CHAPTER 4 EUROPE 1992: TOWARD A SINGLE ENERGY MARKET

• Jurisdiction: United States

International Resources Law: A Blueprint for Mineral Development
(Feb 1991)
CHAPTER 4
EUROPE 1992: TOWARD A SINGLE ENERGY MARKET
Klaus H. Burmeister and Michael E. Arruda
Baker & McKenzie
San Francisco, California

I. Introduction

The term "Europe 1992" symbolizes the most ambitious program of deregulation undertaken anywhere in the world. By December 31, 1992, the 12 member states of the European Community ("Community") — Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom — intend to create a single European market of more than 340 million consumers by removing the physical, technical, and fiscal barriers currently existing between them.¹

It is the purpose of this paper to put Europe 1992 in perspective as a general concept and to provide a framework for assessing its effect on the energy sector, particularly the oil and natural gas industries. In many cases, given the lack of concrete proposals, the discussion provided in this paper necessarily will be speculative. In any event, we will identify major policies and goals established by the Community for energy development in the future as a single energy market evolves.

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II. Background of European Community

The concept of economic unity in Europe has its roots in the Treaty of Paris and in the Treaty of Rome, which collectively formed the charter of the Community and served as the basis for the programs that are referred to as "Europe 1992."

A. Treaty of Paris

In 1951, the European Coal and Steel Community ("ECSC") came into existence when the Treaty of Paris was signed on April 18.² The six signatory country states were France, Germany, Italy, Belgium, Luxembourg, and the Netherlands. The ECSC represented the first model of the European Common Market. It was the first time that national governments had ceded part of their sovereignty to a central authority. Of significance was the fact that the member states had adopted a policy on external tariffs while eliminating tariffs on trade within the ECSC.

The ECSC identified several key practices as its target:

• import and export duties and other restrictions on the movement of products associated with the coal and steel industry;

• discriminatory measures or practices between producers or between purchasers and consumers particularly in prices and delivery terms;

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• discriminatory measures which interfere with the purchaser's free choice of suppliers;

• subsidies or aids granted by states, including special charges; and

• restrictive practices that exploit markets.³

The ECSC established a series of institutions for its governance, including a High Authority, a Common Assembly, a Special Council of Ministers, and a Court of Justice, each separate and apart from the parallel institutions of its member state.⁴

B. Treaty of Rome

In 1957, after years of negotiation, the six ECSC countries signed two treaties in Rome. The first established the European Atomic Energy Community ("EURATOM").⁵ The other established the European Economic Community ("EEC").⁶ The latter is commonly referred to as the "Treaty of Rome." Together with the ECSC Treaty, these treaties created three "communities" that existed parallel to each other, each having their own organizational structure whose similarities were greater than their differences.

Recognizing the general redundancies, the three communities entered the "Merger Treaty" in 1965 with an eye toward establishing the "European Community."⁷ The Merger Treaty did not, as its name suggests, merge all of the treaties into one instrument since the three treaties essentially

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remained in place. However, the Merger Treaty did establish a single commission and council of ministers for the three communities. A single court of justice had already been created by the EEC treaty in 1958, which was continued.

In the early years of the Community, the member states imposed various limitations on their own sovereignty in order to create a customs union and single market over a transitional period. In fact, considerable progress was made toward achieving this goal, especially in the removal of customs duties between member states and the establishment of a common customs tariff for imports from outside the Community.

However, after these important initial successes, progress slowed during the 1970s for a number of reasons: First, the economic recession in the 1970s led member states to take steps to protect short-term interests in their home markets and for their home producers. Since the more blatant protectionist means were no longer allowed under the Treaty of Rome, more subtle means were employed, including state aid and subsidies, discriminatory public procurement policies, product standards, and the erection of other technical barriers. The second major factor slowing down of the pace of integration was the increasing size of the Community. The United Kingdom, Ireland and Denmark joined the Community in 1973, Greece in 1980, and Spain and Portugal in 1986. The increase in members required to agree on legislation when unanimity was required, to say nothing of the increased linguistic onus, had a dampening on further progress.

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The decline in Community consciousness began to reverse itself in the 1980s, in part due to the economic recovery experienced within the member states. In addition, the member states began to realize that, individually and collectively, they seriously trailed behind the United States and an emerging economy in Japan and that the completion of the single market would be necessary if the Community were to be able to compete with these and the world's other major trading blocs.

C. White Paper

The European Commission⁸ caught the member states' mood with the publication in 1985 of the now-famous "White Paper."⁹ The White Paper differed from earlier initiatives because it pragmatically identified 300 specific measures to which the Council of Ministers would have to agree in order to remove the obstacles to the creation of a truly integrated single market. If there is one overriding theme in the White Paper, it is that the way ahead should be a deregulatory approach. The White Paper identified areas in which the member states had been traditionally reluctant to endorse deregulation because it often involved relying on controls in force in other member states.

Once the changes contemplated by the White Paper are implemented, border controls no longer will exist in the Community. Technical standards and approval certificates issued for a product in one member state will be accepted in

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all others if the goods meet agreed-upon essential requirements. Governmental and semi-public agencies in all member states will be required to follow nondiscriminatory procedures in procuring goods and services. The liberalization of capital movements, banking and investment services will reduce the cost of financing businesses.

The economic benefits expected from Europe 1992 are staggering. The Cecchini Report on the Cost of Non-Europe commissioned by the European Commission predicts costs savings of more than $US220 billion. The integration of the European market will boost employment by creating 1,800,000 new jobs and result in an increase of 4.5% in a gross domestic product of the Community and a real deflation of 6.1% of consumer prices.

Although the national governments are slow to adopt some of the politically more sensitive parts of the Europe 1992 program, the project has gained momentum and the progress made is believed to be irreversible. By December, 1990, the Council of Ministers had adopted 176 of the 282 single market directives.

D. Single European Act

The White Paper was followed by the agreement of the member states to the so-called Single European Act ("SEA"), one of the most important amendments to the Treaty of Rome since

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its conclusion in 1957.¹⁰ The SEA, which came into force in 1987, is of fundamental importance for the completion of the single market for a number of reasons:

• First, it expressly fixes the target date of December 31, 1992 for completing the single market.¹¹ This target has become an important focus of the program and has undoubtedly contributed to accelerating progress in the adoption of the necessary Community legislation.

• Second, the SEA amends the original Treaty of Rome by providing that almost all legislation to complete the internal market can be adopted by a qualified majority rather than a unanimous vote of the Council.¹² This change in the rules has had an important effect on speeding up progress toward the single market. However, there are some important exceptions to the majority voting rule — unanimity is still required for legislation on tax¹³ and certain employee rights.¹⁴

• Third, the SEA introduced the new cooperation procedure with a view to filling the so-called "democratic deficit."¹⁵ There has been a historical fear in many circles that there is insufficient parliamentary control over Community legislation. The cooperation procedure provides for active participation by the European Parliament in

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the legislative process, as opposed to the purely advisory functions the European Parliament traditionally had exercised. Under the procedure, the Council adopts a common position by majority vote, which it then sends to Parliament. Parliament may accept, reject or propose amendments to the proposal. If parliament does not accept the common position, the Commission may amend the proposal, which is then returned to the Council for adoption. The practical effect of the new cooperation procedure has been to increase significantly the European Parliament's influence.

• Finally, the SEA extended the scope of the Treaty of Rome by confirming the authority and jurisdiction of the Community and by introducing new powers in certain...