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Common market

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What Is Common Market?

A common market is a formal agreement among a group of countries to eliminate internal trade barriers and adopt a common external tariff. Beyond a basic customs union, a common market further allows for the free movement of labor, services, and capital flow among its member states. This arrangement falls under the broader category of economic integration, aiming to foster greater trade and competition within the bloc. The primary goal of a common market is to promote economic growth and development by increasing competition, facilitating specialization, and encouraging investment among its members.

History and Origin

The concept of a common market emerged prominently in the post-World War II era, driven by the desire to promote economic cooperation and prevent future conflicts in Europe. A significant milestone was the establishment of the European Economic Community (EEC), often referred to as the Common Market, through the Treaty of Rome in 1957. The EEC was formed by six founding members—Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands—with the aim of unifying their economies and reducing tensions. By 1968, internal tariffs between member nations had been largely removed for certain products. The23 EEC later evolved into the European Union (EU) in 1993, with its principles continuing to shape the EU's economic policies.

An22other notable example is the Southern Common Market, known as Mercosur, which was established by the Treaty of Asunción in March 1991, entering into force in November of the same year. Merc21osur initially included Argentina, Brazil, Paraguay, and Uruguay, with the long-term aim of achieving a fully integrated common market allowing for the free movement of goods, services, and people.,

##20 19Key Takeaways

  • A common market eliminates internal tariffs, quotas, and other trade barriers among member countries.
  • It establishes a common external tariff against non-member countries.
  • Crucially, it permits the free movement of goods, services, labor, and capital among its members.
  • The European Economic Community (EEC), which evolved into the European Union, is a prominent historical example.
  • Common markets aim to boost economic growth, competition, and efficiency through deeper economic integration.

Interpreting the Common Market

Interpreting a common market involves understanding its fundamental principles: the free movement of goods, services, capital, and labor, alongside a common external policy. This structure implies that once goods enter any member country, they can circulate freely throughout the entire common market without further customs checks or tariffs. For businesses, this means a larger accessible customer base and streamlined logistics, contributing to potential economies of scale. For individuals, it implies the freedom to live, work, or study in any member country. The success of a common market is often gauged by the extent to which these "four freedoms" are genuinely realized and the resulting impact on intra-bloc trade and investment.

Hypothetical Example

Consider a hypothetical "Pacific Common Market" (PCM) formed by three countries: Oceana, Coral, and Isle. Before the PCM, each country had its own tariffs and restrictions on imports from the others. Oceana, known for its automotive industry, faced high tariffs when exporting cars to Coral and Isle. Coral, a hub for financial services, found it difficult to offer its services in the other two nations due to regulatory hurdles. Isle, with a strong agricultural sector, had quotas limiting its food exports.

Upon forming the PCM:

  1. All internal tariffs and quotas between Oceana, Coral, and Isle are removed.
  2. A common external tariff is applied to all goods imported from countries outside the PCM.
  3. Citizens of Oceana, Coral, and Isle can now work, live, and move capital freely within any of the three countries.
  4. Service providers, such as Coral's financial firms, can now operate without significant barriers across the entire PCM.

As a result, Oceana's automotive manufacturers can export cars to Coral and Isle without tariffs, increasing their sales volume and potentially achieving greater economies of scale. Coral's financial services can expand their operations, and Isle's agricultural products can reach a wider market, boosting their respective economies. This scenario illustrates how a common market aims to create a more integrated and efficient regional economy.

Practical Applications

Common markets are a cornerstone of several major international organizations, facilitating deeper economic ties among member states. The most prominent practical application is the European Union's single market, which grew out of the original European Economic Community (EEC). This market allows for the free movement of goods, services, capital, and people across its member states, significantly boosting trade and competition. The 18EU's single market is considered a primary engine for its prosperity and has led to benefits such as increased trade and foreign direct investment among members. Acco17rding to the European Union's official website, the single market makes it easier for companies to do business and helps consumers save money through lower prices and greater choice.

Ano16ther example is Mercosur (Southern Common Market), a trade bloc in South America comprising full members like Argentina, Brazil, Paraguay, Uruguay, and Bolivia, with several associate countries., Its 15objective is to promote a common space that generates business and investment opportunities through the competitive integration of national economies into the international market. Merc14osur functions as a customs union with the ambition to become a full common market.

13Limitations and Criticisms

Despite the benefits, common markets face limitations and criticisms. One significant challenge is the potential for a loss of national sovereignty, as member states must align their domestic regulations and policies with common standards. This can lead to political resistance and complex decision-making processes.,

Ec12o11nomic disparities among member states can also pose challenges. While common markets aim to foster overall growth, less competitive industries in some member countries may struggle against more efficient producers from other parts of the common market, potentially leading to unequal benefits.

The10 departure of the United Kingdom from the European Union, often referred to as Brexit, highlights some of these challenges. Brexit marked the end of the UK's participation in the EU's single market, leading to significant impacts on the movement of goods, services, and capital. Busi9nesses have faced increased costs and delays due to new customs borders and documentation requirements. As d8etailed in a KPMG analysis, the introduction of non-tariff barriers and differing tariff schedules between the EU and UK has created significant hurdles for trade. This7 demonstrates how leaving a common market can disrupt established trade flows and supply chains.

6Common Market vs. Free Trade Area

The distinction between a common market and a free trade area lies in the depth of their economic integration.

A free trade area is the most basic form of economic integration. In a free trade area, member countries agree to eliminate tariffs, quotas, and other trade barriers on substantially all trade in goods and services among themselves. However, each member country retains its independent trade policies with non-member countries. This means they can set their own external tariffs and negotiate separate trade agreements.

A common market, on the other hand, goes a step further. While it also eliminates internal trade barriers like a free trade area, it adds two crucial elements:

  1. Common External Tariff: All member countries adopt a uniform set of tariffs and other trade policies towards non-member countries. This creates a customs union within the common market.
  2. Free Movement of Factors of Production: In addition to goods and services, a common market allows for the free movement of labor, capital, and services among member countries. This unrestricted flow of production factors is a defining characteristic that differentiates it from a free trade area.

Essentially, a common market provides a higher level of economic integration by harmonizing external trade policy and enabling greater mobility of resources, aiming to create a more unified economic space.

FAQs

What are the "four freedoms" of a common market?

The "four freedoms" are the core principles of a common market: the free movement of goods, services, capital, and labor among member countries. Thes5e freedoms aim to remove obstacles to trade and mobility, allowing for greater economic integration.

How does a common market benefit consumers?

Consumers in a common market often benefit from lower prices and greater choice due to increased competition among businesses and the elimination of tariffs and other trade barriers., Bus4i3nesses can sell their products and services across borders without extra costs, leading to more competitive pricing.

###2 Can a country leave a common market?
Yes, a country can leave a common market, as demonstrated by the United Kingdom's withdrawal from the European Union's single market. This process, known as Brexit, resulted in the reintroduction of trade barriers and complexities for cross-border trade between the UK and the EU. Such1 a departure can impact market access and economic relationships.

What is the difference between a common market and a single market?

While often used interchangeably, particularly in the context of the EU, a common market is generally considered a stage in economic integration that includes a customs union and free movement of factors of production. A single market implies an even deeper level of integration, often involving extensive harmonization of regulations, standards, and policies across member states to ensure a truly level playing field. The EU's single market is an example of a highly developed common market.