Freedom as a source of constraint : expanding market discipline through free movement

Abstract

Free movement increases the degree of market discipline within every Member State by exposing domestic workers and businesses to competitive pressures coming from other Member States. However, the nature of this amplifying effect on market discipline is fundamentally different depending on whether free movement is interpreted as requiring national treatment (chiefly in relation to workers, with the notable exception of posted workers) or mutual recognition (chiefly in the areas of goods, services and companies). National treatment tends to subject domestic and incoming workers to the same regulatory standard, which is defined by the host State (level-playing field). As a result, domestic and incoming workers are engaged in a process of merit-based competition, in which superior merits tend to translate into higher market shares. To that extent, national treatment generates extra competitive pressures on domestic workers, who can be displaced by incoming workers showing superior merits. However, these extra competitive pressures are likely to be limited and not be felt as ‘unfair’, since they arise on a level-playing field. By contrast, mutual recognition subjects domestic and foreign producers to different regulatory standards: domestic goods, services and companies must abide by the law of the host State, whereas incoming goods, services and companies remain subject to the law of their home State. As a result, competition between domestic and imported producers is based not only on merit, but also on the cost of compliance with national laws. Producers established in a low(er)-regulation home State enjoy a structural competitive advantage – originating in regulation – over domestic producers established in the host State, irrespective of their eventual superior merits. Consequently, the competitive pressures added by mutual recognition may be substantial and felt as ‘unfair’; arguably, the so-called ‘Polish plumber’ is a mutual-recognition plumber, not a national-treatment plumber.