TUC evidence to BIS on the EU internal market
TUC submission to BIS
Review of the balance of competences
February 2013
Introduction
The Trades Union Congress (TUC) has 53 affiliated unions, representing almost six million members, who work in a wide variety of sectors and occupations. The TUC welcomes the opportunity to respond to the BIS call for evidence on the internal market as part of the wider Review of the Balance of Competences between the EU and the UK.
In general, while we want to engage with the Review process, the TUC has some concerns with regards its methodology. The review claims to be an evidence based exercise, however some questions are so vague that they can only be answered in general terms and with opinions that are, by their nature, subjective and representative of the view of the respondent/s. While the TUC is not averse to sharing its views on this and other subjects, it is difficult to envisage how these will be 'weighed' next to other organisations' responses to come to an allegedly neutral assessment of the implications of EU membership, which is the stated aim of the review.
With regards to this particular call for evidence, the TUC supports an internal market in which the social and economic dimensions go hand in hand, and can only support the completion of the internal market if effective social protection and safeguards for public services are guaranteed. In our view support for the internal market and the EU among citizens and working people will only be maintained if the social dimension is strengthened and extended, a view which is not unique to the TUC but increasingly being recognised by the European Commission as well as other actors.
The TUC response to this call for evidence focuses in particular on:
- the economic benefits to the UK deriving from trading freely with its European neighbours;
- the need for creating a level playing field in social and employment protection to counter the negative effects that market integration has had in respects of certain rights/entitlements and of the risk of social dumping;
- the alleged 'gold plating' of EU rules in the UK; and
- future enlargement and the need to keep an 'open door' policy as in 2004 so as to decrease the risk of illegal migration and thus exploitation of migrant workers.
Responses to consultation questions
Market integration and the internal market
What are the essential elements of an internal market and against what criteria should we judge its economic benefits? How deep does it need to be to be effective?
The EU is the world's biggest exporter and the second-biggest importer. In 2011, despite the crisis, its combined GDP was bigger than the US and trade with the rest of the world accounts for around 20% of global exports and imports. Access to a market of such proportions has undoubted economic benefits to any participating country. Indeed nearly 50% of UK goods are exported to the EU - but overall the UK accounts for only 22% of total EU exports[1], which could suggest that the British economy is much more dependent on the internal market than the EU is on the British economy.
In 2002, the European Commission conducted a ten-year review of the single market. It identified the following benefits from market opening:
- an increase in EU GDP in 2002 of 1.8% or ?164.5 billion
- the creation of some 2.5 million jobs in the EU since 1992 that would not have been generated without the opening up of borders
- extra prosperity amounting to ?877 billion since 1992, which is equivalent to roughly £3,850 (?5,700) for an average household[2].
The OECD has estimated that a 10% increase in trade exposure is associated with a 4% rise in income per capita - thus, an increase in intra-European trade since the early 1980s may have been responsible for a growth in income per capita in the UK of around 6%[3].
Given the compelling evidence the TUC believes that there are clear economic benefits deriving from the internal market. However, the TUC also believes that while great progress has indeed been made on completing the internal market, there hasn't been an integrated approach and the single market has become an end in itself rather than being seen as a tool for the achievement of broader societal goals that are at the heart of the European project, such as the development of a social market economy which comprises the improvement of living conditions, high levels of employment, social inclusion etc (articles 1-3 TEU). Thus the negative aspects of some policies - the fact that there have inevitably been losers as well as winners - have not been properly addressed, and as a result even the European idea itself has been brought into question. Widespread concerns about jobs displacement illustrate this. The TUC has argued many times that the internal market needs a social dimension - as Jacques Delors famously said 'people will not fall in love with the Single Market'.
Thus the TUC believes the social dimension must form an integral part of the internal market. Measures respecting and promoting fundamental social rights, collective bargaining, employment rights and equalities, are essential to protecting working people and their living standards. Effective labour market regulation can play an important role in preventing unfair competition and the undercutting of employment standards as well as supporting and generating high value, high trust and highly productive workplaces.
Historically, the process of economic integration has focused on removing barriers to trade, starting with the establishment of a customs union and progressively focussing on product market standardisation. Integration in these areas has been far reaching - less so in the fields that would indeed make Europe more competitive, such as developing a Europe-wide industrial strategy (most recently the Commission's communication on this falls short of what is needed) and a coherent framework for greening the European economy, encouraging R&D and ensuring the future sustainability of the EU. Deeper integration in these areas would be welcome if it aimed at increasing the quality of European products and not just at decreasing production (and labour) costs.
To what extent is EU action in other areas - for example, environment, social, employment - necessary for the operation of the internal market, as opposed to desirable in its own right?
As stated above, the TUC believes that common regulations in the environmental, social and employment fields are not only desirable but necessary for the attainment of the EU objectives and for the creation of a level playing field in which free competition does not equate to undercutting and exploitation of workers.
Much of the conventional economic analysis assumes all regulation is bad and therefore less of it is inherently a good thing and will result in higher growth and more jobs. This is a one-sided view that fails to take into account the potential benefits of regulation. Setting high and consistent standards can encourage competition on the basis of innovation and productivity, rather than cost-cutting and poor quality provision. Moreover, restrictions can have a good economic and social reason for them, for example, most governments tightly control gambling activity and set tough requirements for firms engaged in services with significant environmental, legal or public health implications.
By way of example it is useful to remember what happened during the adoption of the Services Directive, with the European Commission and some Member States pushing through a proposal just based on narrow market logic, and ignoring wider concerns from citizens and trade unions in particular. This contributed to a rejection of the Constitutional Treaty in the French and Dutch referenda and to increased hostility towards the EU elsewhere. Renewed efforts must be made to win back citizens by giving the EU a human and social face, starting with shoring up their protections at work - rather than perceive these as obstacles to the internal market. Even the European Commission recognises[4] that many perceive that increased liberalisation in recent years has been only achieved at the cost of social rights.
The TUC believes that there is a need for legal reform in the EU to reconcile economic freedoms with fundamental social rights and ensure that EU law complies with human rights standards as recognised by the ILO and Council of Europe. Protections are also needed to ensure equal treatment for workers who exercise rights to free movement, including posted workers. Such protections are the only way to prevent unfair competition. If these issues are not adequately addressed the EU will increasingly be perceived as a business conspiracy with nothing in it for ordinary citizens and workers.
The operation of the internal market
How have the EU's mechanisms for delivering an internal market worked? In particular, what do you believe is the right balance between harmonisation and mutual recognition? What evidence is there that harmonisation has worked well or badly? What are your views on the scope and effect of the EU's powers under Articles 114 and the use of Article 115 for non-tax measures?
It is difficult to assess whether the two principles of mutual recognition and harmonisation have worked; it would be fair to say that a mix of both has helped develop the internal market to a high level of integration as we have today. The two principles should be seen as complementary and offering different benefits. Mutual recognition for instance allows businesses not to face duplication in licensing requirements. On the other hand, harmonisation of national regulations at a high level of protection for workers, consumers and environment has clear advantages too. Where either principle hasn't achieved the desired result of eliminating barriers and discriminatory behaviour, the European Court of Justice (ECJ) has sought to level the playing field through its case law.
In this debate one should not lose sight of Member States' jealously guarded sovereignty, as well as popular opposition, which has led in many instances to the rejection of European Commission initiatives that sought to revive the principle of mutual recognition. Again the Services Directive illustrates this when attempts to introduce the 'country of origin' principle - whereby host countries would no longer be allowed to exercise controls over foreign services providers operating on their territory - were defeated.
As to the use of articles 114-115, which allow for the approximation of national laws and provisions with the purpose of completing the internal market, the TUC believes that the exceptions contained therein offer sufficient guarantees to Member States concerned that the EU might abuse the powers conferred to it. These articles explicitly exclude harmonisation in the field of fiscal policy, free movement of persons as well as rights and interests of workers. The latter caveat in particular is meant to fully respect national industrial relation systems - a feature which the TUC wholeheartedly supports. The treaty also allows for Member States to maintain national provisions for overriding reasons of public interest, which again the TUC views as a significant counterbalance to EU competence.
Why is the internal market so much deeper in some areas than others? How effective has implementation of the internal market been, and what do you feel has helped or hindered implementation of internal market rules?
The TUC agrees with the view that some areas of the internal market are better integrated than others. For example, there is a stark contrast between the level of integration of the product market and the services market or indeed the freedom of movement of workers. However the TUC also maintains that not all areas lend themselves to cross-border trade and that potential trade in services is always limited as many services are necessarily local and personal, as argued in a report[5] on the economic case for the Services Directive. Indeed a study carried out by Price Waterhouse Cooper for the then DTI on barriers to establishment and cross-border trade found that 60% of the barriers to cross-border provision of services cited by firms were natural, mainly cultural and language, rather than regulatory barriers - which in our view undermines the case for further deregulation. Moreover, the European Commission's own reports for the Services Directive show virtually no barriers in trade in IT, very small barriers in retail and only found significant barriers in the 'regulated professions' such as accountancy.
A debate about effective implementation of the internal market cannot be had without regards to the macroeconomic situation. Without such perspective, there will always be a tendency to say that the market is not functioning properly because of bad regulation or uncompetitive practices, thus leading to structural reforms as the answer. However the last 20 years have shown that whether the internal market was developing well had much more to do with whether the economy was growing than with the specifics of structural reform proposals. In fact, it is much easier to achieve successful structural reforms, and to complete economic integration, when the economy is growing than when there is a recession.
Too often, internal market policies have become synonymous with neo-liberalism - with ideological 'the market knows best' policies - rather than with measures to make the market truly European by ensuring non-discrimination and equal treatment for economic operators and for their workers. The TUC does not believe in protectionism or picking winners, but the market has not always been a good servant of long term industrial policy.
Interaction with other forms of market integration
To what extent do you feel that the internal market has been positively or adversely affected by other forms of integration of which the UK is not part, for example the Eurozone or the Schengen Area?
The TUC does not believe that other forms of integration have the potential to adversely affect the internal market - other countries, which have chosen to participate in these formations, have not suffered detrimental effects and their relationship with the internal market has not changed. The TUC also maintains that current economic woes in the UK have little to do with the crisis in the Eurozone, but more to do with self-defeating austerity policies independently chosen by the Government.
The Schengen Area allows EU citizens of the participating countries to travel passport-free - it probably has positive effects on tourism, but it's hardly a defining feature of an internal market, since to seek employment abroad, to sell products and services and to move capital around there are still other forms of control in place, which apply equally to both the UK and the Schengen Area countries.
Of the areas of integration which can bring tangible benefits, enhanced judicial and police cooperation seems the most obvious one. In an increasingly integrated market it is not uncommon for consumers and workers to need to seek judicial redress in jurisdictions other than their own country and the possibility to have mutual recognition of court rulings might go a long way to ensure that the EU does more for its citizens.
In terms of future forms of integration e.g. banking union, fiscal union etc, the TUC believes that the freedom of participating countries to choose what is appropriate for their common system should be respected. It is not edifying for a country to lecture others on the need to further integrate in order to save their economies and then seek to interfere in their plans with the sole objective of protecting an industry of perceived national interest such as financial services.
As for the latest form of enhanced cooperation (ECP) to introduce a financial transaction tax, the TUC maintains that the Commission has duly verified whether it would be detrimental to the internal market and found that in fact an ECP on this issue would help reduce market fragmentation in that a number of participating countries were already introducing FTTs at national level in order to raise much needed revenue and regulate speculative finance - objectives which the TUC supports. It is indicative that the legal basis of the original proposal for a EU wide FTT was article 113, which is the article that allows the adoption of measures in the field of taxation aiming at fostering the functioning of the internal market and avoid distortions of competition.
Has the internal market been helped or hindered by UK involvement in other groupings, such as the G20, the G8, the OECD, or the Commonwealth?
The UK is not the only EU member that is also a member of other international bodies such as the ILO (it is interesting to note that it is not mentioned in the question). These groupings are not mutually exclusive and there can be benefits from taking part, especially when considering that we live in a globalised world where international relations play an important role. In some of these bodies, membership of the EU can also multiply national influence and increase a country's leverage - that is when the EU succeeds in 'speaking with one voice' because there is an identity of interests amongst its members vis à vis other parts of the world. The TUC fears that this opportunity hasn't always been exploited to its fullest e.g. in the climate change talks, where so much more could have been achieved.
To what extent has the internal market brought additional costs and/or benefits when trading with countries outside of the EU?
The TUC believes that the internal market has brought additional benefits to international trade but that more could be done, especially in the relationship between trade and labour standards, where the EU should be setting high parameters (also given the rules it applies internally).
For the TUC, trade policy should reward and support countries genuinely interested in the well-being of their workforce, in skilling them up, providing them with decent work and capturing value through fairly shared productivity gains, not through the suppression of fundamental labour rights. To realise this, the EU should ensure that all social chapters in free trade agreements have dispute settlement and sanctions provisions accorded the same status as any other part of the agreement. It also needs to provide and align technical assistance to help governments build effective labour market institutions.
The TUC advocates this position, not for any protectionist reasons, but to encourage a fair trading environment and mature systems of industrial relations in our trading partners. Take Uzbekistan for example: the Uzbek government routinely takes children out of school to harvest the cotton that is ending up in the clothes on the UK high street. The ILO has condemned this practice but has limited ability to prevent such actions. The flow of trade opened up under trade liberalisation is making this abuse possible, yet can easily be used to assist with providing the solution. The threat of removing trade preferences would strengthen the efforts of the ILO and the international community to encourage the Uzbek government to stop using child labour.
To what extent has the UK kept requirements over and above the EU minimum, and what effect has that had on the UK's place in the internal market? Have other Member States done so, and if so with what consequences?
According to the latest Internal Market Scoreboard[6] timely transposition of EU legislation is one of the criteria with which the European Commission assesses a country's record in terms of its compliance with internal market rules. In May 2012 the UK was still to notify implementation of 17 directives to the Commission (most in the area of transport, but also energy), thus missing the 1% deficit transposition target, and has increased its transposition delay compared to 2011. But timely implementation represents only the first step towards the proper functioning of the internal market. Member States also need to transpose EU Directives correctly into national law to ensure that citizens and businesses can benefit from the internal market's full potential. Based on the infringement proceedings opened by the Commission, the UK has not correctly transposed eight directives and there are 38 pending cases (the EU average is 31) against the UK where further instances of non compliance may be found.
These figures show that the conception of the UK as a zealous law-abiding EU member is misguided. Moreover and as stated in its response to the Davidson Review on implementation of EU legislation, the TUC does not support the view that the UK 'gold-plates' or permits 'regulatory creep' when implementing EU law. Indeed there are examples where successive UK Governments have failed to implement EU directives effectively and have as a result created legal uncertainty and generated costs for businesses, employees and trade unions. In addition, failure to implement EU directives effectively could also expose the Government to claims for compensation. Thus the TUC takes the view that it is beneficial for the Government to implement EU legislation fully and clearly.
The TUC is also concerned that the debate on over-implementation has led to Government departments and agencies not taking the opportunities offered, when implementing EU Directives, to improve protection and consolidate existing legislation where appropriate. This minimalist approach has meant that many regulations in fields such as health and safety and employment protection have been far less effective than they would otherwise have been. The way in which the directive 1996/71 on posting of workers wasn't even transposed into an act, but merely referred to on a Government department's website is a case in point. With a more exhaustive implementation perhaps a situations like the ones at Lindsey Oil Refinery would not have happened.
It also means that too often the onus transfers to workers (and their trade unions) to instigate litigation to ensure EU law is given effect within the UK. Where individuals are not represented by trade unions, they will simply lose out on their basic EU entitlements.
The TUC has argued that there are clear examples of how the use of options within Directives and implementation over and above the minimum required offers clear productivity, labour market and economic benefits, in addition to offering better protection for workers. In such scenarios, we believe that so-called 'gold-plating' is not only legitimate but also beneficial. The fact that the UK has opted not to use the flexibility provided in the 2004 public procurement directives to allow jobs clauses in defence and other infrastructure contracts has often resulted in job losses and industrial decline in the UK but jobs promotion and growth elsewhere in Europe (Bombardier, Cross Rail are clear examples of this).
As to whether other Member States have over-implemented EU law or otherwise, the TUC believes that this is not for the Government to comment on - so long as EU law has not been breached (and only the European Commission and ultimately the ECJ are competent to assess whether that is the case), other sovereign states are free to chose whatever level of implementation is appropriate for their systems, as permitted by EU law. If the UK felt in any way at a competitive disadvantage vis à vis other countries with regards to a given piece of EU law it could always seek to challenge the other country's behaviour. Perceived negative effects of other Member States' regulatory framework do not necessarily constitute breaches of EU law.
Future options and challenges
What future challenges/opportunities might we face in the internal market and what impact might these have on the national interest? What impact would any future enlargement of the EU have on the internal market?
As stated above in Q2, increased hostility towards the EU, perceived just as a free market where businesses can thrive but workers bear the brunt of unfair competition, can potentially lead to rejection of the EU as a whole. Thus one of the main challenges in the forthcoming debates about the future of the EU will be to strengthen its social dimension so that all its citizens can benefit.
Enlargement has expanded the internal market and extended the reach of EU rules to new countries; with it came economic growth and opportunities for business to access new markets. These are the reason why the UK has supported enlargement and should continue to do so.
The TUC has taken a similar view in supporting the choice of not resorting to transitional measures for migrant workers from new Member States that joined in 2004, and has disagreed with Government over the erection of barriers towards Bulgarian and Romanian workers. The motive has always been that restrictions only increase the risk of illegal migration or bogus self-employment and with it of exploitation of migrant workers, who are already very vulnerable. The TUC has supported the view that intra-EU migration has brought benefits to the British economy, but has also expressed concerns where there have been instances of mistreatment of migrant workers and undercutting of terms and conditions. The TUC believes that a more balanced integration of economic and social objectives in the completion of the internal market is paramount before any future enlargement takes place - only in this way can acceptance of the EU among citizens increase and discriminatory and xenophobic attitudes decrease.
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/International_trade_in_goods
http://ec.europa.eu/internal_market/10years/docs/workingdoc/workingdoc_en.pdf
Communication 'Towards a Single Market Act: For a highly competitive social market economy' COM (2010)608
TUC report 'Besides the point? - the economics of the Services Directive' 2005
http://ec.europa.eu/internal_market/score/docs/score25_en.pdf
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