Since the treaties of Rome in 1957 which was the foundation for a
European Union changes in politics were always present. Main reason
for recent changes has been the Single European Act (SEA) which
introduces the first systematic revisions to the founding treaties. In
brief, the SEA was an attempt to realise the objectives of the Treaty of
Rome, the European Economic Community, or the single market. With
the enlargement of the Union to 12 member states it became more and
more clear that many physical and technical barriers remained to
prevent the free movement of goods, services and people. Even as
internal customs barriers had gone within Europe there was not a
single market. As a result in 1985 the 12 member states agreed to
implement a free market by 1992. The SEA was agreed upon was
signed in February 1986 and came into force on 01 July 1987.
The motivation for the SEA included:
a recognition of the need to overcome the 'Eurosclerosis' that had
characterised the EC economy compared with its global competitors
a wish to provide a stimulus to the European economy by means of the
liberation associated with the completion of the common market
a wish to bring the treaties in line with actual practice in the EC
A wish to relaunch supranational integration because of the realisation
that decisional weakness had impeded the collective interests.
The establishment of the SEA has up to now involved the passing of
more than 280 measures which have been transposed into domestic
law of the member states, however at very different rates. A few areas
remain still disputed. Areas still under discussion include direct
taxation, collection of VAT and the free movement of people over the
internal borders of the community. This is despite the attempt to solve
them by the Schengen Agreement. Also Social measures were a
source of dispute even if they are not direct part of the SEA, the
Commission, however is keen to press ahead on those and cater for
what is called the 'social dimension' of the single market.
Before looking further into the implementation of the SEA it might be
useful to define the four main issues of the Act.
Separate provisions of the Treaty govern the free movement of goods,
services, persons and capital. Some of those rules are self-sufficient
and impose an outright prohibition of certain regulations to free
movement. in other cases the rules allow for further legislation by the
Council.
Freedom of movement of goods:
Fundamental for a common market is the elimination of customs as
well as quantitative restrictions for im- and export of goods between
the member states. In the same way an internal taxation on goods in a
discriminatory manner is not to be used. While the prohibition on
customs duties on imports and exports is absolute, there are exeptions
to the prohibition on quantitative restrictions. The SEA provides that
the prohibition does not apply when it is justified on grounds of:
* public morality, public policy or public security - this means for
example, that literature which might be available in one member
country might be prohibited in others. This for example is the case in
the UK with a Video-release of the film 'The Exorcist' or so called
'pornographic magazines' which are freely available in every
newspaper stand in Italy but must be kept under cover and are only in
special shops in Germany.
* the protection of health and life of humans, animals and plants - this
means that animals which suffer or are suspected to suffer diseases
are not allowed to be transported cross the internal frontiers and need
to be destroyed. This includes African swine fewer in pigs, foot and
mouth disease and brucellosis in cattle but also rabies in domestic
animals. Also regulations on the import of seeds and plants as well as
parts thereof exist within the union.
* the protection of national treasures possessing artistic, historic or
archaeological value - this means that the transfer or artefacts should
be prevented to protect a national heritage.
* the protection of intellectual property rights - this means that the law on
copyright can still be different in different member states.
Those restrictions, however, if they are applied, will not be permitted if
they constitute in an arbitrary discrimination against imported goods or
a disguised restriction on imports and trade between member states.
Freedom of movement of Services:
In a similar way as restrictions on the free movement of goods are
prohibited by the SEA, there should be no restrictions on the free
movement of services. This means that every national or institution of
one of the member states can offer their service in any of the other
member states where they are not nationals. Certain restriction still
apply to the service of transportation and financial Services. Freedoms
of providing transport services are regulated by special rules relating
to a common transportation policy. A liberalisation of the free
movement of financial services is to be expected with a progressive
liberalisation of movements of capital.
More practical restrictions on the exercise of the right of freedom of
movement of service arise when member states insist on certain
mandatory requirements, such as professional qualifications. This
means for example that no national of a member state is allowed to
work and offer the service as a carpenter in Germany as long as he
has not been qualified as so called "Meister" or "Handwerksmeister", a
historic qualification which is protected by German law.
The council is to issue directives on the mutual recognition of
diplomas, certificates and other evidences of a formal professional
qualification. A number of such directives have already been adopted
and some others are included in the proposals of the white paper.
Freedom of movement of persons:
The treaty makes certain provisions relating to the free movements of
persons including the rights of nationals of one member state to move
from one state to another to exercise their vocation or profession or in
order to look for and obtain work. Depending on the status of the
national, if employed or self-employed, different rules apply.
Employed persons are entitled to a free movement within the Area of
the Community, a right which entails the abolition of any discrimination
based on nationality. This also entails the rights, subject to limitations
justified on grounds of policy, public security or public health:
to accept offers of employment actually made
to move freely within the territory of member states for this purpose
to stay in a member state for the purpose of employment in
accordance with provisions made in that state by law, regulation or
administrative action
to remain in the member state after having been employed in that state
Those rights, however, do not apply to employment in the public
service.
A community worker may not be treated differently from a national of
that state by reason of nationality. This applies in particular in
conditions of remuneration, dismissal, reinstatement and re-
employment. Every member state must grant every national of another
member state, on production of a valid identification or passport,
permission to enter the territory of the state for the course of
employment. The permit for residence must be valid for the full territory
and the permission must be valid for at least five years and be
automatically renewable.
Self employed persons are to be granted the same freedoms as
employed persons. As in the freedoms of movement of services the
right of establishment within the community is not to be restricted with
the exemption on grounds of public policy, public security or public
health. As with services, directives on the mutual recognition on formal
qualifications should make the exercise of the freedom of
establishment easier.
Freedom of movement of Capital
As of major importance for the proper functioning of the common
market is the free movement of capital. Member states have to abolish
all restrictions between themselves relating to the movement of
capitals belonging to nationals of the members states. The rules in the
Treaties related to the free movement of capital do have to take into
consideration other regulations in the Treaties regarding the balance
of payments and economic policies.
Looking at the above mentioned aspects and the way they are implied
within the European Union some problems are still unsolved.
The freedom of movements of goods is widely established. This can be
seen in rulings of the union towards restrictions applied in member
states. To highlight this two cases should be brought forward.
Soon after the UK joined the EU in 1973 a British product was under
threat. British chocolate was, as opposed to chocolate on the
continent, manufactured with cheaper vegetable fat than Cacao butter.
Eventually the UK, Ireland and Denmark were allowed to include up to
five percent of vegetable fat in their product as an exemption from a
1973 directive.
Another, more well know case, is the 'Cassis de Dijon'-Principle in
which the German REWE group was trying to import the French
blackcurrant liqueur 'cassis'. This liqueur had a lower alcohol content
than required by the German law. The European Court ruled that the
restriction was prohibited and the consumer protection could have
been achieved by a label indicating the alcohol content.
Similar to the free movement of goods the free movement of persons
with in the Union is established. Together with the Schengen-
agreement and the recognition and comparability of vocational training
qualifications as well as professional qualification a move from one
member state to another is made easier. There are still certain barriers
within the Union which relate to certain qualifications such as medical
professions but those are covered under directives issued by the
Union.
Main difficulties for the implication of the single market is the free
movement of capital.
The treaty provides that Member states should abolish between
themselves all restrictions on the movement of capital belonging to
persons resident in the European Community. The Problem of a not-
nonrestricted market was already manifested in the treaty of Rome
which set different regulations towards the flow of capital by creating
different lists of capital classifications and setting up different
directives for those.
With the introduction of a single European currency less than two
month away, no single European market for financial services exist.
The reason for this is a still strong regulation in different member
states. Relating to this the EUROPEAN (2-8 Nov. 1998, p.5) quotes:
(the regulations are) ..."nominally aimed at protecting consumers but
really aimed at shielding fat-cat providers of uncompetitive services."
The most extensive controls over the movement of capital could be
seen in France which limited its citizens to hold bank accounts abroad.
They also required permissions to open foreign currency accounts in
French banks and there were restrictions on the ability of French
banks to lend to non-residents. Another example is that, at times, there
were heavy restrictions on the amount British tourist were allowed to
take abroad
The energy needed to break down anti free market trade barrier for the
manufactured goods industry now need to be mobilised to do the same
for the financial services.
Cost for financial services in the member states are amazingly
different. Carrying out a private equity transaction in France will cost
about 17 times more than it would be in Ireland. Trade across the
internal frontier concerning life insurance is non existing, the non-life
sector is only marginal with less 5% of the total business in Belgium
and not even 1% in Germany.
Mario Monti, the European Commissioner for the internal market,
identified, as quoted in the EUROPEAN, three sorts of barriers and
promised to dismantle them all. Tax, administration and legal. The
EUROPEAN points out that he might be wrong on the aspect of taxes
but is certainly right on the others. According to the article Mr Monti
has long seen tax competition as bad, preferring to impose EU
minimum levels in the interest of harmony. But harmony could be
achieved more quickly if market forces were allowed to drive taxes on
financial services down rather than see them sustained at an EU-
tolerated minimum.
Directive 88/361 of the 24/06/1988 lays down the general rule that all
member states have to abolish all restrictions on movement of capital
between persons resident in the Community. Moreover all transactions
in respect of capital are to be made at the same rate of exchange as
those governing current payments which means, that two-tier
exchange-rate systems will be prohibited.
The development of the single European Currency as laid out by the
SEA which also made the EMS official would make the achievement of
the single European market for capital much easier. The ECU is
already used as a unit of account for private settlements both inside
and outside the Community as some larger European business groups
are using it as the unit of account for their European subsidiaries.
Currently the use of the ECU remains subject to certain restrictions,
once they are lifted and the ECU being a wholly separate currency,
issued and administered by the European bank, this presupposes a
common monetary policy.
Reference and Bibliography:
S.F. Goodmann, The European Union, Third Edition, 1996,
Houndsmills, Macmillan Press Ltd
F. Gondrand, Eurospeak - a users guide, trans. Peter Bowen, 1992,
London, Nicholas Brealey Publishing
M. Brealey, C. Quigley, Completing the internal Market of the
European Community, 1992 Handbook, 1989, London, Graham &
Trotmann Limited
M.J. Artis, N. Lee (ed.), The Economics of the European Union, Policy
and Analysis, Second edition, 1997, Oxford, Oxford University Press
