EUROPEAN COMMISSION Brussels, 19.12.2017 SWD(2017) 471 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the mutual recognition on goods lawfully marketed in another Member State {COM(2017) 796 final}

{SWD(2017) 472 final}

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Contents Introduction 1.Regulatory Context 2.Economic Context: non-harmonised products in the EU 3.Problem Definition 3.1.Magnitude of the problem 3.2.The drivers of the problem 3.2.1.Lack of awareness about the mutual recognition principle and Regulation 3.2.2.Legal uncertainty as regards the scope of mutual recognition 3.2.3.Legal uncertainty as regards the application of mutual recognition and unreliability of the outcome 3.2.4.Lack of trust and cooperation among authorities 3.3.The consequences of the problem/ Who is affected and how 3.4.Foreseen evolution of the problem 4.Analysis of Subsidiarity 4.1.Legal Basis 4.2.Subsidiarity and Proportionality 5.Objectives 5.1.General Policy Objectives 5.2.Specific Policy Objectives

6.Policy Options 6.1.Discarded options 7.Analysis of Impacts 7.1.Assessment of the impacts 8.Comparison of Options 8.1.Effectiveness 8.2.Efficiency 8.3.Coherence 8.4.Potential for reduction of administrative burdens for companies 9.Monitoring and Evaluation 9.1.Operational Objectives 9.2.Indicators for the monitoring Annex 1 Procedural Issues and Consultation of Interested Parties 1.Identification 2.Organisation and Timing 3.Consultation Of The Regulatory Scrutiny Board 4.Consultation and Expertise 5.Limitations and assessment of robustness of findings Annex 2 Synopsis report of the stakeholder consultation 1.OBJECTIVES OF THE CONSULTATION

1.1.Consultation methods and tools 2.RESULTS OF THE CONSULTATION ACTIVITIES 2.1.Meetings of the Mutual Recognition Consultative Committee 2.2.Stakeholder conference of 17 June 2016 2.2.1.Main meeting 2.2.2.Workshops 2.3.Public Consultation 2.3.1.How stakeholders see mutual recognition and its potential shortcomings 2.3.2.Functioning of the Mutual Recognition Regulation 2.3.3.Assessment of communication when using Mutual Recognition 2.3.4.Priorities to improve Mutual Recognition 2.3.5.Options 2.4.Surveys carried out by the external contractors 2.5.Other contributions received (position papers or e-mail) 3.FEEDBACK TO STAKEHOLDERS Annex 3 who is affected and how Annex 4 Analytical Models Used In Preparing The Impact Assessment 1.Methodology for the market analysis 2.Methodology for the estimation of the magnitude of the problem 3.Methodology for case studies

4.Estimation of the Market for Non-Harmonised products 4.1.Estimate of the market value of current intra-EU trade in non-harmonised products falling under the mutual recognition principle 4.1.1.Analysis at the sectorial level 4.1.2.Analysis at product level 4.2.Estimating the magnitude of the problem triggered by suboptimal functioning of the mutual recognition principle 4.2.1.Introduction and exporting decision tree 4.2.2.The Sub-optimal Functioning of the Mutual Recognition model 4.2.3.Number of enterprises undertaking non-harmonised trade 4.2.4.Lost Opportunity 4.2.5.The Sub-optimal Functioning of the Mutual Recognition (SFMR) model 4.2.6.Conclusion Annex 5 harmonised non harmonised and partially harmonised products- sector and product level analysis 1.Harmonised, Non-Harmonised and partially harmonised sectors - Classification used in the market analysis (Sectorial Level) 2.Products classified as non or partially harmonised in the market analysis (Product level) by sector Annex 6 – Main Findings of the Evaluation of the REFIT Evaluation on the Principle of Mutual Recognition and the Mutual Recognition Regulation No (EC) 764/2008 Annex 7 assessed literature and jurisprudence 1.Literature 2.Recent case law of the CJEU on mutual recognition Annex 8 The Declaration of Compliance 1.EU Product legislation under the 'New Approach'

2.The EU declaration of conformity in EU Product legislation 3.Comparison between the role of the manufacturer in EU harmonisation legislation and in the Mutual Recognition proposal 4.Comparison between the declarations of conformity 5.The Suppliers declaration of conformity in international trade 5.1.The use of the suppliers' Declaration of Conformity in global trade 5.2.International standard EN ISO/IEC 17050-1 5.3.U.S. International Trade Commission 5.4.The Use of Supplier’s Declaration of Conformity in the U.S. 5.5.Case study: Australia 5.5.1.Introduction 5.5.2.Supplier’s Declaration: an Assessment 5.5.3.Impact of SDoC on Stakeholders 5.5.3.1.Regulator 5.5.3.2.Suppliers 5.5.3.3.End User 6.Evaluating the trade effects of suppliers' declaration of conformity Annex 9 The SME Test – Summary of results Annex 10 Glossary of Technical Terms and Abbreviations



Introduction

Achieving a deeper and fairer single market, that builds on its strengths and fully exploits its potential in all its dimensions, represents one of the key political priorities of the European Commission. The follow-up and the implementation of the Single Market Strategy, Upgrading the Single Market: more opportunities for people and business, adopted on 28 October 2015 constitute one of the main objectives of the 2017 Commission Work Programme. Within the Single Market, free movement of goods is the most developed of all four fundamental freedoms and generates around 25 % of EU GDP, 75 % of intra-EU trade. The EU accounts for around one sixth of the world’s trade in goods. Trade in goods between EU Member States (intra-EU trade) was valued at EUR 3 063 billion in 2015. However, there is still work to do to ensure a deep and fair European Single Market. The enforcement of common safety and environmental rules is still not functioning optimally and, where there are no common rules, the principle of mutual recognition is not being applied. The 'Goods Package' announced in the 2017 Commission Work Programme, intends to address both these fundamental problems, with proposals on compliance and enforcement of EU harmonisation legislation and on mutual recognition. In the Single Market for goods, regulatory obstacles are prevented and removed through relevant EU legislation on specific products (i.e. through EU harmonisation legislation). This is for example in the case of toys, cosmetic products or pyrotechnical articles. Where no EU rules exist (non-harmonised areas), the Directive (EU) 2015/1535 on the notificaiton of national technical rules (the former Directive 98/34/EC) aims to prevent regulatory obstacles within the EU, at an earlier stage, and the principle of mutual recognition would be used to overcome them, at a later stage. Mutual recognition is seminal for a proper functioning of the single market for goods, through the elimination of technical obstacles to genuine free movement. In areas where no specific EU legislation is in place, national rules that lay down requirements to be met by such products co-exist. In principle, national regulations may still create barriers to intra-EU trade if rules in different Member States diverge. The principle of mutual recognition requires however that a good that is lawfully marketed in one Member State should not be prohibited in another Member State, unless the latter has sound reasons for banning its sale. Mutual recognition applies to products that are not subject to EU harmonisation legislation or only partly covered by it; this is the case, for example, of a wide range of consumer products such as textile, footwear, childcare articles, jewellery, tableware or furniture, for example. The adoption of Regulation (EC) No 764/2008 (‘the Regulation’) was a partial response to the weak application of the principle of mutual recognition in the field of goods, triggered by the lack of awareness about the mutual recognition principle, legal uncertainty when applying the principle and the lack of administrative cooperation among national authorities. The Regulation was aimed mainly at establishing a procedural framework to minimise the possibility of national technical rules creating unlawful obstacles to the free movement of goods between Member States. In December 2013, the Conclusions on Single Market Policy, adopted by the Competitiveness Council, noted that to improve framework conditions for businesses and consumers in the Single Market, all relevant instruments should be appropriately employed, including harmonisation and mutual recognition. The Commission was therefore requested to report to the Council on the sectors and markets where the application of the principle of mutual recognition is economically most advantageous, but where its functioning remains insufficient or problematic. In its Conclusions on Single Market Policy of February 2015, the Competitiveness Council urged the Commission to ensure that the principle of mutual recognition would function effectively and to bring forward proposals to that effect, as appropriate. In response to the indications that the functioning of the principle might not be optimal, and taking into account the request of the Council, the application of the principle of mutual recognition was subject to an evaluation. Building on the external evaluation, the Commission's Evaluation on the functioning of mutual recognition included an assessment of the functioning of the Regulation as well, in order to have a full picture of the obstacles impeding the optimal functioning of mutual recognition (hereafter, the Evaluation). This Evaluation has concluded that mutual recognition is not functioning well and that the principle and the Regulation had limited effects in meeting the foreseen objectives. With regards to supportive information and data, this impact assessment is also supported by the information contained in the Evaluation. The initiative has been linked to the REFIT programme due to the impacts the malfunctioning of mutual recognition have on the functioning of the internal market. This initiative should be looked at along with other initiatives currently under preparation and in particular the initiative on enforcement and compliance with the EU harmonisation legislation on products, the Action Plan on SOLVIT and the proposal for a Single Digital Gateway to complement each other and contribute to reducing barriers to trade in the Single Market. Further and better compliance and enforcement will reduce unfair competition and ensure a more level playing field for businesses. An enhanced SOLVIT will facilitate informal problem resolution and the Single Digital Gateway will not only ensure visibility for the Product Contact Points established under the Regulation (PCPs) but also improve their functioning by subjecting them to the quality criteria in terms of online availability and quality of information and services provided to economic operators. 1.Regulatory Context Free movement of goods in the internal market and the principle of mutual recognition As one of the four main fundamental freedoms, free movement of goods is a cornerstone of European integration and essential for European competitiveness. Free movement of goods in the internal market is ensured through EU common rules on products (EU harmonisation legislation) and the principle of mutual recognition. EU harmonisation legislation sets out common requirements on how a product has to be manufactured, which includes rules on i.e. characteristics of the product, size, composition, etc. Its aim is not only the elimination of barriers and the free movement of goods in the single market, but also ensuring that only safe and otherwise compliant products find their way into the EU market, in such a way that honest economic operators can benefit from a level playing field, thus promoting at the same time an effective protection of EU consumers and professional users and a competitive single market. The adoption of EU common rules prevents Member State from regulating those technical aspects of products and products complying with such rules are guaranteed free movement across the single market. However, EU harmonisation legislation covering every product and aspect of a product is neither a feasible nor a desirable objective. Adopting EU common rules is a costly and time consuming process, where a balance needs to be struck between different approaches and should be reserved for those products and aspects of products where there are significant barriers to the free movement across the Single Market which cannot be addressed otherwise. Where there are no EU common rules, or when only some aspects of the products are covered by EU common rules, Member States remain free to adopt national technical rules laying down requirements to be met by those products, such as rules relating to designation, form, size, weight, composition, presentation, labelling or packaging. These national technical regulations are however subject to the provisions of Articles 34 to 36 of the Treaty on the Functioning of the European Union (TFEU), which prohibit quantitative restrictions or measures having equivalent effect, and to the principle of mutual recognition. In addition, they also need to be notified under the Directive (EU) 2015/1535 in order to ensure that no unjustified barriers to the Single Market are allowed. The principle of mutual recognition is embedded in Articles 34 and 36 of the TFEU and has been further elaborated on case law, especially the "Cassis de Dijon" case. It means that in the absence of EU harmonised rules, if a business is lawfully selling a product in one Member State, in compliance with the applicable national technical rules of that Member State, it should be able to sell it in other Member States without having to adapt it to the national rules of that Member State where such products already meet equivalent levels of protection to those imposed by the importing Member State. Barriers to free movement which result from differences in national legislation may only be accepted if the national measures: -are necessary to satisfy mandatory requirements (those being public interests such as health, safety, consumer protection and environmental protection) which justified overriding the principle of free movement of goods, and -can be justified with regard to the legitimate purpose and are proportionate with the aims. Exceptions to the mutual recognition rule should be interpreted narrowly. Considering the exceptions, mutual recognition should not be viewed as entailing lower health and safety standards, or as limiting the market surveillance capabilities of national authorities; but rather as striking a careful balance between free movement and objectives of public interest.

Figure 1-1 EU harmonisation legislation and mutual recognition are both necessary to achieve a fairer and deeper internal market. Mutual recognition is essential to guarantee the free movement of goods in the European Single Market where diverse and sometimes conflicting national technical rules can continue to coexist. When properly applied, mutual recognition guarantees the protection of the public interest whilst not creating excessive red tape. The practical application of the principle of mutual recognition The application of this general principle is, in practice, extremely complex. It requires, inter alia, an assessment of whether a product has been lawfully marketed in another Member State and an assessment of the equivalence of the rules in the Member State of origin to allow the non-application of the technical rules in the importing Member State. The latter should not be understood as a comparison of the theoretical intrinsic equivalence of the two Member States rules, but of the practical results produced by applying them in terms of how a particular product adequately protects the public interests at stake. 1. Some practical modalities on how mutual recognition should work in practice are defined by the Regulation. In particular, the Regulation introduced: ·Product Contact Points: to provide, upon request, information on the technical rules applicable to a specific product, the contact details of the competent authorities in charge of supervising the implementation of the technical rule in question and the remedies available in case of dispute between the economic operator and the competent authority. ·Non-exhaustive list of products: Mutual recognition does not apply to products fully or to those aspects partially covered by EU harmonisation legislation. To facilitate the identification of products to which the mutual recognition principle may apply, the Regulation introduced an obligation for the Commission to put in place a non-exhaustive list of products which are not subject to EU harmonisation legislation. . ·Procedure for decisions denying market access: The Regulation lays down in particular the rules and procedures to be followed by the national authorities of a Member State when taking or intending to take a decision, in accordance with the national technical rules, which would hinder the free movement of a product lawfully marketed in another Member State and subject to Article 34 TFEU. In particular, the Regulation places the burden of proof on the national authorities intending to deny market access. A written notice has to be sent to the economic operator, informing him about their intention to deny market access, and specifying the technical rule on which the decision is based, and the supporting technical or scientific evidence which makes the decision justified and proportionate. The economic operator has the right to submit comments. Any decision denying market access taken after receiving comments from the economic operator shall be notified to him, and shall state the grounds on which it is based, the technical or scientific evidence supporting the decision and, when applicable, the reasons for rejecting the economic operator's arguments. The decision shall also indicate the remedies available under national law in order to challenge the decision. ·Reporting obligations: Member States have to submit yearly reports on the application of the Regulation. Furthermore, every decision denying market access, as well as the grounds on which it is based, has to be individually notified by Member States to the Commission, in addition to the notification of the economic operator. 2. The application of the principle of mutual recognition is also made possible by the inclusion of a mutual recognition clause in national technical regulations. It provides legal certainty for economic operators, as they are informed about their rights, thereby actually putting the aforementioned principle into practice. 3. The Commission monitors whether Member States comply with the EU law and whether their national rules undermine the free movement of goods. To ensure that internal market rules are respected and applied correctly in the area of non-harmonised goods, the Commission follows up complaints based on alleged breaches of Article 34 TFEU and takes action, where necessary, to ensure that those restrictions which cannot be justified are eliminated. 2.Economic Context: non-harmonised products in the EU Mutual recognition applies to non-harmonised products and to partially harmonised products, i.e. products which are in part covered by EU harmonisation legislation but which still have other aspects which are subject to national rules. It is difficult to have a strict separation between these two categories of products: while there are products which are subject to detailed EU rules (and considered as harmonised) such as toys, pyrotechnical articles or cosmetics, many products are however subject to EU harmonisation for at least specific aspects while the rest is left for national legislation and therefore subject to mutual recognition. Mutual recognition therefore applies to many consumer products where EU harmonisation measure is almost absent such as childcare articles, clothing, textile and footwear, furniture, jewellery, sports accessories. It also applies to products more heavily regulated by EU harmonisation measures regarding those elements not covered by these measures, for example, to food and food supplements, fertilising or construction products. Whatever the scope for national rules (the totality of the product or many aspects of it), mutual recognition should apply to address any differences in technical requirements in the Member States. Therefore, for the purposes of this impact assessment, non-harmonised products should be understood as also including those products which are partially harmonised as they are still subject to national rules and thus, mutual recognition. More information on the economic relevance of products subject to mutual recognition can be found in Annexes 4 and 5. Over the period from 2008 and 2014, around 0.89 million enterprises were operating within non-harmonised sectors, representing more than 50% of the total number of active enterprises in the manufacturing economy. Figure 2-1: Number of active enterprises: non-harmonised sectors vs overall manufacturing sectors (EU28, 2012-2014) NACE Digit-3 level

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016) Around 87% of the enterprises operating within the non-harmonised sectors are micro enterprises (i.e. with less than 9 employees) and around 11% are small and medium enterprises (i.e. with a number of employees between 50 and 250). In terms of turnover, non-harmonised sectors represent a significant contribution to the economy. As shown in the figure below, enterprises operating within non-harmonised sectors contribute to around 20% of the total value of market sales of manufacturing sectors (€1,158 billion out of €5,690 billion, corresponding to the overall turnover produced within the manufacturing sectors). In addition, considering the period 2008 – 2015, the following was observed: ·The (average) annual value of intra EU exports of non (or partially) harmonised products has been equal to €335 billion ; ·The value on intra EU exports of non-harmonised products represented the 18% of the value of intra EU exports. Figure 2-2: Value on non (or partially) harmonised products. Intra EU Exports, € billions, 2008 -2015 3.Problem Definition Mutual recognition is instrumental to removing barriers to intra-EU trade when harmonisation is either not desired or technically impossible. However, mutual recognition is not functioning well. The weak use of the principle of mutual recognition and the limited impacts the Regulation had in achieving the foreseen objectives of ensuring free movement of goods in the Single Market points that there is a lot of potential to be unleashed. Businesses rarely rely on mutual recognition to sell their products in another Member State. Companies check the applicable rules in the Member State where they want to sell their products and if national rules prevent them from selling them, most of them adapt their product to those rules (87% adapt their products to national rules straight away or have tried to rely on mutual recognition but received a negative decision and after they adapted their product). For other companies, particularly SMEs, national technical rules act as barriers to enter those national markets, and they refrain from selling their products in those countries. Where companies try to rely on the principle of mutual recognition, national authorities find it difficult to accept, on the basis of mutual recognition, products on their markets that do not conform to their national rules, to which technical, historical and cultural background they are well acquainted. Therefore, they deny market access to those products. 68% of companies which replied to the 2016 public consultation have tried to rely on mutual recognition, and for half of them, market access was denied. When market access is denied, it appears that companies find it extremely difficult to challenge these national decisions. Stakeholders reported recurrent problems with the application of the principle of mutual recognition in certain specific sectors such as construction products, food and food supplements, food contact materials, fertilisers or childcare products; some of these sectors are of particular economic relevance. Whilst the Regulation was adopted to facilitate the application of the principle of mutual recognition, it has not achieved its objectives. Generally, the 2016 public consultation shows that only half of the economic operators responding consider that it is easier to sell products in other Member States since the Regulation entered into force. 3.1.Magnitude of the problem Due to the complex nature of mutual recognition and the wide variety of products to which it applies, accurately estimating the magnitude of the problem triggered by its suboptimal functioning is not straightforward. Therefore, several elements were taken into account in the analysis, in order to illustrate the significance of the effects that a suboptimal mutual recognition may have. First, the model presented in figure 3-1 has been used to determine the costs that a company might incur when entering the market without fully benefiting from mutual recognition. The objective of the model is to distinguish the socio-economic costs of the malfunctioning of mutual recognition; the model contains seven components, and uses data about the value of intra-EU trade to calculate key costs. The model is underpinned by an enterprise decisions tree that considers routes to successful market entry and decisions not to export. By estimating the number of enterprises entering new markets with non-harmonised products, it is possible to apply an estimate of the number of days work required by enterprises to overcome sub-optimal functioning. This element of the model provides details of transactions costs. The second component of the model (cost of delayed market entry) estimates the cost per week of enterprises note being able to trade. These costs can then be treated separately, or combined to give a total estimate of costs associated with sub-optimal functioning of the Mutual Recognition principle.

Figure 3-1: Decision tree diagram for export decisions associated with products not covered by the Mutual Recognition principle This diagram represents the route that enterprises can follow when deciding not to export or when entering another EU Member State market. The model provides a representation for an enterprise considering intra-EU exporting one product in one EU Member State. This model has been designed as a simplified framework to illustrate a complex process, and is a simplified representation of the reality of the market. A model where the values can be changed, based on the type of products, company and feedback received was preferred, as it allows an evolving estimation, reflecting the reality of the market. The values used for calculating the size of the problem based on this model are assumptions based on feedback from a very limited number of stakeholders and thus need to be treated with caution as they are not necessarily representativeThey vary substantially upon the number of products intended to be marketed and the number of markets targeted. Details can be found in Annex 4. Second, the comparison of the value of the intra EU exports with domestic consumption shows that for harmonised products the value of intra EU exports is 55% of domestic consumption, while for the non-harmonised and partially harmonised goods it represents only 35%. This might be also a sign of the effects that suboptimal functioning of mutual recognition has on trade, based on the assumption that in the harmonised area, due to uniform and standardised rules applicable in all EU Member State, there are no (or few) barriers to trade. Figure 3-2: Intra EU exports as % of the domestic consumption: harmonised vs non- harmonised or partially harmonised products, 2008-2015 Lastly, a global estimation of trade barriers in general can be used to compliment the previous findings. The fact that most companies feel compelled to adapt their products to national requirements constitutes a barrier to trade on the internal market. The magnitude of these barriers is also likely to be significant. A study done for the European Parliament tried to estimate the magnitude of the impact that non-tariff barriers to trade have on the internal market. It concluded that a reduction of such barriers could lead to an increase in intra-EU trade of more than 100 billion EUR per year. While the concept of non-tariff barriers in the paper is broader (including not only lack of mutual recognition or harmonisation but also discriminatory procedures and less favourable tax or subsidy treatment), it provides an indication that the problem of mutual recognition not working well in practice is economically significant. 3.2.The drivers of the problem A number of factors explain the fact that mutual recognition is currently not functioning well, in particular, the lack of awareness about mutual recognition, the legal uncertainty with regards to its scope and the practical obstacles related to its application. According to the 2016 public consultations, businesses find that the difficulty to challenge a national decision denying market access is the main obstacle to the functioning of mutual recognition, followed by the insufficient communication between national authorities of different Member States, the lack of awareness and the legal uncertainty with regards to its scope. There is still a significant lack of awareness and an important lack of legal certainty which hampers the effective functioning of mutual recognition. When businesses are aware of mutual recognition, the uncertainty with regards to its scope and application makes them reluctant to use the principle for entering new markets. First of all, it is difficult to know if mutual recognition applies to a particular product or not. Secondly, when businesses rely on mutual recognition, the outcome is uncertain. In particular, the evidence that will be required to demonstrate that the product has been lawfully marketed in another Member State or the tests that will have to be completed vary among Member States. Furthermore, Member States are entitled to argue that mutual recognition does not apply where overriding public interests such as health, safety, consumer protection and environmental protection justify specific national requirements. Finally, if market access is denied, businesses can only challenge these decisions in the national courts which is a long and costly process. 3.2.1.Lack of awareness about the mutual recognition principle and Regulation The first condition for businesses and national authorities to use and apply mutual recognition is to be aware of it and what it means in practice for companies. However, there are still a significant number of businesses and national authorities unaware of mutual recognition. One of the specific objectives of the Regulation was to increase awareness of the mutual recognition principle. The stakeholders' consultation and the desk research performed by the Commission services show that there are businesses and national authorities still unaware about the mutual recognition principle and Regulation. Lack of awareness about the principle triggers lack of awareness about how this principle should be applied or the conditions under which mutual recognition could be denied. In many cases businesses simply assume that they need to adapt their products to the national rules if they want to sell them in another Member State. In other cases, this is required by the national authorities, to the detriment of mutual recognition. Surveys carried out in 2004 and 2014 show a low level of awareness about mutual recognition among businesses. In 2004, 46% of the respondents declared being aware of mutual recognition; 54 % of the companies interviewed in 2014 declared not knowing about it or having heard of it but not being familiar with the details. The public consultation carried out in 2016 shows however a significantly higher level of awareness; 7% of the respondents declared being aware of mutual recognition. The differences in the declared level of awareness can be explained by the fact that the consultation process was different (targeted surveys versus open consultation). The level of awareness about mutual recognition among national authorities is mixed. The results of the public consultation carried out in 2016 shows that when national authorities check if products available on their market coming from another Member State comply with the national rules they are enforcing, 53% verify if they are already lawfully marketed in the Member State of origin while 46% don’t. Furthermore, confusion arises with regards to prior authorisation procedures; when such procedures are in place, economic operators cannot rely on the principle of mutual recognition to place their products on the national market. In fact, the Regulation does not apply to prior authorisation procedures, as the requirement that the placing of a product on the market is subject to prior authorisation is not a technical rule within the scope of the Regulation. However, the decision to deny prior authorisation merely because the product does not comply with the national rules in the Member States having the prior authorisation procedure is a decision within the scope of the Regulation. Despite the fact that businesses indicated in the 2016 public consultation a high level of awareness, they still very much support the need for additional awareness raising campaigns: 95% of them replied that awareness raising is still necessary, and ranked the lack of awareness as being the third main obstacle to a smooth functioning of mutual recognition. Also, Member States addressed the need for additional awareness campaigns. During the 2016 public consultation , 84% of national authorities consider that awareness-raising is still necessary. When asked to rank priorities for improving mutual recognition by order of importance, awareness-raising was ranked as the first priority, with 52% of responding national authorities supporting it. National authorities replying to this consultation are representing PCPs (31%) but also other authorities than PCPs (69%). The need for additional awareness raising campaigns is also highlighted by numerous Member States in their annual reports on the application of the Regulation. The outcome of the stakeholders' event held in June 2016 "Single market for products: fresh ideas to unleash full potential" points into the same direction; national authorities participating stressed that awareness raising, for both economic operators and national authorities is essential for improving the functioning of mutual recognition. The Regulation had a limited effect in increasing awareness of the mutual recognition principle, mainly due to the suboptimal functioning of the PCPs. This makes it difficult for businesses to know when mutual recognition can be used for entering a market and what their rights are. Most stakeholders agreed however that PCPs are a very useful tool, with a lot of potential. They need however to be strengthened in terms of administrative cooperation and network, in order to be efficient with regards to their objectives. 3.2.2.Legal uncertainty as regards the scope of mutual recognition Determining if a product might benefit from the mutual recognition principle is not straightforward, as mutual recognition applies to a very wide range of products, i.e. products or aspects of products which are not covered, fully or partially, by EU harmonisation legislation. Therefore, clarifying whether mutual recognition should apply to a given product requires detailed knowledge of rules on products.

The main tools to guide economic operators to knowing if mutual recognition can be invoked for a product are: 1.The Product Contact Points (PCPs) established by the Regulation. However, there are problems with the functioning of PCPs. In the period between the entry into force of the Regulation on 13 May 2009 and today , the Product Contact Points received 8024 questions from economic operators. 2010-2011 2012 2013 2014 2015 1402 1439 1826 1793 1564 The PCPs that were most contacted are France and the Czech Republic, followed by Slovakia. The low number of inquiries received shows that PCPs and the assistance they can offer are sub-optimally used , the main issues underlined by economic operators in relation to PCPs are the long delays for receiving an answer, the quality of the answer or even the absence of it. The activity of PCPs is also undermined by the lack of administrative cooperation. They are also affected by the complexity of the questions they receive, the variety of products covered by mutual recognition and language limitations. 2.The list of products to which mutual recognition might apply put in place by the Regulation. This was done as a database, which is available online on the Commission's website on mutual recognition. The list of products contains goods classified according to the Combined Nomenclature but it has not provided sufficient or reliable information to users. This is because the list lacks user-friendliness, it is extremely difficult to take into account products partially harmonised appropriately and it does not reflect harmonisation legislation newly adopted or repealed. 3.The mutual recognition clause , when inserted in national regulations, raises awareness (for businesses and relevant national authorities) about the application of the mutual recognition principle and the Mutual Recognition Regulation to products coming from other Member States and which are not in line with that particular technical rule. However, the use of the clause is still poor and it has not shed sufficient light on when mutual recognition is applicable. During the PCPs survey carried out in 2014, only 28% of the respondents indicated that a mutual recognition clause is included systematically in all relevant national rules . The overview of the draft national technical regulations notified between 2012 and 2014 shows poor use of the mutual recognition clause: 2012 2013 2014 Total MRC inserted Total MRC inserted Total MRC inserted 755 69 728 79 685 57 3.2.3.Legal uncertainty as regards the application of mutual recognition and unreliability of the outcome The application of the principle of mutual recognition is also hindered by practical obstacles. Technical barriers may be intentionally adopted to protect national or regional markets or be the result of lack of trust that other national regulations offer an adequate protection of public interest. In addition, national authorities are entrusted with enforcing their national technical rules and it is difficult for them to accept a product which does not conform to such rules. This is for example the case for compulsory, nationally conducted tests; extra labelling requirements; stringent rules on the use of languages or reference to mandatory national conformity marks. In other instances, , the application of the mutual recognition principle is sometimes knowingly disregarded because potential users find that the outcome when trying to invoke the principle is uncertain and unreliable. In particular, the following elements that hinder in practice the application of mutual recognition were identified: 1.Evidence required by national authorities One of the main reasons is the lack of clarity in the concept of "lawfully marketed", as Member States have different requirements as regards the evidence to be submitted and are often very cautious towards products lawfully marketed in another Member State. The objective of the Regulation was to reduce the risk of seeing market access denied, by allowing communication between the businesses and the national authorities in order to prevent problems of free movement of goods. In practice, however, the outcome is not very positive. Placing the burden of proof on Member States did not have any added value as regards the lack of clarity in the concept of "lawfully marketed", which triggers the possibility for economic operators to invoke the mutual recognition principle to sell their products in other Member States. This is because the Regulation only indicates who has the burden of proof, without defining the concept of "lawfully marketed", nor the kind of evidence needed to demonstrate that a product was lawfully marketed. Furthermore, there is no jurisprudence from the Court of Justice on this concept. Thus, businesses report that Member States have different requirements with regards to the evidence to be submitted in order to demonstrate that a product is "lawfully marketed". In the 2016 public consultation, businesses ranked the need to increase legal certainty when using mutual recognition as the second priority for the Commission. Furthermore, the principle of mutual recognition excludes the unnecessary duplication of controls already carried out by another Member State and presumes recognition of tests carried out in another Member State especially where the results are available and may, at request, be given. In this respect, the Regulation sets out an obligation on Member States authorities to accept any test performed by conformity assessment bodies covered by an accreditation certificate in line with Regulation (EC) No 765/2008. Still, in practice, tests already conducted in another Member State, also by accredited bodies, are often not recognized in other Member States. This places a burden on the economic operator to duplicate tests in the Member State of destination. Duplication of testing comes at an economic cost – not only of the test but also for the delay of accessing a market. 2.Assessment of the need to apply national requirements to products lawfully marketed in another Member State Member States can deny market access where the Member State of origin does not provide an adequate level of protection of the public interests in question; this requires national authorities to look at the practical effects that the application of their national rule would produce and the level of protection that would be achieved. The burden of proof that the restriction on the free movement of goods is justified and necessary to effectively protect the public interests invoked falls on the Member States and not on the economic operator. Such analysis is not straightforward and national authorities tend to automatically apply the national rules at the cost of mutual recognition. The Regulation requires these decisions to be notified to the Commission, however in many instances, no notification is sent. The obligation to notify every administrative decision denying market access was also intended to bring more legal certainty for economic operators when invoking their right to mutual recognition. In the period between the entry into force of the Regulation on 13 May 2009 and today, the Commission has received 3918 notifications. All notifications received come from 6 Member States, and one Member State, namely Portugal, accounts for around 80% of the notifications received. Most of notifications refer to precious metals, and some relate to foodstuff, fertilisers, food additives and electrical equipment. There are discrepancies between the number of notifications received by the Commission and the number of administrative decisions indicated by Member States in the annual reports. For example, some Member States are indicating in their annual reports that a certain number of administrative decisions have been taken, while these have never been notified to the Commission. Other Member States are reporting that no administrative decisions have been taken, while complaints received show the contrary. This points to the fact that Member States are not always notifying administrative decisions denying or restricting market access to the Commission. 3.Difficulty challenging administrative decisions that deny or restrict market access. The Regulation does not put in place any specific procedure to challenge administrative decisions denying market access; it only mentions the obligation on Member States to specify, in the administrative decision denying market access, the legal remedies available under the law in force in that Member State and the time limits applying to these remedies. The only option for challenging such decisions lies therefore in the legal means offered by national law (national courts, tribunals or other instances of appeal). Such proceedings are very long and costly for businesses, estimated between 5000 and 100 000 Euro per product and per market. Other alternative non-judicial problem-solving mechanisms, such as SOLVIT, have not proved to be an effective solution for businesses up to now. Only a fraction of the cases submitted in SOLVIT are coming from businesses (107 out of 2414 in 2016). Within these 106 cases only 27 concerned goods and 5 mutual recognition related issues. Furthermore, the resolution rate of businesses cases is lower, especially for goods related cases. Most goods cases are about the justification of a national measure restricting the marketing of a good or the provision of a service. It is often very hard to analyze, prove and successfully argue before a national authority in an informal way that a given measure is disproportionate, especially where large sums are involved. Demonstrating that a particular national restrictive measure is unjustified would require technical expertise and formal powers that SOLVIT centers do not enjoy nowadays (for example in the area of mutual recognition and non-harmonised goods) .

When asked to rank obstacles to mutual recognition by order of importance, the difficulty in challenging administrative decisions denying or restricting market access was considered as the main obstacle by businesses (62% of businesses responding to the 2016 public consultation), and 72% considered that ensuring effective remedies for taking action against such decisions should constitute the Commission's main priority. 3.2.4.Lack of trust and cooperation among authorities The lack of trust among authorities and the lack of efficient administrative cooperation, further contribute to these drivers. Before the adoption of the Regulation, dialogue between the national authorities of different Member States was very difficult, mostly due to the lack of a common address book /network. The Regulation tried to remedy to this problem by introducing the Product Contact Points and the telematic network . Despite this, administrative cooperation remains suboptimal, for various reasons. Many Member States highlighted, in their annual report, the difficulties PCPs have in identifying and contacting the responsible authorities in their own administration in order to reply to requests received from economic operators. Some Member States managed over the years to put in place a network of experts, but the variety of products covered by mutual recognition and national legislation involved, as well as the different internal organisation in certain Member States make this task very difficult. Also, there is a lack of administrative cooperation between PCPs. The absence of a network, allowing rapid communication and exchange of information delays the work of the PCP when replying to a request from economic operators. Many are complaining about the absence of reply from their colleagues from other Member States, or about long delays to receiving an answer. Often, the answers received are of low quality as regards the information transmitted. During the survey carried out in 2014, the interviewed PCPs indicated the main problems with regard to administrative cooperation: Figure 3-3: 2016 public consultation One PCP indicated that sometimes the delay for receiving a reply is 40-50 working days. Another indicated that the intervention of the Commission was necessary in order to obtain a reply. Additionally, the administrative cooperation between PCPs is also undermined by the difficulty to communicate in a common language, especially when technical terms are involved. This issue is almost unanimous among PCPs, and was raised during the surveys, interviews, in the annual reports as well as during the meetings of the Consultative Committee on mutual recognition. 3.3.The consequences of the problem/ Who is affected and how Due to the suboptimal use of mutual recognition, barriers to free movement of non-harmonised goods remain; thus, a single market for goods is far from being achieved. Those most affected by the problem are economic operators, who are not benefitting fully from the internal market and their existing rights. They face additional costs to enter a new market or even lose market opportunities. National authorities rely on their own national rules and this undermines the free movement of goods. Consumers and final users cannot fully benefit from more choices on the market and thus lower prices that the single market for goods should provide, while maintaining the level of protection of public interest they are entitled to. The following consequences can be identified for economic operators, consumers and national authorities, resulting from the non-functioning of mutual recognition: Economic Operators Consumers National Authorities 1.Lost opportunities 2.Transaction costs: tests and adaptations 3.Delays in accessing the national market 4.Information costs due to the lack of effective functioning of PCPs 5.Costs of challenging national decisions 1.Less choice in terms of available products 2.Higher prices 1.Information and assessment related costs to find out whether a product should benefit from mutual recognition, due to the lack of efficient administrative cooperation The financial costs caused by lack of mutual recognition are high for the business operators. First of all, business need to find out what the applicable national rules, requirements and administrative procedures are in the Member State of destination and assess if mutual recognition can be used to sell products in another Member State without being able to rely effectively on PCPs in order to obtain this information. This is particularly challenging for SMEs; according to the public consultation on the start-up and scale-up initiative, resources required to navigate the regulatory complexity are the third-biggest problem for SMEs. Costs also related to assessing if mutual recognition can be used to sell products in another Member State. Very few economic operators (2%) are outsourcing this assessment, while 26% are doing it internally. 46% are doing both, depending on the product. The lack of additional information does not allow for an estimate of the actual costs incurred when the assessment of whether or not mutual recognition can be used is outsourced. When done internally, economic operators spend on average 54 hours on doing the assessment; however, the number of hours indicated varies from one company to another. Most indicated only a few hours (less than 10) while two indicated spending more than 500 hours on this. The average cost per hour is 78 Euro. When trying to demonstrate that a product is already lawfully marketed in a Member State, businesses indicate that the average number of hours spent is 16, and the average cost per hour is 76 Euro. High costs are also triggered by the need to adapt the products to the applicable national rules, when mutual recognition is either denied or not used for penetrating the market. These adaptation costs are estimated to be between 1000 and 150 000 Euro per product and per market. Other indirect costs may be generated by the lack of well-functioning mutual recognition. There is a distortion of competition and of the level-playing field as cross-border operators face higher costs than local operators. Also, companies may be able to pass on these costs to the consumers, leading to higher prices. If the market is not big enough, or if the costs are too high, businesses may be discouraged and give up on entering that market. This is particularly relevant for SMEs. For example, more than half of SMEs say that administrative procedures related to exporting to other Member States are too difficult to comply with and therefore deter many firms from exporting. According to the Commission’s 2014 Competitiveness report, only 14% of SMEs are trading across borders in the EU compared to 85.4 % of large manufacturing firms. This translates into lost opportunities for businesses as well as costs resulting from delays for entering a market. In addition, it also generates a loss of competitiveness and innovation. High costs are also relating to delays for entering a market, estimated between 3000 and 500 000 Euro per product and per market, and to lost opportunities, when businesses renounce entering a market because of different national rules requiring adaptation of the products. On average, the latest are estimated to be between 10 000 and 500 000 Euro per product and per market. The estimate of the adaptation costs appears to be lower than the estimation of costs linked to lost opportunities and delayed entry on the market. This may be due to the specific profile of the respondents to the public consultation who were able to provide estimates, as testing costs can vary significantly from one product to another. The variety of products and how this translates in terms of costs is also highlighted later on (see table 7-8). Economies of scale are crucially important for innovative firms that spend a large fixed cost in research and development (R&D) and need a large internal market to cover these costs. Economic operators also face costs related to challenging administrative decisions denying market access; but they considered them as less important, mainly because few economic operators choose to do so. The estimates are between 10 000 and 100 000 Euro per product and per market.

Figure 3-4: Public consultation 2016 These results confirm the findings of the external study carried out in 2015 , where businesses underlined transaction and adaptation costs as being very significant. They perceived testing as being costly – more than 40% of them have rated testing as being a very significant cost. The testing costs vary considerably, depending on the sector and the product, but some examples from different sectors are provided in Figure 7-18. Internal company staff time and administrative costs are perceived to be very significant by 32% and 30% of the companies, respectively. In the interviews carried out by the contractor, many companies mentioned that these types of costs naturally follow the testing costs and are therefore closely related to the issue of Member States demanding additional tests. Lastly, around 26% of businesses perceive the adaptation of products to local technical requirements to be a very significant cost. Furthermore, it is interesting that for all four categories, over half of the companies perceive the costs as either very significant or significant. Note: N=28-31 (not all companies answered all questions) As regards the costs, the survey and the subsequent interviews carried out by the contractor revealed the same wide range of costs as those from the 2016 public consultation, depending on the different sectors. Similarly, few economic operators were able to put a figure on the costs faced due to the incorrect application of the mutual recognition principle. Of those that provided estimates, the costs ranged from 0.5% of the annual turnover, to 20% of the turnover. This is mainly due to the variety of products covered by mutual recognition. The problem also affects national authorities, who are faced with lack of legal certainty regarding whether national rules should be applied to a product or not. Administrative costs are also incurred resulting mainly from the complexity of the legislations in place, which make it difficult to identify all rules applicable to a product and the scope for applying mutual recognition, and the difficulty of demonstrating that a product has been 'lawfully marketed' in another Member States (the latter being estimated for example EUR 420 000 in one sector such as fertilisers). The lack of effective communication and cooperation further contributes to these indirect costs. The fact that PCPs don't efficiently exchange information, within their own administration and with PCPs from other Member States, delays the replies that they provide to businesses and impacts their quality. Furthermore, the assessment by national authorities of whether a product can be placed on their market based on mutual recognition is delayed and undermined by the fact that they don't properly cooperate and communicate with their colleagues in the Member State where the product under assessment has been lawfully marketed. Figure 3-6: Problem tree 3.4.Foreseen evolution of the problem Absent any action at EU level, it is foreseen that in the medium term, the problem of the lack of functioning of mutual recognition, and the underlying reasons, will remain. The current procedures to support the use of mutual recognition would remain in place. As such, obstacles to free movement of goods stemming from national rules will continue being addressed via existing tools: ex ante by the Directive (EU) 2015/1535, at the time of their adoption, and ex-post by the Regulation, at the time of their application to individual cases (national decisions denying market access). The clarification of legal uncertainties will be left to the case law of the Court of Justice of the European Union. Businesses and national authorities will continue to use the tools available (list of products to which mutual recognition may apply, guidelines, mutual recognition clause, Product Contact Points) to try to understand when mutual recognition applies in relation to a specific product. The Product Contact Points network will continue functioning as up until now, and possibly benefit from being integrated into a wider network, which would act as a single entry point for all available business-related services. Under this wider network, the provision of online information on products for economic operators would be facilitated through the 'Single Digital Gateway' (proposal forthcoming). The proposal for an EU Single Digital Gateway is expected to introduce a new obligation to provide information on national product rules online on a website, instead of upon request as now. Member States will need to provide a summary of the applicable rules for product categories, but may also refer to the assistance services for more detailed information tailored to specific products. This follows good practices already adopted by many Member States. It is expected that having access to the information online will facilitate the accessibility and awareness of the role of PCPs and of national product rules by businesses. In addition, this initiative is expected to improve the functioning of PCPs by setting out quality criteria and the obligation to provide information online. However, the lack of awareness of the principle of mutual recognition, as well as the shortcomings in the functioning of PCPs, which have been constant despite the adoption of the Regulation, are expected to remain given that there are no current factors which could promote a higher awareness of the principle and its functioning.

Under the current provisions of the Regulation the Commission could undertake further work to update the list of products which may be subject to mutual recognition and make it more helpful and user friendly. The Commission will continue to ask for the inclusion of a mutual recognition clause for draft national technical rules notified under Directive (EU) 2015/1535, but its use is not expected to increase in the future given that the Commission has been encouraging the use of the clause in the past without it leading to significant results in terms of use or clarity. Complexity and uncertainty around the application of the principle of mutual recognition will also remain. Businesses and national authorities will continue relying on guidance from the Commission in order to demonstrate that a product has been lawfully marketed; which however has not significantly solved the practical problems encountered while trying to rely on the application of mutual recognition. The outcome to be expected by businesses when trying to rely on the principle will remain uncertain. The burden of proof that a product should not be allowed market access remains on the national authorities. National authorities would remain obliged to notify both the economic operator and the Commission of all administrative decisions denying market access. Since its entry into force, the Commission services published several guidelines on the application of the principle of mutual recognition in various sectors and on what 'lawfully marketed' stands for. These elements do not appear as sufficient to address the problems described. These have not resulted in the expected improvement, in particular as regards the proof of lawful marketing of a product in a Member State. The Commission can use an existing IT system to support the notification process, however, the number of notifications of national decisions denying market access is also not expected to increase in the future. The use of SOLVIT would remain an alternative for economic operators who wish to challenge administrative decisions denying market access. The foreseen Commission's action plan for improving SOLVIT aims to improve the awareness of its services to businesses, inter alia to increase the number of cases submitted against a national decision denying market on mutual recognition grounds and the legal expertise of the SOLVIT centres in areas of interest to businesses such as the mutual recognition on goods. But it does not alter the informal character of SOLVIT and thus would still have limitations in offering efficient remedies for challenging unjustified decisions denying market access. Furthermore, without providing for the Commission technical assistance and further involvement for the goods cases, it is not expected that SOLVIT will produce better results for these cases as compared to the current situation. It is not expected that Member States undertake any specific initiative to facilitate the functioning of mutual recognition. Furthermore, in problematic sectors where mutual recognition cannot facilitate free movement of goods, harmonisation of essential requirements can be used in order to ensure market assess for businesses. This is the case for example for fertilising products, for which a Commission proposal for an EU regulation was adopted on 17 March 2016. This proposal will replace the current Regulation (EC) No 2003/2003 by, inter alia, extending it to currently non-harmonised products. However, whilst harmonisation may take place where this is justified, necessary and proportionate, such measures cannot cover the totality of products and aspects of those products in the internal market, without there being any scope anymore for national rules. Whenever there are national technical rules, there will be a need to ensure the mutual recognition of those in order to guarantee the free movement of goods. 4.Analysis of Subsidiarity 4.1.Legal Basis The right to act is established on the basis of Article 114(1) TFEU dealing with the establishment and functioning of the internal market and specifying that measures can be adopted for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market. 4.2.Subsidiarity and Proportionality Mutual recognition only applies in cross border situations where an economic operator would like to trade in a Member States a product already lawfully marketed in another Member State. Action by Member States alone cannot solve problems associated with the application of the principle of mutual recognition across the single market. To be effective, the application of the principle needs to be based on common solutions to be applied equally by all national authorities. Only such common procedures can guarantee that national authorities will apply the principle in the same manner, thus allowing companies to benefit from an equal treatment regardless of the country where they try to market their product. Leaving the procedural aspects of the application of the mutual recognition principle to each Member State would weaken the principle by dismantling the modus operandi into 28 different and possibly contradictory procedures. Therefore, EU action is both appropriate and justified to ensure the effective application of the principle. The European added value of the mutual recognition rules was strongly underlined by the respondents to the 2016 public consultation. Most of them agreed that having a common set of rules guarantees equal treatment, and that relying on national rules only would undermine the internal market. The EU has the right to act to ensure the functioning of the single market for goods. Pursuant to Article 26(2) of the Treaty on the Functioning of the European Union (TFEU), the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. The prohibition, as between Member States, of measures having equivalent effect to quantitative restrictions on imports of goods is one of the main principles of the Treaty (Articles 34 to 36). 5.Objectives Based on the problems described in section 4, the following objectives have been identified. 5.1.General Policy Objectives The overall objective of the initiative is to achieve a fairer and deeper single market for goods through a higher level of and better mutual recognition.

5.2.Specific Policy Objectives The specific objective will be to improve the functioning of mutual recognition by: ·Increasing awareness of mutual recognition. ·Increasing legal certainty for businesses and national authorities on when the mutual recognition principle can be used. ·Increasing legal certainty about the application of mutual recognition; both business and national authorities should know what they can reasonably expect when mutual recognition is, or ought to be, applied. This will reduce the risk for businesses that their products will not get access to, or will have to be unjustifiably withdrawn from the market. ·Enhancing communication, cooperation and trust among national authorities, so that they can act as a facilitating tool to ensure the functioning of mutual recognition. 6.Policy Options In order to address the problem identified in section 3 and its underlying drivers, a number of policy options have been identified. These options include a baseline scenario, soft law and legislative measures. The measures are presented from the softest to more far-reaching means to tackle the drivers and render mutual recognition fully effective. The soft law option 2 could be combined with any of the other legislative options (options 3, 4 or 5). Options 3, 4 and 5 would be mutually exclusive. Option 3a (free movement for products complying with European Standards) and 3b (transparency for administrative decisions) would be superseded by option 4. Option 4 provides for a voluntary declaration of compliance which would contain information on the compliance of the product with the applicable requirements. When European standards have been applied, the reference to such standards would be mentioned in the declaration and national authorities would now that compliance with those standards is ensured. In addition, option 4 provides for a fast-track appeal procedure where administrative decisions denying market access can be challenged, at last resort, by a binding opinion from of the Commission. This is in principle a more powerful incentive for Member States to apply correctly the principle of mutual recognition than the transparency of administrative decisions mentioned in option 3b. Option 5 is construed as a self-standing option in that, providing for a pre-marketing authorisation procedure, intends to provide a different approach to offer a definitive answer on market access for the product and would not necessitate addressing the different drivers individually by additional means. 6.1.Discarded options The option relating to repealing the Mutual Recognition Regulation has been discarded at an early stage. The Evaluation has concluded that, despite its current shortcomings, the Regulation remains relevant and that common procedures for the application of mutual recognition are still necessary. The lack of effectiveness was not triggered by the way the measures where designed but rather by their lack of ambition. The measures had the potential to achieve its objectives but were not strong enough to deliver the expected results. In particular, during the 2016 public consultation, there was overwhelming support from stakeholders in this respecteven if their opinion on whether the objectives of the Regulation had been achieved was more mixed. This is why repealing the Mutual Recognition Regulation altogether is discarded and other options have been envisaged building on the measures currently set out in the Regulation and enhancing them. However, if one of the options leading to a review of the Regulation is retained, this revision may also lead to removing certain provisions of the current Regulation which have not proved effective such as the obligation for Member States to report annually on the functioning of the Regulation. The information provided by Member States in this context was limited in terms of content and usefulness. Also, the option of proposing further harmonisation measures on specific basic requirements which would cover certain aspects of all products (such as traceability requirements, for example, since labelling requirements are often subject to national rules and have proved to be problematic for the application of mutual recognition) has been discarded. Adopting EU harmonisation legislation on specific products which appear particularly problematic, where this is justified, necessary and proportionate is always possible. Conversely, adopting horizontal harmonisation measures covering certain common aspects for all products is not likely to address the current problem drivers and the current situation is expected to be maintained, i.e. obstacles for companies in getting access to new markets, implying costs related to re-testing, lost markets and opportunities, etc. This is because these products will remain partly harmonised products, and for the elements not subject to the EU harmonisation legislation, they will still be subject to mutual recognition and to potentially conflicting national rules. This option would therefore not improve the functioning of mutual recognition. The option of introducing a third party declaration of compliance has also been discarded at an early stage. This option looked into the possibility of introducing a declaration of compliance to be issued by a third party. Such a third party would be a body designated by the Member State in which the product is legally marketed, e.g. by the national Product Contact Point established in accordance with the Regulation. By issuing the declaration, this third party would take responsibility as regards the content of the declaration which would give more reassurance as to the compliance of the product; however, the responsibility as regards the compliance of the product would always remain with the economic operator. Such third party declaration of compliance could have been voluntary or mandatory. In both cases, such declaration would imply heavy costs for businesses as it would require the intervention of a third party in the drafting of the declaration. Also, it would appear disproportionate, as it would apply to all types of products, contrary to the current situation for harmonised products. In the harmonised sectors, the type of conformity assessment procedure (requiring or not the intervention of a third party) is chosen by the legislator depending on the level of complexity and risk posed by a product. For example, electrical products (such an electrical kitchen appliance or a lamp) do not require the intervention of a third party conformity assessment body, while other more complex products such as lifts or fuel dispensers do. The intervention of third party certification also represents an important cost for business. 6.2.Option 1: Baseline The baseline scenario is the "no policy change" option. This implies that the Mutual Recognition Regulation in its current version remains the applicable legal framework. See more details in section 3.3. 6.3.Option 2: Soft law instruments to improve the functioning of mutual recognition This option refers to the adoption of an action plan containing non-legislative measures to further boost the application of the mutual recognition principle. This option would not include a revision of the Regulation, and therefore the PCP network and the procedure to be followed by national authorities for denying market access would remain as they are today. The action plan would contain, in particular, the following measures:

a) Awareness raising and training Increasing the general awareness of the mutual recognition principle was considered in the 2016 public consultation as the first priority for Member States (51%) and citizens (64%), and as the last priority for businesses, even if supported by 52% of economic operators responding to the consultation. Furthermore, 84% of Member States, 95% of businesses and 88% of citizens considered in this consultation that awareness-raising is still necessary. Awareness among economic operators and national authorities on mutual recognition and how it works in practice would have to be raised. Effective awareness-raising campaigns and specific sectorial training on the implementation of the mutual recognition principle would be provided at EU level. The following tools could be included in the Action Plan: a)Training at general and sectoral level. A training package to be adapted to targeted groups could be developed in all EU languages. The concept would be "train the trainer" whereby the Commission would develop the training package and would train the trainer. The targeted groups could include national administrations: PCP, national authorities responsible for product-related legislation in problematic areas, national courts/ judges, market surveillance authorities or SOLVIT staff. The same concept would be duplicated for businesses, where the trainer could be drawn from European Enterprise Network (EEN) staff. b)As an outcome of the training courses, a comprehensive guidance document could be developed i.e. a Mutual Recognition rule book. This would include, for example, detailed guidance on the application of the principle, building on and updating the Commission interpretative Communication on facilitating access of products to the markets of other Member States: the practical application of mutual recognition adopted in 2003 , as well as identifying best practices. c)The list of products to which mutual recognition would be reassessed to determine how it can be rendered more user friendly so that it can provide more meaningful information to stakeholders. b) A clearer mutual recognition clause The Commission would design a clearer mutual recognition clause as part of a guidance document to be included in national technical rules adopted by Member States. The new mutual recognition clause would be further supported by guidance to Member States on how and when the clause should be included in the national legislation, and on the consequences of its inclusion. c) Exchange of officials in the area of mutual recognition Exchanges of officials from Member States working in the relevant national administrations would concern Product Contact Points but also national authorities working in problematic areas, such as construction products, food area, etc. The exchange would take place over a short period of time, for example 1 week. 6.4.Option 3: Minimum legislative changes to Regulation (EC) No 764/2008 to improve the functioning of mutual recognition Under this option, containing several complementary sub-options, the Regulation would be revised; the changes to be introduced would address the drivers identified while allowing for more flexibility in the use of the mutual recognition principle. In particular, the following changes would be introduced in the Regulation: a) Free movement of goods guaranteed by compliance with European standards During the 2016 public consultation, 57% of Member States, 84% of businesses and 82% of citizens supported this option. A possible solution to address the differences in the technical requirements in national laws would be to guarantee that products lawfully marketed in one Member State and complying with specifically identified European standards would effectively enjoy the right of free movement in the EU. This option builds on the role that European standards already have in the harmonised sector. In particular, European standards the reference of which has been published in the Official Journal, provide presumption of conformity of a product with the specific requirements of a harmonisation legislation they covered. Such referenced European standards become thus "harmonised standards" and by applying them, the manufacturer enjoys the presumption of conformity with the applicable requirements and does not need to prove by other means the compliance of its product. In the current context of mutual recognition, this option refers only to already existing or future European standards but not to mandating the developments of specific European standards. The recognition of particular European standards would be done by the Commission via implementing acts, and after consultation of Member States. Compliance with these standards would give a presumption of compliance with the relevant technical rules applicable in any Member State, as the standards usually cover the design of the product and the testing methods, which are the core of technical rules. A product complying with the European standards would benefit from market access in the Member State of destination, unless the national authorities demonstrate that it does not offer adequate protection of the relevant public interests; thereby shifting the burden of proof to national authorities. Such presumption of compliance would facilitate the free movement of goods already lawfully manufactured in a Member State. It would provide legal certainty and reliability as to the outcome when businesses could invoke mutual recognition. Compliance with these standards would remain voluntary for economic operators, who would need to be aware and apply any particular European standards identified in the context of mutual recognition if they want to access other Member States markets. However, the limits of this option would be that currently, European standards do not exist for every product or aspect of product, and therefore it would not provide a solution for those other products or aspects of products. Also, the process for recognising them for the purposes of mutual recognition via implementing acts would be time consuming. b) Transparency for administrative decisions denying market access During the 2016 public consultation, 46% of Member States, 81% of businesses and 64% of citizens agreed that dissuasive means are necessary to ensure the notification obligation is respected. The Regulation would reinforce the obligation to notify administrative decisions denying or restricting mutual recognition. Under this option, the notification obligations would be strengthened and administrative decisions which have not been notified to the Commission and the economic operator concerned would be considered as void and thus could not be enforced vis-à-vis the operator. More transparency for these decisions would be an incentive for Member States to apply the mutual recognition principle properly, as the lack of proper justification supporting the administrative decisions to be notified could be spotted easily by the Commission and any other Member State, including the Member State of origin. Using an IT tool for allowing Member States to notify would also give all notifications more visibility. The IT tool to be considered could be, e.g., the Internal Market Information tool (IMI) or ICSMS (i.e. the General Information Support System referred to in Article 23 of Regulation (EC) No 765/2008). c) Enlarging the role of Product Contact Points During the 2016 public consultation, 64% of Member States, 64% of businesses and 70% of citizens agreed that PCPs need to be strengthened. Member States (31%) and citizens (23%) ranked this as the last priority for the Commission, while businesses ranked it second to last (54%). The efficiency of PCPs in raising awareness of mutual recognition and in providing useful information to businesses was limited. However, the need to keep a network able to provide basic information and connect economic operators with the responsible authorities for more complex information remains. This is why it is proposed that PCPs remain as the main information points for mutual recognition, but that their role is enhanced. The role of PCPs would be enlarged in order to provide information on all applicable rules for all products, i.e. information on Union harmonisation legislation and on national technical rules adopted in the non-harmonised area. This would be particularly relevant for products where certain aspects are covered by harmonised legislation and others subject to national technical rules, since it would offer economic operators information on all rules applicable to their product and thus a more complete overview of the regulatory situation in the Member State of destination. 6.5.Option 4: Comprehensive legislative changes to Regulation (EC) No 764/2008 to improve the functioning of mutual recognition Under this option, comprehensive regulatory changes would be made to the current legislation. In particular, the following changes would be introduced in the Regulation: a) Clarifying the scope of mutual recognition During the 2016 public consultation, 84% of Member States, 85% of businesses and 82% of citizens supported this option. The Regulation would be clarified and extended beyond its current scope of defining procedural guarantees for decisions denying market access. It would expressly mention that mutual recognition applies not only to products not subject to harmonisation legislation but also to products for which only certain aspects are covered by harmonisation legislation in whatever aspects are left for national rules. Clarifications would be provided also as regards the areas where measures restricting or denying market access can be taken on the basis of the mutual recognition principle and how these should be notified to the Commission and other concerned parties. b) Declaration of compliance During the 2016 public consultation, 75% of Member States, 80% of businesses and 76% of citizens agreed that a declaration would simplify the demonstration of the lawful marketing of the products. Increasing legal certainty has been ranked by businesses (67%) and citizens (52%) as the 2nd priority for the Commission, while Member States (33%) ranked it second to last. The Regulation would introduce a declaration of compliance with the technical rules of the Member State where the product is being lawfully marketed, to facilitate the access of this product to the market of the other Member States. A similar declaration of compliance is already required for products within the scope of Union harmonisation legislation, giving Member States authorities the first information regarding the legislation the product complies with, and the conformity assessment procedure which has been followed, as appropriate. The aim of the declaration for mutual recognition is to bring administrative simplification, as it will allow economic operators to show compliance with applicable national rules in the Member State where their products are lawfully marketed in a single standardised manner. It would replace the various and numerous existing means for requesting evidence to prove that a product is already lawfully marketed in a certain Member State by one single standardised document. It would bring legal certainty for both economic operators and national authorities, as it offers all the information necessary for carrying out the assessment of whether or not the product is allowed on the market. Moreover, it would facilitate the mutual recognition by the authorities of the Member State of destination of the requirements already met in the Member State of origin. When entering a new market, economic operators would rely on the same declaration to attest that their product is already lawfully marketed. All national authorities would have to accept this declaration and, while they would be able to ask for evidence substantiating the information stated therein, they would not be able to require different means of evidence. The Regulation would define the standardised content this declaration of compliance would have. It would include at least the identification of the economic operator and of the product, the relevant legislation and /or standards the product complies with and, when applicable, the relevant conformity assessment procedure and specific tests carried out. It would be drafted in the language of the Member State where the economic operator intends to market his products, by making use of multilingual forms, which would be introduced as an Annex to the Regulation. It would be made available by the economic operator to national authorities upon request. By signing the declaration, the economic operator takes full responsibility as regards the compliance of his product with the applicable rules in the Member State of origin and the lawfulness of what he is declaring. The limit of this option is that it will not guarantee absolute market access for the relevant products, given that the application of mutual recognition can be objected to by national authorities when this is justified and proportionate for the protection of legitimate public interests. This option contains the following sub-options: a)Voluntary self-declaration of compliance The declaration would be issued by the economic operator and would be voluntary for all those relying on mutual recognition to enter a new market. b) Mandatory self-declaration of compliance The declaration would be issued by the economic operator but would be mandatory for all relying on mutual recognition to enter a new market. c) Fast-track appeal procedure – effective remedies against national decisions denying market access During the 2016 public consultation, 66% of Member States, 90% of businesses and 76% of citizens agreed that effective remedies to challenge administrative decisions denying market access are necessary. Businesses ranked this as the 1st priority for the Commission (72%), while Member States (40%) and citizens ranked it as the 3rd priority. The Regulation would put in place a business friendly and non-intrusive mechanism, allowing for a fast and efficient resolution of problems triggered by a problematic national administrative decision denying or restricting market access. A similar system of objecting to national decisions denying market access exists in the harmonised area which is called the Union safeguard procedure. By means of this procedure, Member States authorities taking a decision restricting market access to a particular product need to notify such decision to the Commission and other Member States who may object to the measure. If objections are raised, it is for the Commission to decide whether the measure is considered justified or not. This mechanism would be a two-step procedure: Firstly, it would built on existing problem resolutions tools, such as SOLVIT, in order to allow economic operators wishing to do so to challenge, in an informal way, an administrative decision allegedly incompatible with the mutual recognition principle. When faced with a decision denying market access, the economic operator would thus have the possibility to refer the case to SOLVIT to benefit from an informal problem resolution system. During this phase, the Commission would informally assist SOLVIT with the necessary technical expertise on demand. It would be expected that this assistance would increase the resolution rate of the goods related cases involving technical expertise which can be provided by the Commission on request. Secondly, if the dialogue phase started by SOLVIT fails to achieve a suitable solution, a Commission binding opinion (fast track appeal procedure) can be required. The Commission, during this second phase, would have the choice of intervening or not, on opportunity grounds (strong case, systemic issues, multiplier effect in terms of impacts). The Commission binding opinion would be a powerful deterrent, particularly useful in the first step of the procedure and intervening only as a last resort tool. The Commission's assessment would be purely technical, as it would not concern the national rule as such and its merits, but only the practical results produced by applying a national rule to a specific product which has been lawfully marketed in another Member State. It would ensure a consistent and correct application of the mutual recognition principle. d) Strengthening the Product Contact Points and the cooperation between relevant authorities During the 2016 public consultation, 64% of Member State, 64% of businesses and 70% of citizens agreed that PCPs needs to strengthen the PCPs. Member States (31%) and citizens (23%) ranked this as the last priority for the Commission, while businesses ranked it second to last (54%). The Regulation would strengthen the role of PCPs in order to provide information on all applicable rules for all products, i.e. information on Union harmonisation legislation and on national technical rules adopted in the non-harmonised area, as in option 3 c). In addition, mandatory administrative cooperation among Member States would be put in place to ensure communication and exchanges among the national authorities responsible for the application of the principle. This network would, for example, discuss difficult cases, identify problematic sectors, make recommendations for standardisation mandates, etc. 6.6.Option 5: Legislative changes to the Regulation to introduce a voluntary prior authorisation to placing on the market Under this option, the suboptimal functioning of the mutual recognition principle would be addressed by intervening in a pre-marketing phase to prevent obstacles to free movement of goods rather than in a post-marketing phase as it is the case today. By introducing a system of prior authorisation to placing products on the market, economic operators would have confirmation that their products can have market access in the Member State of destination before actually entering that market. This voluntary procedure is currently not available at the moment. The Regulation would be amended to reflect the introduction of such a pre-marketing procedure. Voluntary prior authorisation to placing on the market Increasing legal certainty has been ranked by businesses (67%) and citizens (52%) as the 2nd priority for the Commission, while Member States (33%) ranked it second to last. This option is inspired from existing systems at national level, where the marketing of certain specific goods is subject to a mandatory prior authorisation system. Products lawfully marketed in the market of one Member State would be placed on the market of another Member State only after a prior examination and authorisation of the product by the receiving Member State. Such examination would consist in assessing if the product can be accepted in the Member State or not, i.e. the Member State would confirm (or disallow in certain specified cases) that a product, although not compliant with its own national legislation, can be marketed in its territory. This option would remove all uncertainties economic operators currently face when relying on the principle of mutual recognition to enter new national markets. Such a procedure would be voluntary for economic operators but if market access is denied, remedies under national law should be made available to the economic operator. Figure 6-1: Table with options in relation to the objectives and problem drivers 7.Analysis of Impacts 7.1.Assessment of the impacts Policy option 1- Baseline

The impacts of this option can be found in sections 3.1, 3.3 and 3.4. Policy option 2- Soft law instruments Economic Impacts Economic impacts for businesses It is expected that those economic operators who were not aware of mutual recognition or not very familiar with the details will try to use it in order to penetrate new markets. This assumption is limited by the fact that the decision to market products in other Member States is influenced by many other factors; economic operators behaviour and organisation do not necessarily occur in sequence but are rather continuous and dynamic. Furthermore, as this option addresses effectively only the lack of awareness, without touching upon the substantial issues related to the lack of legal certainty in particular in the application of mutual recognition, it is also expected that these economic operators will face the same problems as those already using mutual recognition (e.g. high information costs, unjustified market access denial, adaptation costs, etc.). This option will not entail additional costs for businesses; the trainings for businesses (sub-option 2a) would be organised by the European Enterprise Network and they would have the possibility to attend these or access information made available online. The mutual recognition clause (sub-option 2b) and the exchange of officials (sub-option 2c) would not entail any costs for businesses either. Costs currently faced by economic operators due to the suboptimal functioning of mutual recognition are expected to be reduced but to a limited extent. While the exchange of officials (2c) would not have any direct impact on businesses, the trainings (2a) are expected to lead to certain cost savings for businesses, albeit not significant, in finding out the applicable rules in the Member State of destination. This is because, on the one hand, they would be aware that they can access the Member State of destination without having to comply with the applicable rules in that Member State and, on the other, because they would be made more aware of the role of PCPs which can facilitate any further information as appropriate. However, since this option only addresses effectively one of the policy objectives, but not the others related to the legal uncertainty, the economic benefits for businesses in particular in terms of reduced adaptation costs, lost opportunities, or costs related to challenging administrative decisions denying market access are not expected to be substantial by this option alone. The benefits that a clearer mutual recognition clause would bring (2b) would also be limited since these would only impact new national rules which will be adopted as from now on, and not all those existing rules. Since SMEs need to allocate proportionately higher resources in finding out the applicable rules and are the most discouraged to internationalisation by the regulatory complexity; this option (particularly the awareness raising (2a)) is likely to benefit these companies particularly. Given that this option (including all sub-options) does not address all problem drivers but only the awareness, it is not likely to lead, alone, to a significant increase in trade across Member States in non-harmonised sectors due to a better functioning of mutual recognition. Economic impacts for Member States National authorities would bear some costs related to the organisation of trainings and awareness campaigns (2a); however these costs are not expected to be substantial. The training campaigns would take the form of a "train the trainer" and in that regard, national administrations would be required to organise trainings to other national officials (such as specific administrations in problematic sectors, national judges…). However, part of the training would be developed and available as an online package. Furthermore, for national officials, these trainings could also be integrated into more comprehensive trainings that national officials receive (for example, when taking up their duties) so that it is put in the context of the overall tasks they have to perform, which would also limit the costs. There are no costs associated with the introduction of a clearer mutual recognition clause (2b). The exchange of officials (2c) would have an impact for national administrations insofar as during a very short period of time (1 week), a salary would be paid to an official who would be in another Member State and, therefore, not actively performing his or her duties. However, given the short period envisaged, these costs related to the absence of the officials are not considered significant and this short absence can be assimilated to the attendance of training by the official. Other travel and accommodation costs would not be borne by the Member State but by the EU budget. Economic impacts for the EU budget Developing the training packages and coordinating the awareness raising campaigns (sub-option 2a) would imply costs for the Commission. These costs are considered to be normal costs related to the implementation of new legislation and should not have major impacts in terms of resources. As for the organisation of events in the Member States, if the Commission would organise events in all Member States for a wide audience, this would entail costs. For example, in similar campaigns organised by the Commission, the organisation of 28 national events over a period of 2 years with an average audience of 75 people per event was carried out with an external consultant with a budget of €1 million. The Commission would however envisage that this training is structured with a "train the trainer" concept together with an online training package, for which a lower budget of €500.000 could be established. A clearer mutual recognition clause (sub-option 2b) does not imply any costs for the EU budget. The exchange of officials (sub-option 2c) would be financed by the EU budget as regards travel and accommodation costs. Similar schemes implemented at EU level in the area of product safety can be used to give an estimate for these costs. Such schemes required an annual budget of €170 000, covering for the travel and subsistence allowances for the officials participating in the scheme. This budget covered around 100 exchanges, involving 23 Member States. On the basis of this estimate if the number of exchanges would be raised to 300, this could