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Myth of the Week

Posted by Richard Sunday, May 02, 2004

The EU is a free trade area

With typical disdain for accuracy – or perhaps reflecting the usual level of Europhile Ignorance, the Independent newspaper yesterday announced the accession of the ten new states to the European Union with the claim that the EU had become “the world's biggest free trade area”.

This myth is one of the most prevalent in relation to the European Union, especially so with “soft” Europhiles who believe that the “Single Market” – the outward manifestation of what is believed to be a trading agreement – is essentially a benign creation.

However, the EU is most emphatically not a free trade area, and its structure is far from benign. Technically, the EU as – as was the EEC before it – a Customs Union.

Moreover, this is not an arcane, technical distinction. A free trade area either eliminates or agrees standard levies and tariffs between members, but each member is free make its own arrangements with third countries. The Customs Union shares the characteristic of common or zero tariffs between members but – and here is the important distinction – it has a common tariff structure with third countries, the proceeds being paid into a central fund.

As with the Bismark’s Customs Union, the so-called Zollverein, in order to manage this central fund, a “political instrument” is needed, in the form of a central government. This was noted by Arthur Salter in his 1931 book “The United States of Europe” (George, Allen & Unwin, London, p. 92). He was the man who, with Monnet, established the template on which the EU is eventually modelled.

He clearly recognised, all those years ago, the role of a Customs Union, writing that:

“...the commercial and tariff policy of European States is so central and crucial a part of their general policy, the receipts from Customs are so central and substantial a part of their revenues, that a common political authority, deciding for all Europe what tariffs should be imposed and how they should be distributed, would be for every country almost as important as, or even more important than, the national Governments, and would in effect reduce the latter to the status of municipal authorities”.

Small wonder that when in 1955 Paul-Henri Spaak and Monnet began to work on the outline of what was to become the Treaty of Rome, they considered and then rejected the idea of a free trade area. Their objective was to build a United States of Europe, and the customs union was the first essential step in its creation.

But, if the concept of a customs union owed something to the German Zollverein, the way it was structured owed more to Colbertian mercantalism. While a system of mutual recognition of the different standards in the Community could have been entirely workable, the system was built on a rigid framework of regulation that imposed strict common standards as the precondition to trade between member states.

Over the years, therefore, behind the protectionist barrier of a common external tariffs, the “Common Market” has also built up a web of inter-relating standards which have also served to inhibit trade with third countries.

What is on offer, therefore, is a very far cry from free trade. It is a dirigiste, inflexible, regulation-bound system based on the very antithesis of free trade, designed not primarily to promote trade but to protect member states from it, and designed to assist in the process of building a United States of Europe.