Prime minister Margaret Thatcher's steadfast refusal to consider taxing food and certain other items that are currently zero-rated in Britain threatens to hold up efforts to integrate European Community markets.
The delay is possible even though the European Commission insists that no country will be forced to take such action against the government's wishes.Harmonization of value-added taxes by the 12-member countries of the EC, in order to eliminate price distortions, is seen as a vital prerequisite to creating a genuinely unified marketplace. The EC has set a date of 1992 by which time internal barriers and border controls should have been eliminated.
Lord Cockfield, vice president of the European Commission with special responsibility for the internal market, believes that Europe's indifferent economic performance over the past few years can be blamed on the fragmentation of the EC market.
"Instead of acting as a single economic unit of 320 million people - almost as big as the United States and Japan combined - we still act essentially as a dozen separate markets, a dozen individual economies, divided
from one another by different laws, regulations and currencies and often conflicting economic policies," he wrote in an article published this week.
He is particularly critical of Britain, which is prepared to veto any EC moves to tax food, electricity and gas, and children's clothing.
"I would have preferred that the British government had at least read the proposals before coming out with its response," the former U.K. trade secretary told journalists this week.
He insists that the EC proposals allow for certain exceptions in recognition of the fact that complete VAT harmonization will cause political difficulties in a number of countries where some items carry a zero or low rating.
In Britain, there is no VAT on newspapers and periodicals, medical prescriptions, funerals, transport, heating or water, but it is the prospect of taxes on food and children's clothing that has caused the biggest outcry.
Following publication of the EC proposals last week, Mrs. Thatcher was insistent that Britain must be able to determine its own VAT structure and told the House of Commons that "not only would we vote against what Lord Cockfield is proposing but a number of our European partners would as well."
Lord Cockfield admits that, with 10 states already taxing the items involved, albeit at a reduced rate, then the process of harmonization is likely to start from the position of the majority.
However, he points out that the proposals allow for exemptions, although any country wishing act independently must accept there will be some price to pay, such as border controls.
Lord Cockfield also said Denmark, for one, was prepared to accept the EC's tax plan and then arrange for repayments through its social security system for the needy.
Industrialists, who mostly are in full support of the EC initiative to create a single market, are concerned that progress may be falling behind the planned timetable.
Lord Cockfield himself agrees that it is tough going. "It is going to need an enormous amount of pressure to keep it moving fast enough," he says.
One very major step toward simplification and harmonization of EC trade procedures will take place on Jan. 1 next year when some 100 existing customs import, export and transit forms in use throughout the EC are replaced by just one form - the Single Administrative Document.
Also, a new Customs tariff will be introduced based on the worldwide harmonized commodity description and coding system currently being adopted by all the world's major trading nations.
But the EC still faces an enormous task in trying to establish a real common market that will place EC-based companies on the same competitive footing as those from the United States and Japan.