THE EXTERNAL DIMESION
OF THE INTERNAL
MARKET
Peter Holmes
Dept of Economics, University of Sussex
1
Outline
• Economic concepts
• An open outcome Fortress Europe or
Liberalism?
• Little sign of Fortress Europe
• Exporting the IM
– WTO
– RTAs
• limits being reached
2
Economic models of the IM
• Economists always modeled the EEC as a full customs
union, so transition to internal market not easily
handled
• Economists uneasy about positive integration
• Regulatory barriers very hard to model
– Tendency to assume their effects can be measured as
tariff equivalent .
– “Standards as barriers”, hence big numbers for
removal esp W Bank on external impact of EU
norms – may be misleading
• Problem of counterfactual
• Trade diversion less likely from deregulation
3
The external challenge
• EU was not even a full customs union in
1986 (Rules of origin applied!)
• VERs & MFA quotas set nationally
• East German loophole
• Art 115
• Technical NTBs differed
• Customs classifications not uniform
4
The dilemma
• Cockfield White paper set out to remove
necessity of intra EU border barriers, but
did not declare aim of harmonising all
external trade policy. Member States had
not agreed to this!
• WP stated article 115 could not be enforced
same way
• But logic was ineluctable if plan should
succeed
5
But what sort of common
external policy?
• Cars, textiles , Consumer electronics etc
reflected different national priorities
– Would there be a “fortress Europe”/
“reconquete du marche interieur”?
– or would liberal logic prevail?
• Liberalism was the unspoken default
6
Services?
• EU has not yet fully unified its GATS
commitments
• EC competence only after Nice Treaty
• Controversy over Bolkestein suggests some
hard work to be done
• But some major successes - telecoms
Uruguay Round and IMP sustained each
other
7
FDI
• Inward and outward FDI growing fast
• Probably due to globalisation and market
size rather than IMP per se
• But some FDI linked to illiberal aspects of
external policy - anti-dumping, eg consumer
electronics. (Cars?)
• But no clear EU policy yet
8
Would the EU be more or less
open without the IMP?
• Communalisation and legalisation of
external trade policy
• Opportunistic national measures harder
• NTBs probably less
• Were tariff reductions greater?
9
The impact of the IMP on the
Uruguay Round
• Impossible to separate the two effects but WTO
report positive
• “a core element of the Internal Market
process was the elimination of trade
restrictions maintained by individual member
States...The European Union's Uruguay
Round commitments include widespread tariff
reductions for manufactures, bringing the
average rate down by 38 per cent to 3.7 per
cent in 2000” 1995 TPR
10
The estimated impact
“The liberalisation of external trade has
been at least as strong as the intra-EU
liberalising effects of the IMP.
Concerns about 'fortress Europe' effects
of the IMP were unnecessary: the IMP
has not in itself closed the EU market to
third countries, nor has it been
accompanied by protectionist
measures.” Allen Gasiorek & Smith 1996
11
External impact of regulatory
(positive) integration?
• Internal liberalisation/harmonisation less
likely to be discriminatory
• Regulatory harmonisation probably had
positive impact on market access for US &
Japanese suppliers
• But World Bank criticises levelling up in
SPS area. (Contested) estimates of $670m
loss to W.Africa due to aflatoxin rules
• Chen and Mattoo argue excluded countries
lose except from MR.
12
EU trade shares since 1980
intra and extra trade as % of total non oil
calcs: J Lopez from TRAINS (NB 3 equivalent graphs!)
imports (no oil)
80.00%
70.00%
60.00%
50.00%
Intra-EU (1)
40.00%
Extra-EU (2)
30.00%
(1)-(2)
20.00%
10.00%
20
04
20
02
19
98
20
00
19
96
19
92
19
94
19
90
19
86
19
88
19
84
19
82
19
80
0.00%
13
Exporting Internal Market via
RTAs/EPAs - trade offs
• improving market access for firms in the export sector
already able to comply with EU norms
• giving an incentive to firm at the margin of exporting to
“upgrade”
• raising the quality of output in the domestic market
• raising costs to firms and consumers
• risking the disappearance of local firms able to supply to
local market demands but not to EU norms.
• risking loss of export sales in other markets
• Sussex research suggests little prospect for EU Egypt FTA
“deep integration”; maybe some for India.
14
IMP: a template for the world?
• WTO did adopt SPS and TBT regimes not unlike
EU - reference to standards with possibility of
exceptions
• But proving both in EU and WTO to consolidate
when national preferences really differ
• Singapore issues not welcome
• EPAs are discussing WTO + but it’s not the
internal market as you and I know it Jim
• Can you have positive integration without
legitimate political forum?
15
Conclusions
• IMP's “negative integration” probably destined to
dominate: liberalisation tho' not “neo-liberalism”
• But measuring impact depends on having
– Clear counterfactual
– good model of trade effects of regulation – not just
tariff equivalent
• Positive integration aspects of IM harder to externalise
– WTO beware of getting what you wish for!
– IM needed for candidates (but sequencing?)
– Other RTAs: insufficient thought about “up grading”
vs market access (Conformity assessment?)
• External limits match internal, too simple economic
16
approach raises political legitimacy issues