vo.12,No.23) ANALYSIS C Monetary Union ll Is Europe One Market? As early as 1978 the European Council set up the Eu Overview of Previous Research ropean Monetary System(EMS) to solve the problem o monetary instability and to foster cohesion among The brief review of the history of European market member states. Established on a voluntary and differen- integration shows that the legal and political barriers tiated basis, the EMS depended on the existence of a that would have prevented market integration have ommon currency unit, the ECU. Through the Treaty or been removed or greatly reduced. However, what are European Union, a European System of Central Banks, the actual economic results of the EUs efforts toward a European Central Bank, and a European Investment ntegration? In other words did the elimination of mar- union were to finalize the completion of the single etary ket barriers actually lead to closer economic relations Bank had been set up The main aims of mor and to increased activities between compa ket by removing the uncertainty and costs inherent in consumers in the EU member states? If economic be currency-changing transactions, as well as costs of havior followed the policy initiatives, one should ol hedging against the threat of currency fluctuations, and serve market results, particularly prices for goods and by ensuring the total comparability of costs and prices services, costs for factors of production, and-most im- hroughout the Union By facilitating business and helping consumers, the profitability among the EU national economies converg EMS was expected to stimulate intra-Community trade ing. Briefly surveyed next are studies that have investi nd increase economic activity to reinforce Europe's gated the economic impact of the EU single market pro- monetary stability. The stages of EMU during the 1990s were intended to phase in the transition to the single In evaluating the impact and outcome on eU market cur ncy so that results, one must consider that even in markets that are particularly through the prior achievement of considered fully integrated--for example ough convergence of economic and monetary policies States--regional market differences exist 3 the United Profit ability between geographic regions within states migh D. Harmonization of Legal Framework especially be driven by factors such as regionally differ phic conditions, market size To further support the integration of the European competitive situat vailability of substitute goods market, rules on competition were introduced that fo- levels of supply and demand, consumer purchasing cused on the following areas: competition policy and power, the nature and extent of government regulation concerted practices; abuse of a dominant position and production costs, and transportation costs. 0 In general a main difference between markets that are not consid akings and services of general interest. Moreover, Eu ered integrated and those that are considered to be in- member states'legislation were brought closer to a tegrated is the existence of regulatory and technical ommon base to promote economic cohesion, particu narket barriers that prevent or restrict economic activi larly in the areas of public contracts, company law ties between the markets by, for example, imposing banking, insurance and securities, intellectual, indus- CroSS-border transaction costs. As discussed above duties(alcohol and tobacco), energy taxation, personal in the EU market by the single market prograln moved and company taxation, and fiscal policy. Apparent market differences might also be induced Some issues regarding the letion of the internal by diverging regional preferences or by industry con market are still open. These include plans for further le factors that are not necessaril lated to market integration. For example, the concen statute for the European company, full freedom of facturing in certain regions is more likely a result of tax harmonization. Moreover, certain directives are not yet fully adopted in all member states, including those centration. These types of regional concentrations ar on public contracts, transport, and intellectual property also observable in economies that are considered fully n addition, further harmonization measures focus on integrated, for example, computer-related sectors with relatively lower levels of integration(such trated in the rust belt in the Midwest United States concentrated in Silicon Valley or steel industry concen- as the retail finance sector) similar l E. Conclusion that might be provided by local government withi states. Therefore, the relevant economic question is not The history of the European single market demon whether differences between markets exist, but how strates that the majority of market barriers that have significant these differences are and whether they are their origin in the separation of European markets more considerable than those observed in markets that through national borders have been abolished. More- are considered fully integrated over, national economic and monetary policies, the le Several studies have examined the impact of th gal framework for economic activities, and national ingle market program and the degree of integration egulations have been largely harmonized or are about be harmonized. Therefore, the authors believe the le gal and political framework for European economic in- 9 In this paper, "region"refers tegration is already in place, and it is reasonable to con- ider tests of Europe as one market for transfer pricing his list of factors that might constitute differences be- purposes tween market results foilows the OECD guidelines. These fac tors are discussed in more detail in section lll of this paper. 414C4 Copyright- 2004 TAX MANAGEMENT INC, a subsidiary of The Bureau cf National Affairs, Inc. TMTR ISSN 1063-2069