At a lunchtime meeting on 18 February, L Alan Winters discussed the European experience of market integration and drew lessons for other regional trading blocs. Winters is Professor of Economics and Head of Department at the University of Birmingham and Co-Director of CEPR's International Trade programme. His remarks were based on his CEPR Discussion Paper No. 755, `The European Community: A Case of Successful Integration?', arising partly out of work conducted under CEPR's research programme, `The Consequences of 1992 for International Trade', funded by the Commission of the European Communities under its SPES programme, the UK Department of Trade and Industry and the Foreign and Commonwealth Office. The major findings of this project are reported in Trade Flows and Trade Policy After `1992' (see box), published by Cambridge University Press. Financial support for this meeting was provided by the Commission of the European Communities under its SPES programme and by Cambridge University Press. The views expressed by Professor Winters were his own, however, and not those of these institutions nor of CEPR, which takes no institutional policy positions.

Winters first noted that the Community has shown great success in institutional survival and expansion; however, the rise in its member countries' share of world GDP need not be due to EC membership: Japan grew faster and EFTA members at about the same rate. After 30 years, integration is well advanced: income differentials between regions have narrowed substantially and the share of EC(12) GDP traded internally has risen from 6% in 1960 to some 14% today. Trade with non-members, on the other hand, has remained around 9%. The expansion of intra-trade at the expense of trade with non-members can be harmful: the Common Agricultural Policy costs more than 1.5% of total EC real income and bears heavy responsibility for the current impasse in the Uruguay Round. In manufactures, however, the Community has led to trade creation rather than diversion in aggregate.

Winters noted that concerns about the falling share of intra-EC in total EC trade led to the design of the single-market programme in the mid-1980s, based on the mistaken view that competition from EC members substitutes for that from non-members. Less constructively, it also increased the Community's protectionism and resort to non-tariff barriers. EC subsidies to declining sectors detract from regional integration and indicate a tendency for the European economy to look backward rather than to embrace change by boosting R&D and new technology. Winters also challenged the view that the creation of the EC increased liberalism by fostering the Kennedy and Dillon Rounds. Establishing the common external tariff at roughly the average of the founding six made Germany and the Netherlands less liberal, and the GATT Rounds more or less re-established the initial position. Also, while small lobbies in minor countries within the EC(12) are less able to invoke protectionism than those elsewhere, Community-level protectionist measures are much more difficult to remove once established. Finally, even if the argument were true, it would be akin to the USA's current unilateralism whereby having, in their own eyes, harmed our trading partners we offer to ameliorate it in return for concessions.

Joining the EC can enable new members to experience a competitive thrust while using its common external tariff to avoid the political risks inherent in a unilateral market opening, but the Community's current preferential trade agreements offer little benefit and tend to divert trade. The Lomé Convention simply displaces trade from non-Lomé developing countries. The more recent `Europe Agreements', which supposedly guarantee the East European economies access to EC markets, are significantly undermined by the concessions to the EC interest groups shown in sectors such as agriculture, textiles and steel.

Winters stressed that the European Community has extended integration well beyond the customs union. The establishment of common quantitative restrictions to complement the common external tariff required a 30-year struggle between Brussels and the national governments, and it is too soon to say whether the `1992' programme has brought this to an end. The Community has always been more concerned to preserve the notion of integration than to enforce it in practice, and enshrining interventionist policies in agriculture, transport and energy in the Treaties of Paris and Rome led to a strong bias towards the status quo. Future regional groups should therefore avoid citing specific sectors or groups in their constitutions or allowing them to claim to be guardians of the integration process.