Kelemen_TheSingleMarketAndEUFederalism

Kelemen_TheSingleMarketAndEUFederalism - THE SINGLE MARKET...

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Unformatted text preview: THE SINGLE MARKET AND EU FEDERALISM R. Daniel Kelemen Rutgers University INTRODUCTION For over four decades, the single market -- sometimes referred to as the "common market" or the "internal market" -- has served as the Archimedean point from which proponents of Euro-federalism have pressed for deeper European integration. Ever since the Treaty of Rome established the member states' commitment to the free movement of goods, persons, services, and capital (the "four freedoms"), the single market has remained both the central focus of the European Union's (EU) activities and a vital stimulus and springboard for its expansion into new policy areas (I use the term EU to refer to both the contemporary European Community, EC, and its previous incarnations, the European Union and the European Economic Community, EEC). The underlying causal logic by which the single market program has helped motivate shifts in authority from the member states to the EU level is a logic common to federal systems. Once a group of states has committed itself to the establishment of a single market, linked processes of negative integration and positive integration predictably ensue. In essence, this is a process of deregulation at the state level coupled with (or followed by) a process of reregulation at the federal level. First, the establishment of a single market in which goods, services, capital, and persons can move freely requires negative integration: the elimination of a wide variety of "barriers" to free movement between states and the elimination of other distortions to competition between states in the single market. Such barriers and distortions extend far beyond the most obvious tariff barriers to include a wide variety of reg49 ulatory non-tariff barriers in areas ranging from transportation policy to product safety standards to environmental standards, and may include various public subsidy schemes that distort competition. The goal of such negative integration is both to create a common playing field for commerce by removing barriers to free movement and to level that playing field by eliminating discriminatory practices. Negative integration is necessarily a heavily judicialized process, as courts will provide the primary fora in which federal officials or private parties seek to invalidate state laws or practices that impede free movement or distort competition in the single market. It is extremely unlikely, however, that the process of market integration will end with negative integration. Rather, deregulation at the state level will generate political demands for positive integration: the establishment of common policies at the federal level. This can occur in two ways, the first more direct, the second less so. First, when federal courts strike down state laws or practices that violate single market principles, they may threaten states pursuit of non-market policy goals such as protection of the environment, worker or consumer safety. The social consequences of dismantling such popular programs in the name of the single market are likely to be politically unacceptable to many states, unless such deregulation is coupled with reregulation at the federal level to protect these non-market policy goals. The second way in which deregulation can spark demands for reregulation is less direct. The elimination of barriers to free movement in one issue area may generate problems in tangentially related areas. For instance, the easing of border controls in the name of free movement of persons and goods in the single market will increase opportunities for cross-border crime. Thus, the operation of the single market will increase incentives for establishing a federal (EU) role in policing. Similarly, increases in cross-border economic activity will inevitably lead to an increase in cross-border civil disputes. The proliferation of such disputes will place a burden on national judicial systems and increase incentives the harmonization of judicial procedures. Through such direct and indirect links, an initial commitment to the establishment of a single market creates functional pressures and political incentives for the involvement of the federal government in a wide variety of policies flanking the single market. The single market has played a vital role in underpinning the dramatic transfer of authority from the member states to the EU level that has occurred since the EU's founding. The linked processes of negative and positive integration have encouraged the extension of the EU's authority into a wide range of regulatory domains including competition policy, utilities regulation (i.e. telecommunications, electricity, and transportation), financial services, environmental policy, consumer protection policy and, to a limited extent, social policy. The elimination of restrictions on capital movements undermined member-state monetary policies and so increased incentives for centralizing control of monetary policy. The loosening of border controls and the increase in cross-border movements so integral to the construction of the single market have provided a stimulus to enhanced cooperation on a range of immigration, judicial, and policing issues grouped together under the label of "Justice and Home Affairs." While the impact of the single market to date is indisputable, its capacity to serve as a foundation for further federalization is nonetheless limited in crucial respects. The next major steps that the EU must take if it is to develop into a more fully-fledged federal state have little connection with the single market. The EU continues to lack fundamental attributes of state power. Above all, as illustrated so forcefully in divisions over the war in Iraq, the EU lacks a functioning common security and defence policy. Second, the EU's fiscal capacities remain extremely weak. The EU's fiscal resources are capped at 1.27 per cent of GDP, and its distributive and redistributive policies are of marginal significance as a result. Functional and political pressures generated by the operation of the single market will never be sufficient to prompt a major transfer of the power of the sword or the purse to Brussels. Finally, the single market will do little to create "European citizens" who share a common identity and a common set of political rights. The single market has been crucial to the establishment of a variety of European rights, but these remain a limited set of economic rights -- rights for individuals as workers, consumers or sellers. The commitment to completing the single market will not serve as a rationale for the creation of a more complete set of political rights (or duties for that matter) that would give substance to the hollow concept of European citizenship proclaimed in the Maastricht Treaty. Finally, the increase in transnational interaction that accompanies the operation of the single market seems to have done little to spark the spread of a sense of shared European identity. 51 50 Undoubtedly, the single market will continue to provide a basis for the extension of the EU's authority. However, an EU federalism based on this market rationale is and will remain a limited form of federalism, essentially a regulatory and economic federalism. The establishment of a common defence policy, a significant fiscal policy and a full set of political rights for European citizens could occur only as the result of new political commitments at the highest levels of government, with little direct or indirect linkage to the single market. Whether such commitments will emerge in the wake of the ongoing Convention on the Future of Europe remains to be seen. This paper explores the impact of the single market on the development of EU federalism. In the first section, I examine the range of policy areas in which the single market has generated direct pressures for the transfer of authority to the EU level. In the second section, I turn to areas where the impact of the single market on the transfer of authority to Brussels has been more indirect and tenuous. In the third section, I turn to policy areas in which the single market has provided little or no leverage for advocates of a more far-reaching federalization of the EU. inate them, and in any event, a single market based exclusively on deregulation at the national level was politically unacceptable. Many of the national regulations that distorted competitive conditions were designed to protect "non-market values", such as health and safety, that were of increasing concern to voting publics across Europe. Some neo-liberals would have preferred to see a single market in which the EU, more specifically the ECJ, would have removed direct impediments to trade but allowed differences in national regulatory systems that distorted competitive conditions to remain in place. From the neoliberal perspective, states that imposed higher costs on economic operators would then have been punished by market forces as their firms either lost market share or simply relocated to states with more business- friendly policies. However, advocates of the social market economy feared that such regulatory competition would lead to a destructive race-to-the-bottom in social and environmental regulation. EU officials and the vast majority of member-state governments realized that the elimination of regulations at the national level would only be politically acceptable if it was coupled with the establishment of harmonized standards to protect "non-market values" at the EU level. From the outset, the process of eliminating national barriers to trade was coupled with an effort to establish harmonized Community standards. However, initially, the high legislative threshold for passage of EU directives impeded progress on harmonization. New directives had to win unanimous approval in the Council of Ministers. At best, negotiations to achieve unanimity on detailed technical standards were extremely protracted. Very often, securing unanimity proved impossible. As a result, only 270 directives were adopted between 1969 and 1985. In the early 1980s, with the European economy in recession, Commission officials and a number of member-state governments argued that bold efforts to accelerate the completion of the internal market could stimulate growth. Advocates of this relance of the single market called for the adoption of a "new approach" to harmonization, based on mutual recognition of national standards wherever possible, coupled with minimal harmonization of "essential requirements" where necessary. This new approach was at the core of the "1992 programme", a commitment to completing the single market by 1992, which Jacques 53 THE DIRECT LINK: FROM FREE MARKET TO REGULATED MARKET In the first decade after the creation of the EEC, the European Commission focused on the elimination of national tariffs and quotas. As tariffs were eliminated, the importance of non-tariff barriers (NTBs) as impediments to the single market became apparent. Moreover, after national governments were prevented from shielding their industries against foreign competition with tariffs and quotas, they increasingly applied NTBs as a disguised form of protectionism. The erection of new NTBs threatened to reverse the progress toward the establishment of a single market made through the elimination of tariffs. European firms responded to the proliferation of national NTBs by bringing an increasing number of cases to the European Court of Justice (ECJ) challenging national restrictions on the free movement of goods and services. The Commission, too, increased its use of the infringement procedure in an effort to dismantle national NTBs. However, by itself, this process of negative integration could not "complete" the single market. Member states could erect new NTBs as quickly as the ECJ could elim52 Delors announced when he took over as Commission President in January 1985. The principle of mutual recognition, which the Commission borrowed from an ECJ doctrine established in the celebrated Cassis de Dijon ruling, demanded that in most circumstances member states accept into their domestic markets products approved for sale in any other member state. However, mutual recognition of standards would not extend to national laws that aimed to protect the health of humans, animals and plants; therefore, Community-wide harmonization of minimum essential health and safety requirements would still be necessary. If the harmonization of standards integral to the 1992 program was to succeed, EU decision-making procedures had to be sped up. At the December 1985 Intergovernmental Conference (IGC), the memberstates agreed to a new decision making procedure that would apply to harmonization measures concerning the single market. The new decision-making procedure, labeled the Cooperation Procedure, had two salient features. First, in order to overcome the gridlock that had prevented harmonization under the unanimity rule, the member states agreed to introduce qualified majority voting (QMV) for most harmonization measures concerning the single market. Second, in order to increase the democratic legitimacy of the harmonization measures that would be established as part of the single market program, the Cooperation Procedure significantly increased the power of the European Parliament (EP) in EU decision-making. The Cooperation Procedure gave the EP the power to amend or reject Commission proposals for single market measures by an absolute majority vote. When coupled with qualified majority voting in the Council, this procedure gave the EP "conditional agenda setting" power. If the Parliament introduced amendments that were acceptable to a qualified majority of the member-states, these were likely to be adopted. This procedure would transform the EP from a powerless talk-shop whose proposals were routinely deposited in the circular file of Council meeting rooms into a powerful legislative actor. These changes in decision-making rules, together with a package of approximately 280 measures addressing physical, technical and fiscal barriers, constituted the core of the Single European Act (SEA) that the member-states signed in 1986. Since the adoption of the SEA, the single market program has continued to serve as vital stimulus for the expansion of the EU into new issue 54 areas. EU secondary legislation relating to the single market has led to the deregulation and reregulation of a number of economic sectors including telecommunications, financial services, air transport and electricity. The body of EU environmental regulation has expanded dramatically since the initiation of the 1992 project, and today encompasses all of the major areas of environmental policy addressed by national governments, ranging from pollution prevention, to nature protection, to waste disposal. The EU has replaced the member states as the primary locus of standard setting on food, drug and other product safety regulations. EU social regulations establish common standards in a wide range of areas including equal treatment of the sexes, workplace safety, collective bargaining, works councils, parental leave, rights to strike and worker protections in the event of termination. More generally, a shared commitment to the single market program has persuaded the more Euro-skeptic member states to agree to increases in the use of qualified majority voting and in the legislative power of the EP. After introducing the cooperation procedure in the SEA, the member-states went on to expand the use of qualified majority voting and to introduce new decision-making procedures that elevated the role of the EP in the Maastricht and Amsterdam Treaties (the codecision procedure and Codecision II, respectively). As was the case with the cooperation procedure in the SEA, the codecision procedure was initially applied predominantly to single market measures. As was also the case with the cooperation procedure, the codecision procedure was designed to ensure that decision-making regarding measures necessary for the "completion" of the single market would be both efficient and democratically legitimate. Majority voting helped ensure efficiency, and granting power to the EP helped deflect criticisms that the EU's growing legislative powers suffered from a "democratic deficit". Member-states wary of laying the foundation for greater EU federalism significantly underestimated the impact of these single market focused decision-making procedures. Indeed, Margaret Thatcher has subsequently conceded that she views her support for the SEA as a mistake that seriously undermined British sovereignty. While the Thatcher government and other Euro-skeptics had anticipated that the new Cooperation Procedure would apply in a quite limited set of policy areas, proponents of deeper integration were able to gradually expand the application of the procedure. The borderline between measures nec55 essary for the completion of the single market and measures focused primarily on other policy areas such as environmental or social policy is murky. The European Commission routinely justified proposals for new social and environmental policies as part of the single market program in order to broaden the application of its preferred legislative procedures (first the cooperation procedure and later codecision). Where the Commission's broad application of these procedures was challenged, the ECJ reliably supported the Commission's choice of legislative procedures. The single market has served as the thin wedge that helped open the door for some of the EU's most profound institutional reforms. By allowing for qualified majority voting on single market measures, the member states took a major step toward surrendering national sovereignty over economic regulation. After the member-states sought to legitimize their single market program by empowering the EP to play a greater role in the legislative process, it became difficult for them to block the extension of the EP's legislative powers to related issue areas. Reforms of EU decision-making procedures designed to support the single market program laid the foundation for a widespread transformation of the EU's legislative process from one based primarily on an intergovernmental model demanding unanimous agreement in the Council of Ministers to one resembling a federal model with bicameralism (with the Council and EP having nearly equal status) and majority voting in both chambers. bly had little to do with the single market. The spillover from the single market to the development of common policing provides a first illustration of these dynamics. As the EU opened up borders in an effort to stimulate commercial activity, it also increased opportunities for cross-border criminal activity. The removal of barriers to movement for capital facilitates money laundering. The removal of barriers to movement for goods facilitates smuggling and drug trafficking. The removal of barriers to movement of persons facilitates illegal immigration and trafficking in persons (e.g. for the sex trade). Governments are affected by one another's policies as lax policing in one member state will generate "negative externalities" for their neighbors. Governments recognized these risks, and took early steps to promote cooperation on policing, first through the Trevi framework and later through the Justice and Home Affairs Pillar of the Maastricht Treaty. The most concrete manifestation of this commitment was the establishment of EUROPOL (the European Police Office), which came into operation in 1998. Arguably, EUROPOL is developing into a nascent FBI for Europe, supporting cross-border investigations, investigating specific cases and tracking data on crime. Voters across Europe shared the perception that the opening of borders was exposing them to heightened risks. Euro-barometer polls from the mid-1990s indicate that voters viewed the development of common crime-fighting policies as a high priority for the EU. With the EU's borders becoming ever more porous and the heightened attention to combating international terrorism post- 9/11, it seems likely that the EU's role in policing will expand in the years to come. Governments will have to balance their reluctance about the surrender of sovereignty that such developments entail against the risks posed by international terrorism and crime. The fact that the long-standing opposition of some member states to the establishment of a European arrest warrant was overcome very quickly in the aftermath of 9/11 suggests that this calculus may be changing. The motivations for development of common immigration and asylum policies at the EU level parallel those in the case of policing. In short, the dismantling of the EU's internal borders has pressured the member states to develop common policies for controlling their external borders. In important respects, it is impossible for member governments to maintain independent immigration policies in the context of the internal market. When a member-state permits a person to cross its borders, that 57 THE INDIRECT LINK: SPILLOVERS FROM THE SINGLE MARKET In addition to the EU's economic and social regulations most directly connected with the construction of the single market, the growth of EU authority in a number of other policy areas has been motivated, at least indirectly, by the functioning of the single market. Many of these issues, including policing, immigration policies and judicial cooperation, were grouped together under the umbrella of the Justice and Home Affairs pillar of the Maastricht Treaty. In all of these areas, the easing of border controls so integral to the construction of the single market challenged existing national arrangements in policy areas that ostensi56 person can then move freely across the EU. If a member-state grants an immigrant citizenship, that person has the right to live and work in any EU member state. Therefore, an EU member-states border controls are only as strict and its immigration policy only as restrictive as the most lax member-state. Confronted with this interdependence, EU governments have agreed to a wide variety of common border control and immigration policies, ranging from standardizing procedures on border checks and rules on visas to harmonizing minimum standards for treatment of asylum seekers and refugees. With Title IV of the Amsterdam Treaty, the member-states brought immigration and asylum policy into the first pillar of the EU -- the section directly related to economic issues and the internal market. The Commission has continued to emphasize the economic rationale linking common immigration policies to the single market. In its 2000 Communication on European migration policy, the Commission emphasized that coordination of national policies was necessary in order to reduce black market employment, to prevent economic exploitation of migrants, and to address shortages of workers in some industries. some subset of EU member-states, may well develop a common foreign policy (including a common defence) in the coming years. Whether or not this occurs, however, will have little to do with the single market. The single market creates few functional or political incentives for shifting control of defence policy to the EU level. Proponents of deeper integration will never succeed in peddling the notion that a common defence policy is a necessary corollary to a single market. Rather, the decision to "federalize" control of defence in the EU will only occur as a result of a convergence of views among member state governments on broad questions of geopolitics, above all questions concerning the transAtlantic alliance and the relationship between NATO and any autonomous European defence policy. Second, the ongoing commitment of member-state governments to completing the internal market provides only very weak incentives to expand the EU's fiscal capacity. The single market program has had an impact on EU spending programs in that the EU's "cohesion programmes" for social and regional spending have been justified as means to compensate for dislocations caused by the single market. The Single European Act coupled its call for a renewed drive to complete the single market with a new commitment to "economic and social cohesion," Euro-speak for spending policies designed to promote development in the EU's poorest regions. The linkage between the single market and spending programs was most obvious in the case of the Cohesion Fund established in the Maastricht Treaty. The EU's poorest memberstates--Greece, Portugal, Spain and Ireland-- argued that they would be adversely affected by the opening of their markets, and demanded and won compensation from the EU in the form of a new "Cohesion Fund" targeted specifically at promoting development in these four countries. While the significance of the EU's structural and cohesion funds has increased over time, the EU's overall fiscal capacity remains extremely weak. EU spending on the structural and cohesion funds has increased from under five per cent of the EU budget in the mid 1970s to over 30 per cent today; however, the EU's overall budget remains extremely small by comparison to that of any modern state. EU spending is capped at 1.27 per cent of the collective GDP of the member-states, whereas most member-state governments have budgets totaling between 30 and 50 per cent of GDP. There is no indication that the EU's 59 THE WEAKEST LINKS: LIMITS OF MARKET-BASED FEDERALISM Finally, we can turn to a third set of policies for which the single market has provided little or no stimulus to federalization. Common security and defence policy is the most significant of these areas. The single market programme has encouraged the development of a significant EU role in the foreign economic policy of its member states. Because the EU maintains common external tariffs, the Commission now represents the EU as a whole in trade negotiations and disputes in the WTO. Also, in some areas of international negotiation concerning global commons issues (i.e. environmental protection), the EU now negotiates as a single actor. However, on matters of security and defence, foreign policy remains firmly in national hands. Some progress has been made in the development of a European security and defence policy with, for instance, the Franco-British incorporation of the Western European Union (WEU) defence treaty into the EU framework, with the creation of the Eurocorps, and with steps to establish a Rapid Reaction Force. However, as the recent divisions over the war in Iraq have demonstrated so forcefully, cooperation in this area remains limited. The EU, or 58 budget will increase significantly in the short or medium term. EU budgetary policy remains subject to unanimous decision-making in the Council, and many national governments oppose an expansion of the EU's fiscal powers. The EU's lack of fiscal resources severely restricts the potential for its involvement in a wide range of policy areas in which federal governments are typically active, such as social welfare, defense and infrastructure development. Beyond its limitations as an engine for federalization of particular policy areas, the single market is very limited in its ability to create one of the fundamental attributes of any true European Federation: European citizens who share some common identity and some catalog of rights and duties. As to the question of the development of a shared sense of European identity, Jean Monnet may have been correct when he suggested that "Europe," as a set of institutions and policies, had to be built before "Europeans" could be created. However, it remains clear that, to date, the development of EU institutions and policies has made little headway in awakening a sense of shared identity among citizens of EU member-states. Despite the dramatic increase in the scope of the EU's authority, much of it built on the foundation of the single market program, Eurobarometer data on European identity reveals no long-term increase in European identity among EU citizens over the past three decades. Turning to the question of citizenship and citizens' rights, the Maastrict Treaty announced the dawn of European citizenship in bald terms, providing that, "Citizenship in the Union is hereby established. Every person holding the nationality of a Member State shall be a citizen of the Union." However, neither Maastricht nor subsequent Treaty revisions at Amsterdam and Nice backed the notion of European citizenship with a significant catalog of EU citizen's rights. The economic and regulatory federalism constructed on the basis of the single market has not created fully-fledged European citizens. Rather, it has created what one can term "market citizens" who enjoy a set of Treaty based economic rights built around the four freedoms (free movement of labor, products, services and capital). Treaty provisions and secondary legislation have extended the economic rights of Europeans beyond these four freedoms to include a variety of rights for property owners, consumers, migrant workers, shareholders and other economic actors. EU law on equal treatment of the sexes in the workplace has expanded considerably over the past three decades. More recently, the Racial Equality Directive and the Equal Treatment Framework Directive have expanded the notion of equal treatment in the workplace from women to other vulnerable groups such as racial and ethnic 60 minorities and the disabled. The EU has built an impressive catalog of economic rights on the basis of the single market. However, the introduction of a full set of political rights cannot be justified in the name of the single market. To date, member-states have rejected the formal incorporation of the Charter of Fundamental Rights, with its full set of political rights, into the EU Treaties. Recent discussions at the Convention on the Future of the EU indicate that the Convention will recommend the formal incorporation of the Charter into the constitution it will draft. However, as was the case with common defense or control of fiscal policy, the decision to establish a full set of political rights for EU citizens will not hinge on direct or indirect exigencies of the single market program. CONCLUSION It would be difficult to overstate the significance of the single market for the development of EU federalism. The single market has provided the basis for the EU's most important institutional reforms -- the introduction of qualified majority voting and the elevation of the status of the European Parliament. The single market has provided the basis for the construction of the most fundamental principles of Community law. For instance, the ECJ justified the principle of the supremacy of Community law (in Costa v. ENEL) on the grounds that variations in the executive force of Community law across member-states would violate the principle of non-discrimination (Article 7 EEC) in the context of the single market. As detailed above, the single market's deregulatory agenda has sparked a parallel reregulation at the European level, leading the EU to adopt common policies in a wide range of areas. Similarly, the removal of border controls has generated a series of negative externalities that created incentives for member-states to adopt common policies in areas such as policing and immigration policy. Finally, the benefits of the single market have helped win support of Europeans for the EU. Both for citizens of EU member-states and for those of candidate countries, the single market remains the EU's greatest draw. The single market has been vital to the construction of the system of regulatory federalism operating in the EU today. However, the member -states' shared commitment to the single market cannot provide the basis for the transformation of the EU into a more fully-fledged federal system, with more of the accoutrements of statehood, such as a common defense, a significant fiscal capacity, and a citizenry with some sense of common identity. 61 ...
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This note was uploaded on 02/05/2012 for the course 790 395 taught by Professor Tillery during the Fall '09 term at Rutgers.

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