How Far Should the European Union Reach?
By: Hans-Juergen Zahorka (LIBERTAS European Institute)
29 June 2006
One of the most frequently discussed questions in globalizing business is how far the European Union Single Market should reach. Companies want to expand, to open subsidiaries, to cooperate with local partners, not only for mere expansion reasons but also because their competitors are active on a regional or global scale.
Questions concerning the outreach of the Single Market often focus on investment security and non-discrimination as well as on basic rules of trade and commerce, for example through jurisdiction. Following recent trends, companies of various sizes are establishing regional offices to reach foreign markets under the safe umbrella of the Single Market (i.e. a French company sets up an office in Romania for the whole Black Sea region).
How far will the Single Market, that is the European Union, reach? I think that it is inevitable that the EU will expand to include 40+ Member States. This is contested by some politicians and citizens alike, but the more information and background available, the more people are in favor of this vision.
One of the “soft powers” of the EU is to attract countries on its periphery, thanks to the uncontested economic advantages and the political stability of being part of the EU. However, it is clear that any further enlargement of the European Union needs a kind of “streamlining” of its internal organization. A kind of constitutional arrangement in the direction of the Constitution (ratified until now by 14 Member States, but not by France and the Netherlands in their referendums in May/June 2005) will be needed for any further development in the EU. These constitution-like rules will surely come. And while these developments are all but certain, the form they will take is difficult to predict at present.
According to the EU Treaty (art. 49), each European state can apply for EU accession. It is not clearly defined whether this means European state according to geographic criteria or European-mindedness. Between these extremes a compromise can and will be found; the pan-European vision of today’s EU targets on the countries of the larger Council of Europe. An application has to be directed to the Council, which in turn asks the EU Commission for an evaluation. This comes in the form of a “Regular Report” every year. The current negotiations are run by the Commission, which elaborates an Accession Treaty with the acceding Member State. This has to be approved by the European Parliament (with the absolute majority of its members) and by the Council, which has to approve this treaty unanimously. Furthermore it has to be ratified by the Member States and the relevant acceding state. It is evident that these hurdles are now more difficult to overcome with 25 Member States than in former times.
The “Copenhagen Criteria” were added in 1993, before the latest round of enlargements to include Central and Eastern European states; these criteria necessitate a clear “yes” to the market economy system, to active participation in the competition of the EU, to a pluralist democracy, human rights, minority protection and the general rule of law. They also require a “yes” to the takeover of the whole “acquis communautaire”, the whole set of rules operating until now, including some 80.000 pages of EU Law (however most of them concern agricultural law), and the European Monetary Union (the Euro). This means that new Member States do not have to have the same economic strength as existing ones, though the threshold of sustainable development in the direction of the “average EU” country must be passed. This is undoubtedly a political decision.
Though the EU never uses force, not even in the sense of economic or psychological force, on any state to become a member, it exercises a geopolitical gravity which attracts countries on its periphery, which in turn augments its international power and pull.
Regardless of a country’s economic system, accession negotiations last between 8 and 11 years, on average. The very short negotiations with Austria, Finland and Sweden before 1995 were due to the fact that all three countries were already in the Single Market – the core of the EU – and members of the EEA (European Economic Area; EU Single Market plus EFTA countries [minus Switzerland who had voted against being in the EEA]) – so the Single Market laws had no significance in these negotiations.
The EU has the following system of external relations within its (European) periphery:
- European Economic Area (EEA): this includes Norway, Iceland and Liechtenstein. All these countries might eventually join the EU, but at present no major policy moves are visible. Norway has a large percentage of rural population that doesn’t favor the EU as joining would mean to shorten the yearly farm subventions by 2/3, Iceland depends on fish which is part of the Common Agricultural Policy, and Liechtenstein will do what Switzerland does. In Iceland there can be expected a debate from 2007, due to the recent announcements of the Prime Minister. If so, this will also have consequences for Norway.
- Bilateral Agreements with Switzerland: Switzerland plays a special role in EU policy, as the majority of its population is not ready to join the EU despite its extensive involvement in their economy. Switzerland will also take part in the free circulation of citizens as provided by the Schengen Agreement (abolition of passport controls at the EU borders).
- European Agreements (EA): the ten new Member States since May 2004 (Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovak Republic, Hungary, Slovenia, Cyprus and Malta) as well as Romania and Bulgaria (these two will join in January 2008 at the latest though probably as soon as January 2007). The two latter countries face difficulties such as fighting corruption and streamlining jurisdiction. The EAs were individual and far-reaching association agreements permitting asymmetrical market access, according to the degree of progress in establishing democracy and market economy, which finally led to membership
- Stabilisation and Association Agreements (SAA) for the West Balkan states (Croatia, Macedonia, Serbia [with Montenegro and Kosovo – these two will probably be independent states in 1-2 years], Bosnia-Herzegovina and Albania). Similar to the EAs, the SAA also offer a membership vision, which is predicted by experts for the time between 2015 and 2020. But it’s up to these countries to change their policies (e.g. towards the International Court of War Crimes in The Hague) and approximate their legislation. These countries comprise about 4.5% of the EU population (22 of 460 million), but 26% of the number of Member States (7 of 27). It is evident that this will only be manageable with a new constitution-like legal framework of the EU. Although it is not too popular to talk about now, these countries will have to become a part of the EU, not only for economic and social reasons, but also for political reasons; another Srebrenica or Kosovo war are not thinkable.
- With the successor states of the former Soviet Union, the EU has Partnership and Cooperation Agreements (PCA): with Russia, Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. With Belarus and Turkmenistan there are also PCAs, but they are basically frozen now, as the leaders of these countries are considered to be “village dictators”.
- That Russia will want to join the EU is unlikely for several reasons. However, Ukraine, Moldova and Georgia have already expressed their interest, knowing that they will have to do their homework (albeit with EU help in the form of financing know-how and structural reforms). Likewise, Armenia also wants to approach the EU; they are just now establishing a Ministry of European Integration. If Turkey continues to approach the EU, then Georgia, for example, cannot be refused as the population is evidently more “Europe-minded” than many Turkish people. The PCAs, however, have no membership vision as such, having been written in the mid-90s.
- Since the recent enlargement in May 2004, the EU has followed a new policy toward the “ring of friends” around the new periphery: the European Neighbourhood Policy (ENP), towards all the European CIS countries (Ukraine, Moldova, Georgia, Armenia and Azerbaijan, as well as Belarus [which has not really started] and Russia [which has no ENP as such, but has four “Common European Spaces” on economy, research, internal and external security]), and also towards Northern Africa (Morocco, Algeria, Tunisia, Libya and Egypt) and the Middle East (Jordan, Syria, Lebanon, Israel and the Palestine Authority). Besides the CIS-stemming countries that have an enlarged interest in EU accession, none of the other countries has spoken in favor of EU accession (although there have been some voices heard from Israel as well as Tunisia). But the EU wants a very wide and open exchange of goods, services, investment, culture etc., and it wants values like democracy, minority protection, cultural dialogue, social market economy etc. also in its neighborhood – a long task ahead!
- Turkey has many years of structural changes ahead, which will take as many as 15-25 years. Turkey has made a lot of progress, but needs to keep the lane - despite all nationalist, Islamist, “osmanic" tendencies. Once Turkey joins the EU, it could be a model of joining core European and moderate Muslim values and therefore a model for future cooperation with the rest of the Middle East. This might have a higher impact than the invasion into countries of the region that we see happening today. Of course, the Turkey of the moment of accession will not be the "old" Turkey even from today.
The European microstates (Andorra, San Marino and Monaco) will probably not join the EU, nor will the Vatican. This leaves Switzerland, where with the Bilateral Agreements the pressure is gone, but in the period from 2010 it is not impossible that the EU issue will play a big role again – and this time the decisive one. Whatever will come, Europe’s landscape is thrilling, including the necessary constitutional discussion that it will take to shape its ultimate form and size. In the meantime, as companies evaluate appropriate foreign markets for establishing subsidiaries and reaching new customers, we can anticipate that the growing EU will continue to diminish barriers to global business and to foster the principle of regional integration in the global trade institutions (WTO, UNCTAD etc.). For company strategies, the EU remains a positive challenge.
Hans-Juergen Zahorka is Director of LIBERTAS – European Institute GmbH, a think-tank on European and international economy and policy in Stuttgart-Sindelfingen/Germany. Formerly a Member of European Parliament, Hans-Juergen teaches European Affairs at various universities and MBA schools. He also works extensively in Central and Eastern Europe, the former Soviet Union succession states and the Balkans.