International Trade Dynamics and European Integration

Free Trade and Protectionism

Free trade involves countries with the same level of development where there are no obstacles to trade, or countries with different levels of development where free trade is practiced. Instruments of protection are formed by all policies, measures, and procedures adopted by governments to impede international economic transactions.

Advantages and Disadvantages of Free Trade

Advantages:

• It allows the interplay of supply and demand at an international level.
• It encourages competition and specialization in production.
• It fosters technological progress and increased productivity.
• It provides higher quality goods at a lower cost.

Drawbacks:

• Difficulty for underdeveloped countries' industries to compete with other countries.
• It favors the gap between developed and underdeveloped countries.

Balance of Payments and Foreign Exchange

The Balance of Payments is a document that systematically summarizes all economic transactions of a country with the rest of the world during a given period.

The Foreign Exchange Market is where the exchange of the national currency for the currencies of the countries with which economic relations are maintained is performed. In this market, a set of supply and demand for domestic currency arises in exchange for foreign currencies. In this exchange of currency, the price or exchange rate is determined.

The European Union

Main Historical Stages

• 1949: Establishing the Council of Europe.
• 1951: The Treaty of Paris.
• 1957: Signing of the Treaty of Rome, establishing the European Economic Community and the European Atomic Energy Community.
• 1985: Signing of the Treaty of Accession of Spain and Portugal to the European Community.
• 1987: The Single European Act comes into force.
• 1992: The European Union Treaty (Maastricht Treaty) is signed.
• 1993: Implantation of the European Single Market.
• 1999: Start of the Economic and Monetary Union, including the creation and entry into force of a European single currency and the creation of the European Central Bank.

The Principle of Subsidiarity

The Treaty on European Union enshrines the principle of subsidiarity, whereby decisions are taken at the closest possible level to the citizen. The Community is involved only in the areas of common interest and when states cannot effectively act for themselves.

Community Rules

a) Regulations: