1. Lecture 1

2. 1. EU as a Regional Trade Arrangement
To be legitimate RTAs have to observe the following WTO rules:
Keep the attained level of trade liberalization. After the establishment of the RTA, the level of tariff protection should not be higher than before its establishment. In the event that the Common Customs Tariff introduced causes a deterioration of the customs regime for a third country(s), negotiations are held with the party concerned and, if it is a member of the WTO, it is entitled to compensation by means of tariff concessions on other positions.
Right to compensation. In the event that the common tariffs introduced cause a deterioration of the customs regime in relations with a third party, it is entitled to compensation by means of tariff concessions on other positions.
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3. Disallowing the use of RTAs as covert cartel agreements
Disallowing the use of RTAs as covert cartel agreements. The agreement for creation of the RTA has to cover most of the traded goods. This means that the WTO would not approve, e.g., the creation of a free trade area only for chemical goods or for fuels. Such an agreement should cover at least the bulk of industrial goods
Mutuality in concessions. A RTA must be of a reciprocal nature in order not to impose hidden discriminatory relations. This means that preferences or abolition of duties should affect the relations between the RTA member countries in both directions - in imports and exports. Exception to the rule is allowed and even recommended when a RTA involves both developing and developed countries The WTO then does not object to the use of so-called asymmetric approach where one-way preferences (from developing to developed countries) are greater than preferences in the other direction.
Stages in preferences. A RTA has to be implemented in stages and should include a transition period until the preferences are implemented.
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4. а. Impact of internal supply in CU
2. Static and dynamic economic effects of the Customs union A – static effects
а. Impact of internal supply in CU P S E
S w+t
P w+t
Pcu а
Scu Pw b Sw D O V2 V6 V V4 V3 V7 V1
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5. a. Impact of internal supply
Variant1 - Pcu < P w+t
In this case we have creation of prosperity - increased consumption (V3V7).
The effect on the value of trade, however, can be different.
Trade before the customs union = OV3 x OPw+t
Trade after the customs union = OV7 x OPcu
OPw+t = OPcu + a OV3 x OPw+t = OV3OPcu + OV3a
OV7 = OV3 + b OV7 x OPcu = OV3OPcu + OPcub
OV3a and OPcub have to be compared
If OPcub - OV3a > 0 we have trade creation, if < 0, we have trade diversion.
As there is a tendency to reduce customs duties, the likelihood of having trade creation increases.
Variant Pcu > P w+t
In this case domestic supply after the creation of the CU does not affect prosperity and trade
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6. b. Impact of the CU common duty – Variant 1
Pcuw+t < P1 w+t We have creation of prosperity and probably creation of trade . This is the same effect as in the case of custom
Pcuw+t < Pcu duty reduction in a single country )
Variant b.1 P S E
Scu
Pcu
S1w+t
P1 w+t
Pcu w+t
Scu w+t Pw Sw D O V1 V2 V3 V V4
© Димитър Хаджиниколов

7. b. Impact of the CU common tariffs – Variant 2
Pcuw+t < P1 w+t Common tariffs do not effect prosperity and trade because
Pcuw+t >Pcu they are determined by internal supply (see slide 4)
Variant b.2 P S E
P1 w+t
S1w+t
Pcu w+t
Scu w+t
Pcu
Scu Pw Sw D O V V1 V4
© Димитър Хаджиниколов

8. b. Impact of the CU common tariffs – Variant 3
Pcuw+t >P1 w+t We have reduction of prosperity and probably trade diversion.
Pcuw+t < Pcu This is the same effect as in the case of custom duty increase in a single state)
Variant b.3 P S E
Scu
Pcu
Pcu w+t
Scu w+t
P1 w+t
S1w+t Pw Sw D O V V1 V2 V3 V4
© Димитър Хаджиниколов

9. b. Impact of the CU common tariffs – Variant 4
Pcuw+t >P1 w+t Common tariffs do not effect prosperity and trade because
Pcuw+t >Pcu they are determined by internal supply (see slide 4)
Variant b.4 P S E
Pcu w+t
Scu w+t
P1 w+t
S1w+t
Pcu
Scu Pw Sw D O V V1 V4
© Димитър Хаджиниколов

10. B – Dynamic effects
The most important positive dynamic effect of trade liberalization are the Economies of Scale. There is an inversely proportional relationship between scale of production and costs of production. For example, the more is produced, the less labor is needed per one unit of output.
Graph on the right Production time required to produce a unit of output (e.g. 1 t of steel) is equal to a1LS. After production scale increased from Q1S to Q2S, respectively required workforce to produce 1 t of steel decreased from a1LS to a2LS.
Graph on the left Once the production scale has increased from Q1S to Q2S the required workforce to produce 1 t of steel has decreased from 1/a1LS to 1/a2LS.
This means that there is direct proportionality between the size of production and labor productivity. Customs Union creates opportunities for increasing production volume and hence for lowering costs and increasing competitiveness and labor productivity.
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11. There are different kinds of Economies of Scale

12. 3. Specifics of the Customs Union of the EU
Due to the EU's liberal nature and low overall customs duties, the combined effect of creating prosperity and trade is greater than the effect of reducing prosperity and diverting trade.
The bigger the effect of trade creation is the more competitive a given production is, and the lower the internal price is in the CU. Therefore, the European Union is competitive in almost all industrial goods and most services.
The effect of trade creation increases with the enlargement of the Union, as there is a growing likelihood of growth in new competition. This means that with every enlargement of the EU there is a growing likelihood of creating trade and prosperity in some of the traded goods where it has not previously been seen.
For most agricultural commodities, the EU has relatively low global competitiveness (due to climate, soil and other reasons), and in the presence of high common customs duties there is the effect of reducing prosperity and trade diversion in a number of agricultural commodities - veal and beef, wheat and in some technical crops, etc.
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13. The Union Customs Code (UCC) - act of the Council of the EU
4. Acquis Communataire of the Customs Union and the EU Common Trade Policy
а) Structure:
Contractual provisions and related acts for the functioning of the Customs Union
Treaty on the Functioning of the European Union, Part Three – Union policies and internal actions, Title One – Internal Market, Chapter one – Customs Union
The Union Customs Code (UCC) - act of the Council of the EU
Rules of the implementation of UCC – act of the European Commission
Common customs tariff (CCT) – Combined nomenclature
Other provisions concerning the customs treatment of goods, (TIR carnets, NATO regulations, etc.)
Regulations and decisions on the export-import regime
EU Regulations and Decisions on EU Safeguards:
General safeguard measures
Anti-dumping safeguard measures
Anti-Subsidy Protection Measures
Measures against vicious commercial practices
Trade agreements and the commercial part of mixed agreements
GATT 1994, the WTO Agreements on Trade in Goods, the trade part of the Association Agreements, the Accession Treaty, etc.
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14. Art. 207 – Art. 133 of the Treaty of the European Union.
With regard to CCP - its place after the Treaty of Lisbon is in external relations - Part Five, Title II - Common commercial policy, Art. 206 and Art. 207.
Art CCP objectives - liberalization and the general objectives of external relations (Chapter 1, Title 5 of the TEU) - democracy, sustainable development, good global governance (globalization)
Art. 207 – Art. 133 of the Treaty of the European Union.
- The supranational character of CCP of the EU remains.
The European Commission, which leads the trade negotiations and monitors the implementation of the CCP's objectives, continues to be the centerpiece.
The Council's control is retained, and it is particularly strong in those policies where there is a lower degree of supranational regulation.
The Committee, which oversees the work of the committee, is also preserved - now it is the Committee under Art. 207
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15. Treaty stabling the EEC
The Single European Act
Maastricht Treaty
Treaty of Amsterdam
Treaty of Nice
Treaty of Lisbon
1958
1968
1987
1993
1994
1995
1998
2000
2003
2009 
Trade in goods - general duties
Single export - import regime
Single customs territory
Common import protection measures
Trade in services
Trade-related issues - intellectual property protection
Uniform conditions for market access
Ecological aspect of CCP
Social aspect of CCP
Issues related to trade - investments
Integration of CCP into the EU's external relations
Explanation: The horizontal shows the main changes in the contract base and the years in which these changes have led to changes in the content of the CU and CCP.
Vertically, the elements are added to the original content of the CU and the CCP, with darker elements showing a more pronounced supranationality in the decision-making and adoption of EU normative acts.
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17. GD “Trade”

18. GD “Trade”

19. Presentations (next time)
European Free Trade Agreement (EFTA)
Central European Free Trade Agreement (CEFTA)
NAFTA
ECOWAS
Mercosur