7.2 Single Market: introduction

The term the "internal market" is used to describe trade within the EU, intra-Community trade, as opposed to trade outside the EU (the "external market"). The internal market is, de facto, used synonymously with the "Single Market" and sometimes synonymously with the "Common Market". But the latter has wider connotations and has sometimes been used synonymously with the European Economic Community.

The Treaty of Rome (1957) set out the "four freedoms" that should characterise the internal market. They were:

• The free movement of goods.
• The freedom to provide services.
• The free movement of persons (including the freedom of establishment, the right to practise a trade or profession).
• The free movement of capital.

Even though the Treaty of Rome provided for the removal of all tariffs and quotas on goods inside the Community, many non-tariff barriers remained into the 1970s and 1980s. In the 1970s, one of the most important developments prior to the Single Market Programme was the ECJ's judgement in the "Cassis de Dijon" case (1979). It specified a new basis for the freedom of movement of goods, known as "mutual recognition". This principle essentially meant that goods in free and legal circulation in one member state cannot be excluded from others. The principle also applied to, for example, services and professional qualifications.

In the early 1980s, there was a heavy backlog of draft Directives and Regulations and the EEC's administrative procedures were suffering from overload. In 1985 the Commission was instructed to draw up remedial policies with a timetable for reform. The result was the Cockfield White Paper, which was produced for the June 1985 Milan summit. It identified some 300 measures and set the end of 1992 as the target date for completing the single market. The consequent Single Market Programme was known in the UK as the "1992 Programme".

The White Paper divided the obstacles to free trade into three groups:

• The removal of physical barriers, including the abolition of frontier controls by 1992. Measures that would relax and simplify existing controls, beginning with the introduction in 1988 of the Single Administrative Document (SAD), were set out, paving the way for the complete removal at the end of period of all physical restrictions on goods and individual travellers.
• The removal of technical barriers created by different national regulations and standards, including different product standards. The Commission proposed that its (then) laborious programme to harmonise national standards for thousands of different manufacturing processes should be replaced by a system of mutual recognition of national standards, pending the adoption of European standards. Other proposals included:
• The liberalisation of public procurement.
• The establishment of a common market for services such as transport, banking, insurance and information marketing.
• The free movement of capital throughout the Community.
• The removal of legal restraints on the formation of EC-wide companies.
• The adoption of a Community trademark system.
• The removal of fiscal barriers, which was concerned with the "approximation" of VAT and excise-duty rates.

The Cockfield proposals were an important input to the Single European Act (SEA), which was signed in February 1986 and came into force in July 1987. By December 1992 some 260 out of the original list of 282 (consolidated from 300) legislative measures had been agreed, although a number of these had not yet been transposed into law and many had not yet been enforced.

By the Lisbon summit (March 2000) it was, however, clear that there were still problems with the "completion" of the single market, as envisaged under the Single European Act, with the Commission launching a staggering 1,500 lawsuits against EU governments for failing to respect single-market rules.

In addition, there were other major criticisms. The criticisms fell into two groups. The first was that the Single Market was incomplete and national protectionism still prevailed. The OECD, for example, wrote in 1999:¹

"Implementing and enforcing the Single Market in all sectors...so far remains largely elusive. A Commission report estimated that significant barriers to market access remained in sectors accounting for about half of EU GDP."

The Single Market was assessed to be especially incomplete at the time of Lisbon in the following sectors:

• Telecoms. In July 2003 a set of EU rules became applicable that covered services or networks that transmit communications electronically, whether it is wireless or fixed, carrying data or voice, Internet based or circuit switched, broadcasting or personal communication.
• Energy. See the separate Fact Sheet on energy for developments.
• Transport. See the separate Fact Sheet on transport for developments.
• Financial services. See the separate Fact Sheet on Financial Services for developments.
• Other specified services. In 2004 the then Internal Market Commissioner Frits Bolkestein submitted the draft "Directive on services in the internal market" (the "Services Directive"). It excluded services covered elsewhere (e.g. financial services) and certain politically sensitive services (e.g. healthcare). France, in particular, objected to the Directive, claiming that it would result in "social dumping" and undermine the French services industries. At French insistence, the Services Directive's plans for liberalising the relevant sectors were dramatically diluted in March 2005. The diluted Directive was eventually passed in 2006.

The second was that the Single Market was over-regulated and that these regulations were costly. There seems to be good evidence that this is indeed the case. Günter Verheugen, EU Commissioner for Enterprise and Industry, announced in 2006 that EU regulations were costing the European economy some €600bn a year. (This was almost twice as high as previous estimates.) €600bn is about 5.5% of total EU GDP, equivalent to the size of the Dutch economy. Comparing the Single Market's costs with its benefits is salutary. In 2003 the Commission published their assessment that EU GDP in 2002 was around €165bn higher than it would have been without the Single Market. Even after allowing for the extra GDP growth since 2002, this means that the benefits are less than a third of the costs.

Moreover, there have been criticisms that the Single Market has been used as a "Trojan Horse" for the introduction of integrationist policies that, ostensibly, have been about the Single Market but, arguably, are not. It is, for example, sometimes argued that the rules relating to the establishment of the Single Market have been abused in this manner and used to promote Directives on such diverse subjects as money laundering, art market levies, summer-time arrangements, metrication, combating terrorism, anti-personnel landmines, civil protection and balance of payments support.

Article 308 of the Treaty of the EC (TEC) is an Article that is especially vulnerable to abuse. It states:

"If action by the Community should prove necessary to attain, in the course of the operation of the common market, one of the objectives of the Community and this Treaty has not provided the necessary powers, the Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament, take the appropriate measures."

It was also quite clear by the Lisbon summit that certain claims for the Single Market's ability to stimulate economic growth and create jobs had not been fulfilled. The Cecchini Report ², for example, had claimed that the internal market would add around 5% to the GDP of the European Community's member states, reduce prices by 6%, raise growth by 4-7% and create several million extra jobs ("in the space of a few years"). The Report assumed the pursuance of expansionary policies (which did not happen) and claimed that the Single Market would "put Europe on an upward trajectory into the next century". This ambition was, not only, not achieved. A period of relatively poor growth and high unemployment followed - throughout the 1990s and into the 21^st century.

References

1. OECD, EMU facts, challenges and policies, OECD, 1999.

2. Paolo Cecchini, The European Challenge, 1992: The benefits of the Single Market, Wildwood House, 1988.

RL, February 2007