THE SINGLE MARKET
Effects on the Single Market
Introduction to the Single Market
The creation of the Single Market is one of the major developments in the process of European integration. The idea of unifying the markets ties in with the objective of economic and political integration. The Treaty establishing the Single Market was the foundation for a system ensuring that competition in the internal market is not distorted and the approximation of the laws of Member States to the extent required for the functioning of the common market. In addition accompanying policies, such as environmental protection and social policy, play important roles in the functioning of the Internal Market.
It developed as a consequence of the growing conviction among the major industrial powers in Europe that fragmentation of the Community market was an obstacle to their competitiveness at international level. The European Commission, therefore, published a strategy that included 279 legislative measures needed to remove obstacles to trade within the Community and put forward a schedule for the creation of the Single European Market on 31 December 1992.
The Single Market is based on three basic principles and four freedoms. The principles include:
-The principle of non-discrimination: Which prohibits "any discrimination on grounds of nationality" as one of the fundamental principles of the internal market. In other words, treating imported goods differently to domestic goods is prohibited.
-Mutual recognition: Closely linked to the previous one, the principle of mutual recognition claims that the legislation of another Member State is equivalent in its effects to domestic legislation. A product, which is lawfully produced and marketed in one Member State of the European Community, must be accepted in the other Member States.
-Community legislation: The approximation of the laws of Member States to the extent required for the functioning of the common market".
The four freedoms represent the abolition of national barriers in different areas leading to the completion of the Internal Market:
-Free movement of goods
-Free movement of persons
-Free movement services
-Free movement of capital
The Internal Market is nevertheless constantly developing and will continue to face numerous challenges in areas that impact on its functioning (e.g. taxation). In those areas there are still deep differences between the various Member States.
Enlargement and the Internal Market
The New Member States have not had to wait until accession to exploit the impact of becoming part of the Internal Market. In economic terms enlargement is essentially achieved and economic integration with the candidate countries has advanced greatly under the Association Agreements. Two good examples to illustrate that are:
-Free trade exists for all imports of manufactured goods, which enter free of customs duty without any quantitative restriction.
-Companies from both sides already enjoy right of establishment and the same treatment as national companies.
Going back in time, the gradual opening-up of the current fifteen national markets into one Single Market, ensuring open competition and preparing for its enlargement to many other countries has constituted a huge 'supply side' exercise which had as main objectives stimulating production, increasing competition, reducing prices and increasing demand within the European Union.
The benefits of Single Market are emphasised in economic theory by three main concepts:
- The reallocation effect: market integration allows for economies of scale i.e. more efficient use of the factors of production, labour and capital, this increases overall prosperity for everybody.
- Accumulation effect through the increasing productivity of factors of production, integration can act as an incentive for investment, which in turn leads to increases in consumption and innovation.
- The localisation effect, the geographic localisation of the factors of production is optimised as a result of integration, leading to specialisation and a more rational use of resources.
All candidate countries have substantially increased their trade integration with the EU during the last few years. The EU is now by far the most important trading partner of the thirteen candidate countries. Their imports from the EU and exports to the EU range between 50% for countries like Bulgaria and Lithuania to more than 70% for Poland and Slovenia. Direct investment by the current Member States in the candidate countries is also growing fast. So candidate countries are already receiving the economic benefits of integration.
Still, the Internal Market is much more than economic integration. The path towards the EU-25 is plagued with questions and problems that must be tackled if the Internal Market is to function properly. To mention a few:
-Will there be invested the necessary resources to get the shocking level of intellectual property piracy down?
-Are the New Member States committed to liberalising their public procurement markets and renouncing any kind of economic "patriotism"?
-Will authorities take the necessary measures to ensure full application of transparency and non-discrimination principles in public contracts?Are candidate countries prepared to accept the consequences derived from the application of the 'single passport' and 'home country control' principles in the financial services sector?
The new Internal Market and SMEs
It is expected that competition will be fierce for small and medium enterprises. In principle, the enlarged Internal Market of EU 25 should give the boost to SMEs from the current Member States, however it is still not clear if they have the capacity to react to challenges and opportunities resulting from enlargement.
Especially in the case of the poorest EU 15regions, it is anticipated that the major cost generated by them due to the enlargement process will be bourn by SMEs as they are the most sensitive businesses to any economic changes. Co-operation between the small and medium businesses from the current EU Member States and candidate countries is perceived as possibly the only method providing them with the security of survival on the enlarged market. In this sense, the role of the regional authorities and organisations in awareness raising is of fundamental importance.
In the New Member States, enlargement related fears are connected to the lack of ability
of the candidate countries’ economies to face the fierce competition in the Single Market. Only by bringing the principles and practical aspects of the operation of the common market closer to the enterprises and institutions can these fears be dismantled.
What is more important, only then can the process of the absorption of knowledge necessary for them to learn to operate under different economic circumstances begin. Moreover it is necessary to facilitate the dialogue between the regional and local authorities and the enterprise sector in order to start preparations for institutional support of SME development in particular, which will play the crucial role in the future phases of industrial restructuring.
Entrepreneurship and SMEs have developed slowly in the candidate countries. The lack of technological know-how and difficult access to finance have been the major obstacles to further development of entrepreneurship, in the face of upgrading managerial and organisational skills of the staff. In most candidate countries, the economic reality is already relatively difficult for them to survive. Support for SMEs in meeting the contemporary demands set by the European legislation will be therefore of high importance.
For more information:
-European Commission:
-European Parliament:
-Economic and Social Committee:
-Comprehensive monitoring report of the European Commission on the state of preparedness for EU membership of the Czech Republic, Estonia, Cyprus, Latvia,
Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia, European Commission, November 2003.
-The Internal Market: 10 years without Frontiers: Directorate General Internal Market, European Commission, 2003