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EU's Uncommon Market – a revealing practical experience!

Do we really have a common market? That’s what I have been taught and what I believed until I experienced it myself! To put it bluntly, our common market is not yet a common market. Even inside the euro-zone prices are distorted and markets split by not only different taxation systems but also customs and inefficient transport lines.
Monday 21 May 2007 by  Joan Marc Simon | Rank this article :
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I have some friends in southern Catalonia who produce very fine wine and asked me to help them commercialise their product in Brussels and maybe open markets around EU.

Since the common market is portrayed as one of the big achievements of the EU I decided to start up a small business of wine-import to Brussels. I expected the difficulties would be related to finding costumers and the same ones I would get for selling products in Barcelona and so on. To my surprise, it was in experiencing the rules of our common market what came up to be the most surprising thing.

Taxes and customs

To start with, in order to import goods you have to get the Value Added Tax (VAT) exemption from the sending country because VAT systems are still national taxes. In this case, VAT for wine in Spain is 16% whilst in Belgium 21%.

Then you have the customs, which is something that would somehow be expected to disappear in a common market. Applying an interesting formula it resulted that every litre of wine imported into Belgium is going to be taxed with 0,54 cents. In order for imports to pay off you should not import less than 500 litres… you can calculate how much is added to the price consumers pay…

It is really interesting to visit the customs in Brussels. They don’t have many documents to hand out so in order to explain the procedures they will write everything by hand in front of you… and forget to find this information on-line! It is somehow kind and nostalgic how the lack of technification of the whole process makes me travel back in time to the times of “Ne me quite pas” of Brel, when Franco was still alive and kicking in Spain…

Finally we have of course the transport costs. These would also exist in any common market but I’m still shocked of the fact that the overwhelming majority of freight transport between Spain and the rest of Europe travels on the road instead of using the railway. This of course makes transport more expensive and less environmentally friendly but so far there is no other option for peninsular goods from the Eastern coast to make it to the other side of the Pyrenees…

All in all makes me realise that we are still far from one of the successes the EU attributes itself to have achieved. Leaving aside the profit made by distributors, the fellow Belgians pay between a 10 and a 40% extra of the final price of the wine they buy in taxes that should be eliminated or harmonised.

For the sake of the consumers and the credibility of the European project the EU needs a common market with no taxes on import-export and harmonised VAT systems.

The minimum we can expect from a common market is that goods can travel freely within it. This is not yet the case. However I’m not going to fall in the easy trap of blaming the EU for this –as I think it would be the normal reaction from a normal EU citizen facing a similar experience - rather the opposite; it is the member states who oppose to harmonisation of taxation systems, rule the customs and who based on political reasons decide for example that after 20 years of Spanish accession to European Ecomonic Community (EEC) there is still no serious railway infrastructure connecting France and its southern neighbour…

On the theoretical level of course I believe it is necessary to have monetary and fiscal policy at the same level. But whilst we wait to have harmonised fiscal policies in the hands of a necessary European Economic Government a first step in the right direction would be to turn this uncommon market into something more “common”.


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2 comments

  • 1 - EU’s Uncommon Market – a revealing practical experience!

    21 May 2007 18:21, by Alfredo Pamine

    Joan-Marc,

    You say: « Then you have the customs, which is something that would somehow be expected to disappear in a common market. Applying an interesting formula it resulted that every litre of wine imported into Belgium is going to be taxed with 0,54 cents. In order for imports to pay off you should not import less than 500 litres… you can calculate how much is added to the price consumers pay… »

    Don’t you confuse customs duties and excise duties which are not the same? Excise duties are chargeable in numerous Member States even if there is no movement of good. Excise duty is not a tax on import-export! That’s a big difference with customs duties… Concerning trade within the EC, Directive 92/12/EC provides a system of reimbursement to avoid double taxation while Directive 92/84/EC sets a minimum rate for excise duty (there remains variations between member states).

    In sum: If you look for a single rate, excise duty raises the same problem as VAT…

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  • 2 - EU’s Uncommon Market – a revealing practical experience!

    21 May 2007 21:50, by Emmanuel Vallens

    Dear Joan Marc,

    I really wonder where you got this idea that there were still customs duties within the UE. Surely you must be ill-informed. There might well be some excise duties on alcoholic beverages sold in Belgium (and the Belgian customs may well be in charge of levying, not only customs duties, but also excise duties, as it is the case in many European countries), and which have to be paid in the country of final consumption.

    The aim of this rule, which is the result European Directives on the harmonisation of excise duties, is there to safeguard the fiscal autonomy of Member States, otherwise everybody in Belgium would go and buy alcohol where the taxes are lower, thus undermining the competences of each MS, by a snide race to the bottom, which surely isn’t the aim of federalists.

    The rule re excise duties is a lot more stingent than the rule on VAT because taxes on alcohol, petrol or tobacco (excise duties) are very often much higher the rule on consumption (VAT), thus leading to a higher degree of tax fraud.

    So, as long as we do not have total harmonisation of excise duties, the current system is bound to remain in place, but these are clearly not customs duties, and unless you think that a common market implies total tax harmonisation, I do not see how it could ever be different.

    One of the EU’s greatest achievement is the total and unqualified abolition of ALL customs duties within it, so let us not propagate those EU myths.

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