bout de papier, Vol. 7, No. 2 (1989), pp. 10–11
This text has been edited and adapted for bout de papier from a speech that Ambassador Molgat delivered to the Canadian Exporters Association and the Business Council on National Issues.
One of the most significant, if not the most significant, happenings in Europe since the end of the second world war will be the completion of the single market within the twelve member states of the European Community. By 1992, this process should result in the complete elimination of all internal barriers to the free circulation of goods, people, capital and services. It is intended to cover all sectors and be without exception.
What the elimination of internal barriers means for Europeans in that post 1992 period is, for example that: a doctor, engineer, architect, accountant or other professional in Italy is free to set up shop in Germany; if a businessman does not like what his bank offers, he is free to deal with a bank from another member state; once a product has standards approval in one member state, it can be marketed freely within the other eleven member states of the Community; open competition for Government procurement contracts will now be on an equal footing in every member state; and transport companies are free to operate on a Community-wide basis.
The rationale for the program is economic growth and competitiveness. After trying protectionism and finding it not very satisfactory, some member states and the Community, led in significant measure by the private sector, concluded that the only way Europe could once again compete on an equal footing with the United States and Japan, would be to achieve the economies of scale, both for manufacturing and research purposes, offered by a single market comprising the 320 million people of the twelve member states.
The process is not new, which is why it is called “Completing the Single Market” The 1957 Treaty of Rome, establishing the European Economic Community, in fact provided the legal basis for all of the measures contemplated in the current program. Progress was initially rapid in establishing a common customs tariff. Thereafter, however, economic recession slowed progress as did the accession of six new member states, all with differing priorities. In addition, by insisting on cn complete harmonization of standards at the Community level, the process soon bogged down.
A strong political shot in the arm was required and came from the heads of government who, in 1985, asked the Commission to come forward with a white paper on completing the internal market. This white paper was formally endorsed by heads of government in Milan in June of that year, and has been strongly endorsed at every meeting of European heads of government since.
The white paper set the agenda by listing some 300 measures that, in the wisdom of the Commission, needed to be implemented in order to remove all the remaining internal barriers to trade. Some of these have since been dropped or amalgamated with other measures, so that at last count there are 279 measures comprising the internal market package. These can be grouped into 3 categories: PHYSICAL BARRIERS (customs, immigration controls); TECHNICAL BARRIERS (standards, health and safety requirements, lack of mobility of labour and professions, restrictions on the cross-border provision of financial and other services and restrictions on capital movements); and FISCAL BARRIERS (different levels of taxation in member states).
Of the 279, 135, or about half, have been agreed upon, and the remaining measures, with the exception of about 25 still in the works, have been tabled by the Commission in the form of draft legislation (as of 13 February 1989).
To meet their target of 1992, they will need to agree on the remaining measures by the end of 1990 in order to allow at least two years for transposition into the laws of the member states. A new qualified majority voting procedure provided by the Single Act (December 1985) will speed things up, but the tough areas remain — fiscal harmonization, particularly the harmonization of VAT rates which impinges upon member states’ sovereignty in the area of taxation, and the removal of all intracommunity frontier controls. Whether either of these are crucial to the realization of the single market in its economic sense is a question that remains to be answered since Mrs. Thatcher has publicly opposed both. There are, however, indications that the single market could operate reasonably efficiently even if these measures were not fully realized
Although there has been a move away from “Euro this” and “Euro that” “, there must still be some Community-level standards, particularly where health and safety or environmental issues are at stake. What the Community has done in this area is to set out the “essential requirements” which, once met, guarantee free circulation throughout the 12 member states. Otherwise (i.e., where there are no health or safety concerns) the approach is mutual recognition of other member states’ standards.
Other white paper measures deal with opening up government procurement to all companies within the Community on an equal footing, industrial property protection, European-level patents and copyrights, and allowing both worker and professional mobility within the Community.
There are also a number of other measures that were not part of the “official” white paper program that are generally moving with the same agenda. Particularly noteworthy among these are proposals to enhance the Commission’s control over competition and merger policy.
A major study (the Cecchini Report) of the effects of 1992, providing all the white paper measures were implemented, predicts that there will be an incremental benefit to the economy of between some 170 and 270 billion ECUS (230 to 365 billion Canadian dollars), representing a 4.5 to 6.5% growth in GDP, 2 to 5 million new jobs and a significant drop in prices — all of this to occur over a 4-5 year period following the completion of the single market.
What does all this mean to Canada? It is probably too early to make accurate predictions, but much will depend on how we position ourselves for the future. The Community remains a vitally important trading and economic partner for Canada, ranking as our second largest market after the United States. What is also striking is that this market has been growing rapidly for us ever since the currency realignment of the 1985 Plaza Hotel Accord. From a low of 5.7% of Canada’s global exports in 1985, the community accounted for 7.6% of our exports in 1987 (16% and 17% growth in 1986 and 1987, respectively). In these years, imports from Europe have also continued to grow, although at a somewhat more modest pace.
If Europeans are successful in achieving their single market, and I have little doubt that they will be, European companies may well become more competitive than they have been. In the short and medium term, European companies will be focussing their capital and managerial expertise on consolidating their positions in the larger European single market. This will probably mean that they will have fewer resources to pursue business expansion in markets outside the Community. In the longer term, however, in addition to becoming more formidable and effective competitors, European companies may become more interesting to Canadian companies as partners or as a source of innovation and technology.
The single market should enable a Canadian company to. operate at a Community level after having met just one set of standards, filed one patent or trademark application, and having set up one central distribution location. Thus, Canadian companies should be able to achieve greater economies of scale at lower cost. Not to be forgotten, however, will be the ever present requirement of catering to the cultural particuliarities of each of the member state markets.
Canadian companies with a manufacturing and research presence in the Community will likely have access to Community-funded R&D projects and will be able to form the necessary links with European companies to break into markets such as those provided by public procurement, such as telecommunications.
Fears that the 1992 Single Market might lead to a “Fortress Europe” were fuelled by the reciprocity issue as raised in the new proposed banking directive. If this directive receives approval, a bank licenced in one member state will be able to operate Community-wide, regulated only by its home authorities. Third country banks would enjoy this enhanced access, however, only through reciprocal arrangements with their home governments. This caused immediate concern on the part of many third countries and gave rise to suspicions that the Single Market exercise was designed to exclude third countries from the market. The Community has since clarified, however, that foreign banks established in the Community before the banking directive comes into effect will be grandfathered — i.e., not subject to reciprocity — and that reciprocity, to the extent that it might be applied, will demand only national treatment in return.
Similar reciprocity clauses have appeared in proposed directives dealing with life insurance and investment services, and it can be expected that the Community will seek to negotiate reciprocity in the area of government procurement and standards certification, probably in the context of the GATT codes. How they choose to use this negotiating coinage will be indicative of how committed they are to an open multilateral trading environment.
I remain reasonably optimistic that the market will turn out to be what it is billed to be — a major liberalization that will benefit not only European companies but companies from third countries as well. My optimism is based on the fact that the Community depends too heavily on international trade (10% of its GDP vs 5% in the US) to risk a breakdown of the international trading system into closed regional trading blocs, and because there are checks and balances within the system. Those calling for protectionism in a particular sector are usually in the minority in the Community as a whole.
As we prepare for 1992, we must not lose sight of the fact that what is happening in Europe has not escaped the European community’s other trading partners. The EFTA countries (Norway, Sweden, Austria, Switzerland, Finland and Iceland), whose trading relationship with the Community is much like Canada’s with the United States, have a vital interest in maintaining their market access. Their response has been to work closely with the Community in defining industrial standards, in working out ways by which product liability can be dealt with, and by positioning themselves physically in the market. Thus Swedish companies, for example, have begun to invest more heavily within the Community at the expense of their earlier focus on third countries. Large American and Japanese firms are also positioning themselves with investments within the confines of the Community. Canadian firms have been less numerous, but are beginning now to position themselves as well.
The advantages of 1992 may well be felt mostly by those Canadian companies capable of servicing the larger market. While this will normally mean larger companies, smaller companies with niche products should also benefit by being able to access that niche more easily throughout the Community. Other companies, content to concentrate on a single member state market, may find fewer advantages in 1992.
Three major Canadian studies are currently underway that are designed to help Canadian businesses assess the implications of the single market. The first study, which should come out by March, will analyse the effects of the single market on the member-states of the European Community. It will be followed by a second study on the effects of the single market on our own trading interests and on our interests in investment and technology, and by a third on the response and reaction of other non-Community countries to the single market.
Once we as Canadians define our areas of interest, and know what questions to ask, there are mechanisms available to us under the 1976 CDA/EC Framework Agreement for Economic Cooperation or in the GATT, where we can pursue Canadian interests. Our success will clearly depend in no small measure on our being able to define our interests in a timely fashion.
Our ability to prepare, in either the defensive or offensive mode, for the single market depends very much on our understanding its elements and assessing their effects on our interests. One thing is certain, as we approach 1992, more of our attention in the foreign service will become focused on Europe.
Editor’s Note: Readers are referred to the book review of “La Grande illusion” in this issue for a further discussion of Europe in 1992.
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Originally published in bout de papier, Vol. 7, No. 2 (1989), pp. 10–11. Read the rest of this issue →
