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Free Trade in the European Economic Community: Results From a Computer Simulation Analysis
by Robert J. Larson
31 May 1989
In partial fulfillment of the requirement for a Bachelor of Arts degree in the Mathematical Methods in the Social Sciences Program.
Introduction
The European continent is buzzing at present as it
prepares for the realization of the European Economic Community's
(EEC) newest project: the removal of all remaining non-tariff
barriers to trade by December 31, 1992. The Cecchini Report of
1988 is the first systematic attempt to deal with the possible
ramifications of the completion of the EEC's "internal market."
Cecchini first evaluates the costs of "European non-union" and
subsequently offers an analysis of potential micro- and macro-
economic gains to be reaped by the Community members. This paper
details the results of a project attempting to view the effects of
the completion of the internal market from a wider perspective. By
utilizing the GLOBUS world model, a large-scale simulation of
international economic and political process, it is hoped that
insights into the ramifications of 1992 for the world at large can
be gleaned. The author wishes to acknowledge here the generosity
of Dr. Harold Guetzkow, who provided unlimited access to the GLOBUS
model throughout the course of this project, as well as much-needed
support and encouragement.
Historical Background
A Brief History of European Union
The search for European union is well established in the
history of the continent. The evolution of Europe as a distinct
entity has been subjected to an alternation between unification and
stagnation for centuries. The underlying idea has always been that
Europe belongs together and should stick together. Early notables
such as Alaric and Theodoric recognized the existence of a Western
Civilization--a Res Romans—in which Latins, Celts, Greeks, and
1
Germans all had a share. Even though most of these men were not
educated enough to think in terms of "European union" they
recognized that it was worth defending from invading Huns and
Arabs. Though politically divided, medieval and early modern
Europe remained something of an informal community.
For those who travelled at all, frontiers were not in general a major obstacle. There were no immigration laws in the modern sense: if the local ruler liked you, he would let you stay; if not you had to move on. But if a man had a trade, or some education, or looked a likely soldier, the chances were he would be allowed to stay. Nationality was not a major consideration on the Continent at any rate; what mattered was allegiance to a king, bishop, or prince in return for a ruler's protection, and this did not involve the same complicated procedures as naturalization does today.
But despite this seemingly peaceful framework, rulers
spent a great deal of time fighting amongst themselves, causing
large amounts of physical destruction. Subsequent recovery was
painfully slow due in part to the underdeveloped nature of the
economy and lack of efficiency. As an effort to combat this
periodic destruction of Europe, various thinkers proposed schemes
for a European confederation to establish peace among Western
kingdoms and act as a common defense against outsiders and each
other. These various theories were usually based on a principle of
independent states working together through some sort of federal
system "rather than any one ruler asserting his power over all the
rest who would never have allowed it--as has been proven repeatedly
whenever anyone has tried."
The Beginnings of Post-War European Union
As was typical the notion of the modern European Economic
Community arose out of the destruction of war. World War II
2
served to convince Europeans that they could only survive by
becoming united, or at any rate, more united than they were.
Additionally Marshall Plan aid from the United States arrived under
the condition that the receiving states set up a joint
organizational body to manage the resources thus made available and
to work out a common economic policy. This body took the form of
the Organization for European Economic Cooperation (OEEC, later
OECD), providing a context within which a more tightly organized
grouping could flourish.
Further moves toward integration were soon to follow.
With the new threat from Eastern Europe growing, defense concerns
were seriously addressed. The Brussels Treaty, signed in 1948, was
a mutual assistance pact among the United Kingdom, France, and the
Benelux countries and "in objective was a neat balance between the
perpetuation of the wartime alliance against Germany and the
realization of a newer threat from Russia." Denmark, Norway,
Portugal, Iceland, and Italy, along with the United States and
Canada joined the Brussels Treaty nations in the defense of Western
Europe with the signing of the North Atlantic Treaty in 1949.
The need to incorporate divided Germany into a fully
unified defense of Western Europe brought about the European Coal
and Steel Community (ECSC) by way of the Treaty of Paris in 1951.
France was particularly fearful of the prospect of a rearmed
Germany; the ECSC worked around this fear by integrating the coal,
iron, and steel industries of France, Germany, Italy, and the
Benelux countries under the supervision of a supra-national High
Authority. The underlying rationale for this move was that war
cannot be made without steel, and steel cannot be made without coal
and iron.
Establishment of the EEC
The early success of the ECSC established the credentials
of European economic union, and soon a new attempt at integration
was made. The Spaak Report of 1955 advanced the vision of a
"Western Europe which can win for herself a place in the world
comparable with that of the superpowers and which once again, has
the capacity to influence world events."6 The Treaty of Rome,
signed in 1957, created the European Economic Community from the
six nations that comprised the ECSC.
The treaty's immediate objectives were to get rid of all
obstacles to the free movement of people and resources among the
member states, and to promote economic growth throughout the
Communxty. This included the removal of customs duties, a
harmonization of external inports policy, and provisions for the
free movement of citizens, corporations, and capital across member-
state borders. Some of the Community's rules came into force at
once, i.e. "the freedom to work anywhere in the EEC; for others a
transitional period was provided, during which customs duties were
gradually abolished between the member-states and external duties
p were brought into line with [proposed standards]. "°
By 1968, the EEC had succeeded in eliminating customs
tariffs between members. But beneath the surface of the removal of
formal customs barriers rose a string of non-tariff barriers:
complex border post procedures, divergent technical standards, and
disparate excise tax rates/ Work toward dismantling these new
non-tariff barriers came to a veritable stop during the 1970s and
early 1980s, as the EEC turned its attention to other issues. The
Community began to add new members: Denmark, Ireland, and the
United Kingdom in 1973; Greece in 1979; and Portugal and Spain in
4
1986. Other primary issues included arguments about the size of
Britain's contribution to the EEC budget, and demands for reduced
spending on the Common Agricultural Policy. These political
distractions led the EEC away from continuing toward the objectives
set out by the Treaty of Rome.
The 1992 Program
The White Paper and the Single European Act
Before Jacques DeLors became president of the EEC at the
beginning of 1985, he toured the member states and tried on them
four ideas to push Europe forward: closer collaboration on defense,
development of the Community's system of government, another move
on the monetary front, or a renewed campaign for a proper European
q market. It was the last of these proposals that compromised
individual political sovereignty the least, and thus appealed to
members the most.
This goal of completing the internal market found its
detailed expression in a "White Paper" written by Britain's Lord
Cockfield in 1985. Cockfield compiled a list of 300 measures
needed for a wholly unified European market. He laid out a
fast-paced timetable that would have to be followed to get the
measures adopted by December 31, 1992 (the end of DeLors' term). "
In order for the process of adoption of the White Paper's
directives to begin, a legal barrier had to be removed. It had
been EEC legislative policy'to require unanimous approval of the
member nations in order to pass a piece of legislation which could
affect the "national interest" of one or more members. The Single
European Act of 1985, the only amendment to the Treaty of Rome,
removed this obstacle by imposing a system of majority voting on
5
1 1
member states.
As the White Paper expresses it, "the completion of the
Internal Market will be achieved when the Community has done away
with physical, technical and fiscal barriers among the Member
States." The physical barriers refer to delays at customs posts
including passport controls, health checks, and shipping paperwork.
Technical barriers refer to divergent product specifications and
safety standards among nations, making it impossible for a producer
to export the same model of a product to all member nations.
Fiscal barriers include the lack of an accepted common currency and
wide variations in excise tax policies among nations. In brief, it
is the hope of the EEC that removal of these non-tariff barriers
will create an even playing field for trade in goods and services.
The Cecchini Report
A 1988 EEC publication entitled The European Challenge:
1992 is the first systematic attempt at assessing the effects the
removal of trade barriers might have on the Community. The report,
authored by Paolo Cecchini, Special Advisor to the Commission of
the European Communities, details the costs of European "non-union"
in terms of the above-mentioned physical, technical, and fiscal
barriers. Cecchini goes on to make micro- and macro-economic
estimates of the gains to be afforded by 1992.
The microeconomic approach assesses the impact of
removing non-tariff barriers in terms of which individual actors
will benefit.
Highlights of the 1992 picture include a susbstantial gain for consumers ('consumer surplus') as prices drop and product choice and quality increase under the impact of open competition. Producers face a more mixed outlook. In the short term, profits
( p a r t i c u l a r l y t h o s e r e s u l t i n g f rom m o n o p o l y o r p r o t e c t e d p o s i t i o n s ) may be s q u e e z e d . But i n t h e l o n g e r r u n , b u s i n e s s a s a w h o l e i s e x p e c t e d t o r e s p o n d t o t h e new c o m p e t e t i v e c l i m a t e by m a k i n g v a r i o u s a d j u s t m e n t s - - e g . s c a l i n g up p r o d u c t i o n ( ' e c o n o m i e s o f s c a l e of p r o d u c t i o n ' ) , g a i n i n g e x p e r i e n c e o f how t o p r o d u c e m o s t e f f i c i e n t l y ( ' e c o n o m i e s of s c a l e of l e a r n i n g ' o r ' l e a r n i n g c u r v e e f f e c t ' ) , e l i m i n a t i n g managemen t i n n e f f i c i e n c i e s ( ' X - i n e f f i c i e n c y ' t o t h e e c o n o m i s t ) , and by improved c a p a c i t y t o i n n o v a t e . G a i n s f rom t h e s e and o t h e r a d j u s t m e n t s , when n e t t e d o u t , l e a d t o an i n c r e a s e i n t h e Communi ty ' s ' n e t economic w e l f a r e . ' 1 ^
Table 1 i l l u s t r a t e s t h e s e g a i n s i n t e rms of Gross Domest ic P roduc t
(GDP) and European Currency U n i t s (ECU).
Tab le 1. P o t e n t i a l g a i n s i n economic w e l f a r e f o r t h e EC r e s u l t i n g from c o m p l e t i o n of t h e i n t e r n a l marke t
B i l l i o n s ECU % of GDP
Step I Gains from removal of barriers affecting trade 8-9 Step 2 Gains from removal of barriers affecting overall production 57-71
Gains from removing barriers (sub-total) 65-80
0.2-0.3
2.0-2.4
2.2-2.7
Step 3 Gains from exploiting economies of scale more fully 61 Step 4 Gains from intensified competition reducing business inefficiencies and monopoly profits 46
Gains from market integration 62*-107
2.1
1.6
2.1*-3.7
Total - for 7 Member States at 1985 prices - for 12 Member States at 1988 prices - mid-point of above
127-187 174-258 216
4.3-6.4 4.3-6.4 5.3
* This alternative estimate for the sum of steps 3 and 4 cannot be broken down between the two steps. Source: The European Challenge: 1992 by Paolo Cecchini, p.84. Notes: The ranges for certain lines represent the results of using alternative sources of information and methodologies. The seven Member States (Germany, France, Italy, United Kingdom, Benelux) account for 88% of the GDP of the EC twelve. Extrapolation of the results in terms of the same share of GDP for the seven and twelve Member States is not likely to over-estimate the total for the twelve. The detailed figures in the table relate only to the seven Member States because the underlying studies mainly covered those countries.
The macro-economic approach l o o k s a t how t h e s u p p l y - s i d e
shock caused by t h e removal of n o n - t a r i f f b a r r i e r s w i l l a f f e c t t h e
Community economy as a whole .
The p r o c e s s i s i n e s s e n c e s i m p l e . I t s t a r t s w i t h t h e l o w e r i n g of p r o d u c t i o n c o s t s and w i t h g a i n s i n p r o d u c t i v i t y w h i c h w i l l r e s u l t f rom EC m a r k e t i n t e g r a t i o n . The e n s u i n g p r i c e r e d u c t i o n s w i l l i n t u r n have an i m p o r t a n t k n o c k - o n e f f e c t on t h e main mechanisms of t h e macro -economy. They w i l l i n c r e a s e p u r c h a s i n g power ; change t h e c o m p e t e t i v e p o s i t o n s of i n d i v i d u a l EC c o u n t r i e s w i t h e a c h o t h e r and of t h e Community w i t h t h e o u t s i d e w o r l d ; t h e y w i l l p r o v i d e t h e b a s i s f o r a d u r a b l e a t t a c k on u n e m p l o y m e n t ; s t i m u l a t e demand y e t r e d u c e i n f l a t i o n ; i n s h o r t , t h e y w i l l p r o v i d e a n e n t i r e l y new o u t l o o k — a n d t r a j e c t o r y — f o r economic g r o w t h b e t w e e n now and t h e end of t h e c e n t u r y . 1 4
Table 2 d e t a i l s t h e p r o j e c t e d macroeconomic g a i n s a s p roduced from
t h e HERMES and INTERLINK economic mode l s .
Table 2 . Macroeconomic consequences of EC marke t i n t e g r a t i o n fo r t h e Community i n t h e medium t e rm
Customs P u b l i c F i n a n c i a l S u p p l y - T o t a l f o r m a l - p r o c u r e - s e r v i c e s s i d e Average S p r e a d i t i e s ment e f f e c t s 1 v a l u e
R e l a t i v e changes (%) Gross Domes t i c P r o d u c t 0 .4 Consumer P r i c e s - 1 . 0
Absolute changes Employment ( m i l l i o n s ) B u d g e t a r y b a l a n c e
(% p o i n t of GDP) E x t e r n a l b a l a n c e
(% p o i n t of GDP)
Source: The European Challenge, 1992 by Paolo Cecchini, p.98. Source of figures: HERMES (EC Commission and national teams) and INTERLINK (OECD) economic
Notes: '• 1 Based on a scenario which includes the supply-side effects estimated by the consultants, economies of scale in manufacturing industry and competition effects (monopoly rent, X-inefficiency). 2 The INTERLINK simulations have been carried out by the Commission departments. The OECD takes no responsibility for the use of the model.
0 . 5 - 1 . 4
1 . 5 - 1 . 4
2 . 1 - 2 . 3
4 . 5 - 6 . 1
( 3 . 2 - 5 . 7 ) ( - 4 . 5 — 7 . 7 )
2 0 0
0 . 2
0 . 2
350
0 . 3
0 . 1
400
1 . 1
0 . 3
8 5 0
0 . 6
0 . 4
1800
2 . 2
1 . 0
(1300-2300)
( 1 . 5 - 3 . 0 )
( 0 . 7 - 1 . 3 )
8
Fortress Europe ?
Representatives and citizens of the United States and
Japan have expressed dismay over the prospect of a united Europe.
As the remaining barriers to the free flow of goods, capital, and
people are eliminated, the member-states will have to agree on a
single external trade policy. The U.S. and Japan worry that it
will be a protectionist approach. This fear was strong enough to
prompt the Reagan administration to introduce a US Trade Bill to
counter the effects of the single internal market.
American and Japanese companies are already gearing up
for battle by attempting to position themselves in EEC nations in
case the gates do close. Direct investment in the Common Market
from the U.S., Japan, and non-EEC European countries has ballooned
-i n
since the mid-1980s. Rushing to become an insider, however,
will not automatically guarantee access to the new markets that
1992 will create. These include cross-border sales of services and
information — insurance, mutual funds, mortgages, TV programs—and
access to heretofore protected industries, such as telecommmuni-
cations.18
But regardless, American and Japanese companies are
expected to find tougher competition from a united Europe. Some
analysts predict that U.S. multinationals will have to pull out of
some product lines to sharpen their European competetive focus. "
For Japan, tough quotas imposed on autos by Spain, France, and
Italy will probably be abandoned by 1992, but a formal EEC-wide
quota of one million vehicles a year to go into effect when
individual quotas are lifted. At any rate, it is generally
feared that the completion of the EEC internal market will be
harmful to the U.S. and Japan.
Experimenting with 1992
"Epistemological" Purpose
The Cecchini report, since it only deals with the
potential gains of the EEC, does not address such issues and fears
of the United States and Japan as noted above, nor does it
incorporate politics into the economic picture. Obviously the EEC
does not exist in and of itself, but rather in the midst of
regional and global systems. By utilizing the technique of
computer simulation in the form of the GLOBUS world model, this
paper attempts to discern some possible international economic and
political effects the completion of the EEC internal market may
have.
Computer Simulation and a Brief History of Global Modeling
Simulation, as a social science technique, refers to the
"construction and manipulation of an operating model, that model
being a physical or symbolic representation of all or some aspects
of a socxal or psychological process." The use of computerized
simulation techniques in the study of international relations is
now three decades old. Early efforts, which combined computerized
elements with the behavior of human players, were undertaken by
Harold Guetzkow (Inter-Nation Simulation) in 1959 and Paul Smoker
(International Processes Simulation) in 1967. 2
All-computer models came into prominence under the
auspices of the Club of Rome in the 1970s.
These were genuine world models, interactive well above the level of nation-states, dealing mainly with population, food, energy, raw materials, and the deterioration of the environment, with time horizons extending through to the middle of the next century. They paid scant attention to price effects and they rigorously excluded politics. °
10
The m o s t n o t e w o r t h y of t h e m o d e l s g e n e r a t e d by t h e C l u b of Rome was
World 3, a u t h o r e d by J .W. F o r r e s t e r , D e n n i s a n d D o n e l l a Meadows a t
MIT. The b o o k Limits to Growth, w h i c h d e t a i l e d t h e i n f e r e n c e s made
f rom t h i s m o d e l , r e c e i v e d a g r e a t d e a l o f p u b l i c i t y a s i t p r e d i c t e d
a w o r l d w i d e c a t a s t r o p h e b e t w e e n 2030 a n d 2 0 4 0 .
The GLOBUS Model
The GLOBUS w o r l d m o d e l ( g e n e r a t i n g L o n g - t e r m O u t p u t s By
U s i n g S i m u l a t i o n ) was d e v e l o p e d b e t w e e n 1977 a n d 1987 a t t h e
W i s s e n s c h a f t s z e n t r u m i n B e r l i n u n d e r t h e d i r e c t i o n of S t u a r t
B r e m e r . The m o d e l i n c o r p o r a t e s many i m p o r t a n t m a c r o p o l i t i c a l a n d
m a c r o e c o n o m i c r e a l t i o n s h i p s w i t h i n a n d among 25 p r o m i n i e n t
c o n t e m p o r a r y n a t i o n s , d i s t r i b u t e d a c r o s s 4 r e g i o n s , ( l i s t e d i n
T a b l e 3) p l u s a r e s t - o f - w o r l d e n t i t y .
I t i s designed and used t o explore p o s s i b l e s o l u t i o n s t o l o n g - t e r m g l o b a l p r o b l e m s . The fundamenta l under ly ing assumptions a re t h a t t o unders tand cu r r en t and fu tu r e g l o b a l problems i t i s v i t a l t o see t h a t economics and p o l i t i c s cannot be d ivorced from one a n o t h e r , as t h e y u s u a l l y a r e i n t h e d i s c i p l i n a r y s t r u c t u r e of t h e s o c i a l s c i e n c e s , and t h a t n a t i o n s do not e x i s t i n s p l e n d i d i s o l a t i o n from one a n o t h e r , a b l e t o i n d e p e n d e n t l y d e t e r m i n e t h e i r own d e s t i n i e s . 4
T h i s i n t e r m i n g l i n g o f p o l i t i c s a n d e c o n o m i c s makes GLOBUS an
a p p r o p r i a t e medium f o r i n v e s t i g a t i n g w h a t r e v e r b e r a t i o n s t h e
c o m p l e t i o n o f t h e EEC m a r k e t m i g h t h a v e i n t h e i n t e r n a t i o n a l
s y s t e m .
The GLOBUS model consists of six submodels: Demographic,
Domestic Economic, Domestic Political, Government Budget,
International Economic, and International Political. The
interconnection among the model parts is illustrated in Figure 1.
The Demographic model exogenously sets growth rates for total
1 1
Table 3 . GLOBUS N a t i o n s and A s s o c i a t e d Regions
Nat ion Region Nat ion Region
Argentina Brazil Canada China Czechoslovakia Egypt West Germany France East Germany Iran India Indonesia Italy
South South West South East South West (Vest East OPEC South OPEC OPEC
Japan Mexico Nigeria Pakistan Poland South Africa Saudi Arabia Turkey United Kingdom United States Soviet Union Venezuela
West South OPEC South East South OPEC South West West East OPEC
Source: The Globus Model by S t u a r t A. Bremer, p . 3 5 .
Figure 1. Interconnections between GLOBUS Model Parts
Demographic Conditions
Domestic ~ Economic ^^
Conditions
International "^ Economic
Relations
Domestic Political ^~ Condtions
Government Budget
International "^ Political
Relations
S o u r c e : The Globus Model by S t u a r t Bremer, p . 1 7 .
population, labor force, and urban population. The Domestic
Economic model portrays national economies as producing, consuming,
and exchanging six goods: agricultural goods, primary energy, raw
materials, manufactures, armaments, and services. The Domestic
Political model focuses on how support for and opposition to
government varies in response to changing political economic
behavior. The engine by which all decisions concerning spending
and taxing are made is provided by the Government Budget model.
12
The p r o c e s s e s by which b i l a t e r a l t r a d e i s c a r r i e d ou t a r e mimicked
by t h e I n t e r n a t i o n a l Economic model . The I n t e r n a t i o n a l P o l i t i c a l
model f o c u s e s on t h e r e l a t i o n s h i p s between b i l a t e r a l f lows of
c o o p e r a t i o n and h o s t i l i t y .
The GLOBUS model , i n i t s t e c h n i c a l m a n i f e s t a t i o n ,
c o n s i s t s of a sys tem of d i f f e r e n t i a l e q u a t i o n s , i n i t i a l i z e d f o r t h e
y e a r 1970 w i t h e m p i r i c a l l y - d e r i v e d i n i t i a l v a l u e s and
t h e o r e t i c a l l y - d e r i v e d p a r a m e t e r s . The s i m u l a t i o n i s t h e n s e t i n
mot ion t h r o u g h t h e y e a r 2010. The v e r s i o n of GLOBUS used i n t h e
p r e p a r a t i o n of t h i s p a p e r was MICROGLOBUS ( v e r s i o n Sigma) , which
runs on t h e IBM-PC.
I n t e r n a t i o n a l Economic Model
The work ings of t h e I n t e r n a t i o n a l Economic Model a r e
e s p e c i a l l y r e l e v a n t t o t h e e x e c u t i o n of t h e EEC s c e n a r i o , and a r e
t h u s d i s c u s s e d h e r e i n d e t a i l . The a u t h o r s of t h e GLOBUS model
have chosen a demand-d r iven , g r o s s - b i l a t e r a l d e s i g n f o r
i n t e r n a t i o n a l t r a d e . The l o g i c of a g r o s s b i l a t e r a l t r a d e model
p o r t r a y s t r a d e as a t w o - s t e p p r o c e s s .
Being demand d r i v e n , t h e f i r s t s t e p s e t s t o t a l i m p o r t demand i n e a c h economic u n i t (a c o u n t r y o r a r e g i o n ) . Q u i t e commonly, t h e i n d i c a t o r of a g g r e g a t e demand i s some m e a s u r e of i n c o m e , s u c h a s G r o s s N a t i o n a l P r o d u c t . G iven t h e volume of i m p o r t demand f o r a s p e c i f i c c o u n t r y , t h e s e c o n d s t e p i s t o d e c i d e how t h i s t o t a l demand i s t o be s h a r e d o u t among p o t e n t i a l s u p p l i e r s . By u s e of a s h a r e m a t r i x , t h e n , n a t i o n -l e v e l t o t a l demand i s c o n v e r t e d i n t o b i l a t e r a l f l o w s . 2 5
Looking a t s t e p 1, we f i n d t h a t i n most t r a d e mode l s , t h e
t o t a l demand fo r i m p o r t s (M^) i s e x p r e s s e d a s : ° Mi = b e t a * D ^ * p ^ t ^ U )
where beta = a scalar D' = the level of national, aggregate economic activity
13
mu = the responsiveness of national imports to aggregate demand
Pj_* = domestic prices relative to foreign prices tau = the responsiveness of import demand to relative
prices (In the notation used in this paper, i=importer, e=exporter, and s=sector)
In GLOBUS, it is assumed that total import demand does
not adjust instantaneously to changes in the factors which shape
that demand. Thus the above formulation is incorporated into
GLOBUS as desired total import demand (DIMPSi s ) : 2 8
DIMPSi s = constant * DEMDi smui,s (2)
* [(PRCSi/S * DOLRXi/dolrxii)/EE(IMSHRi^e?s * XPRICe>s)]
taui, s
where tau and mu are as in (1) DEMD^ s = aggregate national demand for a commodity PROS' _ * DOLRX'/dolrxi^ = the sectoral price index for
X f o _L X J"
a nation converted to real 1970 U.S. dollars IMSHR^ „ = the share of national imports from another i, e, a
nation (an integral... see equation 6) XPRICe s = the price index of national exports by
commodity
The change in total import demand (IMPS'^ s) is then
taken to be a function of the actual level of import demand, the
annual growth rate in Gross Domestic Product (GDPRAG^), and the
ratio between the desired level of total imports and the actual
level of imports:
IMP S ' i f S = ( I M P S i / S * GDPRAGi) + [ a d j s p d ± * In(DIMPS.j_ s / I M P S i f s ) ] (3 )
where ad j spd^ = t h e mean l a g t i m e of t h e e q u i l i b r i u m - s e e k i n g p r o c e s s
IMPS' „ = an integral which measures the current level of ± r a
import demand as a function of the initial (1970) level and all changes between the initial and current periods
14
These equations are iterated throughout the 40-year run of the
model.
Step 2 involves the determination of trade shares. The
Of]
customary approach to this problem is a basic Armington equation:0"
Mie/M± = hiesi^mai * (Pie/Pi*)~
sigmai (4)
where M^e/Mj_ = the share of total imports given to an exporter
bj_si<^mai = the trade share in the initial period l e J-
Pj_e/Pj_* = relative price
sigma' = the elasticity of substitution between any two
trade partners
Again, GLOBUS uses this formulation to express desired
import shares (DIMSH^ e s ) : 3 1
DIMSHRi>e?s = cimshrife^s * WPRICES * (XPRICe^S/PREFER±^e)signup (5)
where cimshr' , 0 = the trade share in 1970
WPRICES = the reciprocal of the aggregate world trade
price PREFERj_ e = a trade partner preference term which takes
into account the level of cooperation with an exporter (from the International Political Model) and that nation's export capacity
Again, the change in import shares (IMSHR'^ e s) is used
as an adjustment mechanism to represent the continual movement of
09 actual shares around changing desired shares: I M S H R ' i / e / S = t r a d j i * ( D I M S H ^ ^ g - I M S H f t i / e # s ) (6 )
where tradj^ = the speed of adjustment
IMSHRj_ e s = an integral which measure the current import
share as a function of the initial share (1970) and all changes between the initial and current periods
Together these two steps provide the central mechanisms
of the International Economic Model. In addition to this
15
mechanism, several peripheral functions are performed within the
International Economic Model. These include: foreign aid flows,
trade accounts, capital accounts, trade indicators, balance of
payments adjustments, and exchange rates.
Experimental Design
The EEC is not explicitly modeled in GLOBUS; thus any
experiments involving the EEC must be conducted with the individual
nations that comprise it. In addition, only four of the twelve
member-states are represented (United Kingdom, France, West
Germany, and Italy), as part of the West region. However these
four nations account for 79% of the GDP of the EEC twelve. Thus
extrapolation of results should not distort the picture that would
be generated were all twelve nations represented in GLOBUS. In
fact, Cecchini's analysis, as stated in the note to Table 1, only
covers seven nations (the above four plus the Benelux countries) ,
but generalizes to the EEC as a whole.
Additionally, the non-tariff barriers which are the
target of the White Paper's directives are not explicitly modeled
in GLOBUS. The model's macro-structure does not allow for such
specialized effects. Therefore it is necessary to think of the
dismantling of non-tariff barriers from a different angle. The
assumption is thus made that the removal of these barriers can be
accomplished in full by 1992, so as to make "complete free trade"
the condition to be modeled.
Pollins and Brecke offer an example of how free trade can
be modeled with GLOBUS in their chapter on the International
Economic model. The scenario described therein entails the
granting of preferential tariffs to the South nations by the IVest
16
•3 -3
nations on the order of a 20 percentage-point reduction. Because
the model is in equilibrium in the initial 1970 period, the trade
share equations "embody" many factors including the level of
protection. The reduction of protectionism is thus implemented by
reducing the trade prices for the appropriate country-pairs by 20%. In other words, as a West group importer surveys the prices offered by all exporters in the system, the prices they see from the South group exporters will be 20% lower...than in the reference run. All other parameters and relationships in the model are identical in the two runs. 4
Thus "freer" trade is modeled by a reduction in the level
of protectionism. In order to model free trade in the EEC, it is
necessary to find the "particular" percentage-point reduction in
trade prices that each member must grant every other member to
sufficiently remove the non-tariff barriers. Since it is difficult
to compute a precise tariff equivalent of non-tariff barriers, and
since no publications could be found which attempted to measure
this, the "particular" percentage point reduction must be based on
other factors or perhaps on effects to be achieved.
As a test run, a 20 percentage-point reduction in the
trade prices of the appropriate country-pairs at time 1993 was
chosen. This turned out to be an acceptable choice based on a
resultant increase in EEC Gross Domestic Product of 5.5% by 2003.
This figure falls into the high end of the total spread of GDP
increase for the medium term as calculated by Cecchini (Table 2).
The decision was made here to stick to the 20% figure for the sake
of manageability, thus sacrificing some rigor. A more systematic
analysis would "sample" results from varying percentage-point
reductions (say 10%, 30% and 40%). However experience in working
with GLOBUS led to the conclusion that varying the percentage
17
reduction in protection would primarily alter the magnitude of the
resulting behavior, and only slightly, if at all, the resulting
behavior pattern.
Presentation of Results
Framework of Analysis
The term "reference run" will be used here to refer to
the results generated by executing the GLOBUS model in its raw
form, with no adjustments to parameters or equations. The term
"EEC free trade run" will be used to refer to the results generated
by lowering XPRIC (see equation 2) by 20% for the appropriate
country-pairs, with all other model parts the same as in the
reference run.
Brian Pollins outlines a framework for dealing with the
effects of protection, and this is the structure from which the
results of this experiment will be analyzed. The framework can be
summarily outlined as follows:
1. Trade Flow Effects - level of imports and exports - direction of trade - composition of imports and exports - exchange rate implications of changing flows
2. Growth and Welfare Effects - changes in terms of trade - changes in market share
3. International Diplomatic, Political Effects - changes in patterns of conflict and cooperation - reciprocal action-reaction dynamics
Trade Flow Effects
The EEC free trade run generates a higher volume of
imports and exports at the world level (where exports = imports)
than in the reference run. The simulated data show a steady
18
increase in overall trade after 1993: increases over the reference
run of 9.5% at 19*8, 10.5% at 2003, and 11.7% at 2008. Breaking
this observation down to a regional level (Table 4) we can see that
most of this increase is due to an increase in imports and exports
by the West region. The West displays sharp and constantly
increasing levels of imports and exports beginning in 1993. The
effects of the EEC internal price reduction are felt in the rest of
the world's nations as well. Initially East, South, and OPEC
nations experience small decreases in exports and increases in
imports. But there is only a temporary decline in these regions'
trade balances; the longer-term trend shows modest increases in
exports and decreases in imports on the part of the non-Western
nations.
Table 4. Percentage changes from the reference run in regional exports and imports effected by the EEC free trade run
EXPORTS
Regions
West
East
South
OPEC
IMPORTS
Regions
West
East
South
OPEC
In order to address the fears of the United States and
19
1993
3.8
-0.4
-0.5
-0.3
1998
12.9
-2.7
1.3
-0.8
2003
13.8
1.1
2.8
0.4
2008
14.8
4.1
4.0
2.5
1993
3.5
0.6
1.7
1.1
1998
19.3
-2.0
-6.0
-1.5
2003
21.5
-6.1
-7.0
-5.0
2008
22.8
-6.7
-6.5
-5.9
Japan that EEC market integration will harm their international
trade, it is necessary to look at thw West region on a country-by-
country basis. Figures 2 - 8 graphically show the percentage
changes from the reference run in imports and exports effected
under the EEC free trade run for the 7 West nations. Since the
price reductions are taking place in the EEC nations only, it is
not surprising to find that the United States, Canada, and Japan
behave in much the same fashion as the non-Western regions: an
initial increase in imports/ decrease in exports followed by
increses in exports/ decreases in imports, although overall still
less than in the reference run. This behavior primarily occurs
because the 4 EEC nations import from and export to each other
first (because of lower prices), leaving less left over for the
other nations of the world. Thus from this nation-level approach,
it is easy to see that the majority of the increase in world trade
is due to the importing and exporting practices of the EEC
nations. All 4 nations show significant increases on both counts,
as much as 99% in the case of French imports in 2009 (Figure 6).
20
Figure 2 . Change i n U.S. e x p o r t s and imports e f f e c t e d by t h e EEC Free Trade Run
<*> - 6
usa-exp usa-imp
1990 2000 1
2010 2020 Year
Figure 3 Change in Canada exports and imports effected by the EEC Free Trade Run
Ru
n
• •
1
0) 0 " 0
a 0) M <D - 2 -
A - 4 " •P
8 • 14-1 - 6
& . 5 - 8 -o dp
- i o H
- M - M \ — r
r
rfO-cT ™*
• • i
c a n - e x p
c a n - i m p
1
1990 2000 2010 2020 Year
21
Figure 4. Change in Japan exports and imports effected by the EEC Free Trade Run
10
a Pi
<D O G 0> u 0>
>H 0>
s u <D Cn a n) si o
-10 -
-20
-Q j p n - e x p - • j p n - i m p
1990 2000 2010 Year
2020
Figure 5. Change i n United Kingdom e x p o r t s and imports e f f e c t e d by t h e EEC Free Trade Run
0) o C d) M 0)
>U 0)
50
g 3 40
30 "
20 " 8 M
<D
a * 10 o
Q u k g - e x p
• ukg- imp
1990 2000 Year
2010 2020
22
Figure 6. Change in France exports and imports effected by the EEC Free Trade Run
c 81
0 a ID M 0)
4-1 d)
0 XI
g 0 M
4-1
n) X! n <*>
LOO "
80 "
60 "
40 "
20 "
0 "
•"P
i
f rn-exp
frn-imp
1990 2000 2010 2020 Year
Figure 7. Change in West Germany exports and imports effected by the EEC Free Trade Run
80
a ei
8 60
a <u M <D
4-1
§ u
4-1
a; tn C n)
XI O
dP
40 "
20
1990 2000 2010
f rg-e:-:p
f r g - i m p
2020 Year
23
Figure 8. Change in Italy exports and imports effected by the EEC Free Trade Run
80
c
8 60
a <D U M-l
40 1 e o u
<u o tn c 20 £ u dp
ita-exp
ita-imp
1990 2000 2010 2020 Year
The differences observed between the reference run and
the EEC free trade run in real interregional flows of imports
(Table 5) show that trade becomes decidedly focused on the (Vest by
the year 2003. All regions export more to West nations and West
nations export more to all other regions. Additionally the flow of
imports to non-iVest regions from non-!Vest regions uniformly
declines. A weak inference can be made via analogical reasoning
that within the IVest region, most of this focusing of trade will be
on the EEC nations, and that the U.S., Canada, and Japan exhibit
behavior similar to that of the non-Western regions (This
analogical reasoning with the above discussion of imports and
exports was not tested).
24
Table 5. Percentage changes from the reference run in real inter-regional flows of imports (Year 2003)
EXPORTER
West
East
South
OPEC
Rest-of-Wo eld
West
19.1
21.7
0.3
3.3
22.2
IMPORTER East
23.3
-15.6
-18.2
-12.1
-10.6
South
2.8
-14.5
-15.1
-16.5
-8.9
OPEC
1.0
-11.8
-12.8
-11.5
-6.6
ROW
23.6
-12.5
-14.8
-14.6
-9.4
The increase in world trade can also be broken down into
its effects on the six sectoral markets of GLOBUS. The size of the
service sector shows the largest increase over the reference run at
15.3%. Increases are also observed in the manufactures sector
(12.1%) and the agricultural goods sector (3.6%). Slight decreases
occur in the armaments sector (-1.0%), raw materials sector
(-0.9%), and the primary energy sector (-0.5%). All figures are
observed at the year 2003. Looking at the service and manufactures
sectors for each nation, all nations in non-West regions exhibit
variant behavior which would need to be dealt with on a case by
case basis. But looking at the nations in the West region, it is
easy to see that the EEC nations primarily exhibit large increases
in exports and imports of services and manufactures, while the non-
EEC West nations show small decreases or no change in both sectors
(Figures 9 and 10). This leads to the inference that the large
increase in the size of the service and manufactures markets is due
primarily to the EEC nations trading these goods amongst themselves
at the expense of the other West nations.
25
Figure 9. Change in sectoral exports effected by the EEC Free Trade Run—West (2003)
50
r! 3 a a) o
u <n 4-1 4) a 8 0 M m d) l-n a m 43 O
40 "
' 30 "
. 20 "
• 10 -
0 "
-10
USA CAN UKG FRN FRG ITA JPN
Countries
Figure 10. Change in sectoral imports effected by the EEC Free Trade Run—West (2003)
-20 USA CAN UKG FRN FRG
Countries
ITA JPN
Exchange rates simulated from 1993 - 2010 add little new
information; they simply reinforce what has already been inferred. *
26
The behavior patterns show strong increases in the value of EEC
currencies against the U.S. dollar; all other nations exhibit
varying degrees of decline against the dollar. One can only
speculate that were the values of currencies measured against some
neutral standard rather than the U.S. dollar that the dollar itself
would show explicit signs of declining value, rather than the
constant value of 1.0 as portrayed in GLOBUS.
Growth and Welfare Effects
GLOBUS computes two terms of trade indicators during the
course of a model run: net barter terms of trade (the ratio of the
export price index to the import price index) and the purchasing
power of exports (net barter terms of trade multiplied by an export
quantum index). Table 6 shows national rankings for the year 2003
under both the reference run and the EEC free trade run. As the
table shows, the United Kingdom leaps from fifth to first under the
EEC free trade run (a 19.7% increase in net barter terms of trade).
Italy and West Germany also climb significantly in the rankings;
France drops a notch despite the fact that it enjoys a 3.1%
increase, due in part to the magnitude of Italy's leap (21.4%) and
in part to the fact that the United States and Japan were
originally much farther ahead. The EEC's rise comes at the expense
of all the world's nations (not just the non-EEC West nations),
however only the top nine positions exhibit serious movements in
rank.
27
Table 6. National rankings according to net barter terms of trade for the 25 GLOBUS nations (plus ROW) under the Reference Run and the EEC Free Trade Run
Reference Run 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
Soviet Union Saudi Arabia Japan United States United Kingdom West Germany France Re st-of-World Italy Canada Egypt Argentina Iran Czechoslovakia China Nigeria India Brazil Turkey South Africa Venezuela Mexico Poland East Germany Pakistan Indonesia
EEC 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.
Free Trade Run United Kingdom Soviet Union Saudi Arabia West Germany Italy United States Japan France Re st-of-World Canada Argentina Egypt Iran Czechoslovakia China Nigeria India Brazil Turkey South Africa Poland Venezuela Mexico Indonesia Pakistan East Germany
Similar effects are witnessed in observing the purchasing
power of exports. All four EEC nations enjoy substantial increases
in purchasing power in the EEC free trade run: United Kingdom--45%,
France--49%, West Germany—54%, and Italy--53%. This increase is
complemented by decreases in the purchasing power of the non-EEC
nations, with three exceptions: Argentina, Saudi Arabia, and the
Rest-of-World entity. This seeming anomaly, that one South nation,
one OPEC nation, and the ROW entity should enjoy increases in
purchasing power when all other non-EEC nations do not, can be
explained by noting what they all have in common. All three of
these nations exhibit substantial increases in exports in the
enlarged service and manufactures sectors; they share this trait
28
with many other nations (Figure 11). But what sets these three
apart from the rest of the GLOBUS nations is the fact that they
exhibit slight increases in imports in these sectors (Figure 12)
Figure 11. Change in sectoral exp the EEC Free Trade Run
30
a
-10
Manufactures
£3 Services
or ts effected by —Assorted Nations (2003)
BRA ARG SAF TUR EGY IND NIG SAU ROW
Countries
Figure 12. Change in sectoral imp the EEC Free Trade Run
10
a Pi
<u o a <i> M 0)
<u d) P5
B o M
<H
<D Cn G (0
J3 O
-20
Manufactures
0 Services
or ts effected by —Assorted Nations (2003)
i i i i i i i i
BRA ARG SAF TUR EGY IND NIG SAU ROW
Countries
29
Hence their export quantum indices serve to counteract
the effects of declining net barter terms of trade, whereas it
serves to reinforce the effects in other nations. Argentina enjoys
the smallest increase (0.7%, versus 1.5% for Saudi Arabia and 4.0%
for the Rest-of-World entity) since it exhibits a decrease in
service imports along with its increase in manufactures imports.
The other two show gains in both sectors.
Figures 13 and 14 present the changes in the regional
shares EEC's and the "non-member West"'s import market for
Figure 13. Regional Shares in th e EEC Import Market for Manufactures ( 2003)
EEC FREE TRADE RUN
REFERENCE RUN
OPEC 0.1%
manufactures at the year 2003, respectively. Figure 13 shows that
the EEC gains a 1.8 percentage point share in its own import market
for manufactures over the reference run. This gain comes primarily
at the expense of the "non-member West" nations (-0.8%) and the ROW
entity (-0.7%), and secondarily at the expense of the South
(-0.3%). Figure 14 shows the EEC gaining a full 4 percentage point
share in the "non-member West" import market for manufactures,
30
primarily at the expense of the U.S., Canada, and Japan (-2.8%).
Additionally the ROW entity suffers a -1.0% loss, with the South
incurring a small -0.2% loss. Although these changes are small
they do reinforce the notion that the focus of trade after 1993 is
shifting toward the EEC.
Figure 14. Regional Shares in the Import Market for Maun
"Non-Member West" factures (2003)
EEC FREE TRADE RUN
OPEC. 0.4%
East 1.8%
REFERENCE RUN
International Political Effects
Under the EEC free trade run, the world as a whole is
both slightly less hostile and slightly less cooperative than in
the reference. At the point of greatest variation, cooperation
declines by -0.7% (2000) and hostility declines by -0.9% (2003).
The model is unable to detect discernable patterns of cooperation
and hostility at the regional level, as it is with trade. At the
national level, the pattern for a great majority of nations closely
mimicks that of the world as a whole. One might expect that the
level of hostility sent to EEC nations from non-members would
increase with the EEC free trade run, but the simulation does not
31
bear this out. The most interesting behavior is exhibited by the
EEC nations in relations with each other, as the results are
counter-intuitive--showing an initial increase in hostility and
decrease in cooperation. A brief discussion of the International
Political Model and the role of bilateral trade in it will make it
easier to understand this behavior. The political behavior between
the United Kingdom and France will then be examined as an
illustration.
The International Political Model attempts to replicate
the flow of cooperative and hostile behavior among nations. The
model portrays cooperation and conflict as two separate dimensions
of foreign behavior, as opposed to a conflict-cooperation
continuum. Levels of cooperation and hostility are measured as
interaction indices, consistent with Edward Azar's Conflict and
Eeace Data Bank (COPDAB), which serves as the basis for the model's
initialization. The model is primarily an action-reaction system
with the "black box" partially opened to allow for some forms of
goal-seeking activity (Figure 15). Crises and wars are not taken
into consideration since these situations can vary from day to day,
Behavior Received
Figure 15. Conceptual framework driving the International Political Model
Context
1 Reactivity Policy
Institutionalized Predisposition
Desired Behavior
Bureaucratic Inertia
Behavior Sent
32
which does not fit the focus of a long-term, macro-model like
GLOBUS.36
In the International Political Model, bilateral trade
ties affect the flows of cooperation and hostility. The share each
nation holds in each other's trade is incorporated as a
determinant in each nation's reactivity to flows of cooperative
behavior. Specifically the larger the share which one nation holds
in another's trade, the more cooperative will the second nation be
"37 • . . .
toward the first. Bilateral trade ties affect international
hostility as well as cooperation; a trade imbalance term is
incorporated in each nation's reactivity to flows of hostile
behavior. If a nation is carrying an overall trade defecit with a
partner, it will increase its flow of hostile actions toward that
nation.
The intutive approach to the notion of increased intra-
EEC trade reads as follows. The lowering of trade prices with
these nations is a cooperative act--a significant concession. The
resulting increase in trade among EEC nations would be expected to
promote further cooperation, which in turn would lead to more
trade...a positive feedback loop. But in reality this would cause
the system to spiral out of control, without ever again approaching
equilibrium--hence, the trade imbalance mechanism in GLOBUS serves
as a counter-balance to this feedback loop.
33
Figure 16. Levels of cooperation sent from the U.K. to France under two different runs
G 0 •H •P 0 Hj U 0) •P G H
V > •H 4J (0 n a; a o o o
180
170
160
150 "
140
130
120 19
-a Coop Sent (EEC) -• Coop Sent (REF)
80 1990 2000 2010 2020
Year
F i g u r e 1 7 . L e v e l s o f c o o p e r a t i o n s e n t from F r a n c e t o t h e U.K. u n d e r two d i f f e r e n t r u n s
0) v a H
a o •H •U O m M 0)
a
> •H •U 10 u V a o o o
200
190 -\
180
170 "
160 "
150
140 "
130
-G Coop Sen t (EEC)
- • Coop Sent (REF)
1980 1990 2000 2010 2020
Year
34
Figure 18. Levels of hostility sent from the U.K. to France under two different runs
« XS a H
a o •ri +J o m u <u a H
•H 4J to 0 a
120 "
no -
100 -
90 "
80 "
70 -
60 ~
50 "
Host Sent
Host Sent
1 '
(EEC)
(REF) f~*~*^
1 1 1 '
1980 1990 2000
Year
2010 2020
'ig-
•d a M a o •H •P O
u (1)
e
<D
•H 4J 03
0 SB
are 19
220
200
180
160
140
120
100
80
L e v e l s of h o s t i l i t y s e n t from France t o t h e U.K. under two d i f f e r e n t runs
1980
-o Host Sen t (EEC) -• Host Sen t (REF)
1
1990 2000
Year
1
2010 2020
35
Figures 16 - 19 show the levels of cooperation and
hostility the U.K. and France send to each other in both the EEC
free trade and reference runs. The initial decrease in the flows
of cooperation relative to the reference run is a third order
effect of the reduction in trade prices. The trade price term is a
determinant of a nation's expenditure for imports from another
nation. In the first year after the price reduction these
expenditure levels are significantly reduced because of this.
National expenditure for imports constitutes the numerator of the
trade share variable; hence the levels of each nation's trade
shares decline (see Figures 20 and 21). Finally the decrease in
trade shares causes a decrease in the levels of cooperation.
Figure 20. U.K. share in France trade in two different runs
U a!
CO
<D •0 (0 U H
7 "
Share of UK in FR (EEC)
Share of UK in Fr (REF)
1990 2000 1
2010 2020
Year
After the initial downward surge, each nation's national
expenditure for imports begins to recover as each nation's exporter
capacity increases to take advantage of the higher paced market.
But the subsequent increase in trade shares is not sufficient to *
36
Figure 21. France share in U.K. trade in two different runs
7.2
M X! to
7.0 "
6.8 "
6.6 " V m u H 6.4
6.2 "
6.0
— Share of Fr in UK (EEC)
-• Share of Fr in UK (REF)
1990 1
2000 I
2010 2020
Year
allow nations to return to previous levels of cooperation, since
reactivity acts as a counter-balance. Finally flows of
cooperative behavior resume the momentum pattern of oscillation
that is characteristic of the reference run, but at a lower level.
The initial increase in the flows of hostile behavior
between France and Britain can be understood by examining their
trade imbalances with each other. Figure 22 depicts each nation's
EEC free trade run imbalances plotted against each other,
independent of the reference run. For the sake of clarity, the
reference run trade imbalances can be described by a flat
horizontal line at level 1.
The hostility cycle can be described as follows. It must
be noted that the model's parameters make France much more reactive
to hostility from Britain than vice versa. After 1993, Britain's
trade imbalance term begins to decline relative to the reference
run (i.e. its trade balance with France is suffering), causing that
nation to slightly increase its flow of hostility towards France.
37
Figure 22. Trade imbalances of U.K. and France with each other in the EEC Free Trade Run
0 a n)
$
M
1 "
0 1990
-Q UK imbalance with FR
•• Fr imabalance with UK
T T 2000 2010
Year
2020
France then reacts strongly to the hostility sent by Britain, a
phenomenon which is compounded by its own decreasing trade
imbalance term. The flow of hostility between the two nations
begins to subside as their trade imbalances begin to converge after
1993. A subsequent pattern of oscillation of the two trade
imbalance terms, by giving some regularity to the system enforces a
pattern of slow and steady decline in the flows of hostility
between Britain and France. In the final years of the simulation
run these oscillations in trade imbalances start to spin out of
control, forcing sharp increases in hostility as regularity is
broken. This final observation may or may not be meaningful: the
wild behavior in the final years could just as easily be
interpreted as a peculiarity of the model's behavior rather than of *
38
the two nations being modeled.
Concluding Remarks
A disclaimer is in order at this juncture is in order.
The results of a futuristic simulation such as GLOBUS should not be
considered a tool of prediction. Its purpose is rather to see what
patterned effects some kind of intervention might have on the
momentum of the system, ceteris paribus. Many other intervening
factors may come into play over the course of time to interrupt the
momentum line of behavior. With that it mind, the results of the
EEC simulation run can be portrayed as "what could happen," within
the confines of the global system, as the result of the removal of
non-tariff barriers to trade within the EEC.
First total world trade could increase by as much as
10.5% within 10 years of the completion of the internal market.
Sectorally these increases would be greatest in manufactures and
services. Initially, increases in EEC trade would be detrimental
to the trade balances of the rest of the nation's of the world, but
in the medium- and long-terms these detriments give way to moderate
upward swings in trade balances across the board.
After 1992 trade on the whole should become more focused
on the Community. The increase in this focus is at the expense of
trade among non-EEC nations. As for the U.S. and Japan, they would
on the whole suffer from a more united Europe, but the losses are
not major and are also shouldered by most of the rest of the
world's nations.
Finally the world would become both a less hostile and a
less cooperative one with European union than without. In general
39
this trend is manifested in dyadic level diplomatic dealings in
much the same way as in the world at large. EEC nations, in their
dealings with one another, display counter-intuitive behavior in
flows of cooperation and hostility, but this can be understood by
realizing that increased trade fosters increased hostility as well
as increased cooperation.
Notes
1 Paolo Cecchini, The European Challenge: 1992. Aldershot [U.K.]:
Gower, 1988. p. xix.
2 Anthony J.C. Kerr, The Common Market and How It Works. Oxford:
Permagon Press, 1983. p. 1.
3 Kerr, p. 4 .
4 Kerr, p. 5.
5 Ali M. El-Agraa, The Economics of the European Community.
Oxford: Phillip Allan/St. Martin's, 1985. p. 12.
6 El-Agraa, p. 16.
7 Kerr, p. 7.
8 Kerr, p. 7.
9 "Europe's Internal Market," (survey) Economist. July 9, 1988.
p. 6.
10 "Europe's Internal Market," p. 6.
11 "Europe Gets Ready for 1992," Fortune. February 1, 1988. p. 82.
12 Jacques Perlmans and Peter Robson, "The Aspiriations of the Wite
Paper," Journal of Common Market Studies. Vol. 25, No. 3,
p. 185.
13 Cecchini, p. 72.
14 Cecchini, p. 72.
15 "Outsider's Guide to Europe in 1992," Fortune, October 24, 1988.
p. 121.
16 Richard Bailey, "New Beginning for the Common Market,"
Accountancy. August 1988. p. 82.
17 "Outsider's Guide...", p.121.
18 "Outsider's Guide...", p.122.
19 "Will the New Europe Cut U.S. Giants Down to Size?" Business
Week. December 12, 1988. p. 54.
20 "Europe Gets Ready...", p. 82.
40
21 Richard E. Dawson, "Simulation in the Social Sciences," in
Simulation in Social Science: Readings. Harold Guetzkow,
ed. Englewood Cliffs, NJ: Prentice-Hall, 1962. p. 3.
22 Harold Guetzkow and Joseph J. Valadez, Simulated International
Processes: Theories and Research in Global Modeling.
Beverly Hills, CA: SAGE, p. 335.
23 Karl Deutsch, "GLOBUS—The Rise of a New Field of Political
Science," in The GLOBUS Model: Computer Simulation of
Worldwide Political and Economic Developments. Stuart A.
Bremer, ed. Berlin: Campus Verlag, 1987. p. xi.
24 Stuart A. Bremer, "Introduction," in The GLOBUS Model: Computer
Simulation of Worldwide Political and Economic
Developments, p, 1.
25 Brian Pollins and Peter Brecke, "International Economic
Processes," in The GLOBUS Model: Computer Simulation of
Worldwide Political and Economic Developments., p, 468.
26 Stephen Magee, "Prices, Income, and Foreign Trade," in
International Trade and Finance: Frontiers of Research.
Cambridge: Cambridge Univeristy Press, 1975, p.178.
27 Brian Pollins and Peter Brecke, p. 475.
28 Brian Pollins and Peter Brecke, p. 475.
29 Brian Pollins and Peter Brecke, p. 477.
30 Paul S. Armington, "A Theory of the Demand for Products
Distinguished by the Place of Production," IMF Staff
Papers. Vol. 16, No. 1. p.172
31 Brian Pollins and Peter Brecke, p. 483.
32 Brian Pollins and Peter Brecke, p. 492.
33 Brian Pollins and Peter Brecke, p. 516.
34 Brian Pollins and Peter Brecke, p. 516.
35 Brian Pollins, "Assessing the Political and Economic Effects of
Protection Against Third World Exports," 27th ISA
Convention, Anaheim, CA, 1986. p. 12.
36 Dale Smith, International Political Processes," in The GLOBUS
Model: Computer Simulation of Worldwide Political and
Economic Developments., p. 569.
37 Brian Pollins and Peter Brecke, p. 518.
41