Solving the Euro Puzzle : From Auctions to Athletes, EC Stumbles Over Obstacles : Longstanding rivalries, suspicions and jealousies undermine efforts to achieve unity.

The big day is approaching. On Jan. 1, 1993, the 12 nations of the European Community will become an enormous single market, an industrialized area of 350 million people in which goods, services, money and people will be able to cross national borders as easily as between California and Nevada.

Or will they?

In fact, despite the EC’s much-vaunted single-market program, national borders are not going to disappear in the new year.

For some purposes, the 12 EC nations will indeed tear down their border controls. One major example: Customs inspections at land borders between most EC countries will stop.

But for others, no amount of legislation from the EC’s headquarters in Brussels will make the 12 forget their longstanding rivalries, suspicions and jealousies. Here are some of the potholes on the road to the single market:

Banking on Rules

Many of the collisions over the single market involve British companies, which operate in a relatively unregulated environment, trying to do business elsewhere in the EC, where regulations are usually much tighter. Banking provides a good example.

In its French branches, London’s Barclays Bank began in September to offer something that French banks did not: checking accounts that paid interest if balances stayed above $2,000.

French banks did not particularly welcome this new competition. A spokesman for Banque Nationale de Paris said that well-to-do customers who could maintain the minimum balance would profit at the expense of poorer ones, who would have to pay higher service charges.

So within three weeks, French Finance Minister Michel Sapin put a stop to these “dangerous products,” arguing that they violated French banking law. Barclays objected. “We see no reason why our French clients could not benefit from products that our clients in Spain, Portugal and Britain already benefit from,” said Dominique de Marquette, Barclays general director in France.

Barclays responded with a variation on its original scheme: A combinationof two accounts, one checking (which does not pay interest) and one savings (which does). The customer has to instruct the bank to shift funds from the savings account when the checking account balance gets low.

Anger Over Auctions

When does a desirable feature of an EC nation’s cultural heritage become an undesirable barrier to trade between EC nations? The auction business illustrates that there is no easy answer to the riddle.

France’s system for auctioning works of art dates at least to 1556, when King Henry II set up a public office to oversee the sale of France’s artistic treasures and ensure that buyers were not swindled by fakes.

To this day, auctioneers are civil servants who must pass an examination and be licensed by the Justice Ministry. Last year for the first time, France allowed foreigners to be licensed, but it still requires auction houses to pay up to 2% of its proceeds to the state.

Sotheby’s, London’s premier auction house, regards the French system as a violation of both the spirit and the letter of the laws establishing the EC’s single market. “The system poses many problems and impediments for a non-French auction house that we regard as incompatible with a free market,” said Tim D. Llewellyn, deputy chairman of Sotheby’s Europe.

The French Justice Ministry maintains that Sotheby’s is free to hold auctions in France, as long as it goes through the French licensing system. Meanwhile, Sotheby’s auctions its French art in Monaco, where there is no such system.

“We are in the absurd situation of displaying works of art in Paris on one day and then transporting them to Monaco the next day so that they can be sold,” said Nicholas Henderson, a Sotheby’s board member. “In this day and age, this kind of restraint of trade should not be allowed.”

Bidding Across Borders

Traditionally, national governments have turned exclusively to suppliers from their own country when they have needed to buy anything from computer networks to paper clips.

The single market is supposed to change all that. From now on, national and local governments are supposed to advertise in all EC countries whenever they seek to buy at least $250,000 worth of anything.

As a result, some big EC government contracts have already gone to foreign suppliers that have underbid national suppliers. But there are some notable exceptions, and printing is one of them.

Last year, according to the British Printing Industries Federation, the British government--principally Her Majesty’s Stationery Office and the Royal Mail--advertised across the EC for 110 contracts. The German government, by contrast, advertised for four.

“There’s something wrong with that,” said Colin Stanley, the British federation’s director general. “I’d like British printers to have the same crack at German markets that we’re giving German printers here.”

Stanley said he had protested to the EC (executive) Commission, to no avail.

A commission official, asking not to be identified, explained that the problem is one of definition. Some printing jobs, he said, involve the purchase of products. Others involve services. Still others are a combination of the two.

The distinction matters. The EC regulation requiring EC-wide advertising for the purchase of products has already taken effect. The comparable regulation for the purchase of services will not take effect before next July 1.

“Some member states may package their contracts in such a way that they don’t have to advertise,” the commission official said.

Adding to the confusion is that the regulations do not clearly define what is a product and what is a service.

“The printing industry is looking for simple rules, but at the moment there are gray areas,” the commission official said. “It’s not the commission’s job to straighten it out. This is a matter for lawyers to work out.”

Stanley, representing British printers, finds this explanation less than satisfying. “You’d wonder what moon they’d just come down from,” he said.

Dialing for Competition

The EC still has a long way to go before it will bust open state monopolies and allow cross-border competition in such traditionally government-protected sectors as energy and telephone service.

Telephone service illustrates the obstacles. Britain has allowed competition with British Telecommunications in the provision of local phone service. Most other EC countries bar competition even in long-distance service.

Leon Brittan, the EC’s antitrust commissioner, has long eyed the telecommunications sector as one that is ripe for opening up. But he has been unable to get a majority of the EC’s 17 commissioners on his side.

Gerard Moine, a director of France Telecom, said commissioners from all but Britain and Denmark have resisted proposals to open the telecommunications market precipitously. “We do not want a deadly competition between European enterprises to weaken them to such a point that it would leave the field open for extra-European competition,” he said.

At the same time, France Telecom, which has introduced what is widely regarded as one of the world’s best telephone systems in its home territory, is not hesitating to look for business elsewhere. It is providing a variety of services not only in Britain and Germany but also in Argentina, Mexico, Poland and India.

Forget Your Passport

To the single market’s planners, traveling between the 12 EC countries after 1992 should be like traveling between the 50 U.S. states: No one should have to show a passport.

The idea has a certain logic. In a true single market, a citizen of one EC country should be able to travel freely to the other 11, as should a non-citizen who gained legal entry to one EC country from outside the Community.

In practice, Britain and Denmark have fiercely resisted, fearing a tide of criminals, terrorists, drug dealers, illegal immigrants and other undesirables, including people with rabid dogs. (Britain has never had a case of rabies.) Ireland, while not so rigid as the other two, finds itself bound to do what Britain does.

An island nation, Britain considers itself inherently different from, say, France. People can enter France over land from five other EC nations--Belgium, Luxembourg, Germany, Italy and Spain. Britain, however, has no land borders except for the Northern Irish border with Ireland; otherwise, every entry point into Britain from another EC nation is a potential entry point from outside the EC as well.

“Our interpretation of the Single European Act is that it still allows us to check at our borders for drug smugglers and terrorists,” said a spokesman for the British Home Office. The 1986 Single European Act is the piece of EC legislation that set the 1992 process in motion.

After Jan. 1, Britain has agreed informally to admit people at its airports and seaports if they wave an EC passport to an immigration official. This has become known as the “Bangemann wave” after Martin S. Bangemann, the EC commissioner in charge of implementing the single market program, who proposed it.

Even among the other nine EC nations, passport-free travel has been postponed well into 1993 at the earliest. Germany and France, worried about an influx of refugees from Eastern Europe and North Africa, are growing less enthusiastic. More than that, a new system of information-sharing on criminals, which the nine believe they will need to compensate for the absence of border controls, is not yet in place.

The target date for passport-free travel across land borders is now next July 1. And airports will need at least until next December to be refurbished with larger “domestic” sections to handle passengers from other EC countries.

Meanwhile, border controls have already all but disappeared between the original five countries--France, Germany and Benelux--that agreed in 1985 to phase out checkpoints between them. The four more recent additions to this group--Italy, Spain, Portugal and Greece--are also well along the road.

The EC authorized the creation of an environmental agency in May, 1990, but none yet exists. Likewise, there is no trademark office, drug agency or Europol network for sharing police information among EC countries.

The reason: EC members are squabbling over where the new agencies should be located.

Britain is the chief obstacle, and the European Central Bank--dubbed the Eurofed because, like the U.S. Federal Reserve, it is to set European monetary policy when the EC moves to a single currency--is the object.

At last June’s EC summit in Lisbon, the 11 others agreed on a Portuguese package that would have given the Eurofed to Germany. Germany’s central bank, the Bundesbank, already in effect sets monetary policy for much of Europe--a situation that makes Britain uncomfortable enough. British Prime Minister John Major had another candidate for the Eurofed: London, which he called Europe’s financial capital.

The Netherlands, which now plays host to no EC institution, was also unhappy that the Portuguese package would have given it only the new Europol. But it was won over by a promise that the first Eurofed president would be Dutch.

The 12 EC leaders are expected to try to break the logjam again this Friday and Saturday at their summit in Edinburgh. Nobody gives them much chance of succeeding.

A Sporting Chance

After Jan. 1, most EC citizens will be entitled to work in any of the 12 EC countries without a special work permit. But the borderless labor market will not apply to soccer players.

The rules governing European soccer, the Continent’s most popular team sport, allow each professional team to play no more than three foreigners in any game.

That has some bizarre consequences. The star-studded Italian team called AC Milan, which is paying $8.5 million a year to six foreigners--three from the Netherlands and one each from France, Croatia and Yugoslavia--has to keep three of them in the stands for every game.

Why did it acquire more than three? As insurance against injuries.

The Race to Unity

The “EC ‘92” program, designed to tear down national barriers to the movement of goods, services, money and people by Jan. 1, 1993, calls for 282 new laws. Here is the percentage enacted by member countries through August:

Belgium: 64%

Britain: 73

Denmark: 90

France: 83

Germany: 79

Greece: 76

Ireland: 72

Italy: 71

Luxembourg: 70

Netherlands: 75

Portugal: 78

Spain: 67

Source: European Commission

Staff researcher Isabelle Maelcamp contributed to this story.