30 years of Europe’s single market – a great achievement of the EU
Finland lives off exports, which is why the EU’s Single Market is the lifeline of our national economy. Over the past 30 years, the European domestic market has gone through many stages. It should not be taken for granted. It is in the interests of both Europe and our own country that the Single Market is strengthened and developed, write Karoliina Rasi, an expert at the Confederation of Finnish Industries in Brussels, and Päivi Wood, a chief policy adviser at the Helsinki office.
The European Union’s Single Market celebrates its’ 30th anniversary this year and is undoubtedly one of the EU’s greatest achievements. Today, the Single Market consists of almost 450 million consumers and represents 18% of the world’s gross domestic product. It is vital for businesses of all sizes in the EU to grow, be competitive and expand internationally.
For Finnish companies, their “domestic market” has grown significantly and more than half of their goods’ exports are nowadays directed to the EU home market.
The free movement of people, goods, services, and capital within the Union is often taken for granted. These freedoms must be maintained even in difficult times. Studying, working, and living in another Member State are part of everyday life for many of us.
The steady development of the Single Market has recently been challenged by Brexit, Russia’s war, rising energy prices and, most recently, the plan to relax the state aid rules for the third time in a short period. At the beginning of the Covidid-19 crisis, Member States closed their borders, making it more difficult for both people and goods to move freely.
Thankfully, the restrictions were lifted soon, and the seamless export and import of people, goods, services, and capital was restored. The Single Market is vital for people in the EU to prosper enabling growth for Europe. The non-functioning parts of the Single Market must be fixed so that they don’t become obstacles to growth.
From a market of 5.5 million consumers to a market of 450 million
There is a domestic market of 450 million consumers for Finnish products and services. There are 84,500 employer companies in Finland, of which 28 per cent (24,000) are estimated to trade outside Finland. Finnish export companies trade mostly in goods (imports 70% and exports 73%), followed by services (32%) and 10% of enterprises trade equally in both.
How should the Single Market be developed?
The importance of the Single Market is particularly vital for those Member States whose own domestic market is small. In these countries, such as Finland, we must work to ensure that the Single Market develops. An ETLA study published on 13.3.2023 found that the biggest barrier that companies experience in the Single Market is technical barriers to trade. The same conclusion has been reached in a study conducted by Confederation of Finnish Industries in 2019.
A survey conducted by Confederation of Finnish Industries among its member companies before the Covid-19 crisis showed that companies are facing structural barriers to trade in the Single Market. The most significant obstacles turned out to be: 1) Different standards, certification, or technical requirements, 2. Difficult to find potential local partners, 3. Debt collection, 4. Different regulatory requirements and 5. Creation of a legal entity in another Member State, bureaucracy.
The Single Market Scoreboard, published annually by the Commission, shows that the overall framework for business activity in the Single Market is improving, but that difficulties remain in certain sectors. There are also notable differences between Member States.
In 2020, around 80% of Member States already provided digital public services to businesses. In contrast, in 2022, the average late payment by the authorities was almost 16 days, which is significantly more than before the covid pandemic. On a positive side, the perception of the impact of regulation on long-term investment decisions has improved for most Member States.
No to national additions to regulations, yes to harmonized approach
Technical barriers to trade, such as technical regulations or inspection and testing requirements, vary from one Member State to another, even though the basis for all is common European legislation.
As far as the services market is concerned, there is much to be done. The free movement of services is undermined, while at the same time hindering the effective functioning of the internal market. Small and medium-sized enterprises face a wide range of challenges. The Late Payment Directive of 2011 is already being revised because every year across Europe, thousands of small and medium-sized enterprises get into difficulties while waiting payment for their invoices. Late payment creates administrative and financial burdens that are particularly acute when businesses and customers are in different EU countries. Cross-border trade will inevitably become more difficult.
Perhaps the next Commission should ensure that existing EU legislation is fully applied in all Member States and is fully harmonized. National gold plating to the EU legislation should also largely be abandoned.
Will increasing individual Member States’ actions decentralise the activities of the internal market?
The term of this Commission is coming to an end and the priorities of the next Commission are being planned as we speak.
Last week’s news of relaxing the state aid rules for the third time in a short period is alarming. Increased competition between Member States in the form of state aid is fragmenting the functioning of the Single Market and the competitiveness of Europe in the face of global competition.
However, with protectionism knocking on the door, we must continue to work to ensure that the Single Market continues to boost Europe’s economic growth in the future. With well-functioning Single Market, we have a greater chance of mitigating climate change together and more effectively. The Single Market provides an excellent breeding ground for the development of the circular economy and digitalisation.
The 30-year-old Single Market is still going strong and hopefully offers its members prosperity for years to come.