Regional Integration Module of Political Science

Lecture 7-8Building the EU Internal Market- Internal Market and Competition

Policies

A work in progress…

• Despite being the core goal of European integration and its main policy achievement has always been and will be in the future an unfinished business and a work in progress.

• According to Nugent and Buonanno (2012) four reason account for this :

• 1) Government generally agree on the goal of an open and competitive economy, but primarily respond to their citizens: in many occasions they prefer to accommodate with the goal of the internal market domestic demands for exceptions or protection, or even to give preference to the latter.

• 2) There are differences regarding the extent to which the internal market should be bases on liberal (non interventionist) principles or to what extent it should have also social responsibility functions.

• A. Michel : two (broad) types of capitalism in Europe : anglo-saxon and “of the Rhine” or social market capitalism. Distinctive values and norms regarding state’s role even if the difference is much less sharp now, still exists

Member state’s preferences regarding the Single market and socio-economic national

regimes• Social Market

Economies (Continental Europe)

• Anglo-Saxon countries

• Northern-European Countries

• New member states

Social-market economies- Continental Europe

• Germany, France• Policy legacies: Traditions of protection of labor

and concern that a single market for services may endanger the consolidated social entitlements and that unregulated fiscal competition (free movement of capitals) may have a negative impact on employment.

• Central role of manufacturing industry in the economies.

• Critical attitude towards a tight control on state-aids.

Anglo-saxon countries

• UK and Ireland

• In favor of radical liberalization, with special focus on benefits for the consumers.

• The post-industrial transformation of the economy taken for granted service are the biggest sector of the economy, with a growth of financial services .

• Low concern about the social entitlements: main concern is employability

• Resist the coordination of fiscal policies.

Norther- European countries

• Success model, combining high level of competitiveness of the economies with high levels of social protection.

• Remarkable capability to attract foreign investments , despite high levels of taxation, mainly due to excellence in education and research and efficiency of public administration

New member states

• Unconditional support for the single market because of its potential implications for growth .

• Few concerns for social protection . • Strong interests for the free movement of

workers and services and for policies of infrastructures and regional development.

• They tend to resort to fiscal competition in order to attract foreign investment.

• 3) There are differences regarding what a properly functioning EU market needs.

• For instance differences regarding the liberalization of certain infrastructures such as energy and transports, or on the opportunity of having a common currency or joining the EMU.

• 4) Changing contexts. The basics of the internal market were negotiated in the mid-Fifties among states of similar level of economic development. After that: access of less developed countries, globalization, competition from new industrialized countries, knowledge-based economy, global warming. New challenges.

Removal of barriers …What barriers?

• - custom tariffs• -quotas on imports• Non-tariff barriers (NTB) in particular technical

barriers to trade (TBT) such as those regarding the standards applied for goods and services. For services standards are also social (protection of workers health , rights etc.)

• Fiscal barriers deriving from different levels of indirect taxation (VAT) or of direct taxation , in particular on capital and savings.

Negative and Positive integration

• Negative integration regards the removal of existing barriers to the single market (tariffs, etc.) elimination of existing regulation

• Positive integration: the adoption of new regulation for the integrated economic area

Institutional asymmetry in the EU between negative and positive integration in the EU

(Scharpf)• While the Treaties entrust supra-national

institutions (ECJ, and Commission within its areas of competence ) of significant autonomous decision powers to remove barriers to the single market (negative integration) , the new regulation must be adopted (positive integration) through the joint decision (Community) method joint decision trap .

Methods for reducing barriers to free movement (1)

• Liberalization->goods and services have an automatic right to enter other m.s.’ markets: goods that don’t rise concerns about human health or safety (Ex: man’s shoes)

Methods for reducing barriers to free movement (2)

• Approximation: laying down regulation that specifies common standards and requirements to allow their free movement. Used for high risk products such as chemicals, pharmaceutical , construction goods, foodstuff, automobiles

• Old approach directives specifying in detail product standards and requirements.

• New approach- legislation establishes only essential features of a product , while the specification of technical standards is delegated to technical agencies (European Standard Organizations ESO)

Methods for reducing barriers to free movement (3)

• Mutual recognition- mid-way. Used for lower risk goods (ex: office equipment)

• EU member states recognize and accept the regulatory standards of other m.s.

• ECJ : Dassonville (1974) and Cassis de Dijon (1978) __> “mutual recognition principle”

Internal market implementation

• Shared responsibility between EU and m.s. level:

• M.s. must assure compliance “on the ground” and the Commission is responsible for oversight, monitoring and in case pursuing infringements.

• To improve implementation the Commission has created a multi-stage process (SM governance cycle)

Single market governance cycle

ADOPT

MONITOR

INFORM

ENABLE

CONNECT

SOLVE

EVALUATE

EXPLAINING THE CYCLE

• Monitoring: Transposition» Single market scoreboard (since 1997) -“naming and

shaming” self-correction by m.s.

» Connecting-Solving

» - New problem solving system (SOLVIT)-SOLVIT are units created in 2002 in Ministries of each the member state. Complaints over non implementation of SM rules are addressed to the state of the complainer SOLVIT or to the European Commission which turn address the case to SOLVIT unit of the state regarding which the complaint originated .This must solve the case within 6 days; it can reject it only if changes in EU legislation are needed.

Internal market for services

• While the single market for goods has reached an advanced stage in the late 2007 , the single market for services lagged behind.

• In 2001 services accounted for 56,5% of the sum of GDP of EU15 but only 20% of internal trade.

• Re-launch of SM for services a priority for the Prodi (2000-2004) and Barroso commission (2004-09)

SM for services

• The liberalization of services brought at the fore potential tensions between the goal of the single market and the maintenance of ms’ welfare models.

• These tensions became more evident after the enlargement of 2004 .

• These tensions are exemplified by the cases of the Bolkenstein directive and of the ECJ’s judgments Laval e Viking

The Bolkenstein Directive• The proposal of directive of the European Commission adopts

an “horizontal approach” to the creation of internal market for services the directives set principles for the free circulation of all services (rather than specific services as former directives)

• Principle of the country of origin- CoOP) in order to facilitate the free movement of services across the EU the rules to be applied are those in force in the country of origin of the service’s provider ( the “Polish plumber”) .

• Presented as an extension to services of the principle of mutual recognition.

• The m.s. in which the service is provided gives up the controls on the conditions at which the service is provided (perceived risk of social dumping and low consumers’ protection)

The Bolkenstein Directive- political conflict

• The Commission proposal produced an unprecedented degree of political conflict , cutting across ideological divides.

• In the EP European Socialists (mainly in EU 15) were against while ALDE and EPP(but the less so Christian Democrats) .

• Against old m.s. (in particular France and Germany) for the UK and new member states.

• Against ETUC (but not in EE) and for UNICE_ Business Europe

• The concern that the EU intended to dismantle traditional workers’ rights in Western Europe is considered one of the reasons why the French and Dutch referenda rejected the Constitutional Treaty .

Directive 2006/123

• The Council approved a text very fundamentally amended by the EP, with the removal of the principle of the country of origin.

• The m.s. were given 3 years to implement it.

Viking and Laval

• Can the Court carry on the project of services liberalization ?

• Two judgments of ECJ regarding workers (trade unions) right in the country of for collective bargaining and collective action (boycott and strike).

• In both cases the Court judged illegitimate the behavior of trade unions as infringing the principle of free movement of services.

• Very controversial judgments: is supra-national decision challenging fundamental principles of EU welfare models? Lack of legitimacy

The lessons of the service directive and of the Viking and Laval

Judgments

• Tensions between the goal of the single market and different views of capitalism

Lecture 8Competition policy

Competition policy

• Policies preventing that competition on the sigle market is not limited in ways such to reduce the economic welfare.

• Justification is based on the liberal assumption that the economies where the pressures of competition are stronger tend to be more efficient than those in which competition is limited .

• Another justification is in terms of benefits for the consumer (lower prices, better quality) .

The governance of competition in the EU

• Importance of the supranational mode of governance extended powers of the European Commission and the European Court of Justice.

• Evolution - growing importance of modes of governance based on multi-level-cooperation (between competition agencies at the national level and the European Commission)

The legal basis of supra-national governance of competition

• Since the treaty of Rome , the Treaties (TFEU) in articles 101-109 mention the areas of competition policy : preventing cartels, abuse of dominant position, anti-competitive mergers , non approved state-aid and liberalization of pulic utilities.

• Strong legal base in the treaties authorizing autonomous action of the Commission and the ECJ .

Regulation 17/1962• Regarding the implementation of rules

regarding cartels and abuse of dominant position.

• Entrusted DG V (now Competition) of the European Commission important tasks, to be carried on autonomously from the Council of Minister: it made of DG V a true Anti-trust agency with extended powers of monitoring, inquiry, codifying,, taking decision on exemptions, sanctioning .

• The Commission is authorized to make inquisitions in the enterprises, examine their files, interrogate the management, fine the enterprise.

Policy and Treaty article

Company practices

Powers of the Commission

Example Development

Restrictive practices-cartels TFEU101

Price fixing through horizontal (same industry) or vertical (supply chain) agreements

Issue fines up to 10% of the global turnover of companies

In 2008 of 1,38 billion euro to 4 manufacturers of glass for the car industry

First cases in the 60s

Abuse of dominant position

TFEU102

Predatory pricing or similar

Cease-and-desist orders. Issue fines .Require the break-up of the

monopoly

In 2007 152 million e fine to Telefònica

First cases in the 70s, first fines in the 80s

Anti-competitive mergers

Reg 4064/89 and 139/2004

Fusions intended to create dominant positions that impede competition

Must approve before a merger takes place

General Electric and Honeywell 2001,

Enforcement starts in the 90s

Non-approved state-aid

TFEU107-108

Companies may receive aids that the government choose not to interpret as being aids (tax exemptions)

Can stop state aid; can order companies to repay state aid

In 212 German Deutsche Post had to repay 500 million euros of illegitimate state aid

Becomes a priority in the 80s tighter regulation 90s

Evolution

• EU competition policy followed basically the same rules since 1964 until 2004.

• Regulation 2003/1 (Modernization package) introduced new rules for competition and a decentralized system of governance , devolving powers of enforcement to national agencies and at the same time increasing the powers of inspection of the European Commission.

From supra-national decision to multi-level cooperation

• Old system: Commission fully responsible for cases of cartels and abuses of dominant position. Companies had to notify agreements to the Commission. Work overload, long decision times.

• With the “modernization package” national authorities for competition are entrusted the task of implementing the treaty’s provisions. Companies address themselves to national agencies. The relations between levels of governments are between national authorities and DG Competition and through the European Competition Network that is the network of national agencies managed by DG Competition.

• The direct DG Competition’s direct jurisdiction is limited to cases involving 3 or more states or cartels with Europe or world-wide scope.

Anti-competitive mergers

• Since the regulation of 1989 the Commission is the only authority to approve mergers over a certain dimension in terms of European or word wide turnover.

• Smaller mergers seek authorization at the national level.

• Normally authorized . Companies can appeal to the General Court and the ECJ against decisions of the Commission

State-aid

• The most politicized sector of competition policy---> targets are governments non companies.

• States are required to notify to the Commission the intention to provide aid to a company. Commission investigates on the case and authorizes or not.

• If the aid is not notified it is classified as unlawful.

State-aid: exemptions

• “Block exemptions” for state aid aimed to promote development of backward regions, projects of European interest, development of activities or sectors, culture or heritage conservation.

• Exemptions in particular circumstances extension of exemptions after the 2008 crisis to failing banks or insurance companies.

Competition policy

• Significant progress particularly after 2000s.

• Still critical areas : public procurements (only 10% are cross-border) , public utilities particularly energy