European Parliament Fact Sheets

3.1.0. Principles and general completion of the internal market

LEGAL BASIS

- Principles: Articles 3c, 14 (7a) and 18 (8a) of the EC Treaty (ECT).

- Approximation of legislation: Articles 94 and 95 (100 and 100a) ECT.

OBJECTIVES

1.  The common market created by the Treaty of Rome in 1958 was intended to eliminate trade barriers between Member States with the aim of:

  • increasing economic prosperity;
  • contributing to "an ever closer union among the peoples of Europe", as envisaged by the authors of the Treaty.

2.  A lack of progress led the Community in the mid-1980s to consider a more thorough approach to the objective of removing trade barriers, with more effective methods: the internal market. This was primarily set out in the celebrated Commission White Paper of June 1985 and incorporated in the Treaty by the 1986 Single European Act. The internal market was:

  • intended to create "an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured";
  • accompanied by changes in the Community legislative system, designed to encourage adoption of the measures needed for its completion.

ACHIEVEMENTS

1. The uncompleted common market of 1958

a. Aim of the common market
 The common market, as the Treaty of Rome's main objective, was intended to liberalise exchanges of goods and services between Member States as far as possible by:

  • a customs union, i.e. removing customs duties between Member States and establishing a common external tariff;
  • eliminating quantitative restrictions (quotas) and measures having equivalent effect, to ensure completely free movement of goods;
  • free movement of persons, especially employed persons, services and, to a certain extent, capital.

b. Implementation
 The programme was not fully completed.

- Some objectives were achieved in the early years, certainly before the end of the transition period (1 January 1970). This was true of:

  • the customs union proper, which was achieved on 1 July 1968 (* 3.2.1),
  • abolition of quotas;
  • free movement of employed persons, enabling any national of a Member State to go freely to another Member State to take a job under the same conditions as the nationals (* 3.2.2),
  • some tax harmonisation with the general introduction of VAT (1970) (* 3.4.5).

- However, other objectives remained pending; they were not even attained in the following 15 years. By the mid-1980s:

  • there had been no substantial reduction in measures having an effect equivalent to quantitative restrictions: national technical rules for products, which had increased along with economic difficulties (* 3.2.1),
  • except in certain professions such as doctors, the free movement of services, either by free provision of services across frontiers or freedom of establishment in another Member State, had been instituted only as non-discrimination on the grounds of nationality: in practice it was still coming into conflict with national regulations with which those providing services had to comply and which varied considerably from one country to another,
  • freedom in trade in goods was also restricted by anti-competitive practices imposed by the public authorities (exclusive production or service rights, state aids),
  • in fact, all these trade barriers pointed to a maintenance of frontiers, which were either physical (checks on persons and goods at internal customs posts), technical (a whole range of national rules) or tax-related (maintenance of indirect taxes at very varied rates, leading to slow and costly cross-border formalities).

- Failure to complete the common market had a considerable economic cost - "the cost of non-Europe"- which was the subject of a very detailed Commission study, the Cecchini report, presented in March 1988. The loss of revenue was estimated at a minimum of 4.25% and possibly as much as 6.5% of GDP.

- This stagnation in the achievement of the common market was largely attributed to the choice of detailed legislative harmonisation as the method of removing the obstacles of national technical regulations, when harmonisation was in fact extremely difficult to achieve as it required Council decisions, most of which had to be taken unanimously.

2. The launching of the internal market in the 1980s

a. The concept of the internal market

This was a return to the ambitions of 1958, and sought to add the common market components that were still outstanding. However, it went further by pushing this ambition to the limit: totally removing the frontier concept to create an area where human and material resources can move freely to ensure optimum use.

b. The internal market programme: the 1985 White Paper

- The idea of the internal market was supported immediately by the Member State governments: their support was affirmed in 1982 and regularly confirmed thereafter until the green light was given in Brussels in March 1985, when the European Council:

  • set the end of 1992 as the completion date, and
  • asked the Commission to prepare a programme and timetable for implementation.

- The Commission responded with its celebrated White Paper, approved in June 1985 by the European Council in Milan. This listed about 300 legislative measures to be taken, grouping them under three main objectives:

  • the elimination of physical frontiers, by abolishing checks on goods and persons at internal frontiers,
  • the elimination of technical frontiers: breaking down the barriers of national regulations on products and services, by harmonisation or mutual recognition,
  • elimination of tax frontiers: overcoming the obstacles created by differences in indirect taxes, by harmonisation or approximation of VAT rates and excise duty.

The timetable for adoption was spread out to the end of 1992. The new approach proposed was to get away from the systematic harmonisation of national rules, which would be reserved for essential requirements (such as security and health) and to settle for mutual recognition.

c. Inclusion of the internal market in the Treaty: the Single European Act

The Single European Act (which was signed in February 1986 and came into force on 1 July 1987) was a revision of the Treaty of Rome. It had two objectives:

  • incorporation of the specific concept of the internal market in the Treaty defining it as ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured’ and setting a precise deadline for its completion: 31 December 1992 [Article 18 (8a)];
  • giving the completed internal market effective decision-making machinery, by introducing qualified majority voting for most subjects concerned, instead of the unanimity that had hitherto been required, such as
    • amendment of the common customs tariff [Article 26(28)],
    • free provision of services [Article 49 (59), second paragraph],
    • free movement of capital (Article 70, repealed subsequently),
    • approximation of national legislation [Articles 94 and 95 (100 and 100a)].

3. Completion of the internal market

a. The situation in early 1993

- By the deadline, most of the 1992 target had been met. Over 90 % of the legislative projects listed in the 1985 White Paper had been adopted, largely by using the majority rule. They included:

  • full liberalisation of capital movements (* 3.2.4),
  • total abolition of checks on goods at internal frontiers (* 3.2.1),
  • abolition of routine checks on people at internal frontiers (* 2.3.0),
  • major progress in the practical aspects of introducing freedom of establishment and freedom to provide services, through harmonisation and mutual recognition of rules in vital industries such as banking and insurance, mutual recognition of diplomas for access to the regulated professions, and by opening up public markets.

- Though generally successful, there were some serious failures:

  • legislative omissions: the 10% or so measures not adopted included some very important ones, such as total abolition of controls on persons, the statute for the European company, full liberalisation of transport services, and tax harmonisation; in addition, some proposals not contained in the 1985 programme but added later as necessary for completion of the internal market, such as liberalisation of public service sectors, telecommunications, electricity, gas, postal services and the establishment of trans-European networks,
  • failures to transpose legislation: a significant part of the adopted directives that formed the backbone of legislation on the internal market were not transposed into national law, or were badly transposed,
  • failures in implementation (highlighted by the Sutherland report in October 1992, drawn up at the Commission's request): acts that had been properly transposed as scheduled were sometimes badly implemented by national administrations, either because some of their provisions were overlooked in administrative practice, or were differently interpreted from one country to another; moreover operators and consumers affected by these failures did not always have access to rapid and effective means of redress.

b. New efforts

After 1992 the Commission stepped up its efforts to secure full completion of the internal market.

- It regularly submitted reports reviewing the results obtained and launched action programmes to complete projects that were still pending. Apart from the annual reports on the state of progress and operation of the single market, it is worth mentioning:

  • the Communication of 2 December 1992 on operation of the Community single market after 1992,,
  • the Communication of 2 June 1993 on improving the effectiveness of the single market, which formed the basis of the strategic programme of 22 December 1993 on making the most of the single market,
  • the Communication of 30 October 1996 entitled The impact and effectiveness of the single market, which served as the basis for the Action plan for the single market of 4 June 1997.
    The latter set out to make good all the failings in completion of the internal market, whether in legislation or national transposition and implementation of the law, by the date for launching the single currency, 1 January 1999. To do so it proposes a series of 62 ‘actions’, to be carried out on a calendar with precise deadlines monitored every six months on a progress chart. This method proved to be effective and many of the objectives were achieved. The progress chart continues to be published twice a year, most recently in November 2000.
  • The most recent action plan to date, entitled 'The strategy for Europe's internal market', was launched on 24 November 1999 in the form of a communication to the European Parliament and the Council. This action plan combines medium and short-term perspectives, laying down strategic objectives to be achieved over the next five years (up to 2004) by means of 'targeted measures' to be taken over 18-month periods and reviewed annually.

- While providing this impetus the Commission also took repressive action by stepping up its powers under Article 226 (169) of the EC Treaty for prosecuting infringements by the Member States which were

  • delaying transposition of directives,
  • transposing them incorrectly, or
  • implementing them badly.

As a result, the number of ‘default notices’, the first stage of infringement proceedings, leading to a reasoned opinion and then referral to the Court of Justice, has consistently exceeded an annual figure of 200 since 1995 peaking to almost 400 in 1997 (276 for the period from March 1999 to March 2000).

c. Autumn 2000

- The European internal market, the world's largest in terms of the purchasing power of its 370 million consumers, has become a reality, strongly contributing to the prosperity and integration of the European economy: increasing intra-Community trade (by about 10% a year over ten years), increasing productivity and reducing costs (through the abolition of customs formalities, harmonisation or mutual recognition of technical rules, and lower prices as a result of competition): this has generated extra growth of between 1.1 and 1.5%, while bringing the income levels of different countries closer together.

- Particularly worth noting are:

  • substantial progress in completing the legislative programme: texts adopted have brought about the complete opening up of transport and telecommunications services, a significant opening up of other ‘public service’ sectors (electricity, gas and postal services), supervision of mergers and the protection of biotechnological inventions,
  • progress in the rate of transposition, measured by the percentage of directives transposed in all the Member States, which has risen in two years (1997-1998) from 65% to over 85% but has subsequently remained static.

- Some serious gaps remain:

  • essential legislative projects are still pending, such as the statute for the European company, full freedom of movement for persons, and tax harmonisation,
  • certain directives not yet transposed in all Member States include public contracts, transport and intellectual property,
  • the protection of business people from misapplication (or even infringement) of the rules still has room for improvement.

4. From internal market to home market

The requirements of European integration suggest that the internal market should eventually culminate in a fully integrated market on national lines: what might be termed the ‘European home market'. Its features would comprise:

  • a single currency;
  • a harmonised tax system;
  • integrated infrastructure;
  • complete freedom of movement for persons;
  • legal instruments to enable businesses to operate effectively throughout the market.

As the introduction of monetary union is now in sight, completion of the European home market would require:

  • the harmonisation of indirect taxation, especially the establishment of an integrated VAT system based on adjacent rates from one country to another and the principle of payment instead of origin;
  • completion of the trans-European transport, energy and telecommunications networks;
  • adoption of the statute for the European company.

This culmination of the internal market could be carried out during the phase introducing the single currency, by 2002.

ROLE OF THE EUROPEAN PARLIAMENT

Parliament was a driving force in the process that led to the launching of the internal market. Particular mention should be made of its resolution of 9 April 1984, which urged the Commission to present a programme to the Council without delay. It vigorously supported the programme when it appeared as a White Paper in 1985; since then it has regularly supported the Commission's efforts and reminded the Council of its responsibilities. In particular, it has backed the idea of transforming the internal market into a fully integrated home market by 2002 (resolution of 20 November 1997 on the action plan for the single market).

06/11/2000