The EU Single Market

A recent speech to a business audience left me thinking that, for many, the European Union and its single market are not so much a question of being for or against as one of wanting to know just what, for the individual business, their significance is.

The commitment to a single market in which goods, services, people and capital would be able to move freely within a customs union, which was itself protected by tariff walls, lay at the heart of the EU’s founding treaty, the 1957 Treaty of Rome.

For the first three decades of the EU’s life, implementation and enforcement were haphazard with enforcement, in particular, relying on judgements in the European Court of Justice. The most significant judgement came in 1979. Germany would not allow imports of French cassis (the favourite drink of French holidays) because its alcohol content was not the same as for equivalent German products. The Court determined that if cassis could be legitimately sold in France, Germany had no right to exclude it from her market.

Nonetheless, progress was slow until the mid-1980s when Prime Minister Margaret Thatcher pressed for a drive to complete the single market as part of her campaign for economic reform and greater competitiveness. The Single European Act, agreed in 1985, was the first major treaty change since 1957. It radically increased the use of majority voting (whereas unanimity had been the norm) in order to prevent any one EU country from vetoing progress. With a deadline of 1992, the European Commission used the new treaty to bring forward a comprehensive programme of draft legislation to provide for a mixture of mutual recognition and harmonisation of Member States’ standards for the trade in goods. Harmonisation was often necessary to ensure uniform health and safety standards or to overcome national protectionism. For example, the lawn mower noise directive was not adopted to ensure tranquil summer afternoons across the European continent, but to prevent what had been common practice: Member States adopting national rules for lawn mower sales which deliberately set permissible decibels at a level designed to exclude foreign competitors from the domestic market. Similar protectionist laws applied in many other sectors and EU legislation under the new Treaty forced the market open. At the same time, non-tariff barriers were also dismantled. Until the EU single market, truck drivers crossing European frontiers had to fill in up to 30 separate customs forms and frequently had to have the contents of their fuel tanks tested.

Over time, the scope of the single market programme grew to open up the EU market for services, people and capital. The range of legislation has also widened to cover issues such as environment, energy, transport, social security, consumer protection and, now, the digital market. In all cases, the European Commission have been the formal originators of the draft legislation (as EU treaty law requires) but it has often been Governments of the Member States, the European Parliament and national NGOs who have suggested action to the Commission. In each case, while it is the Commission who propose, it is the elected politicians who serve on the Council of Ministers and in the European Parliament who debate, amend and determine, by majority vote, whether proposals will be enacted or not. In the early days, the European Parliament had only to be consulted. Today, the European Parliament is an equal partner with the Council of Ministers in the consideration, amendment and adoption of EU laws. The larger Member States, such as the UK, have greater voting weight in the Council of Ministers than the small, and more Members of the European Parliament. Thus, in an EU of 28 countries, the UK has about one tenth of the total number of MEPs.

The Single Market has become part of a comprehensive approach. Environmental laws at EU level were adopted because, self-evidently, environmental impact is cross-frontier. In addition, there is a single market angle: common drinking water standards have been considered necessary to protect people travelling in the EU on business as well as leisure. Transport initiatives have made the EU the world’s most open and competitive market for air passengers. Passengers’ consumer rights were safeguarded. EU common standards in mobile telephony ensured one common system and tariff rules, not umpteen. EU citizens enjoy cross-border access within the Union to healthcare, higher education and social security provision. HM Treasury estimated in 2005 that trade between Member States had been boosted by 38% by virtue of EU membership and by a further 9% because of the Single Market programme.

The issue of increased trading opportunities and improved market access, versus regulation and compliance costs, is an ongoing source of argument. The rights and wrongs of the Working Time Directive are a good example legislation which divides management and labour: is it an over-burdensome barrier to competition or a necessary health and safety measure? How far should such measures be decided at EU level or left to national discretion? How far do working time variations distort fair competition? The issue of tax harmonisation has divided opinion on similar grounds. However, at the insistence of Britain and other Member States, there can be no tax harmonisation measures unless all countries agree.

Rules to limit national state aids to domestic industries, competition law to ensure fair competition and a common commercial policy designed both to open up external markets through EU trade agreements with third countries and to monitor and act against trade distortions and dumping are additional EU policies which underpin the single market.

The single market is evolving and one referendum issue for Britain, among many others, is whether we want it to evolve in future with our continued participation, our influence and our votes, both in the Council of Ministers and the European Parliament – or not.

Next blog: What next for the Single Market?

Written By

Sir Stephen Wall