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  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 • Purpose and background • EU fundamentals, an introduction • Economic salience of the EU internal market • Constitutional & legal provisions • Major barriers in the internal market • Adressing the barrier’s process and means • 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 • Building blocks of today’s EU • Economic structure of Rome treaty • Central principles • EU Developments, stylized • Internal Market Diamond • Internal Market ties in Common Policies

  5. Building blocks of today’s 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 gov’t coop. among MS (Lisbon) cohesion + flanking policies + other common policies

  6. ECONOMIC AIMS MEANS KEY PRINCIPLES INSTITUTIONAL FRAMEWORK 1. harmonious development common institutions of economic activities * Community loyalty 2. continuous and balanced expansion supreme judicial review * non-discrimination as to 3. increase in stability nationality Commission: guardian of the Treaty * widening of powers, only 4. accelerated raising of the within the operation of the standard of living EU Budget common market decision-making rules COMMON MARKET APPROXIMATING ECONOMIC POLICIES common competition policy common trade policy Customs Union common transport policy common agricultural policy free movement of goods approximation of fiscal and free movement of persons other (weak) instruments economic regulation free movement of services free movement of capital right of establishment 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 propercompetition recognitionfunctioningpolicy 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 C B Industrial policy EU Research area B = important for IM, yet, has other powerful drivers, too = critical for IM A = critical for IM, but partly not at EU level A-B C = (currently) of minor important for IM

  12. Economic salience of EU’s 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