Poland at Single Market: Benefits, Barriers, Reforms

European Council via Flickr || CC BY-NC-ND 2.0

The twentieth anniversary of the entry of Poland and nine other countries into the European Union is a good time to remind ourselves of the benefits associated with this. In the Economic Freedom Foundation’s report, we focus on what is most important for the Polish and EU economies – the Single Market.

More than thirty years since its creation, it can be considered a great achievement and the foundation of European economic development. The abolition of customs duties and many non-tariff barriers, the setting of common rules, and mutual acceptance of rules in selected sectors have allowed for the generation of additional added value, the development of intra-EU trade, new investments, and better use of human resources.

The Single Market implies the free movement of goods, services, people, and capital within the EU. Ultimately, these flows should have been as free as they are within the member states. The full achievement of this goal will probably never be possible due to significant linguistic, cultural or geographic differences, among other reasons, but many areas in the functioning of the Single Market can be strengthened and improved to further enhance the positive impact on the economies of EU member states and the standard of living of their residents. The benefits, barriers, and recommendations for reforms in the EU Single Market are discussed in three chapters of the Economic Freedom Foundation’s report.

The first chapter reminds us that Poland is a beneficiary of the EU Single Market. The five most important conclusions are:

  1. In 2000, a few years before joining the EU, Poland’s GDP per capita was 48% of the EU average. Thanks to rapid growth, one of the pillars of which was our presence in the EU, we managed to significantly improve the economic situation. In 2022, GDP per capita was already almost 80% of the EU average. Poland has overtaken Hungary, Slovakia, and the “old Union” countries – Greece and Portugal – coming close to Spain.
  2. The benefits of the EU Single Market are at least five times greater than those associated with EU subsidies. Even when Poland becomes a net contributor and pays more into the EU budget than it receives from it, staying in the EU will benefit us because of the Single Market.
  3. More than 75% of Poland’s exports and almost 50% of its imports of goods are in the EU. Polish companies are also important service providers on the EU market in transport, accounting and tax services, and information and communication technology (ICT) industry, among others. The Polish economy is growing faster thanks to the openness of EU borders to the flow of goods and services. Polish agriculture is a significant beneficiary of the Single Market – the value of agri-food exports increased almost 9 times after joining the EU.
  4. EU membership has increased Poland’s investment attractiveness. Almost 90% of foreign direct investment in Poland at the end of 2022 came from countries participating in the EU Single Market, and at the same time, foreign investment by Polish companies in the EU has increased many times since 2004. Polish products and brands are increasingly common in the EU market.
  5. The opening of labor markets in EU countries has made it possible to make better use of human resources, lowered unemployment in Poland, and brought additional revenues to our economy in the form of financial transfers from Polish workers. Although currently, the vast majority of immigrants in the Polish labor market are non-EU nationals, it can be expected that as our country’s economy grows, Poland will attract more immigrants from EU countries as well.

The second chapter discusses the most important barriers in the EU Single Market that limit consumer choice, hinder businesses, and slow down economic growth. The five priorities that member countries and EU institutions should address are:

  1. National regulatory barriers, which affect the market for services and regulated professions most severely. In 2022, the most restrictive regulations in services were observed in Poland, Greece, and Italy. The Netherlands, Czech Republic, and Spain had the most liberal approach to the services market.
  2. Inadequate level of enforcement of EU law exceeding the targets set by the European Commission. In December 2023, Poland was among the top countries with the largest deficit in the transposition of EU law and in non-compliance of transposed directives with the requirements of European law on the Single Market.
  3. Barriers in public procurement, which is worth about 14% of EU GDP. Weak competition still exists in this area, along with arbitrary practices of member countries limiting access to tenders or favoritism of domestic companies.
  4. Unfinished building of the Single Market for services, which hampers the Polish and European economies. Insufficient deregulatory pressure by the EU institutions on member states and new EU regulations weaken competition in the services market, hitting Polish companies using posted workers or operating in the transport sector, among others.
  5. New barriers undermine the growth of the EU’s digital economy and innovation, including the development of artificial intelligence, which weakens the EU’s international competitiveness. Overly restrictive regulation of digital companies and excessive digital protectionism limit the benefits of digitization for consumers and European businesses.

In the third chapter, we focus on recommendations aimed at strengthening the EU’s Single Market, accelerating the pace of development, and strengthening the EU’s competitiveness vis-à-vis the rest of the world. The five key recommendations are:

  1. Greater deregulation in member countries and reduction of national barriers blocking movement in the Single Market, especially in the area of services. This will benefit both the economies of member states and the EU as a whole. Poland should strive for such regulatory burdens, which are in force in the three EU countries with the lowest stringency of regulations in a given sector.
  2. The EU needs less regulation and more deregulation to speed up the pace of development and increase competitiveness. Mutual recognition of standards should be pursued as the overriding principle of the internal market, rather than replacing such an approach with regulatory harmonization. The Union needs a review of already existing regulations and adherence to the 1-in-1-out principle, i.e., introducing new regulatory burdens only in parallel with easing existing regulations that generate excessive costs for companies and consumers.
  3. One of the conditions for a well-functioning Single Market is a predictable and transparent regulatory environment. While the EU’s priority should be flexibility and avoiding over-regulation of the European economy, regulations that are introduced should apply throughout the EU and be more effectively enforced. Also, state aid, which distorts competition in the EU, should be more strongly curbed.
  4. The Single Market should not be closed and over-protected. Barriers to trade with countries outside the Single Market area should be reduced, including tariffs and non-tariff barriers. The digital economy should be more open, which means, among other things, greater freedom and removal of barriers to cross-border data flows. The EU should promote mutual recognition of regulations in selected sectors with trustworthy trading partners.
  5. Digital market regulations already in place require continuous monitoring and analysis, with a view to eliminating gaps and inconsistencies in the many regulations implemented over the years and simplifying and rationalizing them. The EU should be wary of further over-regulation that would limit Europe’s attractiveness as a place for digital businesses and innovation to thrive. Instead, we should build a better regulatory environment for the development of a digital economy that benefits businesses and consumers.

The European Union’s Single Market is its most valuable resource. Not only Poland but the entire EU could benefit from recommendations aimed at strengthening the Single Market. According to a study by the European Parliament’s Bureau of Analysis, removing barriers to the Single Market for goods and services could bring at least an additional EUR 644 billion to the EU economy by the end of 2032 (Panella, 2023).

Economic cooperation within the framework of the free movement of goods, services, people, and capital is much more important for the development of the EU than European funds, although well-used funds can help make better use of the presence in the Single Market. Examples include the development of transportation infrastructure used, among other things, for trade in goods, or improving access to high-speed Internet needed for the use of digital services.

Moreover, the development of the TEN-T network, by increasing the EU’s territorial cohesion and improving the transport of people and goods, can improve the operations of the Single Market. It is also worth remembering that the impact of the EU Single Market on the economy is permanent and will continue to accumulate. In the case of Poland and other countries in the region, the role of EU funds will become less and less important as GDP grows.

The EU Single Market can inspire other regions of the world and be a tool of geopolitical influence. The economic benefits of EU members show that the creation of free trade zones, which are not limited to removing tariffs but strive for a high level of freedom of movement of goods, services, capital, and people, is profitable and can be one of the tools for improving people’s living conditions.

As the European Commission itself reports, “the benefits of the Single Market are one of the main elements of the EU’s overall attractiveness as a pole of security, stability and free market values” (European Commission 2023). It is no coincidence that more European countries would like to join the European Union with its Single Market. The European Union is the main trading partner of 53 countries, accounting for 48% of global GDP (European Commission 2023). At the same time, more regions should strive to strengthen economic cooperation among themselves. One ambitious goal for the future could be to build a transatlantic Single Market that would include the EU, EFTA, the US, and Canada.

The upcoming elections to the European Parliament and related political changes in the EU should also involve a decisive change in the approach of politicians and officials to the European economy. The EU Single Market is an important achievement and a pillar of European development, but past successes are no guarantee of future successes. On the contrary, in the absence of serious reforms, the EU’s economic strength will gradually weaken in relation to other parts of the world, and Europe will become less and less competitive. It is time to change this.

Instead of racing for regulatory precedence, as it did recently in digitization, the EU should assess where it has gone too far in terms of regulation, generating unnecessary costs. Instead of complaining about unfinished areas of Single Market construction, such as in services, new legislative efforts should break through various interest groups and increase pressure on member countries to deregulate internally.

Instead of increasing state aid and subsidizing industrial policy, it is better to strengthen competition and create much better conditions for the development of innovation and experimentation with new business models and technologies. Instead of turning a blind eye to intra-EU protectionism and its promotion, it is worth promoting greater openness within the EU and the Union to the world. The European Union can become richer and richer and a better place to live, and the key to this is the future of the Single Market.

The Economic Freedom Foundation’s report, which is part of the Epicenter’s Market Force project, discusses in more detail the key benefits and barriers in the Single Market and makes several recommendations for improving the free movement of goods, services, capital, and people in Europe and making the Union more open to the world. We are committed to a competitive European Union that continues to grow, and, as a result, the living conditions of people in member countries are improving.

Written by Marek Tatala, economist, CEO of Economic Freedom Foundation in Poland

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Economic Freedom Foundation