The Single Market of the European Union

EU Centre-RSIS Summer Programme“The European Union in Asia – Reflections on European

Integration, Institutions and Influence”4 – 30 June 2012

Anne Pollet-FortEU Centre Associate Fellow

Introduction

Bedrock of European integration

• Creation of the common market– Fundamental objective of the Treaty of Rome– Reflects primacy of economic integration– Not an aim in itself but a means to achieve economic

and political goals. • EU’s common market comprises

– A customs union with a common external tariff– Free movement of goods, persons, services and capital

(4 economic freedoms)– Common policies such as competition policy,

enterprise policy…

Building a Single Market• Building a single market means merging national markets

into one single market by– Eliminating various tariff and non-tariff barriers to trade;– Regulatory reform in area of economic regulation;– Some harmonisation and approximation of laws;– Ensuring that competition among firms is encouraged.

• The Treaty articles follow same structure:– Basic prohibition on national rules which impede the free

movement of goods, persons and services

– Exceptions on the ground of public health, public security, protection of industrial and commercial property

Negative integration. National rules contrary to free movement are invalid. This leads to a process of de-regulation at national level.

Negative integration reinforced through positive integration

• But negative integration insufficient…• Treaty also contains:– Articles empowering making of Directives for the mutual

recognition of qualifications in order to facilitate freedom of establishment

– A general enabling provision for the making of directives for approximation of laws of MS affecting functioning of common market (unanimity required)

Community legislation needed to fill out interstices of Treaty articles. Positive integration through re-regulation at EU level.

– Common policies such as competition policy,…

EU Single Market: main stages of development

Evolution of the Single Market

• Rapid initial progress in the 60s followed by period of stagnation of the common market in the 70s and 80s.

• Relaunch of European economic integration through the Single Market Programme and adoption of Single European Act in 1985

• Beyond 1992, “completion” and reorientation of the Single Market

• 2010: Relaunch of the Single Market

From the Treaty of Rome to the Single European Act

• Ten first years of the EEC were years of glory of the Customs Union:– 1 July 1968: intra-community trade was freed of customs

duties and quantitative restrictions on imports and exports

– Adoption of Common Customs Tariff applicable to all imports from third countries. As of 1968, MS are not entitled to unilaterally carry out customs policy.

– Adoption of Community Customs Code containing all basic rules of common customs legislation

• But progress in other areas of common market difficult if not impossible

Obstacles to establishment of common market

• Several obstacles:– Reluctance of some MS to go forward with

implementing the rest of the Treaty– Difficult economic situation (stagflation) led

governments to be sensitive to protectionist impulses of domestic interest groups and public opinion

– Legislation harmonisation at EU level difficult to obtain because of unanimity requirement

• Consequence: proliferation of Non-Tariff Barriers

Types of barriers

• Physical barriers:• Such as border stoppages, customs barriers and other

time-delaying and cost-increasing measures involved in mobility between Member States

• Technical barriers:• Such as absence of common standards across the EU,

public procurement practices, technical regulations and different business laws and practices…

• Fiscal barriers:• Such as differentials in level of VAT and excise duties

among Member States

Still some progress• Commission introduced key legislative instruments:

– Establishing substantive rights like Regulation 1612/68 prohibiting quotas for foreign workers

– Limiting MS discretion in application of exceptions to free movement

• European Court of Justice acted as legislative catalyst:– Reyners 1974: recognizes direct effect of freedom of

establishment even though not fleshed out by Community legislation as envisaged by Treaty

– Cassis de Dijon 1979: Once goods have been lawfully marketed in one MS, they should be admitted into any other MS without restriction

Incentives behind the Single Market Programme

• Pressures from more integrationist MS• European Parliament • Failure of national solutions to solve economic

problems in the 70s• “The Market” seen as the solution• Japan’s rapid rise to economic power• Changes in Europe/US relations and growing US

budget and trade deficit• New Commission

The Single Market Programme• ECJ case law reinforces (-) deregulatory integration but did not

ensure any (+) integration => harmonisation still needed• At the European Council’s request, Commission headed by

Jacques Delors produced White Paper on the freeing of the internal market:– Aim to remove physical barriers, fiscal barriers and technical

barriers to the 4 freedoms– Lists of 279 measures to be introduced – Timetable and deadline for completion: 31 December 1992

• Objective: Push forward Europe’s competitive positioning• June 1985: European Council accepts objectives of White

paper and agrees to set up IGC to consider reforms of EU decision-making

Single European Act• Single European Act signed in 1985:

– Establishment of internal market: area without frontiers in which the free movement of goods, persons, services and capital is ensured

– Increase number of cases in which Council can decided by QMV esp. measures concerning establishment of Single Market with exception of taxation, free movement of persons and rights and interest of employed persons

– Introduction of cooperation procedure in favour of EP– Community policy of economic and social cohesion

(compensation)– New provisions relating to monetary policy, social policy,

R&D, environmental protection

Implementation• Intensive legislative activity

– focusing on removal of physical, technical and fiscal barriers– Especially laws harmonising laws of MS on health & safety.

Principle of “mutual recognition” is at the heart of the SM.

• Situation on 1st January 1993– 90% of legislative projects listed in SMP adopted– 10% however include very important topics, ie total abolition of

control on persons, statute of European company, and tax harmonisation.

– Other topics such as liberalization of networked industries such as telecommunications, energy, postal services not addressed

– Lack of success in areas of services– Problems of implementation and enforcement

Beyond 1993

• Main initiatives in favour of Single Market:– 1993 Treaty of Maastricht decided on the euro– June 1997: Single Market Action Plan

• To improve the functioning of the Single Market– Making the rules more effective & Making the Single Market relevant

for citizens– Dealing with key market distortions and removing obstacles to

market integration (SERVICES!)

• Focus on enforcement & adoption of long awaited legislation• Proposed by Commission and European Council put its

considerable political weight behind the action plan.

– 1999: Financial Services Action Plan– 2010: Relaunch with Single Market Act

The four freedoms

Free Movement of Goods

• Structure of the Treaty: – general prohibition and exceptions of Articles 34 to 36

TFEU– Harmonisation clause

• Traditional approach– Very detailed harmonisation directives– Difficult to adopt (MS tried to impose their standards +

unanimity) and to enforce– Overregulation and inflexible legislation– Impossible to keep pace with multiplicity of national

regulations and speed of technological change

New approach based on mutual recognition

• Principle of mutual recognition becomes the norm:– Even in absence of European harmonization, MS are obliged to

allow goods which are legally produced in one MS to circulate and be placed on the market (unless mandatory requirements)

• For certain industrial products, harmonization necessary– Two-track strategy for harmonisation

• New approach harmonisation– In cases where full harmonization of technical standards difficult because

of too great divergences, harmonization confined to adoption of essential safety requirements;

– Development of common standardization policy and voluntary European standards

• Total harmonization for certain sensitive sectors

Assessment• Advantages:

– Directives more easily drafted, adopted & implemented– Excessive “euro uniformity” avoided– Safety objectives stipulated but flexibility on standards – Minimal harmonization allows MS to maintain more stringent

regulatory standards than EU standards

• But system still not efficient enough:– Process remains too long. Lack of standards in services area.– 1 June 2011: Commission announces measures under the

banner “More standards for Europe and faster”. Target date: 2013

Single Market for goods• Single Market for goods is a mature construction

– 2007 Single market review: all technical barriers for goods have been lifted

• But goods manufacture is an ever-changing business:– Need to regularly update policies and regulatory frameworks

and fight “small-scale” bottlenecks– Compared with the US, Single Market for goods reveals a

substantial untapped potential. • Challenges for the future:

– Reform standardisation process to make standards cheaper and easier to use for SMEs

– Need to progress on SM in the transport area– Need to agree on EU patent

Free Movement of Workers

• Key principles: non discrimination and equality of treatment

• EU legislation on many aspects of free movement of workers entered into force to large extent in June 1992– Workers’ rights of movement and residence– Employment: workers who are nationals of a MS may not be

treated differently from national workers as regards working and employment conditions

• Restrictions– Right of entry and residence– On taking jobs in public service

Labour Single Market

• Overall freedom of workers is a success from a legal point of view but– Least used of the four freedoms. Only 2.3% of

Europeans live in a different MS– Remaining legal obstacles hardest to overcome:

• Coordination of social security rights and portability of pensions rights (esp. Portability of supplementary pensions and health insurance rights)

• Recognition of qualifications still limited • Inefficient matching of skills with vacancies across the

Single Market (despite EURES)

Freedom of establishment• Right to take up and pursue activities as self-

employed persons and to set-up and manage undertakings

• Basic principle: equality of treatment• Direct effect of article 49 TFEU.

– No legislation required to invoke the right.– In practice however, obstacles remained that required

intervention of Community legislation

• Exceptions:– Exercise of official authority

Regulated professions• Obstacle: the interested person has to take a new

examination for the recognition of his/her professional competence

• EU rules (Directive 2005/36/EC) sets up 3 systems for recognition of qualifications:– Automatic recognition for which the minimum training

conditions have been harmonized (health professions, architects, veterinary surgeons)

– General system for other regulated professions (no automatic recognition + possibility of adaptation period or aptitude test)

– Recognition on the basis of professional experience for craft, commerce and industry sectors professional activities

• Reform announced as recognition procedures remain too long and too cumbersome

Single Market for services• Crucial sector for EU economy:

– 70% of GDP– Most important source of FDI– Only l of net job creation in the EU

• But remain highly fragmented:– Only 20% of the services provided in the EU have a cross-

border dimension– Least successful part of the Single Market

• Area of services identified as problematic:• 2002 Commission report on the state of the internal market for

services• January 2004: Commission proposal for Services directive

The Services Directive• Original proposal:

– Apply the “country of origin principle” => if a company that provides a service meets the legal requirements of the MS in which it is based, it could offer the service in other MS

– Opposition by MS that had the highest wages and social requirements. Feared “race to the bottom”

• Directive as adopted in 2004:– Does not affect labour law. Rules of the country in which

service is provided– Provides for national “one-stop-shop” for foreign

companies in which to deal with all formalities• Implementation still need to be completed:

– Points of single contact not yet all set up

Liberalization of regulated sectors• In the EU, services in the electricity, gas,

telecommunications and postal services were provided by national monopolies

• Natural monopolies argument became contested and competition rules were used to get independent private enterprises in sectors traditionally controlled by the State

• Concept of legally separating the provision of the network from the commercial services using the network:– In the railway, electricity and gas industries, the network

operators are now required to give competitors fair access to their networks.

– Requirement that public services continue to be provided

Free movement of capital• until the mid-1990s free movement of capital did not

exist in practice in a number of MS. • Full liberalisation agreed in 1988 and came into

effect in 1990• Treaty of Maastricht:

– all restrictions on capital movements and payments, both between MS and between MS and third countries, are prohibited

– Exceptions: primarily linked to taxation, prudential supervision, public policy considerations, money laundering…

• Capital markets still fragmented esp. Government bond markets

Challenges

New Challenges• At the end of 90s, Single Market no longer a priority

– Commitment to the Single Market not as strong as before– EU concentrates itself on monetary union, enlargement,

institutional reform – EU Single Market far from completed in major economic areas

• But globalisation of the economy and economic crisis create new challenges to Europe– Globalisation of trade, technological progress, emergence of

new global players– Financial & economic crisis had a severe impact on businesses

and workers– Erosion of political & social support for market integration in

Europe

Relaunch of the Single Market• Reoreintation in line with EU strategies on Growth and

Jobs– Strategic goal: EU was to become the most competitive and

dynamic knowledge based economy in the world, capable of sustainable economic growth with more and better jobs and greater cohesion

– Completion of internal market is one way to achieve this objective

– Goes together with modernization of European Social Model• Re-launch market integration and putting citizens back

at the heart of the SM

The Single Market Act• Monti report: a new strategy for the single market, 9

May 2010• The 2010 Single Market Act • Most ambitious Single Market plan since a decade• Exploit any additional and yet untapped potential of the

Single Market to generate additional growth and additional employment

• 12 key actions such as• Modernising legislation on recognition of professional qualifications• European patent• Definition of services standards at European level….

• Target date for adoption of main legislative initiatives: end 2012

Conclusion

• Single market: cornerstone of Europe’s integration and sustainable growth

• After a period of “Single Market fatigue”, is back as a political priority

• Necessary to further improve functioning of Single Market and to adapt it to new economic environment. Enforcement is an issue!

• EU’s market-building policies have profoundly affected the political economy of Member States.