that trade peacefully less like to go to war. Also Monnet's vision for EU.

3. The Problems with the Basic Model

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Problem with Ricardo model, it is based on perfect competition assumptions. But some problems which are transnational and do not affect national markets in the same way. For instance, national regulators tend to respond to local concerns, ignoring external costs of their regulation by generating trade barriers and granting inefficient subsidies.
* E.g UK wine makers will go out of business, national parties have elections to win, will respond with measures like customs duties or CEEs.
* To avoid this, can set up agreement to say that do not charge one another anything and Recognize one another's products. This needs some form of control. WTO is a good step. EU thinks next best thing is slightly smaller EU grouping.

The Different Stages of Integration

1. Introduction

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Labels for different levels of intensity of market integration.
* CU: common ex policy in respect of non MS (e.g. Single customs tariff)
* CM: CU + free movement of persons, services, and capital.
# Idea: liberalization of factors of production allows for optimum allocation of labour

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and capital.
# Note, as Molle points out, more likely that free movement of products and free movement of production factors are complements, not substitutes,
# Common market idea at heart of EU and encapsulated in treaty in 34,35,45,56,57,63. Based on principle of negative integration as removing barriers to trade (Gason Schul).
# Single Market

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Lord Cockfield's 3 principal obstacles to the completion of the single market:
* Physical barriers to trade
* Technical barriers to trade
* fiscal barriers to trade

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Up to 300 suggestions, resulted in Single European Act, deadline was 1992.

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Today still not completely single market because its an ongoing process rather than a finite act.
# Note also the creation of "area of freedom, security and justice" by art 67(1) TFEU to complement the single market idea and stages of econ integration here outlined. MU: Cm + single currency PU: Economic Union + central authority sets not only monetary and fiscal policy but also responsible to a central parliament with sovereignty of a nation's government. Such a parliament might also set foreign and security policies. FU: the complete unification of the economies involved and a common policy on matters such as social security, income tax. Virtually no different than a nation state. Lisbon treaty shows how Eu moving towards political Union, but full Union still seems unlikely, understandably at this point.

2. Free Trade Area and Customs Union

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FTA: characterized by common internal policy (free movement of goods) but different external policy. Disadvantage: goods coming from non MS will enter area via state with most favorable trading regime, and then benefit from free circulation of its goods within the area. A CU can overcome these problems. Art 28(1) TFEU, the Eu comprises a CU where customs duties are prohibited between MS and and common customs tariff is adopted in respect of third countries.

UNDERSTANDING THE INTEGRATION PROCESS

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Haas argues that there is spillover from one type of integration to another, if states integrate one sector of their economies, technical pressures would push them to integrate other sectors which are increasingly controversial.
* Example of lawnmower that has to fit every countries safety regulation. And even if harmonized standard by directive, still has currency issues. But single currency has the problem that countries loose their ability to devalue their currency. For many, fact that Eu went from coal and steel community to major econ monetary union in period less than 50 years only explicable by neo-functionalsim (idea that you have supra national regime). For Moravcsik however, the European Council is central, because integration proceeds only as far as they allow. Keohane and Hoffman try to reconcile these approaches, they argue that spillover does happen, but not in a vacuum, it needs the positive action of states. States not only actors, institution matter. Esp Commission, produced White paper on

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