EU-integration knowledges Prepared by Dr. Endre Domonkos (PhD) Academic Year 2012/2013, Autumn Semester

I. The genesis of integration theories I. It was only in the last half-century that international integration became the subject of research by social scientists. From the 1950’s, customs union theories are regarded as the basis of the economics literature on international integration In the political science field neo-functionalism, federalism and the analyses relating to intergovernmentalism are recognized as the main theoretical currents with regard to attempts at European integration.

I. The genesis of integration theories II. Despite the „novelty” of integration theory it must be remembered that the idea of European union and within this, for example, a „United States of Europe” was by no means new. Between the two world wars the Pan-European movement had a great influence on all kinds of political trends, and concrete proposals were put forward. In 1941 the so called Ventotene Declaration was formulated by Altiero Spinelli (For a free and united Europe). The coherent theoretical basis and directions of integration, and within it, European integration, thus gradually took shape.

I. The genesis of integration theories III. In general, integration theories focus on five important dimensions of the process. - the content (or essence) of integration processes; - the organizational forms and institutions of integration; - regulation (policies) and governance of integration; - the advantages and disadvantages of integration (cost-benefit analysis); and finally - the problems of integration maturity (capacities or capabilities for integration).

II. Division of labour theories and transactionalists I. Interpretation of the content of economic integration can perhaps best be linked to theories of the division of labour. Integration can be seen as an organized or institutionalized division of labour. We can define integration as a process embracing various forms and areas of the international division of labour. Integration is a comprehensive form of international cooperation that extends to the whole re-production and the systems of international relations.

II. Division of labour theories and transactionalists II. From this point of view, the national economy embodies the determinate complexity of social production. Thus internationally microintegration takes place within the framework of transnational cooperations and company relations. The macrointegration process can be defined through the various degrees of commercial and economic groupings. Integration, then from the economic point of view can be defined as an intensive, lasting and long-term, organized and institutionalized division of labour embracing the whole re- production process.

II. Division of labour theories and transactionalists III. Among the different schools, first have to mention transnationalism, which shares several common or similar aspects of interest and approach with division of labour theories of integration. In dealing with conflicts and tensions, as the condition and basic objective of integration, transactionalism conceives integration in a very broad sense as the formation of „security community”. The transactionalist or communication theories can be associated directly with the works of Karl Deutsch.

III. Interdependence and integration I. From the point of defining the content of integration we attach special importance to interdependence. Interdependence can be defined as a new quality of international relations. Dependence means a state of being determined or significantly affected by external forces. Interdependence can be defined as means of mutual dependence.

III. Interdependence and integration II. Where there are reciprocal, although not necessarily symmetrical, costly effects of transactions, there is interdependence. The world economy is an independent organic system. Integration, therefore, is a cooperation between the individual elements of a system in which the stability and internal equilibrium of the system is maintained, or even by means of which it is achieved. Interdependence is the most important feature of the content of integration.

IV. Basic form of integration I. Integration can be implemented in the form of various commercial and economic groupings and institutions. On the basis of the work by Béla Balassa, considered a classic of the literature on integration (Balassa 1961), the following main forms can be distinguished: 1. The free trade area: 2. The customs union: 3. The common market:

IV. Basic form of integration II. 4. The single market: 5. Economic union: 6. Political union: Each form represents higher and more ‘developed’ levels of integration. Distinction between forms of market integration and forms requiring closer economic policy integration and ultimately political integration.

V. Customs union theories I. The first comprehensive assessment of the advantages and disadvantages of regional integration took place within the framework of customs union theories. Jacob Viner in his study, which has become a classic of the integration literature, makes a distinction between the effects of trade creation and trade diversion. Thus trade creation is regarded as the positive effect of customs union. Trade creation:

V. Customs union theories II. Trade diversion is a negative process and represents a loss. Trade diversion: So while trade creation means replacement of domestic products by a cheaper imported ones, trade diversion involves replacement of a cheaper source of import by another, costlier one. The overall effect of the customs union is given by the balance of the two.

V. Customs union theories III. James Meade: comprehensive quantification of all the effects of a customs union. In quantifying the effects of customs union, Meade introduced the distinction between the so-called production and consumption effects. The assessment of the advantages and drawbacks of customs union can be made more accurate by taking the consumption effects into account. Customs union theories examine the advantages and disadvantages deriving from trade creation and trade diversion using a comparative approach.

VI. Liberal integration theories On the dominant trends of international integration theory is represented by the liberal or neo-liberal schools. Integration is identified with freedom of flow and movement by the so-called communication and cooperation schools as well. Integration means the approximation to each other of levels of economic development and the gradual disappearance of differences. Liberal theories can best be interpreted with reference to the free trade area, customs union, common market and single market.

VII. Institutionalism and integration I. It is a fact that integration is a structured process, and various institutions promote cooperation and interweaving. The schools of theory that focus their analysis on institutions and questions of organization are generally described as institutionalist. According to the concept of institutionalists „political struggles are mediated by prevailing institutional arrangements”. Institutions are an important framework for any social activity.

VII. Institutionalism and integration II. The heavy institutionalization associated with the early communities was particularly emphasized or, to put it differently, integration can be defined as institutionalized cooperation. The institutionalist approach integration mainly from the political side and they link economic integration with political integration. According to the institutionalists, political integration consists in a transfer of power (decision-making, legislation, governance and implementation) from the national level to international (or community) institutions.

VIII. Federalism contra intergovernmentalism I. The federalists favour supranational, effective community power structures and institutions (Haas, Pinder, Montani). The majority of federalists support worldwide political integration (world government). The main aim of „Eurofederalists” is the creation of the United States of Europe. The first backlash against federalism took place in the mid of 1960s. After 1980s the integration process was accelerated.

VIII. Federalism contra intergovernmentalism II. The theory which tries to describe these types of developments is called liberal inter-governmentalism. Andrew Moravcsik is the main representant of liberal inter- governmentalism theory. Moravcsik describes the Union as a regime that makes inter- state bargaining more efficient, whilst enhancing the role of national leaders. According to the definition of Murray Forsyth the EU can be explained as a confederation – a voluntary association of states with common interests in building larger markets.

IX. Integration and regulation I. One main trend of criticism of the liberal theories is that they overlook the importance of regulation of the economy. They said that free market mechanisms were not capable of creating integration. They approach integration from the side of economic policies and their attention is directed mainly towards economic union, as a form of integration. International integration means state regulation and intervention is carried out at international (community) level.

IX. Integration and regulation II. The most important representative of integration theories related to regulation is Jan Tinbergen. In Tinbergen's conception integration is an „optimal economic structure”. The notion of international integration: The difference between liberalization, the removal of „artificial barriers”, and the integration of economic policies is expressed by Jan Tinbergen through the introduction of the concept of negative and positive integration.

X. From functionalism to neofunctionalism I. The functionalist schools emphasize directly on better functioning of the integration system, and on the improvement of its functioning. According to the functionalists, the nation state is increasingly incapable of fulfilling its basic social, economic and political tasks. The main endeavor of functionalist is to create supranational institutions.

X. From functionalism to neofunctionalism II. The so-called neofunctionalists (Haas and Leon Lindenberg) emphasize prosperity, internal peace and external security, the role of national political elites, and in contrast to the global view, the possibility of regional integration. One of the most controversial ideas of neofunctionalists is the notion of „spillover”. The theory of spillover was questioned primarily by intergovernmentalists. The neofunctionalists emphasize the importance of the European Commission and the role of national and transnational interest organizations.

XI. Multi-level governance I. The main role of the multi-level governance is „to reveal of improving the conditions of human governance.” The latter may be defined as the art of organizing the production of knowledge about the constitution of human activity. Multi-level governance is a product of integrating world economy, which with growing interdependence, both regionally and globally, is a response to new challenges and needs in controlling and managing complex processes and harmonizing interests within a multi-actor system.

XI. Multi-level governance II. Multi-level governance means the emergence of a new structure. Compared to intergovernmentalism, multi-level governance brings in a third dimension into the operational structure of the Union, namely domestic, local or sub-regional interests and actors. The Union is interpreted as a multi-level system of governance. It should be noted that as integration extends more and more to global dimensions (globalization), that creates its own issues and needs (global governance).

XI. Multi-level governance III. The European Commission published a White Paper on future reform of „European Governance” in July 2001. The five principles of „good governance”. 1. Openness: 2. Participation: 3. Accountability: 4. Efficiency: 5. Coherence: These five principles are strengthened and supplemented by two traditional concepts, proportionality and subsidiarity.

XII. Some possible theoretical interpretations of international integration I. The various theoretical schools and trends call attention to the important interconnections of integration theory. Integration as a historical process, which cannot be limited to the unification or interconnection of national economies. International integration is regarded by most of the theoretical school as a multi-level process. It’s important to make a distinction between the concepts of micro- and macroeconomic integration.

XII. Some possible theoretical interpretations of international integration II. 3. Integration can be thought of as a process and as a state. 4. Integration is an organic process. 5. International integration is a democratic process. Integration, as unification and interconnection, ultimately leads to the weakening of the given national economy and limitation of its sovereignty.

Conclusion For pragmatic reasons, for a long time the literature on integration attached particular importance to the forms of integration, and cost-benefit analysis. In connection with „eastward” expansion, from the 1990s the question of integration maturity appeared on the agenda. With the development and increasing complexity of the integration process it became more and more necessary to solve the questions of governance.

Literature - Tibor Palánkai (2003): Economics of European integration. Budapest, Akadémiai Kiadó, pp. 23-69.