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The Antitrust Bulletin/Summer 1992

The single European market

in context

BY DENNIS SWANN*

I. Introduction

The program for creating a single European market by the end of

1992 was a product of the Single European Act which was signed
by the 12 members1 of the European Communities in 1986. The
Act, which formally came into operation in July 1987, was pri-
marily designed to modify the 1957 Rome Treaty that created the
European Economic Community (EEC). Some, such as the former
UK Prime Minister Margaret Thatcher, clearly hoped that the Sin-
gle Act would prove to be the ultimate destination of the Euro-
pean movement. However, those of a federalist persuasion, and
those who whilst not being federalists nevertheless desired yet
closer economic integration, viewed it as merely a staging post of
the road to a grander design. Events seem to be proving them cor-
rect since Maastricht Treaty on European Union, signed in Febru-
ary 1992, will significantly further advance the process of
European unification.
* Professor of Economics, Loughborough University of Technol-
ogy, England.
I West Germany, France, Italy, United Kingdom, Spain, Belgium,
The Netherlands, Greece, Denmark, Portugal, Ireland and Luxembourg.
0 1992 by Federal Legal Publications, Inc.
284 : The antitrustbulletin

The purpose of this article is to chart the origins of the Single

European Act, to set its 1992 single market program in context
and to identify some of the program's key features.

II. The Rome Treaty and the common market

Historically the European single market had its origins in the

Paris Treaty of 1951 that established the European Coal and Steel
Community (ECSC) among the original six-i.e., West Germany,
France, Italy, Belgium, The Netherlands and Luxembourg. The
ECSC was an economic answer to what was basically a political
question. The question was: Was the West German economy
going to be allowed to revive notably in the key sectors of steel
and coal? The answer was provided by the French in the form of
the visionary Schuman Plan. Restrictions on German economic
expansion would be taken off provided the products of the steel
and coal industries of Germany and the other five were locked
into a Coal and Steel Community. Under that arrangement there
would be free trade among the signatories and supplies of coal
and steel would be available to all the partners without discrimi-
nation. No state could arrogate these resources to itself-they
then being regarded as basic materials of a war effort. In the
words of Robert Schuman, war between France and Germany
would become "not merely unthinkable but materially impossi-
ble."
This rather limited exercise in economic integration was fol-
lowed by a grandiose plan to create a European army within the
context of a European Defense Community and this in turn
demanded an underpinning of political integration in the shape of
a European Political Community. Both these aspirations failed. 2
However such was the enthusiasm for the European cause that by
1955, thanks to a Benelux initiative, the idea of European integra-
tion was back on the agenda. It was recognized that the six had
tried to achieve too much. It would be more realistic if they
2 For an account of the history of the Community and a review of
its policies see D. SWANN, Ti EcoNomcs OF THE COMMON MARKEr (7th
ed. 1992).
 Single market : 285

extended the process of economic integration to all economic sec-

tors, anticipating that in due course a process of spill-over from
economic to political integration would also occur.
It was therefore decided to create the European Economic
Community.3 It began life on January 1, 1958 and envisaged a 12-
year transition period during which a common market, together
with other arrangements, would be created.
The common market required the institution of a common
external tariff around the six. Whilst the General Agreement on
Tariffs and Trade (GATT) rules rejected tariff discrimination, the
GATT agreement allowed for collective systems of protection
when the incidence of a common tariff was on the whole no
higher than the general incidence of the customs duties imposed
by the partners prior to the formation a common market. Since the
original common external tariff was based on an unweighted
arithmetical average of the previous national tariffs, the EEC
arrangement was able to satisfy the demands of the GATT.
Internally the common market arrangement envisaged the total
elimination of tariffs on goods traded between the partners. It also
called for the elimination of charges equivalent to tariffs. Thus
the Italian government had imposed a statistical levy on imports
and exports. This the Brussels Commission deemed to be a charge
that was equivalent to a tariff and as such was contrary to the
treaty (a decision subsequently upheld by the European Court of
Justice). The common market arrangement also required the
removal of quotas in interstate trade. Equally it demanded the
removal of measures having an equivalent effect to quotas. The
4
latter was well illustrated by the famous Cassis de Dijon case.
Here a German importer had sought to import Cassis de Dijon, a
French black currant liqueur. However, the relevant German law
banned the sale of liqueurs with less than 32% alcohol content

3 Simultaneously the six also created the European Atomic Energy

Community under a separate Rome Treaty. It however proved to be rela-
tively insignificant.
4 Case 120/78, Rewe-Zentrale AG v. Bundesmonopolverwaltung
fur Brantwein (1979) ECR 649.
286 : The antitrustbulletin

although in respect of liqueurs of the Cassis-type the minimum

was reduced to 25%. This was no help to an inspiring Cassis
importer since it had a content of 15% to 18%. The importer
appealed to a West German court that in turn referred the matter
to the European Court of Justice for a preliminary ruling. The
Court declared that the West German rule was indeed a measure
equivalent to a quota and as such was banned. In effect it gave
rise to a zero import quota. Parallel to this free movement of
goods the treaty also provided for the free movement of services.
In due course this latter provision was to be of great significance
in the 1992 context since it paved the way for a common market
in financial services (e.g., banking, insurance and security deal-
ing) and also had implications for highly regulated sectors such as
scheduled air passenger transport.
It was recognized that though tariffs and quotas, and charges
equivalent to tariffs and measures equivalent to quotas, might be
removed; and that though restrictions on the freedom to supply
services might be lifted, nevertheless free and undistorted trade in
goods and services would not inevitably arise. In other words,
various nontariff barriers could exist that would frustrate the inte-
gration process: the Rome Treaty therefore provided the Commu-
nity institutions with powers to:
(a) control and ban cartel practices and abuses by dominant firms that
restricted competition in interstate trade, divided markets, etc.;
(b) regulate and ban state aids that gave home producers unfair competi-
tive advantages;
(c) harmonize product standards, as otherwise goods and services pro-
duced in one state might not be saleable in another because of the
differences in national standards;
(d) ban discrimination in public purchasing that gave artificial advan-
tages to home produced goods;
(e) control practices of state trading monopolies (not to be confused
with nationalized industries) that prohibited or discriminated against
competing imports;
(0 harmonize the structure, base and rates of indirect taxes (including
turnover taxes and excise duties) in order to prevent competitive dis-
tortions and assist in the removal of frontier controls.
 Single market : 287

In order to complete the common market, the freedom to sup-

ply goods and services was to be accompanied by the free and
undistorted movement of factors of production. Labor, and the
professions, capital and enterprise (freedom of enterprise being
termed the right of establishment) should be able to locate any-
where within the common market. Finally the Rome Treaty placed
an absolute ban on discrimination based on nationality.
It cannot be emphasized too much that article 3(f) of the Rome
Treaty foreshadowed an integration process based on free compe-
tition-the unification of previously separate markets was to be
accomplished through the medium of competitive trade interpene-
tration and not by interventionist methods.
These were the central features of the common market or what
has more recently come to be termed the single market aspect of
the European Economic Community. The treaty also called for the
establishment of a Common Agricultural Policy (CAP) and a
Common Transport Policy. It also provided for a Common Com-
mercial Policy in respect of trading relationships with third-world
countries-the common external tariff was but one aspect of this
policy. The treaty also made special arrangements for the colonies
and ex-colonies of the six-without them they would have been
locked out of the common market by virtue of being subject to the
common external tariff. The treaty also enabled the Community to
conclude reciprocal trading agreements with other non-member
states-i.e., association agreements. Finally a series of decision-
making institutions were identified-some of them had begun life
under the preceding ECSC.
On the face of it the original six, and indeed the six countries
who joined the Community later,5 might appear to have tied them-
selves to a policy-making millstone. Economic and social policy
within the EEC is strictly based on the detailed provisions of the
founding treaty. What the European Communities Commission
proposes, and what the Council of Ministers decides, must accord
with it. Policies that go beyond or are at variance with the remit

5 The UK, Denmark and Ireland in 1973, Greece in 1981, and Spain
and Portugal in 1986.
288 : The antitrustbulletin

provided in the treaty can be challenged before the European

Court of Justice and failures to act are also subject to similar
oversight. It might therefore appear that the member states had
tied themselves to a treaty that was drafted in the mid-fifties,
which reflected the conditions then prevailing and was therefore
bound to be increasingly irrelevant in the changing circumstances
of the second half of the 20th century.
However this was not in practice the case since the Treaty is
remarkably flexible and that flexibility has been a significant fac-
tor in the creation of the single 1992 market to which we turn
later. The sources of flexibility are three in number.
In the first place under the provisions of article 235, if the
Community lacks the powers necessary to achieve an existing
Treaty objective, that article enables the Community to take the
additional necessary powers. Thus in the late eighties, against the
background of the 1992 single market commitment, it was recog-
nized that it was not possible to achieve the competitive objective
identified in Treaty article 3(f) unless an explicit merger control-
ling power was introduced. In 1989 such a power was therefore
conferred on the Commission 6 -article 235 had been invoked.
Secondly, article 236 of the Rome Treaty allows the Commu-
nity to identify new Treaty objectives. However for this to happen
an intergovernmental conference (IGC) has to be convened and
the results then provide the basis for amendments to the Treaty. It
was on the basis of this provision that an IGC was convened in
1985 in Milan which in turn gave rise to the Single European Act
of 1986 and its single 1992 market commitment.
Thirdly, the Court of Justice has played a key role notably in
precipitating the development of policy in respect of the single
market. It would be a great mistake to see the Court as merely a
passive agent-quite the contrary it has on several occasions
handed down judgments that removed obstacles to progress or
gave the Commission leverage when the latter sought to force the
Council of Ministers to act. As an example of the former we could
cite Cassis de Dijon and other cases where the Court indicated
6 Council Regulation 4064/89 of 30 December 1989.
 Single market : 289

that goods legally marketed in one member state should be freely

admitted to the markets of other member states. Moreover,
national rules could only create barriers to free movement where
they were necessary to satisfy mandatory requirements such as
consumer protection, and such rules had to be essential for the
protection of such interests. This simplified the process of creat-
ing a single market since it meant that either the laborious process
of harmonizing national rules was unnecessary or that harmoniza-
tion should only focus on essentials-the rest could be left to
mutual recognition. As an example of leverage he could cite both
the Philip Morris case 7 and the Nouvelles Frontieres case. 8 In
both instances the Court offered the Commission new means of
achieving its aims. In the first case it was an effective method of
controlling mergers. In the second it was a way of introducing
competition into scheduled interstate air passenger transport. In
both episodes a reluctant Council of Ministers saw itself as losing
the initiative and in both cases the Council gave ground in
attempting to regain it. The result was a merger control regulation
and a decision to set the airline deregulation process in motion.
Admittedly both were hedged around in order to satisfy the Coun-
cil's concerns. But on the main issue the Commission had got its
way-thanks to the Court!

III. Post-transition optimism

When in 1969 the EEC had come to the end of the 12-year
transition period, the Heads of State and Government had to
decide whether they wished to proceed any further with the inte-
gration process. This issue was addressed at the Hague Summit in
1969. It would have been possible to have concluded that, the
common market having been established, nothing further
remained to be done-other than to maintain it. In truth, the
Heads of State and Government would have been indulging in

7 Cases 142 and 156/84, BAT v. Commission (1987) ECR 4487 and
4 CMLR 24 (1988).
S Cases 209 to 213/84, Minister Public v. Lucas Asjes and Others
(1986) ECR 1425.
290 : The antitrustbulletin

more than a little self-deception since a true common market did

not then exist. Tariffs and quotas had gone but substantial obsta-
cles still remained. Indeed the fact that as late as 1986 the Com-
munity entered into a commitment to complete the internal market
by the end of 1992 indicated just how much still remained to be
done. Nevertheless, subject to an agreement to finish the con-
struction of the common market, the Heads of State could have
decided to call a halt to the integration process.
In fact they did quite the contrary. In the first place they set in
motion the idea of extending the process of integration so as to
carry the Community on to Economic and Monetary Union
(EMU). In other words to the economic aspect (i.e., the common
market) would be added a monetary union (i.e., a common cur-
rency, etc.). This objective (to be achieved by 1980) was endorsed
at the summit meeting in Paris in 1972. At this point it is essential
to stress that the original Rome Treaty did not envisage anything
more than a common market. Issues such as the supply of money,
the rate of interest and the exchange rate were ultimately left in
national hands. The EMU proposal ultimately ran into the ground
but in 1979 the Community did decide to establish the less ambi-
tious European Monetary System (on the basis of an intergovern-
mental agreement and not by virtue of an amendment to the Rome
Treaty). The Community of the early 1970's was quite dynamic.
To the original blueprint were added new policy initiatives in the
fields of the environment, collective R&TD, industrial policy,
regional policy, social policy and relations with the colonies and
ex-colonies. A system of financing the Community budget with
the Community's own resources was also introduced and budg-
etary powers were conferred on the previously largely consulta-
tive European Parliament. The latter was originally indirectly
elected by national parliaments but during the 1970's it was
agreed that the European Parliament should be directly elected by
the people. This, as we still see later, was to prove of considerable
significance in the emergence of the Single European Act and the
1992 commitment. Finally a political spill-over did occur since
from 1970 onward a system of foreign policy coordination in the
shape of the Political Cooperation Mechanism was operating. The
 Single market : 291

recent 1992 Treaty on European Union has built on that by insti-

tuting a common foreign and security policy.

IV. The onset of Eurosclerosis

One thing is clear. Whilst the Community of the early 1970's

was extremely dynamic, this condition did not last. Indeed the
later 1970's and notable the early 1980's were increasingly char-
acterized by lack of progress, a state that came to be termed
"Eurosclerosis." The reasons for this were various. One was that
the recessions that followed in the wake of the oil price increases
of 1973 and 1979 led to the emergence of protective responses
that inhibited the drive to open up national markets. In 1981,
when the EC Commission addressed a communication to the
Council of Ministers on the state of the internal market, what it
had to say was far from flattering:
The customs union, the implementation of which is intended to ensure
the internal market, is proving to be increasingly inadequate for the
achievement of this aim. The substance of what has been achieved is
instead being jeopardized and undermined by the fact that old barriers
have survived for too long and new barriers have been created. 9
But recession was not the only cause of Eurosclerosis. Other
factors included the successive enlargements of the Community
which not only dissipated energies but also created a growing
diversity of national interests. In addition, the completion of the
original liberalizing blueprint took place in competition with new
policies being developed, some of which we have indicated. A
major distracting factor was the continuing conflict over the CAP
and the Community budget, and at the center of both these wran-
gles was the UK. From the outset the British government had
indicated that it wished to secure major reforms in the CAP and
from 1980 onward was deeply dissatisfied with the UK's treat-
ment in the European budget. Wrangling over both of these issues
continued until 1984 and persisted to a lesser extent until 1988.

9 COMMISSION OF THE EUROPEAN COMMUNITms, COMMUNICAT1ON FROM

THE COMUSSION TO THE COUNCIL ON THE STATE OF THE INTERNAL MARKET
(1981).
292 : The antitrust bulletin

But in both these years, the Heads of State and Government (from
1974 called the European Council) agreed to major reforms of the
CAP and made significant adjustments to the Community budget.
The Fontainebleau agreement of 1984 was particularly important
in releasing Community energies from internal bickering-indeed
after the summit, President Mitterand observed "There is not a
single dispute left to settle." 10 This was a little optimistic but it
contained more than a grain of truth.
Another factor that slowed progress was procedural weakness
within Community decision-making machinery. This had long
been recognized-witness the European Council decision in 1978
to set up a committee of three wise men to address the issue. A
good instance of the length of time it could take the Community
to get things done is provided by the case of merger regulation.
The need (under the Rome Treaty) to have a merger-controlling
power, to complement provisions that already existed in respect
of cartels and dominant positions, was recognized by the Com-
mission as early as 1965. It tabled a draft regulation to this end in
1973. As we indicated earlier it did not become law until 1989.
Eventually the log-jam was broken. Undoubtedly, a key ingre-
dient in the emergence of the Single European Act was the self-
confidence of the directly elected European Parliament which set
in motion discussions culminating in 1984 in a proposal for a
European Union Treaty (EUT). This EUT, if agreed, would have
radically altered the Community's decision-making structure, a
change the Parliament felt was essential, since the Community
was failing to make essential decisions and particularly was fail-
ing to respond imaginatively to problems such as the recession
and competition from countries like Japan and the USA. The fail-
ure was at least in part due to the institutional blockages referred
to earlier. An EUT would have brought both economic and for-
eign policy matters within the ambit of the union decision-making
machinery, strengthened the position of the Commission, progres-
sively phased out national vetoes, and finally given the European
Parliament an enhanced legislative (as opposed to its largely con-
10 Commission of the European Communities, BULL. EurR. CoMinu -
Tns No. 6 (1984).
 Single market : 293

sultative) role, similar to that of national political systems. Parlia-

ment was destined to be disappointed but nevertheless some
progress was eventually made.
During the early eighties the member states also came increas-
ingly to realize that the stagnation could not continue to be toler-
ated. In October 1981 the French government submitted to its
partners a memorandum on the revitalization of the Community."
Its emphasis was wholly on the need to reinvigorate the Commu-
nity's efforts in the fields of economic, social and cultural policy
and it contained no proposals for institutional innovation. It was
followed by the German-Italian initiative of November 1981,12
which proposed the adoption of a European Act; a draft of this,
together with a declaration on European integration were
addressed to the European Council and Parliament. The draft act
was centrally concerned with institutional matters and looked to
the creation of a European Union. The European Council submit-
ted this to the foreign ministers for study and the results of these
studies were picked up at the European Council in Stuttgart in
1983; upon that occasion the Heads of State and Government
signed the Solemn Declaration of European Union. 13

V. The Single European Act

The final breakthrough occurred in 1984 when, as we noted

earlier, the Fontainebleau Summit substantially released the Com-
munity from its internal disputes. The Dooge Committee was set
up to investigate the possibility of institutional reform. It reported
in 1985 in favor of the calling of an IGC to modify the founding
Rome Treaty. 14 Into this more positive atmosphere the Internal
11 Commission of the European Communities, BULL. EUR. Cotmmum-
TIs No. 11 (1981).
12 Commission of the European Communities, BuLL. EuR. Commutr-
Tis No. 11 (1981).
13 Commission of the European Communities, BULL. EuR. CoMMut-
TIs No. 6 (1983).
14 Commission of the European Communities, BULL. EuR. CoMMum-
TIS No. 3 (1985).
294 : The antitrust bulletin

Market Commissioner, Lord Cockfield, injected his now famous

Cockfield white paper. 15 It listed upward of 300 measures that still
needed to be enacted if a single market was really to exist-a
clear indication of the limited nature of the then existing so-called
common market. The white paper also reviewed the techniques to
be adopted in creating the internal market. The approaches previ-
ously adopted had been extremely cumbersome and time consum-
ing. A more streamlined approach was needed. Cases such as
Cassis de Dijon suggested that much harmonization activity was
either irrelevant or could be simplified. The Council of Ministers
duly adopted the white paper.
The end-product of the IGC was of course the Single Euro-
pean Act. This measure added or confirmed new policy compe-
tences for the Community. The Community's power to make laws
regarding environmental protection was now formally confirmed.
It also acquired a power to make laws regarding health and safety
at work. A commitment to reduce the disparities in standards of
living between the regions of the Community was now written
into the main body of the Rome Treaty under the general heading
of Economic and Social Cohesion. However there is no doubt that
the overwhelming most important provision was that which com-
mitted the Community to complete the internal market by Decem-
ber 31, 1992.
This sounds like a commitment to complete the common mar-
ket originally envisaged in the Rome Treaty back in 1957. How-
ever whilst this is substantially true, there is one notable
difference. The Single European Act also envisaged a single mar-
ket withoutfrontiers. In other words, border controls and formali-
ties should go. Not only would free competition without distortion
be the order of the day in respect of goods and services but indi-
viduals would be free to move from one state to another. This lat-
ter is highly controversial. The effectiveness on controls on
immigration is immediately called into question. If France admit-
ted third-country nationals, those nationals would be free to
descend on the UK. The removal of border checks also raises
15 COMMISSION OF THE EUROPEAN COMMUNITIES, COMPLETING THE INTER-
NAL MARKEr (1985).
 Single market : 295

problems in relation to keeping drug traffickers and terrorists out

and pursuing criminals who conveniently slip over the border.
It is also important to note the decision to create a single mar-
ket, in which intensified competition would be the major objec-
tive, created some concern amongst the poorer members of the
Community-Spain and Portugal only joined the Community in
1986 but were involved in the Single Act negotiations. Two
accommodations were therefore made. Firstly, as indicated above,
a commitment to narrow the differences in standards of living was
written into the treaty. Secondly, in the Community budget settle-
ment in 1988 it was agreed that spending should be shifted toward
the structural funds. These would be especially beneficial to the
poorer countries (including of course Ireland and Greece) and this
extra spending would be concentrated on them.
The Single Act included two procedural changes that were of
importance in the single market context. Firstly, the European
Parliament, which was previously largely consultative, 16 was now
on a range of issues to be involved in a cooperation procedure
that required the Council of Ministers, when legislating, to give
active consideration to amendments proposed by Parliament.
Altogether more important was the decision to modify article 100
of the Rome Treaty. It provided the power to harmonize national
laws and was clearly central to any attempt to iron out differing
national laws and practices that placed obstacles in the way of
free movement of goods, services and factors of production.
Under the original article 100 the adoption of harmonizing direc-
tives required unanimity in the Council of Ministers. By virtue of
the Single Act, on a wide range of single market measures, direc-
tives could now be adopted on the basis of qualified majority
votes in Council. Fiscal matters were however excluded-an
exception secured by the UK which under Margaret Thatcher
guarded its sovereignty tenaciously.
Whilst the actions called for in the Cockfield white paper were
extremely diverse, it is possible to identify a core of crucial issues

16 It did, and does, have certain legislative powers in relation to the

Community budget.
296 : The antitrust bulletin

that illustrate the nature of the task that lay ahead. An enlarged
single market required a more manageable approach to the prob-
lems posed by differing national product standards and related
systems of certification. Public purchasing was a field where
"buy-national" attitudes were rampant. Measures had already
been introduced. However they had loopholes in them that mem-
ber states exploited vigorously and key sectors of the economy
were excluded from specific Community rules. State aids were
quite clearly capable of giving rise to distortions of competition.
No legislative measures were really called for since articles 92 to
94 already empowered the Commission to institute actions against
offending states. What was required was an intensification of
enforcement. In fiscal matters only limited steps had been taken.
A common system of indirect tax, on the Value-Added Tax (VAT)
model, had already been put in place but national rates continued
to vary. As a result of the latter, various border formalities contin-
ued to operate as member states zero-rated goods for export and
the state of destination applied its domestic rate of VAT. Apart
from border formalities, differences in national rates led to cross-
border shopping and fraud as when zero-rated goods were sold
domestically rather than being exported. A harmonization of VAT
rates would pave the way for the origin system in which goods
would be exported bearing VAT and distortions of the kind dis-
cussed above, and border formalities could be dispensed with. As
for excise duties little had been done about a common structure
and nothing achieved in respect of common rates.
No such thing as a comprehensive common market for finan-
cial services could be said to have existed prior to the Single Act.
Limited measures had been agreed but diverse systems of domes-
tic financial regulation still held sway and the Treaty's freedom to
supply services and the right of establishment were largely con-
spicuous by their absence. In the case of surface transport, the lib-
eralizing aspects of the Common Transport Policy, as revealed in
the treaty and the policy documents of the early 1960's, were still
significantly unrealized. Indeed, in 1983 Parliament successfully
took the Council of Ministers to the Court of Justice on the
grounds of Council's failure to act. A generous interpretation of
 Single market : 297

the Treaty's requirements in respect of the creation of an adequate

quantity of international road haulage (trucking) licenses, together
with a response to its call for the creation of cabotage rights, were
among the various deficiencies that needed to be remedied. In
respect of scheduled interstate air passenger transport, arrange-
ments were such that the innocent observer could have been
excused for concluding that the concept of a liberalizing Rome
Treaty was a mere figment of the imagination. Air fares were
fixed by collusion between airlines with the member state govern-
ments joining in. The Rome Treaty antitrust provisions were ren-
dered impotent. Access to interstate routes was blocked by
bilateral air services agreements-the Rome Treaty's freedom to
supply services thus being rendered nugatory.
In the corporate sector a number of developments were called
for. For many years the Commission had been seeking to establish
legal vehicles that would facilitate cross-frontier business organi-
zation-the European Company Statute was one such example.
Fiscal factors that inhibited cross-frontier business link-ups
needed to be addressed. Two possible areas of endeavor were
however not included in the Cockfield list. One was the need for a
regulation enabling the Commission to control mergers. Neverthe-
less, as we noted earlier, this duly emerged in 1989 and this
development was seen as being integral to the single market pro-
gram. The whole subject of the distortive effect of differences in
the structure and rates of national corporation tax systems was not
also covered by Cockfield. However this matter is now under con-
sideration-a committee is considering whether action is needed
and, if so, in what form.
The free movement of persons and in particular that of the
professions was bound to be an important feature of the single
market program. Here systems of domestic professional regula-
tion posed a major problem and progress had in some cases been
painfully slow. The discussions concerning the architectural pro-
fession had begun in 1970 and the matter was still unresolved
when the Single European Act was being contemplated.
Earlier we indicated that the Cockfield white paper was also
concerned with how best to deal with these kinds of problem.
298 : The antitrustbulletin

Clearly the prevailing approaches had not yielded much fruit. Sig-
nificant innovations were subsequently evident. Thus in the case
of fiscal harmonization, the idea of seeking an exact harmoniza-
tion of national rates of VAT was abandoned. Instead it would suf-
fice if national rates were approximated within some ceiling and
floor. Later the Commission decided that a ceiling rate could be
dropped since competition would force higher rates into line. Pro-
vided national rates were not too diverse, significant distortions
of trade and competition would not arise. The USA was cited in
defense of this approach. In the case of product standards the
Cassis de Dijon case suggested a way forward. Much harmoniza-
tion was no longer required since goods legally marketed in one
state should be freely admitted to the others. Only where there
was a danger to health and so forth could the blocking provision
of article 36 be invoked. However, where harmonization was the
only remedy, the Council of Ministers would merely concern
itself with the objective to be achieved by the harmonized stan-
dard. The details would be left to the appropriate technical bodies.
In areas such as food it was decided that recipe laws, detailing
contents appropriate to a particular kind of food, were not desir-
able. The culinary riches of Europe should not be constrained by
such a legislative straightjacket. Instead, consumers would be
protected by being told what a foodstuff contained. Harmoniza-
tion activity would merely relate to matters such as permitted
additives, permitted container materials, etc. In the case of the
professions it was recognized that a sector by sector approach was
extremely long-winded. Wherever possible a general approach,
whereby a specified level of educational experience and training
would automatically allow individuals to practice abroad, had
much to commend it. In the case of financial services, the likely
solution was already to hand in the shape of home-country con-
trol. A financial institution would be regulated by the supervisory
authority where the bank, etc., had its head office. Given that pru-
dential and consumer protection would continue to be deemed
appropriate, a harmonization of the core essentials of such regula-
tion would be necessary. The rest could however vary and be the
subject of mutual recognition. Thus a bank, etc., once licensed
would be able to practice in any other member state without fur-
 Single market : 299

ther authorization. Freedom to supply services and the right of

establishment would be automatically enjoyed by a licensed insti-
tution.

VI. The benefits of completing the market

The Cockfield white paper did not estimate the benefits of

completing the single market. Rather the Community acted first
and calculated afterward. One of the most publicized studies was
17
the Cecchini report, whose detailed evidence ran to 16 volumes,
though some more digestible summaries were produced.
The Cecchini report approached the problem from both a
micro and macro angle. The microeconomic analysis focused,
sector by sector, on the benefits derived from the removal of trade
barriers (customs formalities and related delays); the removal of
barriers to production (barriers to the play of competition such as
those connected with public procurement and technical stan-
dards); and the greater enjoyment of economies of scale and the
reduction of costs caused by increased competitive pressures that
economists describe as the reduction of X-inefficiency. On vari-
ous assumptions these benefits ranged from 4.3-6.4 percent of the
Community total gross domestic product (GDP). It should be
emphasized that these were once-and-for-all gains. Looking at it
from a macroeconomic angle, allowing for the full range of inter-
active effects, the estimated gain amounted to 4.5 percent of
Community GDP. However it was argued that these beneficial
effects helped to reduce constraints on macroeconomic manage-
ment. A variety of more favorable scenarios were therefore envis-
aged, the most plausible of which was a declared increase in the
medium term in Community GDP of 7 percent and the creation of
5 million new jobs.
While not doubting the probability of some gain, there are
those who have critized these estimates. One such is Merton Peck
who suggested that the report overestimated the gains by a factor

17 P. CECCHINI, STUDIES ON THE ECONOMICS OF INTEGRATION: ThE COST

OF NoN-EuRoPE (1988).
300 : The antitrustbulletin

of two or three. Is Peck also made the important point that the Cec-
chini gains depended on adherence to the rules of the game-that
is to say member states would have to implement directives, and
would have to accept the unpleasant consequences of intensified
competition without resorting to subsidies and covert discrimina-
tion. Firms would have to compete and not collude or merge their
way out of trouble, the Commission would have to enforce the
competition rules remorselessly, and Court of Justice rulings
would have to be obeyed. This latter was not inevitable; it was
reported in 1990 that at the beginning of the year there were 53
outstanding cases where governments had ignored court rulings
on nonimplementation of directives or abuse of single-market
rules. Under the Rome Treaty companies and individuals could be
fined but not governments.

VII. The single market and Single Act in perspective

From the point of view of the 12 member states the single

European market program is rapidly passing into history. The
Community has made good progress in taking on board the leg-
islative tasks identified in the Cockfield white paper. That is not
to say that all will be accomplished by the end of 1992. Thus fis-
cal approximation, where majority voting is not applicable, will
probably drag on until 1996. In other areas accommodations have
been sought and granted that extend the process of completing the
market beyond 1992. Whilst matters have been well under control
at the Brussels end of the business, the position at the member
state end is likely to be less satisfactory. It seems possible that not
all the 1992 measures will have been incorporated into national
law when time runs out. More to the point, as indicated earlier, it
will be necessary for member states not only to adjust their
national laws but also to adjust their behavior-i.e., to act in con-
formity with them in matters of free and fair competition. Earlier
it was pointed out that the original Rome Treaty did not provide
for financial sanctions against governments who fail to conform.
I M.J. Peck, Industrial Organizationand the Gainsfrom Europe
1992, 2 BROOINGS PAPERS ECON. Acnvrry 277 (1989).
 Single market : 301

This has now changed. Under the provisions of the 1992 Maas-
tricht Treaty on European Union, a member state that fails to heed
a Court of Justice ruling will be open to financial penalties. This
will help to make 1992 more of a reality.
The fact that the single market continues to be a focus of
attention is partly a reflection of its significance for third coun-
tries. Three groups can be identified. In so narrowing it down we
are ignoring the concerns of countries such as the USA and Japan
who in particular feared the emergence of a fortress Europe men-
tality in the Community. This fear subsequently diminished and
was replaced by a series of mini-forts-e.g., problems such as
banking reciprocity. That is to say third-country banks would
enjoy the freedoms of the single market provided their govern-
ments reciprocated in respect of Community banks. Fortress
Europe on the agricultural front is of course another matter as the
Uruguay Round testifies-but then agriculture falls almost
entirely outside the concerns of the 1992 single market.
Turning now to the three groups. The first consists of the
European Free Trade Association (EFTA) countries. Following
British and Danish membership of the Community in 1973, a
reciprocal free trade arrangement (not including agriculture) was
concluded between the rump of EFTA states and the Community.
Whilst it is true that EFTA countries enjoyed a relatively privi-
leged position, it is also equally true to say that they were not sat-
isfied with it. They in fact pressed for a closer relationship. The
process began in 1984 as a result of a joint meeting between
EFTA and the Community in Luxembourg when it was agreed
that they should work toward the creation of a European Eco-
nomic Space. The fact that the Community subsequently began to
press ahead with the completion of the internal market added
urgency to the desire of EFTA for closer links. The resulting dia-
log was referred to as the Luxembourg Process. By 1989 much
discussion had taken place. However in 1989 the President of the
EC Commission, Jacques Delors, expressed some doubts as to
whether the existing framework was adequate to the task-a new
more structured partnership would make EFTA-Community activ-
ities more effective. A series of EFTA-Community working
302 : The antitrust bulletin

groups was established to explore the possibility of achieving free

movement of goods, services, capital and persons in what came to
be called the European Economic Area (EEA). According to the
EC Commission the work of the groups indicated that there were
sufficient grounds to warrant an attempt to negotiate a global
agreement on the realization of the four freedoms in relations
between EFTA and the Community. In June 1990 formal negotia-
tions to this end began. Clearly there were some major hurdles to
overcome. The Community was bound to demand the acceptance
of existing rules. EFTA was likely to look for exceptions. EFTA
was bound to demand an involvement in future rule making-the
Community was likely to resist anything other than consultation
without obligation.
These negotiations ultimately bore fruit and a treaty linking
EFTA and the Community through the agency of an EEA was
signed in October 1991.
The EEA provides for free movement of goods both ways.
There will also be freedom to supply services across the EEA-
thus the single banking license, discussed above, will now apply
to the enlarged area. Individuals will be free to move and work
over the whole of the EEA (with mutual recognition of qualifica-
tions) and capital movements will be freed (although this is sub-
ject to some exceptions). The EFTA states will adopt many of the
Community's existing laws. In the case of competition rules (car-
tels, dominant positions, state aids) EFTA will take these on board
but set up a separate body to deal with cases with specific rele-
vance to EFTA members. Merger control will however remain in
the hands of the Brussels Commission. EFTA states will not be
allowed to vote on EC legislation.
Whilst the above represents the general approach of EFTA
toward the single market, it by no means satisfies all EFTA mem-
bers. Some, such as Austria and Sweden, have indicated a desire
for full Community membership. Others such as Finland and Nor-
way seem likely candidates. The Maastricht Summit in 1991 reit-
erated that any European state whose political system is based on
democracy may apply for membership of the EC. Moreover nego-
tiations with a view to accession could begin once the 1992 dis-
 Single market : 303

cussions concerning the Community budget were over. Such

negotiations will obviously commence in respect of Austria and
Sweden-their accession on January 1, 1995 seems likely.
The second group consists of countries in Southern Europe-
namely, Turkey, Cyprus and Malta. They too wish to be involved
in the single market. Full Community membership for Turkey
however seems a long way off although Turkey's positive
approach in the Gulf War may have served to advance its accept-
ability somewhat.
The third group consists of the countries of Eastern Europe.
High on the list being Poland, Czechoslovakia and Hungary. Here
the Community has a problem. These countries would like to be
fully involved in the single market-indeed to be full members of
the Community. On the other hand the Community, whilst it
wishes to be encouraging, recognizes that it would be difficult to
admit them until they have made the transition from state social-
ism to a structure that is more in accordance with Western eco-
nomic models. (The UK is very warm to their ultimate
membership, although some would wonder whether this is largely
grounded in the hope that a much enlarged Community would be
less centralizing. The UK is in the vanguard in zealously protect-
ing its sovereignty.) In the interim, association (European) agree-
ments with the three have been signed. The main elements of
these agreements are free trade between the country concerned
and the Community; industrial, technical and scientific coopera-
tion; a pluriannual program of financial assistance and the cre-
ation of a mechanism for political dialog. Implementation will
depend upon the partner countries keeping to the path of democ-
racy, respect for human rights and the rule of law whilst maintain-
ing a degree of economic liberalization. There is no provision for
automatic passage to full Community membership but the agree-
ments adopt a generally encouraging tone.
Whilst the single European market commitment was the most
immediate implication of the Single Act, it was by no means its
only potential implication. Indeed the Act was as important for
what it foreshadowed as for what it expressly provided.
304 : The antitrustbulletin

The Act in effect contained three delayed action devices (per-

haps not fully appreciated by Margaret Thatcher!). The first
related to EMU. As we noted earlier the Rome Treaty did not
envisage an EMU. Nor did the Single Act provide for its introduc-
tion. However what the preamble to the Act did was to recollect
that at the dynamic 1972 Paris Summit, the Heads of State and
Government had endorsed such a goal. It was therefore not sur-
prising that at the Hanover Summit in 1988 the Heads of State
should invite Jacques Delors and the Central Bank governors to
investigate the feasibility of, and steps necessary in order to cre-
ate, an EMU. The Delors Committee duly reported 19 in favor and
the Community in turn decided to convene an IGC at Rome in
December 1991 to map out the path. As a result the Maastrict
Treaty on European Union, signed in February 1992, has modified
the founding Rome Treaty and EMU has now become the new
ultimate economic goal. Increasingly, attention will be shifting
from the single market to the steps necessary for the member
states to achieve the degree of economic convergence that will
qualify them for participation in the monetary union in the second
half of the nineties.
The second delayed action device was also to be found in the
preamble to the Single Act. The latter contains an important state-
ment of principle by affirming that member states accept the fun-
damental rights of citizens contained in the Convention for the
Protection of Human Rights and Fundamental Freedoms and the
European Social Charter. Both of these are products of the quite
separate Council of Europe but their contents, particularly those
of the second document, provided a potential foundation upon
which to build a whole series of rights under the Rome Treaty. It
was not entirely surprising that in due course the Heads of State
should invite Jacques Delors to indicate how this could all be
turned into reality. Delors for his part has always been anxious
that the single market, with its emphasis on the economic benefits
to be derived from a competitive marketplace, should be balanced

'9 COMMITTEE ON THE STUDY OF ECONOMIC AND MONETARY UNION,

REPORT ON ECONOMIC AND MONETARY UNION IN THE EUROPEAN COMMUNITY
(1989).
 Single market : 305

by a Community commitment to social improvement. Delors duly

obliged with the Social Charter (actually entitled The Community
Charter of Basic Social Rights for Workers). Not surprisingly
Margaret Thatcher refused to sign it. However, in the IGC discus-
sions leading up to the Maastricht Summit of December 1991,
attempts were made to strengthen the relatively weak social pro-
visions of the original Rome Treaty, thus providing the Commu-
nity with the power to implement the Social Charter. Not
surprisingly, this was vigorously opposed by the UK. In the event
the Maastricht Treaty on European Union includes a protocol by
which the other 11 states will implement the Charter, the UK will
not be involved in these discussions, will not be bound by their
results and will not pay the costs associated with the necessary
Community legislation.
The third device was also associated with Jacques Delors. Fol-
lowing the Single Act Jacques Delors let slip the speculation that
by the mid-1990's perhaps 80% of economic legislation would
derive from Brussels. If only half-true, it pointed to the emer-
gence of a democratic gap. Since Community law is supreme,
national parliaments would necessarily be consigned to rubber-
stamping the actions of the Council of Ministers. The European
Parliament, on the other hand, was largely consultative. It did not
provide a substitute for national parliaments in that the Council of
Ministers did not legislate through it and was not accountable to it
in the way that is typical of representative democracies. Some
change, possibly a redefined role for the Parliament in relation to
the Council of Ministers, would be needed. Not surprisingly, all
kinds of ideas began to be canvassed. This in turn provoked the
idea of calling a parallel IGC on the subject of political union.
The results of this too have been incorporated in the Maastricht
Treaty. They include the development of the concept of Commu-
nity citizenship, closer collaboration on matters ranging from
immigration and asylum policy to the combating of organized
crime and drug trafficking, additional powers for the European
Parliament, extra policy competences for the EC Commission,
and the development of a common foreign and security policy.
These issues will increasingly dominate the scene in the 1990's.
306 : The antitrust bulletin

Additionally the Maastricht Treaty has conceded the need for a

Cohesion Fund to assist the poorer countries in the context of
EMU. This will be expensive and so we may expect battle once
more to be joined on the vexed subject of sharing the burden of
the Community budget. The federalists were strongly resisted by
the UK in the pre-Maastricht negotiations. They made some
progress and we can be confident that they will be back with
demands for more powers for the Community institutions well
before this decade draws to a close.