An integral part of a larger market - Great Britain and the European Community

Business America, August 27, 1990

American companies interested in exporting U.S. goods and services to the United Kingdom must regard that market as an integral part of a larger European Community (EC) market, especially as the EC completes its work to create the Single Internal Market by 1992. The 1992 program is designed to harmonize market conditions on an EC-wide basis, creating a more open, competitive marketplace. This plan will remove internal barriers to the movement of goods, capital, labor, and services, thus forming a single $4 trillion market of 320 million consumers. Inefficiencies, such as trucks waiting at border checkpoints for documentation inspections or professionals being unable to work in other member states, will be eliminated. This improved business climate is expected to result in increased purchases of U.S. goods and services.

The completion of the EC's 1992 Single Internal Market program--if it is accomplished in a trade liberalizing, competitive, and nondiscriminatory fashio-can create significant economic growth in Europe and major opportunities for American exporters and investors. The Single Internal Market could add 1.8 million jobs and, over time, mean a $260 million increase in demand for goods and services in the 12-nation bloc that includes the United Kingdom, Belgium, Denmark, France, the Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg, the Netheriands, Portugal, and Spain.

The major catalyst in the development of the EC Single Intemal Market was the passage of the Single European Act in 1985. This act went into effect in 1987 and enables the Council of Ministers to adopt an Intemal Market directive or regulation on the strength of a qualified majority, or 54 of 76 votes. Council votes are assigned by a weighted average. Previously, the Council of Ministers had to reach unanimous agreement for a directive to pass. A unanimous vote is required for fiscal matters, decisions on the free movement of persons, and directives or regulations on the rights and interests of employed persons.

As of mid-1989, the EC Commission had proposed 279 directives and regulations. The EC Council of Ministers adopted 156 of those proposals, 41 percent of the total to be acted on. Member states must enforce a regulation immediately after the Council of Ministers passes it. After a directive is adopted, the Commission allows a period of from 18 months to two years for member states to implement the provision. By mid-1989, the EC Commission had proposed 87 percent of the legislation for the 1992 program. The remaining 13 percent of the program is in draft form.

The Single Intemal Market program will force European companies to become more competitive since they will no longer be guaranteed business in a protected home market. At the same time, American exporters will be able to manufacture to a single set of product standards as the EC adopts uniform standards for the entire Community. Previously, each country set its own standards.

The EC 1992 program also proposes to open for competition public procurement sectors in water, energy, transport services, and telecommunications. However, firms that want to bid on a project must meet a 50 percent local content requirement. Because of this rule, American firms with subsidiaries in the EC can take advantage of the liberalization of the public procurement sector more easily than can U.S. exporters.

U.S. companies must now think of the European Community as a single market, rather than 12 separate and fragmented ones. Although EC member countries will still maintain their national identities, national borders will no longer be synonymous with trade barriers. U.S. managers and executives will have to rethink their strategies in marketing, finance, distribution, and production.

The EC is the most important export market for the United States, and the United Kingdom is the largest country market for U.S. goods in the EC. U.S. exports to the EC were $86.3 billion in 1989, an increase of 12 percent over the previous year. The U.S. had a trade surplus with the EC for the first time in five years.

EC firms are strengthening themselves by purchasing new capital goods. Last year, U.S. exports of manufactured goods, which account for more than three-quarters of trade, reached a record $67 billion. Machinery and transportation product exports to the EC in 1988 accounted for 47.5 percent of total U.S. exports to that market. This was partly a result of market opportunities created by companies preparing themselves for the 1992 program.

Strong U.S. export growth is expected to continue as solid European economic expansion and the Single Internal Market stimulate increased trade opportunities. The EC is now achieving real economic growth, led by investment spending and a buoyant business confidence, as it restructures itself into a Single Internal Market. In the 12-nation EC, economic growth of 3.7 percent in 1988 in real terms was the highest in more than a decade. Growth is expected to stabilize at the 3 percent level through 1990.