Ali M. El-Agraa

The economics of the European Community

This textbook provides a guide to the economics and policies of the European Community. It has been brought up-to-date since the second edition to reflect recent important developments, most notably the Single European Act and the 1992 Initiative. The book is divided into five sections. The first offers a guide to the history, institutions and statistical background to the EC and its effects. There are also separate sections on micro-economic and macro-economic policies of the EC. The final section considers the development of the Community and includes an analysis of the economics of 1992.

Economic integration worldwide

Preface and Acknowledgements - Notes on the Contributors - General Introduction A.M.El-Agraa - Regional Trade Arrangements Worldwide A.M.El-Agraa - The Theory of Economic Integration A.M.El-Agraa - The Problems of the Quantitative Estimation of Integration Effects D.G.Mayes - The European Union A.M.El-Agraa - EU Trade and Aid Policies Towards the LDCs and CEECs E.Grilli - The European Free Trade Association V.Curzon Price - The North American Free Trade Agreement S.Weintraub - Regional Integration in Latin America Before the Debt Crisisi: LAFTA, CACM and the Andean Pact V.Bulmer-Thomas - Regional Integration in Latin America Since 1985: Open Regionalism and Globalisation V.Bulmer-Thomas - The Caribbean Community and Common Market A.M.El-Agraa & S.M.A.Nicholls - The Association of South East Asian Nations R.Pomfret - Integration Amongst Members of the Arab League A.M.El-Agraa - Integration in Sub-Saharan Africa P.Robson - Fortresses and Three Trading Blocs? A.M.El-Agraa - Policy Directives, Pertinent Questions, Overall Conclusions and Prognostications A.M.El-Agraa - Bibliography - Index

The theory and measurement of international economic integration

Introduction: economic integration and GATT rules the economic gains from integration. Part 1 Theory: theory of customs unions - the Cooper/Massell criticism customs unions versus free trade areas, establishment of FTA common markets and economic unions economic integration amongst developing nations - El-Aggraas version of Browns model macroeconomics of integration economic integration amongst centrally planned economies - the CMEA. Part 2 Measurement: measuring the impact of economic integration estimating the impact of integration on manufactures - the earlier studies - Verdoorns pioneering study, Johnsons contribution, the GATT study estimating the impact of integration on manufactures - more sophisticated attempts - Balassas contribution, the contribution by the EFTA Secretariat, by Williamson and Bottrill, Kreinins contribution, Aitkins study estimating the impact of integration on manufactures - the latest contributions - the study by Winters, the contributio by Grinols the costs of the Common Agricultural Policy of the European community - objectives of the CAP estimating the effects of integration on the terms of trade - summary of Petiths findings estimates of the effects of CMEA integration - Peltzmans estimates, the contribution by Drabek and Greenaway estimates of the effects of economic integration among the LDCs.

Theory of Customs Unions

Before the theory of second-best was developed (Meade, 1955a; Lipsey and Lancaster, 1956–7), it used to be the accepted tradition that customs union (CU) formation should be encouraged. The rationale for this was that since free trade maximised world welfare and since CU formation was a move towards free trade, CUs increased welfare even though they did not maximise it. This rationale certainly lies behind GATT article XXIV (see Appendix to Chapter 1) which permits the formation of CUs and free trade areas (FTAs) as the special exceptions to the principle of non-discrimination, provided the intra-area dismantling of tariffs applies to a substantial part of the partners’ trade.

Measuring the Impact of Economic Integration

A growing area of research in the field of international economic integration is concerned with the measurement of the impact of the formation of such schemes as the European Community (EC), the European Free Trade Association (EFTA), the Council for Mutual Economic Assistance (CMEA, or COMECON as it is generally known in the West) and similar associations on the economies of member states and on the rest of the world (W). The purpose of this part of the book is to explain the nature of the problem of estimation, to provide a comprehensive and critical survey of the major attempts at empirical calculation of the effects and to suggest an alternative approach for future studies. This chapter explains the nature of the problem.

The economics of the single market

Introduction Unlike many areas of EU policy-making, the single market, more precisely the Single European Market (SEM), has been seen in a positive light, perhaps because it has been central to EU development, although today, amid widespread disillusion with the EU, even the SEM is seen as ‘less popular than ever, more needed than ever’ (Monti 2010, p. 20). The SEM is an important stepping-stone on the route from the customs union to a fully-fledged economic union (see Chapter 1), and many regard monetary union (EMU; see Chapters 10–12) as the last stage and thus the final piece in the jigsaw of ‘negative’ integration. The SEM is defined as ‘an area without internal frontiers in which the free movement of goods persons, services and capital is ensured’ (Single European Act (SEA), Article 12; CEU 1987c). This means that borders should disappear within the EU: goods, services, capital and people should be able to move between member states (MSs) as they move between regions within a country. This requires the removal of customs and passport controls at borders; the elimination of any national barriers to the sale of other EU countries’ goods and services; and the ending of any national controls on the movement of capital. This is a very extensive agenda that has such wide implications that the subject of virtually every chapter of the book has been affected by its developments. This chapter, therefore, considers the development of the SEM, emphasizing its key characteristics and the continuing debates about its effects. Why ‘the single market’? There were provisions for a single market in the 1957 EEC Treaty: Article 3 required not only the removal of all internal tariffs and quotas, but also ‘of all other measures having equivalent effect’, and ‘of obstacles to freedom of movement of persons, services and capital’. The procedure to eliminate these non-tariff barriers (NTBs) was harmonization or the approximation of laws (EEC Treaty, Article 100). After the successful early completion of the customs union (see Chapter 2), internal factors and external events conspired against the completion of the single market. The EEC economy was under strain in the 1970s because of: the world recession associated with the oil price shocks of 1973 and 1979; rapid changes in technology; the changing structure of the world economy; and the emergence of significant new competitors, first Japan and then the newly industrializing countries of South East Asia. With growth slow or negative and unemployment rising rapidly, national governments tried to protect their economies, but with tariffs fixed by GATT (see Chapter 1) and EEC Treaty commitments, only NTBs could be used – the ‘New Protectionism’. Barriers went up within as well as without the EU, and these economic strains made countries much less willing to agree to integration initiatives in general and harmonization in particular.

The Andean Pact

The general historical background to the Andean Pact (AP) and the basic statistics of its member nations form an integral part of the previous chapter. The reader is therefore advised to consider this chapter as a natural extension of that on LAFTA. The following chapter on ALADI provides an up-dated picture of both the AP and LAFTA. Also, because of this, the chapter is very brief.

The UTR versus CU Formation Analysis and Article XXIV

In 1965, Cooper and Massell (Economic Journal 75: 742-7) showed that a policy of unilateral tariff reduction (UTR) was superior to the formation of a customs union (CU). Although their model was concerned with only static resource reallocation effects, many analysts treated the Cooper/Massell ‘criticism’ as if it applied to the entire CU formation issue. This was incomprehensible, especially when they themselves almost simultaneously developed a different model to demonstrate that two countries together can do more than each acting alone. Wonnacott and Wonnacott (1981,American Economic Review 71: 704-14) tried to revive the issue by claiming that the use of a three-country general equilibrium model with transportation costs and tariffs by the rest of the world could show that UTR need not dominate CU formation, but El-Agraa and Jones (2000,Applied Economics Letters 7: 301-4; Journal of Economic Integration 15: 239-59) have demonstrated that their claim is unwarranted, due to inadequacies in their model. This paper shows that the incorporation of WTO/GATT rules (Article XXIV) into an appropriately adjusted orthodox framework leads to the Wonnacotts conclusion.

The Theory of Economic Integration

In reality, almost all existing cases of economic integration were either proposed or formed for political reasons even though the arguments popularly put forward in their favour were expressed in terms of possible economic gains. However, no matter what the motives for economic integration are, it is still necessary to analyse the economic implications of such geographically discriminatory groupings.

The Japanese Education System with Special Emphasis on Higher Education.

The purpose of this article is to provide a brief analysis of the Japanese educational system and to give a somewhat detailed discussion of Japanese higher education. Its main conclusions are: although the bulk of higher education is catered for privately, the prestige institutions tend to be public ones; the character of the system as a whole seems to reflect Japanese society very clearly indeed since it supports high growth industries, reinforces the traditionally accepted distinction between the sexes, and determines both the structure of wages and salaries in general and its sex variance in particular; and that there are very serious problems currently confronting Japanese educationalists - these relate to the official inspection of textbooks, the emergence of anti-teacher violence within schools and the reduction in the size of the public subsidy to private education.The authors are extremely grateful for helpful comments and suggestions from Margaret B. Sutherland, Professor of Education, University of Leeds and Dr. Penny Francks, specialist on modern Japanese history at the Department of Chinese Studies, University of Leeds. However, the usual disclaimer applies.