In June 1985 the Commission published the Cockfield Report, entitled ‘Completing the Internal Market’, in June, 1985. This found the existence of a wide range of different types of barriers, which still impeded the realisation of a genuine internal market and proposed no fewer than 300 separate measures required to remove these remaining restrictions. Import quotas also still existed on intra-EU trade on goods. These were mainly a result of voluntary export restraints (VER): Japanese cars, textiles, clothing, footwear, electronic goods.
Thus the VER on Japanese cars, which limited the number that could be imported by the UK, France and Italy individually from Japan could only be effectively monitored and enforced if these countries were able to prevent these cars from being re-imported through uncontrolled member states. Article 115 of the Rome Treaty allows countries to ‘suspend the free circulation of goods’ in such exceptional cases having been granted authorisation to do so by the Commission. Fiscal barriers. Barriers and distortions to trade arose because of differences in indirect taxation (taxes on goods and services) between member states.
All member states operated a system of Value Added Tax, but national VAT systems differed both in terms of rates of VAT and the base (products subject to VAT). This could create a distortion in trade, as products from countries with low VAT rates would enjoy a price advantage over states with high VAT rates. Similarly problems existed with excise taxes but the differences in tax levels were even greater. Technical regulations and standards differed between member states and created another kind of trade barrier.
Regulations are legal requirements which products must satisfy before they can be sold in a particular country (e. g. laws requiring cars to be fitted with catalytic convertors). Standards are not legally binding in themselves they are technical requirements set by private standardisation bodies like DIN in Germany, BSI in the UK and AFNOR in France. Although they are only voluntary, they often assume a quasi-legal status because they are used as a reference in technical regulations and in calls for tender for public procurement (see below).
They are also important in marketing the product. The existence of different regulations and standards imposes costs on European producers who has to make alterations to their products before they could sell them in another member state. Public procurement: Governments frequently discriminated against bids from firms in other member states in both the award of public works contracts and the purchase of equipment by the public sector. They did so partly for strategic reasons (e. g. aerospace producers or weapons manufacturers), partly for employment reasons (ie.
to save jobs) and partly to support emerging high-tech industries (e. g. electronic equipment manufacturers). However, such policies imposed costs on both the public authorities (who ended up paying more than they need to) and on firms (because the market available for selling their goods was too limited). One consequence was that certain industries were comprised of too many producers none of whom was able to achieve an optimum size. For example, in the EC, there were some ten manufacturers of turbo-generators compared with only 4 in the United States.
In the telecoms industry, there were 11 EC makers of telephone exchanges compared with only 4 in the USA. The fact that producers were often sheltered from competition in such industries meant that they had less incentive to be efficient and to cut costs. Public sector demand for goods and services was estimated to account for as much as one-sixth of the EC’s GDP. The EC had issued various directives in the 1970s designed to open up public works and supply contracts to European-wide tender, but these were widely regarded as having been ineffective.
One study estimated that only 2% of public works and construction contracts went to producers in other European countries, with American firms winning many more such contracts in Europe than did European firms outside their home markets! Financial Services: trade in services particularly financial was limited by government regulatory measures. In banking, the right of establishment formally existed within the EC, however, many countries still applied restrictions on foreign banks that did not apply to domestic banks (e.
g. on the number and location of branches, the kinds of activities which may be undertaken, facilities available such as export credit guarantees or deposit insurance). Likewise, restrictions were often placed on the financial instruments, which may be traded across borders. Differences also existed in supervision (some countries stipulated more onerous liquidity requirements and other controls on their banks) which affected competitiveness.
In insurance, freedom of establishment again formally existed but considerable restrictions continued to apply on the right to do direct cross-border business. In most member states, non-national insurers were not allowed to solicit directly without a local permanent establishment. In securities trading, national regulations interfered with the free market. Foreigners were often prevented from being licensed as brokers, discriminatory taxes sometimes existed on the purchase of foreign securities or there may be restrictions on balance sheet holdings of foreign securities.
Finally, capital movements were controlled by several member states despite the commitment to the free movement of capital. Four EC countries (Spain, Portugal, Greece and Eire) still operated controls, while two others (France, Italy) were in the process of dismantling them. These controls also interfered with free trade in financial services. For example, a European financial institution could not export financial services to another member state if the cross border client could not pay for them.