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«July 2013 Review of the Balance of Competences between the United Kingdom and the European Union The Single Market © Crown copyright 2013 You may ...»

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Hitherto the approach had been to spell out the content of harmonisation in great detail in the legislation. This was slow, hard to agree, and often outdated by technical progress.

There was also no link to the wider process of setting standards for products. The new approach, now incorporated into Directive 98/34, was based more clearly on the mutual recognition2 of Member States’ standards where possible; on more transparency between Member States in standard-setting; and, where mutual recognition was not sufficient, on limiting legislative harmonisation to the health and safety area, with the private standardisation bodies setting out the technical standards. The advantage was that legislation could be less detailed and hence drafted more easily, and that technical progress could be incorporated through the standards process rather than redrafting legislation. The New Approach has been refreshed on several occasions and the principles are currently set out in Decision 768/2008/EC.

1.7 Attention between 1987 and 1992 focused on agreeing and implementing the legislation identified in the 1985 White Paper, and on maintaining political momentum. An important element was the so-called Cecchini Report from 1988, which attempted to quantify the benefits of the Single Market to the European economy. It claimed they would be in the region of 4¼% to 6½% of GDP.3 The Single Market programme also drove the separate push towards Economic and Monetary Union (EMU), with the intellectual underpinnings in the Commission’s paper One Market One Money of 1990.4 Deepening the Single Market 1.8 The “completion” of the Single Market was formally marked on 31 December 1992, by which time almost all of the original 279 measures had become law. In reality, of course, the Single Market was far from complete at this point. Integration was much deeper in the areas of goods and free movement of workers than in other areas. Services liberalisation was limited and rested almost entirely on jurisprudence rather than legislation. And some restrictions on capital movements between Member States remained in place.

1.9 The twenty years since 1992 have been years of progressive deepening of integration in respect of the Four Freedoms. Although there have been major adjustments to the original Treaty framework, the Single Market principles, as first conceived in 1958, have remained largely intact.

See Chapter 2 for further detail 2 Cecchini, P., M. Catinat & A. Jacquemin (1988), The European Challenge 1992: The benefits of a Single Market, 3 for the Commission of the European Communities European Economy, One Market, One Money – An evaluation of the potential benefits and costs of forming an 4

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Treaty changes 1.10 There were a number of major Treaty staging posts. The Maastricht Treaty (1993) added new EU competences in areas relevant to the Single Market such as consumer protection and trans-European networks; modified other areas such as the environment; gave Treaty standing to the 1988 legislation that largely abolished controls on capital and payments transfers between Member States; and created the concept of European citizenship, which would turn out to have major implications for freedom of movement within the EU.

The Amsterdam Treaty (1999) brought social and employment policy fully into the EU Treaty framework, ending the UK-specific opt out, and brought many of the Third Pillar free movement provisions into the normal EU framework, though with special opt-out arrangements for the UK. Energy became a specific EU competence only with the Lisbon Treaty (2009) though there had already been much legislation liberalising the energy market on the basis of general Single Market provisions.

New legislation 1.11 In parallel there has been a major effort to deepen integration within the existing framework. In 1996 the Commission carried out the first of many studies into the impact and effectiveness of the Single Market, the conclusions of which were developed into the first of many Internal Market Action Plans, first endorsed at the Amsterdam European Council in 1997. Much subsequent attention focused on services. The Financial Services Action Plan in 1999 set out a range of proposed legislation aiming to make it easier to market financial services across the EU; in 2005 legislation was agreed, consolidating the system for mutual recognition of a range of professional qualifications across the EU;

and in 2006 the Services Directive was agreed, consolidating jurisprudence and making it easier for unjustified barriers to services provision to be abolished.

The political context 1.12 Political impetus for continued economic reform, including deepening the Single Market, came from the 2000 Lisbon Agenda, which aimed to make the EU the “most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”.5 Similar single market principles underlie the current “Europe 2020” programme.

Enforcement 1.13 There has also been increased focus on the enforcement of legislation. In 2002 SOLVIT was established. This is a network between Member States that allows businesses and citizens to solve, without formal legal proceedings, problems caused by Member States not implementing, implementing incorrectly, or not enforcing EU legislation. Subsequently other networks have been established, such as the Points of Single Contact, which allows service providers to complete procedures online and in one place so they can deliver services in other Member States, and the Internal Market Information System, which allows Member States to share information quickly on services and recognition of qualifications.

European Council, Lisbon Agenda, March 2000 16 Review of the Balance of Competences between the United Kingdom and the European Union: The Single Market The Single Market as a package 1.14 Over this whole period there has been an increasing identification of the Single Market with the EU’s broader micro-economic policy-making effort – that is, an acceptance that the Single Market represents more than just the Four Freedoms. That was arguably inherent even in the original Treaty of Rome, but it has become more explicit since then, as the quotation from the Lisbon strategy above makes clear. For many Member States, the current Treaty represents a “bargain” in which every Member State has to accept some decisions they find unpalatable in order to gain in other areas. Given Member States’ different national traditions and their different “varieties of capitalism”, that is probably inevitable. Mario Monti, in his 2010 report, set out the issue most clearly, and

controversially for some:

The new comprehensive strategy... should be seen as a “package deal”, in which Member States with different cultural traditions, concerns and political preferences could each find elements of appeal important enough to justify some concessions, relative to their past positions.

In particular, Member States with a tradition as social market economies could be more prepared to [make] a new commitment on fully embracing competition and the single market, including a plan with deadlines on putting in place the single market in areas where it is still lacking, if Member States in the Anglo-Saxon tradition show readiness to address some social concerns through targeted measures...6 The current state of play 1.15 Twenty years of liberalisation have produced a deeply integrated, but not perfect, Single Market. The high hopes of 1992 have not been wholly delivered upon. Much liberalisation remains to be done and many barriers, formal and informal, still remain.

1.16 The EU is currently in the middle of another phase of deepening the Single Market, kicked off by the Monti Report in 2010, and with legislative proposals subsequently enshrined in two Single Market Acts in 2011 and 2012. This work in progress is wide-ranging, but particular areas of emphasis have been developing the legislative framework to create a genuine digital single market, improving consumer protection to enhance confidence in cross-border purchases, improving financing for small and medium-sized enterprises, and deepening and enforcing liberalisation in the major network industries such as transport and energy.

Other European States’ participation in the Single Market 1.17 The Single Market is created by and made up of the Member States of the European Union. Other European states have various relationships with it. Relevant arrangements for European Economic Area members (Norway, Iceland, Liechtenstein), for Switzerland, and for Turkey, are set out in Annex A. Gibraltar is part of the EU under the arrangements in Article 355 of the Treaty on the Functioning of the European Union (TFEU). It is accordingly part of the Single Market, but outside the EU Customs Union, is exempt from the Common Agricultural Policy and the requirement to impose VAT. The Crown Dependencies’ arrangements are discussed in the box below.

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The Crown Dependencies and the Single Market The Crown Dependencies (the Bailiwicks of Jersey and Guernsey and the Isle of Man) are not members of the EU Single Market. Under Protocol 3 of the UK’s Treaty of Accession to the European Union, the Islands are part of the Customs Union and cannot therefore impose restrictions on the free movement of goods. The other Single Market freedoms do not automatically apply.

However, in many areas the Islands have voluntarily adopted European legislation or implemented domestic legislation with the same effect, in order to facilitate the relationship between the Crown Dependencies and other EU Member States. For example, the Channel Islands airspace is sovereign but the Islands have voluntarily adopted EU airspace legislation to enable a Single European Sky. Some EU Directives allow third countries to be awarded equivalent treatment, for example on money laundering or audit requirements. Under such Third Country Treatment, the Islands agree a memorandum of understanding with the relevant EU agencies to oversee and validate implementation and enforcement of the directives by the Islands’ governments.

2.1 The Single Market as it now stands is highly complex. This chapter sets out a high-level sketch of the way it works. It is necessarily simplified, and should not therefore be relied upon as a precise statement of the legal position in all areas1.

Treaty provisions covering the Single Market 2.2 Article 3(3) of the Treaty on European Union (TEU) requires the EU to “establish an internal market”.

2.3 Article 26(1) of the Treaty on the Functioning of the European Union (TFEU) requires

the EU to:

“adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties”.

2.4 Article 26(2) of the TFEU then defines the Single Market as:

“an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties”.

2.5 The detailed provisions covering these Four Freedoms are then laid out in Articles 28 – 66 of the TFEU. They are summarised in the picture below. Some other relevant provisions are to be found elsewhere in the Treaty, notably Articles 110 -118 TFEU. The basic legal power allowing the EU to legislate in this area is found in Article 114 TFEU.

That said, this section is drawn from many of the legal writers in this area, notably Craig and De Burca (EU Law), Barnard (EU Law: the Four Freedoms) and evidence submitted by them and others, notably Dougan 20 Review of the Balance of Competences between the United Kingdom and the European Union: The Single Market

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How the system works 2.6 The EU Treaties provide for two kinds of activity aimed at building the Single Market.

2.7 First, the Treaty articles themselves, interpreted over the years by the CJEU, establish a basic legal framework covering both general principles of the EU’s action, for example, the principle of non-discrimination between Member States’ citizens and the specific application of the Four Freedoms, for example, the circumstances in which Member States must allow goods produced in another Member State to be sold on their own market.

This is usually known as negative integration because it is designed to prevent Member States from having in place unjustified or disproportionate barriers to the free movement of goods, persons, services and capital.

2.8 Second, the Treaty gives the EU the power to make laws to remove barriers to the Four Freedoms, or distortions of competition, created by diverging national laws. These laws can set minimum standards on which the Member States can improve; “approximate” or harmonise a particular area; or codify the Court’s existing jurisprudence into legislative form. They can be directly applicable (Regulations), which means they are automatically part of Member States’ national law, or alternatively they may require implementation into Member States’ national law (Directives). This process is known as positive integration.

2.9 The EU is given the powers to act in this area by means of a “shared competence” between the EU and the Member States (Article 4(2)(a) TFEU). Articles 114 and 115 TFEU give the EU a specific legislative power to legislate in the Single Market area, by qualified majority in one, by unanimity in the other. Article 118 gives a specific power to legislate in the specialised field of intellectual property.

2.10 In fields of shared competence, in principle powers can be exercised at EU level or by Member States nationally. The principle of subsidiarity guides the choice as to whether the aims of the measure can be better achieved at Member State or EU level. However, once the EU has acted, Member States can no longer act in ways which contradict that EU legislation.

Chapter 2: The current state of competence 21

2.11 The effect is that:

(i) Where there is EU legislation, Member States must act in accordance with it and enforce it;

(ii) Where there is no EU legislation, a Member State can exercise its own powers.

But when it does so, it must do so in a way which is compatible with the Treaty provisions and the CJEU’s jurisprudence.

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