The completeness of the European Single Market. What are the main barriers to the creation of free markets in term of goods, services, capital, and labour?
In an economy, a free market is a system that allows the businesses to determine the prices for goods and services by the open market and by consumers. There is no intervention of the government or other authorities in the laws and forces of supply and demand (Erixon & Georgieva, 2016).
In the free market economy, the forces of supply and demand contribute to the determination of prices for goods and services to reach the equilibrium without the intervention of the government policy. The key thesis statement of this essay is that the European single market cannot be said completely due to presence of barriers in creating free markets.
This essay assesses the completeness of the European single market and also discusses the main barriers to create free markets in relation to goods, services, capital, and labour.
In order to make Europe as the Single European market (SEM), the single European act was introduced through the revision to 1957 Treaty of Rome signed in 1986 and commenced on 1st July 1987.
SEM was established in 1992 with the purpose of promoting free trade among European Economic Community through harmonising laws and standards. A CET (common external tariff) was established by the customs union as this is a uniform tariff rate that is accepted by a common market like the European Community to imports from countries outside the union.
The key aim of the SEM was to eradicate the trade barriers between member states to ensure the competitive business environment and create opportunities for the businesses established in different European countries (Cuadrado-Roura&Parellada, 2013).
This market was also established with the purpose of overcoming economic stagnation and increase the economic growth of European countries and enabling the firms in the European counties to compete globally. It also helps to stimulate the integration of the European Union between EU countries.
Market integration through the SEM ensured the efficiencies for SEM firms due to the positive impact on the consumption in all the European countries. The SEM also ensures the market protection, operational efficiency and economies gained from restructuring (Damro, 2012).
The SEM has no barriers as there is no restriction on the cross-border movement of people, service, goods, and capital. For making the SEM complete, the customs union was established as mentioned before that also helped to remove obstacles to trade by setting a common set of standards. The SEM removes the barriers including technical, fiscal, physical and labour mobility.
However, the completion of the single market takes a long time so this market cannot be said completely till now. It is because there are several barriers to cross-border trade, including, separate currencies, corporate tax rates, and excise duties. So, there is a need to manage SEM through a bureaucracy (Pelkmans& Renda, 2011).
If the achievements of the SEM are assessed to determine its completeness, it can be stated that some EU rules on general consumer rights(unfair contract terms, misleading or aggressive advertising, information requirements, right of withdrawal in case of online shopping, etc.) and remedies are developed to solve issues related to faulty goods for the consumer protection across the EU (Ottow, 2012).
Apart from this, there was a need for a court system to solve the disputes on the trade concerns among the members of the SEM. So, the SEM also adopted European-wide redress mechanisms for the protection of the interests of the consumers by adopting consumer rules for online purchasing.
These mechanisms include both in-court and out-of-court procedures to ensure the proper addressing the issues and concerns related to consumer protection. The in-court mechanism includes an injunction for consumer protection and small claims processes while the out-of-court mechanism incorporates alternative dispute resolution even online also (Molle, 2017).
Moreover, the SEM also introduced joint enforcement mechanisms under the Consumer Protection Cooperation Regulation to comply with the consumer protection legislation.
In relation to the completion of the SEM, it can be discussed that now, there is no need of 80-100 million customs documents in the trading between the European countries. At the same time, more than 2000 harmonised European standards were adopted for permitting the organizations for doing business anywhere in Europe.
SEM is also competent in terms of providing a wider range of product available to consumers and enables the firms to do business anywhere in the EU. In addition, it was observed that there was a GDP growth of 1.85% from 1992 to 2009 and 2.75 million jobs were created during this period (Fingleton, 2013). In addition, during the period between 1999 and 2014, the number of businesses achieved the 200% growth due to benefits to intra-EU trade.
Some important aspects of the SEM, including, intellectual property, worker mobility, and open public procurement and Cross border service provision were also noticed showing the achievements of the SEM.
But based apart from these opportunities, there are several barriers including transposition deficits, the occurrence of infringement cases, and fragmentation of the EU’s financial markets, tax obstacles and no common rate of VAT, the disparity in competitiveness, Geo-blocking, etc.
All these barriers are faced by the EU members creating the challenges for the free markets in terms of the goods, services, capital and labour (Erixon & Georgieva, 2016).
There is a transposition deficit as the European laws are not written into national laws. Average transposition deficit has declined from 6.3% in 1997 to 0.9% in 2017.
At the same time, conformity deficit also presents in the SEM as there are some laws that are not correctly transposed. Along with this, completeness of the SEM can also be measured in terms of EU pilot as there is a need to have an online platform to clarify the law if the conformity is challenged.
But the absence of specific online platform reduces the completeness of the SEM in terms of clarifying the law regarding the conformity challenges (
Apart from this, it is not easy to implement European laws across the EU members.
If the integration and market openness is observed, then it can be depicted that some countries like UK, Iceland, Norway, etc. do not consider the trade in goods and services and foreign direct investment under the European law. Disparities are present between old EU15 and A10+ members (Jütte, 2017).
At the same time, the foreign direct investment is below average in some countries including Germany, Ireland, Austria, and Hungary showing the ineffectiveness of the SEM in terms of generating foreign direct investment in these EU members.
So, it can be stated that there is no completely foreign direct investment in all sectors of the members of SEM (Renda et al., 2015). It is because there are several sectors including energy, transport, postal services markets that are not fully opened up yet.
It means these sectors are protected by the government of different countries under SEM that shows there is the intervention of the government regarding goods, services, capital and labour in these sectors. In addition, public procurement is below average for the countries like Bulgaria and the Czech Republic, Spain, Finland, Cyprus, Italy, etc.
It shows that public procurement markets have not fully opened up. At the same time, professional qualifications are below average for Croatia and Luxemburg. Based on this transition deficit, it can be stated that there is difficulty for the SEM to achieve the economic and social goal of these countries showing the incompleteness of the SEM (Haverland et al., 2011).
Moreover, it is required for the businesses operating across the EU to consider 28 different national tax regulations, but it cannot be said efficient. There are differences in the VAT rates in the EU that also causes ineffectiveness of the free trade between these countries.
However, the SEM provides a VAT directive to set the framework for the VAT rates but there is freedom to the country for choosing the number or level of the rates they choose with focus on rules including the standard rate for all goods and services and reduced rates for goods and services listed in the VAT directive.
The standard VAT rate considered by the EU countries must be not less than 15% with no maximum limit. At the same time, the EU countries are allowed to apply one or two reduced rates that should not be less than 5%. So it can be stated that there is no uniformity in VAT rates across the EU members that shows the incompleteness of the SEM (Erixon & Georgieva, 2016).
Along with this, if the state aid is considered for the support of the EU countries to trade freely, then it is very low in the amount. It is because the state aid amounts to only 1% of EU GDP. In addition, another barrier for the incompleteness of the SEM is related to price variation because, in the EU, price variation in the EU is more than in the US.
There is no uniformity regarding the prices of goods and services of the EU countries so it can be said that there is no completeness of the SEM (Haverland et al., 2011). Apart from this, it can also be discussed that there is no genuine SEM for services; mobility, and qualifications.
In the labour perspective, there is the mismatch of skills between the workforces of EU countries showing the disparity in labour across the SEM showing the barriers in free trade between these countries.
Moreover, some countries of EU also face issues related to lacking SME participation as SEMs are not playing an important role in improving the national economy showing low concerns for the growth of SMEs in these countries. In the study of Baun& Marek (2014),
it is found that there are issues related to transportation, value chain and lack of awareness of the single market rights among the citizens causing lacking the EU competitiveness as compared to the USA. Moreover, there are also different regulations for shop opening hours and health and safety that reduce free trade in terms of the labour and trade of goods and services.
Some countries apply these regulations that make it mandatory for the other countries to ensure the high health and safety of the employees and restrict the opening of the shops for particular hours. Apart from this, all the countries have not joined the single European currency project. Some countries like the UK, France, Pound, Ukraine, etc.
have not adopted the Euro currency that shows disparity with other countries. The capital cannot be transacted between these countries and the EU countries with the Euro due to differences in the currency.
In the concern of internet i.e. a significant way of doing business, it is determined that there is no uniformity in the broadband speeds across different EU countries. It is because the countries, like, UK, Germany, Italy, Spain, France, etc. show the differences in broadband speeds affecting the free trade across these countries (Haverland et al., 2011).
Besides, geo-blocking is also a barrier to the creation of free markets in term of goods, services, capital, and labour. This is a discriminatory practice that prohibits online customers from accessing and buying products and services from a website based in another member state.
However, the EU Council adopted the geo-blocking regulation to remove this barrier in the internetmarket (Mărcuț, 2016). This was the important aspect of the digital single market strategy in SEM but it had not been regulated widely throughout the EU countries that also limited the efficiency of the SEM.
From the global competitive report 2018, it is analyzed that some EU countries like Germany, Switzerland, UK, Sweden, Denmark, Ireland, etc. are doing exceptionally well due to high competitiveness but at the same time, some of the countries Croatia, Serbia, Greece, Romania, Hungry, etc.
are not in good competitive position in doing business. This disparity in competitiveness shows the need for greater European cohesion due to incompleteness of the Single European market
From the above discussion, it can be depicted that the European single market cannot be said completely.
It is because there are several barriers including transposition deficits, the occurrence of infringement cases, price disparity, and fragmentation of the EU’s financial markets, tax obstacles and no common rate of VAT, the disparity in competitiveness, Geo-blocking, and differences in broadband speeds. All these barriers cause issues for the creation of free markets in terms of goods, services, capital, and labour in the Single European Market.
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