Acceding Countries’ Gradual Integration into the EU Single Market

The requirements of single market integration

For the candidates, gradual and early inte­gration into the European single market is a key goal. Inclusion in this market promises them access to the European goods and labour markets as well as integration into international supply chains and the facili­ta­tion of trade in goods and services. It also attracts investors and foreign direct invest­ment. However, adopting the acquis com­munautaire with respect to single market legis­lation is the most difficult challenge in any accession process.

In this regard, candidate countries must engage in legal harmonisation to access the single market of products, services, persons and companies. First of all, they must estab­lish the structural and legal foundations of a functioning market economy. This in­cludes, above all, the legal basis for prop­erty, contract and commercial law. In addi­tion, they need to meet numerous administrative and technical requirements in order to guarantee the functioning of the single market. Many of these requirements have resulted from the broad base of case law coming out of the European Court of Jus­­tice (ECJ) with regard to the single market.

Two principles should be highlighted here: (a) the mutual recognition of stand­ards, and (b) the harmonisation of standards, which enables, further develops and permanently secures the free and unhindered exchange of goods, services, capital and persons in the common market. All goods that are legally traded in only one part of the single market must also be allowed to circulate freely in all other parts. The exchange of goods in the single market may only be affected by national provisions that are necessary to ensure public order and safety (i.e. legislation combating fraud or efforts to prevent corruption, illegal trade and organised crime), public health, consumer protection, the environmental and climate protection. Mutual recognition of standards requires two things: firstly, mutual trust among all member states with regard to the due diligence and effectiveness of national protection and safety regu­lations. This also means trusting that national regulations and administrations ensure the quality and expertise of the com­panies and businesses that produce the goods or offer the services. Every single mar­ket economy’s national requirements, which are recognised by all other members, must meet to the same high safety stand­ards and level of protection. This also applies to the standards and legislation of non-EU mem­ber states with which the EU has estab­lished a free trade or association agreement that entails the perspective to accede to the EU.

Secondly, this mutual trust is therefore based on a common understanding be­tween all single market countries as to what product safety every state must ensure and guarantee its citizens and what the coun­tries can demand from European part­ners. If there are doubts about this, it could mean that the EU grants third countries’ products and services only selective access to the single market in order to protect it from damage.

In addition to implementing harmonisation legislation, all countries participating in the single market in those areas in which common standards have been agreed upon are required to exercise administrative con­trol of European standards and adopt strict testing and certification measures as well as, in some cases, national market surveil­lance. To this end, they must create, ad­equate­ly equip and run appropriate nation­al institutions that supervise, control and, if necessary, penalise manufacturers and distributors. Such institutions can take the form of, for example, testing laboratories, technical institutes or competent supervisory bodies with oversight over areas including financial services or occupational health and labour safety.

With regard to the exchange of goods, a distinction is made between product and production-related requirements. In order for a product to be freely exchanged within the single market, it must meet European safety and protection standards. New par­ticipants’ entry into the single market must not result in reduced levels of consumer protection or safety. Furthermore, produc­tion of the new participant’s commodity must not cause any distortions of competition. To this end, the EU must guarantee a level playing field and monitor its devel­opment. For example, manufacturing stand­ards for any given product must be harmo­nised to ensure adequate labour and environ­mental protections, otherwise a company could potentially manufacture a product for much cheaper and undercut competition by offering the product in the common market at a lower price. Con­sequently, market participants must harmo­nise their production-related requirements, such as environmental, labour and consumer protections, and relevant social policies. At the same time, new members must set up supervisory national institutions and adopt and define required administrative pro­cedures. They must also harmonise their taxation principles as well as corporate and capital legal requirements with those of the other single market members.

Thus, in addition to the adoption of sec­ondary legislation, integration into the single market also requires the creation of suitable structures and effective institutions as well as adequate human and financial resources. Setting the right priorities plays just as important a role here as following the appropriate sequence of steps – both for the candidates and for the EU itself.

The single market: access and participation without EU membership

Depending on its own economic and politi­cal interests as well as those of the third country, the EU determines the scope and forms of access to the single market by way of trade and association agreements. In each case, the third country must fulfil the conditions defined by the EU in order to access or participate in the single market, and it must be able to meet these requirements on a permanent basis. Because the countries at hand are not (yet) EU members, contractual regulation is needed in order to capture the complexity of the single market.

Together with the three European Free Trade Association (EFTA) countries of Nor­way, Iceland and Liechtenstein, the EU formed the European Economic Area (EEA), whose members fulfil the conditions of the single market acquis and thus are able to fully participate in the single market. This means that Norway, Iceland and Liechtenstein are part of the single market without being members of the EU. As single market legislation constantly progresses, the EEA provides a mechanism through which these three EFTA countries adopt new legislation in a quasi-automatic fashion. They are con­sulted in advance on legislative proposals and participate in the Council’s implementation committees, however, they do not have a vote on the legislation in the Coun­cil or European Parliament.

Separately, the EU has concluded a large number of individual sectoral agreements with the fourth and final EFTA member Switzerland, allowing it partial access to the single market. However, the EU does not regard this as a model of association for other third countries. This network of bi­lateral agreements with Switzerland is extremely costly and inefficient because this form of voluntary harmonisation with relevant EU secondary legislation (autonomous adaptation) does not guarantee Swit­zer­land’s complete and swift adoption of current single market legislation.

The EU’s economic partnership with the United Kingdom (UK) allows British products to enter the single market without duties or quotas. However, the UK is neither part of the EU customs union, nor does it automatically or regularly adopt new EU legislation or rules for the single market, including common product standards. The differences between British and European standards are therefore likely to multiply, necessitating more border controls for bilateral trade. Besides, the two sides still have not sought to negotiate the free move­ment of people, goods, services and capital.

While the four EFTA countries and the UK are not seeking EU membership, other third countries’ EU aspirations still matter as this determines how association relations will be organised and defines these coun­tries’ access to the single market. In gen­eral, association agreements are expected to include an explicit preparatory character for potential acceding countries, especially when the countries are not yet ready to enter the single market. These agreements contain clauses on the further development of relations, including in the realm of eco­nomic cooperation and integration. For many years, Stabilisation and Association Agreements (SAAs) with the WB-6 were expected to bring these countries closer to meeting the requirements of the single mar­ket acquis with the help of EU financial, technical and administrative support. The first SAA – with (North) Macedonia – came into force in 2004. The SAAs could certainly be used as an intermediate step in granting aspiring countries full participation in the single market, but this has hard­ly been the case in the past. Although the EU is the most important trading partner for the WB-6, this does not mean that they are ready to enter the single market.

The EU concluded association agreements and Deep and Comprehensive Free Trade Agreements (DCFTAs) with Ukraine, Moldova and Georgia at a time when it did not want to afford these countries the prospect of acces­sion. To compensate for this and to adhere to the idea of “sharing everything but insti­tutions”, the DCFTAs contain provisions on integration into the single market and trade conditions that are deeper and more favour­able than those of the SAAs. Still, both the DCFTAs and SAAs would be suitable start­ing points for setting country-specific prior­ities for gradual integration, both in terms of their substance and parity of national and EU institutions – at the ministerial, parliamentary and senior official levels.

Deficient single market maturity

A paramount prerequisite for gradual inte­gration into the single market is visible progress in the fulfilment of the fundamentals in Cluster 1. There are political and material reasons why the EU only wants to accept countries that can demonstrate func­tioning separation of powers, rule of law, accountable public administrations and anti-corruption efforts. However, these are the biggest problem areas for all can­di­date countries. Those wishing to partici­pate in the single market must have estab­lished administrative structures and institutions for market surveillance. Nonetheless, the European Commission did not look favour­ably on these countries’ reforms in the fields of public administration and insti­tutional requirements, noting in its latest 2023 Communication on EU Enlargement Policy that “[f]or now, most reforms are more cosmetic than substantive”. It went on to caution that the nine enlargement countries of the WB-6, Ukraine, Moldova and Georgia “remain at best moderately prepared in terms of quality of their public administration”. These countries therefore fail to fulfil the fundamental economic cri­teria that would signal their readiness to enter the single market as they struggle to establish fully functioning market econo­mies and the abilities to withstand com­petitive pressure in the single market.

Of the six thematic clusters that comprise the 33 total negotiating chapters, Clus­ter 2 “Internal Market” consists of nine chap­ters, including free movement of capi­tal, free movement for workers, right of establishment and freedom to provide ser­vices, and competition policy. As far as these four freedoms are concerned, the Euro­pean Commission stated in its Novem­ber 2023 country-specific assessments that none of the nine countries were meeting targets. Progress in 2023 itself was also con­sistently low or limited.

Montenegro is the Western Balkan country with which the EU has been con­ducting accession negotiations the longest, since 2012. It has opened all nine chapters of Cluster 2 (Internal Market) but has not provisionally closed any. The European Commission assesses the country as only moderately prepared when it comes to the free movement of goods, and in its latest country report it recommended that Mon­te­negro focus on aligning with single mar­ket legislation to standardise and strengthen its individual agencies. According to the Com­mission’s analysis, Moldova, the most recent country to become an accession can­didate along with Ukraine, has only made limited progress in aligning its legislation with that of the European single market acquis while also having what is described as only “some level of preparation” to enter the single market. No candidate country in the Western Balkans currently fulfils the criterion of a functioning market economy. Here, the Commission considers Moldova and Ukraine to be “between an early stage and some level of preparation”. Therefore, it is too early to partially integrate Moldova or Ukraine into the single market, as doing so would jeopardise the single market as the core of EU integration.

Gradual integration: rewards and added value

Even in the context of gradual integration, the EU is not compromising in terms of aspiring countries’ requirement to har­mo­nise with the acquis and create necessary structures and institutions. However, through gradual integration, the EU is aim­ing to reduce the costs associated with accession by gradually and partially afford­ing candidate countries access to the single market early on. Third countries’ efforts to adapt should be rewarded with effective economic and financial benefits quickly and before their accession.

Still, one central problem remains, even with this modified strategy: The adjustment costs incurred by the accession countries are only offset – to a degree – by temporary, not permanent transitional arrangements with the EU. Here, it is only during the pre-accession phase that the EU can alle­viate these burdens, particularly by granting fi­nan­­cial aid and technical/ad­min­is­trative sup­­port. In previous rounds of en­large­ment, the candidates calculated that their adap­ta­tion efforts and costs would be out­weighed by the benefits of future inte­gra­tion into the EU as a full member. This made the one-sided burden politically accept­able.

The EU’s primary aim with gradual inte­gration is to spur new momentum in the slow accession processes of the WB-6, where the main obstacle has been massive demo­cratic and governance deficits. These defi­cits must also be remedied for the WB-6 to gain faster access to the single market, whether for individual products or entire industries or sectors. If systemic reforms take effect in the WB-6, this should pay off even before full accession. The EU is also offering financial support to these countries to help them fulfil the requirements of the single market. Whether this incentive mecha­nism works as intended will depend on how the governments of these countries weigh the potential (and usually future) advantages of partial single market inte­gra­tion against the (current) political and financial costs of far-reaching structural reforms.

The idea of gradual integration is enshrined in the latest negotiating frameworks in which the 27 EU member states set out the principles for accession nego­tiations. However, there is no direct link between that which is agreed upon over the course of gradual integration and that which is agreed upon over the course of formal negotiations at intergovernmental conferences. A solution could be for the European Commission to assess the success of these countries in certain areas of the single market during accession negotiations and gradual integration prior to becoming full members of the EU. These achievements could then also be considered when assessing the third countries’ fulfilment of the benchmarks that close negotiation chap­ters. Killing two birds with one stone, this could simplify and accelerate the acces­sion negotiations, provided that all 27 mem­ber states accept the Commission’s assess­ment. Members could then rely on the Com­mis­sion’s decision if it would only authorise fi­nancial aid to accession coun­tries in the con­text of gradual integration if the require­ments for the application of the single mar­ket acquis were met. Measures arising over the course of gradual integration could also be adopted by the acceding countries’ insti­tutions and thus become legally binding. However, it remains to be seen what this would mean for the actual accession nego­tiations. The negotiating framework devel­oped by the EU for the assessment of partial single market readiness could therefore in­fluence the pace and dynamics of the acces­sion negotiations.

Concrete implementation is required

One weakness of the new enlargement strategy is that gradual integration into the single market has not yet been tailored to the individual accession candidates based on their own unique circumstances. The starting conditions for the new eastern Euro­pean candidates Moldova and Ukraine differ considerably from those of the WB-6. Indeed, it has not been specified how grad­ual integration into the single market would be made possible. What are the politi­cal prerequisites, and what are the legal and institutional measures that would need to be implemented, and in what order? In order to be able to utilise the enlargement strategy’s new gradual integration instrument, the EU will need to clarify its ideas and incentives for each candidate country’s entry to the single market as quickly and comprehensively as possible.

In the country-specific negotiating frame­works, the 27 member states have stipulated that there should only be a few and short transitional periods in connection with the expansion of the single market. Gradual integration should focus on areas “where the candidate country already has the capacity and expertise for exports to the EU, and on areas of mutual strategic inter­est where the candidate country has signifi­cant production but needs to meet EU norms and standards, and as well on areas where there is a vast untapped potential”. This provision from the negotiating frame­work with Albania is an example of the EU’s desire to level the playing field and ensure the integrity of the single market.

In the future, the EU needs to concretely define and specify necessary institutional, administrative and technical structures and instruments on a case-by-case basis, as these will vary significantly from sector to sector and country to country. It would also make sense for the EU to recommend the best sequence of steps and to offer precise time­tables and implementation plans for the necessary reforms, once again, customised for each candidate.

In November 2023, the European Commission submitted a proposal on a growth plan for the Western Balkans and a reform and growth facility for its financing. Here, it voiced both its ideas on gradually inte­grating the WB-6 into the EU single market as well as its insistence on requiring the WB-6 to pursue a results-oriented reform policy. However, the proposed areas of partial integration into the single market are rather selective (including inclusion in the Single Euro Payments Area – SEPA, the establishment of a voluntary roaming agreement and the recognition of professional qualifications) and no comprehensive access to the single market for an entire industry or sector has been offered. The areas in which partial integration may be the easiest and quickest are not at the direct centre of the single market. For exam­ple, the Commission highlighted acceding countries’ potential to participate or be included in the areas of: European transportation and energy, climate and environmental policy, consumer protection policy for food production, European co­hesion and economic policy under the Euro­pean Semester, and migration and border management.

In any case, the ball is now in the court of the WB-6, which the Commission is calling on to make its own proposals. This bottom-up approach forces the WB-6 to take more ownership and to clarify their interests and plans to reform. The existing bilateral association committees could func­tion as fora where these countries’ national plans are compared and made more con­crete.

Still, the European Commission itself notes a number of concerns with gradual integration. In the event that the single market is opened up to certain goods and services in a more comprehensive way, the EU would undoubtedly be faced with the question of how it can ensure that EU regu­lations are comprehensibly applied and enforced in non-EU single market states, and thereby protect its own citizens and com­panies. If it is to simply rely on nation­al technical regulations in lieu of harmonisation with EU requirements through EU legis­lation, the EU must ensure that these regulations are still interpreted by the acced­ing countries’ authorities in accord­ance with EU law. This includes complying with the interpretation of requirements by the European Court of Justice (ECJ), whose judgements are not yet binding for the acced­ing countries. Considering this, the European Commission’s concrete ideas for gradual integration into the single market also appear to be cautious and reserved. In this context, the establishment of a Single Market Academy may be the most appro­priate proposal, as it would offer the WB-6 a point of contact that could provide con­crete assistance to help these countries devel­op their structures and capacities in key areas including standards, certification and conformity. Nonetheless, such a mecha­nism would certainly not constitute the mar­ket integration that the candidate coun­tries hope for and expect; and it could there­fore prompt them to reweigh the burdens and benefits of EU membership and thus strengthen and accelerate their reform efforts.

Conclusion: hurdles remain high

Upon first glance, the potential of gradually integrating candidate countries into the single market appears to be a reasonable step in furthering the desired (and geo­politically necessary) dynamisation of the EU’s enlargement processes. This applies first and foremost to the WB-6. On second glance however, certain conceptual and practical questions remain unanswered, for both the EU and the candidate countries. The requirements for single market readiness remain unchanged and the cri­teria cannot be softened. The burden of compliance, i.e. reform, harmonisation of EU and national legislation, and the estab­lishment of stable administrative structures, can only be partially eased through EU funding. The EU’s commitment to afford more financial support is nearly to the point of offering EU structural funds, which are only granted in the event of full mem­bership. In this respect, the EU has largely exhausted its range of instruments. It can­not (and must not) permanently exempt the candidate countries from certain areas of the single market acquis lest it run the risk of damaging the core of EU integration, cohesion and political stability. It remains to be seen whether the EU can enforce the political conditions vis-à-vis the political elites of the acceding countries within the framework of gradual integration. The link between better governance and professional public administration on the one hand and access to the single market and its economic benefits on the other, must be positioned at the centre of accession negotiations and association relations. This also means that benefits will only be granted if the conditions are met, and the former will be with­drawn if the latter are not reliably met. If acceding countries’ elites are not pre­pared to adopt the EU’s political, economic and social model, access to the EU single market will only be open to them without formal EU membership. Here, they would still need to comprehensively fulfil the legal obligations, but not necessarily the politi­cal and normative conditions. However, the financial support at their disposal in this case would likely also be significantly diminished.

The heightened imperative – if not dominance – of the geopolitical (and geo-economic) rationale for future enlargement must not, however, mean that enlargement and negotiation proceedings are no longer based on merit, performance and the fulfil­ment of objective parameters. The politicisation of enlargement risks undermining the importance of the functioning single market and its accompanying policies that ensure the (enlarged) EU’s continued co­hesion and prosperity.