1 4th Conference of the GCC Institutes for Banking and Finance Abu Dhabi, 4-5 May 2004 Towards creating a truly Single Market - Experience of the European Union - Paula Pinho DG Trade European Commission

2 EU experience of moving from a Customs Union to the Internal Market Overview I - Basic concepts and some history II - From a Customs Union to a Single Market A. The Customs Union B. The Single Market: Why, how and what to expect? 1) creation 2) implementation: the role of a strong institution 3) enforcement: judicial & non-judicial means 4) efficiency 5) What has been achieved; What remains to be done 6) Work in progress: deepening & extending the Single Market

3 Basic concepts Definitions uCustoms Union = Removal of import/export tariffs + Removal of quantitative trade barriers + Common External Tariff uInternal Market = Customs Union + Four freedoms (free movement of goods, services, persons & capital) uEconomic and Monetary Union = Internal Market + Common currency

4 Some history... (1) 1957 The Treaty of Rome (Art. 2): The Community shall have as its task, by establishing a common market and progressively approximating the economic policies of Member States, to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living and closer relations between the States belonging to it.

5 Some history... (2) From the Customs Union to the Single Market Treaty of Rome – signed by 6 states 1968Customs Union: import/export tariffs and quantitative barriers removed; common external tariff established but… non- tariff barriers subsist early 80s … eurosclerosis 1985 White Paper on Internal Market 1986 Single European Act 1992 Deadline for the completion of the Single Market

6 Some history...(3) Single Market is just one step in the process of European integration Maastricht Treaty - Economic & Monetary Union (EMU) + framework for economic policy co- ordination 2002Completion of Monetary Union: Introduction of (Euro) - notes and coins introduced

From a Customs Union… Trade has been an area of EC exclusive responsibility since 1957 It all started with: Customs Union (Treaty of Rome 1957): no barriers to trade: elimination of all customs duties & restrictions among Member States Common External Tariff - income was integrated in Communitys own resources (Principle of Solidarity); - common procedures and rules were drawn; - Single Administrative Document (SAD) - replaced the different docs previously used.

8 From a Customs Union… From a Customs Union… (3) What to expect from a customs union... The basic trade effects of a Customs Union: uTrade creation uTrade diversion uTrade expansion Dynamic effects uScale economies uImpact on the location and volume of investment uEffect on economic efficiency and smoothness of trade transactions These effects are further strengthened in the Internal Market

9 … to a Single Market Why to build the Internal Market? A) Political reasons : -strategy to relaunch integration B) Economic reasons : -need to restore business confidence and -to improve performance of European enterprises

10 … to a Single Market (2) From economic to non-economic means … 1) open up borders to –goods –people –services 2) organise solidarity –by setting up common policies & financial instruments but by beginning of 80s, progress had been halted : eurosclerosis

11 How to achieve the Internal Market?(1) Meanwhile new EC consisted of 12 countries… For Internal Market to be achieved more than political will was necessary… The Single European Act (1986) Introduced more effective decision making procedures Set the deadline for completion of the Internal Market: 31 December 1992

12 How to achieve the Internal Market?(2) The 1992 Strategy The White Paper 282 Measures to abolish barriers between the Member States Physical barriers Technical barriers Fiscal barriers

13 Internal Market: Four freedoms Free movement of goods (physical barriers, technical barriers, public procurement, networks) uFree movement of services (technical barriers, public procurement, networks, financial services) uFree movement of capital (financial services) uFree movement of persons (work, retirement, studying …) Plus… uCitizenship

14 Internal Market: Four freedoms FREE MOVEMENT OF GOODS Abolishing physical frontiers: u all routine checks at internal borders abolished; u all customs formalities abolished; u Customs services of Member States give up their responsibility for collecting excise duties, VAT & statistical data

15 Internal Market: Four freedoms FREE MOVEMENT OF GOODS (2) Tackling technical barriers 1) Technical harmonisation 2) Mutual recognition 3) Protection of intellectual and industrial property Free movement of goods extended to: free movement of persons, capital and services

16 Internal Market: Four freedoms FREE MOVEMENT OF SERVICES - Network industries (liberalisation of energy, transport, telecommunications, postal services sectors) -Business and professional services - Financial services (banking, insurance, stock exchanges and other financial services)

17 Internal Market: Four freedoms FREE MOVEMENT OF PERSONS Right of EU citizens to: u move/travel freely - elimination of controls on persons crossing internal frontiers u live u work u study Freedom of establishment (self-employed) - Common labour market; - mutual recognition of diplomas but… mobility still very low … need for structural reforms; - Provisions in the field of social security, unemployment and social allowances, portability of pensions, health insurance etc.

18 Internal Market: Four freedoms FREE MOVEMENT OF CAPITAL Payments are the oil in the wheels of the Internal Market! All restrictions on movement of capital to be abolished; All restrictions on payments to be abolished Directive provided for liberalisation of capital movements within the EU as of provisions in the areas of banking, insurance and stock exchanges framework for establishment of liberalised single EU financial market

19 Implementation Legal framework of the Internal Market 1) Rules set out in the Treaty 2)Secondary legislation 3)European Commission as guardian of the Treaty 4)Rulings of the European Court of Justice

20 Implementation and results: Non-transposition of Internal Market Regulations

21 Enforcement: The role of a strong institution European Commission as the « guardian of the Treaties » Rules set out in the Treaty & Secondary legislation - European Commission makes sure that these rules are obeyed. - It can impose penalties on any firm or EU country that breaks them. - It can ban an operation agreed between companies outside the EU if that operation could affect the Single Market.

22 Enforcement (2) Infringement proceedings & « alternative problem solving » Infringement proceedings -the classical tool to ensure respect for EC law ; -number of infringement proceedings has increased considerably over last decade; with enlargement nr of infringements set out to rise further. Alternative solving mechanisms -alternative to infringement proceedings

23 Implementation and results: Means & instruments Helping citizens & businesses getting the most out of the Internal Market : Dialogue with Business Dialogue with Citizens SOLVIT – assists citizens & businesses in solving concrete problems within public administration of a MS where they have tried to exercise their rights FIN-NET – provides alternative dipsutes resolution facilities in the area of financial services At Governmental level : IMAC (Internal Market Advisory Committee) « Package meetings » Cardiff Report

24 Implementation and results: Multiple gains from the Internal Market Businesses: More friendly regulatory environment (simplification, mutual recognition, …) New export markets Lower costs For citizens/consumers: Greater choice Lower prices Greater mobility Consumer protection Economic benefits: More integrated market (increases in trade, FDI and price convergence) Increase in competitiveness of companies (intra and extra EU) Gains in wealth (GDP, employment)

25 Implementation and results: What has been achieved From : ca. 2.5 million jobs have been created; GDP 1.8% higher than without Internal Market; extra prosperity of 877 billion ( 5,700 per household on average); intra-EU trade & cross-border investment: grown faster than EU GDP EU exports increased from 415 billion (1992) to 985 billion in 2001 EU investment abroad increased exponentially from 18 billion to 206 billion new inflows of FDI into EU: 4-times higher in 2001 than in 1992

26 Implementation and results: What has been achieved Achievements so far have been very satisfactory: obstacles hindering free movement of people have been removed (passport checks at EUs internal borders abolished, professional qualifications recognised); public contract markets have been opened up (tougher rules requiring transparent procedures & proper checks for public contracts); money markets & financial services markets liberalised; company laws have been harmonised, etc.

27 Implementation and results: What remains to be done Markets of services are not well integrated… Technical barriers continue to hinder cross-border purchases Tax obstacles – 15 (meanwhile 25) different systems of corporate taxation across Member States leads to important costs for companies and consumers.

28 Implementation and results: Work in progress Services are being liberalised: liberalisation of telecom - already cut prices considerably (end of 2001, long-distance telephone calls on average 11% cheaper than in 2000 and 45% cheaper than in 1998) creation of single market for gas & electricity. Postal services are being opened up to competition.

29 Deepening the Internal Market …

30 Implementation and results: Need to improve the functioning of the Internal Market The new Internal Market Strategy Priorities for ) Facilitating the free movement of goods 2) Integrating services markets 3) Ensuring high-quality network industries 4) Reducing the impact of tax obstacles 5) Expanding procurement opportunities 6) Improving conditions for business 7) Meeting demographic challenge 8) Simplifying the regulatory environment 9) Enforcing the rules 10) Providing more and better information

31 Need for further structural reforms: The targets and objectives of the Spring Councils Employment rate of 70% in 2010 Halving the number of early school leavers by 2010 Increase the transposition rate of Internal Market directives to 98.5% Opening up of energy markets for business in 2004 and for domestic users in 2007 Increase R&D spending to approach 3% of GDP by 2010 Reduction in greenhouse gas emissions

32 Expanding the Internal Market …

33 Expanding the Internal Market… EU Enlargement 1st May 2004 From EU-15 to EU-25 Internal Market grows from 380 mio consumers to 455 mio the biggest Single Market in the world !

34 The international dimension of the Single Market Completing the Internal Market is not an inward looking exercise … Internal Market principles are integrated in the trade agreements that EC negotiates with third countries, ex: –bilateral trade agreements (ex: EU-GCC FTA) –recently : Wider Europe

35 Conclusion… despite long & difficult way… EU Single Market = EU global strength

36 GCC Single Market = GCC global strength ? This is another – hopefully shorter ! – story…