# EUR-Lex - 52012DC0752 - EN

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# 52012DC0752

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF REGIONS AND THE EUROPEAN INVESTMENT BANK STATE OF THE SINGLE MARKET INTEGRATION 2013 - Contribution to the Annual Growth Survey 2013 - /* COM/2012/0752 final <EMPTY> */**

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Introduction

An integrated Single Market is a key driver for
economic growth and jobs and offers additional opportunities for European
citizens. It therefore plays a central role in achieving the objectives of the
Europe 2020 strategy.

As announced in the June 2012 Commission
Communication on better governance for the single market[1], this report aims
at monitoring the functioning of the Single Market within the European semester
process. It presents an analysis of the state of Single Market integration in
key areas with the greatest growth potential, i.e. services, networks and
digital economy[2].
The objective of this report is to identify policy priorities in the context of
the Annual Growth Survey 2013, which if carried out by Member States, would contribute
to unlocking the full Single Market growth potential, and to removing remaining
obstacles to further integration. This report also calls to step up efforts to
ensure better implementation and enforcement of rules that are already in place.

1.           Single
Market integration check-up

By removing the barriers to the free circulation
of people, goods, services and capital, the Single Market allows firms to
operate on a bigger scale, thereby enhancing their capacity to innovate, to
invest, become more productive and generate jobs. The increased competition
resulting from the integration process works as a powerful incentive to offer a
wider variety of cheaper and higher quality products for European consumers,
as indicated by the Consumer Markets Scoreboards. Labour mobility is essential
to contribute to a genuine European labour market that enables a good match
between employers' needs and job seekers' skills, enhancing EU companies’
productivity and hence growth and employment, and helping eliminate
the coexistence of persistent high levels of unemployment in several areas with
labour shortages in faster-growing regions of the EU.

1.1.
The four freedoms

1.1.1.
Goods

·
Although
at a slower pace, the integration of the goods market is still progressing
20 years after the launch of the Single Market with intra-EU trade representing
around 17% of EU GDP in 1999 and close to 22% in 2011. The growth of extra-EU
exports has been more dynamic, but its value equals only some 12% of EU GDP.
This indicates that the Internal Market is still of significant importance for
European companies and that there is still potential for improvement in order
to stimulate growth of intra-EU trade.

·
The
positive general trend in terms of integration hides rather contrasting
situations among EU Member States. There are positive trends in terms of
integration of the goods market, as indicated by the evolution of intra-EU
imports and exports to GDP ratios in the period 1999–2011, in CZ, DE, HU, LT,
LV, NL, PL, SI, SK, whilst some negative trends or stagnation can be seen in
EL, ES, FI, FR, IE, LU and UK. In most of the countries from the first group,
the deepening of integration was a part of the process of catching-up, as they
started from a low level of openness well below their potential. As regards the
achieved level of integration (in terms of the ratio of intra-EU trade in goods
to GDP), smaller EU Member States are naturally more open, except for EL, CY
which were relatively closed, followed by PT and the Nordic countries.

·
Looking
at the country group with increasing integration in the Single Market, most of
the countries (PL and to some extent CZ, SI, DE, SK and NL) have experienced an
improvement in their price competitiveness position since the end of the 1990s[3]. LT and LV
were particularly successful in targeting markets with higher GDP growth over
that period. HU seems to have benefitted mainly from non-price competitiveness[4]. For almost
all these countries higher integration within the internal market also
resulted in an improvement in their trade balance position with their EU
partners.

Chart
1. Evolution of intra-EU trade in goods

Data
source: Eurostat

·
As
regards the groups with decreasing or stagnating integration (in terms of the
ratio of intra-EU imports and exports in goods to GDP), ES and LU suffered from
both relatively low demand growth in their partner economies but also from some
cost competitiveness losses. Also EL experienced cost competitiveness
deterioration. FI and the UK faced problems with non-cost competitiveness. These
are the factors which explain the evolution of integration from the export
side, but imports are strongly correlated with exports.[5] Nevertheless,
for many of these countries the negative integration trend was associated
with a deterioration of their trade balance with their EU partners[6].

·
The
EU is now integrating faster with third countries than internally, which
reflects the globalisation process and the faster growth demand in many
emerging markets. This is not necessarily a negative sign since there is no
trade-off between intra-EU trade and global trade. Member States who increased
their integration in the global economy are also those who have demonstrated
the highest integration dynamics within the EU[7].

Chart 2. Comparison between intra-EU and extra-EU trade in
goods

Data
source: Eurostat

1.1.2.
Services

·
The
intra-EU trade in services followed broadly similar patterns as the trade in
goods (Chart 3). However, the level of integration in this sector that
represents more than 70% of the economy continues to be significantly lower
than in the goods market. And there are currently no signs of catching up.
However, price dispersion upward trends rather indicate possible persisting
intra-EU barriers to the trade in services. Whereas the differences in the level
of dispersion are to large extent natural and result from much lower
transportability, tradability[8]
and heterogeneity of services, the differences in the trends between
services and goods, in which the dispersion declined, may point to an insufficient
level of competition in that sector (Chart 4). The more significant price
dispersion trends have been noticed in the oldest Member States of the EU.

Chart
3. Evolution of intra-EU trade in services

Data
source: Eurostat

Chart 4.
Dispersion of prices across the EU Member States

Data source: Eurostat

·
Because
of the mentioned non-tradability of many services, the services market
predominantly integrates through the establishment of companies. The data on
foreign control of enterprises[9]
shows that the degree of integration of services in almost all the Member
States was lower than that of other sectors (Chart 5). Similarly to
the trade openness indicators, smaller economies were more open, with the
exception of CY, SI, and PT, which are the most closed overall despite their
sizes. IT is the least integrated among the large economies from the
perspective of the data on the foreign control of enterprises.

Chart 5:
Intra-EU establishment levels in services and in other sectors

Data source: Eurostat

·
The Commission's annual Consumer Markets Scoreboards indicate
that the assessment of market performance by European consumers is usually
higher for markets that are more integrated[10]. The
graph below shows that consumer assessment is lower in the less integrated
services markets than in the goods market in almost all Member States.

Chart 6. Performance of goods and services
markets as assessed by consumers

Source:
Market monitoring survey 2012 (Commission, DG SANCO)

1.1.3.
Capital

·
Intra-EU
investment is a key factor of integration through which companies establish
their operations in other Member States. Cross-border investment is also one
of the main modalities through which innovations are disseminated
throughout the Single Market.

·
After
a long period of growth cross-border investment has collapsed with the
financial crises and, contrary to cross-border trade, has not fully recovered
since.

Chart
7. Evolution of intra-EU foreign direct investment (FDI)

Data
source: Eurostat

·
Similar
negative integration dynamics are noticeable on the financial markets. The crisis
has significantly amplified market volatility, and indicators of financial
integration reflect that volatility since 2007. The financial system, and the
banking sector in particular, have started undergoing a process of
restructuring in several countries. The possibility of national solutions
implying a retrenchment of banks behind national borders cannot be excluded.
This would, however, partly undo the significant benefits of European financial
integration and endanger economic integration at large. Much can be gained
if the changes are properly coordinated and encompassed in the new supervisory
and regulatory frameworks developed at EU level.

1.1.4.
Labour

·
Although
the number of EU nationals working in another Member State is growing, labour
mobility across Europe is too low compared to the EU potential and not
commensurate to what could be expected within a genuine single labour market.
EU citizens economically active in another EU country represent only 3.1% of
the EU labour force and the size of the annual increases is only around 0.1%.

·
International
comparisons[11]
also indicate that cross-border mobility between EU Member States is limited
compared to other regions (such as United States, Canada or Australia).
Although this can be partly explained by the very large linguistic diversity
and various institutional frameworks, these comparisons still suggest that more
scope exists for higher geographical mobility in the EU.

·
According
to a Eurobarometer study[12],
28% of working-age EU citizens would consider working in another EU country while
15% would not consider moving because of too many obstacles. More than half of
Europeans consider language and family considerations as main obstacles to
European citizens' mobility. Nevertheless, administrative barriers such as red
tape, recognition of qualifications and social security are also quoted as
reasons for people opting not to work in another EU Member State. Obstacles to
labour mobility can also be caused by certain supplementary pension scheme
rules, tax obstacles when moving to another Member States (obtaining
allowances, tax relief, double taxation or higher progressive tax rates applied
to non-residents) and the lack of awareness of many mobile workers of their
rights and obligations.

·
A
recent Commission report[13]
also stressed the importance of macroeconomic drivers of mobility such
as the relative income level differences, as evidenced by the poorest Member
States having seen the largest net outflows of migrants; the role of this
factor is expected to decline along with the progress of catching-up. The
long-term differences in the levels of unemployment are other, though less
evident, macroeconomic drivers. Besides, the report also highlighted social and
cultural factors e.g. migrant community networks influencing migration
patterns.

2.
Triggers for growth and jobs in the Single Market

·
In
its Communication on better governance for the Single Market adopted in June
2012[14]
the Commission recommends taking steps to unlock the Single Market potential
in areas where such potential is the greatest. Based on a number of
economic indicators, services, financial services[15],
transport, digital market and energy have been identified as key areas for
priority policy action and enhanced implementation of the Single Market[16].

·
In
parallel, it is also important to improve the functioning of the internal
market for industrial products, inter alia by identifying gaps and barriers
still blocking the free circulation of products and enhancing the quality and
efficiency of product legislation. In addition the application of "mutual
recognition" in the single market for goods must be monitored closely[17].

·
The
June Communication on better governance for the Single Market points at the need
to have the Single Market rules properly transposed, implemented and enforced
in order to deliver its full potential. It therefore sets ambitious
targets for transposing and complying with EU legislation, in particular,
but not exclusively, in the above key areas. The recent Internal Market
Scoreboard shows some progress in particular with respect to the compliance
deficit[18].
However, the number of directives for which transposition is overdue by two
years or more has increased.

·
Regarding
the key areas, the June Communication calls for a zero tolerance approach
when it comes to transposing and implementing rules. It pleads for fast-track
infringement procedures where problems remain. As the table in the Annex shows,
we are not yet there. Only one Member State (DK) already complies with
all the targets set in the June 2012 Communication, while more than half of the
Member States have not reached more than three targets. The longest delays
regarding transposition can be noted in energy while transport is an area where
targets are missed almost systematically by most Member States.

·
Member
States should step up efforts to ensure that individuals and businesses can
make effective use of their single market rights, by guaranteeing an effective
application and enforcement of Single Market legislation by the national
courts, and by offering good quality information, e-government tools and
procedures and by investing in mechanisms to rapidly resolve problems. Much
remains to be done in this area[19].
For instance, the potential of SOLVIT remains under-used as a key
problem-solving tool at national level (about 1300 cases a year), partly due to
insufficient staffing in various SOLVIT centres.

·
The
June Communication also calls for swift delivery on the key actions to
boost growth and confidence included in the Single Market Act[20].

2.1.
The services markets
Market performance and obstacles to
EU integration

·
The
Services Directive is the cornerstone of Single Market integration in the
services area. A recent study[21] estimates
that additional gains from the Services Directive could be made if
Member States were to increase their level of ambition in the implementation of
the Directive. Indeed under an ambitious scenario, in which all Member
States approached the average level of the five best countries[22] in terms of
barriers per sector (which is close to the elimination of all restrictions
covered by the Services Directive) the economic impact could reach a 2.6%
increase in GDP[23]. To reap the
growth potential of the Services Directive by 2015 the Commission presented an
action plan in June this year[24].

The Services
Directive contains some important, unequivocal obligations[25] with which
close to half of Member States still do not comply. For instance, some of them
still have restrictions based on the nationality or the residence of the
service provider (eg. MT and SE for patent agents, IT, CY and PL for some
services in the tourism sector).

Regarding the
application of the freedom to provide services clause of the Services
Directive, Member States have mostly taken a conservative approach, and
continue to treat cross-border service providers in the same way as established
ones, thus exposing them to unjustified double regulation as they need
to comply with both home and host country rules for instance in relation to
professional insurance. Moreover, in several Member States there is uncertainty
about which rules apply to service providers wishing to provide
cross-border services on a temporary basis as opposed to service providers wishing
to establish themselves (e.g. BG, FI, IE, IT, LV, PL, RO, SI, SE). This
uncertainty can result in temporary service provision being treated as if it
were establishment, thus imposing on providers a double regulatory burden,
which equally hampers the cross-border provision of services.

·
Services
sectors include many professions that are regulated at national level. These
regulations take the form of entry barriers (e.g. requirements reserving
the exercise of certain activities to the holders of specific qualifications)
and/or conduct barriers (i.e. restrictions to the exercise of professional
activities such as requirements on companies' legal forms and
capital ownership). In some Member States (BG, CY,
DE, PL, SK, SI, SE), there are also remaining requirements fixing
tariffs for certain professions (e.g. engineers/architects, accountants,
tax and patent advisors or veterinarians).

Whilst
the regulation of professions may be justified by public interests, it is
highly heterogeneous across the EU: the number of regulated professions in each
Member State varies between 47 and 368. Moreover, there are significant
differences in the scope of reserved activities[26] and in the
level of qualifications required. In this context, country-specific
recommendations (CSRs) have already been addressed to eight Member
States in 2012 (AT, CY, FR, DE, IT, PL, SI, ES) on the need to reduce
regulatory barriers in professional services. Some Member States (notably
PL, PT, IT, ES, CZ) have initiated reforms in this area, with the objective
to foster competition, simplify the business environment or reduce
unemployment, in particular among young people.

·
Effective
governance tools are paramount to fully realising the integration
potential of Single Market legislation in general and the Services Directive in
particular. The Points of Single Contact (PSCs) and the Internal
Market Information (IMI) system are among these important tools.

The situation
as regards PSCs is very diverse among Member States. DK, EE, ES, LU, NL,
SE, UK and LT have the most advanced PSCs whilst, in BG, EL, IE, RO and SI
development is substantially lagging behind. In particular, there are
large variations in the level of detail and user-friendliness of the
information provided by the PSCs on the national rules for the main service
sectors. Moreover, many administrative procedures can still not be completed
online or by cross-border users.

The overall
number of IMI information exchanges on services remains low. Nearly half
of all exchanges were initiated by DE, which also has the highest number of
authorities registered in IMI for services. BE, DK, EE, FI, IE, NL, RO and UK
have not yet sent any requests in 2012. On the receiving end, PL, HU and UK
have dealt with the most incoming requests for information.

·
Among the services
markets the sectors which have the most significant economic weight in terms of
GDP and employment and above average growth potential are: business
services
(11.7% of EU value added in 2009), retail and wholesale trade (11.1%)
and construction (6.3%).

·
In
many Member States, the business services sector is still characterised
by heavy regulation. For instance, requirements limiting the free choice of
company form and prescribing some kind of
capital ownership can be an obstacle to the development of cross-border
professional services. Some of such barriers have been made less stringent
since the entry into force of the Services Directive (in PL, DE, FR, CY and
IT), but others have not been affected (notably in AT, BE, BG, CZ, DK, FR, DE,
IT, MT, PL, PT, RO, SK, SI and UK, the legal profession seems to be the most
affected).

·
The
European retail and wholesale sectors are characterised by unequal
levels of economic maturity and saturation of many markets. Competition in
retail is hindered by remaining barriers such as burdensome legislation,
which may have protectionist motivations, or disproportionate restrictions
imposed on store formats. The 2012 country-specific recommendations have
stressed the need to eliminate restrictions in the retail sector (BE, FR, HU,
ES). Some Member States (ES) have already initiated reforms in this area. CSRs
2012 have also stressed more generally the need to strengthen competition in
the retail sector (BE, DK, FI).

Some Member
States require businesses to meet an “economic needs test”. These are
tests that make the granting of an authorisation
subject to (1) proof of the existence of an economic need or market demand, (2)
an assessment of the potential or current economic effects of the activity (for
example on established providers), or 3) an assessment of the appropriateness
of the activity in relation to the planning objectives set by the competent authority
as a pre-condition for establishment. These tests leave room for
arbitrary decisions, unjustified restrictions and generate significant costs
for business. Such requirements are prohibited under the Services Directive but
are nevertheless still in place in RO, AT, EL, NL, HU and in certain regions of
DE and ES.

Retail
performance may also be affected by barriers to cross-border supply of goods.
Retailers are not always free to source their goods at best prices all across
Europe. There are indications of territorial supply constraints that prevent lower
prices in some national markets (LU and BE), especially in the case of branded
products.

·
The
development of a dynamic construction sector within EU borders is
affected by businesses and professionals facing obstacles because of the
lack of mutual recognition of authorisation schemes or the certification of
experts providing specialised services e.g. in the area of environmental
certification of buildings. For example, regarding authorisation procedures
for energy efficiency certification providers, cross-border provision
of services does not seem possible in BE, CY, LV, LT and MT.

·
Public
procurement is an important market for the service industry – in 2010, business
opportunities in procurement covered by the EU rules amounted to around EUR 447
billion[27] (3.7% of EU
GDP), with service contracts accounting for about 42% of this total. However,
only 3.5% of procurement contracts above the EU thresholds are awarded
cross-border[28] (in services
this proportion is even lower i.e. 2%) and obstacles to integrated public
procurement market remain. Better implementation of procurement rules in
Member States could deliver significant efficiency gains. CSRs were addressed
to 5 Member States in 2012 (BG, CZ, DK, HU and SK).

·
Given
the importance of public procurement, it is of particular concern that public
authorities remain the worst payers in the European Union. The amount of
written off debt in Europe has grown in 2012 to 2.8% of total receivables to
the unprecedented level of €340 billion. The difference between northern and
southern Member States is severely hampering the integration of the EU's single
market[29]. The 2011 Late
Payment Directive[30], if properly
implemented, will unlock €180 billion per year due the obligation for public
authorities to pay within 30 days, thereby greatly improving the cash flow of
businesses and helping them to overcome the economic crisis.

·
From
a consumer perspective, retail banking services remain the worst performing
group of markets, notably on comparability of fees and conditions offered,
choosing the best deal or switching to another provider[31]. A robust EU
framework[32] ensuring
consumer information, rights, means of redress and facilitating access to basic
banking services will enable greater participation by all consumers, especially
the vulnerable, in the retail banking sector.

Policy
priorities

·
Member
States should focus on the following key priorities

o Make their legislation
fully compatible with the Services Directive, in particular by complying
with all its unequivocal obligations.

o Adopt a more ambitious
approach in the implementation of the Services Directive by:

-
reviewing
the necessity and proportionality of remaining requirements in particular those
fixing tariffs for certain professions and those limiting company
structures and capital ownership.

-
conducting
a review of the application of the freedom to provide services clause in
the key sectors i.e. construction, business services and tourism.

Such a review should
take the form of a systematic peer review process assisted by the Commission and
aiming at removing remaining unnecessary, unjustified and disproportional restrictions.

o Assess the
justification of the requirements limiting both the access and the conduct of
regulated professions, including the role of professional bodies, and
remove or relax these requirements where they are unjustified. Such
assessments should also include a review of the criteria for introducing new
regulated professions.

o Strengthen
competition in the retail sector by lowering barriers and reducing
operational restrictions. In particular, remaining economic needs tests
should be systematically abolished.

o Improve the
Points of Single Contact to become fully-fledged e-government tools responding
adequately to the needs of service providers and recipients. In particular, in order
to improve their user-friendliness, the objective should be that the Points of
Single Contact cover all procedures during the business life cycle and are
multilingual.

o Transpose as
early as possible the Late Payment Directive (the transposition
deadline for Member States is 16 March 2013).

2.2.
The energy markets

Market
performance and obstacles to EU integration

·
The
GDP share of the energy sector in the EU has been increasing since 2000 and has
exceeded 21⁄2% in recent years.[33] However,
this indicator does not fully reflect the importance of this sector in the
economy, which provides critical production inputs for all other sectors
thus contributing significantly to their cost competitiveness.

·
The
internal energy market slowly but surely starts to bear fruit[34]. Wholesale
electricity prices in the EU have increased less than global primary energy
prices and less than inflation. Wholesale gas prices have been noticeably lower
in those Member States where markets work better. Gas supplies to retail
consumers have been more resilient to temporary volume reductions by exporting
countries thanks to more flexible infrastructure and clear price signals inside
the EU.

·
However,
we are not there yet. The energy services (both gas and electricity)
performed below the average in the most recent Consumer Markets Scoreboard,
with electricity supply being among the 5 worst performing sectors (out of 30)[35]. In
addition, energy markets are generally perceived not to be transparent or
sufficiently open for newcomers[36].

·
The
lack of integration of the energy market is also illustrated by the fact that
there is little convergence in retail prices for electricity and gas across
the EU, with the price paid in the most expensive Member State representing
several times the price paid in the cheapest. This is due to a
number of reasons: price regulation in several Member States (BG, CY,
DK, EE, FR, EL, HU, LT, MT, PL, PT, RO, SK, ES), a lack of diversity of supply,
limited cross-border interconnection, differences in network costs, taxation and
labour costs. Regulated prices fail to create a competitive environment in
which the right type of investments take place. Instead, they are perceived by
investors as an indicator of political interference which stifles investment.
Moreover, prices regulated at a level below the market price can lead to tariffs
that are economically unsustainable for suppliers, the cost of which is ultimately
borne by consumers as a whole. In addition, regulated prices also fail to
provide incentives for energy efficiency.

Member States
have a diverging level of retail competition, the main market concentration
indicator (HHI[37]) is very
high (above 5000) in EL, PT, EE, LT, LV, IT and FR. In Southern and Eastern
countries switching rates are very low. In general, consumer assessment of
electricity markets is low even in those Member States that have fairly
liberalised energy markets, due to perceived lack of transparency and low satisfaction
with customer service[38].

·
As
regards wholesale markets, price convergence is greater than in retail
markets. Power market liquidity has increased in recent years, which has a
positive impact on the functioning of the European wholesale electricity market
and on competition. Market integration has also been strengthened by increasing
market coupling[39] (17 Member
States have the system in place). The lack of market coupling prevents prices acting
as effective signals for the direction of power flows between markets. This
increased integration could explain why wholesale electricity prices in the EU
did not follow the sharp increase in fossil fuel prices in the recent years.

·
Considerable
investment in energy infrastructure, such as transmission pipelines and
electricity networks, storage and LNG projects is still needed to complete
the internal gas and electricity markets and to address the security of supply.
To this end, in 2012 CSRs have been addressed to 11 Member States (BG, DE, EE,
ES, FR, HU, IT, LT, LV, MT and PL) regarding the need to increase electricity
and/or gas interconnections. With electricity, the need for investment in
generation reflects increasing demand for electricity and the binding
renewables targets for 2020. Optimal use of renewables requires sufficient
interconnection and smarter grids, including storage capacities and back-up generation
infrastructure. Obstacles to investment relate to permit granting
procedures in Member States, financing and regulatory framework. The Commission
has launched a public consultation in November on security of supply in
electricity and generation adequacy.

·
The
Third energy package[40] is the
cornerstone of the integration of the gas and electricity market. However there
are delays in its transposition and enforcement. As of 25
October 2012, several Member States have not yet communicated full transposition
of one or both of the Third energy package Directives. An
examination of the measures notified by the Member States that have
communicated full transposition has also been carried out and action will be
taken in the case that transposition is considered incomplete. Further
information is provided in the Annex. The smooth implementation of the
legislation is encountering difficulties in a number of sensitive areas
i.e.: (i) the unbundling of transmission networks, (ii) consumer protection
issues (including the effective protection of vulnerable customers) and (iii)
the independence and powers of the national regulatory authorities (NRAs) given
that the independence requirements of the Directives are very strict.

·
The
swift
adoption and implementation of the Energy Infrastructure Package[41] and adoption
of the first Union-wide list of Projects of Common Interest in energy
infrastructure are of central importance for a future secure and affordable
energy supply.

·
As
regards energy efficiency, the greatest energy saving potential lies in
buildings, which have a 40% share in the European Union's total energy
consumption. Reducing energy consumption in this area is therefore a priority
under the energy efficiency part of the “20-20-20” climate and energy targets,
as well as under the building milestone of the Roadmap for a Resource efficient
Europe[42]. The timely
and adequate transposition and swift implementation on the ground of key
legislation in this area is important in making these objectives a reality. The construction
sector also has an important role to play in achieving these targets. New
technologies offer a big potential, not only for new houses, but also for
renovating millions of existing buildings to make them highly energy efficient.

Policy
priorities

·
In
order to achieve integrated and well-functioning energy markets, Member States
should focus on the following key priorities:

o Timely and
comprehensive transposition of the third energy package directives and proper
application of the third energy package regulations if they have not done
so yet so as to fully reap the benefits for European consumers and businesses. Transpose
and Implement the key legislation in the field of energy efficiency, in
particular the Energy Efficiency Directive.

o Undertake an analysis
of whether there is a lack of investment in generation, and why generation
and consumption patterns are changing fundamentally. Member States should seek
cross-border solutions to any problems they find before planning to intervene
to avoid fragmentation of the internal energy market.

o Empowering
consumers by enabling them to make informed choices and increasing the
incentives for energy-efficient behaviour.

o Gradually phasing
out regulated prices while ensuring robust competition and strengthening
the protection of vulnerable consumers. Phasing out
regulated prices would send the correct price signals needed to secure enough investment and enhance
energy efficiency. In the longer run, this would provide consumers with more
choice and sustainable market prices.

o Sector
specific legislation and regulation need to be complemented by continued
enforcement of competition rules in the energy sector in order to create
more competitve and efficient energy markets.

2.3.
The transport markets

Market performance and obstacles to
EU integration

·
The
transport sector represents a key area for growth and competitiveness,
not only due to its size (accounting for about 5% of EU total value added), but
also due to its function in servicing the other sectors of the economy.
Efficient and sustainable transport services, adequate infrastructures and modern
technologies are a precondition for a well-functioning internal market
and key to exploiting the strength of all regions.

·
As
a result of delayed action, transport, and more particularly some
transport modes, are lagging behind other sectors in terms of market opening
and overall performance. Not only is the extent of market opening
heterogeneous across different transport modes (air, rail, road and sea), but
also the achievement of a true internal market for transport services is still
incomplete, and inadequate to cope with the evolving demand.

·
Lack
of integration is partly due to difficulties in adequate and timely
transposition and implementation of the key legislation in this field (see the
Annex), in particular in the area of road and railway transport and maritime safety.
Application of internal market principles in the port sector, in particular
restrictions to the freedom of establishment in ports, is also the object of
much attention. In aviation, access to the ground handling market continues to
pose problems in several Member States. The infringements relate in particular
to market access difficulties for new entrants and to the tender procedures for
the selection of providers which are not considered to be in line with EU law. This
results in heterogeneous EU consumer assessment,[43]
with the airline services taking 5th (out of 30) place in the 2012
ranking of the service markets, whereas the railway services occupy only 27th
position.

·
The
heterogeneous state of play in terms of market opening and competition
is mirrored in the 2012 CSRs, namely recommendations to foster competition and
facilitate market entry of new operators have been addressed to those Member
States that are key players in the EU transport network (AT, BE, FR, DE and
IT), while recommendations to strengthen administrative capacity and market
regulation in the transport sector have been addressed to BG and PL. More
generally, in several Member States there are still barriers to market entry
and regulatory burden in transport markets, in particular in large and/or
transit countries (DE, FR, IT, ES, and AT) which puts a brake on the EU
economy, as a whole.

·
The
area where bottlenecks are still most evident is the internal market for
rail services. Whereas markets for rail freight services have been fully
opened to competition since 2007 and those for international passenger
transport services as of 2010, domestic passenger transport remains largely
closed to competition. Besides, the lack of competition to incumbent operators,
which often enjoy a de facto monopoly situation on the national market,
is one of the reasons explaining the low quality and efficiency of rail
services, which is also reflected in very low consumer assessment of the market.

·
Despite
EU legislation granting access to rail freight and international passenger
transport services markets, difficulties in the entry of new operators still
persist, particularly in FR and in IT, while in DE the institutional
set-up does not guarantee effective competition. The market opening process
is most advanced in DK, SE, UK, which all enjoyed a rising market share for
rail. SE and the UK are also the only Member States, together with DE, to award
all public service contracts on the basis of competitive tendering.

·
The
provision of port services is still fragmented. For EU companies, port
and terminal costs may represent up to 25% of the total door-to-door logistic
cost. In countries like DE, the NL, FI or DK, ports contribute significantly to
the overall logistic performance of the country in terms of time, cost, and
reliability[44].
On the other hand, poor connectivity, red tape and market entry barriers for
private sector involvement - technical-nautical and cargo-handling services are
often restricted to monopolies or to a few established operators - act
as trade barriers in other European ports, in particular, in the Mediterranean,
Black and Baltic Sea regions.

·
In
contrast to other transport modes, short sea shipping between Member State
ports is often still considered as going beyond the external borders of the
internal market, thus requiring extensive administrative procedures.
Also, fair competition between ports calls for a level-playing field:
information on funds that public authorities make available to any port should
be transparent, as well as the conditions under which port authorities grant
market access to service providers.

·
So
far, market opening has been very successful in aviation, where
liberalisation in the 1990s led to an unprecedented growth in both the number
of passengers flown and the number of routes served inside the EU, along with a
significant decrease in airfares. However, Europe's airspace is still
fragmented, which brings extra costs to both airline companies and customers,
and is a source of economic inefficiency. In this respect, the completion of
the Single European Sky is one of the key elements for achieving a single
European transport area. In particular, the creation of genuine Functional
Airspace Blocks would defragment Europe’s airspace and optimise its air
navigation service provision very significantly. Besides, consolidation of
supply, if fully compliant with competition rules and principles applicable to
merger and alliances, can contribute to increasing economic efficiency of the
airline sector.

·
Market
opening has been very successful in international road transport. International
road haulage increased by 35% in 2000–2010 (compared to 8% growth in the national
haulage market). However, a number of significant cabotage[45]
restrictions remain and prevent an optimal matching of transport supply
and demand.

·
The
inland waterway transport market has been liberalised since the 1990s. Competition
on the inland waterways has intensified and the freight prices decreased. However,
barriers still remain with respect to access to the profession.

Policy priorities

·
In
order to remove those bottlenecks that prevent the completion of a true
internal market for transport, Member States should focus on the following key
priorities:

o Ensure a
timely and high-quality transposition of the transport acquis,
in particular in the area of road, railways and maritime safety.

o Open domestic
rail passenger services to competition and ensure that the
institutional set-up allows effective competition in railway markets ensuring
equal access to infrastructure.

o Remove red tape and
market entry barriers in the port services sector (especially in the
case of Mediterranean, Black and Baltic Sea regions).

o Accelerate the
implementation of the Single European Sky (e.g. progressing in the
implementation of Functional Air Blocks) to improve safety, capacity,
efficiency and the environmental impact of aviation.

o Allow more
cabotage opportunities for foreign road hauliers.

2.4. The digital markets
Market performance and obstacles to EU integration

·
Internet,
and in particular broadband Internet, provides the platform for the huge
growth potential of applications such as eCommerce and cloud computing: a 10
percentage points increase in high-speed Internet is estimated to lead to an
annual growth in per capita GDP of some 1-1.5percentage points[46].

·
The
continued growth in broadband has been possible in particular thanks to increasing
levels of competition brought about by the implementation of the EU
regulatory framework for electronic communications, with a corresponding
reduction in the retail prices of services. The new operators sold two thirds
of all the new fixed lines in 2011. This being said, persistent price
differentials between Member States indicate the internal market in this sector
is still incomplete.

·
The
availability of infrastructure for broadband Internet is another
important factor for the development of the digital economy. The broadband
gap, a measurement of the dispersion of penetration and take-up rates
between EU countries, continued to decline. Coverage of rural areas
remains a challenge in particular in PL, BG, DE[47] and SI. While
growth in the overall number of broadband connections is slowing down, the
trend towards higher speeds is clear and speeds have increased significantly.

·
In
addition to ensuring ubiquitous coverage, it is important that Member States
continue promoting effective investments in fast and ultrafast broadband in
line with the performance targets set in the Digital Agenda. This requires
providing adequate investment incentives, in particular a predictable
and effective regulatory framework anchored on strong and independent
regulators, and targeted public support, where appropriate.

·
The
mobile sector is the most competitive segment of the overall telecoms market.
Mobile broadband surged in 2011 with penetration reaching 43% of the population
in January 2012 from 26.8% in January 2011, with wide differences among the
Member States[48].
The market shares of both the leading and the second operators have been
slightly declining. High levels of concentration however are still observed in
CY, (only two operators), followed by LU and SI. In addition, certain parts of
the mobile market (i.e. roaming) have been largely impervious to competition,
requiring legislative intervention to secure structural reform.

·
However, the
expected exponential growth will only be possible as long as sufficient
spectrum is available. Given current growth rates of services and thus of
spectrum usage, Member States must make the full amount of harmonised spectrum
available, and ensure its efficient use. Regarding the 800 MHz band, this
concerns BE, BG, CZ,
EE, EL, ES, CY, LV, LT, HU, MT, AT, PL, RO, SI, SK, FI and UK. While a number
of these Member States have applied for derogations, every effort must be made
to clear the band and make it available for wireless broadband as rapidly as
possible.

·
Whilst
the ‘internet economy’ in the EU-27 is expected to grow from 3.8% of GDP in
2010 to 5.7% in 2016[49],
progress in cross-border e-commerce remains very low. In 2011, only 10%
of the total EU population ordered goods or services from sellers from other EU
countries[50].
Moreover, the more developed countries in cross-border e-commerce are
progressing much faster than the less developed ones, creating an ever wider
gap.

·
The
low use of cross-border e-commerce by individuals is matched by the limited
number of enterprises selling cross-border electronically. In 2010, only 6%
of enterprises engaged in e-commerce made e-sales to other EU countries,
including in the countries with the highest share of firms involved in
e-commerce. The EU is still missing out on the big benefits of e-commerce[51].
This leads to a total loss of potential cross-border trade of 26 billion euros
each year.
Accordingly, significant welfare gains for European consumers from lower
online prices and increased online choice could be brought by enhanced
integration of e-commerce in the EU.

·
Although
consumers appreciate the convenience of shopping anytime and anywhere via the
e-commerce sales channel and getting access to information and a broader
selection of products, not all users who take advantage of informing themselves
over the Internet about available goods or services finally purchase the
products online. Reasons include lack of trust or information, privacy and/
or security concerns and concerns about
getting redress in case something goes wrong[52].The
Commission has taken a number of initiatives to address these concerns. For
instance the new Consumer Rights Directive (CRD)[53], which will
become applicable from 13 June 2014 at the latest, will strengthen consumers'
rights when buying on the Internet thereby encouraging legitimate e-commerce. The
proposal for ADR-ODR legislation[54]
aims to ensure that quality alternative dispute resolution tools are
effectively put in place and work in practice and that an EU-wide on-line
platform is established for cross-border e-commerce complaints. A proposal for
a Regulation on a Common European Sales law[55]
has been tabled with the aim to give traders the option to sell their products
to citizens in other Member States on the basis of a single set of contract law
rules, based on a high level of consumer protection.

·
Another
key obstacle to cross-border e-commerce is delivery. This is a key element for
building trust between sellers and buyers. To address this barrier, a Green
paper on an integrated parcel delivery market will launch a wide-ranging consultation
and will be followed by a set of actions with the view to support the growth of
e-commerce in the EU.

·
In
these times of austerity, eGovernment has the potential to substantially
improve the way in which public services are provided and yield considerable
public savings, and also reduce costs for business. A full transition to
e-procurement in the EU could deliver savings in public expenditure of up to
€100bn[56].
E-procurement can also increase the share of cross-border procurement. However,
the use of electronic procedures in public procurement remains limited at 5% to
10%[57].
Some Member States have nevertheless made significant progress towards full
use of e-procurement, i.e. PT (mandatory for most procedures) and LT (75%
in 2011). By contrast, electronic submission of tenders is currently not
implemented in BG and SI. Generally on eGovernment, AT, DK, EE, SE are well
advanced, whilst other are currently lagging behind in this area i.e. SI, BG,
RO, IT, PL HU.

·
ICT skills are a prerequisite for
firms and citizens to fully seize the growth and employment opportunities
brought by the digital economy. The EU faces a shortage of ICT professionals[58]: it
is estimated that there will be up to 700 000 unfilled ICT
practitioners' vacancies in the EU
by the year 2015. Despite the
economic downturn demand for ICT specialists is growing by 3% per year. In
addition, ICT skills are needed throughout the economy and have become a
precondition for business performance and employability. This challenge has
been well addressed in SE, LV, DK, LU and FI.

Policy priorities

· Member States should focus on the following key priorities: o  Step up efforts in the deployment of fixed and wireless broadband and in improving its quality. This investment requires putting in place adequate incentives, both in terms of efficient regulation and, where necessary, targeted public support (e.g. via the Structural Funds and, in the next MFF, CEF) bringing the radio spectrum available for wireless broadband to 1200 MHz of bandwidth and effectively licensing the spectrum bands already harmonised including the 800 MHz band. o Ensure the correct application of the E-commerce Directive. Applying harmonised rules on issues such as transparency, information requirements and electronic contracts will contribute to restoring legal certainty for business and consumers. o Ensure timely and correct transposition in national law (due by 13 December 2013) and subsequent implementation of the Consumer Rights Directive[59] to enhance consumer protection and therefore reinforce confidence and trust in the e-commerce sales channel. o Increase the availability of user-friendly on-line public services, including through cross-border interconnection and infrastructures (notably with the support of the  Connecting Europe Facility[60]), making eProcurement interoperable and mandatory and reinforcing the introduction of eHealth for more efficient public health systems. o Invest in ICT training, notably with the use of ESF, and adopt an eCompetence Framework to ensure sufficient qualifications among the workforce for modern business practices.

Annex:

[1] European Commission Communication "Better Governance for the
Single Market", COM(2012)259 final

[2] These sectors were also identified among the most problematic for
consumers and with the biggest impact on household budgets in the recent
European Consumer Agenda.

[3] Measured as depreciation of real effective exchange rate with unit
wage cost in manufacturing as a deflator. See: http://ec.europa.eu/economy_finance/db_indicators/competitiveness/data_section_en.htm

[4] Since neither price competitiveness nor foreign demand explain its
trade evolution well, though non-price competitiveness is hardest to measure.

[5] Exports allow financing imports and there is a sizeable input of
imports in exports, especially with the rapidly increasing role of
international production chains.

[6] Integration and competitiveness appear to be mutually supportive,
creating virtuous circles, through e.g. higher competitive pressure and access
to better or cheaper production inputs.

[7] There is indeed a high positive correlation (0.8) between the  EU
trade and extra-EU trade (measured as annual average change in percentage
points of GDP) across the Member States

[8] However, the tradability of services is increasing thanks to the
rapid development of the information and communication technologies (ICT).

[9] Eurostat Foreign AffiliaTes Statistics (FATS). The data is
currently available until 2009.

[10] 8th Consumer
Markets Scoreboard, 2012, Commission, DG SANCO.. This
assessment is supported by the high negative correlation between the EU average
levels of consumer assessment of market performance and the dispersion of this
indicator across the internal market. The
dispersion is a proxy for integration since more integrated markets are
expected to exhibit more similar levels of consumer assessment. The average
level and the dispersion (variance) are calculated for several goods and
services sector (i.e. across the Member States). The negative correlation
between the dispersions and the average levels is then observed across the
sectors.

[11] See for instance OECD, Economic survey of the EU, 2012

[12] Special
Eurobarometer 363,
http://ec.europa.eu/public_opinion/archives/ebs/ebs_363_en.pdf

[13] European Commission (DG EMPL), “Employment and Social Developments
in Europe 2011”, December 2011. http://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=6176&type=2&furtherPubs=no

[14]
European
Commission Communication "Better Governance for the Single Market",
COM(2012)259 final

[15] Financial services sector is not reviewed in the present report.
However, part of the relevant legislation selected in this sector included in
the June Communication is taken into consideration in the annex.

[16]
The
methodology and criteria for defining the key areas are presented in the annex
to the Commission Communication "Better Governance for the Single
Market", COM(2012)259 final

[17] First Report on the application of the
Mutual Recognition Regulation http://ec.europa.eu/economy_finance/publications/economic_paper/2012/ecp456_en.htm

[18]
The
transposition deficit (percentage of Internal Market directives not yet
notified to the Commission in relation to the total number of directives that
should have been notified by the deadline) has decreased from 1.2% in November
2011 to 0.9% in May 2012; the compliance deficit (number of directives
transposed where an infringement proceeding for non-conformity has been
initiated by the Commission) has decreased from 0.8% in November 2011 to 0.7%
in May 2012 (source: Internal Market Scoreboard no 25, September 2012 http://ec.europa.eu/internal_market/score/docs/score25_en.pdf).

[19] Annual governance check-up 2011 "Making the single market
deliver", February 2012, http://ec.europa.eu/internal_market/score/docs/relateddocs/single_market_governance_report_2011_en.pdf

[20] European Commission Communication: "Single Market Act. Twelve
levers to boost growth and strengthen confidence. Working together to create
new growth", COM(2011)206 final.

[21] http://ec.europa.eu/economy_finance/publications/economic_paper/2012/ecp456_en.htm

[22] The countries which re-appear most frequently in the groups of
sector-specific “best five” countries covered by the analysis are: Slovakia,
the UK, DK, IE, FI and ES

[23] Calculated as an additional 1.8% of GDP on top of the effects of
already implemented barrier reductions estimated at 0.8% of GDP

[24] European Commission Communication on the implementation of the
Services Directive "A partnership for new growth in services
2012-2015", COM(2012) 261 final

[25]
These
unequivocal obligations are listed in the European Commission Communication on the
implementation of the Services Directive. "A partnership for new growth in
services 2012-2015", COM(2012) 261 final

[26] "Reserved activities" are economic activities reserved to
the holders of specific professional qualifications, who benefit from exclusive
rights to exercise these activities and offer the related services.

[27] http://ec.europa.eu/internal_market/publicprocurement/docs/indicators2010_en.pdf

[28] Study on
"Cross-border procurement above EU thresholds" http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cross-border-procurement_en.pdf

[29] It takes an average of 91 days for B2B transactions to be paid in
the southern region, as compared to an average of 31 days in the north

[30] Directive
2011/7/EU of 16 February 2011 on combating late payment in commercial
transactions.

[31] 8th Consumer Market Scoreboard, 2012, Commission, DG
SANCO.

[32] This includes the proper implementation of the 2008 Consumer Credit
Directive and the forthcoming legislative initiative on transparency and
comparability of bank account fees, switching of bank accounts and access to a
basic payment account.

[33] Here the sector is approximated as NACE Rev. 1 “E:
Electricity, gas and water supply”.

[34] On 15 November 2012, the European Commission
presented a Communication assessing the state of play of the internal energy
market, "Making the
internal energy market work", COM (2012)663

[35]8th Consumer Markets Scoreboard, 2012, European Commission, DG SANCO

[36] European Commission Communication "Making the internal energy
market work", COM(2012)663

[37] The
HHI (Herfindahl-Hirschman Index) is a commonly accepted measure of market
concentration. It is calculated by squaring the market share of each firm
competing in the market and then summing the resulting numbers (the higher the
index, the more concentrated the market). Moderate concentration: 750–1800;
high concentration: 1800–5000; very high concentration: above 5000. For more
information, please see Commission Staff Working Document "Energy Markets
in the European Union in 2011" SWD (2012) 368, part 2

[38] “The functioning of retail electricity markets for consumers in the
European Union”, Study on behalf of the European Commission, DG SANCO, 2010.

[39] Market coupling optimises interconnection capacity and ensures that
electricity flows from low price to high price areas by the automatic linking
of supply and demand on either side of a border.

[40] Directives 2009/72/EC and 2009/73/EC

[41] Proposal for a
Regulation on guidelines for trans-European energy infrastructure COM/2011/658,
and Proposal for a Regulation on the Connecting Europe Facility covering
Energy, Transport and Telecommunication infrastructure (2014-2020), COM(2011)665

[42] European Commission Communication "Roadmap to a Resource Efficient
Europe", COM(2011)571 final

[43] 8th Consumer Markets Scoreboard, 2012, Commission, DG SANCO. These
findings are also confirmed by the World Bank's Logistics Performance Index.

[44] World Bank - Logistic Performance Index, Connecting to Compete
(2012).

[45] Transport of goods and passengers between two points in the same
country by a vehicle registered in another country.

[46] Czernich, N., Falck, O., Kretschmer, T., and Woessman, L. (2009)
Broadband infrastructure and economic growth (CESinfo Working Paper no. 2861. The
estimate is based on a panel of OECD countries over 1996-2007.

[47] Although Germany has a low rural coverage of fixed broadband, it
has the highest rural coverage of fourth generation mobile broadband (LTE), at
41% as of December 2011. Moreover, LTE spectrum license obligations target 90%
of population residing in the "white gaps" (i.e. areas where the
download speed of broadband services is less than 1Mbps).

[48] Mobile
broadband is most popular in the Nordic countries, where penetration is above
80%. Four Member States (RO, BU, HU, BE) have a mobile broadband penetration
rate lower 20%

[49]https://www.bcgperspectives.com/content/articles/media_entertainment_strategic_planning_4_2_trillion_opportunity_internet_economy_g20/

[50] Preliminary results of very recent surveys indicate a significant
improvement in this area lately.

[51] Civic Consulting (2011)

[52] Eurobarometer (299/2011)

[53] Directive 2011/83/EU of 25 October 2011 on consumer rights,
amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European
Parliament and of the Council and repealing Council Directive 85/577/EEC and
Directive 97/7/EC of the European Parliament and of the Council

[54] Proposal for a
Directive on alternative dispute resolution for consumer disputes, COM(2011)793
final of 29 November 2011; Proposal for a Regulation on online dispute
resolution for consumer disputes, COM(2011)794 final of 29 November 2011.

[55] Proposal for a Regulation on a Common European Sales Law, COM
(2011) 635 final

[56] European Commission Communication: "A strategy for
e-procurement" COM(2012)179 final

[57] European Commission Communication: "A strategy for
e-procurement" COM(2012)179 final

[58] Report
for the European Commission "Anticipating the Evolution of the Supply and
Demand of e-Skills in Europe (2010-2015)" Empirica and IDC Europe,
December 2009.

[59] European Commission Communication "A European Consumer Agenda -
Boosting Confidence and Growth", COM(2012) 225 final

[60]
Proposal
for a Regulation establishing the Connecting Europe Facility, COM(2011)665 final