European Economic Area

Part of the debate – in the House of Commons at 4:34 pm on 17 February 1992.

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Photo of Hon. Tim Sainsbury Hon. Tim Sainsbury , Hove 4:34, 17 February 1992

I beg to move, That this House takes note of the proposals described in the unnumbered Explanatory Memorandum submitted by the Department of Trade and Industry on 30th December 1991, relating to the draft Agreement on the establishment of a European Economic Area; and supports the Government's view that the Agreement should be entered into by the Community and its Member States subject to agreement on amendments to the draft necessary to deal with incompatibilities between the draft and the Treaty of Rome identified by the Court of Justice in its Opinion 1/91.The creation of the european economic area is a major step forward for the Community. It will bring significant economic gains to British industry and British consumers. The Government very much welcome this major agreement and look forward to signature within the next few weeks. What we shall be signing is the most ambitious and wide-ranging agreement entered into by the Community. It will extend the main principles of the single market to the seven European Free Trade AssociationEFTA—countries. I remind the House that those are Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and Switzerland.

A single market of 19 west European Countries stretching from the Arctic to the Mediterranean will be created. It will cover the "four freedoms"—free movement of goods, capital, services and people. It will also cover related matters, ranging from agriculture to co-operation in research and development.

This debate is particularly timely. Last Friday, the Commission and EFTA negotiators made a declaration that the EEA negotiations had been successfully concluded. The next step will be formal initialling of a text by the negotiators this week. We expect the final text to be ready for signature by member states and the EFTA countries next month, allowing their Parliaments to ratify by the end of the year.

The declaration by the negotiators was made in the light of agreement last week on amendments necessary to meet the concerns about the EEA expressed by the Court of Justice. Those amendments affected the competition and institutional provisions of the EEA—I will describe the new version of those provisions in some detail later.

I know that it is not ideal to debate the agreement when we do not have a text before us. I hope that the full explanatory memorandum that I submitted will go some way towards making good the absence of a text.

It might help if I first describe the contents of the agreement and the benefits that the Government believe that it will bring to the United Kingdom and to the Community. I will then describe the institutions of the EEA, referring briefly to some of the amendments that were agreed last week to deal with the problems arising from the opinion of the Court of Justice on the agreement.

The first and perhaps the best known of the four freedoms is free movement of goods. When the United Kingdom left EFTA to join the Community in 1973., the Community established free trade agreements with the remaining EFTA members. Under these free trade agreements, there is already tariff-free trade between the Community and EFTA in industrial goods and processed agricultural products. The EEA improves free movement of goods in a number of important respects.

There will be common technical regulations. The community and EFTA already work together in creating common European standards, but each side maintains its own technical regulations for purposes such as health and the environment. Those different regulations amount to a significant barrier to trade, as the Select Committee on Trade and Industry recognised in its report.

The Community and EFTA technical regulations have much the same objectives, but they achieve those objectives by different means. Under the agreement, EFTA will adapt to follow the methods used in community measures.

Manufacturers in the EEA will therefore have to follow only one set of regulations instead of a possible eight sets now. A major barrier to trade with the EFTA countries will be eliminated.

The agreement also eliminates other important non-tariff barriers to trade. Perhaps the most significant of those are the prohibition of discriminatory taxation on goods, the application within EFTA of rules on open public procurement based on Community legislation and the adoption of common rules on intellectual property. Those provisions will tackle some of the main potential types of discrimination against exporting companies. In addition, customs procedures and rules of origin are to be streamlined. That will make the task of the exporter of goods simpler and cheaper.

With those measures on the free movement of goods, the EEA will improve significantly the ability of exporters to trade throughout the 19 countries of the Community and EFTA. There will be a significant advance on existing free trade agreements. British companies will have greater export opportunities, and British consumers will benefit from lower prices and more choice.

For a market to be truly open, it must have rules that ensure fair competition. One of the most important parts of the agreement is that on competition and state aid. The EFTA countries will take on competition and state aid rules based on those of the Community. Those will include rules on restrictive practices and monopoly abuse. In addition, the EC merger regulations will cover the Community and EFTA.

The competition and state aid rules will be enforced by the Commission and a new independent EFTA surveillance authority with powers based on those of the Commission, with appeals going to the European Court of first instance or the EFTA court.

The adoption of similar rules by the Community and EFTA, which will be enforced by two independent authorities, will be a crucial element of the EEA. The conditions for competition throughout the 19 countries will be substantially improved. That will obviously benefit consumers. It will also help companies, which will no longer have to face a wide range of substantially different rules, and the agreement will lead to an open and competitive market throughout western Europe.

Unlike goods, services are not covered in the existing free trade agreements between the Community and EFTA. The agreement will lead to the free movement of services. The rules on services will be based on article 59 of the treaty of Rome and the related secondary legislation. So the agreement will eliminate restrictions on the freedom to provide services within the EEA by nationals of the Community and EFTA who are established within the EEA. The services covered include transport, telecommunications, audio-visual services and financial services.

That freedom to provide services throughout the area is a major achievement. It will create new opportunities for businesses in which Britain, in particular, has traditionally been strong. That is so especially in financial services, where the EEA will adopt rules based on Community legislation on insurance, banking and securities. For example, British banks will enjoy a single "passport" to carry out business throughout the area.

The agreement also goes beyond the existing free trade agreements in providing for the free movement of capital. There is already comparatively free movement of capital between the Community and EFTA. The main advantage in enshrining the current practice in rules based on Community law will be that most restrictions by EFTA on inward investment will be lifted.

The fourth and final freedom provided for by the agreement is the free movement of persons. The agreement creates the right of EC and EFTA nationals to work throughout the EEA.

An essential element of the free movement of persons is the right of establishment, which will apply within the extended European area.