"he Single Market
Michelle Egan
Chapter Contents
. Introduction 296
• Market integration in historical perspective 296
• Setting the scene for the Single Market 297
• The politics of neo-liberalism and ' 1992' 300
• Correcting the market: the politics of regulated capitalism 303
• The (modest) revival of the Single Market 304
• Globalization and its relationship to the Single Market 306
• Conclusion 307
Reader's Guide
This chapter charts the evolution of the Single Market project, from its original conception in the 1950s, beginning with the Treaty of Rome and ending with the Single Market Act I and II. It explores the role of the Court of Justice of the EU (CJEU) in promoting market access, the balance between different economic ideals, and regulatory strategies used to foster market integration. The chapter highlights the importance of the Single Market in seeking to promote competitiveness and growth as well as the diffusion of its regulations beyond its borders. It concludes by demonstrating how both traditional international relations theories of integration and newer approaches m comparative politics and international relations, can be used to shed light on the governance of the Single Market.
296   Michelle Egan
Introduction
Although the Single Market is a core element of the European integration process, it has been relatively neglected in recent years. Yet the Single Market has evolved considerably since its inception in the 1950s, delivering major changes in many policy domains in an effort to further liberalize trade, coordinate economic policies, and increase global competitiveness. It has also become increasingly salient for two reasons: in response to the eurozone's sovereign debt crisis, as evidenced by the Monti Report (2010) and Single Market Act I (2011) and II (2012), which aimed at deepening and widening the internal market and as a result of the negotiations on Brexit. In taking stock of what the European Union (BU) has accomplished in terms of internal trade liberalization, this chapter assesses the legal, political, and economic dynamics that have shaped Single Market integration. It focuses on the tensions within the Single Market, the promotion of Single Market rules externally, and the increased salience of the Single Market as a result of Brexit negotiations. This chapter reviews the state of the Single Market, from its historical origins to more recent efforts, recognizing its economic imperatives as well as its political rationale by highlighting different theoretical efforts to understand and explain the dynamics of market integration.
Market integration in historical perspective
In the space of one year, from the Messina Conference in June 1955 to the Venice Conference in May 1956, the idea of economic unification among six West European states had taken root. After months of lengthy discussion, what became known as the Spaak Report (after its principal author) generated the idea of a new kind of inter-state economic relationship as the basis for treaty negotiations (Ber-trand, 1956: 569). This report provided a blueprint for a Single Market in Western Europe, with three main elements:
• the establishment of normal standards of competition through the elimination of protective barriers;
• the curtailing of state intervention and monopolistic conditions; and
turn.
•   measures to prevent distortions of ™tnpvu;u,J including the possible harmonization of ^
legislation at the European level.
The economic intent of such proposals dove with the federalist agenda (Laurent, 1970). Yet ing the Single Market idea into a political reality hi been extremely contentious and protracted.
Based on the Spaak Report, the Treaty of ^ (1957) aimed for a common market by coordinate economic activities, ensuring stability and economy development, and raising living standards. \t tj,e core of the proposed European common market v,^ the creation of a customs union (see Box 20.1). This meant that member states would not only abolish all of their customs duties on mutual trade, but also apply a uniform tariff on trade with non-European Community (EC) countries. The other measures proposed to promote internal trade liberalization, including free movement of labour, services, and capital and a limited number of sectoral policies (agriculture transport, and competition), were to be regulatedand managed at the European level.
The transformation of the Community into a common market was to take place over a period of 12 to 15 years. It began with efforts to address traditional tariffs, starting with the elimination of customs duties and quantitative restrictions in 1958, and by introducing a common external tariff in 1968. Internal tariff reductions were also frequently extended to third countries to limit the discriminatory effects of the customs union, which was politically important in the formative period of the EC (Egan, 2001:41). Membership of the EC meant more than simply a customs
BOX 20.1 STAGES IN ECONOMIC INTEGRATION
Free trade area (FTA)   Reduces tariffs to zero between members
Customs union Reduces tariffs to zero between
members and establishes a common external tariff
Single market Establishes a free flow of factors
of production (labour and capital, as well as goods and services)
Economic union Involves an agreement to
harmonize economic policies
1
however. The Treaty established the 'four free-
uiu0"'   ke free movement of goods, services, capital,
^"^our^-as central features of the Single Market.
3 -er the requirements for each freedom varied
incr to the political circumstances at the time arC0t^ln» i *\ the Treaty was dratted.
The removal of trade barriers for goods focused on
■nnval of tariffs and quantitative restrictions, and the reiriuva
n the removal of non-tariff barriers. This meant then onL
aiitling quotas, subsidies, and voluntary export re-trajnrs and measures such as national product regulations and standards, public purchasing, and licensing ctices, which sometimes reflected legitimate public policy concerns, but were often a thinly disguised form of protectionism designed to suppress foreign ^petition (Egan, 2001: 42). For the free movement of capitaltne §oa' was freedom of investment to enable capital to go where it would be most productive. Yet vivid memories of currency speculation in the bterwar period meant that liberalization was subject to particular conditions or 'safeguard clauses', frequently used during recessions. With regard to free movement of services, it meant the freedom of establishment for industrial and commercial activity—that is, the right to set up in business anywhere in the Community, on a temporary or permanent basis. However, the Treaty provisions on services contained virtually no detail on what should be liberalized (Pelkmans, 1997). For labour, the provisions for free movement meant the abolition of restrictions on labour mobility. I National governments were receptive to early efforts to eliminate trade barriers and to create a customs union because they were able to use social policies to compensate for the increased competition stemming from market integration. Favourable starting conditions for the European trade liberalization effort were set against the backdrop of the mixed economy and welfare state, which were central components of the post-war settlement (Tsoukalis, 1997). Vet even with these national policies, it was still felt politically necessary to provide some sort of financial sid at the European level to ease the effects of competition through basic investment in underdeveloped regions, the suppression of large-scale unemployment, the coordination of economic policies (see Ber-[tand, 1956; Spaak, 1956). Despite economic growth >nd increased trade among the member states, the Prevalence of domestic barriers to trade reflected the ens'ons between import and export oriented industries as proponents of protectionism wanted to shelter
The Single Market 297
industries while opponents wanted greater market access and internal liberalization.
Yet the diversity of capitalist institutions in Europe, in terms of how member states regulate production, investment, industrial relations, and exchange, that constitutes different varieties of capitalism can play out differently in terms of advocates and opponents of greater market integration (Hall and Soskice, 2001: 15). Thus, efforts to create a Single Market in Europe need to address disparate interests and market ideologies, and the process of market integration has often been deeply contested due to different perceptions about the adjustment costs upon political-economic institutions. This dash between economic ideologies began in the earliest years of the European Community around the implied commitment to the free market economy, stressing the virtues of competition and greater efficiencies through specialization and economies of scale, was balanced by dirigisme and intervention by state agencies and nationalized monopolies, resulting in a tension between 'regulated capitalism' and 'neo-liberalism' (Hooghe and Marks, 1997; see Box 20.2). However, the continuing resilience of neo-liberal ideas permeates every dimension of the Single Market as member states face continued pressure to reform their labour and product market institutions to better deal with rapid technological change, integrated supply chains and increased global competition.
KEY POINTS
The ooiective of creating a single European market can be traced to the 1956 Spaak Report and the l957Treat/ of Rome.
The Treaty of Rome sought to estaolish a customs union in Europe
The Treaty also sought to dismantle trade barriers among the six original members of the European Economic Community (EEC)
Distinctive forms of capitalism persist given strong institutionally embedded practices and norms
Setting the scene for the Single Market
Two important changes took place that helped to set the scene for the creation of a Single Market. The first was the emergence of mutual recognition as a key
298   Michelle Egar.
BOX 20.2 CHARACTERISTICS OF CAPITALISM
Neo-liberalism
Market liber filizatiofi—removes restrictions to trade and market access; provides a regulatory climate attractive to business and investment
Regulatory competition among member states- leads to competition among different national "egulatory policies and pressure for domestic structural reform.
Rejection of gpeatef regulatory power for institutions at EU
level; insulation of the market from political interference: retention of political authority al the national level
Regulated capitalism
Market intervention- ■government inter mention m market
Social market economy and social solidarity—emphasis on 1
welfare stale and dtsti ibntive politics
Increased capaciK to reguldic -u Ej'npenn i<vel, mobilization of 1 particular scan jfrnips. '-etorm institution- in generate greater use of qualified majority voting (QMV) enhancement of legislative legitimacy and social inclusion.
Source, adapted from Hooghc and Marks (1997). 1
1
principle; the second, the increasingjudicial activism of the Court of Justice of the EU (CJEU).
From harmonization to mutual recognition
In order to tackle domestic regulations that thwarted the creation of a common market, the European Community promoted a policy of harmonization (or standardization) that was to provide a lightning rod for public opposition over efforts to regulate what many felt were long-standing national customs, traditions, and practices (Dashwood, 1983; see Box 20.3). The years of fruitless arguments over noise limits on lawnmowers, the composition of bread and beer, or tractor rear-view mirrors were amplified by a unanimity requirement which allowed individual governments to veto specific legislative proposals.
This changed when the principle of mutual recognition was introduced. This new mode of governance simplified the rules for Single Market access. Mutual recognition allows member states to recognize regulations as equivalent (Schmidt, 2007). Member states do not unconditionally accept such mutual equivalence of rules, and as such they reserve the right to enforce their own regulations on the basis of 'general interest' considerations. Mutual recognition and harmonization reduce the barriers created by national regulations, but at the same time provide a necessary level playing field. Without this, the absence of regulations for product and process standards might lead to a 'race to the bottom' in social and environment standards, as states seek to reduce their domestic measures to attract foreign direct investment and gain significant
competitive advantage through social dumping where suppression of worker's rights and decreased
labour costs creates unfair competition.
The free trade umpire: the Court of Justice of the EU and judicial activism
The problems associated with addressing trade restrictions through harmonization did not go unnoticed by the CJEU, which has often used its judicial power for the purposes of fostering an integrated economy (see Chapter 13). Indeed, a large measure of the credit for creating the Single Market belongs to the CJEU's judicial activism. Confronted by restrictions on their ability to operate across national borders, firms began to seek redress through the Community legal system. The Court was asked to determine whether the restrictions on imports imposed by member states were legitimate under the Treaty. Examples of member states' restrictions included Italy's prohibition on the sale of pasta not made with durum wheat, Germany's 'beer purity' regulations prohibiting the sale of any product as 'beer' that was not brewed with specific ingredients, and Belgian regulations that required margarine to be sold only in cube-shaped containers to prevent confusion with butter, which was sold in round-shaped containers. As many of its decisions illustrate, the Court had the task of reconciling the demands of market integration with the pursuit of legitimate regulatory objectives advanced by member states.
Several landmark cases limited the scope and applf cability of national legislation. One of the most important cases in this regard was Case 8/74 Proatreur
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0
BOX 20.3 THE SINGLE MARKET PROGRAMME
The 5<rigi< physical =•
Market programme involved the removal of three kinds of trade barrier, as follows
Rfors The removal of internal barriers and frontiers for goods and people
The simplification or border controls (including the creation of a single administrative document foi border entry)
Piirhnrcai barriers Coordinating product standards, testing, and certification (under the so-called new approach )
Liberalization uf public procurement
free movement of caprtal (by reducing capital exchange controls)
Free movement of services (covering financial services, such as banking and insurance, lo operate under | home country control)
Liberalization of the transport sector (rail. road, and air: rights of cabotage, the liber alization of markets and removal of monopolies, state subsidies, and quotas or market-sharing arrangements) Free movement of labour anc the mutual recognition of professional qualifications (including nondiscrimination m employment)
Europeanization of company law intellectual property, and company taxation (including the freedom of establishment for enterprises, a European Company Statute, and rules on trademarks, copyright, and legal protection)
Fiscal barr ers Harmonization of divergent tax regimes including sales tax
The agreement of standard r ates and spec al exemptions from sales tax Other indirect taxes aimed at reducrg .-estrictons on cross-border sales
fa Kci v. Dassonvilk [1974] ECR 837. Dassonville imported whisky into Belgium purchased from a French supplier. It was prosecuted by Belgian authorities for violating national customs rules that prohibited im portation from a third country without the correct documentation. Dassonville argued that the whisky had entered the trench market legally, that it must therefore be allowed to circulate freely, and that restrictions on imports within the EC were illegal. In a sweepingjudgment, the Court argued that 'all trading rules that hinder trade, whether directly or indirectly, actually or potentially, were inadmissible'.
National measures that impact trade negatively were therefore proliibited (Stone Sweet and Caporaso, 1998: 118). This was softened by the recognition that reasonable regulations made by member states for legitimate public interests like health, safety, and environment policies were acceptable if there were no European rules in place. The judgment was predicated on the belief that the European Commission should adopt harmonized standards to allow free movement across markets, while at the same time giving the CJEU the opportunity to monitor member states' behaviour and scrutinize permissible exceptions.
In what is probably its best-known case, Case 120/ 78 Rewe-Zentral AG v. Bmidesmonopolverwaltungfiir Branntwein (Cassis ie Dijon) [1978] ECR 649, the Court ruled on a German ban on the sale of a French blackcurrant liqueur because it did not conform to German standards regarding alcoholic content (see Egan, 2001: 95 and Chapter 13). The Court rejected German arguments that Cassis, with its lower alcoholic content, posed health risks, but noted that the protection of the consumer could occur by labelling alcohol content. Most importantly, it clearly defined what national measures were deemed permissible. The most-cited part of the ruling suggested 'there was no valid reason why products produced and marketed in one member state could not be introduced into another member state'.
The notion of equivalence of national regulations, which this ruling introduced, opened up the possibility that harmonization would not always be necessary for the construction of a Single Market. This was the crucial step in launching a new regulatory strategy, mutual recognition, which would make for an easier circulation of trade and commerce in the Community. Mutual recognition implies that it is only in areas that
300   Michelle Egan
The Single Market   30 I
are not mutually equivalent that member states can invoke national restrictions, practices, and traditions, and restrict free trade in the Community.
In fact, the Court argued that derogations from (exceptions to) the free trade rule for the purposes of public health, fair competition, and consumer protection were possible, but that they had to be based upon reasonable grounds. Governments, whether national, local, or sub-national, had to demonstrate that any measure restricting trade was not simply disguised protectionism. Anxious to safeguard the Community-wide market, the Court has continued to determine on a case-by-case basis whether specific laws are valid under the Treaty. However, faced with a growing number of cases, the Court, in Joined Cases C-267/91 and 2-268/91 Keck and Mithouard [1993] HCR 1-6097, reduced the scope of judicial scrutiny in cases that applied to all traders operating in specific national territory, under certain conditions. Thus the Court would not examine issues such as Sunday trading, mandatory closing hours, or other issues that had a limited effect on cross-border trade and which reflected national moral, social, and cultural norms.
Despite lagging behind other areas, case law relating to free movement of services and rights of establishment is now at the centre of recent legal developments because the 'country of origin' principle is the starting point in assessing restrictions to free movement. In the seminal Case C-438/05 International Transport Workers' Federation and anor v. Viking LineABP [2008] IRLR 143, Case C-341 /05 Laval [20071 ECR 1-11767, and Case C-346/06 Ruffcrt v. Land Nicd-ersachsen [2008] IRLR 467, the importance of freedom of establishment and services is prioritized over social and collective labour rights in economic integration. Judicial activism has thus allowed companies the right to choose the least restrictive regulatory environment to allow for more home-country control rules. Scharpf (2010) highlights the constitutional asymmetry that this creates, where these recent court cases and efforts to liberalize services challenge national socio-economic models, as a result of the predominance of market-based treaty obligations promoting economic freedoms and legal obligations to safeguard against protectionism.
The constitutive role of law is crucial in understanding the consolidation of markets. Market integration involves a substantive legal project that shapes public and private policies. The CJEU has placed state and local laws under its purview, and has determined the
economic relationship between public inter I
and the market, as well as the political reiat-ent'011
between the member states and the Union Eu^5'1''1
case law has opened up opportunities by rej^
much of the cost of innovation and entrer,',. ^
by shifting the focus towards creatine the ™ 1
i j ■ ■ context fo,
open markets and competition.
KEY POINTS
• The d/r/giste strategy of harmonization of rules to I integrate national markets in the 1960s and 1970s achieved limited results.
• Mutual recognition provided a new mechanism for regulatory coordination and the possibility of mutual equivalence of member state rules.
• Seminal rulings bv the Court or |ustice have played a key]
role in challenging non-tariff trade barriers. "  More recent cases. Vik/ng. Lavai, and Rijffen, have raised questions about the balance between economic freedoms and social and labour rights.
The politics of neo-liberalism and '1992'
Throughout the 1970s and early 1980s, member state efforts to maintain import restrictions and discriminatory trade practices had thwarted attempts to create a Single Market. By the mid-1980s, however, things began to change.
Market-making
Growing recognition of a competitiveness gap vis-a-vis the USA, Japan, and newly industrializing countries, led to strenuous efforts to maintain overall levels of market activity and provide conditions for viable markets (Pelkmans and Winters, 1988: 6). While past economic policies, notably neo-corporatist das compromises and consensual incomes policies, had successfully promoted growth, these national policies were unable to cope with changes in the international economy as trade deficits soared and stagflation increased.
Assessments were so bleak that, on the 25th anniversary of the Treaty of Rome, The Economist put» tombstone on its cover to proclaim the EC dead and buried. A growing consensus among business an
pol
IL jea(jers that a collective strategy was needed
,an e
scalating trade war' (Financial Times, 25
10 St°9S0' led the European Round Table, the heads ffl      es largest companies, to put forward numer-
0f Eur0''osa|s t0 improve European competitiveness, "h^trade associations flagged problems of indus-dards, border formalities, and export licences, ^ and Italy being the worst offenders. Industry ^ri"C a campaign of proactive lobbying, ambitious '"^sals and visible political engagement (Financial fine 20 March 2U01)- Responding to this ground-^11 the European Commission proposed addressing me most problematic barriers in the member states mantis Times, 23 September 1980; The Economist, 22 October 1983).
Governments, cognizant that their efforts to create national champions, protect labour markets, and maintain public spending were not stemming rising trade imbalances and deficits, sought new solutions. Efforts to contain import competition and stabilize industries had failed, shifting strategies from Keynes-ian demand management towards market liberalization. This did not mean a common consensus around neo-liberalism, because different conceptions of the agenda for European integration emerged.
While the British advocated a genuine common market in goods and services, and promoted a radically neo-libcral agenda, the French argued for the creation of a common industrial space wherein trade barriers could be reduced internally, provided that external trade protection would compensate for increased internal competition (Pearce and Sutton, 1983). Major steps taken at the 1984 European Council meeting inFontainebleau broke the impasse, as agreement on the long-running disputes over the UK's contribution to the Community Budget and the pending Iberian enlargement were reached. The Doogc Committee was also established to reform the institutional and decision-making structure of the Community.
Agreement at the 1985 Intergovernmental Conference (IGC) in Milan to 'study the institutional conditions under which the internal market could be achieved within a time limit' proved critical for marker integration. This built on several earlier developments, including the Spinelli Report, which focused on the need to link national regulations and institutional reform, and the parliamentary draft Treaty on European Union on institutional reform, which included increased parliamentary powers and gteater use of qualified majority voting (QMV) in the
Council. At the subsequent IGC, the proposed treaty reforms were assembled to become the Single European Act (SEA) (see also Chapter 2).
The SEA endorsed the Single Market and altered the decision-making rules for Single Market measures (with exceptions such as taxation and rights of workers) from unanimity to QMV. This linked institutional reforms to substantive goals and made it more difficult for recalcitrant member states to veto legislative action, as had been the case under harmonization. The SEA also strengthened the powers of the European Parliament with respect to Single Market measures by allowing for the rejection or amendment of proposals under the cooperation procedure.
The 1992 Programme: a blueprint for action
By early 1985, newly appointed Commission President Jacques Delors and Internal Market Commissioner Lord Cockfield, a British former Secretary of State for Industry, put together a package of proposals that aimed to complete the Single Market by 1992. The 300 proposals—subsequently modified and amended to become 283 proposals—became a Commission White Paper entided Completing the Internal Market. The final product became known as the '1992 Programme'.
The White Paper grouped remaining trade obstacles as physical, technical, and fiscal barriers. Lord Cockfield used this simple categorization to introduce legislative proposals across goods, services, capital, and labour markets to improve market access and prevent distortions to competition and restrictive business practices. The European Commission bolstered support by commissioning a series of economic evaluations on the 'costs of non-Europe' (the Cecchini Report, 1988), which has recently been revived in the European Parliament's 2014 report Mapping the Cost of Non-Europe. This concept, first pioneered in the 1980s, emphasized trade and welfare gains from removing trade barriers, as well as efficiency gains achieved through market enlargement, intensified competition, and industrial restructuring. The new report suggests the European economy could be boosted by some €800 bn—or 6% of current GDP, as the Single Market has yet to achieve its full potential which could be achieved by more effective application of existing legislation and a deepening of the Single Market.
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At the core of the Single Market project is mutual recognition, the consequence of which would be increased competition among intra-EU firms, as well as different national regulatory systems (see Sun and Pelkmans, 1995). Governments sponsoring regulations that restricted market access would be pressured since firms from other member states would not be required to abide by them, putting their local firms at a disadvantage. The European Commission sought to apply this innovative strategy to the service sector as well. The concept of 'home country control' was to allow banks, insurance companies, and dealers in securities to offer elsewhere in the Community the same services as those they offered at home. A single licence would operate, so that these sectors would be licensed, regulated, and supervised mostly by their home country.
Building on the legal decisions outlining the doctrine of mutual recognition as a broad free trade principle and with reference to standard-setting as a more flexible regulatory strategy, the Commission drafted a proposal on harmonization and standards in 1985 (Pelkmans, 1997). This 'new approach' reflected a critical effort to address trade barriers by sharing regulatory functions between the public and private sectors. Where possible, there was to be mutual recognition of regulations and standards, and Community-level regulation was to be restricted to essential health and safety requirements. European standards bodies, the European Committee for Standardization (CEN), the   European  Committee  for Electro-technical
Standardization (CENELEC), and the Furopean -r ecommunications Standards Institute (ET<;i\ necessary standards (Egan, 2001). Such private sect governance allowed states to coordinate without tW costs associated with harmonization, bv dels-,., regulatory authority to private institutions.
The White Paper gained widespread politic support by providing a target date for the cornple tion of the Single Market, emphasizing the merits of economic liberalism. It included measures across the four freedoms, such as the abolition of frontier and capital exchange controls, mutual recognition of goods and services, and rights of establishment for professional workers. While the White Paper focused mostly on market access or negative integration measures, such as removing technical trade barriers dismantling quotas, and removing licensing restrictions for cross-border banking and insurance services, they were complemented by market-correcting or positive integration measures, such as health and safety standards, rules tor trademarks and deposit insurance, and solvency ratios for banks and insurance (see Box 20.4).
Despite its 1992 deadline, the Single Market remained incomplete. The White Paper avoided a number of issues, such as the social dimension, politically sensitive sectors including textiles and clothing, and taxation of savings and investment income, despite these areas' evident distortions and restrictions. Completion of the Single Market meant tackling politically difficult dossiers and ensuring legislation
BOX 20.4   UPDATING THE SINGLE MARKET: THE DIGITAL ECONOMY
The rapid growth and diffusion of Internet and digital technologies are fast changing global trane The Digital Single Market represents the latest effort to provide rules for digital content, e-cotnmeice. and online services a* restrictions on watching movies online, mobile pnone roaming charges, and delivery fees for online purchases hamper cross-border activities. Data localization rules require information held by companies to oe held on servers in then home country which restricts data f'ows. undermining cross border e-trade in goods and services The Transformation of European economies means that traditional means of market integration Through the removal of trade barriers and sector harmonization appears oi iidatec in the context of changes in production technology and innovation, and the growth of tradable services Take, for
example the collaboi ativc economy which allows users '.o enjoy cheaper access to a wider variety of goods and services .vnenevei 'hey need them Whilc existing European regulations .
were devised for traditional busmess-to-busmess transactions, these new platforms impart a wide an d> o' Single Market issues
from consumer and labour pi otertion tc service and tax provisions. Tie lack ot a Single Market f ser v-ices has generated increased uncertainty and market fi agmentatior m the collaborate platforms, with outrght ban* or burdensome limits to market access m some member states Thus, Uber, the collaborative platform providing alternative urban transportation, has been banned m European cities such as Sofia, Lonaon. Barcelona 01 Budapest, but is available m Sheffield. Birmingham, and Madrid
]mplemerued in all member states; otherwise Burners' and producers' confidence in realizing f    o0rnK benefits would be undermined. Nation-f lh- jmp0Itant setLors lilce utilities (for example, gas 1   j postal services) were given special exemptions I. ^e single Market due Co social and economic ar-I mijTieJ115 that universal services' must be provided, Jilting in natural monopolies and limited competition. With rapid liberalization and technological changes, the traditional economic rationale for such tgiitt policies was being undermined. Pressure to [pentelecommunications, electricity, and gas markets resulted in the Commission forcing liberalization of ^ese basic services through its competition powers. The competition policy pursued by the Commission kas reinforced a liberalizing bias to the Single Market—because specific features of restrictive practices, monopolies, rules governing state aid to industry, and merger policy have played a substantial role in reducing market distortions.
[key points
I« Business supports the Single Market and continues
■ to oobv for measures tc improve European
■ competit veness.
m The While Paper on the Single Market created a package I  of measui es to iberalize trade that became the 1992 I Programme
■ The Single Market is a work in progiess . with continued
H efforts to deepen and widen the internal market m new
■ areas such a* the Digital Sing'e Market and mllaborative I   econoin> to promote growth, innovation, and
[ competitiveness.
Correcting the market: the politics of regulated capitalism
The emphasis on market integration through the '1992 Programme', and subsequently in the Monti Report, brought pressures for ancillary policies along social democratic lines (Scharpf, 1999). Fearful that excessive competition would increase social conflict, Proponents of regulated capitalism (see Box 20.2) recommended various inclusive mechanisms to gen-crate broad-based support for the Single Market. These included structural policy for poorer regions
The Single Market 303
to promote economic and social cohesion, consumer and environmental protection, and rural development. Fiscal transfers spread the burden of adjustment and assisted the adversely aliened countries.
Labour representatives also sought to address the impact of market integration by creating an ongoing social dialogue. These initiatives acknowledged that the domestic political pressures on national welfare states meant that they could no longer compensate for the effects of integration as they had done in the past (Scharpf, 1999). The goal of regulating markets, redistributing resources, and shaping partnership among public and private actors led advocates of regulated capitalism to propose provisions for transport and communications infrastructure, information networks, workforce skills, and research and development (Hooghe and Marks, 1997). The progressive expansion of activities at the European level brought into focus two long-standing opposing views about the economic role of governments.
Some have argued that the Single Market has progressively increased the level of statism or interven-tionism in Europe especially in the aftermath of the economic crisis (Messerlin, 2001; Schmidt, 2007). The economic consensus favourable to market forces and neo-libcralism under the 1980s Single Market programme has been offset by increased intervention or regulated capitalism in labour markets (minimum wage and working time), and new provisions for culture (broadcast quotas), industry (shipbuilding, textiles, and clothing), and technology (new energy-resources, biotechnology, and broadband networks) in the 1990s and loosening of state aid rules in the 2000s. Yet these forms of embedded liberalism have partly been overshadowed by a growing emphasis on competitiveness in the 1990s, in terms of increased market competition and discipline through the Lisbon Process, a collective strategy across different policies wherein the Single Market is central to deliver the goals of growth, jobs, innovation, and competition, and to drive European recovery and Europe 2020 strategy. Such market liberalization presents opportunities via mobilization and provides a new context wherein opposition can be expressed (Imig and Tarrow, 2001). The Monti Report sought to frame the Single Market as a mechanism to bolster the social market economy, to help address serious problems related to inequality, productivity, and growth (Monti, 2010).
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The Single Market
305
KEY POINTS
* Proponents of regelated capitalism advocate a number of policies to generate more wdespread support for the EU. including structural policies and social dialogue to support the dislocation from changing patterns of trade.
* The dis|imctuie between market integration at supranational level and social protection at national level has become increasingly contentious due to COftCertIS that The sooo-poliTical legitimacy of the Single Market project has been undermined by the adverse consequences of globalization.
"  Fears about the socio-political legitimacy of market outcomes -were echoed in the Monti Report which argued that the social dimensions of the market economy needed to be strengthened m order to strengthen public support
Schmidt, 2007). This involves out-of-court inf0r solutions to complaints by consumers and *
I BOX 20.5 BREXIT AND THE SINGLE MARKET
nesses regarding the incorrect application of
internal
The (modest) revival of the Single Market
As Europe faces the challenges of making the Single Market deliver, greater attention has been given to better governance and compliance, as well as to completing the Single Market to promote growth (Radaelli, 1998; European Council, 2012). The European institutions have promoted regulatory reform and more flexible modes of governance, in part motivated by business requests for an easing of regulatory burdens as a prerequisite for the achievement of a Europe-wide Single Market (European Commission, 1992a; Molitor, 1995; Mandelkern Group, 2001). Specific initiatives have included 'Simpler Legislation for a Single Market' (1996), the Action Plan for the Single Market (1997), a scoreboard to generate peer pressure to enhance regulatory compliance (European Report, 28 November 1997), and regulatory impact assessments. Yet there remain compliance problems with Single Market obligations in both new and old member states, generating a range of formal and informal mechanisms with which to address the situation (Falkner et ah, 2004). While the Commission has actively pursued infringement proceedings (under Article 226 of the Treaty), whereby it formally notifies member states of their legal obligations, it has also sought to address the slow pace of standardization, and misunderstandings with the application of mutual recognition in practice (Nicolai'dis and
market laws, notification of new national law standards to prevent new trade barriers, and the goods package, all aimed at better market surveij lance. Business surveys indicate that firms still f obstacles that prevent them from realizing the full benefits of the Single Market (Egan and Guimaraes 2011, 2017).
Recognizing that the Single Market constitutes a key driver for European economic growth. Mario Monti, a former Commissioner and Italian Prime Minister, was commissioned to write a report on how to improve the Single Market in a time of economic crisis. Facing concerns about 'internal market fatigue' and growing nationalist pressures (see Box 20.5), Monti advocated deepening and widening the Single Market, using social benefits to generate public support and renewed momentum, as well as adaptation to new technologies, business models, and market practices (Pelkmans, 2010). Seeking to generate a momentum, the timing of the Monti Report, entitled A New Strategy for the Single Market: At the Service of Europe's Economy and Society, coincided with the start of the eurozone crisis and was thus largely ignored. Yet the European Commission persisted, promoting 12 key areas that ultimately became the Single Market Act I (2011), which was subsequently complemented by the Single Market Act II (2012). Although efforts have been made to address those areas wherein economic benefits are still to be had, including the digital economy, patents, the coordination of tax policies, copyright, and electronic commerce, and implementing legislation in the contested area of services, the goal of delivering on this agenda was, from the outset, very ambitious given Europe's economic and political climate at that time. Despite decades of market integration, domestic consumption, investment patterns, and labour markets still reveal a distinctive 'home biasJ (Delgado, 2006). Pressure was further placed on the Single Market during the financial crisis, as cross-border financial markets disintegrated, and investment was repatriated, creating a credit crunch for some member states. This has led to greater attention on the benefits of a digital Single Market, fully integrated financial services, and more physically integrated energy markets to promote growth and efficiency gains in the aftermath of the economic slowdown and sovereign debt crisis in Europe. But
■ _.-,k arte' "he referendum result to narrowly leave the I  (Jon 2? Iljne     fl' 'Ti;"''<J?ts reacted as technology and , anC ji 5loi "<■■     ipped the jouncl Ml >iv;i pi. cue to mvf.tor
about the future economic relationship with the
L) ^hoi^h r™n> ":tU( k-      1 ec0ve' 'qncl exports to the EU ■T surged busmps- uncertaini » about the economic Ljtcome remans On 29 March 2017 the JK fo-rnallv notified ,  Eu 0j ,1-. "ipnro to leave One of the central issues is aether Bntau1 wou d k cept membership in the customs ■on or ^mgle Marke; generating heated debates in policy 'circies Discussion*. i:joui me future economic relationship initially centred or. three options: the UK could remain part of WjeEUs Single Market by pining Norway. Iceland, and ''{jechtensiein Through membership tn the European Economic rArea {Eta 1 'ne ^ "incJ     "-ould sign a free trade agreement 'togovern       future i'ade ar-c economic relations; or if no "areemt"*: c reached on trie terms of the withdrawal, the UK and EJ     'd 'nf1e '"cer ihe most-favoured nation terms ■available to aH WTO mer-oers Each option has its proponents anc detractors in terms of relative economic and political benefits Thus. EEA members ^re part of the European Single Market -v-iirh meari thev commit to Single Market rules, but they can »et then own externa: tariffs ana conduct their own trade negotiations with countries outside the EU Free trade agreements differ greatly in their depth, scope, and effects on trade. However, the much-touted EU-Canada FTA (CETA)
model does not promote regulatory alignment in ways similar to the Single Market anc does not guarantee market access for service providers Similarly multilateral trade liberalization has made progress on liberalization on goods but not services. Economic assessments have highlighted the largest impact will be on pharmaceuticals, automotive, engineering, financial, and chemical sectors. Since the British economy focuses heavily on services, which account for 80% of GDR the loss of ■passporting nghts' which allows financial firms based in one member state the right to provide services throughout the Single Market, reducing border barriers to trade m financial services has been of concern to the City as well as foreign domiciled financial companies who have used Britain as an export platform for accessing European markets. Cat manufacturers have voiced concerns about their loss of reciprocal arrangements for vehicle certification, risks of customs delays given that two million components arrive in car plants each day on 350 trucks as part of the integrated supply chains across Europe Coupled with the prospect of customs checks, rules o' origin requirements, and the imposition of levies or tariffs for nearly three million small businesses that are currently exempt, the withdrawal from the Single Market requires multiple new arrangements The starkest warning about the impact of Brexit has come from the Japanese government which has stated that there is 'no profitability in staying in the UK if market access is limited.
Europe's internal market is a double-edged sword: it fostered trade, investment, and prosperity, but encouraged cross-border migration, capital and investment flows, and competitive pressures which has generated conflict among member states, as the unintended consequences of market integration have triggered increased anxiety and backlash in the domestic politics of many member states. Permitting free movement of labour, for example, led to proposals about restricting immigration in Britain in the aftermath of Brexit, which is tied to long-standing concerns about cheap Central and East European labour. Though there have been proposals to contain wage dumping for temporary workers posted abroad, fears remain about Eastern European 'cheap' labour undercutting wage bargaining and employment rights. Yet de facto labour mobility remains low; albeit the East-West and South-North workforce mobility accelerated during *e financial crisis.
KEY POINTS
• There has been continued emphasis on improving compliance with Single Market regulations as well as with easing the overall business climate through regulatory reform
• There have also been ongoing efforts to revive the Single Market such as through the Monti Report and Single Market Act I and II. which provide a range
of initiatives to enhance general macroeconomic performance against a difficult climate of austerity and populist pressures.
• The salience of the Single Market has been enhanced by the Brexit referendum as the UK is faced with the indivisibility of the four freedoms, and future economic relationship with the EU, against the backdrop of highly integrated supply chains and trade relations
306   Michelle Egan
Globalization and its relationship to the Single Market
Some in Europe argue that European integration contributes to globalization because increased intra-Europeanflow of goods, services, capital, andpeople increases economic opportunities and market openness. Others argue that globalization threatens the European social model, and that the direct impact on national economies requires coordinated action to manage the tensions and challenges created by increased global competition (see Box 20.6). While much attention within Europe has been focused on the need to manage the consequences of industrial decline, to foster greater productivity, and to ease intra-European transaction costs, debates about managing economic liberalization have now been transferred to the global level. Yet the Single Market has also enabled the European Union to exercise its authority in multilateral trade negotiations, and use market access as a 'soft power' instrument to promote economic and political reform in Central and Eastern Europe and the Balkans through stabilization and association agreements (SAAs) to, in many cases, eventual EU membership (see Chapter 18).
As the largest trade bloc in the world, the ETJM
leading role to play in international trade tie? ■ 'USl
and liberalization, promoting a new o™.   . tl<>0s
&Mieratjoji «
FTAs, that are comprehensive in scope coverin and services, and promoting liberalization t^"^ rule making rather than exchange of tariff Con ^ (Baldwin, 2011). While many argue that across^1* range of sectors, the EU is increasingly shaping \^ markets through the transfer of its Single Market and standards, others point to limited export of rtm\ tory rules through new FTAs, focusing on regular equivalence with international not European standard (Damro, 2012; but see Young, 2015). In select cases the EU has sought to play a leading role by promot' key concepts of its internal market strategy in areas like competition policy, environmental management standards, and food safety. For example, the EU pushes its protection of specific food products in trade agree-ments, known as geographical indicators which protect certain regional products, with Canada, across Latin America, Australasia, and China. Yet European integration also takes place in a situation of global sourring of goods and services, increased readability of goods and services, and changing patterns of trade and investment where other regional arrangements are evolving,
The Single Market 307
BOX 20.6 THEORIZING THE SINGLE MARKET
There are different theoretical approaches from various disciplinary perspectives that ran explain the causes, content, and consequences of the Single Market (see Pelkmans et al., 2008).
Intergovernmentalists (see Chapter 5) claim that the institutional dynamics that underpin the Single Market proiect were the result of a convergence of policy preferences in the early 1980s between the UK. Germany, and France (Moravrsik. 1991) National interests and policies are expected to constrain integrations impulses, because state resources, power, and bargaining are the driving factors of economic integration Garrett (1992) furthers this, arguing that in important areas of legal activity, the Court was constrained by member states' governments and serves their interests (especially those of the most powerful member states) in rendering its judgments.
By comparison, neo-functionalists (see Chapter 4) stress the importance of supranational actors in shaping the Single Market. Sandholtz and Zysman (1989) point to the Commission as an innovative policy entrepreneur shaping the European agenda, supported by business interests seeking to reap the benefits of an enlarged market. Burley and Mattli (1993) argue that Court
rulings have resulted in interactions between national and European courts, creating a distinctive legal regime thai shapes rules and procedures governing markets. When political attempts to create a common market stalled, the Court advanced its supranational authority over national courts, expanding its jurisdictional authority in order to make 3 pivotal contribution to the promotion of tree ti ade ('see Shapiro. 1992; Egan. 2001: Scheutze, 2017). Cameron (1992) seeks to blenfl these different theoretical perspectives by ai gutng thai the 1992 Programme was the result of the complex interaction of different actors and institutions, simultaneously accelerating | economic integration and supranational institution-building, M while also representing intergovernmental bargaining among J states. By contrast van Apeldourn ' 1992j -n gues that market 1 outcomes are the result of struggles between contending transnational forces, and that economic integration reflects the economic interests of transnational capital strengthened by the deepening globalization processes and the rise of neo-'iberal 1 market ideology within European political economy. Conversely. Jabko (2006) focuses on the role of ideas in framing the Single
(continue
fwoX 20.6 THEORIZING THE SINGLE MARKET (continued)
I rojed drawing on constructivist premises (see Chapter ^hat the market ran be u< aiegically used as a political strategy
3 appeal
3 various constituencies at different times.
Ehgequently the Single Market process has been examined ^    the <ens oi rnmparai.ivt policy analysis. Empirical studies ^shown thai European policies are a patchwork of different styles, instruments, and institutional arrangements rt" .     ,996). Mapne (I 996) described such changes in guropear governance (see Chapter 7") as generating an increasing transfer of authority to the EU level to deal with Effcet failures and to ensure credible commitments to a Ljpean Cj,n£'e M'irket      argument is that the EU specializes iregulation bsseu on the notion that regulation is the central ttrument of EU level governance, since, with limited fiscal teources at its control, the EU has sought to expand its influence through the >upply of i egulations. the costs of which te bome bv rhe firms and sidles responsible for complying with thern Thus, the Single Market is an effort to reduce transaction "costs and to resolve problems of heterogeneity through collective action rnd coordination. Majone (1995) argues thai the European Union requires non-majoritanan institutions, such as independent banks, regi iiatory agencies, and courts, to foster such collective regi ilato' y outcomes, because they are better anted than ti admonai political interests, such as parties, legislatures, and interest groups, to achieve the independence and credibility necessary to govern the market
Other scholars have sought to demonstrate that the Single Market ma\ not be entirely benign in its consequences as embedding states m transnational markets and regulatory regimes
weakens state capacity to govern then national economies (Streeck. 1999 Scharpf, 1999. 2002). While political economists have illustrated how the European polity's activism has increased market competition in sectors hitherto shielded from the discipline of the market (Scharpf, 1999), there has been growing attention in comparative politics to the role of public opinion and party politics in intensifying conflict around European policies (Hooghe and Marks. 2009). Few sublets have generated more debate than the effects of economic integration and globalization on the policy autonomy of governments. Opponents argue that the increasing constraints on national policy choices, especially regarding immigration, increased economic competition and pr'essntes on the welfare states, have, m fact, contributed to the growing opposition among the populace towards further European integration. As Hooghe and Marks (2009) have argued, as important as economic imperatives are. market integration is also the product of politics—most notably, but not exclusively, tensions and conflicts about sovereignty, identity, and governance m a multilevel polity There is a strong relationship between economic and political developments, as the Single Market and its ancillary policies require political support and legitimacy, as well as institutional capabilities and effectiveness (Egan, 2015). While EU capacities have increased in fiscal, administrative and tax powers through coordination of national powers not displacement (Genschel and Jachtenf uchs, 2015), the politicization of core state powers generates conflict and bargaining over institutional power and authority, and has resufted m growing economic insecurity among domestic publics about the effects of a broader breakdown of economic barriers on national identity, culture, and values (see Chapter 15).
IKEY POINTS
I* Opinion is divided on whether globalization is a threat or an ■..Opportunrty for Europe
m The European Union- as a huge trading bloc—plays an
important role in the international economic system, as well W as being shaped by it
The EU uses its different trading relationships to promote its rules and standards, exporting its Single Market governance, through a myriad of different trading relationships. Once heralded as a model of economic integration, the Single Market is still attractive to neighbouring states, but other regional trade blocs are seeking different options.
Conclusion
"he Single Market is the foundation of European growth, the salience of the Single Market has been en-
wegration, yet it is incomplete or even non-existent hanced by the negotiations surrounding the UK's exit
im some areas, so it has fallen short of its potential, from the EU, and its insistence on withdrawal from
™d continued efforts to promote productivity and the Single Market and customs union. Nonetheless,
308   Michelle Egan
the Single Market remains a key component of the European project as the digital economy, collabora tive economy, or capital markets union reflect the contemporary efforts to addressing changes in the global economy In some areas, the Single Market has under-performed expectations, while in other areas it has promoted highly efficient cross-border supply chains. Although the Single Market is now well entrenched, its feasibility and effectiveness depend on two conditions. First, it requires well-defined legal and judicial mechanisms to guarantee enforcement and compliance in Single Market rules. Second, it also needs to generate political support and legitimacy for further
QUESTIONS
economic ship between
integration. In this respect, the »J__ en economic and social rights n', re-examined, since viable and sustainable inr is likely to be more successful if economic g ^ fairly distributed. Some view the extensive Ku case law as bolstering equity, economic devel r°'>eä" and social welfare, expanding social rights to"*"*" market rights (Caporaso and Tarrow, 2009) m!**
created
The Single Market 309
stress the primacy of neo-liberalism which ha; a populist implosion against the dominance of**^ market; as austerity based macro-economic pol^ have overshadowed the salience of the Single Mark.
for a wide variety of interests.
What policy instruments has the EU used to address intra-European trade barriers?
How successful has the EU been in fostering a Single Market free of restrictions to trade and commerce?
Whal were the driving forces behind "he 'relaunch' of the Single Market project in the 1980$ and 2000s?
How have theories and approaches explained the Single Market programme?
What role has the Court of Justice of the EU played in dealing with trade barriers?
What accounts for recent interest in the Single Market and how have effo-ts to restart tne Single Market fared! What are the possible consequences of a British exit ('Brexit') for the Single Market? Is global zation a threat or an opportunity for the EU?
GUIDE TO FURTHER READING
Anderson, G. (ed.) (2012) Internal Markets and Mulli-fcvel Governance: The Experience of rbe European Union, Australia, Canada, Switzerland, end the United States (Oxford: Oxford University Press) This book considers the concept of the Single Market in a comparative perspective.
Egan, M. (2015) Single Markets: Economic Integration in Europe & the UrJted States (Oxford: Oxford University Press) This book offers insights on the consolidation of the EU Single Market by comparing it to nineteenth-century American market integration.
Egan, M and Guimareas M.H. (2017) The Single Market: Trade Barriers and Trade Rem eäes'.journaiof Common Mattet
Studies 55/2: 29-4-3 I I Assesses the Single Market in terms of barriers to trade and effective implementation.
Parsons, C, (2010) 'Revisiting the Single European Act (and the common wisdom on globalization)', Comparative Political Studies, 43/6: 706-34 Retraces the origin of the SEA, its scope, and success in liberalizing the European market.
Weiss, F. and Kaupa, C. (2014) European Internal Market Law (Cambridge: Cambridge UHversty Press) This textbook
comprehensively covers the legal anü regulatory framework of the Single Market.
KS
WE BUN
http:/;ec.europa.eu/internaLmarket/strategy/docs/montLreport finalJ0_O5_20IO_en.pdf Online access to the Monti Report (2010).
hnp://eur-lex.euroPa.eu;iegal-content/ENn-XT/?uri=COM%3A20l5%3A550%3AFIN The Single Market Strategy (2015). which covers a range of new areas and restrictions in the Single Market.
hctp://eur-lCx.europa.eu/legal-content/EN,TXT/!qid= 1447773803386&uri=CELEX:52015DC0192  The Digital Single
Market (2015) and latest updates from Talinn Summit on Digital Single Market (2017). http://ec.curopa.eu/internal_market/smact/indcx en.htm   Online access to the Single Market Act I ana II. http://www.europarl.europa.eu/the<secrctar^^^
2014-july/strategic_thinking-2014-july-1 .html The European Parliament study on the tost of non-Europe' in certain policy fields. Mopping the Cost ofNan-Eumpe, 2014 I 9, European Added Value Unit, Brussels. 2014.