The Internal Market in a Global Context

Transcription

1 The Internal Market in a Global Context

2 The National Board of Trade is the Swedish governmental agency responsible for issues relating to foreign trade and trade policy. Our mission is to promote an open and free trade with transparent rules. The basis for this task, given us by the Government, is that a smoothly functioning international trade and a further liberalized trade policy are in the interest of Sweden. To this end we strive for an efficient internal market, a liberalized common trade policy in the EU and an open and strong multilateral trading system, especially within the World Trade Organization (WTO). As the expert authority in trade and trade policy, the Board provides the Government with analyses and background material, related to ongoing international trade negotiation as well as more structural or long-term analyses of trade related issues. As part of our mission, we also publish material intended to increase awareness of the role of international trade in a functioning economy and for economic development. Our publications are the sole responsibility of the National Board of Trade. The National Board of Trade also provides service to companies, for instance through our Solvit Centre which assists companies as well as people encountering trade barriers on the internal market. The Board also administers The Swedish Trade Procedures Council, SWEPRO. In addition, as an expert authority in trade policy issues, the National Board of Trade provides assistance to developing countries, through trade-related development cooperation. We also host Open Trade Gate Sweden, a one-stop information centre assisting exporters from developing countries with information on rules and requirements in Sweden and the EU. National Board of Trade, November ISBN:

3 Table of Contents 1. Introduction Coherence Between Internal and External Policies Externalising the Four Freedoms A Policy Coherence Toolbox An external perspective on internal EU rules Improved transparency and regulatory co-operation Establishing common rules regulatory approximation External application of EU law, systems and instruments Reduce the differences between internal and external rules Coherence Between Internal and External Policies in the EU Growth Agenda Europe Notes References This paper is based on the study The Internal Market in a Global Context Externalizing the four freedoms (2012), authored by Sofia Persson and Henrik Isaksson with the help of other contributors from the National Board of Trade. 1

4 1. Introduction The EU should improve the consistency and coherence between its internal market rules and its external trade policy, which would lower trade barriers for both EU imports and exports, thereby strengthening the EU s competitiveness. The internal market, with its profound and cross-border approach to eliminating trade barriers, is a success, and, although some work remains to be done, it is an open market where goods, services, capital and persons circulate rather freely. The openness to trade in the internal market has undoubtedly contributed to growth within the EU and towards making it an attractive trading partner in global trade. However, the benefits of an open market do not stop at the EU external border. The openness that brings benefits to the EU s economy in the internal market can also be put to good use in its external trade policy and thus contribute to further integrating it into the global economy. To improve the EU s competitiveness a range of reforms is now under way to further deepen the internal market. This is a welcome step, but at the same time it is a fact that almost all global growth in coming years will occur outside the EU, where, according to the IMF, 90% of world growth will be generated in 2015 (IMF, 2011). This growth provides the EU with opportunities, for both exports to these markets and also for increased imports of goods and services, but this also presents the EU with new challenges when it comes to adapting to this new world economy. Trade is an important engine for economic growth. The EU therefore needs to find strategies for its integration into the world economy and it should not raise unnecessary trade barriers. Global value chains play an increasingly important role in international trade. In order to remain competitive in a global market, many companies have specialised and source goods and services from several countries. As a result, trade in intermediate goods and services has increased, and a growing share of countries exports consists of intermediate inputs imported from abroad 1. In a world economy characterized by global value chains, a regulatory environment that does not cause unnecessary costs for trade, especially for input goods and services is an important factor, and thus EU policies in the internal market and in external trade policy should be non-discriminatory 2. This would suit the business reality of EU companies, which are a part of international productions chains and depend on favourable conditions for both imports and exports, in order to remain competitive in the global market. 2

5 2. Coherence Between Internal and External Policies Externalising the Four Freedoms The internal market in the EU ensures that economic integration does not stop at eliminating border barriers but also aims to achieve a deeper level of integration among EU Member States. Nonetheless, the benefits of access to a large market do not stop at the EU external border. Expanding the internal market by reducing barriers to third countries can contribute to even greater economic benefits. This line of thinking is not a new phenomenon in the EU. In some areas and sectors, efforts to increase the coherence between internal and external policies have made great progress whereas, in others, it still remains a relatively new approach. The EU has at its disposal a range of tools and instruments for policy coherence between internal and external policies. This paper wishes to encourage EU policy-makers to consider how these tools and instruments can be used in new and innovative ways. The rules on free movement of capital is the area that has the highest degree of coherence between internal and external policies in the EU. As a general rule, the EU Treaty does not distinguish between capital flows between EU Member States and those between EU Member States and third countries. The line of thinking has been that if free movement of capital is beneficial in the internal market, it should be applied also to third countries. The EU should consider whether this argument is valid also in other policy areas and, if so, how to devise policies that takes this external dimension into account. There is a high level of awareness of the benefits from coherence between the internal and external policies in the area of trade in goods. The internal market in itself contributes towards making the EU more open to trade with countries outside the Union. Legislation in the EU and its Member States might complicate market access for third countries Free movement of persons Free movement of services Free movement of goods Free movement of capital Low High Coherence between internal and external rules in the EU 3

6 but, in principle, once third-country goods have been imported into an EU Member State, they can circulate freely among all Member States without further restrictions. For firms trading in goods, the need to adapt their products only once to fulfil EU rules is simply much better than having to do so twenty-seven times for each EU Member State, which contributes to making the EU economy open to trade in goods. The EU has at its disposal quite a few established arenas for discussions on how to overcome regulatory barriers to trade in goods: in both the WTO and in bilateral settings with major trading partners, while there are also a number of tools and instruments for overcoming regulatory barriers to trade in goods. The strategies used in the goods sector could be employed as a benchmark for overcoming regulatory barriers also in the area of services and labour mobility. The internal market within the EU for services remains to a large degree fragmented. In most sectors there are sectoral directives that lay down common principles and minimum standards, for example, with regard to safety and quality, thus contributing towards various degrees of partial harmonisation. However, most regulatory activities for services take place at the national level. For companies in the EU s trading partners, it is difficult to cope with this regulatory heterogeneity. Most attempts to liberalise international trade in services focus on eliminating openly discriminatory market barriers. Although regulatory differences may constitute important barriers to trade in services, efforts devoted to regulatory approximation have received less attention. The free movement of persons, in the sense of worker mobility, is without doubt the least realised of the four freedoms. This can be explained by sensitivities relating to the organisation of the national labour markets and welfare systems, as well as immigration policies. Free movement of people in the form of labour migration, both within the EU and between it and third countries, is limited. Although language barriers and cultural differences partly account for such low mobility, this is also due to legal barriers that place obstacles in the way of intra-eu mobility. Most policies affecting labour mobility are not an EU competence but are decided by the Member States. The low degree of worker mobility is problematic for the EU since it is essential to better match demand and supply on the national labour markets, and also to temporarily supply services abroad. According to the Commission, the complaints most frequently raised by the EU s trading partners relate to the temporary movement of workers into the EU (European Commission, 2012). 4

7 3. A Policy Coherence Toolbox This paper argues that the EU has at its disposal a range of tools and instruments for policy coherence between internal and external policies; and it wishes to encourage policy-makers to use these tools and instruments in new ways or new sectors. Some of the necessary actions can be taken by the EU on its own, without cooperation with its trading partners. To strengthen the external dimension in internal decision-making, for instance through use of Impact Assessments, is one example of actions that the EU can take unilaterally. Other actions require the EU to cooperate and negotiate with trading partners. An important aspect of the work on regulatory convergence needs to be undertaken in cooperation with the EU s trading partners. In areas that are still of national competence in the EU, steps towards greater coherence between internal and external policies can also be taken by individual EU Member States. One example is the Swedish implementation of the EU Posted Workers Directive, which gives the same rights to posted workers from both EU and non-eu firms An external perspective on internal EU rules Many EU internal rules have an external dimension. In fact, it is often not possible to draw a clear line between EU internal policies and external trade policies. There are a range of examples of EU internal rules that have been perceived by its trading partners as barriers to trade. These rules prevent imports into the EU, but they could also hamper the ability of the EU to address trade barriers that EU companies are faced with when exporting to third countries. The EU cannot expect its trading partners to listen to complaints about trade barriers from EU exporters, if the EU itself does not seriously consider the external effects of its own internal rules. Decision-making is therefore a question of achieving the desired objectives (environmental goals, consumer protection and health etc.) without introducing unnecessarily traderestrictive policies. Before the Commission tables a new legislative proposal, it assesses the potential consequences of the proposal in an Impact assessment, and this Impact Assessment process is an excellent instrument for general policy coherence. However, these assessments could be improved in terms of taking the effects on external trade into account, and the use of the assessment in the decision-making process in the EU could also be strengthened. An obligatory aspect of the Impact Assessment is consultation with interested parties. It would be useful to include organisations or government representatives from third countries in such consultations, and it is also important to listen to the views of import firms in a structured manner. In its Impact Assessment process, the EU could also look at experiences in other countries that have implemented similar legislation and learn from their best practices. An important part of the process of elaborating rules that have an external dimension should be to 5

8 listen to input from the EU s trading partners, and the EU has a number of fora and structures in place to do so. The EU also needs to become better at conducting ex-post evaluations, not least of the external commercial consequences of new EU-laws. Apart from evaluating the effect of a specific set of rules, there is also a case for broader evaluation projects Improved transparency and regulatory co-operation The EU should aim to be the most transparent regulator in the world. The EU has put in place a number of notification mechanisms in the internal market that have contributed to making its regulatory framework more transparent. Experience from these systems could also be used in external trade. An increased level of transparency in the EU decision-making process would make it easier for third countries to voice concerns on potential trade restrictive measures. A more comprehensive way of notifying trade partners about such measures, not only for goods but also for services, could be pursued. An early warning system of in free trade agreements might be one step that could be taken. The EU could also strengthen its formal dialogues on regulatory issues with major trading partners, such as the US and China. First and foremost, the aim should be to avoid new barriers to trade, but the EU should also try to resolve the issue of existing barriers. However, experience shows that consultations with third countries do not always prevent new trade barriers from arising. Objections by third countries are often weighed against the objective to regulate new areas. The EU could broaden the scope of its Market Access database, used to identify third country trade barriers, so that non-eu companies could also report trade barriers they encounter in the EU market. Another idea worth considering is to open up networks and information points in the internal market also for third-country operators. Box 1 The EU-China RAPEX agreement successful cooperation for increased transparency One positive example of concrete regulatory cooperation is the EU China RAPEX agreement. RAPEX is a rapid alert system in the EU aimed at ensuring that products on the market are safe. When a Member State discovers a dangerous product, the Commission is notified and it then disseminates this information to other Member States so that the product can be withdrawn from the internal market. The RAPEX system has been extended to China through the EU-China RAPEX agreement. By extending RAPEX notifications to China, the Chinese authorities can directly investigate the problem on site and, if necessary, stop exports of the product in question. This will help in not only reducing the risk of dangerous products entering the EU market, but also reduce trade friction with a major third country. 6

9 3.3. Establishing common rules regulatory approximation Differences between countries rules can become an obstacle to international trade. Trade in goods is often subject to various safety, environmental or health requirements. In international trade the effect of these rules could be that they become a barrier to trade, so called technical barriers to trade (TBT). Barriers to trade in services can take various forms. They can be quantitative, for example, requiring a certain percentage of board members to be nationals or having a cap on foreign ownership, or they can be qualitative, for example requiring the services to fulfil certain specifications. They can also be bureaucratic, for example, stipulating licences and qualification requirements. If the EU is to take full advantage of the benefits and opportunities that global trade offers, it is essential that it should work to avoid and eliminate unnecessary regulatory barriers to trade. Removing these kinds of barriers to trade is a more complex exercise than to overcome traditional barriers to trade such as tariffs and quotas. The potential gains from regulatory convergence are great, although it is difficult to assess the gains from removing these regulatory or non-tariff barriers to trade. One study found that if half the non-tariff barriers between the EU and the US were eliminated and 50% percent of the regulatory divergences were aligned, the EU s GDP would grow annually by 122 billion euro and its exports would rise by 2.1% 3 (ECORYS, 2009). The EU internal market is one of the best examples of how countries can work together to eliminate technical barriers to trade. No other region in the world has such a far-reaching legal framework to ensure that economic integration is not restricted to reducing border barriers but also aims to achieve a deeper level of integration. This is the result of a combination of the harmonisation of rules in most sectors with the principle of mutual recognition in non-harmonised sectors. However, harmonisation is an expensive and lengthy exercise for the trade partners concerned, and it also requires a common legal space. It has worked well in many sectors in the EU, but it is not an easy alternative when it comes to eliminating regulatory barriers between sovereign states. Consequently, the EU should actively seek other strategies to overcome regulatory barriers to trade with its trading partners. For a long time, the EU strategy when it came to regulatory convergence was to expect its trading partners to adapt to its rules and regulations. The EU could remain assured of the attractiveness of its regulatory model, since compliance with EU rules meant that trading partners gained access to the world s largest market. By virtue of the size of its internal market, the EU could become a standard setter on the international arena and extend its regulatory space to neighbouring countries and also do so by means of Free Trade Agreements. With some countries in its neighbourhood, the EU has signed agreements under which the partner countries align some parts of their national legislation to the EU rules (the acquis communautaire), so called ACAA 4 agreements. The objective is to eliminate technical barriers to trade for goods. For the 7

10 EU, these kinds of agreements are convenient since they mean that it is simply disseminating its own norms and values to its partner countries. Similar agreements have also been discussed within the field of services. In the free trade agreement between Ukraine and the EU, Ukraine has agreed to transpose into Ukrainian law, EU directives relating to telecommunications, finance and transport. One important aspect of this kind of expansion of regulatory space is that it is properly implemented. It is therefore important to follow up such expansion by administrative cooperation, in order to ensure that the implementation and interpretation of the rules are undertaken in the same way in those countries that have entered into the agreement. Many neighbouring countries lack the all-embracing quality infrastructure that exists in the EU countries. In these instances, the EU may need to provide technical assistance to strengthen the quality infrastructure in these partner countries. Otherwise, the opportunities for increased trade might be hampered by difficulties on the part of the partner countries in understanding, implementing, and adhering to, EU legislation. However, the EU must acknowledge that the strategy of persuading trading partners to adopt the EU acquis does not work in the case of economically advanced trading partners, who have their own strong regulatory traditions. Therefore, other ways must be employed to achieve regulatory approximation with important trading partners. The conclusion of agreements on mutual recognition (MRA) has been one strategy employed by the EU in sectors where harmonisation has proved too complicated. However, evaluations by the Commission on the effects of MRAs on goods have not shown that the resulting benefits were as great as had been expected, and it is therefore uncertain whether the EU will engage in negotiations on any new MRAs for goods. Even if agreements on mutual recognition have proved onerous and difficult to negotiate in the field of goods, this should not mean that the EU should discard this approach all together. One example of an area where mutual recognition can work is recognition of educational and vocational qualifications. This kind of MRA is currently being discussed in the free trade negotiations between the EU and Canada. Agreements based on functional harmonisation is another way forward to the achievement of regulatory approximation for both goods and services. Functional harmonization means that the trading parties recognize each other s rules as functionally equivalent, i.e. that the rules are intended to achieve the same objectives, even if the methods of doing so may differ between countries. This is possible only if the two parties actually have the same objectives for their rules and there is a high degree of trust between them. Examples of agreements where the EU has used a strategy of functional harmonisation are the EU-US agreement on marine equipment and the annex with provisions for the automotive industry in the free trade agreement between the EU and South Korea. Another way to achieve recognition between trading partners of functionally equivalent technical rules in specific sectors is to use the UNECE International Model for Technical Harmonisation. When it comes to differing standards, which is another potential trade barrier, it might prove worth-

11 while to undertake a screening of the divergences between EU and international standards. This would hopefully identify areas where there could be room for increasing regulatory correspondence. It is equally important to get the new efforts devoted to services standards, which are currently in their infancy, right from the beginning and to avoid unnecessary EU deviations from international norms External application of EU law, systems and instruments The EU could also consider whether systems and rules that bring benefits on the internal market could also be used in external trade. For example, some elements of the Services Directive could be used with respect to external trading partners. What is termed the black list of special trade restrictive measures could be extended to include non-eu countries, which would mean that the worst forms of rules that impose restrictions on service companies would be banned in their entirety. The thinking among policy-makers should be that if these rules are harmful, they are harmful to all businesses, not just EU ones. A non-discriminatory approach should not focus solely on goods and services. Policies on the free movement of workers are in even greater need of reform. Labour migration, both within the EU and between it and third countries, is limited. This is problematic for the EU, since worker mobility is essential in order to better match demand and supply on the national labour markets and also to temporarily supply services abroad. Although language barriers and cultural differences partly account for such low mobility, it is also due to legal barriers that place obstacles in the way of intra-eu mobility. Various schemes exist that address the free movement of workers and two of the most important ones, the Professional Qualifications Directive and the Posted Workers Directive, are currently being reformed. The EU Member States could decide to transpose these directives in their national law in a way that does not discriminate between EU and third-country workers. The Professional Qualifications Directive lays down a framework for the way in which the EU Members States should work to recognise foreign qualifications. The directive stipulates that anyone with qualifications acquired in a third country, who has had such qualifications recognised in an EU Member State, has to have three years professional experience in that Member State before these qualifications can be considered by another Member State. Individual EU Member States could decide to eliminate this three-yearperiod, and automatically and immediately recognise other Member States decisions on third-country qualifications, as well as directly open up their national systems to third-country qualifications. The Posted Workers Directive stipulates the rights of workers posted from one EU country to another, and a Member State could decide to transpose this directive in its national law in a way that does not discriminate between workers from the EU and those from third countries 5. These are two examples of how the EU Member States can individually pursue integration with third countries. 9

12 Public procurement is one area where individual Member States can also apply internal rules in an external context. According to Swedish procurement legislation, not only firms from other EU Member States but also those from third counties can compete for public contracts on an equal footing with their Swedish counterparts. During and after the implementation of an EU directive, an information exchange sometimes takes place between the EU Member States and the Commission, on how EU directives have been implemented into law in different countries, as well as a sharing of best practices. In these best practice exercises, the benefits from implementing the directives in a non-discriminatory manner between internal and external policies could be highlighted. Another tool that might be useful in this regard is the Internal Market Information System (IMI), which has been developed to facilitate communication between government agencies in different EU Member States. It is an Internet-based system, designed to overcome language and administrative barriers, and to facilitate the correct application of the internal market rules. It is currently used for communications regarding the Professional Qualifications, Posted Workers and Services Directive, but there are ongoing negotiations aimed at extending the scope of the system to other areas. In this context a discussion could also be held on the opportunities for widening the scope to include third countries. This is already happening with Switzerland in the field of professional qualifications, but the IMI could probably be extended to other advanced countries as a means of overcoming problems related to labour mobility. Box 2 The Posted Workers Directive in Sweden The EU Posted Workers Directive, adopted in 1996, regulates the labour laws (from the home or host country) that should apply to workers who work temporarily in a country other than the one where they are usually based. One example is that of construction workers from central Europe working for one year on a project in Germany. The directive aims to increase labour mobility and trade in services by increasing predictability for both employers and workers, while avoiding the risk of social dumping. In essence, the directive gives posted workers the same rights as other workers in the host country. It lays down a core set of mandatory rules governing the terms and conditions of employment to be applied to an employee posted to another Member State. The directive does not apply to workers posted by a third-country firm. In the transposition of the directive into Swedish law, the rights under the directive were extended to workers posted by a third-country firm as well as to those from other EU countries. The line of thinking behind this was that the same predictability is needed for posting both EU citizens and non-eu citizens. Thus, under Swedish law, there is no discrimination between workers from EU firms and those from third-country firms, as they both enjoy the same rights. 10

13 3.5. Reduce the differences between internal and external rules This paper argues the need for greater coherence between internal and external policies in the EU, and that this coherence should result in more open trade policies. The question of unfair trade is one area where external and internal policies diverge greatly. In the internal market the issue of unfair trading practices is addressed through competition rules. The corresponding means used in external trade is the antidumping instrument. Although both instruments, or sets of rules, are there to ensure that companies do not abuse their position in the marketplace, they have little in common. Predatory pricing is viewed quite differently, according to whether the product has been manufactured in the EU or imported from a third country. What is considered dumping in the case of imports from third countries is considered normal competition with regard to a product manufactured in the EU. Anti-dumping measures and competition rules are therefore a field where the EU could benefit from harmonising its internal and external policies, using the competition rules as a benchmark in the anti-dumping field. 6 In the area of public procurement, the concept of coherence between internal and external policies has been turned upside down. The main objective of public procurement is to ensure that taxpayers money is spent efficiently in terms of quality and price (the best value for money). Here, competition is vital to achieving a more efficient European procurement market, but instead of pursuing policy coherence with the aim of opening markets and increasing competition in the EU market, the Commission has proposed that the EU closes its public procurement market to countries that do not offer reciprocal access to their public procurement market. A better option would have been to benchmark with respect to the procurement rules in the internal market that lead to an open market, and replicate them in external trade, rather than doing so the other way around. 11

14 4. Coherence Between Internal and External Policies in the EU Growth Agenda Europe 2020 Europe 2020 is the EU growth strategy for the next ten years that sets out what the Union needs to do to achieve the goals of high levels of employment, productivity and social cohesion by the year That coherence between internal and external policies can contribute to a more competitive EU has been recognized in both the internal market and trade policy components of this strategy. The growth strategy for the internal market is called the Single Market Act. In the communication preceding the Single Market Act, the Commission discusses the importance of coherence and complementarity between internal and external policies. Under the heading Being competitive in global markets the Commission writes that [t]he single market comprises a kind of vital base camp that allows European companies to prepare themselves better for international competition and the conquest of new markets. This makes it all the more important to guarantee that our internal and external policies are coherent and complementary (European Commission, 2010). An overall objective of all the reforms proposed in the Single Market Act should be to strengthen the external dimension of the internal market, but the Commission has not yet proposed any concrete reforms to achieve this aim (European Commission, 2011). Trade, Growth and World Affairs is the external trade strategy under the Europe 2020 umbrella. Here, the Commission states that the EU need[s] to do more to leverage the effectiveness of internal and external policies and thereby enhance Europe s competitiveness in the global market place. The Commission therefore intends to examine how to strengthen the mutual links between internal and external regulatory actions and to explore how to improve coordination between the two in areas like government regulation and international standards, with a particular focus on future legislation. (European Commission, 2010a) That the Commission so clearly identifies the need to integrate the internal market in the world economy in its growth strategy is a reflection of the importance of the issue. However, it is clear from the two strategies that it is not possible to point to one single reform or action that would achieve the aim of increased coherence. Instead it is a perspective that should permeate much of the policy decisions in both the internal market and external trade policy. 12

15 Notes References 1 One-third of Swedish exports consists of imported raw materials, input goods and intermediate services from subcontractors around the world (National Board of Trade, 2010) 2 For a review of the literature on global value chains and its implication for EU trade policy please see: National Board of Trade (2012) Business Reality and Trade Policy Closing the Gap, Kommerskollegium 2012:2 3 For the US, the reduction in non-tariff measures and regulatory convergence would result in an annual GDP increase of 41 billion euro and a 6.1% rise in its exports. 4 ACAA Agreement on Conformity Assessment and Acceptance of Industrial Products. For EU candidate countries, these agreements are called PECA (Protocol to the European Agreement on Conformity Assessment and Acceptance of Industrial Products) 5 Please see the box below for information on Sweden s implementation of the directive. 6 For a more in-depth discussion, please see National Board of Trade (2012a) Dumping or Competition? The EU Anti-Dumping Duties of Ceramic Tiles, 2012:02 ECORYS (2009) Non-Tariff Measures in EU-US Trade and Investment An Economic Analysis, Reference : OJ 2007/S European Commission (2010) Towards a Single Market Act, For a highly competitive social market economy, 50 proposals for improving our work, business and exchange with one another, Brussels , COM(2010) 608_final/2 European Commission (2010a) Trade, Growth and World Affairs, Trade Policy as a Core Component of the EU s 2020 strategy European Commission (2011) Single Market Act, Twelve levers to boost growth and strengthen confidence Working together to create new growth, Brussels , COM(2011) 206_final European Commission (2012) Working together for growth Making the most of the internal market and external trade, Discussion paper high-level conference 20 January IMF (2011) World Economic Outlook National Board of Trade (2010) Made in Sweden? A New Perspective on the Relationship between Sweden s Export and Imports, Kommerskollegium 2010:6 National Board of Trade (2012) Business Reality and Trade Policy Closing the Gap, Kommerskollegium 2012:2 National Board of Trade (2012a) Dumping or Competition? The EU Anti-Dumping Duties of Ceramic Tiles 13

16 Box 6803, S Stockholm, Sweden Phone Fax registrator@kommers.se 14