Origins: Treaty of Rome 1957

7.  The Single Market became a reality in January 1993, establishing the principles of free movement of goods, people, services and capital.

8.  The idea behind the Single Market was presaged in the Treaty of Rome, which established the European Economic Community (EEC) in 1957. It enshrined the objective of increasing economic prosperity by creating a common market through the elimination of trade barriers between Member States. The aim was to liberalise exchanges of goods and services by removing customs duties within the EEC, establishing a common external tariff, and eliminating quantitative restrictions (import quotas) and measures of equivalent effect. The completely free movement of goods was to be accompanied by the free movement of persons (especially employed persons), services and, to a certain extent, capital.

9.  The customs union was achieved by 1 July 1968. It saw the abolition of internal tariff barriers and quotas. Progress was also made towards the free movement of workers: for the first time a citizen was able to take up employment in another Member State and enjoy the same conditions as citizens of the host country. A degree of tax harmonisation was established with the introduction of VAT in 1970.

10.  Progress in reducing barriers in other areas however was less rapid and the free movement of goods and services continued to be hampered by so-called "non-tariff barriers" such as national technical rules governing products. Furthermore, while service-providers could no longer be discriminated against on the grounds of nationality, in practice they were required to comply with a wide range of national regulations which varied from one Member State to another. Anti-competitive practices, such as exclusive production, service rights or the use of state aids, continued. All these barriers constituted the maintenance of the concept of internal frontiers; this was a common market only in name.

11.  The failure to complete the common market was seen as having a significant economic cost, "the cost of non-Europe" as it was described at the time. This failure was largely attributed to the decision to using detailed legislative harmonisation to remove the remaining non-tariff barriers; reaching agreement on such legislation was extremely difficult as it required Council decisions, most of which had to be taken by unanimity.

Re-launch: Single European Act 1986

12.  The slowing down of the common market project was symptomatic of the stagnation affecting European integration in the late 1970s and early 1980s. What was described by academics and commentators as 'euro-sclerosis' took hold of the European Economic Community. This state of sclerosis led many in the Community to look for a way to reignite the project.

13.  The re-invigoration of the European project was to be achieved by the rejuvenation of one of the core ideas behind the Rome Treaty, the total removal of the frontier concept to create an area where human and material resources could move freely. Member States gave their approval to the aim of creating a fully-fledged internal market at the European Council in March 1985, with the UK taking a leading role in the discussions. It was agreed to set the end of 1992 as the completion date, and the Commission was asked to prepare a programme and timetable for implementation.

14.  The commitment to creating the internal market was enshrined in the Single European Act, which was signed in February 1986. The Act had two objectives: first, the inclusion in the Treaty of the concept of the internal market, setting a deadline for its completion; second, giving the Council effective decision-making machinery by introducing qualified majority voting, and thereby removing the requirement for unanimity, which had hitherto hindered the adoption and implementation of necessary legislation. This streamlining of the decision-making process enabled the Community to move passed the bottleneck of arguments about harmonisation or mutual recognition of legislation and make progress in completing the Single Market.

15.  The underlying desire was to re-invigorate the European project by creating "opportunities for growth, for job creation, for economies of scale, for improved productivity and profitability, for healthier competition, for professional and business mobility, for stable prices and for consumer choice"[3]. The UK was an enthusiastic supporter of that process.

16.  Despite not all the necessary legislation being in place, the Single Market was formally launched on 1 January 1993.

Responsibility for the Single Market

17.  In examining the Single Market the Committee found it helpful to distinguish between the roles of different institutions. The Single Market is a shared endeavour between the European Institutions, the Member States, the National Regulatory Authorities, and the European Court of Justice.

The European Institutions

18.  The Commission is responsible for drafting legislation. Approval is then required by the Council and, in many cases, the European Parliament. Where approval is needed under the co-decision procedure the Council and European Parliament must reach an agreement or compromise before legislation can be enacted.

19.  As guardian of the Treaties the Commission has an important role in monitoring the timely transposition and implementation of legislation by Member States. The Commission monitors this with its bi-annual Internal Market Scoreboard, which tracks the deficit between the number of internal market laws adopted at EU level and those adopted in Member States. The Commission is empowered to initiate infringement proceedings against Member States who fail to comply with Single Market rules (see paragraph 22 below).

The Member States

20.  The role of Member States is two-fold: they make up the Council which influences the Commission's legislative agenda, and subsequently agree proposed legislation; following agreement it is Member States who are responsible for implementing the legislation.

The National Regulatory Authorities

21.  National Regulatory Authorities (NRAs) are responsible for applying the rules that have been transposed by Member States. NRAs have been set up in each Member State for each of the sectors under examination in this inquiry—energy, telecommunications and financial services.

The European Court of Justice

22.  An intransient Member State can be brought before the European Court of Justice. Under Article 226 of the EC Treaty the Commission can initiate infringement proceedings against Member States on the basis of non-compliance of national implementing measures, or incorrect application of directives. A ruling from the European Court of Justice takes on average 20 months from the commencement of proceedings. In 2006 103 infringements were declared against Member States.