General Introduction

A worthwhile discussion of Britain’s role within the European Community (EC) can be attempted only if the EC is understood in its proper context of ‘international economic integration’. International economic integration is one aspect of ‘international economics’ which has been growing in importance in the past two decades or so. The term itself has a rather short history; indeed, Machlup (1977) was unable to find a single instance of its use prior to 1942. Since then the term has been used at various times to refer to practically any area of international economic relations. By 1950, however, the term had been given a specific definition by economists specialising in international trade to denote a state of affairs or a process which involves the amalgamation of separate economies into larger regions, and it is in this more limited sense that the term is used today. More specifically, international economic integration is concerned with the discriminatory removal of all trade impediments between the participating nations and with the establishment of certain elements of co-operation and coordination among them. The latter depends entirely on the actual form that integration takes. Different forms of international integration can be envisaged and some have actually been implemented: (i) free trade areas, where the member nations remove all trade impediments among themselves but retain their freedom with regard to the determination of their policies vis-a-vis the outside world (the nonparticipants) — for example, the European Free Trade Association (EFTA) and the Latin American Free Trade Area (LAFTA); (ii) customs unions, which are very similar to free trade areas except that member nations must conduct and pursue common external commercial relations — for instance, they must adopt common external tariffs on imports from the non-participants as is the case in the EC; the EC is in this particular sense a customs union, but, as we shall presently see, it is more than that; (iii) common markets, which are customs unions that also allow for free factor mobility across national member frontiers, i.e. capital, labour, enterprise should move unhindered between the participating countries — for example, the East African Community (EAC), the EC (but again it is more complex); (iv) complete economic unions, which are common markets that ask for complete unification of monetary and fiscal policies, i.e. a central authority is introduced to exercise control over these matters so that existing member nations effectively become regions of one nation; (v) complete political integration, where the participants become literally one nation, i.e. the central authority needed in (iv) not only controls monetary and fiscal policies but is also responsible to a central parliament with the sovereignty of a nation’s government.