The free movement of merchandise is a very important change in the international markets.
It is based in some political economy ideas:
1.       The comparative advantage, it is the ability of a country to produce good and/or services at a lower opportunity cost than the others.
2.       The allocative effiency, the labour should shift to the allocation in which is more efficient, so labours and resources should move to those areas in which their production is going to be better.
3.       And to finish, the idea of economies of scale, it is to say that you should produce as many good as you can, maximizing your benefits and minimizing the costs.
Once the integration has been made, the benefits are notables, the firms are going to produce more and in a more efficient way thanks to the economies of scale and stronger competition.
But it also have obstacles:
                It can happen that the voters of democratic countries in the transition to open borders and economic integration, may want to protect their own benefits and their own factories. Because for example in Spain we are specialized in producing wine, so, we should close our clothing industries because it is going to be more expensive to produce it here?
                They have to face also the taxes of importation and some other extra costs.
                The countries that are not in the EU have to comply whit the conditions set up by the EU if they want to export their products into our barriers.
It can have like consequence the independence from other countries as far as strategic good are concerned. Or the problem of selling products below the real cost of production, which is illegal in the UE, this is known as ‘dumping’.
It can produce an employment boosting, because if now the firms are going to reduce their cost of production, they would be able to produce more and because of that the firm would need more people to work for them.
There is also a diversification in the economic structure, because now the firms are going to focused more in the business in which they are going to have more benefits.
If the level of exports of a country is very high, the importing country may be induced to take protective measures against a series of products, or to accept a ‘voluntary’ restriction of the exports of that one product.
The objects of integration are:
1.       The free movement of good and services.
2.       But also, the free movement of production factors.
But to promote free movement, it is necessary to abolish the existing barriers (with positive integration: with the bureaucracy and the domain of politics, and with the negative integration, the domain of the law), and also requires legal intervention.


Why do we need legislation to promote free trade?
-It is very important to have this regulated. There must be a quality control to protect consumers about illnesses or products in poor conditions (standards of safety, that really impact on the price).
-They have to establish a minimum wage, because if the wages are very different one from each other, it can cause dislocation.
-The labour law has to control the impacts on the cost of goods and also in the level of protection of thee employees.
-They have to have mechanism to regulate the judicial disputes, because the problems between the countries will appear.
MECHANISM OF INTEGRATION:
This integration can be made in three different ways:
A.      Host country model: this model implies that the law that we apply to goods, services and capital are those of the host country, the country in which the economic activities are taking place. If the furniture is produced in Germany and you want to sell it in Spain, it has to comply with Spanish laws. The principle of non-discrimination against foreign producers/delivers needs to be applied. The law has to be applied in a non-discriminatory way. The rules have to be applied in a on discriminatory fashion, the rules applied for foreign and national good have to be the same.

B.       Harmonisation: It is the solution in between the two countries. We make laws more equal, but who is harmonising the laws? The new laws will need to be adopted by the national legislators, you need an actor with executive and legislative power to negotiate the middle points and to implement the new laws. This is the solution the EU has taken for the most part but not completely because the EU is not a federal state. - By harmonisation sometimes it is very difficult to agree because they may be giving up some values of their country.

C.      Home country model: the laws of the place where the production of the good takes place. If the furniture is produced in Germany and you want to sell it in Spain, it has to comply with German laws. The host country need to make sure that the laws of the home country are quite similar, that they can be trusted. The principle of mutual recognition “I recognise that your laws are as good as mine”. Here you need a huge amount of trust.
To make this integration possible we need to have in mind the state sovereignty and the democratic and welfare considerations.
Stages of the economic integration:
1.       First there is a free movement of goods through customs union between the founding members.
2.       Focus on positive harmonization but the lack of power delayed the goal.
3.       Then, in 1980s Delors Commission put forward the White Paper on Internal Market White Paper: so there is a new approach to harmonisation, favouring mutual recognition and minimum rather than exhaustive harmonisation.
4.       After that, in 1992 the sought after common market was achieved: EMU (Economic and Monetary Union).
5.        The freedom of movement of persons adopted in the Amsterdam Treaty, incorporating also the Schengen Agreement, in which several European countries eliminate their internal barriers between them, and they only put them to third parties.
6.       The freedom of services took longer, it was adopted in 2006 with the Directive on services in the internal market.
7.       The ESM (European stability mechanism) appear.
8.       And finally, there is a Treaty on Stability, Coordination and Governance in a fiscal agreement.

All this have like consequence a single market strategy, a capital market union, a fairer corporate taxation and labour mobility.
Concluding Remarks on free movement of goods:
-          Custom duties are prohibited. Some charges may be allowed  if reflect a concrete advantage.
-          Internal discriminatory taxation is prohibited.
-          Restrictions on imports that are indistinctly applicable to national and foreign products, will be acceptable if they can justified by a mandatory requirement and are proporcionate.