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-Fort
EU 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
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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:
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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 selfemployed 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 crossborder 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