The European Commission's 1985 White Paper spelled out a programme and timetable for unifying the European market, proposing that by 1992 member states abolish all remaining barriers to the free circulation of goods, services, people and capital. In Discussion Paper No. 1245, Research Fellow Andre Sapir examines the degree of structural change that has occurred within the EU since the launch of the internal market programme. The analysis is divided into three parts. Part one shows that the degree of specialization (measured by the Herfindahl index) has remained fairly low throughout the period 1977–92 in the four largest EU countries. Part two describes two indicators that are generally used to analyse the impact of European integration on trade and to derive predictions of the trade impact of the 1992 programme: the share of apparent consumption in member states; and the ratio of intra-EU imports to total EU imports. Two clear tendencies are found for the period 1986–92. First, there has been a steady decline in the share of domestic production in apparent consumption, implying a continuation of the trade creation phenomenon. Second, the import ratio has remained constant, indicating that the consumption share of extra-EU imports has increased at the same pace as the consumption share of intra-EU imports.

Part three of the paper estimates an econometric model accounting for the ratio of intra-EU to total EU imports in 1986 and 1992. The model contains five groups of explanatory variables, including one representing trade barriers and incorporating three proxies for the intra-EU trade barriers which existed prior to the internal market programme. The 1986 results confirm that intra-EU non-tariff barriers (NTBs) were, in general, more detrimental to firms outside the EU. In addition, in sectors where public procurement is important, the fragmentation of the EU market was more harmful to intra- than extra-EU imports. The 1992 results confirm that the 1992 programme has been more beneficial to non-EU imports in sectors with high NTB intensity than in those with medium NTB intensity. The results explaining the change from 1986-92 in the ratio of intra-EU imports to total EU imports suggest that the sectors most affected by the internal market programme are those where public procurement is the most important. The bias against intra-EU imports, which existed earlier in these sectors appears to have disappeared.

Europe's Single Market: The Long March to 1992
André Sapir

Discussion Paper No. 1245, September 1995 (IT)