THE EUROPEAN COMMUNITY
THE EUROPEAN COMMUNITY
European Evolution to Integration
World War II left a wake of economic as well as human destruction throughout Europe. To facilitate the utilization of aid provided by the Marshall Plan, a U.S. plan to provide aid to Europe after World War II, the sixteen-nation Organization for European Economic Cooperation (OEEC), was established in 1948 with the encouragement of the United States. Its purposes were to improve currency stability, combine economic strength, and improve trade relations. However, because the OEEC did not appear strong enough to provide the necessary economic growth, further cooperation was initiated.
According to one major school of thought championed by the French, a common market should be developed, which would: (1) result in the elimination of all restrictions to the free flow of goods, capital, and persons; (2) allow for the harmonization of economic policies; and (3) create a common external tariff. The result was the creation of the European Economic Community (EEC) through the Treaty of Rome in March 1957. Its members were West Germany, Belgium, the Netherlands, Luxembourg, France, and Italy. As noted in the map on page M-10, its membership has since been broadened to include the United Kingdom, Ireland, Denmark, Greece, Spain, and Portugal. It now embraces the title European Community (EC), which implies a form of cooperation that is broader than economic.
European Free Trade Association
The second major school of thought rejected the notion of total integration and favored instead a free trade area, which would allow for the elimination of all restrictions on the free flow of industrial goods among member nations and would permit each country to retain its own external tariff structure. This approach would provide the benefits of free trade among members but would allow each country to pursue its own economic objectives with outside countries. This was especially beneficial for Great Britain, which had developed favorable trade relationships with Commonwealth countries. From the British point of view, a common external tariff would result in too much cooperation and restriction of individual sovereignty.
Following the second line of thought, the Stockholm Convention of May 1960 created the European Free Trade Association (EFTA), which included seven of the OEEC countries that were not partners in the EEC: Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. Iceland joined the Association on March 1, 1970, and Finland, an associate member since June 1961, became a full member on January 1, 1986. Denmark, Portugal, and the United Kingdom left EFTA to become full members of the EC. Today, the EFTA is comprised of Austria, Finland, Iceland, Norway, Sweden, and Switzerland, as illustrated in Map 11.1. The original EFTA countries were initially concerned about a unified European effort in economic integration, and the major problems that eventually led them to create the EFTA were:
1. the lack of desire to harmonize social and economic policies, as would be required by the EEC;
2. the special arrangements between the United Kingdom and the Commonwealth nations; and
3. the political neutrality of Austria, Sweden, and Switzerland.
Nevertheless, the increasing harmonization taking place in the European Community is making it difficult for the EFTA members to maintain their separate status. Austria has formally applied to join the EC, and it is unclear what the other countries will eventually do. The six members of the EFTA have been referred to as freeloaders, desiring to share in the benefits of the EC without paying the price for entry. The EFTA has a free trade agreement with the members of the EC, but the countries don't have to contribute to the EC's costly farm and social programs.5
In addition, the major trading partners of the EFTA nations are the members of the EC. Over 60 percent of total EFTA imports come from the EC countries, whereas only 13 percent of EFTA imports are from EFTA countries.
European Evolution to Integration
World War II left a wake of economic as well as human destruction throughout Europe. To facilitate the utilization of aid provided by the Marshall Plan, a U.S. plan to provide aid to Europe after World War II, the sixteen-nation Organization for European Economic Cooperation (OEEC), was established in 1948 with the encouragement of the United States. Its purposes were to improve currency stability, combine economic strength, and improve trade relations. However, because the OEEC did not appear strong enough to provide the necessary economic growth, further cooperation was initiated.
According to one major school of thought championed by the French, a common market should be developed, which would: (1) result in the elimination of all restrictions to the free flow of goods, capital, and persons; (2) allow for the harmonization of economic policies; and (3) create a common external tariff. The result was the creation of the European Economic Community (EEC) through the Treaty of Rome in March 1957. Its members were West Germany, Belgium, the Netherlands, Luxembourg, France, and Italy. As noted in the map on page M-10, its membership has since been broadened to include the United Kingdom, Ireland, Denmark, Greece, Spain, and Portugal. It now embraces the title European Community (EC), which implies a form of cooperation that is broader than economic.
European Free Trade Association
The second major school of thought rejected the notion of total integration and favored instead a free trade area, which would allow for the elimination of all restrictions on the free flow of industrial goods among member nations and would permit each country to retain its own external tariff structure. This approach would provide the benefits of free trade among members but would allow each country to pursue its own economic objectives with outside countries. This was especially beneficial for Great Britain, which had developed favorable trade relationships with Commonwealth countries. From the British point of view, a common external tariff would result in too much cooperation and restriction of individual sovereignty.
Following the second line of thought, the Stockholm Convention of May 1960 created the European Free Trade Association (EFTA), which included seven of the OEEC countries that were not partners in the EEC: Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. Iceland joined the Association on March 1, 1970, and Finland, an associate member since June 1961, became a full member on January 1, 1986. Denmark, Portugal, and the United Kingdom left EFTA to become full members of the EC. Today, the EFTA is comprised of Austria, Finland, Iceland, Norway, Sweden, and Switzerland, as illustrated in Map 11.1. The original EFTA countries were initially concerned about a unified European effort in economic integration, and the major problems that eventually led them to create the EFTA were:
1. the lack of desire to harmonize social and economic policies, as would be required by the EEC;
2. the special arrangements between the United Kingdom and the Commonwealth nations; and
3. the political neutrality of Austria, Sweden, and Switzerland.
Nevertheless, the increasing harmonization taking place in the European Community is making it difficult for the EFTA members to maintain their separate status. Austria has formally applied to join the EC, and it is unclear what the other countries will eventually do. The six members of the EFTA have been referred to as freeloaders, desiring to share in the benefits of the EC without paying the price for entry. The EFTA has a free trade agreement with the members of the EC, but the countries don't have to contribute to the EC's costly farm and social programs.5
In addition, the major trading partners of the EFTA nations are the members of the EC. Over 60 percent of total EFTA imports come from the EC countries, whereas only 13 percent of EFTA imports are from EFTA countries.
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