European single market

What is the European single market?

The principal objective of the EU, when first constituted as the EEC, was to make war in Europe impossible by developing both a common system of law and making member states' economies completely interdependent.

This has been pursued by the creation of a single market and then a single European currency and monetary policy, by the coordinated conduct of economic policy by member states, and by joint action in international trade negotiations.

While the single European market (SEM) was ostensibly complete by the end of 1992, it remains a project in 'continuous creation': much SEM legislation remains to be implemented in member states; several important areas, particularly energy, remain restricted; and several member states have been accused of exploiting loopholes and discovering new ways to protect domestic industries.

Background

The EEC aimed at reducing the 'cost of non-Europe' - that is, of stimulating trade between and economic activity in member states by creating a larger free trade area. This simple idea was to see the costs of European business reduced by removing internal tariffs and standardising regulation - a process which has since been expanded to include the establishment of a common currency and monetary policy across most of the EU, and which aspires ultimately to achieve a common fiscal (taxation and spending) policy.

Internal tariff and quota barriers within the EU were abolished in 1968 - 18 months ahead of schedule - but it was not until 1992 that the Single Market was deemed to have been completed.

In the absence of strong supranational and intergovernmental decision-making structures, it proved difficult to make progress on the more intangible barriers to free movement of goods, services, capital and labour, such as professional standards, regulations, persistent protectionist attitudes and of course divergent fiscal regimes. The oil crises of 1973 and 1980 reinforced protectionist attitudes where they survived.

The result was that during the 1970s and early 1980s, growth in the EU member states began to lag seriously behind that of international competitors. Efforts to establish a single market were meeting with limited success.

Subsequently, in 1985 a White Paper was produced - adopted in the Single European Act of 1987 - identifying some 300 measures that would have to be addressed to complete the Single Market and setting December 31, 1992 as the deadline for completion. The new powers given to the EU's institutions by the Single European Act made this goal achievable.

Controversies

The single market rests on four pillars:

Free movement of goods, persons, services and capital between member states;
The approximation of relevant laws, regulations and administrative provisions between member states;
EU-wide competition policy, administered by the Commission;
A system of Common External Tariffs (CET – also know as the Common Customs Tariff).

While the single European market advanced a long way between 1987 and 1992, the notion that it is now complete is hard to sustain, even from a legal point of view.

Part of this is inescapable: the impact of language barriers and varying levels of economic development; the impingement of social and justice policy on the purely economic vision of the single European market; and member states continue to compete with one another economically, at times seeking their own national interest rather than the greater good of the EU.

The latter problem arises particularly with EU directives, which are instructions to member state governments to act to achieve particular objectives. It is argued by some that the UK has interpreted many of the single market directives too strictly ('gold plating'), thereby putting British companies and consumers at a disadvantage against jurisdictions with lesser demands.

Furthermore, many member states have sought derogations from particular elements of the single market, or have stood in the way of reform. The French state's stake in the energy industry, for example, has led to the virtual exclusion of energy from the single European market to date. Mutual recognition of academic and professional qualifications has also been a slow process.

The absence of a number of member states, including the UK, from the single currency is also seen by some as a major obstacle to the completion of economic integration.

With the process of enlargement to 27 states, the single European market took on a whole new meaning - and with it a new set of problems. Of particular concern to several existing member states was the predicted economic migration of thousands of workers from the poorest new EU members. Some warned this would lead to greater unemployment and downward pressure on wages in existing member states. Others believed that the new workers would fill gaps in the labour market and boost the economy.

Furthermore, many areas beyond the purely economic impinge upon the functioning of the single European market, such as internal borders, cross-border police and judicial co-operation, and differing systems of civil law.

Labour and the SEM

New Labour's first term in office was dominated by speculation over whether or not Britain would adopt the euro. Chancellor Gordon Brown laid out five economic tests which would be required for such a move. In addition the government pledged to hold a referendum on the issue while parliamentary approval was also required.

As it was, the euro did not stand up to Mr Brown's tests. It became clear Britain's economy, closely tied to the property market, was too dissimilar to those on the continent for any currency change to take place soon. The issue barely featured in the 2005 election.

By then focus was instead concentrated on the government's decision to open up Britain's borders to immigration from the EU. Most member states refused to immediately accept immigrants from the new members, despite free movement of people being a key part of the SEM, but Britain was one of the few who made an exception. As a result the UK saw a major wave of immigration - by October 2006 600,000 new workers had arrived since the EU increased its membership in 2004.

The Conservatives did their best to make immigration an issue in the 2005 election and, when Bulgaria and Romania acceded to the EU in that year, they were excluded from coming to Britain. The new points-based system, which emphasised skilled workers, was thought likely to further restrict the flow in coming years.

Former Shadow Home Secretary, Dominic Grieve, claimed in 2008 that net immigration had quadrupled under Labour, fuelled both by the lack of transitional controls on new EU member states and a failure to control economic migration from outside the EU.

The Coalition, on coming to power in May 2010, pledged to "reduce the number of non-EU immigrants and apply transitional controls as a matter of course in the future for all new EU Member States."

The Coalition also promised to ensure that Britain did not join, or prepare to join, the euro in this Parliament.

In April 2011, the European Commission adopted the Single Market Act which launched 12 key projects designed to give a new momentum to the Single Market and help stimulate economic growth.

The 12 projects relate to competitiveness, social progress and growth and range from worker mobility and SME finance to digital content and taxation.

The EC stated that it intended to keep the Single Market "high on the political agenda" and work in partnership with national governments, the European Parliament and others to ensure that the 12 projects are delivered by the end of 2012, the 20th anniversary year of the Single Market programme.

Statistics

Twelve projects for the 2012 Single Market: together for new growth

1. Access to finance for SMEs

2. Worker mobility in the Single Market

3. Intellectual property rights

4. Consumers: Single Market players

5. Services: strengthening standardisation

6. Stronger European networks

7. Digital Single Market

8. Social entrepreneurship

9. Taxation

10. More social cohesion in the Single Market

11. Regulatory environment for business

12. Public procurement

Source: European Commission – April 2011


Since the adoption of the Single Market Act on 13 April 2011, the Commission has delivered 10 of the 12 key legislative proposals promised and a further 30 complementary actions to boost growth, jobs and confidence in the single market.

When these proposals are finally adopted and implemented, more than 21 million businesses and 500 million consumers in Europe will benefit from a single market for venture capital, simpler accounting requirements and cheaper access to patent protection across Europe.

We will finally be able, thanks for example to new approaches on dispute settlement to take advantage of the opportunities offered by the digital single market and a boost in e-commerce which could be worth up to EUR 2.5 billion.

Source: European Commission – February 2012

Quotes

"Within a single market and major trading bloc like the EU, it makes good sense to co-ordinate national economic policies. This enables the EU to act rapidly when faced with challenges such as the current economic and financial crisis."

European Commission - 2012

"I believe Europe's greatest asset to meet the economic challenges we face is the Single Market.
"But rules alone are not enough: we need to make sure the Single Market works better on the ground with a special focus on governance and enforcement. This must be our primary focus in 2012."

Internal Market and Services Commissioner Michel Barnier – February 2012