Dr. jur. Tatjana Evas Tallinn Law School 2014 EU Internal Market HOL 6012 Session 1: Introduction to the economic theory and EU integration Dr. jur. Tatjana Evas Tallinn Law School 2014

Evas, EU Internal Market 2014 Session 1: Outline Introduction Organization of the course and study process ‘Blended learning’ method and ‘learning by doing’ approach Moodle platform and the course forum Theoretical underpinnings of the European integration History and Rationale of the Internal Market Evas, EU Internal Market 2014

Theoretical background (1) Theory of free trade: Theory of absolute advantage (Smith): a country should specialise in and export those products that it can produce more efficiently than the others. Theory of comparative advantage (Ricardo): a country should specialise in producing and exporting goods in which its comparative advantage (advantage of producing one good compared to another) is greater. Factor proportions hypothesis (Hecksher/ Ohlin): a country should specialise in producing goods that use its abundant factors of production more intensively. Evas, EU Internal Market, 2014

Theoretical background (2) Theory of free trade Economy as strong motivation for integration: Comparative advantage – in a free trade regime every country would specialise at something it is better at; This causes welfare growth in each country (consumer benefits, better employment and social guarantees) and leads to optimal resources allocation. All the above said would enhance competition and cooperation between the countries and, at the same time, would strengthen the named benefits. Incentive to wars within or between countries is reduced. Evas, EU Internal Market, 2014

Theoretical background (3) More specific for the EU (see Spaak Report of 1956 as well as Preambles of the Founding Treaties): Welfare benefits result from abolition of territorial barriers for economic activity (=> customs union). Economy of scale effects for production and distribution in a big area (=> Common European market). Theory of optimum currency area: abolition of the exchange rates (for a certain area) can optimise functioning of the market and the burden of monetary union lowers with the growing trade interdependence of its participants. Evas, EU Internal Market, 2014

Stages of economic integration Political union Monetary & economic union Common market Customs union Free trade area Preference system Ban on customs and quota Common external customs and trade policy Factor mobility and common market regulation Harmonisation of economic and financial policies Preferential market access Harmonisation of all policies Evas, EU Internal Market, 2014

Theoretical background (4) Models of integration: Non-discrimination on the grounds of nationality: foreign and domestic products/ services, persons and capital shall be treated in the same way Market access: Foreign perspective of domestic rules => Does the national rule prevents or hinders access to the market for foreigners? Regulatory comeptition: creation of the best rules by each jurisdiction in order to attract factors of production and goods/services Harmonisation: a top-down approach to create general rules for the integrating areas; necessary due to failures of the other models. Evas, EU Internal Market, 2014

Four economic freedoms Essential elements of the internal market (usually called “fundamental freedoms”): Internal market (Art. 26 (2) TFEU) = “an area without internal frontiers in which the free movements of goods, persons, services and capital”. From economical perspective: guarantee for the optimal allocation of resources within the European market. Fundamental freedoms refer only to restrictions of economic transactions. Fundamental economic freedoms are similar to, but not identical with fundamental rights: Similarity aspects: non-discrimination and prohibition of restrictions. Difference: application in cross-border circumstances. Evas, EU Internal Market, 2014

EU Internal Market and Competition Law Central to the functioning of the IM is the free movement of units of production on equal terms for all undertakings on the markets of the MS To ensure and maintain equal terms the common competition policy is essential EU has very strong competencies in the Competition policy area Competition law is essential for functioning of the IM because - it ensured the competitive behavior of undertakings - protects the interest of the consumer - promotes economic efficiency - prevents anti-competitive practices Competition Law cases make the largest proportion of the Court of Justice of the EU caseload. Evas, EU Internal Market, 2014

EU IM and Common Commercial Policy The core issues: customs tariffs, trade in goods and services, trade related aspects of IP, FDI, liberalisation measures and protectionist measures, export policy. Lisbon Treaty: extension of the scope to the formerly contested areas of trade in services, trade aspects of IP and FDI. ECJ, Opinion 1/75: the content of the European trade policy is the same as of the international trade policy of a nation state. Explicit competence (Art. 207 (1) TFEU): Changes in tariff rates, Conclusion of tariff and trade agreements, Achievement of uniformity in measures of liberalisation, Export policy, Measures to protect trade. Extension to three new fields: Conclusion of agreements in relation to trade in services, Commercial aspects of intellectual property, Foreign direct investment (FDI).