Keywords

Introduction

Russia’s full-scale invasion of UkraineFootnote 1 has led to the enlargement of NATO as well as, potentially, the European Union (EU), with Moldova and Ukraine being granted candidate status in 2022. Moldova and Ukraine’s candidate status is based on an ambitious agenda of integration with the EU via association agreements (AAs) concluded in 2014 and 2016, respectively. The AA/Deep and Comprehensive Free Trade Areas (DCFTAs) are characterized by close cooperation with the EU by means of the non-Member States’ adoption of the EU's acquis in relevant areas in exchange for access to the EU’s internal market. Third-country integration in the EU via norms transfer offers a possibility for the Union to expand its sphere of influence, whereas for third countries it provides an opportunity for deep cooperation with the Union in preparation for membership or as an alternative thereto.

The expansion of the internal market to the neighbouring countries by means of norms export is a significant element of the EU’s foreign policy towards the neighbourhood. Norms export also constitutes a crucial external dimension of individual policy sectors, such as energy and transport. Since AAs, through which the export of norms usually takes place, also aim to facilitate integration into the EU's political community, the agreements assume a security policy aspect that is particularly illustrated by the political developments surrounding the conclusion of the EU-Ukraine AA/DCFTA (Van der Loo, 2016). The EU’s post-Brexit relationship with the United Kingdom and its relationship with Ukraine and Moldova after the currently raging war suggest that discussions about the participation of non-EU Member States in the internal market and its significance for EU integration on a broader plane are as crucial as ever.

This chapter examines how the expanded boundaries of the EU’s internal market affect the Union’s role as a regional power. The chapter argues that the expansion of the internal market offers third countries a solid opportunity to identify themselves as belonging to the wider European community and ensures their long-term commitment to the European integration project. The chapter begins with an account of the importance of the internal market within the EU. It is followed by a discussion on the significance of the internal market in the EU's external relations with a particular emphasis on the EU’s neighbourhood and the role of association agreements as preparatory stages to (potential) membership. The chapter concludes with a discussion on the extent to which integration through internal market acquis can constitute a sustainable alternative to membership.

Definition and Meaning of the Internal Market Within the EU

The underlying economic ideal of the EU is the creation of an ‘integrated economy in which the factors of production, as well as the fruits of production, can move freely and without distortion, thus achieving a more efficient allocation of resources and a more perfect division of labour’ (Opinion of Advocate General Jacobs in Joined Cases C-92/92 and C-326/92 Phil Collins EU:C:1993:276, point 10). Within the framework of these broad principles, ample scope is left to both the Member States and the Court of Justice of the EU (CJEU) to determine the exact shape of the single market, thereby determining the breadth and depth of market integration within the EU.

The concept of the internal market comprises rights and principles. First, the definition provided in Article 26(2) of the Treaty on the Functioning of the EU (TFEU) focuses on the four fundamental freedoms—the free movement of goods, persons, services and capital. Second, the Preamble to the TFEU makes references to fair competition between undertakings. Third, regulation of the relationship between the market participants is further underpinned by the principles of non-discrimination and equality.

The concept of the internal market is flexible as well as constantly evolving. Pescatore (1981) has classified the components of the internal market acquis in accordance with their legislative, political and judicial origins. The acquis consists of primary and secondary law, policy instruments and jurisprudence of the CJEU that shed light on the functioning and establishment of the internal market.

The legislative acquis includes a body of legally binding and non-binding acts; the founding Treaties of the EU and their amendments; secondary law comprising regulations, directives, decisions, recommendations and opinions; the internal acts of the EU’s institutions, inter-institutional agreements as well as international agreements concluded by the EU.

The political acquis comprises legally non-binding acts, such as the political objectives of the Treaties, as well as various resolutions, declarations, positions, guidelines and principle, including decisions and agreements adopted by the European Council and the Council. Despite not being legally enforceable, non-binding acts can have certain legal consequences.

The third category, judicial acquis consists of the jurisprudence of the EU’s judiciary. The latter is a source of fundamental principles framing the Union's legal order, such as the principles of direct effect and primacy of EU law but also effectiveness and unity.

The regulatory framework governing the EU’s internal market thus includes all primary and secondary law, political instruments and jurisprudence of the EU courts regarding the establishment and functioning of the internal market. The latter includes the four freedoms as well as overarching provisions on, for example, competition, environment, social policy, consumer protection and fundamental rights to the extent that they have a connection to the internal market (Öberg, 2020).

Within the European integration project, the internal market plays a central role. The foundations for the internal market were laid in 1957 with the conclusion of the Treaty establishing the European Economic Community (EEC) between the then six Member States. The common European market was not created as an independent goal, but rather as a means of achieving the wider purpose of the Union, which was to increase economic prosperity through ‘an ever closer association between the peoples of Europe’ (Preamble, EEC Treaty). Neither the EEC Treaty nor the subsequent amending treaties provided a clear definition of the common market. Kapteyn and VerLoren van Themaat have defined the common market as ‘a market in which every participant within the Community in question is free to invest, produce, work, buy and sell, to supply or obtain services under conditions of competition which have not been artificially distorted wherever economic conditions are most favourable’ (Kapteyn & VerLoren van Themaat, 2008, p. 127). The definition includes the four fundamental freedoms—the free movement of goods, services (including the freedom of establishment), persons and capital and provisions on competition.

During the 1970s and 1980s, the common market experienced a period of stagnation. As an attempt to give impetus for increased integration, the Single European Act, which entered into force in 1987, set a deadline of 31 December 1992 for the completion of the ‘internal market’. The European Commission’s 1985 White Paper had outlined the actions necessary to achieve that goal accompanied by a precise timetable (European Commission, 1985). The White Paper was exceptionally detailed and contained a total of 279 legislative initiatives to remove trade barriers between the Member States. However, despite high ambitions and partial success, the internal market could not be completed by the set deadline. While efforts continued, the European Commission stressed that the legal framework of the internal market essentially requires the addition of other policy instruments, first and foremost a single currency, marking the transition from a common market to a monetary union. Subsequently, the European Commission (1997) published the ‘Action Plan for the Single Market ‘ (CSE (97) 1 final) focusing on four strategic objectives: (1) increasing the effectiveness of existing regulations by improving their implementation, enforcement and problem solving; (2) addressing significant market distortions in the fields of taxation and competition; (3) removing barriers to market integration in individual sectors and (4) strengthening the role of citizens by abolishing internal borders within the Union and strengthening the social dimension of the single market.

Since the 1990s, the European Commission no longer pursues its original goal of ‘completing’ the internal market. In the 2000s, the European Commission instead began to emphasize the dynamic nature of the internal market and its need to adapt to changes over time. This new perspective takes the internal market beyond the idea of removing barriers to cross-border trade. Instead, as presented in European Commission (2007) Communication ‘A Single Market for the Europe of the Future’ of 20 November 2007 (COM (2007) 724 final), it supports the need for the internal market to respond to the challenges of globalization and increased competition, new economic, environmental and societal challenges and the enlarged Union. The principles underlying the internal market remain relevant. Their application, however, must be adapted to new realities and the right balance must be struck between a borderless market and considerations of labour law, health, safety and the environment. The fact that the common policies that have relevance for the internal market will never be ‘completed’ also means that the definition of the internal market will remain dynamic.

Integration Through the Internal Market as a Path to Membership

In addition to the internal context, the dynamic character of the internal market is also reflected externally in third countries’ different possibilities to participate therein. The EU’s competitive position in the world depends not only on economic power (Gehring et al., 2017) but also on the Union's ever-increasing normative power (Bradford, 2020; Cremona, 2004). This dynamics is prominently reflected in the role of the internal market in the Union’s relations with third countries in its neighbourhood. On the one hand, the Union actively participates in multilateral fora that create global rules and practices. On the other hand, the EU exports its norms and values to non-Member States in exchange for the latter’s access to the internal market. The latter phenomenon where the integration of third countries with the EU takes place through the Union's own acquis is most noticeable in the Union's immediate neighbourhood and is exemplified by different types of agreements that vary in both form and intensity.

The objectives of the export of EU acquis to third countries, too, vary in accordance with the economic development of the Union and its neighbouring regions as well as the need to coordinate solutions to common challenges and responses to common threats. The approximation of legislation between the EU and the neighbouring countries creates increased political and economic stability in the EU’s immediate neighbourhood while assisting the non-Member States in achieving their internal political goals. The latter aspect concerns especially states that are in a phase of modernization or transition, such as countries in Eastern Europe. Providing neighbouring countries an alternative to membership through access to the internal market combined with financial and technical support is, furthermore, a means for the Union to manage its accession capacity.

Certain categories of agreements concluded between the EU and neighbouring countries are specifically aimed at exporting EU norms, policies and institutions. In these agreements, both the scope of the acquis and the depth of intended integration vary greatly. Elements that distinguish between the agreements include (1) the broad political goals of the programmes which the agreement forms part of (such as the European Neighbourhood Policy); (2) the specific aims of the agreement as well as (3) the third-country's geographical proximity to the EU, its economic situation and attitude and potential to become an EU Member State.

Unlike the enlargement process, agreements concerning legal approximation between the EU and neighbouring countries do not aim at total regulatory convergence that would cover the entire EU acquis. Norm export is usually, as exemplified by the Agreement on the European Economic Area (1994) (EEA), limited to the acquis of the internal market and is, thus, directly devoted to providing third countries access to the EU internal market. In some cases, the process of legislative approximation is based on international or bilateral norms. In other cases, legal homogeneity is to be achieved on the basis of the internal market acquis. Overall, the role of the internal market in the EU's external relations is characterized by a move towards deepening and broadening within a variety of political frameworks, types of agreements and perspectives of future EU membership.

Exporting the internal market acquis to third countries and, especially, the goal of thereby expanding the internal market is the most prominent example of third countries’ legal approximation with the EU. The EU's close regulatory cooperation with neighbouring countries dates back to the early days of the European Communities. The European Economic Community (EEC) signed the first Association Agreements with Greece and Turkey in 1961 and 1963, respectively. Over the next 60 years, the EU has concluded numerous association, cooperation and partnership agreements with its near and more distant neighbours. Almost all countries in the EU's neighbourhood have formalized relations with the EU through one or more bilateral or multilateral agreements. The agreements vary considerably in terms of the wider political context in which they are situated, their stated aims, and the scope of EU acquis contained therein. Nevertheless, the central element in the rapprochement between the EU and the third countries concerned is the regulatory framework of the EU’s internal market.

Third countries can cooperate with the EU, and be integrated with the internal market, to different degrees. The lowest level is constituted by cooperation agreements which envisage third countries’ gradual integration into the EU’s wider area cooperation, such as through the European Neighbourhood Policy, Partnership and Cooperation Agreements concluded in the 1990s with the countries of Eastern Europe, or the Euro-Mediterranean Association Agreements. The second level comprises the liberalization of trade through internal market acquis, either by means of a free trade agreement or the establishment of a customs union. Examples of such agreements include the EEC-Turkey Association Agreement, the Europe Agreements concluded with the countries of Central and Eastern Europe that became EU members in the consecutive enlargement rounds of 2004 and 2007, the Stabilisation and Association Agreements concluded with the countries of the Western Balkans, as well as the new AA/DCFTAs concluded within the framework of the Eastern Partnership.

Association agreements constitute the main instrument for the liberalization of trade between the EU and the neighbouring countries. Association agreements can have many different aims. They can be used to prepare neighbouring countries for EU membership, provide an alternative to membership, or a framework for development cooperation or interregional assistance (Hanf & Dengler, 2004). One common feature of the various association agreements is reciprocity, although the extent of concrete rights and obligations in individual agreements varies. According to the CJEU, an association agreement gives rise to ‘special, privileged links with a non-member country which must, at least to a certain extent, take part in the Community system’ (Case 12/86 Demirel EU:C:1987:400, para. 9). In practice, the reciprocity of rights and obligations usually includes third countries adopting EU acquis or acceding to international conventions in exchange for financial and technical assistance and, to a varying degree, access to the internal market.

For example, the 1963 EEC-Turkey Association Agreement aims to promote trade and economic relations between the EU and Turkey and to create a customs union covering all trade in goods. The specific regulatory framework to be adopted by Turkey is set out in decisions of the Association Council which, together with the Agreement, form the ‘law of association’. Legal adaptation to the EU’s regulatory framework must, however, only take place ‘as far as possible’ (EEC-Turkey Association Council, 1995, Article 54(1) of Decision 1/95, 22 December). The EU-Turkey law of association covers significant parts of the internal market’s regulatory framework notably excluding the free movement of persons. Pursuant to Article 12 of the EEC-Turkey Association Agreement, for example, the Parties must gradually ensure the free movement of workers which, to this date, has not been achieved (Case C-81/13 United Kingdom v Council EU: C:2014:2449, para 57).

The EU's current integration strategy for the neighbourhood includes both a political and an economic dimension. Together with DCFTAs, association agreements form the basis of the cooperation. The combined AA/DCFTAs envisage the approximation of third countries’ legal systems to the EU acquis, the entry of the third countries into the internal market and are expected to lead to increased competition within the neighbourhood. So far, new AA/DCFTAs have been concluded with Georgia, Moldova and Ukraine. Negotiations with Azerbaijan on a DCFTA, but excluding an association agreement are ongoing. Negotiations with Armenia on a DCFTA were completed in 2013, but as Armenia's membership in the Eurasian Economic Union proved incompatible with the provisions of the DCFTA, the latter agreement was never concluded. Instead, in 2017, an agreement—the Comprehensive and Enhanced Partnership Agreement (CEPA)—was signed that is narrower in scope and more modest in terms of access to the internal market. The purpose of the CEPA is to establish legislative cooperation between the EU and Armenia without an association. The scope of the EU’s regulatory framework within CEPA is largely limited to the field of energy and envisages market integration and gradual approximation of legislation with ‘the key elements of EU acquis’ (Preamble to the Comprehensive and Enhanced Partnership Agreement between the European Union and the Republic of Armenia (2018)).

AA/DCFTAs are ambitious in terms of the gradual integration of third countries into the internal market. The agreements intend to provide far-reaching market access and extensive legislative approximation, however, without clearly leading to future membership in the Union. AA/DCFTAs cover several sectors of the internal market, such as energy, transport, services and agriculture. They also incorporate all four fundamental freedoms, albeit with significant exceptions regarding the free movement of persons. Unlike other free trade agreements, integration on the basis of the EU acquis in the AA/DCFTAs is a legal obligation and subject to strict conditions. The intended scope and depth of integration within AA/DCFTAS is significant: in the areas of services, establishment and public procurement, for example, the EU-Ukraine AA/DCFTA comes close to the level of integration envisaged in the EEA Agreement. The ambitious substantive scope of the AA/DCFTAs is supported by an institutional and procedural framework that includes features of other agreements that aim at comprehensive integration, such as the EEA Agreement, but does not, however, reach the same level of complexity as the latter.

The diversity of different types of integration agreements reflects the different functions that the internal market and its regulatory framework play not only within the EU but also outside the Union. In the EU’s relations with third countries, internal market acquis can be said to encompass five main functions. First, internal market acquis is used to gradually integrate non-Member States into Europe's wider area of cooperation; second, the acquis contributes to the liberalization of trade when a free trade area or customs union is established; third, the acquis is used to prepare potential candidate countries for EU membership; fourth, the acquis serves as a means for more extensive integration of third countries into the internal market and fifth, as a limited version of the latter, the acquis contributes to the integration of non-Member States into a sector of the internal market, such as transport or energy. A sixth function relates to the management of a relationship between the EU and a former Member State, as exemplified by Brexit. The various functions of the acquis may overlap both within a single agreement and be included in several agreements concluded between the Union and a non-Member State. A case in point is the accession process, where total convergence with the EU’s regulatory framework is usually preceded by less intensive forms of political and legal cooperation between the Union and the country concerned, including in the area of the internal market.

Integration Through the Internal Market as an Alternative to Membership

From the perspective of the EU, the export of internal market acquis via multilateral agreements is primarily a matter of foreign policy vis-à-vis third countries. However, it also constitutes a means of expanding the internal market by allowing third countries to participate therein, albeit to a limited extent. By adopting EU acquis, third countries are integrated into the EU’s internal market rather than a separate, expanded market being set up with a legal system based on different norms than those that apply within the EU. The pursuit of legal homogeneity within the expanded internal market, such as in the example of the EEA, constructs a bridge between the EU’s regulatory framework and the regulatory framework of the legal order created by the acquis-exporting agreement in question.

On the whole, the EU’s external action towards the neighbourhood countries is thus not limited to bilateral trade relations, democratization and the improvement of security at the Union's external borders, but is increasingly aimed at integrating the neighbouring countries both into a wider area of cooperation and, more concretely, in the EU’s internal market. The boundaries of the latter thus become more blurred. The expansion of the single market serves both the external and internal interests of the Union. In the gradual integration of third countries without immediate membership of the Union, the role of the internal market as the engine behind the EU’s economic and political success has been infused into the Union’s external relations. This is reflected in the evolving role played by internal market acquis in agreements concluded by the EU with the neighbourhood countries over time and across different countries and country groups. In these agreements, the obligation to adopt and implement internal market acquis has become standard, and the role of the agreements to integrate third countries either gradually or completely into the internal market has become increasingly relevant.

One of the most prominent functions of the internal market acquis in the EU’s external relations is to integrate third countries into the internal market regardless of the membership aspirations of the latter. Such integration can either embrace the internal market in its entirety or be limited to one or more specific policy areas. Despite differences in the breadth of cooperation, both categories share roughly the same depth of integration in terms of relevant free movement provisions.

The only example of an agreement that exports the EU acquis in order to extend the internal market outside the Union in a comprehensive manner without explicit membership ambitions is the agreement establishing the EEA. The Agreement was signed in 1992 as a multilateral association agreement between the European Community and its Member States, on the one hand, and the countries of the European Free Trade Association (EFTA) excluding Switzerland, on the other hand. The agreement entered into force in 1994. Most of the former EEA EFTA countries have by now joined the EU, rendering Iceland, Liechtenstein and Norway the only non-EU members of the EEA. Despite the low number of participating countries, however, there are no indications that the EEA would cease to exist in the foreseeable future as it provides for the countries that have chosen to remain outside the Union an opportunity to continue to be closely connected to it in both political and economic terms.

The EEA Agreement aims to create a ‘homogeneous European Economic Area’ based on equal conditions of competition and respect for the same rules (Article 1.1 of the EEA Agreement). This express aim of legal homogeneity distinguishes the EEA Agreement from all other neighbourhood agreements discussed in this chapter. The EEA Agreement covers almost the entire internal market acquis (the Agreement does not include the Customs Union, the Common Commercial Policy and the Common Agricultural and Fisheries Policy), making the EEA EFTA countries nearly full-fledged participants in the internal market.

The annexes to the EEA agreement which contain the ‘EEA-relevant provisions’ are continuously reviewed by the EEA Joint Committee with the aim of guaranteeing legal security and homogeneity within the EEA. In order to ensure that the common rules are applied in a uniform manner, the EEA features an elaborate institutional framework. Unlike the association agreements discussed above, which mainly establish an association council, the EEA Agreement establishes both a Joint Committee, an EEA Joint Parliamentary Committee, and the EFTA Court. The latter is a body that adjudicates disputes between the EFTA parties to the EEA Agreement arising from the interpretation of the EEA Agreement. The system established by the EEA Agreement thus goes far beyond exporting the internal market acquis to third countries and has become a legal system of its own (Case E-9/97 Sveinbjörnsdóttir v. Iceland [1998] EFTA Ct Rep 95, para. 59).

EFTA member Switzerland is not a party to the EEA Agreement. Although Switzerland participated in the negotiations of the Agreement along with the other EFTA members, a negative referendum in 1992 led to the country not signing the EEA Agreement. Instead, the relationship between the EU and Switzerland is governed by over a hundred bilateral agreements. These agreements notably include the two packages of sectoral bilateral agreements: ‘Bilateral I’ and ‘Bilateral II’ which were signed in 1999 and 2004 and contain seven and nine agreements, respectively. Examples of the policy areas covered by the agreements include the free movement of persons, air transport, rail and road transport, trade in agricultural products, public procurement, mutual recognition of conformity assessment, environment, etc.

The aim of the cooperation between the EU and Switzerland, which is based on the bilateral agreements, is to strengthen deep sectoral cooperation rather than to offer full participation in the internal market on equal terms with EU Member States in line with the EEA agreement. Similarly to the latter, the annexes to the bilateral agreements contain lists of applicable EU acquis and strive towards homogeneity with the EU regulatory framework. The fact that the provisions of the bilateral agreements must be interpreted and applied in the light of the jurisprudence of the CJEU confirms that the relationship between the EU and Switzerland is to some extent comparable to the sui generis character of the EU and the EEA legal orders (Breitenmoser, 2003).

A new form of sectoral cooperation between the EU and neighbouring countries has emerged since, by Steven Blockmans and Bart Van Vooren called ‘legally binding sectoral multilateralism’ (Blockmans & Van Vooren, 2012). This form of cooperation constitutes a viable alternative to bilateral agreements such as those concluded between the EU and Switzerland. Multilateral sectoral agreements, such as the Energy Community Treaty (signed in 2005), the Agreement on the European Common Aviation Area (2006) and the Transport Community Treaty (2017) are ‘homogeneous’ regulatory spaces that include both the EU and a number of third countries (Öberg, 2020).

Within sectoral integration, the internal market acquis plays a significantly different role. In the examples discussed above, the acquis is mainly used as a tool within the EU's foreign policy and a platform for political and economic cooperation between the EU and individual third countries or country groups. However, deep sectoral cooperation is based on the foundation of the European Neighbourhood Policy, Stabilization and Association Agreements and Euro-Mediterranean cooperation, which have gradually prepared the neighbouring countries to adopt the EU's regulatory framework. Deep sectoral integration fulfils the EU's internal as well as external policy goals. On the one hand, it serves to further integrate the energy markets of the Eastern Partnership into the EU’s energy market, and deepen cooperation in the aviation sector within the Euro-Mediterranean policy framework. On the other hand, sectoral integration adds a structured external dimension to the EU's respective internal policies.

In addition to aiding the process of third countries gradually approaching the EU, internal market acquis serves to maintain a link between the EU and a country that is not approaching but instead moving further away from the EU and its internal market. Brexit is a case in point with the internal market acquis, specifically in the case of Northern Ireland (Weatherill, 2020), acting as a lifeline to hold on to in the continued relationship between the Union and the United Kingdom (UK).

The Brexit process aimed at a complete exit from the EU. Under the most radical of scenarios, all ties between the UK and the EU’s supranational legal order would be dissolved. During the transition period, the internal market acquis played the role of maintaining economic and personal exchanges between the Union and the UK and enabling the UK’s continued participation in the internal market. However, in the Trade and Cooperation Agreement (TCA) that now regulates the UK’s relations with the EU, strong ties between the UK and the EU’s internal market have not been (re-)established. The exception is Northern Ireland where free movement for goods under the Ireland and Northern Ireland Protocol still applies. Brexit, thus, constitutes a peculiar example of a third country first being bound by the EU’s entire internal market acquis within the framework of membership to then needing to redefine cooperation in order to reduce the EU’s influence.

Despite losing its immediate binding character in the UK, the internal market acquis has not become irrelevant, at least in relation to Northern Ireland. Moreover, some parts of the acquis continue to apply in the UK as ‘sensible’ rules approved by the national government despite its origins in the EU constitutional system (Barnard, 2016). The TCA ensures that close ties are maintained with the EU and the internal market, but not too close. At the beginning of the negotiations on the withdrawal agreement, the UK wished to continue adopting EU acquis in certain policy areas and was in the Political Declaration of 14 November 2018 open to further development of the relationship with the Union. However, after intense negotiations on the future relationship following the UK’s formal withdrawal on 1 February 2020, the parties could only agree on cooperation at a low level which is not based on internal market acquis.

The experiences from EU integration show that close cooperation with the Union is normally a process of gradual deepening and significant spill-over effects to other areas of cooperation. It is, therefore, very difficult to place a permanent limitation on the depth or breadth of a country’s future cooperation with the EU. During the negotiations on the UK’s future relationship with the Union, the EU constantly rejected a piecemeal approach to the future partnership with the UK. In a progressive integration process, third countries are granted gradual access to the internal market in exchange for implementing the EU’s acquis. The European Council's Brexit negotiating guidelines of 29 April 2017 stated the firm position of the Union’s negotiator insisting on a partnership ‘as close as possible’ while maintaining the ‘balance of rights and obligations’ and ensuring ‘a level playing field’ between the parties (European Council, 2017). The partnership would be based on the idea of indivisibility of the four fundamental freedoms that form the core of the single market, and essentially reject a sectoral approach that would ‘undermine the integrity and proper functioning of the Single Market’ (European Council, 2017). On the other hand, the UK’s approach to the internal market was selective. The UK welcomed continued access to the internal market for manufactured goods and agricultural products, as well as in-depth cooperation in a number of priority areas such as energy and transport. On the other hand, the UK ruled out continued application of the bulk of the internal market acquis.

Generally, the EU considers sectoral integration of third countries in fields such as energy and transport as beneficial for the internal market in situations where the non-Member State in question has chosen a sectoral form of integration from the beginning. This includes, for example, the partnership between the EU and Switzerland which excludes the free movement of services and the freedom of establishment. In such cases, partial integration of third countries into the internal market is considered to be advantageous for the Union, the adverse impact on the integrity and functioning of the internal market notwithstanding. However, in the case of a Member State’s withdrawal, future sectoral cooperation is considered more detrimental to the unity of the internal market. Although the Union’s position in the Brexit negotiations was inconsistent with previous practice, it can be justified by the size of the UK and its former prominence as a Member State, as well as the inequality of the parties’ respective negotiating positions. The EU’s position was essentially driven by the perceived existential threat of Brexit to the entire European integration project rather than a firm understanding of the future function of the internal market in the Union’s relationship with the UK.

Every country in the Union’s neighbourhood for whom the EU constitutes the biggest trading partner depends on a well-functioning trade relationship with the Union, especially if they share a common border. In the UK’s post-Brexit relationship with the EU, the internal market plays a very different role than in the agreements already concluded with the eastern neighbouring countries. This applies particularly to the aim of maintaining economic integration, as the previous agreements rather sought to ‘achieve’ such integration.

The EU's Internal Market as a Multifunctional Integration Tool

Over time, the EU's integration with the neighbourhood has developed towards deeper and more legally binding forms of regulatory cooperation. The internal market acquis has evolved from merely providing a legal framework for the Union's internal market to also integrating third countries into the Union’s sphere of influence and even membership. The internal market should, therefore, not be regarded as an ‘internal’ and exclusive concern of a limited number of committed countries that offer inspiration and limited access to others, but rather as a dynamic and geographically inclusive form of cooperation between the Union and its periphery.

The most common tool for the Union’s cooperation with third countries continues to be bilateral agreements, which enable tailor-made solutions to meet the individual interests and integration goals of both the Union and the third countries. The internal market acquis included in the agreements usually functions as a first step towards deeper regulatory cooperation with the EU. Alternatively, as in the case of AA/DCFTAs, EU acquis can constitute a further step in deepening integration in the area of the internal market building on less intense and mostly political cooperation. In the case of Ukraine and Moldova, integration with the EU has now resulted in EU candidate status without, however, rendering the AA/DCFTAs obsolete (Van der Loo & Van Elsuwege, 2022 regarding Ukraine; Emerson et al., 2022 regarding Moldova). The comparatively less flexible multilateral sectoral agreements are fewer in number but have become the EU's preferred option for integrating into the internal market economically highly developed countries capable of complying with EU standards, or for cooperating with less developed countries in policy areas characterized by strong cross-border dimension, such as transport and energy. Overall, bilateralism provides breadth to third-country integration in the internal market whereas multilateral frameworks provide depth.

For the EEA EFTA states, the EEA Agreement currently provides a satisfactory alternative to EU membership while multilateral sectoral cooperation is gaining ground by offering a ‘fast track’ option to EU integration in selected areas of cooperation. Multilateral agreements create common market spaces outside the borders of the Union, including among the third countries themselves. This facilitates further trade within that space, commitment to the EU as an integration project and the creation of a European market that resembles a domestic market as closely as possible and that extends beyond the borders of the Union.

On a general level, integration agreements strengthen the Union’s relations with third countries while also strengthening the internal market. The internal market has proven to be suitable for expansion beyond the EU’s borders. However, its partial dissolution through Brexit was perceived by the Union as a threat to its unity. This indicates firmness of principle in the Union's approach to integration with third countries. Gradual access to the single market is an option for countries whose legal and political systems require extensive upgrades to meet EU standards. A former Member State must choose between all or (almost) nothing, either full participation in the internal market or a more modest free trade agreement. From the EU’s perspective, the expansion of the internal market is thus not an altruistic project but one pressing strong demands of loyalty on the EU partners. Despite this, even less intensive cooperation based on internal market acquis is expected to bring greater benefits for both the Union and the third country in question than the absence of any ties.

In sum, internal market acquis has been omnipresent in the Union's relations with neighbouring states since the Union’s early days. Internal market acquis has been used for many different purposes of integration, ranging from the establishment of initial partnerships with third countries to full-scale integration of the latter into the internal market and maintaining a relationship with a former Member State. Over time, the internal market has become an indispensable part of the Union’s policy towards the neighbouring countries. The extensive application of the acquis by non-Member States is the key to being able to secure a long-term commitment to the European project both within the Union and beyond. The fact that trade predominantly takes place according to the Union's acquis confirms the Union’s status as the region's leading normative power. Criticism has been raised against the Union’s normative ‘hegemony’ that arises when third countries adopt the Union’s legal acts without being able to influence their content but only being able to decide on the validity of the rules in their legal order (Eriksen & Fossum, 2015). However, in this case, the hegemony is not intentional on the part of the Union but stems from the complex interdependence of the EU and third countries and the European integration process. Giving non-Member States a formal opportunity to participate in the decision-making processes within the EU would also blur the formal boundaries of membership of the Union and question its continued existence (Öberg, 2023).

Russia’s war in Ukraine has further strengthened the importance of cooperation between the EU and neighbouring countries in the context of the internal market. In addition to constituting the main pillar of EU integration and an important economic space, the enlarged internal market has gained increased symbolic importance as a path choice between Europe’s and Russia’s spheres of interest. Integration through the internal market within the framework of the ambitious AA/DCFTAs has provided Ukraine, as well as Moldova and Georgia, an opportunity to confirm their belonging to the community of European states and a basis on which to build further membership ambitions. While the formal, physical and administrative borders of the EU remain, the boundaries of the internal market continue to be blurred and the European integration project broadened and deepened for the benefit of security and prosperity in the region.

The Way Forward: Strengthen the Internal Market’s Force of Attraction and Maintain Its Flexibility

In order for the Union to best use the advantages of its internal market in the external context, it is suggested that the Union maintain the flexibility of the internal market as well as its openness to participation by non-Member States.

  • Expansion of the internal market

The internal market has proven attractive for the Union's Member States as well as for countries in the EU’s neighbourhood. For security and economic reasons, it is desirable for the EU to continue to actively seek to integrate third countries into the internal market via third countries’ adoption of the relevant acquis. Participation in the internal market on the same terms as EU Member States has a strong attraction for non-Member States, which should continue to be taken into account in the development of the Union’s policies towards the neighbourhood countries. Cooperation via the internal market strengthens the third countries’ economic situation, institutions and societies, is conducted in accordance with the EU’s values and interests and, not least, offers a future perspective in the form of gradual integration into the EU for countries that wish to choose or continue on the path towards European integration.

  • Flexible integration

Integration requires adaptations on behalf of the third countries as well as the EU and the internal market. The internal market is not a homogenous concept. It has enabled the participation of both Member States and non-Member States on different terms but around a core set of principles that sustain its functioning. This flexibility should be maintained without modifying the formal boundary between Member States and third countries constituted by membership.