by Clive Darlow
In 1992 the remaining barriers against the free movement of goods, services, capital and people within the European Economic Community are to be dismantled. The resulting 12-member unified trading market, with a population of some 320m, will present both major new opportunities and challenges. Many continental countries are already actively preparing for the new business environment.
However, such is the apparent disinterest in the subject in the UK that the European Democratic Group’s UK Members of the European Parliament, together with the CBI and the Institute of Directors, are launching a concerted campaign to alert British industry and the professions to the need to plan their future strategy now, in order to take full advantage of the integrated market place in which competition will become much fiercer. But will the opening of the Channel Tunnel, in 1993, be too late for the UK to enlarge its stake in the EEC market? Indeed the fear is that we risk missing the boat to the integrated market completely!
The background
The British indifference to one of the more significant milestones in the evolution of the European Economic Community has prompted the British MEP’s chairman, Christopher Prout, to launch a travelling road show to draw attention to the opportunities — and the threats — that “1992” will bring to British businesses, industry and to the professions. “While the UK is good at crisis management,” Christopher Prout laments, “it has a poor record in contingency planning.”
If all goes according to plan, there will, after 1992, be complete freedom for goods, services, capital and people to move within the 12 member nations. Customs formalities, frontier barriers and all the accompanying bureaucratic red tape will disappear — along with the much-prized “duty free” shop.
Christopher Prout quotes the current situation where a UK lorry driver going down to Italy has to be conversant with more than 70 different forms: the frontier formalities add up to an additional 7% on the cost of goods traded within the community.
Passports, too, are soon to be standardised for all EEC residents, which will have a new burgundy cover with “European Community” stamped in gold on the front.
Development opportunities
The principle of complete freedom across frontiers without formality or delay and the abolition of any form of import/export paperwork, duties or taxes at the crossing point will have profound implications for many industries.
Two of those affected are likely to be the retail sector and shopping-centre development. Catchment areas will be redefined and market strategies rethought. The slow but continuing extension of the motorway and autoroute network, together with the Channel Tunnel, could radically change traditional concepts of shopping catchment areas. Already continental developers are at an advanced planning stage and are actively pursuing new concepts for European shopping development.
A 200-mile radius centred on the Belgian/French border would encompass the whole of Belgium, most of the Netherlands, London and the south east of England, south-western Germany, and Paris and northern France. This would put some 150m shoppers within a three to four hours’ drive of the epicentre. Whether they would be willing to undertake a day trip — or more probably an overnight weekend visit — would depend on the attractiveness of the shopping centre, and, in particular, the potential savings that would be achieved from the shopping excursion.
Northern France is particularly well placed to serve the major concentration of the EEC population. Not only is this consumer market large in numerical terms, but it is also at the higher level of European purchasing power. As such, it will be a major battlefield, with intense competition for its custom. Because of its size and the economies of scale that this market can offer, new mega-sized “next generation” shopping centres are emerging from the drawing board.
These will be able to target much more effectively their potential customers and exploit any price differentials between individual countries because, for example, of varying VAT rates (see Table 1 on p 26) and/or currency exchange rate differentials. As an example of current variations, CEAS Consultants in their report on the new Internal Market, cite the consequences of trying to harmonise spirit prices and conclude “A reduction in Danish prices of 50% and an increase in Greece of 145% would be needed”. Unless there is a change, in response to local electorate political pressures, towards an approximation, if not a parity, of VAT and exchange rates (to prevent the haemorrhaging of potential sales to neighbouring countries) consumers will inevitably patronise neighbouring centres that offer the best value for major high-price consumer durables.
These new centres are expected to be both international and highly specialised. Consider for example, the proposed “auto shopping centre” where all of the major European car manufacturers and the myriad supporting services, parts and accessories, from insurance to car customising, are located under one gigantic roof. Another variation, already at the advanced planning stage, will comprise a “show case” for the leading European furniture manufacturers, backed by large on-site central warehouses. Free “one-way” car trailers and cut-price, self-drive light vans, that customers can drive home with their purchases, the husband in the van and the wife in the family car, will be offered.
Thus, for example, shoppers from Denmark, Ireland or Italy visiting Luxemburg would, on current VAT levels, almost halve the tax rate and be free to import the goods purchased with no greater formalities anywhere along the route home than if they had merely visited their local corner shop.
Price differentials will also be influenced by local variations in the inflation of consumer prices. As will be seen from Table 2 (p 26) the Netherlands, Luxemburg, Belgium and Western Germany all have distinct advantages over the UK.
Other individual differences are likely to become the subject of consumer dissatisfaction and an inevitable pressure for greater international standardisation. Shop hours are a case in point. In Western Germany, for instance, shops shut at lunch time on Saturdays, and Sunday trading patterns vary significantly across Europe.
The offer of gleaming cut-price new cars is unlikely to cause a stampede of buyers from the UK if the steering wheel is on the wrong side! Similarly, television sets which work well in France, but are useless here, are but one example of the range of European-produced goods which have frustrating specifications and operational differences when taken out of their domestic habitat.
The continentals are unlikely to have it all their own way. One of the more ambitious “1992” centres planned to tap into the European dimension is Jim Cookson’s proposals in his 2,000-acre development near Ashford.
Local planning consultant Chris Marsh has been urging local authorities in the South East to broaden their horizons, both in terms of their perceptions of markets and to anticipate more constructively the potential of a much wider European-based demand that could be captured as a result of the impending effects of 1992 and subsequently of the Channel Tunnel. Chris Marsh endorses the CBI fears that more positive attitudes in France towards industrial development could well see British companies relocating to France in preference to the South East where, in particular, the CBI is also worried by the severe housing shortages.
Value added tax
There is currently a wide range of VAT rates within the community, as Table 1 illustrates. Opinion is currently divided as to whether these should be the subject of enforced standardisation by 1992 or encouraged to a closer “approximation” to one another, by competitive market forces. Within the EEC, VAT is an emotive issue ranking in debating priority with drugs and international terrorism. Although the European Council of Ministers is moving steadily towards two-thirds-majority decisions on an increasingly widening range of issues, VAT changes can still be imposed only through the unanimous decision of all member governments.
Currently the UK is out of step — and under challenge — to apply VAT to all food, children’s clothing, insurance and new building construction.
Mrs Thatcher will obviously be anxious not to stir up any domestic political hornets’ nest over these essentially local issues, however, at the same time as she risks the alienation of fellow heads of government over her stand on the CAP. But if these more immediate issues can be resolved then the European prospects for the UK in 1992 could look promising. And 1992 is the last possible date for the next general election campaign: no wonder she is reported as regarding 1992-93 as “so exciting”.
The professions
As part of the freedom of movement planned by 1992, it is intended that similar qualifications will be mutually acceptable throughout the EEC. This means that a member of a recognised profession will be free to practise wherever he chooses, subject to any local regulations that require:
(a) that a language test must be passed; and/or
(b) that certain specialised professions (as yet to be decided) may require extra local training or upgrading.
Michael Pattinson, the secretary-general of the RICS, voices his concern over the fact that little forward-planning on this important issue is currently being undertaken by the professions.
He sees 1992 quite clearly as one of opportunity, rather than threat, for RICS members. His priority in this respect is to ensure that the unique combination of the chartered surveying professional skills are fully recognised in the impending EEC directive regarding mutual recognition of qualifications. But he shares Christopher Prout’s concern that the profession has not yet woken up to the impending changes. He is, however, encouraged by the work being done by the QS members in the Construction Economics in Europe Group, who are actively preparing for the changes likely to affect the construction sector.
The possible influx of European estate agents, valuers and property consultants is not a particular cause for concern. As Michael Pattinson points out, even now anybody can put up their brass plate, and success or failure is determined by the market-place, and not by any quasi-monopoly or statutory protection.
A more profound issue is whether the RICS (or indeed any of the other landed professional societies) should seek to become a pan-European international organisation.
RICS Council member Jonathan Harris, senior partner at Pepper Angliss & Yarwood, is adamant that the UK’s surveying profession is faced with a unique opportunity to become a much more powerful and influential organisation and is especially well equipped to lead the rest of Europe.
Competition
In the liberalised market the public-sector drive for “value for money” will become a common pursuit, predicts Christopher Prout. He expects there to be a dramatic expansion of public-sector international tendering. Under the “open to all members” rule there will be no discrimination or local protectionism; bureaucratic red tape will also be drastically reduced.
Already a number of sectors are targeted by the commissioners as prime candidates for liberalisation and freedom of entry. These include financial services, banking, insurance and transportation. And Mrs Linda Chalker, Minister of Foreign and Commonwealth Affairs, pointedly reminded MPs, when they departed for the Christmas recess: “Our aim is to remove the barriers to free movement of goods and services within the community. In some cases that will involve using community measures to outlaw restrictive practices, for example, on insurance and air transport, in others it will involve adopting a community-wide standard.”
Western Germany, for example, is considered by many to be over-protectionist of its domestic financial services and insurance industry. And remember what happened to that country’s attempt to keep out foreign-brewed beers!
Another sector which has witnessed comparatively little cross-border activity is corporate takeovers among the major retail companies. In contrast to a much more active acquisition programme between the USA and the UK, there have been very few cross-national European retail acquisitions. Expansion to date has been modest, and achieved largely through the opening of wholly-owned branches, franchising or a few joint ventures with local nationals. (Paradoxically one of the few recent cross-border acquisitions of a retail group is by UK property developers Mountleigh of the Galerias Preciados department store chain in Spain). With the removal of cross-border barriers, and the expected harmonisation between different local laws and taxes, the remaining obstacles — those of language, culture and style of living — are unlikely to deter the ambitious from enlarging their market share. The quickest way for such expansion is to acquire an already established, locally based multiple retail group. Thus industry experts are predicting that 1992 will witness a new era of international retail amalgamations, spanning old frontiers.
Conclusions
The old adage about combining the best of all possible (European) worlds could well move closer to a practical proposition: “Holiday in Spain, eat in France, pay taxes in Monaco, shop in Italy, work in Western Germany and hunt from your own estate in England!”
Markers for the 1990s are already fast appearing. The next European parliamentary elections take place in the summer of 1989. The progress (or lack of it) towards the unified market could well become an electoral issue. Spain will be hosting the Olympics and sponsoring the World Trade Fair in 1992 when, together with Portugal, they become a fully integrated member of the EEC. The European Disneyland, to the east of Paris, is also scheduled to open in 1993, coincidentally at the same time as the Channel Tunnel. But, if we wait for the Channel Tunnel to open before we start to grasp the opportunities on offer, we could well have missed the boat to Europe!