The myth of the single market
Why Europe’s internal barriers are higher than Trump's tariffs
The IMF puts the hidden cost of trading goods inside the EU at the equivalent of a 45% tariff. For services the figure climbs to 110%, higher than Trump’s “Liberation day” tariffs on Chinese imports—measures many saw as a near-embargo.
These barriers are not direct taxes. Instead, a construction company might find its building materials or plans, though EU-compliant, still need costly national checks. A foreign university looking to set up a campus, or a care home provider wanting to expand, could face major delays getting their staff's qualifications accepted or dealing with complex local licensing for their buildings.
According to the IMF, since the mid-90s, trade costs for goods dropped 16% for non-EU imports, but only 11% for trade within the EU. As a result, actual trade between EU countries is less than half that between US states. Because growing at home is so hard, EU firms must often look beyond the Union. Today, the EU's internal and external services trade are roughly the same size as a share of our economy. In a true single market, internal trade should be much larger. In a world where scale is ever more vital (services include such scale-intensive business as AI, finance, IT) this fragmentation of the single market is very damaging.
What is the structural problem causing this fragmentation? The Single Market we all thought we have is largely a myth.
Mutual recognition fails in practice.
The EU directives do not harmonize EU legislation.
The EU Commission is not doing its job in enforcing the Single Market.
Mutual recognition fails in practice
When I first arrived back in Brussels in 2019 as a Member of Parliament, I thought I understood mutual recognition. The principle states that whatever can be sold legally in one EU country can be sold in all others. This was, I knew — and anyone who knows about Europe knows – the founding principle of the Single Market.
The case on which this principle is based is the famous Cassis de Dijon, from 1979. Germany insisted liqueurs needed at least 25% alcohol, but the French Cassis de Dijon, a blackcurrant liqueur, only contained 15-20%. The Court ruled that Germany couldn't block the import just because it didn't comply with German regulations. Thus was born the “mutual recognition,” that became the cornerstone of the Single Market. Mutual recognition would allow goods to flow freely without embroiling countries in endless regulatory battles.
Mutual recognition was never absolute. The EU's treaties (and indeed the Court in the Cassis de Dijon) do allow countries to block products for legitimate reasons like public health, security, or environmental protection. But these exceptions were supposed to be just that — exceptions, not the rule. The problem is the cost of enforcing the rule when a country claims an exception. Some examples:
In 2004, Denmark blocked 18 fortified Kellogg’s breakfast cereals and bars — including Special K and Corn Flakes—because their added iron, calcium, folic acid, and vitamin B6 "could be toxic" to children and pregnant women. These products were legal and widely consumed in every other EU state.
Spain and Italy spent three decades fighting Cadbury Dairy Milk unless it wore the stigmatizing label “chocolate substitute” because it contained up to 5 % vegetable fat — an amount already allowed under EU law and accepted as chocolate in every other member state.
BP France imported renewable diesel made in Rotterdam from waste oils. French tax rules demanded a laboratory carbon-14 test on every batch at the border—even though the same fuel, when refined inside France, escaped the test, and EU-recognised mass-balance certificates already proved its bio-content.
Every product sold to French consumers must bear the national “Triman” recycling logo plus detailed sorting instructions specific to France. AkzoNobel's paint cans fully meet EU chemicals and food-contact rules, but a single paint tin still has to carry France's TRIMAN recycling logo, Spain's "Punto Verde," and Italy's alphanumeric material code. Space on a 1-litre tin is so tight that the firm now holds separate stocks for France, Spain, and Italy.
When common rules multiply barriers
Even where mutual recognition fails, you would assume that non-tariff barriers would only last until Europe passes a law governing that activity and in doing so standardizing the rules.1This is, to my knowledge, the belief and desire of the Members of the European Parliament when they write the rules. The AI act, for example, says in its very first paragraph:
The purpose of this Regulation is to improve the functioning of the internal market by laying down a uniform legal framework in particular for the development, the placing on the market, the putting into service and the use of artificial intelligence systems... This Regulation ensures the free movement, cross-border, of AI-based goods and services, thus preventing Member States from imposing restrictions on the development, marketing and use of AI systems, unless explicitly authorised by this Regulation.
But this isn’t right either. There are two problems: first, rather than replacing national regulations, EU rules pile on top of them. Second, member states often engage in ‘gold plating’ – adding extra national requirements when implementing EU directives.
The result is that even when the EU does create common rules (directives or regulations aiming to harmonize), the outcome is often not a truly single market. New EU rules often don't replace old national ones. Instead, they create additional layers of regulation. A toy manufacturer might need to obey an EU toy safety directive while simultaneously navigating older national rules about specific materials.
It is often difficult to have measures of divergence between rules, but sometimes the data allows us to do it. In a paper on capital market regulations in a top finance journal, Christiansen, Hail and Leuz (2016) find that, in fact, countries' rules diverge more (!) after harmonizing regulations:
We examine the capital-market effects of changes in securities regulation in the European Union aimed at reducing market abuse and increasing transparency… The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.
In other words, the new rules often only serve to add new layers of legislation. For instance, the Single Supervisory Mechanism supervises the banks, but so do the national central banks who impose their own requirements of capital or liquidity on all banks operating in their territory. If a French bank operates in Belgium, it has to satisfy French, Belgian and European regulators. This reduces the synergies of operating across borders, and is the main reason our banking systems are, even today, mostly national.
Or consider General Data Protection Regulation, which (in spite of being a regulation) still means we have regulators at EU, national and regional level. In January 2022, Austria's data-protection authority held that NetDoktor's use of Google Analytics breached the GDPR, and ordered the site to disable the tool or face fines. A few weeks later, the French data protection authority (CNIL) issued parallel decisions against three French websites, again declaring Google Analytics unlawful and instructing each operator to switch to an EU-hosted alternative. In June 2022, Italy's authority (Garante) imposed the same ban on Caffeina Media, threatening to suspend its data flows to the United States unless it rewired its analytics stack within ninety days. A publisher that trades across the EU must now keep separate analytics setups for Austria, France, and Italy, while the same tool remains legal elsewhere. The Draghi report notes that there are around 90 tech-focused laws and more than 270 regulators active in digital networks across all EU countries. So much for the single market!
Maybe the most frustrating example are movement restrictions on professionals, which remain largely intact after many years. Despite EU directives aimed at facilitating the free movement of professionals, a specialized engineering company based in, say, Portugal, that wins a contract for a major infrastructure project in Germany might find that German authorities require their engineers to undergo a lengthy "equivalence check’ despite holding qualifications recognized under EU frameworks. For smaller firms or individual professionals, these hurdles can be prohibitive. For example, groups representing architects or even ski instructors across Europe have frequently highlighted cases where their members, despite holding qualifications valid in their home EU country and supposedly recognized EU-wide, face proving years of experience to compensate for perceived differences in training, or navigating different regional requirements even within a single member state.
The missing enforcer
Problems with the single market are meant to be resolved by the European Commission — it is explicitly charged with "ensuring the application of the Treaties" under Article 17(1) of the Treaty on European Union. But the Commission has retreated from its enforcement role.
As of December 2024, only 658 Single-Market infringement cases were pending, 6% fewer than a year earlier and 21% fewer than in 2020. In the previous twelve months, the Commission opened just 173 new cases – only a quarter of the volume handled a decade ago. The 2023 Annual Enforcement Report shows just 529 new infringement procedures across all policy fields, down from 1,347 in 2013. A Financial Times analysis found that formal action for breaches of EU law opened by the Commission against EU countries had fallen by 80% in the first 3 years of the Von der Leyen Commission.
The reason enforcement goes down is not that member states are suddenly complying better with the rules. According to the Single Market Scoreboard, the average case duration stands at 45.8 months—31% longer than in 2019—and member states now take 61.3 months on average to comply with Court rulings, double the figure from five years earlier.
Packaging industry representatives told the Financial Times: the European Commission is "leaving industry with little recourse but to seek enforcement of single market principles through national courts" by neglecting its role as guardian of the treaty.
There's a paradoxical evolution in the Commission's role. As it has taken on additional functions in areas like housing, defense, and geopolitics (the first von der Leyen Commission termed itself a "geopolitical commission"), it has retreated from its core task of policing the single market. These developments are connected: enforcing single market rules inevitably leads to confrontations with member states, making it harder for the Commission to expand its political and geopolitical profile.
For small businesses especially, challenging a national authority's decision means expensive legal battles with uncertain outcomes. Many simply give up rather than fight.
The Kellogg's case illustrates this perfectly. A multinational corporation with significant legal resources struggled for years against Denmark's restrictions. Imagine how impossible this battle would be for a small startup food company trying to enter a new EU market.
The Commission may be expanding into new domains, but it's leaving its core mission – the single market – increasingly undefended. The Draghi and Letta Reports argue that a truly functioning single market could add hundreds of billions of euros to Europe's economy. Instead, we have a patchwork of 27 semi-connected markets with persistent barriers.
Without vigorous enforcement, the single market principles established in Cassis de Dijon become mere theory. European businesses face higher costs, consumers see fewer choices and higher prices, and the continent's overall competitiveness suffers. There is only one solution. The Commission must reclaim its role as guardian, even if it means having uncomfortable confrontations with member states. To do that, it must recommit to its central, core function- the only function no one else is legally allowed to do, and reduce the current temptation to expand its functions in all directions. And we must move away to harmonization and back to mutual recognition under Cassis de Dijon. We cannot and must not aspire to a Europe where all countries have the same rules. Only to one where citizens can trade freely across borders.
There are two types of pieces of legislation in the EU. Regulations are binding legislative acts that apply directly and uniformly across all EU member states without the need for national implementation. Directives, by contrast, set binding objectives but require each member state to transpose them into national law, allowing discretion in the form and methods of implementation. While regulations are directly applicable and enforceable by individuals in national courts, directives can only be invoked against the state (vertical direct effect) if not properly implemented, and generally lack horizontal direct effect between private parties. But both should have a harmonizing effect.
If only EU could have have the nerve to tackle that question. After all one of the first actions of Carney has been to work towards eliminating trade barriers between Canadian provinces.
I really wanted to know how those 45%/110% tariff equivalents emerge on the technical level and here you go! Nice article.
This is at the moment my preferred source of info on European matters, but I fear it may go dark once the grants run out. Have you considered adding an option to buy a paid subscription? I would definitely subscribe.