Stages of Economic Integration - the European Perspective

European Communities were basically three internal organizations that were governed by the same set of institutions i.e. European Coal and Steel Community (ECSC), European Atomic Energy Community (EAEC) and the European Economic Community (EEC).

The ECSC (Belgium, France, Luxembourg, Italy, Netherlands, West Germany) was formed by the Treaty of Paris in 1951 to create a common market for Coal and Steel and thereby regulating the industrial production under centralized authority. It served as a model for the EAEC and EEC set up in 1957 Treaty of Rome, sharing its membership and some of the institutions.

The EAEC was formed to form a specialist market for the developing nuclear states in Europe. The ECSC and EAEC were governed by different institutions until the Merger Treaty of 1965, which brought them under a single institutional structure of the EEC. ECSC however dissolved completely in 2002 when the Paris Treaty expired. EAEC on the other hand still stands independently, although governed by many EU institutions but still outside the jurisdiction of the European Parliament, standing as an independent entity.

The EEC as mentioned above was formed in 1957 and its aim was the economic integration including the formation of common market and customs union amongst the 6 countries of ECSC. IN 1993 a complete single market was achieved which allows free movement of goods, services, capital and people inside the EEC. Also, the EEC was renamed as EC by Maastricht Treaty in 1993. It is also that in this treaty Euro was born. This formed the underpinning for the EU which stood on three pillars of EC, EAEC and ECSC (which stood independently despite being a part of EC till 2002). In 1994 the European Economic Area (EEA) was formed, the formal name of the single market while also including the EFTA members in the market. At the same time the EFTA members are not the part of EU (i.e. have some exclusions regarding agriculture and fisheries). Switzerland, an EFTA member is not the part of EEA but has numerous bilateral trade deals with EU. Finally, the Lisbon Treaty of 2009 amended the Maastricht and Rome treaty to form the European Union.

Coming onto the economic integration now. The simplest form of Economic integration is the formation of Free Trade areas. This is considered as the first stage towards economic integration. In this, at least two countries agree to reduce trade barriers and increase the trade of goods and services with each other. The entities involved signs the Free Trade Agreement (FTA) in order to form a Free Trade Area.

The EFTA (European Free Trade Association) was formed in 1960 by the outer 7 countries but then they joined the EU upon its formation excluding the 4 (Iceland, Norway, Switzerland and Liechtenstein) which form the current EFTA. After the revolutionary waves of the late 1980s and early 1990s two trade areas were formed in Europe - the Baltic Free Trade Area (BAFTA) and the Central Europe Free Trade Area (CEFTA). They were basically formed to stabilize these countries for the upcoming EU integration. Then in 2004 when the EU was formed, CEFTA expanded more to south, enveloping more nations and dissolved into the EU. Similarly, the BAFTA consisting of 3 Baltic nations also merged into the EU in 2004.

The next stage of integration is the customs union, which can be thought of as FTA plus a common tariff against the external world. It is followed by the formation of a single market or a common market. Despite being written as an "or", the single market and common market have differences. The common market is a step towards achieving a single market. The common market involves FTA plus the relative free transfer of capital, service and people, but it does not remove the non-tariff trade barriers like product standard and regulation. The single market, however, removes all the technical (standard), physical (border) and fiscal (taxes) boundaries. When the customs union and single markets combine, an Economic Union is formed, which is a much deeper form of economic integration. The next steps are the Economic and monetary union where the monetary policies of the Economic Union are combined and at the end, in the complete integration, even the fiscal policies are combined.

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