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(EU Fact sheet – Number 5)

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The internal market and EU trade.

 

The internal market for goods

 

One of the 'four freedoms' of the Single Market is the free movement of goods. Member States may restrict the free movement of goods only in exceptional cases, for example when there is a risk resulting from issues such as public health, environment, or consumer protection.

 

The risks vary by product sector. Pharmaceuticals and construction products obviously present higher risks than office equipment or pasta for example. In order to minimise risks and ensure legal certainty across Member States, EU legislation harmonising technical regulations has been introduced in particular in the higher-risk product sectors.

 

Lower-risk sectors have not in general been the subject of legislation on a European level. Trade in this ‘non-harmonised’ sector relies on the 'mutual recognition' principle, under which products legally manufactured or marketed in one Member State should in principle be able to move freely throughout the EU.

 

Approximately half of the trade in goods within the EU is covered by harmonised regulations, while the other half is accounted for by the ‘non-harmonised’ sector, which is either regulated by national technical regulations or not specifically regulated at all.

 

The internal market for services

 

Services are crucial to the European Internal Market. They are everywhere, accounting for between 60 and 70% of economic activity in the European Union of 25 Member States, and a similar (and rising) proportion of overall employment. This underlines the economic importance of services in the European Union.

 

The central principles governing the internal market for services are set out in the EC Treaty. This guarantees to EU companies the freedom to establish themselves in other Member States, and the freedom to provide services on the territory of another EU Member State other than the one in which they are established. The principles of freedom of establishment and free movement of services are two of the so-called "fundamental freedoms" which are central to the EU internal market.

 

Overall, the Internal Market has resulted in real benefits. For instance, in the 10 years since the completion of the first Single Market programme in 1993, at least 2.5 million extra jobs have been created as a result of the removal of barriers. The increase in wealth attributable to the Internal Market in those 10 years is nearly € 900 billion; on average about € 6000 per family in the EU. Competition has increased as companies find new markets abroad. Prices have converged (in many cased downwards) and the range and quality of products available to consumers have increased.

 

The principles of freedom of establishment and free movement of services have been clarified and developed over the years through the case law of the European Court of Justice. In addition, important developments and progress in the field of services have been brought about through specific legislation in fields such as financial services, telecommunications, broadcasting and the recognition of professional qualifications

 

However, despite progress in some specific service sectors, the overall Internal Market for services is not yet working as well as it should. Most of the benefits seen so far from the Internal Market have occurred in goods markets, and the need to make a serious effort to improve the functioning of the Internal Market in services has been clear for some time. Most notably, the Lisbon summit of EU leaders in March 2000 asked for a strategy to remove cross-border barriers to services.

 

As the reasons why services are not frequently traded between Member States were complex and not well documented, the Commission spent some time on the legal and economic analysis of the issues including a consultation with Member States, other European institutions and stakeholders. This resulted in the publication of a Report on the State of the Internal Market for Services in July 2002. This report set out, in detail, the legal, administrative and practical obstacles to the free movement of services across borders in the EU. It concluded that there was still a huge gap between the vision of an integrated EU economy and the reality as experienced by European citizens and European service providers.

 

It is clear from the work done by the Commission that these barriers have a serious negative effect on the cost and quality of the final service to users of services whether they are other service providers, manufacturers or consumers. Barriers to trade in services penalise in particular small and medium sized enterprises (SMEs), which are disproportionately affected by complex administrative and legal requirements and therefore more likely than larger firms to turn down cross-border opportunities because of them. Given the predominance of SMEs in service operations, this has clearly acted as a considerable hindrance the development of the Internal Market for Services.

 

Following the report, the reactions of stakeholders to it and further legal analysis, in January 2004 the Commission made a proposal for a Directive on Services in the Internal Market. This proposal is aimed at eliminating obstacles to trade in services, thus allowing the development of cross-border operations. It is intended to improve the competitiveness not just of service enterprises, but also of European industry as a whole. It will remove discriminatory barriers, cut red tape, modernise and simplify the legal and administrative framework - also by use of information technology – and make Member State administrations co-operate much more systematically. It will also strengthen the rights of users of services.

 

The internal market for capital

 

Not so long ago, Europeans were in principle obliged to manage and invest their money predominantly in their home country. Now, further to the liberalisation of capital movements and payments which has accompanied the consolidation of the Single Market, EU citizens can conduct most operations abroad, as diverse as opening bank accounts, buying shares in non-domestic companies, or purchasing real estate. However, the rules concerning some of these rights remain governed by national provisions which vary from one Member State to another.

 

Free movement of capital is an essential condition for the proper functioning of the Single Market. It enables a better allocation of resources within the EU, facilitates trade across borders, favours workers mobility, and makes it easier for businesses to raise the money they need to start and grow.

 

Free movement of capital is also an essential condition for the cross-border activities of financial services companies. Indeed, the effectiveness of EU initiatives in the financial services sector would be compromised if capital movements within the EU were subject to restrictions.

 

In 2005 the Commission completed the legislative phase of an action plan aimed at developing a true European-wide market in financial services and is now implementing a new strategy to deepen financial integration and deliver further benefits to industry and consumers alike. A more developed Single Market in financial services will provide consumers with a wider choice of financial products – such as loans, insurances, saving plans and pensions – which they will be able to buy from anywhere in Europe. It will also make it easier and cheaper for companies to borrow money, bringing down the cost of capital, goods and services for everybody.

 

EU Trade

 

o        GDP in billions of euro, 2003

Country	GDP (billions €)
Belgium (BE)	269.5
Czech Republic (CZ)	80.1
Denmark (DK)	188.0
Germany (DE)	2128.2
Estonia (EE)	8.0
Greece (EL)	153.0
Spain (ES)	744.8
France (FR)	1557.2
Ireland (IE)	134.8
Italy (IT)	1300.9
Cyprus (CY)	11.6
Latvia (LV)	9.9
Lithuania (LT)	16.3
Luxembourg (LU)	24.0
Hungary (HU)	73.2
Malta (MT)	4.3
Netherlands (NL)	454.3
Austria (AT)	226.1
Poland (PL)	185.2
Portugal (PT)	130.5
Slovenia (SI)	24.6
Slovakia (SK)	28.8
Finland (FI)	143.3
Sweden (SE)	267.3
United Kingdom (UK)	1591.4

 

 

Country	GDP (billions euro)
China (CN)	1253.0
European Union (EU-25)	9755.4
Japan (JP)	3798.5
Russia (RU)	385.3
United States (US)	9727.7
Where the EU is in world terms – 2003. Figures from World Bank

 

 

Although the EU represents only 7% of the world’s population, it accounts for approximately a fifth of global imports and exports. It is therefore a major trading power with an important role to play on the world stage.

 

Trade between EU countries accounts for two thirds of all EU trade, and it is vital to the economies of all the member states. It accounts for over half of all trade in each of the 25 countries, and in some cases it amounts to around 80% - as the graph shows.

 

The single market has made trade between EU countries much easier as goods, services, capital and people can now move freely across national borders

The EU is one of the main exporters of goods, as the graph below shows. The US is the EU’s biggest export market, and most of the goods entering the EU come from the US. However, between 1999 and 2003, the EU’s trade with China has more than doubled in value, and China is now the second biggest supplier of EU imports.

 

The EU is also an important trading partner for less developed countries, and this trade helps their economic growth. The EU is one of the biggest importers of agricultural products from less developed countries.

 

o        Trade with other EU countries, as a percentage of each country’s total trade, 2003

Country	%
Belgium (BE)	75.1
Czech Republic (CZ)	78.4
Denmark (DK)	71.5
Germany (DE)	64.8
Estonia (EE)	72.0
Greece (EL)	56.1
Spain (ES)	71.6
France (FR)	68.0
Ireland (IE)	62.4
Italy (IT)	61.0
Cyprus (CY)	59.3
Latvia (LV)	76.7
Lithuania (LT)	58.6
Luxembourg (LU)	82.4
Hungary (HU)	71.7
Malta (MT)	60.1
Netherlands (NL)	68.1
Austria (AT)	77.2
Poland (PL)	74.3
Portugal (PT)	79.9
Slovenia (SI)	71.4
Slovakia (SK)	79.2
Finland (FI)	63.7
Sweden (SE)	64.4
United Kingdom (UK)	57.0

 

 

 

 

 

International trade in goods, in billions of euro, 2002

	€ billion
China
Exports	463
Imports	436
Trade Balance	27
European Union
Exports	883
Imports	941
Trade Balance	-58
Japan
Exports	499
Imports	405
Trade Balance	94
United States
Exports	765
Imports	1380
Trade Balance	-615

 

The EU and third world poverty

 

§         Poverty is still a global problem, in spite of progress over recent decades. In 2001, in Sub-Saharan Africa, 314 million people were living on less than a dollar a day. Even in Europe and Central Asia, the figure was 18 million people.

The EU’s status as a major trading power gives it great responsibility for fighting world poverty and promoting global development. It seeks to use its influence within the World Trade Organisation to ensure fair rules for world trade and to make globalisation benefit all nations, including the poorest. It is also the world’s biggest donor of official development aid.

o        Official development aid as a proportion of the total aid given in 2004 by 22 of the 30 OECD countries

Country	%
European Union (EU-15)	54.6
Japan (JP)	11.3
United States (US)	24.2
Others	9.9