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# 52002AE0364

**Opinion of the Economic and Social Committee on the "Request by the European Commission for the Committee to draw up an exploratory Opinion on the Communication from the Commission — simplifying and improving the regulatory environment" (COM(2001) 726 final) **

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Official Journal C 125 , 27/05/2002 P. 0105 - 0111 *

Opinion of the Economic and Social Committee on the "Request by the European Commission for the Committee to draw up an exploratory Opinion on the Communication from the Commission - simplifying and improving the regulatory environment"

(COM(2001) 726 final)

(2002/C 125/20)

On 10 January 2002, the President of the European Commission, Mr Romano Prodi, requested the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, to draw up an exploratory opinion on the "Communication from the Commission - simplifying and improving the regulatory environment".

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 1 March 2002. The rapporteur was Mr Kenneth Walker.

At its 389th plenary session on 20 and 21 March 2002 (meeting of 21 March) the Economic and Social Committee adopted the following opinion by 56 votes in favour, one vote against, with one abstention.

1. Introduction

1.1. Regulation plays an important role in achieving the objectives of the European Union included those embodied in the European social model. It creates many benefits for the Public and Business. Regulations are needed to improve public health and safety, to protect the environment, to meet social objectives, to ensure the universal provision of essential public services and to safeguard consumers. They also assist in promoting competition, establishing a "level playing-field" between businesses, avoiding market distortions and creating a climate of legislative certainty in which public administrations, businesses and consumers can operate. Regulation also has a role to play in reconciling the sometimes conflicting interests of different stakeholders.

1.1.1. However, such benefits come at a price. The latest survey of business opinion, undertaken for the European Commission (European Commission, Internal Market Scoreboard No 9, November 2001, http://europa.eu.int/comm/internal_market) estimates that European companies could save at least EUR 50 billion with better quality regulation. This is equivalent to a reduction of 15 % in the compliance costs incurred by companies. By extrapolation, that puts the total compliance costs for Business at more than EUR 330 billion per annum. Moreover, these estimated savings are based on the status quo. As the Commission itself says, "A higher quality regulatory environment will most likely unleash a new economic dynamism whose benefits will undoubtedly be even higher."

1.1.1.1. These costs for companies represent, in effect, an additional burden that they are required to bear. As with any other impost, it is inevitably passed on to the consumer in the form of higher prices. Citizens need to be assured that they are getting value for money. At present, that is patently not the case.

1.2. Moreover, this is only half the story; the figures quoted above do not take account of the effect of the costs of regulation on public administrations or the costs of economic inefficiencies arising from poor regulation, e.g. higher prices and lower-quality products and services resulting from reduced competition and less innovation. On this basis, the Commission has estimated that the cost to society of poor-quality regulation could be of the order of 10 % of GDP. Small wonder that the Commission describes an improved regulatory environment as being, "a prize well worth claiming". High quality regulation would also assist in restoring confidence in government and institutions in general.

2. Progress to date

2.1. The Edinburgh European Council of December 1992 made the task of simplifying and improving the regulatory environment one of the Community's main priorities. At the Lisbon European Council of March 2000 the European Union set itself the mission of becoming the most competitive and dynamic knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion. There, and at Santa Maria de Feira in June 2000, the important role that better regulation must play in achieving this was clearly established. The call for a strategy for further co-ordinated action to simplify the regulatory environment was subsequently confirmed and extended by the European Councils of Stockholm and Gothenburg.

2.1.1. The Lisbon Council specifically asked for the issue of simplification, both at the European level and in Member States, to be addressed in 2001. So far, the results of this exercise have been disappointing. There is little evidence of any substantive progress in the Member States and the Commission is twelve months behind schedule. These delays are particularly unfortunate in view of the imminence of enlargement, the present timescale for which envisages the admission of ten candidate countries in time for the 2004 elections to the European Parliament.

2.2. In the interval between the Edinburgh and Lisbon summits, little was achieved in the way of improving the regulatory environment. In 1995, the Molitor Report set out eighteen general recommendations. The Committee endorses these proposals and regrets that so little has been done in the intervening period to implement them.

2.3. In May 1996, the SLIM (Simpler Legislation for the Internal Market) initiative was launched, with the objective of identifying ways in which internal market legislation could be simplified, but the results have been extremely limited. Its application has been haphazard and ineffective and its impact has been muted. One reason for this is that the Council and the Parliament have frequently failed to follow through on Commission proposals to amend legislative instruments. Too often, the necessary follow-up action by the Member States has not been implemented. A recent report on the outcome of the fifth phase of the SLIM initiative (European Commission Staff Working Paper, Simpler Legislation for the Internal Market, SEC(2001) indicated that only five Member States had taken initiatives to simplify national legislation based on the Community Regulations/Directives reviewed during the fifth phase and in most of these cases it had not been possible to identify or quantify the cost savings to users. This is clear evidence of the need to improve the methodology of post hoc assessments.

2.4. Since the Lisbon Council there have been several moves to step up the pace of simplification. The European Economic and Social Committee issued an own-initiative Opinion on the subject in October 2000(1) and a follow-up Opinion in November 2001(2). In November 2000, a high-level advisory group was set up by the ministers for the national civil services to advise on all aspects of this problem; this group delivered its report, the Mandelkern Report, in November 2001. In December 2001, the Commission issued a Communication(3) to the Laeken Council on simplifying and improving the regulatory environment.

2.5. The Communication from the Commission to the Spring European Council in Barcelona(4) includes a recommendation that the European Council should endorse on-going action to finalise by June 2002 an action plan for improving and simplifying the regulatory environment.

3. The Commission Communication to the Laeken Council

4. The Mandelkern Report

5. The Economic and Social Committee's Opinions

5.1. The Committee's Opinion of October 2000(5) stressed "the urgent need to embark on a process of simplifying regulations in the single market, whilst also improving the quality of their provisions, their incorporation into national law and the freedoms and responsibilities of the civil society players."

5.1.1. It called upon the Stockholm European Council to adopt, on a proposal from the Commission, a multi-annual simplification plan, setting out objectives, priorities and methods, and earmarking budgets and resources for monitoring and follow-up action; the implementation of this plan should be reassessed each year at the Spring European Council on the basis of a Commission report.

5.1.2. The Opinion proposed that this plan provide for the adoption of codes of conduct by the EU institutions, ensuring that they help to promote the simplification of rules rather than making them more complex. The Commission should set an example and Member States and their administrations should be encouraged to adopt their own codes of conduct. The Committee led the way by setting out its own Code of Conduct in the opinion.

5.1.3. The Opinion also recommended that the Commission should entrust the impact assessments to an external body having the requisite qualifications and meeting the necessary criteria of independence.

5.2. The Committee's Opinion of November 2001(6) developed this idea of an independent expert body to review the regulatory process. The Opinion made the following concrete proposals for the improvement of the existing regulatory environment:

- A Regulatory Review body should be set up to monitor the review of existing legislation and set out the guidelines for introducing new legislation. It should also conduct ex-post evaluations of the effects of legislation. This body should comprise representatives of the Commission, the national agencies and Business.

- Specific targets should be set for achieved reductions in the volume of legislation, e.g. to reduce the total volume of regulations and directives by 20 % over five years.

- All new regulations, and all existing regulations which are renewed, should be given a finite life, at the end of which they would automatically expire unless further renewed.

- SMEs, and particularly micro-businesses, should be exempted from some regulations or from certain parts of some regulations. This exemption could be on a sliding scale, with more comprehensive exemption for micro-businesses employing less than ten people.

- The acquis communautaire should be streamlined by producing a "core acquis" and bringing about some semblance of external order and rationalisation by the introduction of a codification process on the Swedish model.

- The accessibility of the acquis should be improved by reviewing the Official Journal and making the acquis available on-line.

- Alternatives to regulation should be sought, wherever possible.

- The "public-interest test" should be applied to all legislative proposals.

- Full use should be made of advances in information technology and communications to reduce the compliance cost of regulations.

- In future, impact assessments made by the Commission on legislative proposals should include a report on their examination of alternative, non-legislative possibilities.

5.2.1. The Committee now reiterates these proposals and feels that they should form the basis of a systematic and comprehensive approach to achieving better regulation at all levels.

5.3. The Opinion established that there is a legislative hierarchy of European Regulations and Directives, transposed Community legislation in national law, national laws and government ordinances, agency regulations, regional and local regulations and collective agreements. The lower one goes in this hierarchy, the more the volume of legislation increases, the more its transparency diminishes, the more its accountability declines and the greater the extent to which it becomes complex, conflicting and arbitrary.

5.4. The Opinion also pointed out that framework legislation is inherently more flexible and gives businesses greater freedom within predetermined limits but there is the risk that it will simply shift the regulatory process to a lower level and create greater divergences between the regulatory climates of different Member States. The same dangers attach to the application of the principle of subsidiarity.

5.5. The Opinion argued that, "the simplification process needs to be speeded up dramatically in order to facilitate the enlargement of the Union". The Committee would wish to emphasise the importance of this issue. By the time that an action plan for improving and simplifying the regulatory environment has been finalised in June 2002, assuming that this deadline will be met, barely two years will remain before the planned admission of the first tranche of new Member States.

6. General comments

6.1. The Committee agrees with the Commission that the task of simplifying the regulatory environment requires a multi-agency approach and close cooperation and coordination between all the actors involved at the EU and Member State levels.

6.1.1. Despite the commendable intention of the Commission to tackle this problem effectively, the Committee seriously doubts whether the political will exists at all levels to enable this to be carried through with the necessary degree of determination. The history of cooperation, or lack of it, between Member State administrations in other areas, such as tax fraud, does not auger well for the success of this venture unless it is driven by a strong unifying force.

6.1.1.1. The Commission is correct in saying that there is a need to inculcate new habits and working methods and to develop a new administrative and political culture. This will be difficult enough at the European level but will become increasingly difficult as one descends through the legislative hierarchy. In particular, the practice of some Member State administrations permitting anonymous, and largely unaccountable, agencies to assume regulatory powers would have to be discouraged.

6.2. The Committee approves the Commission's plan to simplify and reduce the volume of the acquis communautaire, which is in accord with the recommendations made by the Committee in its two Opinions. The Committee particularly welcomes the Commission's intention to achieve a reduction of 25 % in the volume of the existing texts by the end of its current mandate. It considers that a target date should be set for completing this process by the end of the following mandate in 2010. This should serve to improve the quality of the texts as well as reducing their volume, a consideration which is of equal, if not greater, importance. The Committee also agrees with the plan to withdraw proposals which have not been legislated on and which are no longer of topical interest. It would welcome a similar initiative on the part of Member States.

6.2.1. The Committee considers that the process of simplification requires the application of criteria on which decisions can be based, e.g. social and environmental standards or concerns. These criteria should be agreed by a process involving all the relevant actors.

6.3. The Committee welcomes the Commission's commitment to strengthen and intensify the consultation process. It believes that this can best be done by extending the consultations to as wide a constituency as possible. In particular, it considers that procedures should be put in place to widen the consultation process with the representatives of small businesses and other sections of society which are currently under-represented. In addition to the formal consultation process with selected interlocutors, the Commission should invite submissions from any interested party; consultation should, in effect, be at the option of the consultee. This process should be carried out prior to publishing the legislative proposal and clear deadlines should be set for the submission of representations.

6.3.1. The transparency of the consultation process would be greatly enhanced if, at the time of producing the legislative proposal, the Commission were to publish a statement of the representations that it had received and the extent to which they had been taken into account.

6.4. The Committee agrees with the Commission that Co-regulation, properly applied, is a way of achieving flexibility and greater effectiveness and accepts the Commission's contention that it does not constitute an attempt to by-pass the legislator's prerogative or to evade regulation. This was also the conclusion of a hearing on co-regulation, which the Committee's Single Market Observatory organised in May 2001.

6.5. The Committee approves the Commission's intention to set up an internal legislative network to promote good practice and accepts that it would be necessary to set up a parallel inter-institutional network to monitor the legislative quality of texts. The Committee feels that, in future, its Opinions should also comment on the legislative quality of the Commission's proposals.

6.6. The Committee agrees with the Commission on the need for Member States to ensure that Community acts are transposed into national legislation correctly and within the set deadlines. The Commission's Internal Market Scoreboard (No 9, November 2001) highlights the extent to which this is not taking place. The Committee attaches considerable importance to improving performance in this area.

6.7. The Committee broadly endorses the recommendations of the Mandelkern Report.

7. Regulatory Impact Analysis

7.1. The Committee notes that the Commission proposes to undertake pre-assessments of its draft proposals in order to determine which of them should be subjected to detailed impact analysis. The Committee feels that there are weaknesses in the current system of impact assessments and agrees with the European Policy Centre ("Regulatory Impact Analysis: improving the quality of EU regulatory activity", EPC, September 2001) that any regulatory or legislative activity by the Commission, the Council or the European Parliament should be the subject of Regulatory Impact Analysis (RIA).

7.2. RIA encompasses a range of methods aimed at systematically assessing the negative and positive impacts of proposed and existing regulation. It is not the same as cost-benefit analysis nor is it a substitute for decision-making by policy-makers or elected officials. It is based on the principles of risk analysis but operates within a framework which recognises that there are no "risk-free" options.

7.2.1. RIA leaves the sovereignty of the political decision-makers intact, whilst improving the flow of relevant information to the regulatory policy-makers. RIA would not, in any way, change the balance between the European institutions.

7.3. Conceptually, it is based on six pillars:

- Justification: the clear identification of a specific problem and a convincing justification of the value and likely effectiveness of regulatory intervention.

- Consultation: extensive and transparent consultation with all stakeholders to identify the costs and benefits of regulatory proposals.

- Analysis: a systematic, empirical analysis of costs, benefits and alternatives that takes account of the "real world" impact of regulatory strategy.

- Maximising overall net benefits: a focus on achieving regulatory solutions that maximise the overall net welfare of all citizens and stakeholders.

- Consistency: the use of common, standard, practical operating procedures that ensure consistency of analysis throughout all parts of government.

- Accountability: clear, structured communication to decision-makers of the consequences of choosing specific regulatory goals or strategies.

7.4. The Committee believes that many of the proposals set out in the Commission's Communication(7) should be implemented in the context of establishing an integrated decision support process based on the principles of RIA.

7.5. The EU's regulatory management policy is not set out in a clear or simple way. It is embodied in the Regulatory Policy Guidelines issued in 1996 by the President of the European Commission. These are not mandatory and there is currently no legal basis for undertaking RIAs at European level, nor is there any legal requirement to undertake comprehensive RIAs. The Committee feels that RIA should be an integral part of the policy-making process at both EU and national level.

7.5.1. The RIA must be designed to follow the whole legislative process from the Commission proposal to the Council decision (and the EP's second reading, where applicable), constantly assessing all amendments and compromises.

7.5.1.1. In principle, the competent DG should attach pre-assessments to all legislative proposals, in order that the Committee may have the opportunity to express its opinion on them.

7.5.2. The Committee considers that the Member States should also adopt RIA for their legislative procedures. Each Member state should be required to complete an RIA whenever it transposes an EU Directive into national law and whenever it notifies the Commission of its intention to legislate in technical areas not yet covered by the provisions of the Single Market. This should not be made a pretext for extending the period required for transposition.

7.6. The Committee therefore agrees with the European Policy Centre that:

- there should be a simplified legal base for the establishment of an effective future system of RIA at the level of the European Union;

- there should be a statement of guiding principles;

- there should be a long-term vision of the future system of RIA at the Community level.

7.7. The Committee also approves the European Policy Centre's other recommendations for a short-term Action Plan.

8. Some further regulatory issues

8.1. Apart from any other considerations (e.g. sustainable development, living and working conditions, etc.), regulation is a Single Market issue. The different regulatory regimes created in the Member States by variations in the timing and incidence of transposing Community legislation into national law, by national interpretations of EU legal instruments, by the "filling-in" of EU framework legislation at national level and by the existence of subsidiary legislation created by national agencies, regional governments and local authorities, are fragmenting the Single Market and creating serious distortions of competition.

8.1.1. In the context of the Single Market, there is a strong case for a greater proportion of Community legislation to be effected through Regulations, which require uniformity of application in the Member States, rather than by means of Directives, which need to be transposed into national law, with all the delays and variations which that implies.

8.2. There is also a need for a centralising influence, which would help to reduce the disparities between the regulatory regimes of the Member States. In the USA, regulation is coordinated and supervised by the Office of Regulatory Affairs. While this organisation is part of the White House Office of Management & Budget and is not, therefore, independent of the President (to whom it reports), it is independent of all other branches of government and of the national regulatory agencies. It has considerable powers to intervene in the activities of all regulatory bodies. Draft legislative proposals have to be submitted to this office in the first instance and deadlines are set for it to give its approval; in doing so, it can require such amendments to the wording or substance of the proposal as it sees fit.

8.2.1. At present, there is no comparable organisation within the European regulatory framework. The Commission has proposed the creation of an internal legislative network and an inter-institutional network and these bodies might undertake a similar role at European level but, given that some 90 % of legislation emanates from the Member States, it would be necessary, in accordance with the principle of subsidiarity, to replicate these bodies in each of the Member States. It would also be desirable to coordinate the work of these bodies at European and national level and this might require the creation of a joint body comprising representatives of the networks in the Member States, the Commission and the European institutions.

8.2.2. Alternatively, a Regulatory Assessment Office, modelled on the Office of Regulatory Affairs in the USA, could be set up outside the Commission. The creation of a mechanism for establishing RIA and monitoring its application should be a short-term priority.

8.3. Another feature of the regulatory system in the United States is the fact that regulatory agencies conduct "peer reviews" of each other's work. Legislative instruments issued by one authority are submitted to the other agencies for examination and constructive criticism. This not only serves as an additional review process but also encourages the development of a common approach to the formulation of legislative instruments. The introduction of peer review procedures in Europe could be expected to provide similar benefits. In addition to the national agencies conducting peer reviews within each Member State and the institutions conducting peer reviews at the European level, it might be instructive for each Member State to conduct peer reviews on the work of the other Member States.

8.4. Consolidation is another issue that needs to be addressed. Consolidation is the grouping together in a single non-binding text of a regulatory act and its subsequent amendments. Again, there are substantial differences between the Member States and the European Union in the way in which this is effected; there are also wide variations in the time taken to produce consolidations; in general, the timescale appears to be too extended in most cases to meet the needs of users of the legislation, who require a concise, coherent and simple, but comprehensive, text as quickly as possible.

8.4.1. However, even in the relatively few instances where this is forthcoming, consolidation has the drawback that the text is not legally binding and cannot therefore be relied upon by businesses or citizens wishing to know where they stand before the law. Codification and recasting are preferable. An inter-institutional agreement was concluded in December 1994 on setting up a fast-track method of working with regard to the official codification of legislative texts but does not appear to have had much impact to date. An inter-institutional agreement was recently concluded for a more structured use of the recasting technique for legal acts and should make it easier to apply this method, provided that there is sufficient impetus to make it work effectively in practice.

8.5. In addition to the principle of proportionality, it is important that regulations should pass the test of practicality. Legislators need to focus on the practical effects that proposed legislation would have on the day-to-day operation of businesses and on the daily lives of citizens. Above all, it is necessary to be aware of the "Law of Unintended Consequences".

8.6. In this age of rapid technological development, it is particularly important that regulations should be technology-neutral. There is a need to ensure that competition is not distorted by framing legislation in such a way that it favours or discriminates against one technical process more than another, unless it is clearly established that this can be justified in the public interest. There is also a need to draft legislation in terms which will prevent it from being rendered obsolete by technological advances.

8.7. In order for the simplification process to succeed it is necessary that someone should "own" it. Experience has shown that, in order to overcome the forces of inertia and resistance to change, as well as the protection of what are seen to be national interests, there needs to be a driving force at a high political level, dedicated to the achievement of stated objectives within a specified timescale.

8.8. It is important for the credibility of the simplification process that it should be seen to deliver tangible and measurable benefits within a reasonable time-frame. The fact that the process was effectively started nearly ten years ago and has made such limited impact to date is a cause for concern. The example of France, where a codification process has been in place for around fifty years and has so far dealt with little more than half of the regulations currently in force, is not encouraging. "Progress" on that scale can only serve to bring the entire enterprise into disrepute.

8.9. Simplification at the EU level is pointless without a commensurate activity at Member State level. Nevertheless, in order to give impetus to the project, a start must be made at the European level without waiting for the Member States to act; it is devoutly to be hoped that they will elect to follow suit in short order. The success of the simplification process depends on the closest possible co-operation and co-ordination between the Commission and the responsible organisations in the Member States. It also needs the political commitment and active participation of the Member States' Governments.

9. Conclusions

9.1. The burden of poor legislation falls directly upon the citizens of Europe. The principle obstacles to making real progress in the area of simplification and regulatory improvement are the resistance to change which is inherent in any large bureaucracy such as the European Union and the insistence of Member States in adhering to national customs, traditions and practices. These forces can only be overcome by inculcating an entirely new culture at European and national level. To do so will require a level of cooperation between national and European institutions that has not yet been exhibited. This, in turn, can only be achieved by a high level of political commitment, both in the European Union and the Member States.

9.2. The policy of simplification must be aimed at a high level of harmonisation and coordination between the regulatory regimes in the Member States and the European Union. Although the Commission is the driving force for political change in Europe, some 90 % of legislation still originates in the Member States. Simplification can never be a reality unless they work together.

9.2.1. Progress in simplification also requires the confidence of citizens in the methodology and the goals of simplification; if citizens can clearly see the advantages and benefits, and if they are convinced that changes in regulations are aimed at improving their living and working conditions, they will be more inclined to view the process favourably. This, in turn, would have a positive influence on the level of political commitment.

9.3. Time is not on Europe's side in this matter. Simplification and regulatory improvement are essential steps which Europe must take in order to prepare itself for enlargement. Immediate action is called for at both the European and Member State level if anything effective is to be achieved in this rapidly diminishing time-frame.

Brussels, 21 March 2002.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ C 14, 16.1.2001, p. 1.

(2) OJ C 48, 21.2.2002.

(3) COM(2001) 726 final, 5.12.2001.

(4) COM(2002) 14 final.

(5) COM(2002) 14 final.

(6) COM(2002) 14 final.

(7) COM(2002) 14 final.