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2.3.1 Main Features of the Single European Market


Academic Research paper and Study of the Economy of Romania and Romanian Business

The main features of the Single Market are best known as »the four freedoms«, which are the free movement of goods, services, capital and persons. The rules concerning these four freedoms are supplemented by additional rules for a harmonization and improvement of the business environment and the protection of intellectual property rights (cf. EC 2007 b). The entire legal body of the EU (acquis communautaire) has to be adopted by every MS.

The Four Freedoms and Barriers to Trade

According to a white paper on the Single Market Program (SMP), published in 1985, all physical, fiscal and technical barriers to the four freedoms had to be removed. This meant in detail the removal of border controls, the standardization of industrial regulations and product specifications[1], the liberalization of financial markets, the opening of government procurement to cross-border competition, the harmonization of VAT and the elimination of other competition barriers within the Single Market (cf. ibid: 19). Some other non-tariff barriers to trade which were to be removed are mentioned in Brasche (2003: 45ff.): elimination of state controlled monopolies, protectionism and distortion of competition in favor of domestic pro­ducers through subsidies (a practice called »state aid« in the EU jargon), specific admission requirements for certain professions or fiscal barriers created by different taxation systems. An extensive overview regarding all obstacles to overcome in order to realize the four free­doms is to be found at Weindl & Woyke (1999).

Brasche reminds (2003: 46) that certain non-tariff barriers are more or less natural and thus are likely to persist. Among these he mentions language, culture, different preferences, spatial and cultural closeness, the costs of negotiations and contracts or of information procurement. He further points out (cf. ibid: 47) that an extended Single Market can also induce new problems: big enterprises have a clear advantage and could outperform small firms, which may have performed well on a national market before integration. Instead of increased competition a group of peaceful oligopolies could arise or even some new monopolies. Hence, special sa­feguards for competition were to be considered. They are addressed with regard to cartels, monopolies and state aid in the EU competition-policy (cf. Pelkmans 2001: 223ff.).

Benefits and Effects of the Single European Market

The creation of the Single Market meant an important altering of the business environment. A study on behalf of the EC (2007 e: 27f.) distinguishes several microeconomic effects, which were expected for the short-, medium- and long-run: first, in the short-run competition effects were expected to appear. Increased allocative efficiency was anticipated as the increased cross-border competition should yield a reallocation of resources, lower costs, reduced profit mar­gins and, hence, lower prices for consumers. In addition, the EMU should facilitate price transparency. Second, in the medium-run firm’s behavior was expected to alter. Reduced pro­duction costs and economies of scale should lead to increased product differentiation, con­centration on core business activities and lesser sectoral diversification on firm level. Third, in the long-run the changed firm behavior should alter the industrial structure of Europe. Indus­trial concentration was expected to decline, intra-industry-trade and inter-industrial spe­ciali­zation of regions and countries to increase. Moreover, competition was believed to sti­mulate innovations. This process should be supported by declining R&D costs per unit sold (due to the increased market size) and FDI-activities (in theory accounted as movement of capital). The latter were expected to facilitate technology transfers and diffusion. On the ma­croeco­nomic level these developments have been believed to aggregate in additional growth and employment (cf. ibid: 55f.).

The EU names ten benefits brought to citizens by the Single European Market: Increased prosperity, addi­tional jobs, wider choice of products and services, lower prices, huge potential markets, in­creased ease of doing business, less red tape, better value for taxpayers, more oppor­tunities to work, live and study abroad and finally easier travelling and shopping (cf. EC 2007 c).
Breuss (2002: 245, 247) systematizes the effects of integration in the context of Eastern European Union Enlargement (EEUE) and uses four categories of effects:

  1. Trade effects (following from the reduced costs of trade)
  2. Single Market effects (leading to efficiency gains and increased price competition)
  3. Factor movements (FDI-activities and migration)
  4. Costs of enlargement

Despite the original context this classification suggested by Breuss might serve for the gen­eral case when it comes to integration effects. The expected effects listed by Smeets (1996: 57) or Brasche (2003: 45ff. and 170ff.) fit into these categories as well.

Footnotes

[1] Harmonization of product specifications quickly turned out to be a thankless task. Attempts to establish a unitary safety directive for toys soon got stuck in details such as the flammability of Santa Claus’ beards and the proper labeling of beach balls. Several similar experiences (some regulations were negotiated over ten years) suggested a shift to the principle of mutual recognition according to the “Cassis de Dijon” judgment from 1979 (cf. Weindl & Woyke 1999: 118).