Rule of law and the European single market

Taneli Lahti,
Dr., Professor of Practice,
Turku School of Economics at the University of Turku,

Confederation of Finnish Industries, EK,

The single most valuable economic asset of Europeans is their Single market; a common market place of 500 million consumers that creates an annual gross domestic product of over15 trillion euros and over 30.000 euros for ever European citizen. These achievements make the European Union the largest economic area in the world, giving it global influence and a possibility to steer global developments, be it in the field of climate policies, digitalisation or trade and finance.

In the single market goods, services, capital and skills move freely across borders of member states, increasing the choice of consumers, keeping prices in check and allowing enterprises to compete on the worlds largest playing ground. What makes it here, will make it anywhere in the world. The single market is therefore not only a market place with enormous opportunities, but also a springboard to global markets. Once you have succeeded on the European market, you can be confident that you will be competitive also globally.

The European single market has created thousands of brands, innovations and creative products that are sought after where ever you go around the globe. Just look at the selection of shops and goods in any shopping mall or super market in Asia, the Americas or Africa. Many of the goods people are buying or saving for look familiar. If they are not of European origin, very often they emulate European design and lifestyle. While we Europeans tend to be very critical of ourselves and our achievements, we tend to oversee that Europe still often stands for what is of highest quality and standards. Competition is growing every day, but we do still hold our share.

Once you have succeeded on the European market, you can be confident that you will be competitive also globally.

Furthermore, the single market is open to all, not only to Europeans themselves. Companies, products and ideas from all over the world seek to make it on the European market, which remains one of the most attractive in terms of size and purchasing power in the world.

What makes the single market, how does it work? After all, Europe is made of tens of independent countries, tens of languages, several currencies and hundreds of diverse cultures. How can there be a single market if its basis is so manifold and fragmented? This is made possible by shared, jointly agreed rules, standards and regulations. Within the European Union, member states have created over decades a rulebook of stunning magnitude and detail, regulating the way the four freedoms materialise in practice.

It is exactly the much derided directives, regulations and delegated acts that make the market, that allow enterpreneurs to test the success of their inventions and products in all EU member states, that allow consumers to enjoy reasonably prized goods of great variety from all corners of Europe and that allows ideas, knowledge, entrepreneurship and people pursuing their dreams, to move and prosper freely wherever in Europe they wish to.

Every single European rule regulating the functioning of the single market is borne out of a need for common approaches as expressed by consumers, producers and other stakeholders wishing to make the market work better. There are thousands of stakeholders wishing to get their voices heard and demands reacted to. But, before a call for new rules or standards turns into regulatory practice, it goes through thorough preparation and vetting, where all concerned stakeholders are heard, experts have their say, evidence is collected and best scientific knowledge applied. Only after years of thorough preparation the rules become subject of decision making by politicians, who make the final choices on the route to take and approach to follow.

The process takes years from identified need to everyday practice, and is often criticised for being to slow, too heavy. But, there is no short-cut to a well regulated and well functioning single market. Every regulatory change causes adjustment costs and has to be carefully prepared. The current process may be slow, but it does produce probably the best regulatory framework in the world. Just look at how European regulatory practices quickly are followed across the world and become global standards. To give two examples, the GSM in the nineties allowed mobile communications to develop and the GDPR of just two years ago is now being applied in most of the western world to ensure confidence and confidentiality between digital service providers and consumers.

It is easy to ridicule European law making for being too much and too cumbersome. But, the alternative to European rules would be rules and regulations created by every member state, region or other actor itself. The result would be an unmanageable labyrinth of tens of differing sets of rules, and effectively no single market at all.  It is therefore usually preferable to aim for European rules and regulations that are evenly applied all across the single market.

The European single market requires constant care-taking and cultivation.

But, even the best regulatory framework delivers its objectives if it is consistently and evenly applied everywhere. In case of large deviations in the way rules are being interpreted or in the way they are being implemented by national authorities and judicial systems, the result is at best a fragmented single market or at worst no single market at all. The larger the differences are, the more difficult and costly it is for companies to operate across national and regional borders. In the end, business and economy suffer, and consumers end up having less choice and higher prices.

The European single market requires constant care-taking and cultivation. If it is left on its own, it will start fragmenting very quickly. Market participants will want to defend their positions from competition, regional and national authorities will start developing their own rules and practices and obstacles to trade and investment will emerge. There will therefore have to be a strong and independent authority to monitor and ensure correct implementation of the agreed rules, supported by strong and independent judicial systems where market participants can seek justice when necessary. The rule of law is therefore essential for the functioning of the single market. Companies and consumers, all citizens in general will need to be able to trust that their rights are always and everywhere in Europe protected efficiently. Otherwise, the potential and benefits of the single market cannot materialise fully. From business point of view, rule of law is not an abstract, but something that affects its operations every day. It is therefore highly welcome that the European Union and its member states are paying increasing attention to their commitment and protection of the rule of law.

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