How successful has the Single European Market been so far?

This statement, by the Chancellor, reflects the views of the Labour government. The view is that there can never be a Single European Market in terms of what the founders are expecting to achieve. Although many of the policy provisions for the SEM may be in place, the extent to how successful these provisions have been implemented in terms of the results and outcomes predicted is merely European propaganda. Primarily, it should be noted that the completion of the internal market was predicted for 1992.

Although there are many policy areas that have been introduced effectively, many more remain outstanding, meaning the completion of the SEM could continue for many years to come and may in effect never meet completion. Moreover, it must also be emphasised that the economics implications of the Single European Market cannot be considered in isolation. However, this assignment will attempt to address the success of the SEM relative to this viewpoint. The completion of the single-market programme is intended to stimulate the European economy by enhancing both trade within the union and the European Community's trade with the rest of the world.

1986 saw the beginning of a transformation in European economic relations. The introduction of the Single European Market signified by the passing of the Single European Act initiated a new programme of European welfare with the main provisions of the SEA attempting to address policy areas such as the free movement of goods, services, labour and capital, the removal of non-tariff barriers and the achievement of harmonisation on technical standards and mutual recognition of qualifications.

The extent to which these provisions have been put into place depends mainly on two arguments: a) Whether they have been put into practical legislation, and; b) Whether the legislation is or is being properly implemented and observed. The nature of the internal market relies on the adoption of a huge number of legislative acts requiring common policies for the various sectors of economic activities. The realization of the internal market depends on successful implementation and observation of these legislative programmes.

'The completion of the internal market will become a reality when the EU has eliminated any physical, technical and fiscal barriers among its member nations' (El-Agraa, A, M, 2000, The European Union – Economics and Policies, 6th Edition, Prentice Hall) Highlighted by the Cockfield report, significant physical barriers to trade and to the movement of persons and capital existed; these frontier controls were estimated to be costing EU industry the equivalent of 12 billion ECU per annum.

The European commission published a white paper whereby they proposed to tackle these barriers by engaging in a strategy of convergence. The single market relies chiefly on competition and regulatory authorities to maintain a level playing field for the free movement of goods and services. The Schengen agreement on frontier controls guarantees the free movement of people within EU countries although certain restrictions on freedom of movement continue to exist.

The Single European market has brought about dramatic changes to the European Business environment regarding technical and regulatory barriers. The reduction of the barriers through mutual recognition thus allowing manufacturers to trade all over the EU eliminates expensive development costs. The effect of this has been very beneficial for intra community trade. Non-tariff barriers remain a problem area reducing efficiency, sustaining costs, stunting growth and curbing competition.

By removing these non-tariff barriers that existed between the member states and introducing market forces into sectors previously shielded from competition, the resulting effect would be to increase efficiency and lead to growth and welfare enhancement throughout the EU. Opening up the market would inevitably benefit from increased competition in product markets and reduced costs stimulating demand and investment therefore increasing output, as a result improving European trade performance both internally and externally and establishing the Community as a global economic player.

Fiscal harmonisation is required to ensure a single market. Trade distortions resulting from divergent indirect taxations levels where leading to loss of revenue. Therefore an attempt to counter these measures was introduced. Research suggests that contiguous states can maintain differentials in sales taxes of up tom 5% without the tax leakage becoming unbearable (El-Agraa, 1990). In an integrated economy the existence of differential indirect taxation levels may inevitably lead to market distortions.

Furthermore it is argued that these distortions can lead to misallocation of resources and therefore distort otherwise normal trading relationships. Regarding harmonisation of sales taxes, the European commission have proposed adopting a system were two VAT rate bands exist. From 1 January 1993 an agreement was reached between the member states whereby all standard VAT rates will be kept between 15-25%. The table below shows VAT rates in EU member states as of May 2000.