Models of Market integration 

Host country model

• Rules of the country where the economic activity takes place apply

• The norm for international trade

• non - discrimination rules in place for foreign products 

  • Each member state can retain its own rules as long as these rules do not discriminate against foreign products 

Host country model: Implications

• Sovereignty

  • Limited constraints on MS power to decide the applicable rules within their territories + non-discrimination 

• Institutions

  • National legislatures + national courts

• Welfare

  • Non-economic values can be protected compatibly with non-discrimination

  • Room to accommodate different preferences 

• Democracy

  • Inclusive within each MS

  • Under-inclusive with regard to affected interest beyond the state

    • Dont take into the interest of all of those affected 

Harmonization model

• Unitary rules are adopted at the EU level and apply to all MS in the same way

• The norm for federal states

Harmonization implications

• Sovereignty

  • Vertical transfer of power MS → EU

  • Join the exercise of sovereign powers

  • MS represented in the Council and EUcon

• Institutions

  • EU legislature + EU judiciary

• Welfare

  • Economics of scale/simplification

  • Non-economic interests can be accounted for at the EU level level

  • How do we account for diversity? Can the EU regulate everything?

    • One rule that has to fit all MS 

• Democracy

  • Democratic deficit 

  • Vertical transfer of competencies, national government shift decision power to EU legislature

Home country model 

• Rules of the country of origin apply → Rules of the country of production apply 

• There is a common EU-level rule of mutual recognition

• Requires a high level of trust and/or sufficient room for expectations

Home country implications

• Sovereignty

  • Reallocation of sovereignty among MS: mutual recognition (Loss / BUT expectations) own rules apply beyond borders

• Institutions

  • Courts applying mutual recognition rules and defining expectations 

• Welfare

  • Regulatory competition (whose rules are more convenient for economic actors?)

    • Lowering of standards to boost economic activity 

  • More choice for economic actors and consumers

  • Risk of ‘race to the bottom’

  • Risk of uneven distribution of costs/benefits

• Democracy

  • The share of decision-making power shifts from citizens to economic actors

Phases of EU market integration

• Spaak report: harmonization (1950s - 1960s)

• Single market ( 1970s)

  • Mutual recognition and exceptions

  • Enlargement

  • Partial return to harmonization and emphasis on social Europe 

• Economic union

  • Single currency 

  • Eurocrisis 

Types of integration: positive and negative

• Positive integration

  • Happens through harmonisation 

  • Try to come up with common rules that operate with everyone

  • Harmonise national law through EU law

  • Art. 114 TFEU → Internal market competences

• Negative integration

  • Free movement of goods, services, capital, establishment, and persons

  • Removing barriers/restrictions (national laws) by prohibiting them 

  • Competition law

    • Prohibitions of cartels, abuse of market power, and state aid 

• Positive integration - Article 114 - content

  • Residual

  • Ordinary legislative procedure (OMW)

  • Any act ( directive, regulations)

  • Only to harmonize pre-existing rules 

  • Has to have a link to the internal market 

• Article 114 limits - Tobacco advertising

  • How broad is the concept of the internal market

  • Health can have decisive importance under Article 114

  • But no general power to regulate the economy

  • Article 352 TFEU (unanimity)

  • Broad interpretation confirmed in subsequent cases 

• Art. 114 exceptions 

  • Try to protect non-economic concern

  • Attempt to integrate health, safety, and environmental protection 

  • If MS does not want to expect new legislation and would like to keep their own rules, it can do so by notifying the commission referring to Art. 36

  • The commission has six months after the notification to either reject or accept the national provisions 

  • If they do not respond in 6 months, the national provisions will be automatically approved → however sometimes the 6 months is extended if the provision is complex

Types of Harmonisation

• Total harmonisation

  • Predominant in early states of EU integration

  • Exhaustive regulation at the EU level

  • Pre-empts MS activity

  • Regulations → directives 

• Partial/minimum harmonisation

  • Floor: EU sets the minimum standards

  • Allows MS to introduce higher standards of e.g environment or consumer protection

  • Ceiling: free movement 

  • In this case directives 

Negative integration: free movement rules

• Free movement

  • Of goods, services, capital, establishment, and persons

  • Removing barriers/restrictions by prohibiting them

  • Art. 30, 34 TFEU

• Competition law

  • Prohibition of cartels, abuse of market power, and state aid

  • Art. 101 and 1012 TFEU