Introduction

The Treaty of Rome in 1957 set the goal of the common market. Internal tariff barriers were removed in 1968. Efforts to dismantle non-tariff barriers to achieve free trade were hampered by the recession of the 1970s. Faced with the prospect of continuing slow growth and threatened by competition from the dynamic Pacific Rim countries, especially the United States, Japan, and the Asian newly industrializing economies (NIEs), the European countries took the decision to accelerate the completion of the common market. In 1985 the European Commission issued a White Paper spelling out a programme and timetable for the abolition of existing trade barriers, harmonization of regulations and tax structures to achieve by the end of 1992 a fully integrated single market, an economic bloc without internal barriers, that is, with free movement of goods, services, people, and capital. Some 300 directives were put forward by the Commission. In 1986 the Single European Act was passed, coming into force in July 1987 and providing the legal basis for the complete dismantling of barriers by the end of 1992.

Countries outside the European Community (EC) are concerned about the emergence of a “fortress Europe”, notwithstanding the repeated assurances by Commission officials and governments of EC Member States. The fear of an emergent fortress Europe stems from the following: Article 115 of the EC Treaty allows national quotas vis-à-vis third countries in exceptional cases; a fully integrated market means that this exemption clause has to be removed. The concern is that this removal can only be achieved at the expense of higher-than-before protection against third countries. The European Commission is in favour of reciprocity to resolve this problem. It may be counter-argued that, as EC exports to non-member countries still account for some 40 per cent of its total exports, a fortress Europe is not in the EC's own interest either.

This chapter focuses only on the implications of the single market on private investment flows for countries of the Association of Southeast Asian Nations (ASEAN). Other aspects of capital flows, albeit important, are not covered.