Why the internal market needs a fifth freedom

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Enabling researchers to move more freely between EU member states and creating a European Research Area is only a first step towards a true ‘fifth freedom’, argue Hans Martens and Fabian Zuleeg from the European Policy Centre.

[The following is reproduced with permission from the EPC.]

Europe needs to move faster towards the knowledge society if it wishes to ensure the continued economic well-being of its people in light of the challenges posed by globalisation and demographic trends. The internal market, which is at the heart of European economic integration and a key driver for increasing Europe’s competitiveness and economic growth, needs to move rapidly to a new phase and add a fifth freedom – the free movement of knowledge – to the existing four. 

The European Commission has begun to recognise the need to promote the free movement of knowledge, but although this is a step forward, a real ‘fifth freedom’ must go further than current ambitions. Enabling researchers to move more freely between EU member states and creating the European Research Area is only a first step. Even a more pro-active pan-European approach to intellectual property rights is not sufficient to prepare Europe for a knowledge economy where intangible assets are created and moved in the virtual world and where knowledge becomes the key input for high value-added economic activity.

In a globalised economy, Europe’s competitive advantage must be based on trading knowledge-intensive goods and services. The return on capital and human capital will depend to a large degree on knowledge, which will become the key commercial asset. This will profoundly change the structure of the European economy.

It is therefore time to take a hard look at the internal market from the perspective of the emerging knowledge society and to review existing free movement provisions in this light.

Radical changes are needed in all parts of the internal market, including the free movement of goods, services, capital and people. For example, the free movement of people is given a very different dimension when knowledge-based work is provided in cyberspace rather than through a physical presence. This raises a range of issues for public service delivery and financing. For example, no one has really thought through how to levy taxes in the virtual economy.

The protection of intellectual property rights will change completely when products are developed through open source or when electronic products or entertainment can easily be downloaded from anywhere on the globe. Competition policy will also have to be adapted, not least when it comes to defining the relevant market territory if the provision of services takes place in cyberspace. ICT standards, public investment and procurement will be key to creating competitive lead markets.

Policy must pay further attention to the development of infrastructures for the virtual world. Consumer protection will have to effectively address cybercrime, governments will increasingly provide a wide range of services online, and training and education will become a crucial component of social policy to ensure that a wide section of society can benefit from the knowledge economy.

These are just a few examples of how the knowledge economy will impact upon the internal market. The European Commission should therefore start by carrying out an in-depth review of EU policies in light of the emerging knowledge economy now, to ensure that the next Commission can make concrete policy proposals aimed at establishing the fifth freedom and creating competition within the European knowledge economy. 

Citizens, businesses, civil society, regions, member states, and EU-level actors and institutions all need to be engaged in the debate on how the internal market can be made fit for the future, to build a constituency which can drive forward the required change. 

By acting now, Europe can ensure that the internal market is prepared for the knowledge economy and can act as a driver for the creation of competitive cross-border markets in knowledge and knowledge-intensive goods and services, within the EU and beyond. Europe’s internal market needs to be open to global knowledge-intensive trade and investment, and to the flow of talent beyond internal EU borders. 

Experience with the free movement of services provides a warning of what can happen when European action comes too late and is not based on collectively agreed policy priorities. Even though services now account for 70% of the EU economy, the Services Directive, to be implemented by 2009, does not provide a comprehensive and consistent framework for the internal market for all services. Europe must ensure that the same does not happen with the free movement of knowledge.   

An internal market which is increasingly out of step with economic developments is in no-one’s interest. The establishment of the fifth freedom would open the door to a new era in the development of European economic integration and in the wider European project. An internal market which is fit for the future global knowledge economy would be a powerful tool to safeguard European competitiveness and to ensure that Europeans can continue to enjoy the quality of life which they have become accustomed to. 

Hans Martens is Chief Executive and Fabian Zuleeg is a Senior Policy Analyst at the European Policy Centre. The EPC is launching a new Task Force to investigate what the fifth freedom will imply for the internal market.

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