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Should Labour fear single market rules?

Occasionally Labour party members express concerns that EU single market rules could impede what Labour would want to do in government. Is this concern justified? Should it make us wary about staying in the single market?

In general, Labour welcomes the fact that the single market has rules to protect consumers, workers and the environment and to regulate multinational companies. Such rules could be improved — and Labour MEPs, with their Socialist Group colleagues in the European Parliament, work on this constantly — but they are significant enough to make the neo-liberal right apoplectic. That indeed is a major reason why the Tory right wingers want to leave the EU and distance Britain as far as they can from the protections of the single market.

But are there nonetheless specific aspects of single market rules that would be problematic for Labour? Several are cited from time to time. None in fact would cause insurmountable problems.

1. Nationalisation

Article 345 of the EU treaty could not be clearer: the question of ownership is a national decision, not an EU one. Yes, EU rules mean that if you privatise and put something out to tender, then you must allow tenders from across the single market. But decisions to privatise or nationalise are up to each country. Just look at the railways: in most EU countries (and in the UK in Northern Ireland) they are publicly owned.

There are over 800 economic entities with state ownership across the EU. The relative lack of state ownership in the UK is unusual.

Nationalisation does, of course, require jumping through hoops and normally paying compensation (unless it is simply non-renewal of a contract or franchise, as Labour envisages for the railways). But that is not so much because of EU rules but due to the post-war European Convention on Human Rights (which we will in any case still be part of). Under it, any failure to pay adequate compensation could be challenged in the courts. The same would be the case under numerous Bilateral Investment Treaties that Britain has signed with other states, under which inadequate compensation could see us taken to international arbitration panels. This, rather than EU law, could potentially make some nationalisations more costly.

2. State Aid

We do have jointly agreed rules in the EU about when governments can subsidise industry. Their purpose is to avoid a bidding war for the favours of large companies, which the richest countries (like Germany) would always win, and to avoid unfair competition (such as France stealing jobs from Britain by subsidising their car industry).

But state aid is allowed. The key is avoiding selectivity – not subsidising a particular firm as such, but pursuing a public policy such as attenuating regional disparities, boosting training or infrastructure, supporting renewable energy or developing a strategic sector.

Also, governments across Europe use state funded commercial banks, often at regional level, to feed capital into the real economy. This is not state aid as there are legitimate reasons for doing so. In the British context, there is a strong case for them, given the significant shortcomings of access to investment capital for SMEs (and even for larger businesses in the real economy, as opposed to property and city trading).

Last year, two leading academic experts conducted a legal assessment with respect to each of Labour’s 26 specific economic proposals in its manifesto. Their conclusion: “Neither EU state aid rules, nor other EU rules which are distinct from state aid rules but sometimes considered in the same bracket, provide any obvious barrier to the implementation in the UK of the measures contained in Labour’s 2017 election manifesto.” For good measure, they added: “The design of state aid rules is not intended to promote neo-liberalism” and drew attention to “neglected progressive effects of European state aid law in preventing multinational corporations from extracting tax and other subsidies from national governments, [countering] the susceptibility of the modern state to be held to ransom by multi-national corporations.”

3. The effect of certain EU Court judgments

The ECJ (whose members are appointed by national governments, not by the EU institutions) settles disputes referred to it on the interpretation of EU law. Its former British President said that the Court does not take political decisions, but it sometimes has to remind politicians of decisions they have taken.

Nonetheless, the political texts agreed by Member States frequently leave leeway for different interpretations and, in the event of a dispute, the Court settles them. As with British courts, its judgments have sometimes been welcomed on the left, in particular for reinforcing workers’ rights and women’s rights, but some other judgments have caused concern, in particular a string of judgments (Laval, Viking, Ruffert) just over a decade ago which interpreted legislation as allowing companies who post workers to another member state to ignore collective agreements between employers and trade unions of the host country, as they are not party to such agreements and don’t have to respect them unless doing so is required by law in the country concerned.

The widespread criticism of this interpretation has triggered a political response with a review of the posting of workers directive, currently underway.

But in the meantime it is in any case true that Member States can, as some do, back collective agreements with the force of the law. Given that the court rulings hinged on the fact that collective agreements are not enshrined in law in some countries, and therefore do not bind those that are not party to them (e.g. service providers in other Member States), recognising collective agreements as legally binding in national law in those countries which don’t already do so (such as the UK) would avoid some of the difficulties caused by the recent cases.

It should be recalled that the Lisbon Treaty commits the EU to “a social market economy, aiming at full employment and social progress”.

4. Protectionism vis-a-vis developing countries

The EU’s record here is actually rather good. It has granted full duty free and quota free access to the single market to all products (other than armaments) from the Least Developed Countries (LDCs).

And, despite some protectionist tendencies in the field of agriculture, the EU absorbs more exports from developing countries than does all the rest of the industrialised north (US, Russia, Japan etc) added together.

Finally, it should be recalled that the EU is the biggest provider of development aid in the world – and doing so through joint or coordinated efforts make it doubly effective.

Conclusion

The EU level is, of course, a political battlefield, just as the national and local levels of politics are, and there is much room for improvement. But the fears that EU single market rules would impede a Labour government are unfounded.

 

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