Adressing Internal Market Barriers in the EU

1
Adressing Internal Market Barriers in the EU

• Jacques Pelkmans
• College of Europe CEPS, Brussels
•    Presentation at the conference
• Adressing Internal Market Barriers, Toronto,
• 1st February 2010, Forum of Federations,
• C.D. How Institute, Industry Canada

2
Structure

1. Purpose and background
2. EU fundamentals, an introduction
3. Economic salience of the EU internal market
4. Constitutional legal provisions
5. Major barriers in the internal market
6. Adressing the barriers process and means
7. Lessons learned

3
Purpose and background

• PURPOSE
• Quasi-federal character of EU I.M.
• Vital importance of EU I.M.
• Far-reaching, though incomplete, I.M.
• BACKGROUND
• EU is not a country (despite selective
  pooling of sovereignty)
• EU ? unity in diversity
• EU ? (mainly) rules, not money
• MS still huge spending ( taxing) powers
• MS still considerable local regulatory powers
• EU centralisation sensitive beyond status-quo

4
EU fundamentals an introduction

1. Building blocks of todays EU
2. Economic structure of Rome treaty
3. Central principles
4. EU Developments, stylized
5. Internal Market Diamond
6. Internal Market ties in Common Policies

5
Building blocks of todays EU
foreign policy / defence
justice home affairs
common values subsidiarity
monetary union, the euro
economic union

• Competitive internal market
• (cross-border) LIB
• mutual recognition
• harmonisation
• common policies (for IM)

inter govt coop. among MS (Lisbon)
cohesion flanking policies other common
policies
6
Economic Structure of the Rome Treaty
7
Central principles

• non-discrimination
• ? between nationals or goods/services/companies
• of different national origin
• ? very powerful principle, ECJ very strict
• Subsidiarity
• ? functional principle for the (optimal)
  allocation of powers to 2 gov.t. levels
• ? starting point close to the citizens, if
  objective can still be effectively pursued
• ? ultimate decision political (accountability)

8
Central principles (2)

• free movement/ establishment
• ? not just free trade or exchange
• ? but.. a RIGHT to enter other (EU)- markets
• ? establishment setting up a company or even a
• non-profit-centre
• ? note free movement of workers unfree
• supremacy of EU Law
• ? ECJ acts like a (federal) supreme court
• ? of course only for EU aspects of law
• ? can imply financial sanctions
• ? but no (federal) army, only political
  embarrassment!
• the economic order
• ? micro free market/open economies
• ? macro (price) stability culture (both
  monetary fiscal)

9
EU developments

• DEEPENING
• accomplishments or commitment
• with harder binding, fewer exceptions,
• more credible
• both MS constraints EU policies
• WIDENING
• larger scope of commitment policies
• wider domains, new areas of policies
• ENLARGEMENT
• new Member States
• six enlargements thus far

10
INTERNAL MARKETDIAMOND

• liberalisation
• (free movements,
• establisment)
• mutual proper
  competition
• recognition functioning
  policy
• IM
• regulation
• (approx common
• policies)

11
The Internal Market interface with the EU
Common policies
competition policy (incl. state aids)
agricultural fisheries policy
A
Trade policy

• econ freedoms
• SHEC regulations
• IPRs
• Internal Market
• investor protection
• labour market reg.
• public procurement

A
transport policy (6 modes) (incl. TENs)
A
A
A-B
environmental policy
energy policy (incl. TENs)
B
C
B
Immigration policy (incl. asylum)
regional policy Cohesion
B
C
Industrial policy
EU Research area
B
important for IM, yet, has other powerful
drivers, too
A
critical for IM
critical for IM, but partly not at EU level
A-B
C
(currently) of minor important for IM
12
Economic salience of EUs I.M.

• success story, with ups and downs
• intra-EU trade ratios up, steadily
• intra-EU services trade poor, however
• East-West intra-EU trade supergrowth
• FDI inside EU strong, with NMS growing fast until
  crisis
• intra-NMS trade fully recovered
• Declining home bias, though still rather high
• I.M., playground for happy few performing
  companies

13
Constitutional legal conditions

• greater salience of subsidiarity in Lisbon
  treaty
• attribution of powers, responsibilities and
  objectives
• treaty making and binding effects
• Legal rights with respect to the I.M.
• IM intergovernmentalism in EU

14
Attribution of powers

• principles of conferral, subsidiarity and
  proportionality
• subsidiarity esp. via RIAs
• Enumeration of competences
• exclusive EU (CU, competition, monetary, trade)
• shared EU/MS competences
• IM (but overlaps mostly what follows), social
  very limited, cohesion, agri-fisheries,
  environment, transport, TENs, energy, area of
  FSJ, public health (contagious diseases only)
• Specific coordination cooperation on economic,
  employment and social policies
• EU merely supports, help coordinate, supplements
  MS human health, education, industrial
  competitiveness, culture, civil protection
  (disasters)

15
Treaty-making binding effects

• EU has treaty-making power
• in TRADE and a host of IM-related aspects (SHEC)
• Many RTAs, FTAs and WTO
• economic treaties signed by COM MS
• treaties are binding on MS and economic agents
• Negotiations Council mandate (proposed by COM)
  needs Council concent can require EP consent
  COM keeps in touch with Council during
  negotiations
• EU bound by many treaties

16
Legal rights in the I.M.

• legal rights effectively constitutionalized for
  cross-border liberalisation
• consist of
• free movement (goods, services, capital, labour)
• free establishment
• non-discrimination (as to nationality)
• (economic) EU integration (ever) fewer
  derogations by MS ? negative integration
• ? deepening
• widening ? widening of the scope of rights
• non-economic rights ? via EU citizenship

17
I.M. and intergovernmentalism in EU

• Three forms
• (a) classical intergovernamentalism
• Lisbon strategy/process
• ad hoc cooperation in EU (education/Bologna,
  etc..)
• (b) MS in Council
• is the voice of MS
• but its (co-)decision is part of checks
  balances in . supra nationalism
• no going back or reversal
• (c) in political science, shift to (Eur.) Council
  power often called more intergovernmental (
  less COM power)
• IM ( hardcore EU) is firmly supranational

18
Major barriers in the IM

• First, where are we with the IM?
• EU wants a properly functioning IM as the
  principal means to achieve socio-economic aims
• appropriate combinations of negative/positive
  integration
• goods market integration close to complete
  procurement difficult military out
• capital market free
• services market integration highly uneven
• labour market integration hardly exists, what
  exists is severely distorted
• codified technology, quite far, except patents

19
Major barriers in the IM (2)

• Lingering barriers/distortions
• Corporate taxation highly diverse tax base
  (rivalry) despite Primarolo
• no (federal) corporate EU tax (base)
• lingering national REG barriers (esp.
  services/labour)
• discriminatory pricing anti-trust IM
• investment incentives ? EU state aids regime
• land ownership rules (? only Central Europe)
• labour qualification rules (de facto)
• labour union membership

20
Addressing barriers, processes and means

• critical to appreciate how it works in the EU
  acquire from MS step-by-step
• obvious federal powers are NOT central in EU
• taxation
• infrastructure
• (funded) social policy/security
• veto removed in Single Act (1985/7)
• Council consensus (nonetheless) highly valued
• EP genuine co-legislator
• ECJ case-law quite important

21
What issues most salient?

• Highlights
• at first, goods and direct investment only
• but goods, in a rather incomplete fashion
• deepening
• after 1985, goods
• widening
• 3rd gen.n financial, upshot from EMU
• network industries (7x) liberalisation since
  1989
• plus a range of autonomous agencies
• some progress on labour migration postal
  workers
• horizontal services liberalisation (2006/9)
• 4th generation Fiancial Services prompted by
  crisis

22
Who drove the agenda?

• political elite and the permissive consensus
• US FDI in the 1960s (note agenda fixed in
  treaty)
• ECJ in the 1970s
• COM ERT in the 1980s
• MS and CBs in the 1990s for EMU
• COM, and business customers, for network
  industries
• MS COM (in Lisbon, 2000) for horizontal
  services liberalisation, until social protests
  emerged
• ? thereafter, EP only

23
Courts versus political processes

• national courts
• ? can side with economic agents against
  national governments
• mostly COM, though ? and ECJ behind it
• national courts can ask a preliminary ECJ
  ruling
• COM, Council EP ? (re-)act on case-law
• Council convicted on transport in 1985
• COM occasionally rebuked, but also many victories
  over MS (telecoms, hor. services)
• political (co-) decision most prominent, with COM
  and the European Council leading

24
In ECJ, private parties or governments?

• the first step of economic agents (or citizens)
  is the national courts (if one has standing)
• but most goes via COM (can suffice) to the ECJ
  (where standing is more restricted)
• private litigation (e.g. in anti-trust) is still
  rare, though COM is now promoting it
• what has helped proper implementation is that
  private agents can claims damages from
  non-implementation of EU directives in a MS

25
IM agenda political drivers and drummers

• for drivers forward, see slide 22
• sensitive socio-political drumbeats on IM
• examples
• recent ? REACH horizontal services lib.n.
• ? issues prompted by Eastern enlargement
• ? agriculture
• older ? steel subsidies (1977-1994)
• ? coal subsidies (1952-)
• ? shipbuilding (1957, in treaty)
• ? state-aids to banks since late 2007 have
  been much LESS controversial
• IM-related Agencies

26
Decision-making mechanisms

• basics today co-decision (EP Council)
• after COM proposal (COM has monopoly to propose)
• sometimes QMV is replaced by veto in Council
• e.g. taxation and social security patents
• unanimity CAN be disastrous for EU, but, still,
  many directives (700) had unanimity
• new is enhanced cooperation however, to keep
  the coalition of the willing open for the
  laggards, conditionality is strict ? in actual
  practice, useless

27
Lessons learned

• EU between economic regionalisation economic
  federalism
• EU is not a (federal) country, has no government,
  COM is not elected, EP does not choose the
  executive
• EU has no (federal) army national labour markets
  and a tiny common budget, no taxing power
• the MS still retain enormous spending power
• Still, EU IM much in common with federations
• far-reaching (cross-border) economic mobility
  rights
• extensive powers for positive market
  integration
• many common policies, some strong ones
• an emerging culture of EU Agencies (limited
  power)
• centralisation (subsidiarity) is now a key issue
• intergovernmentalism in EU is of doubtful
  effectiveness