Adressing Internal Adressing Internal Market Barriers in the Market Barriers in the

EUEU

Jacques PelkmansJacques PelkmansCollege of Europe & CEPS, BrusselsCollege of Europe & CEPS, Brussels

      Presentation at the conference Presentation at the conference ‘‘Adressing Internal Market Barriers’, Toronto, Adressing Internal Market Barriers’, Toronto,

1st February 2010, Forum of Federations, 1st February 2010, Forum of Federations, C.D. How Institute, Industry CanadaC.D. How Institute, Industry Canada

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StructureStructure

1.1. Purpose and backgroundPurpose and background

2.2. EU fundamentals, an introductionEU fundamentals, an introduction

3.3. Economic salience of the EU internal Economic salience of the EU internal marketmarket

4.4. Constitutional & legal provisionsConstitutional & legal provisions

5.5. Major barriers in the internal marketMajor barriers in the internal market

6.6. Adressing the barrier’s process and Adressing the barrier’s process and meansmeans

7.7. Lessons learnedLessons learned

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Purpose and backgroundPurpose and background

PURPOSEPURPOSE Quasi-federal character of EU I.M.Quasi-federal character of EU I.M. Vital importance of EU I.M.Vital importance of EU I.M. Far-reaching, though incomplete, I.M.Far-reaching, though incomplete, I.M.BACKGROUNDBACKGROUND EU is not a ‘country’ (despite selective ‘pooling’ of EU is not a ‘country’ (despite selective ‘pooling’ of

sovereignty)sovereignty) EU EU ‘unity in diversity’ ‘unity in diversity’ EU EU (mainly) (mainly) ‘rules, not money’‘rules, not money’ MS still huge spending (& taxing) powersMS still huge spending (& taxing) powers MS still considerable ‘local’ regulatory powersMS still considerable ‘local’ regulatory powers EU centralisation sensitive beyond status-quoEU centralisation sensitive beyond status-quo

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EU fundamentals: an EU fundamentals: an introductionintroduction

i.i. Building blocks of today’s EUBuilding blocks of today’s EU

ii.ii. Economic structure of Rome treatyEconomic structure of Rome treaty

iii.iii. Central principlesCentral principles

iv.iv. EU Developments, stylizedEU Developments, stylized

v.v. Internal Market DiamondInternal Market Diamond

vi.vi. Internal Market ties in Common Internal Market ties in Common PoliciesPolicies

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foreign policy / defence

justice & home affairs

common values & subsidiarity

monetary union, the euro

economic union

inter gov’t

coop.

among

MS

(Lisbon)

Competitive internal market

• (cross-border) LIB

• mutual recognition

• harmonisation

• common policies (for IM)

cohesion +

flanking

policies +

other common policies

Building blocks of today’s EUBuilding blocks of today’s EU

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Economic Structure of the Economic Structure of the Rome TreatyRome Treaty

ECONOMIC AIMS

1. harmonious development of economic activities

2. continuous and balanced expansion

3. increase in stability

4. accelerated raising of the standard of living

MEANS KEY PRINCIPLES

* Community loyalty

* non-discrimination as to nationality

* widening of powers, onlywithin the operation of thecommon market

INSTITUTIONAL FRAMEWORK

common institutions

supreme judicial review

Commission: guardian of the Treaty

EU Budget

decision-making rules

COMMON MARKET APPROXIMATING ECONOMIC POLICIES

Customs Union

free movement of goodsfree movement of personsfree movement of servicesfree movement of capital

common trade policycommon agricultural policy

approximation of fiscal andeconomic regulation

common competition policycommon transport policy

other (weak) instruments

right of establishment

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(a)(a) non-discrimination non-discrimination → → between nationals or between nationals or goods/services/companiesgoods/services/companies

of different national originof different national origin→ → very powerful principle, ECJ very strictvery powerful principle, ECJ very strict

(b)(b) SubsidiaritySubsidiarity→ → functional principle for the (optimal) functional principle for the (optimal) allocation of powers toallocation of powers to

2 gov.t. levels 2 gov.t. levels→ → starting point: close to the citizens, if starting point: close to the citizens, if objective can still be effectively pursuedobjective can still be effectively pursued→ → ultimate decision: political ultimate decision: political (accountability)(accountability)

Central principlesCentral principles

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(c)(c) free movement/ establishmentfree movement/ establishment→ → not just free trade or exchangenot just free trade or exchange→ → but….. a RIGHT to enter other (EU)- marketsbut….. a RIGHT to enter other (EU)- markets→ → establishment: setting up a company or even aestablishment: setting up a company or even a

non-profit-centrenon-profit-centre→ → note: free movement of workers = “unfree”note: free movement of workers = “unfree”

(d)(d) supremacy of EU Lawsupremacy of EU Law→ → ECJ acts like a (federal) supreme courtECJ acts like a (federal) supreme court→ → of course of course only only for EU aspects of lawfor EU aspects of law→ → can imply financial sanctionscan imply financial sanctions→ → but… no (federal) army, only political but… no (federal) army, only political embarrassment! embarrassment!

(e)(e) the “economic order”the “economic order” → → micro: free market/open economiesmicro: free market/open economies → → macro: (price) stability culture (both monetary macro: (price) stability culture (both monetary

& fiscal)& fiscal)

Central principles (2)Central principles (2)

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EU developmentsEU developments

DEEPENINGDEEPENING accomplishments or commitment accomplishments or commitment

with harder binding, fewer exceptions,with harder binding, fewer exceptions,more crediblemore credible [both MS constraints ; EU policies ][both MS constraints ; EU policies ]

WIDENINGWIDENING larger scope of commitment & policies ;larger scope of commitment & policies ;

wider domains, new areas of policieswider domains, new areas of policies ENLARGEMENTENLARGEMENT

new Member Statesnew Member States[ six enlargements thus far ][ six enlargements thus far ]

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INTERNAL MARKETINTERNAL MARKETDIAMONDDIAMOND

liberalisationliberalisation(free movements,(free movements,

establisment)establisment)

mutualmutual properproper competitioncompetition

recognitionrecognition functioningfunctioning policypolicy IMIM

regulationregulation(approx; common (approx; common

policies)policies)

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The Internal Market: interface with the The Internal Market: interface with the EU Common policiesEU Common policies

competition policy(incl. state aids) agricultural &

fisheries policy

transport policy(6 modes)(incl. TENs)

energy policy(incl. TENs)

regional policy& Cohesion

EU Researcharea

Industrial policy

Immigration policy(incl. asylum)

environmental policy

Trade policy

•econ freedoms•SHEC regulations

•IPRs

Internal Market•investor protection•labour market reg.•public procurement

A

AA

AA-B

B

B

B

C

C

AA-B

B

C

= critical for IM

= critical for IM, but partly not at EU level

= important for IM, yet, has other powerful drivers, too

= (currently) of minor important for IM

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Economic salience of EU’s Economic salience of EU’s I.M.I.M.

success story, with ups and downssuccess story, with ups and downs intra-EU trade ratios up, steadilyintra-EU trade ratios up, steadily intra-EU services trade poor, howeverintra-EU services trade poor, however East-West intra-EU trade supergrowthEast-West intra-EU trade supergrowth FDI inside EU strong, with NMS growing FDI inside EU strong, with NMS growing

fast until crisisfast until crisis intra-NMS trade fully recoveredintra-NMS trade fully recovered Declining home bias, though still rather Declining home bias, though still rather

highhigh I.M., playground for ‘happy few’ I.M., playground for ‘happy few’

performing companiesperforming companies

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Constitutional & legal Constitutional & legal conditionsconditions

greater salience of ‘subsidiarity’ in greater salience of ‘subsidiarity’ in Lisbon treatyLisbon treaty

attribution of powers, responsibilities attribution of powers, responsibilities and objectivesand objectives

treaty making and binding effectstreaty making and binding effects Legal rights with respect to the I.M.Legal rights with respect to the I.M. IM & intergovernmentalism in EUIM & intergovernmentalism in EU

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Attribution of powersAttribution of powers principles of conferral, subsidiarity and principles of conferral, subsidiarity and

proportionalityproportionality subsidiarity esp. via RIAssubsidiarity esp. via RIAs

Enumeration of competencesEnumeration of competences1.1. exclusive EU (CU, competition, monetary, trade)exclusive EU (CU, competition, monetary, trade)2.2. shared EU/MS competences:shared EU/MS competences:

IM (but overlaps mostly what follows), social [very IM (but overlaps mostly what follows), social [very limited], cohesion, agri-fisheries, environment, limited], cohesion, agri-fisheries, environment, transport, TENs, energy, area of FSJ, public health transport, TENs, energy, area of FSJ, public health (contagious diseases only)(contagious diseases only)

3.3. Specific coordination: cooperation on economic, Specific coordination: cooperation on economic, employment and social policiesemployment and social policies

4.4. EU merely supports, help coordinate, supplements EU merely supports, help coordinate, supplements MS: human health, education, industrial MS: human health, education, industrial competitiveness, culture, civil protection competitiveness, culture, civil protection (disasters)(disasters)

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Treaty-making & binding Treaty-making & binding effectseffects

EU has treaty-making powerEU has treaty-making power in TRADE and a host of IM-related aspects in TRADE and a host of IM-related aspects

(SHEC)(SHEC) Many RTAs, FTAs and WTOMany RTAs, FTAs and WTO ‘‘economic’ treaties signed by COM & MSeconomic’ treaties signed by COM & MS treaties are binding on MS and economic treaties are binding on MS and economic

agentsagents Negotiations: Council mandate (proposed Negotiations: Council mandate (proposed

by COM); needs Council concent; can by COM); needs Council concent; can require EP ‘consent’; COM keeps in touch require EP ‘consent’; COM keeps in touch with Council during negotiationswith Council during negotiations

EU bound by many treatiesEU bound by many treaties

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Legal rights in the I.M.Legal rights in the I.M. legal rights effectively constitutionalized for legal rights effectively constitutionalized for

cross-border liberalisationcross-border liberalisation consist of:consist of:

– free movement (goods, services, capital, labour)free movement (goods, services, capital, labour)– free establishmentfree establishment– non-discrimination (as to nationality)non-discrimination (as to nationality)

(economic) EU integration = (ever) fewer (economic) EU integration = (ever) fewer derogations by MS derogations by MS negative integration negative integration

‘ ‘deepening’deepening’ ‘‘widening’ widening’ widening of the scope of rights widening of the scope of rights non-economic rights non-economic rights via ‘EU citizenship’ via ‘EU citizenship’

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I.M. and intergovernmentalism in I.M. and intergovernmentalism in EUEU

Three formsThree forms (a) classical intergovernamentalism:(a) classical intergovernamentalism:

Lisbon strategy/processLisbon strategy/process ad hoc cooperation in EU (education/Bologna, etc..)ad hoc cooperation in EU (education/Bologna, etc..)

(b) MS in Council(b) MS in Council is the voice of MSis the voice of MS but… its (co-)decision is part of checks & balances in …. but… its (co-)decision is part of checks & balances in ….

supra nationalismsupra nationalism no ‘going back’ or reversalno ‘going back’ or reversal

(c) in political science, shift to (Eur.) Council (c) in political science, shift to (Eur.) Council power often called ‘more intergovernmental’ (= power often called ‘more intergovernmental’ (= less COM power)less COM power)

IM (= hardcore EU) is firmly supranationalIM (= hardcore EU) is firmly supranational

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Major barriers in the IMMajor barriers in the IM

First, where are we with the IM?First, where are we with the IM? EU wants a ‘EU wants a ‘properly functioning IMproperly functioning IM’ as the ’ as the

principal means to achieve socio-economic aimsprincipal means to achieve socio-economic aims appropriate combinations of negative/positive appropriate combinations of negative/positive

integrationintegration goodsgoods market integration close to ‘complete’ market integration close to ‘complete’

[procurement difficult; military out][procurement difficult; military out] capitalcapital market free market free servicesservices market integration highly uneven market integration highly uneven labour market integrationlabour market integration hardly exists, what hardly exists, what

exists is severely distortedexists is severely distorted codified technologycodified technology, quite far, except patents, quite far, except patents

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Major barriers in the IM Major barriers in the IM (2)(2)

Lingering barriers/distortionsLingering barriers/distortions Corporate taxation: highly diverse tax base Corporate taxation: highly diverse tax base

(‘rivalry’) despite Primarolo(‘rivalry’) despite Primarolo no (federal) corporate EU tax (base)no (federal) corporate EU tax (base) lingering national REG barriers (esp. lingering national REG barriers (esp.

services/labour)services/labour) discriminatory pricing [anti-trust & IM]discriminatory pricing [anti-trust & IM] investment incentives [investment incentives [ EU state aids EU state aids

regime]regime] land ownership rules (land ownership rules ( only Central Europe) only Central Europe) labour qualification rules (de facto)labour qualification rules (de facto) labour union membershiplabour union membership

2020

Addressing barriers, Addressing barriers, processes and meansprocesses and means

critical to appreciate how it works in the EU: critical to appreciate how it works in the EU: ‘acquire’ from MS step-by-step‘acquire’ from MS step-by-step

‘‘obvious’ federal powers are NOT central in EUobvious’ federal powers are NOT central in EU taxationtaxation infrastructureinfrastructure (funded) social policy/security(funded) social policy/security

veto removed in Single Act (1985/7)veto removed in Single Act (1985/7) Council consensus (nonetheless) highly Council consensus (nonetheless) highly

valuedvalued EP genuine co-legislatorEP genuine co-legislator ECJ case-law quite importantECJ case-law quite important

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What issues most salient?What issues most salient?HighlightsHighlights at first, goods and direct investment onlyat first, goods and direct investment only but goods, in a rather ‘incomplete’ fashionbut goods, in a rather ‘incomplete’ fashion

deepeningdeepening after 1985, goodsafter 1985, goods

wideningwidening 3rd gen.n financial, upshot from EMU3rd gen.n financial, upshot from EMU network industries (7x) liberalisation since network industries (7x) liberalisation since ± 1989± 1989

[plus a range of ‘autonomous’ agencies][plus a range of ‘autonomous’ agencies] some progress on labour migration + postal workerssome progress on labour migration + postal workers horizontal services liberalisation (2006/9)horizontal services liberalisation (2006/9) 4th generation Fiancial Services prompted by crisis4th generation Fiancial Services prompted by crisis

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Who drove the agenda?Who drove the agenda? political elite and the ‘permissive political elite and the ‘permissive

consensus’consensus’ US FDI in the 1960s US FDI in the 1960s ((notenote: agenda fixed in treaty): agenda fixed in treaty) ECJ in the 1970sECJ in the 1970s COM + ERT in the 1980sCOM + ERT in the 1980s MS and CBs in the 1990s for EMUMS and CBs in the 1990s for EMU

COM, and business customers, for network COM, and business customers, for network industriesindustries

MS + COM (in Lisbon, 2000) for horizontal MS + COM (in Lisbon, 2000) for horizontal services liberalisation, until social protests services liberalisation, until social protests emergedemerged thereafter, EP onlythereafter, EP only

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Courts versus political Courts versus political processesprocesses

national courtsnational courts can side with economic agents againstcan side with economic agents against

national governments national governments mostly COM, though mostly COM, though and ECJ ‘behind’ it and ECJ ‘behind’ it national courts can ask a ‘preliminary’ ECJ national courts can ask a ‘preliminary’ ECJ

rulingruling COM, Council & EP COM, Council & EP (re-)act on case-law (re-)act on case-law Council convicted on transport in 1985Council convicted on transport in 1985 COM occasionally rebuked, but also many COM occasionally rebuked, but also many

victories over MS (telecoms, hor. services)victories over MS (telecoms, hor. services) political (co-) decision most prominent, with political (co-) decision most prominent, with

COM and the European Council ‘leading’COM and the European Council ‘leading’

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In ECJ, private parties or In ECJ, private parties or governments?governments?

the first step of economic agents (or the first step of economic agents (or citizens) is the national courts (if one has citizens) is the national courts (if one has standing)standing)

but most goes via COM (can suffice) to the but most goes via COM (can suffice) to the ECJ (where standing is more restricted)ECJ (where standing is more restricted)

private litigation (e.g. in anti-trust) is still private litigation (e.g. in anti-trust) is still rare, though COM is now promoting itrare, though COM is now promoting it

what has helped proper implementation is what has helped proper implementation is that private agents can claims damages that private agents can claims damages from non-implementation of EU directives in from non-implementation of EU directives in a MSa MS

2525

IM agenda: IM agenda: political drivers and drummerspolitical drivers and drummers

for drivers forward, see slide 22for drivers forward, see slide 22 sensitive socio-political ‘drumbeats’ on IMsensitive socio-political ‘drumbeats’ on IM

examples:examples: recent recent REACH; horizontal services lib.n. REACH; horizontal services lib.n.

issues prompted by Eastern enlargementissues prompted by Eastern enlargement agricultureagriculture

older older steel subsidies (1977-1994) steel subsidies (1977-1994) coal subsidies (1952-)coal subsidies (1952-) shipbuilding (1957, in treaty)shipbuilding (1957, in treaty) state-aids to banks since late 2007 havestate-aids to banks since late 2007 have

been much LESS controversial been much LESS controversial IM-related AgenciesIM-related Agencies

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Decision-making Decision-making mechanismsmechanisms

basics today: co-decision (EP + Council)basics today: co-decision (EP + Council) after COM proposal (COM has monopoly to after COM proposal (COM has monopoly to

propose)propose) sometimes QMV is replaced by veto in sometimes QMV is replaced by veto in

CouncilCouncil e.g. taxation and social security; patentse.g. taxation and social security; patents unanimity CAN be disastrous for EU, but, unanimity CAN be disastrous for EU, but,

still, many directives (700) had unanimitystill, many directives (700) had unanimity new is ‘enhanced cooperation’ – however, new is ‘enhanced cooperation’ – however,

to keep the ‘coalition of the willing‘ open to keep the ‘coalition of the willing‘ open for the ‘laggards’, conditionality is strict for the ‘laggards’, conditionality is strict in actual practice, uselessin actual practice, useless

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Lessons learnedLessons learned EU between economic regionalisation & economic EU between economic regionalisation & economic

federalismfederalism EU is not a (federal) country, has no government, EU is not a (federal) country, has no government,

COM is not elected, EP does not choose the COM is not elected, EP does not choose the executive;executive;

EU has no (federal) army; national labour markets EU has no (federal) army; national labour markets and a tiny common budget, no taxing powerand a tiny common budget, no taxing power

the MS still retain enormous spending powerthe MS still retain enormous spending power Still, EU IM much in common with federationsStill, EU IM much in common with federations

far-reaching (cross-border) economic mobility rightsfar-reaching (cross-border) economic mobility rights extensive powers for ‘positive market integration’extensive powers for ‘positive market integration’ many common policies, some strong onesmany common policies, some strong ones an emerging culture of EU Agencies (limited power)an emerging culture of EU Agencies (limited power) centralisation (subsidiarity) is now a key issuecentralisation (subsidiarity) is now a key issue intergovernmentalism in EU is of doubtful effectivenessintergovernmentalism in EU is of doubtful effectiveness