EUROPEAN COMMISSION Brussels, 28.10.2015 SWD(2015) 202 final COMMISSION STAFF WORKING DOCUMENT A Single Market Strategy for Europe - Analysis and Evidence Accompanying the document Upgrading the Single Market: more opportunities for people and business {COM(2015) 550 final}

{SWD(2015) 203 final}



Contents 1.Upgrading the Single Market 2.Creating opportunities for consumers and businesses 2.1.Enabling the balanced development of the collaborative economy 2.2.Helping SMEs and start-ups to grow 2.3.Making the market without borders for services a practical reality 2.4.Addressing restrictions in the retail sector 2.5.Preventing discrimination of consumers and entrepreneurs 3.Encouraging modernisation and innovation 3.1.Modernising our standards system 3.2.More transparent, efficient and accountable public procurement 3.3.Consolidating Europe's intellectual property framework

4.Ensuring practical delivery 4.1.A culture of compliance and smart enforcement 4.2.Improving the delivery of the Services Directive by reforming the notification procedure 4.3.Strengthening the Single Market for goods 5.References



1.Upgrading the Single Market A deeper and fairer Single Market is one of the European Commission’s 10 political priorities. Removing remaining regulatory and non-regulatory barriers in the Single Market for goods and services was identified as a priority in the 2015 Annual Growth Survey. The Single Market is arguably among European Union’s greatest achievements. For over 20 years, it has helped companies to benefit from economies of scale, triggered efficiency gains that support EU competitiveness and offered consumers an increased choice of products and services at lower prices. For all the progress made, too many significant economic barriers remain, notably in the area of services. The Commission estimates that more ambitious implementation of the Services Directive would add 1.8 % of EU GDP. The recent report on Single Market integration and competitiveness in the EU and its Member States underlines that labour productivity growth could be increased in the EU if regulatory barriers to competitiveness and integration were removed, thus allowing for improvements in the allocation of resources across firms and sectors in the Single Market. The reallocation of resources will have to proceed along three axes: I.movements of capital and human resources from low to high productivity firms within sectors in the Member States; II.new technological developments, changes in input prices and the emergence of new business models suggest that cross-sectoral reallocation of human and capital resources may take increasing importance in the future as a source of productivity growth; and III.as a third source of productivity growth, the geographical reallocation of resources within the Single Market and a better insertion of EU firms in international value chains. As Single Market opportunities have not yet been fully exploited in this respect, the Commission is bringing forward a Single Market Strategy comprised of a set of feasible measures that are critical to meeting these objectives and thus reaping the benefits of the Single Market. The measures are coherent with and build on other Commission initiatives. The strategy supports a broader European strategy to boost growth and jobs. It also addresses the objective of a deeper and fairer Single Market with a strengthened industrial base. Furthermore, it focuses on making the Single Market a springboard for EU companies, notably SMEs and start-ups in particular, to scale up and expand their operations. The measures fall into three categories: 1.Creating opportunities for consumers, professionals and businesses by enabling the balanced development of the collaborative economy, giving start-ups the opportunity to scale up and grow cross-border, unlocking investment (in particular for SMEs), creating a ‘services passport’ for companies, modernising the regulation of professions, addressing restrictions in retail establishment and preventing unjustified discrimination against consumers and entrepreneurs; 2.Encouraging and enabling the modernisation and innovation that Europe needs, through more transparent, efficient, sustainable and accountable public procurement, promoting innovation procurement, modernising the EU’s intellectual property framework, and raising quality and promoting interoperability through a modernised standardisation system and European standards; and 3.Ensuring practical delivery that benefits consumers and businesses in their daily lives, by taking a smart and collaborative new approach to enforcement and implementation, improving the delivery of the Services Directive by reforming the notification procedure and strengthening the Single Market in goods.

This document is structured around these three categories and provides evidence to underpin each measure. Each measure is complemented by an analysis of the policy context and a description of the problem encountered and the expected impacts. The legislative measures will be subject to further impact assessment work, which will ultimately form the basis for the Commission’s decisions. 2.Creating opportunities for consumers and businesses 2.1.Enabling the balanced development of the collaborative economy Policy context The collaborative economy is developing rapidly. The take up of collaborative business models has been particularly widespread in certain sectors, such as transport, accommodation and professional services, but is growing across the whole economy. The collaborative economy creates new opportunities for services providers, innovative entrepreneurs and existing companies. It leads to greater choice for consumers, and often lower prices in the market. It can also contribute to increasing economic, social and environmental value of idle assets and resources, and increasing employment through more flexible job schedules. In some cases, the emergence of new business models impacts existing markets, creating tensions with existing goods and services providers. In part this stems from uncertainty relating to applicable regulation, e.g. on licensing, consumer protection, taxation, social security and employment models. Some Member States and local authorities have begun to react to the regulatory challenges posed by the collaborative economy in a varied and often ad hoc way, thus risking the creation of an uneven playing field for companies across different Member States or across regions within the same Member State. The Commission has already received a number of complaints in relation to regulatory measures taken in some Member States. A clear and adequate regulatory environment is essential to ensure that the benefits of the collaborative economy fully materialise. Divergent approaches and hasty regulatory responses may lead to the fragmentation of the Single Market and to the under-exploitation of the opportunities that the collaborative economy offers to entrepreneurs and consumers in the EU. The importance of the collaborative economy has also been recognised in the context of action on platforms in the Digital Single Market Strategy, which announced that the Commission would address the regulatory challenges posed by the collaborative economy in the Single Market Strategy and in the e-commerce framework, as appropriate. On 24 September 2015, the Commission launched a public consultation allowing all interested parties (platform providers, traditional service providers, new service providers, users of such services and public authorities) to present their views on the opportunities and issues raised by the emergence of the collaborative economy and the most appropriate EU policy response. The results of this consultation will complement the analysis in this Staff Working Document. Problem and impact Collaborative business models create new opportunities that add value to underutilised assets in an innovative way: private homes are being opened up to tourists, private cars are being used for carsharing/offering lifts, previously owned goods are being rented, sold or swapped, laboratories and research findings are being opened up to nonacademics, the quality of plumbing and accountancy services is being reviewed online, depreciating or unexploited skills are being bartered for community services or odd jobs. The online platforms that enable the rise of the collaborative economy range from small local initiatives to large international companies. Some of the issues that are faced by stakeholders and have an impact on the sustainable growth of the collaborative economy and existing business models are specific to the sector in which the initiatives take place. Others reflect important cross-cutting concerns that can have an impact on the collaborative economy as a whole. Regulatory burden and uncertainty Collaborative economy business models present new options to consumers in sectors that have been dominated by traditional business-to-consumer models. Well-established rules in these sectors often do not fit the nature and features of collaborative business models. This may become a disproportionate burden that slows the development of innovative services down. Moreover, it is often unclear whether and how current rules apply to individuals or companies adopting collaborative economy models. In that respect, regulators face a number of questions. Firstly, there may be sectors where business authorisations and registration obligations exist. In these cases, it is not clear to what extent such types of obligations apply to individuals and services providers in the collaborative economy. For professional providers, the question as to whether existing obligations are justified by overriding public interest reasons may be asked not only in relation to providers embracing collaborative business models, but also in relation to traditional providers. In addition, it would have to be assessed whether restrictions are proportionate and justified under existing fundamental freedoms and EU legislation such as the Services Directive. Secondly, consumer protection legislation aims to protect the safety and interests of consumers and to target problems stemming from information asymmetry or a weaker bargaining position when dealing with service providers. When collaborative models are used, the transaction is often peer-to-peer, thus raising questions as to whether the same level of asymmetry may occur. It is not clear to what extent some of those issues may be fully addressed by the reputational systems and control mechanisms usually set up by the collaborative economy platforms and used by providers and users. Lack of consumer trust may discourage transactions and reduce the benefits of the collaborative economy. Thirdly, the emergence of the collaborative economy also brings new questions as regards liability. Platforms may take no responsibility other than to facilitate a transaction between a provider and a user. This creates uncertainty about whether providers are sufficiently covered to address their liability, especially given the fact that appropriate insurance schemes for collaborative economy services are still in the early stages of development. All parties are negatively affected by regulatory uncertainty. Providers face the uncertainty of the applicable regulatory framework, which leads to legal and financial risks, including the risk of disproportionate regulatory reactions. Incumbents often claim the existence of unfair competitive advantages for providers under the collaborative economy, who may be subject to different rules, while offering a service that is considered a close substitute/replacement of their services. Regulatory uncertainty and fragmentation across and within Member States complicates (or even impedes) market access and limits investment opportunities for platforms. Users are concerned by issues linked to insurance, safety, trust, data privacy, etc. Finally, public authorities face important policy and regulatory challenges given the wide variety of collaborative economy initiatives across many sectors; the delicate balance that needs to be found between consumer choice, stimulating innovation, protecting consumers and ensuring fair competition; and the different layers of government responsibility (local, national and EU level) related to collaborative economy issues. This leads to the question of ensuring a level playing field. The existing level of regulations as they apply to traditional service providers cannot automatically and in each and every case be considered a benchmark for the collaborative economy. This means that the objective of creating a level playing field between collaborative and traditional economy actors could also imply reducing regulatory requirements for the provision of services through traditional channels.

Unexploited potential Possibilities offered by the collaborative economy have not yet been explored fully and many business models are still being tested. EU policies should support consumer choice and entrepreneurship in this field, empower people to capitalise on their assets, property, knowledge, and skills, and stimulate small and micro-entrepreneurship amongst the general public. This clearly includes providers of traditional services that may also want to offer their services through collaborative economy platforms. Collaborative economy models may also be applied in the field of collaborative production, where the combination of open-design, crowd-sourcing and decentralised manufacturing is still new. The possibility to find efficiencies, to save money, but also to use each other's networks and customers are features of the collaborative economy offering opportunities for businesses also in the field of collaborative production, marketing and branding activities or logistics. Wider questions The collaborative economy raises a number of additional wider questions. These include the evolution towards a more on-demand economy and the impact this has on workers. On the one hand, the collaborative economy allows workers/entrepreneurs to organise their work (and time) on a more independent basis and creates new opportunities for the unemployed to enter the workforce. On the other hand, this could mean a shift of certain risks from firms to workers (e.g. income instability, absence of minimum wages, etc.), thus changing the nature and balance of labour relationships. In addition, there could be mixed effects on public budgets: on the one hand, the introduction of more informal and on-demand activities under the collaborative economy could have a negative impact due to less revenue being generated from taxes and social security contributions. On the other hand, collaborative economy platforms offer new opportunities to increase tax revenues, as well as to fight tax evasion through the traceability of every operation. Finally, the collaborative economy involves not only sharing goods and services but, in many cases, personal data as well. Protecting the privacy of providers and consumers is important to secure and maintain the trust of the different actors involved. Impact The collaborative economy can enable a more efficient use of resources, knowledge, skills, and assets, thereby increasing productivity and allowing for alternatives to traditional services and goods. It can offer consumers more choice and convenience, potentially at a lower cost, and presents a viable alternative to ownership. Moreover, it supports entrepreneurship and reduces barriers for individuals to becoming economically active, thus helping the (re)integration of citizens into the labour market. Several studies show that participation levels in the collaborative economy are already high in some sectors and have the potential to increase even further across many different sectors of the economy. Current estimates indicate that 68 % of adults globally are willing to share or rent goods for money . The collaborative economy provides important opportunities to raise growth and create jobs. The online platforms at its heart are expanding the market for the temporary usage of services and assets on the side of both supply and demand, whilst the majority of revenues and employment generated are going to the individual providers. According to a recent study, the five main collaborative economy sectors (peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music video streaming) have the potential to increase global revenues from around EUR 13 billion now to EUR 300 billion by 2025. A third of European consumers say that they will increasingly participate in the collaborative economy. At the same time, the collaborative economy is having an impact on sector incumbents that are coming under pressure to respond to consumer expectations. Some of the expected growth may be at the expense of these providers, but an overall increase in economic activity can be expected on the back of easier access to some of the shared services and lower prices . This will benefit consumers, in particular those with a low income. The Commission intends to help enable the balanced development of the collaborative economy by ensuring that the regulatory environment is clear and adequate. The Commission will engage in an active dialogue with market operators, consumers and public authorities to identify needs and regulatory gaps. Where appropriate, the Commission will provide guidance as regards the application of existing EU law to the activities and sectors in which the new collaborative economy business models are used. This guidance will aim to avoid new business models being hindered by over-restrictive regulation, while at the same time ensuring the protection of consumers and the public interest. 2.2.Helping SMEs and start-ups to grow Policy context Support for SMEs, especially those that are young, innovative and designed to grow fast (start-ups) is rather well established at EU, national and regional level of economic activity. These incentives usually take the form of a financial support or other types of benefits in kind (e.g. training). It can also involve exempting start-ups from certain administrative requirements that lead to additional costs for them (e.g. accounting requirements). The EU acquis has recognised that specific solutions are sometimes justified for start-ups in the Union's regulatory environment. For instance, EU state aid rules allow for limited in time (first five years) aid for newly created small enterprises, with higher aid intensities for the innovative ones. There is a growing consensus in empirical economic literature that scale-ups, rather than small firms as a whole, are net job creators. Small start-ups are more likely to be genuinely new firms as compared to larger entrants, who are more likely to be a product of a merger or acquisition. It is also found that the large majority of surviving start-ups do not grow. The probability of exit is highest when a firm is two years old and on average the survival rate beyond three years is 60 %. In a similar vein, start-ups and young scale-ups disproportionately contribute to job creation in the USA. High-growth young firms play a critical role in the reallocation dynamics and contribute substantially to intra-industry labour productivity growth. At least half of intra-industry labour productivity growth in the USA is attributable to employment being reallocated from less productive to more productive firms within the industry and young firms contribute disproportionately to this contribution from reallocation . According to recent OECD research, globally most productive firms are younger than the total population of companies, which supports the idea that young firms possess a comparative advantage in commercialising radical innovations . Problem and impact

Europe is not short of innovative ideas, often created by SMEs and start-ups, but too often innovative solutions developed in Europe are not produced and commercialised in Europe. A very small number of new companies account for a disproportionately large amount of wealth and job creation. Compared to the USA, fewer such innovative start-ups are created in the EU and those that see the light of day are reluctant to expand cross-border. This is a major missed opportunity. Fragmentation There are large fixed costs associated to cross-border expansion, also in terms of information costs. SMEs are at a disadvantage compared to large firms, and even more so in the case of start-ups. Their major problem is the lack of knowledge, which leads them to fear entering other EU countries because they do not know which rules apply. The development of a 'Single Digital Gateway', as announced under the Digital Single Market Strategy for Europe, will help address this information gap by further development of an online one–stop shop access point to all Single Market-related information, assistance, advice, problem-solving services and to national and EU-wide procedures for activities covered by Single Market law. This gateway will build on already existing national and EU web portals like Your Europe. Regulatory fragmentation in the Single Market also ultimately cripples EU start-ups' access to finance. There are large differences across the EU when it comes to start-up average size upon entry, survival share and post-entry growth which suggests that innovation environments do greatly vary across the Union. Recent findings suggest that although a small proportion of EU large firms accounts for a disproportionate share of aggregate exports outside the EU, a large number of EU exporting firms are small and medium enterprises (SMEs) and they have a non-negligible part in EU exports. Europe has a relatively large share of 'static' firms that neither grow nor shrink and have lower productivity growth. Furthermore, only a few of Europe's largest companies are young. The 2015 Survey of Internationalisation of European SMEs revealed that in 2012-2014 only 23 % of new and young SMEs (up to seven years old) exported within the EU and 15 % of them exported outside the EU and that only 2 % of new and young SMEs expanded cross-border through foreign direct investment. Morevoer, the study showed that young SMEs are more likely to enter into technological cooperation with foreign firms, compared to older SMEs. In the 2014 European Parliament of Enterprises, 84 % of SMEs stated that the Single Market was not sufficiently integrated and was not allowing their company to operate and compete freely. Barriers to cross-border expansion Start-ups and SMEs find it difficult to identify and meet the regulatory requirements when trading across borders. Amongst others, SMEs and start-ups complain about a heavy burden that a set of VAT registration and reporting obligations puts on them. Compliance with the VAT rules inevitably becomes more complicated and burdensome when a business engages in online cross-border transactions with customers located in other Member States or third countries. Since VAT is levied in the country of the customer and in accordance with that country's laws, different national VAT rules will apply and different tax authorities will be involved. Overall, 16 % of SMEs that are trading across the borders and 18 % of those that do not trade internationally perceive complicated foreign taxation regimes as a major obstacle to cross-border expansion. As regards company law, there persist differences between Member States’ company laws and when founders set up subsidiaries or new companies in other Member States they face different legal or administrative requirements than in the Member State of their primary establishment. These differences result in costs for companies. Although all companies wishing to expand cross-border are affected, these administrative and legal burdens are proportionally much heavier for SMEs, who often have smaller financial means and organisational resources than larger companies. Costs related to compliance with legislation and legal advice related to set-up were mentioned by almost 62 % of companies and business federations in the 2013 on-line consultation as one of the biggest 'company law obstacles' preventing companies from expanding their activities abroad. In addition, existing rules in company law do not sufficiently integrate the benefits of digital technology. There is also insufficient legal clarity as regards carrying out cross-border operations, such as cross-border divisions, where there is no EU legal framework in place, but also cross-border mergers, where stakeholders called for improvements in the current EU framework as regards a number of procedural as well as substantive rules. It appears that the ex-ante perception of barriers to cross-border expansion is often much greater than the actual assessment of those barriers once a firm has attempted to scale up. In a recent Digital Single Market survey, the percent of firms fearing barriers to operate in another Member State (e.g. VAT rules, consumer protection laws or delivery services) was almost twice as high compared to the firms that actually had tried operating in another Member State. These results were confirmed in the recent survey on the barriers for internationalisation for SMEs. This shows that small firms without international experience lack confidence and sufficient information to enter foreign markets and to deal with foreign regulations. Access to finance EU start-ups face particular challenges in obtaining capital for their launch and initial phases, limiting their investment opportunities, expansion potential and innovation. Similarly, start-ups who succeed in growing leverage on average in Europe much less funding in later stages of growth than their American counterparts. In addition, regulatory constraints in some Member States limit the overall supply of venture capital financing for innovative companies, limiting their growth prospects. Venture capital investment (as a percentage of GDP) remains low despite the policy efforts (e.g. tax incentives, supportive legal regimes, etc.) from EU Member States and the EU. This may stem, inter alia, from idiosyncratic regulatory regimes in the EU as regards exit routes for venture capital, i.e. initial public offerings (IPOs) and merger and acquisitions (M&As) and thus smaller size of individual financial markets. Furthermore, third-country venture capitalists (such as those from the United States) seem to perceive European regulations as difficult to navigate and manage on the one hand, and markets and policies fragmented on the other, limiting their willingness to fund European projects. Moreover, individual private venture capital funds in the EU refrain from investing in very young small seed-stage companies, in contrast to the situation in the USA. Recent research suggests that higher public equity investments in start-ups are associated with a lower incidence of write-offs and a longer duration for the investments. There are, however, some limits to public investors’ engagement. Evidence suggests that venture capital backed firms have a higher probability of successful exit though IPOs and acquisitions if the public sector is involved, but its involvement is limited and subject to control of private funds managers. This strengthens the view that the public intervention must be large enough to make a difference, but not too large in order not to twist the objectives of the VC-backed firms towards unprofitable ones. In addition, insolvency regimes are important throughout the life cycle of a company. Certain aspects of national insolvency frameworks hinder a smooth closure of old and setting up of a new company. In particular, in several Member States it takes many years for honest entrepreneurs who undergo bankruptcy before they can be discharged of their old debts and be able to return to business activities. The same applies to single businesspersons who are kept out of the economy for long periods of time as well as to honest directors who did not succeed in one venture and who are being disqualified from exercise of their functions. The long discharge periods may stigmatise failure, discourage entrepreneurship, with negative effects for employment rates, growth and innovation, while shorter discharge periods could have a positive impact on the level of entrepreneurship, including the self-employment rates. Therefore, it is important to have proportionate 'second chance' provisions in the EU legislation to reduce the currently excessive time periods laid down in national legislations preventing honest but failed entrepreneurs to restart the economic activity. Regulatory barriers to innovation Regulatory barriers specifically related to innovation constitute another hindrance to the growth of innovative start-ups and SMEs. Empirical studies on the impacts of regulations on innovation present a rather heterogeneous, and often ambivalent, picture regarding the area of regulation, types of companies, sectors, and types of innovation and the time horizon of the impacts incurred. There may exist: (i) barriers such as outdated or blocking legislation where regulations are the obstacle for R&I actions, or too frequent changes in standards which may also limit the incentive for investment if a technology is relatively recent; (ii) non-supportive frameworks when the regulatory environment is not open to or not supportive enough for R&I actions; (iii) problems with the implementation of EU legislation across Member States and (iv) gaps when no EU legislation exists in a given field. Innovation, particularly breakthrough innovation, is a long process requiring considerable investment. Companies will not invest if the situation is perceived as being too risky either because existing regulations prevent innovation, or because the legislative framework is not sufficiently clear, predictable or stable. Bringing innovation to the market and large-scale implementation of new solutions can be hindered not only by lack of funding, but also because of confusion about required authorisations, ambiguous regulation, and a lack of opportunities for testing and demonstrating innovative products, processes and/or services in real world conditions. The existing evidence is strongly in favour of lead markets and of the creation of a favourable environment for fast-growing firms in innovative markets. 2.3.Making the market without borders for services a practical reality

2.3.1.A 'services passport' for companies Policy context Business services constitute one of the largest services sectors in the EU contributing 11.7 % to EU GDP and 12.6 % to overall employment. However, a number of key business services sectors suffer from limited cross-border trade and investment in the Single Market. In addition, despite its increased economic significance in terms of size the productivity of the sector is low, in particular compared to the USA. The sector is not only important in its own right but has important links to other sectors of the economy. As the manufacturing industry is an important consumer of business services, increased competition and productivity gains in business services would entail important benefits for the manufacturing industry as well. The EU construction sector represents 5.9 % of EU GDP and 6.6 % of EU total employment. Construction is one of the most regulated services sectors in Europe and its recovery is proving to be slow and difficult. Labour productivity in construction has evolved negatively over the last decade. In addition, the EU construction market is characterised by a low level of integration, both in terms of temporary cross-border service provision and in terms of establishment in other Member States. In both business and construction services, SMEs are often obliged to work through local partners when offering their services in another Member State to be able to comply with certain rules of the country where the service is provided. As a result, competition remains limited. The 2015 update of the 2012 study on the economic impact of the Services Directive shows that construction and some key business services are still among the sectors with the largest number of barriers in the EU. * Includes: construction/building companies; certification services in the area of construction; crafts businesses in construction sector. Source: Commission assessment, 2015 Given the negative impact of existing barriers in the provision of services on the economy, the European Council recommended to eight Member States, within the context of the 2015 European Semester, to improve the functioning of their service markets. Problem and impact A 2015 Commission assessment of restrictions in the business services sector stemming from a set of regulatory and administrative barriers in four key professions shows a diverse picture across Member States and professions. Whereas some Member States show relatively high levels of restrictiveness in each of these sectors, others impose much fewer restrictions. Source: Commission assessment, 2015 As regards construction services, companies in this sector have a high potential for mobility due to the nature of the services they provide: the construction itself generally takes place at its final destination, and many other specialised services that contribute to it are also dispatched on site more or less regularly. Many construction companies consider international mobility an important factor for the success of their organisation, especially in terms of short-term mobility. However, barriers in several Member States deter companies from providing their services in other Member States. A forthcoming study commissioned by the Commission services concludes that the conditions imposed on construction service providers for accessing the market (both for temporary cross-border provision and for secondary establishment) vary significantly in terms of restrictiveness among the Member States covered.

Source: Ecorys, forthcoming This section will look in more detail at some of the barriers for business services and construction, of which the assessment is summarised in the above figures. Authorisations, registrations and notifications Authorisation schemes are procedures that require the service provider to obtain a formal or implied decision by a competent authority to access or exercise a service activity. In the context of an authorisation scheme, a service provider has to provide information and certificates to the competent authority and cannot start the service provision until a decision on its application has been taken (formally or tacitly). Authorisations are not prohibited per se, but they can be maintained only if they are non-discriminatory, justified by an overriding reason of general interest and proportionate (Article 9 of the Services Directive). Furthermore, a number of rules and principles also apply to the scope, validity, procedure and conditions required for the granting of the authorisation (Articles 10 to 13 of the Services Directive). Authorisation schemes can only be applied by the host Member State to cross-border providers of temporary or occasional services when the scheme is justified and proportionate to protect public policy, public security, public health or the environment (Article 16 of the Services Directive). Despite a considerable reduction in the number of authorisation and registration requirements following the entry into force of the Services Directive, numerous requirements remain in place across many Member States. They are particularly burdensome where service providers attempt to offer their services in another Member State to the one where they are primarily established. In cases of secondary establishment, cross-border providers are sometimes asked to show that they comply with requirements very similar to those applied to them in their Member State of primary establishment. Temporary cross-border service providers are sometimes asked to comply with authorisations in the country of destination that are not clearly justified under Article 16 of the Services Directive, or they are asked to show compliance with conditions that are the same or very similar to the ones applicable to the authorisation obtained in their country of establishment. Authorisation schemes are in some cases further complicated by the fact that the authorisation is not valid for the entire territory of a Member State or has a limited validity period. In addition, procedures are in many cases overly burdensome due to requirements to provide numerous documents – often translated and at times even certified or authenticated – and the absence of tacit approval systems meaning service providers must await explicit permissions before being allowed to offer a service. According to the 2015 Commission assessment of selected business services, authorisation requirements apply in seven Member States for legal persons who provide civil engineering services, in six Member States for accounting services and in eight Member States for architectural services. In addition, registration at the professional chamber is also sometimes required for the provision of the service by certain types of legal persons. Such requirements exist for architectural services in nine Member States, engineering in seven Member States and accounting in eight Member States. On the other hand, the study commissioned by the Commission services on the construction sector found horizontal authorisation schemes required to allow service providers to access the construction market – in six out of the fourteen Member States covered by the study. These authorisation schemes are for example related to technical and professional capacity or quality management certifications and apply both to temporary cross-border provision as well as establishment. For both business services and construction, a substantial number of documents are required in certified or authenticated form, translated and sometimes only accepted if issued in the host Member States, imposing significant administrative burden. Documents of equivalent purpose are often not accepted. Full electronic application handling is often not available. Procedures that only require service providers to file a notification or declaration with the competent authority are not considered as authorisation schemes. They are usually less burdensome than authorisation schemes and allow for the immediate start of the service provision. However, even notification requirements can render the provision of a service more difficult, especially if they imply the submission of an important amount of documentation. Feedback obtained from stakeholders during workshops held throughout the EU and through an online questionnaire has confirmed the problems for service providers stemming from multiple authorisations, registration or prior notification requirements. Responses to the on-line questionnaire showed that 79 % companies have encountered problems with registration, authorisations and licenses when providing cross-border services (temporarily or through secondary establishment). As such, requirements can be complicated, lengthy and costly to comply with, deterring service providers from going cross-border and forming an obstacle to greater cross-border trade and investment, particularly by SMEs. Finally, the temporary posting of workers by companies from one Member State to perform a service in another Member State has become an important feature of the Single Market for services. In 2013, 1.74 million posted workers were registered across the Single Market (an increase of 13 % compared to 2012 and 27 % compared to 2010), out of which 8 % were self-employed. Despite this rapid growth, the overall share of posted workers in the total workforce remains low at about 0.6 %. Even in construction, which features over 40 % of all posted workers in the EU, these make up no more than 2-4 % of the overall workforce. Feedback from service providers shows that companies need to comply with burdensome formalities when posting workers. More than 30 % of companies providing services cross-border which responded to the Commission questionnaire reported that existing rules on the posting of workers constituted a barrier. The problems related to posting of workers were raised principally by companies active in the construction sector, but also frequently by business services companies. Stakeholders reported burdensome administrative requirements for the posted workers related to the necessary paperwork, registration obligations and fees charged in the context of these procedures. In many cases it was not clear for companies whether their workers would be covered by the Posted Workers Directive and in particular its minimum wage rules. The following figures summarise the restrictiveness of authorisation and notification requirements in business services and construction across Member States both when providing services cross-border on a temporary basis and in the case of secondary establishment.



Source: Commission assessment, 2015

Source: Ecorys, forthcoming Legal form, shareholding, management and multidisciplinary restrictions Important restrictions are found for companies providing professional services in Member States as regards the legal form of service providers, their shareholding structure, the allocation of voting rights and management positions, and as regards multi-disciplinary restrictions. Legal form restrictions allow for the provision of certain services by partnerships and sometimes by limited liability companies only. Other company types, including public limited liability companies, are sometimes not allowed. Sometimes company forms incorporated in another Member State are not recognized for this purpose. Requirements for shareholding and voting rights to be held by qualified professionals often bar legal persons from holding shares and sometimes go beyond imposing a simple majority. But even if requirements impose a simple majority to be in the hands of professionals or companies controlled by professionals, national laws still do not allow companies coming from other Member States which do not comply with such requirements to enter these markets in whatever way. In some cases professionals holding shares or voting rights even need to be established in the host Member State. Requirements imposing management positions to be held by professionals are also common, preventing companies coming from Member States without such requirements from opening a secondary establishment in that market or providing temporary cross-border services there. Finally, multidisciplinary restrictions forbidding joint exercise of certain professional activities in combination may also prevent companies from other Member States from opening a secondary establishment or providing temporary cross-border services. All these requirements can be maintained within the boundaries of Articles 14, 15, 16 and 25 of the Services Directive. Although some of these rules are meant to protect the independence of the professionals, they may also significantly reduce the scope for competition, hamper business development and innovation, including the possibility for domestic companies to grow, as joint practice of certain professional activities may not be possible and access to capital by outside investors is substantially complicated. As a result, small service providers find it difficult to grow into larger, more competitive and more productive companies. These requirements are serious obstacles for the establishment of service providers from other Member States and their cross-border services provision, because such restrictions might oblige them to change their legal form, structure or business model. They may require companies established in another Member State to reincorporate and/or restructure their corporation, as set-up in the Member State of primary establishment. Requirements form a barrier for providers from all Member States regardless of restrictions in the home Member State, because Member States impose differing requirements. Source: Commission assessment, 2015 The 2015 Commission assessment of legal form and shareholding requirements and multidisciplinary and voting rights restrictions showed that legal form, shareholding, management and multi-disciplinary restrictions exist in about half the Member States as regards architects, civil engineers or accountants. The most excessive requirements are currently the object of infringement proceedings by the Commission. Legal form requirements exist in four Member States for architects and civil engineers and in one Member State for accountants. Shareholding and voting rights requirements are widespread. Requirements on shareholding and voting rights for architects exist in twelve Member States. These might affect 100 % of the shareholders (and voting rights), the majority of the shareholders (and voting rights) or two thirds of the voting rights. For civil engineers, such requirements exist in nine Member States and, similarly to architects, they affect 100 %, the majority or two thirds of the shareholders and/or voting rights. Finally, six Member States have in place shareholding and voting rights requirements for accountants. They affect the majority of the shareholders (and voting rights), two thirds of the voting rights or the majority of voting rights. Restrictions on the joint exercise of the profession are found in nine Member States for architects, eight Member States for civil engineers and four for accountants. The restrictions in question might be either a complete ban on the joint exercise with any other profession, a prohibition of the joint exercise among these professions (joint exercise of architectural and engineering services, for example) or joint exercise of these three professions with other service activities. Conditions for access to construction services

The forthcoming study commissioned by the Commission services on construction has found stringent requirements in several Member States for accessing the construction services market (both for established service providers operating permanently in the market and sometimes also for temporary cross-border provision). The way in which compliance with them can be demonstrated presents a barrier for companies from other Member States. Requirements that can prove burdensome for service providers are: Technical and professional capacity conditions often require reorganisation and adaptation of business models, including through hiring local professionals or teaming up with local partners. These sometimes oblige service providers to hold a certain degree of experience, hire a certain number of qualified personnel or even have certain equipment available irrespective of concrete works to be undertaken. Organisational requirements to fulfil health and safety standards (such as imposing provision of either internal or external health and safety services under divergent conditions across Member States) may require reorganisation at branch level for companies primarily established in another Member State or, more frequently, the hiring of a local (external) service provider to comply with the requirement. These requirements do not relate to health and safety standards that a company should respect on the ground, but how a construction company is structured to ensure compliance. Organisational (mandatory) certification schemes impose complex requirements on how a business is structured (e.g. as regards quality management systems) under strict and detailed national standards which differ significantly across Member States. The result of this divergence is that sometimes mutual recognition becomes difficult in practice, requiring businesses to set up local structures they would not otherwise need and which then must undergo multiple and expensive certification procedures. Economic or financial capacity requirements oblige businesses to obtain specific financial guarantees and may sometimes unjustifiably not take account of requirements complied with in the Member State of primary establishment (such as previously obtained guarantees or even equity capital of the parent company that could also cover the activity in the new Member State). These conditions are often the object of horizontal authorisation schemes. However, in countries which do not impose such controls on construction service providers, they are sometimes conditions for issuing building permits.



Type of restriction BG CZ DK DE EL FI FR IT NL PL PT SL ES UK Technical and professional capacity X X X X X X X X X X X X X X Certification X X Economic/ financial capacity X X X Good repute X X X Source: Ecorys, Commission assessment, forthcoming Mandatory professional indemnity insurance Insurance obligations are usually imposed by national legislation in order to ensure the possibility of redress for claims against service providers. Member States take a very heterogeneous approach as regards insurance obligations and access to insurance for provision of services. An insurance obligation can be imposed by way of legislation or for professional services by the internal rules of professional associations. Different approaches are taken by different Member States for the same profession or by the same Member State for different professions. In some cases professional associations organise collective insurance cover, while in others the service provider has to contract individual cover. These divergences are leading to legal uncertainty from the perspective of the service providers and represent an important barrier to cross-border activities. Insurance requirements for construction service providers also vary greatly across Member States, rendering mutual recognition inapplicable. Many SMEs and professionals find it hard to obtain insurance cover for cross-border activities since the market focuses on domestic needs and solutions are only available where there are economies of scale (e.g. for major companies that need global insurance cover). Even when service providers are required by law to be insured, there is usually no corresponding obligation for the insurance industry to offer insurance coverage. The Services Directive foresees an equivalence rule for insurance policies issued in other Member States (as per Article 23 of the Services Directive). Nevertheless, while this rule as such was transposed in national law, in most cases Member States did not offer practical tools for ensuring that such equivalence could work in daily cross-border context. Thus, no approach exists on the comparability and equivalence assessment of insurance cover from other Member States. In addition, the lack of transparency regarding insurance policies for the service providers concerned and regarding information about the recipients of services also creates difficulties in the Single Market for services. For example, in the absence of clear details regarding the territorial scope or temporal cover of insurance policies, competent authorities are not in a position to decide about the possible equivalence of such policies. Nor can service providers judge if their insurance covers them going abroad. Finally, lack of clarity on the geographical limitations and on the period covered by existing insurance policies create significant risks for the client, as well as for the service provider who is under an obligation to inform the client about his insurance coverage and who may (wrongly) believe that the existing insurance policy cover extends beyond national borders and is valid during a certain period. It also creates the risk of contracting double insurance. Source: Commission assessment, 2015

The above summarises the restrictiveness of professional indemnity insurance requirements in business services across Member States. Impact The EU construction sector is characterised by very low integration across Member States, both in terms of temporary cross-border service provision and secondary establishment. Regarding temporary cross-border service provision, the level of intra-EU imports and exports in construction is low. The figure below gives an indication of temporary cross-border trade intensity. It shows for different services sectors the average of intra-EU imports and exports compared to the total size of the sector in terms of turnover. This indicates that the construction sector has significantly lower levels of intra-EU imports and exports compared to other services sectors. Source: Eurostat (2012), Commission assessment This picture is also confirmed when asking SMEs active in the construction sector about their export participation. For example, an EU survey on internationalisation of SMEs showed that only 7 % of EU SMEs active in the construction sector export their services compared to 19 % in business services, 25 % in retail and 56 % in manufacturing. Another example is the UK 2014 Small Business survey which shows that only 4 % of UK construction SMEs sell services outside of the UK compared to 25 % in business services and 45 % in manufacturing. The levels of secondary establishment in the construction sector are also low. The figure below gives an indication of the intensity of secondary establishment in different services sectors and the manufacturing sector. It shows the proportion of total EU value added which is generated by intra-EU foreign affiliates. Here again construction is shown as lagging significantly behind other sectors. Source: Eurostat (2012), Commission assessment A 2015 European Commission assessment of the economic impact of selected barriers in four business services sectors confirmed significant economic impact regarding intensity of competition, sector profitability and efficiency of resource allocation. Concerning the impact of regulatory barriers in business services on competition, the figure below shows the share of companies newly establishing in a market (relative to all firms in a market, ‘birth rate’) for Member States with more restrictive versus those with less restrictive barrier levels. It illustrates that Member States with more restrictive barrier levels have on average a lower number of new service providers entering their markets in each of the four sectors analysed. As a result, competition is lower in these Member States and market dynamics are constrained. Indeed, Member States with more restrictive barrier levels have on average also a lower combined share of companies entering and exiting the market (‘churn rate’) in each of the four sectors analysed. Source: Eurostat, Commission assessment





Source: Eurostat, Commission assessment High market birth and churn rates are associated with high levels of overall competition (with both domestic and foreign entrants) as more productive companies replace less productive ones, increasing the overall competitiveness of a sector. A quantification of the relationship between barrier levels and birth rates can be assessed through a regression analysis. To this end, an econometric model is created with birth rate as a dependent variable and barrier level as an explanatory variable. Average firm size in a sector is used as a control variable to approximate the possible impact on birth rates caused by the presence of additional possible entry barriers created by large incumbents. Two sets of dummies (fixed effects for sectors and for countries) also enter the equation. Barrier level −0.658*** (0.003) Average firm size −0.103 (0.395) R2 0.976 Adjusted R2 0.966 F 91.1 (0.000) Source: Eurostat, Commission assessment The results of this regression analysis confirm a negative and statistically significant relation between barrier levels and birth rates. In other words, Member States can increase the number of new service providers entering into their markets by reducing barrier levels. On this basis, the potential impact of reducing barrier levels on birth rates can be estimated. Two alternative 'reform' scenarios are considered: A 'central scenario' in which barrier levels are assumed to be reduced to the average level across all EU Member States in a given sector; An 'ambitious scenario' in which barrier levels are assumed to be reduced to the average of the 'top 5' EU Member States, where the top 5 represents the five countries with the lowest barriers in a given sector. The results of these two scenarios for each of the four business services sectors analysed are shown in the figure below. Under the central scenario relative births intensity could increase by 2.7 % to 6.5 % (EU weighted average), depending on the sector concerned. Under the ambitious scenario birth rates could increase by 10 % to 18.3 % (EU weighted average). Source: Eurostat, Commission assessment Concerning the impact of regulatory barriers in business services on profitability, the figure below shows average profit rates for Member States with more restrictive versus less restrictive barrier levels. It shows that Member States with more restrictive barriers have on average higher profit rates in each of the four business services sectors analysed. This is also indicative of the fact that consumers in those Member States are paying higher prices for these services than consumers in Member States with lower barriers.



Source: Eurostat, Commission assessment Combining the results of the above econometric analysis on the link between barrier levels and birth rates with a recent Commission study quantifying the impact of birth rates on profit rates in the four sectors analysed, the relationship between barrier levels and profit rates can be estimated. The underlying reasoning for this is that changes in barrier levels affect business dynamics and, through it, the profit rates of the sector.

This two-step approach (illustrated in the graph above) allows us to estimate the potential impact of reducing barrier levels on profit rates. For this, two alternative reform scenarios are again considered, the central scenario and the ambitious scenario illustrated above. In the central scenario, profitability in the sectors analysed could be reduced by 3.5 % to 10.9 % (EU weighted average) depending on the sector concerned. In a more ambitious scenario, they could decrease by 13.7 % to 34.2 % (EU weighted average).



Source: Eurostat, Commission assessment As regards the impact of regulatory barriers to business services on productivity, allocative efficiency reflects the extent to which productive factors are allocated towards their most efficient use (based on the market shares of more versus less productive firms) and thereby constitutes a key measurement of the productivity and competitiveness of a given economic sector. The four sectors assessed are characterised by low and even negative levels of allocative efficiency in most Member States. Source: Eurostat, Commission assessment The figure above shows the relationship between the allocative efficiency index and barrier levels. This indicates that Member States with higher barrier levels have a less efficient flow of resources to their most productive use, which has a negative impact on overall productivity in these sectors. Combining the results of the econometric analysis on the link between barrier levels and birth rates with the above-mentioned recent Commission study also quantifying the impact of birth rates on allocative efficiency in the four business services sectors analysed, we are able to estimate the relationship between barrier levels and allocative efficiency. The underlying reasoning for this is that changes in barrier levels affect business dynamics and, through it, the allocative efficiency of the sector (see graph below). This two-step approach allows estimation of the potential impact of reducing barrier levels on allocative efficiency, again using the same two alternative 'reform' scenarios as above. In the 'central scenario' the allocative efficiency index in the sectors analysed could be increased by 2.0 to 3.7 percentage points (EU weighted average) depending on the sector concerned. In a more ambitious scenario, they could increase by 7.7 to 12.4 percentage points. Source: Eurostat, Commission assessment Conclusion

Conditions imposed on service providers to access the market in a number of key business services sectors and the construction sector vary significantly across Member States in terms of restrictiveness. This makes it difficult and in some cases even impossible for companies, in particular SMEs, to provide services in other Member States. Evidence shows that the EU construction sector is indeed characterised by very low levels of integration across Member States both in terms of temporary cross-border service provision and secondary establishment. Removing barriers would increase cross-border activities and contribute to more competition in the construction market. In addition, the analysis undertaken confirms that reducing barrier levels in the business services sectors assessed would generate more intensive competition as a result of more firms entering the market. It would also lead to benefits for consumers in terms of lower prices as a result of reduced profit rates. Finally, the analysis confirmed that lower barriers would lead to more performant sectors characterised by a stronger allocative efficiency. 2.3.2.Modernising regulation of professions Policy context Regulated professions are professions, access to which or pursuit of which, is conditional upon the possession of specific professional qualifications or for which the use of a specific title is protected. As a consequence, a large number of professional activities are reserved for professionals meeting these requirements so as to reduce the information asymmetry between service providers and consumers and to protect the public from unqualified practitioners. The exercise of economic activities can also be linked to other requirements , such as mandatory membership in professional organisations, insurance requirements, legal form and shareholding requirements etc. Differences in regulatory approaches within one and the same profession or differences in organising professions can be significant across Member States. They reflect the fact that Member States are entitled to establish safeguards to protect certain overriding reasons of public interest, in line with the case-law of the Court of Justice of the European Union, and diverging views as to whether such protection is necessary and how it is to be achieved. While professional licensing may indeed remedy the inefficiencies derived from asymmetric information and provide incentives to invest in skills, it may also limit employment, increase prices, and weaken competition. The tension between these two conflicting views has shaped the debate on the desirability and proportionality of regulation of professions. In times of high unemployment, fiscal austerity, and economic recession, the impact of labour market regulation on the creation of new jobs, wages, labour mobility, and economic performance is of central importance for the policy debate in Europe. Indeed, given the first results of the peer review of regulation of professions in the EU (‘mutual evaluation’), the effects of reforms carried out by a number of Member States and the new market developments reducing the information asymmetry between professionals and consumers (which is the fundamental justification for regulation of professions), there is scope for reviewing and adapting regulation to the evolving market situation. Over 5 000 professions are regulated across the EU, with on average 186 regulated professions per Member State. There are, however, important disparities between countries (from 72 regulated professions in Lithuania to 409 in Hungary), as reported in the EU Regulated Professions Database . The health and social services sector accounts for 42 % of all regulated professions followed by business services (15 %), public services and education (9 %), transport (8.5 %) and construction (6 %). The mutual evaluation exercise conducted on the basis of the new Article 59 of the Professional Qualifications Directive in all Member States between 2014 and 2015 highlighted that many professions which should be considered as regulated were not notified as such. The number of regulated professions is not in itself an indicator of regulatory intensity. The type of regulation determines how restrictive conditions are to access the professions, and it can range from no regulation or title protection to reserving certain activities exclusively to (a group of) professionals holding specific qualifications. Regulation by way of title protection limits the use of the professional title to those holding the required qualifications but does not prevent other professionals from exercising the activities without holding the title. This form of regulation applies to 12 % of all regulated professions according to the EU Regulated Professions Database. Regulation limiting access to certain activities to those holding specific professional qualifications, referred to as reserved activities, is the most common form of regulation across the EU (55 %). The stricter form of regulation which combines both reserves of activities and title protection applies to 5 % of all regulated professions . According to a very recent survey representative of the active population in the EU contracted in 2014 by the Commission and carried out in April 2105 by TNS Opinion in the 28 Member States, at least 21 % of the labour force in the EU (50 million people) can be considered as working in a regulated profession . This is the first ever survey measuring the prevalence of occupational regulation at European level using the same questionnaire and methodology across all EU countries. The results show that at national level, the proportion of people working in regulated professions ranges from 15 % in Sweden and Denmark to 33 % in Germany. The European Council has repeatedly stressed the importance of making progress on enhancing the mutual recognition of professional qualifications, reducing the number of regulated professions and removing unjustified regulatory barriers. It has also called for on Member States to 'identify the remaining barriers to access to professions, assess the cumulative effect of all restrictions imposed on the same profession’ and recently urged Member States to present concrete follow-up measures for structural reform.



Source: TNS Opinion for the European Commission, 'Measuring the prevalence of occupational regulation', 2015, forthcoming Problem and impact Studies consistently show that if regulation is not appropriately designed and implemented, it may create market restrictions, limit consumer choice, raise prices and reduce the number of people being able to enter the market. Regulating professions can also have a negative impact on the mobility of professionals between jobs as it prevents them from reacting quickly to labour market opportunities. The first tangible results of the mutual evaluation exercise confirmed the regulatory diversity between the Member States and that regulatory approaches regarding the same or similar professions often differ fundamentally (no regulation vs. very stringent regulation, e.g. engineers, hairdressers). For example in several Member States certain activities such as drawing plans or designing projects are reserved to professionals holding a civil engineering professional qualification. In others only the title is protected and in a third group of countries which do not regulate the professions, exercise of the activity is possible without having to prove professional qualifications but safeguards of general interest are laid down in rules concerning the execution of the works or in consumer protection laws. In the case of reserved activities, these often vary in scope from one country to another which makes it complicated for professionals to exercise their activity cross-border or establish in another Member State. When relocating to another Member State to provide services temporarily or to establish permanently, professionals might be required to have their professional qualifications recognised in the host Member State. The Professional Qualifications Directive provides a comprehensive legal framework for such recognition of qualifications.

The evaluation of the Professional Qualifications Directive carried out in 2011 provided information on the difficulties of its daily application by professionals and competent authorities. The findings of the evaluation were also echoed in the impact assessment on the revision of the Directive . In the two questionnaires conducted by the Commission in 2014 on barriers to the Single Market in services, where 293 answers were submitted by mostly SMEs, problems with the recognition of professional qualifications were reported by 41 % of companies. Many found the recognition procedures to be lengthy and costly. Other difficulties reported stemmed from the lack of an EU-wide harmonised definition of regulated professions and of educational training requirements. Companies also reported problems concerning the recognition of qualifications in specific sectors (e.g. construction together with engineering, IT, consultancy and legal services) and particular difficulties encountered in decentralised Member States where professional qualifications requirements can differ between regions. The mutual evaluation process also brought to light that the justification and proportionality of the national regulations are not always properly assessed. Justification and proportionality considerations differ for the same activity, with some Member States relying on the functioning of the market and general legislation (such as consumer protection), while others argue for stringent professional regulation. The observed differences in the ways countries regulate the same or similar professions show that there is room for considering alternatives beyond the cross-border context; evidence consistently shows that performance of national markets is adversely affected by too stringent access requirements which shift resources to less effective use, limit consumer choice, raise prices and reduce the number of people being able to enter the market. The effects of recent reforms of regulation of professions Improving access to professions, in particular through a more proportionate and transparent regulatory environment in Member States, would facilitate the mobility of qualified professionals in the Single Market and the cross-border provision of professional services. As confirmed by empirical studies, modernising the regulation of professions tends to have a positive impact on employment, entrepreneurship, consumer choice and the affordability of services. Building on empirical evidence and on the information provided by the EU Member States during the process of mutual evaluation, the Commission will propose measures to improve access to professions at EU and national level. In 2014, the Commission launched a series of targeted studies to measure the economic impact of reforms on regulated professions. These studies analysed reforms in Germany, the UK, Greece and Italy. Reforms of the craft sector in Germany Germany is one of the Member States in which a specific qualification (Meister) was required in order to engage in self-employment for some craft professions. This requirement was removed for 53 of 94 occupations in craftsmanship in an amendment to the German Trade and Crafts Code in 2004. For the other 41 occupations the requirement was partly reduced. Results tend to demonstrate that the reforms undertaken have led to a further opening of the market. Following the reform of 2004, for those craft professions which were deregulated there was a doubling in the number of new entrants in these professions and a net increase in the number of self-employed in the sector, while no evidence was found that exit rates were affected significantly (they did increase, but less than entry rates). Importantly, more than five years after the reform more self-employment than before the reform is observable (see figure below). These results are robust with respect to variations of the definition of the period before and after the reform. The influence of other policies, such as subsidies for unemployed people trying to set up a business, or the 2004 and 2007 EU enlargements, are accounted for.



Source: Rostam-Afschar D., ‘Regulatory Effects of the Amendment to the HwO in 2004 in German Craftsmanship’, 2015, German micro census and author's calculations Overall employment did not react much to the reform because most of the new businesses are one-person-businesses founded partly by former employees. These one-person-businesses may be expected to grow in the future. Another direct consequence of the larger number of one-person-businesses is that the share of businesses providing training receded. However the study demonstrates that training activity was only reduced slightly due to the reform and explains that the reasons for the decline in the number of apprentices in craftsmanship may in particular be linked to an increasing number of people choosing to study at universities. Reforms in Greece In Greece, a major reform started in 2010 and lifted restrictions on entry and conduct regulations in a large number of professions across several economic sectors. Results show that the reform has led to lower prices for consumers of services provided by real estate agents, legal professions, in accounting and tax consulting services and physiotherapist/physiotherapy centre services. Figure 21 shows that the prices of services did adjust to the recession, but there was a variation on the speed and level of adjustment according to the regulation regime, with prices in the regulated professions appearing to have been more flexible. The study concludes that this could have been because in these professions there were greater margins for price reductions as initial prices were usually higher. Source: Athanassiou E., Kanellopoulos N., Karagiannis R.,Kotsi A., ‘The effects of liberalisation of professional requirements in Greece’, 2015, ELSTAT, authors’ calculations

Empirical data indicate significant positive employment effects for the professions of notaries, auditors, tourist guides and chartered valuers. With respect to service quality, there are some indications of possible positive effects of the reforms in the legal and accounting services, taxi services, charter valuer services and real estate services. In the case of tourist guides, no evidence of a change in service quality as a result of the reforms could be empirically demonstrated. Reforms of nursery school profession in the United Kingdom The UK case study looked at the economic impact of the introduction of licensing in the case of nursery school workers (The Childcare Act 2006) and security occupations (Private Security Act 2001). In the case of nursery school workers the study found that, in line with the economic theory, introducing licensing (restricting access to this profession) resulted in a significant negative impact on employment but also brought a significant positive impact on skill levels and an overall significant positive impact on quality. In the case of regulation of security workers, results show a significant positive effect on wages and quality but no significant impact on employment or skills. Given that for security guards increased quality was achieved through requiring a clean criminal record the authors suggest that depending on the profession, a high level of quality can be ensured by regulation of other aspects than qualifications. Reforms of pharmacist profession in Italy The case study on Italy finds some impact of the 2006 reform on the market for pharmacists with new entrants in OTC (over-the-counter) market, increasing demand for pharmacists leading to higher earnings of young pharmacists and higher overall employment. Evidence on effects of reforms discussed with stakeholders Some of these results were presented and discussed at two seminars organised by the Commission in 2014 in the framework of the Single Market Forum. The objective of the events was also to consult stakeholders on the mutual evaluation of regulated professions and to exchange experience between Member States on the liberalisation reforms ongoing and completed. Discussions touched amongst others on economic aspects of the 2003/04 reform in Germany where evidence shows that the reform encouraged new entries in those professions where entry requirements were relaxed whilst exit rates remained about constant. Views from other EU countries were also presented, amongst others from tax advisors in the Netherlands, a profession which is not regulated and has not seen a decline in quality of the services provided, from the UK government which deregulated legal services, from the Polish government which is currently implementing the last phase of an ambitious reform of regulated professions, the broader effects of which remain to be assessed but effects on employment can already be seen (legal services: access to bar relaxed, the number of lawyers and solicitors doubled between 2010 and 2014) and from the French government which has recently initiated reforms of a number of professions. The importance of the mutual evaluation as one of the priorities in the area of the Single Market to contribute to increase employment, especially of young people, was emphasised and Poland was used as one of the examples for other Member States to show that reforms can effectively be pursued and that they already show positive effects on employment. 2.4.Addressing restrictions in the retail sector Policy context Retail and wholesale services, also known as distributive trades, represent 9.6 % of the EU's value added and accounted for 13.1 % of the EU's total employment in 2012. The sector is particularly important for youth employment with 13.7 % of employees in the 15-24 age range. More than 6 million companies, i.e. 29 % of all EU undertakings are active in this sector. In 2011, the retail sector alone: -Employed 18.6 million people (8.3 % of the EU workforce) – more than the construction sector and three times as many as financial services or information and communication activities; -Generated EUR 2.592 billion of turnover (10.9 % of the total for the non-financial business economy); -Generated EUR 453 billion of value added (4.3 % of total EU value added); -Accounted for 3.6 million businesses. European retailers are also leading international players: five of the top ten global retailers are from the EU. In addition, the retail sector is strongly integrated into the EU economy and has strong links with other economic sectors. Retail therefore has an essential role to play in stimulating growth and job creation in the European economy. The efficiency in this sector has implications for competitiveness, innovation and price trends. The European Council pointed out the existence of barriers to the functioning of the retail sector by recommending that some Member States improve the functioning of the retail sector during the 2015 European Semester exercise. Problem and impact The continued low integration of the retail sector in the Single Market creates important economic costs and leaves untapped economic potential. Several economic indicators show that there is significant scope for improving the functioning of the European retail sector: High prices for retail services cause unnecessarily high costs for consumers and businesses. An analysis of prices in retail outlets across product categories in thirteen Member States has shown that the concentration of retail at the regional level is linked to higher levels of prices for the consumers, after taking into account the impact of other structural and economic factors that affect prices. Mark-ups have increased in six Member States between 1996 and 2013 , which may indicate lower competitive pressure allowing firms to sell at higher prices; Innovation in products offered to the final consumer has decreased and this evolution is only partly explained by the economic environment prevailing in many Member States since 2008. Structural elements (such as types and sizes of shops, and competition in wholesale and retail) appear to contribute significantly to the evolution of innovation and product choice. In particular the opening of new shops is a significant driver - and one of the few positive drivers together with the size of shops - of the introduction of innovative products. The situation is similar for product choice. The opening of new shops has a positive influence on the range of products offered, whether they are innovative or not. It is also linked to a greater variety in the size of products offered to consumers;

Low levels of labour productivity, coupled with negative productivity growth, harm competitiveness, growth and employment in the sector. From 2010 to 2012, productivity growth in the sector was flat in the EU, compared to a growth of 3.9 % in the US. A number of studies show that the difference in retail productivity growth between Europe and the US can be explained by less restrictive entry regulations, bigger investments in ICT and innovation and the creation of new retail formats in the US. These force incumbents to become more productive and trigger a dynamic where less productive firms are replaced with more productive ones. The productivity gap is also evident when comparing the EU retail sector with other sectors of the European economy. For example, at 119 %, the retail sector's wage-adjusted labour productivity is significantly lower than the one of manufacturing (144 %). Furthermore, wage-adjusted labour productivity in retail has decreased from 126 % to 119 % between 2010 and 2012. Stepping up reforms to reduce regulatory barriers in the retail sector would have a number of positive effects. Increased competitive pressures following a reduction in barriers would lead to the entry and survival of more efficient and innovative firms. Consumers could enjoy lower prices, more variety, innovation and higher quality. This would also have positive spill-over effects in other sectors of the European economy. Recent analyses confirm that restrictive regulation is hampering competition in the sector. Retailers face persisting barriers to market entry created by certain retail establishment conditions such as burdensome and complex authorisation processes or specific restrictive requirements linked to the size and location of shops, as well as by operational restrictions. The improvement of conditions for establishment could help to strengthen competition in the retail sector and could have a positive impact on consumer choice and innovation. Retail establishment Selecting the right location for retail development and the timely start of operations are decisive for business success. As indicated in the European Retail Action Plan (ERAP) , the execution depends not only on the availability of suitable real estate but also on the existence of commercial and spatial planning rules and procedures that do not inappropriately hamper competition. The peer review on retail establishment launched in 2014, the information received from stakeholders as well as a supporting legal study allowed the Commission to identify barriers that retailers face when intending to open retail stores. The rules governing retail establishment vary considerably across the EU, not only at national level but also at regional and even local level. Regulatory schemes can focus on a specific retail authorisation or can be found in 'planning authorisations' and in the drafting of planning documents. These systems can also coexist. While Member States have the power to decide on the system which suits their needs better and on the appropriate level of decision, their regulatory framework should respect EU law. Public policy objectives such as environment protection, consumer protection and town and country planning are often put forward by Member States as reasons to justify the high level of restrictions imposed on retail establishment. When restrictions to the freedom of establishment are justified on the ground of such public policy objectives, they must nevertheless be appropriate and proportionate to these objectives. However, the public policy objectives pursued are not always clearly expressed and the appropriateness and the proportionality of the relevant regulatory framework are often not assessed. Member States impose requirements relating to the size of retail outlets or to their location which may result in market entry barriers for certain store formats or business models. For example, some Member States impose a ban or special conditions on the establishment of certain stores depending on their size or intended location. Furthermore, retail establishment procedures are often excessively burdensome. Retailers applying for retail establishment often need to provide impact assessments (relating to traffic or employment, or specific retail impact assessments), to apply for a large number of permits/authorisations (planning permit, building permit, environmental permit and in some cases, a specific retail authorisation) or to contact several public entities. Economic data is often required from retailers as part of this process. The appropriateness of the data compared to the objectives pursued and the use of such data in practice are not always clear. Authorisation procedures may take years to go through, which can mean that the planned establishment is no longer economically viable. The Commission attempted to measure the level of restrictiveness of retail establishment regulations by analysing the number of permits required, the number of entities to be contacted and the number of market studies and impact assessments requested. During this analysis the Commission also checked for the existence of regulations specific to the location, for requirements to provide economic data and for specific requirements linked to the size of a foreseen establishment. The figures below show which barriers occur most often across Member States. Source: Commission's analysis based on information from the legal study on retail establishment (HVG) Source: Commission's analysis based on information from the legal study on retail establishment (HVG)

Source: Commission's analysis based on information from the legal study on retail establishment (HVG) The level of restrictiveness of requirements linked to the size and location of retail outlets varies between Member States. In the least strict Member State, retailers are required to apply for an authorisation for the establishment of retail outlets above 2000 m². For retail outlets below this threshold, retailers are required to notify the opening of the outlet. In the most restrictive Member State, the establishment of retail outlets above 1000 m² is banned, with a possible derogation for outlets between 1000 and 3500 m² and a total ban for those above 3500 m². For shops below 1000 m² retailers need to apply for an authorisation. Operational restrictions In addition to establishment restrictions, retail businesses face restrictive regulations which may have a negative impact on their daily operations. Such regulations sometimes become a significant burden for companies, affecting their efficiency, productivity and the quality and price of services provided to consumers. Excessively restrictive and complex regulations can also make market entry more burdensome. Because they often differ between markets they create obstacles to cross-border e-commerce sales. Since 1998 the OECD has regularly assessed the restrictiveness of regulations governing the operation of retail companies and outlets such as shop opening hours, sales of certain products under state monopoly, as well as rules on promotions and discounts. The Commission has already carried out an analysis of the requirements for retail establishment to assess the level of regulatory restrictiveness per Member State and the economic impact of such restrictions on the market structure and market dynamics in the retail sector. It will also analyse the operational restrictions that have significant effects on the competitiveness of the retail sector or on cross-border trade and investment. Impact on competition Impacts on competition are measured by linking the restrictiveness of retail establishment to market concentration, and the birth rate and churn rate of retail companies. Results indicate that in countries with higher establishment restrictions, less new retail companies enter the market. In countries where more permits are required, the growth of concentration indices (CR5 and Herfindahl) is higher. Concentration also seems to be higher in countries with regulations concerning the location of retail outlets and the potential involvement of competitors. In addition, prices tend to be higher in countries which are more restrictive and have a more concentrated retail market. Source: Eurostat 2012, Commission analysis Source: Eurostat 2012, Commission analysis The links revealed by the correlation analysis are confirmed by the results of a regression analysis. As indicated in the tables below, there appears to be a statistically significant positive impact of the level of establishment restrictions on the price level index as well as a negative impact on companies' birth rate and churn rate. Price level index Birth rate Churn rate Level of retail establishment restrictions 15.49*** -0.0141** -0.0228** (3.156) (0.00631) (0.00991) Constant 54.54*** 0.128*** 0.246*** (8.241) (0.0163) (0.0260) Observations 28 26 25 R-squared 0.481 0.171 0.187 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Source: Eurostat 2012 (2013 for price level index), Commission analysis Several aspects of the establishment process, such as the number of permits required in the authorisation procedures, regulations specific to the location of a retail outlet and regulations leaving room for potential involvement of competitors show a positive correlation with market concentration measured by the Herfindahl index. This is confirmed by the results of the regression analysis.

Table 4 – Impact of aspects of the retail establishment process on market concentration Concentration

(HHI index) Number of permits 0.156* (0.0830) Constant -0.0242 (0.187) Observations 25 R-squared 0.133 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Regulations on outlet location 0.00319* (0.00161) Constant 0.0284*** (0.00668) Observations 25 R-squared 0.146 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Involvement of competitors 0.00363* (0.00204) Constant 0.0333*** (0.00547) Observations 25 R-squared 0.121 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Source: Euromonitor 2014, Commission analysis A recent Commission study shows that less strict regulation of the retail sector, measured by the OECD's Product Market Regulation (PMR) index fosters competition and hence reduces firms' mark-ups. Mark-ups, i.e. the difference between the cost and the selling price of a good or service, are an important determinant of the producer and consumer surplus. Lower mark-ups increase purchasing power for consumers and downstream users and are generally seen as welfare enhancing. Schiantarelli argues that a reduction in mark-ups may lead to less productive firms exiting the market, and thereby lead to a reallocation of resources to more productive firms and to further increases in growth. A positive effect of the PMR indicators on mark-ups indicates that an increase in the strictness of product market regulations increases mark-ups. Conversely a loosening of product market regulations would reduce mark-ups. The table below shows that the retail sector displays a positive effect. Source: European Commission The following table shows that in the retail sector, when controlling for all PMR sub-indicators, the strongest indicator seems to be regulations in registration and licensing. This indicator is based on whether licenses and registrations are needed for commercial activity and outlet siting. Tightening regulation in this area corresponds to a significant increase in mark-ups in retail.



Source: European Commission Impact on consumer accessibility and choice Consumers benefit from improved competition through lower prices, greater choice of retailers and better access to retail outlets. Both the correlation (an example in the following graph) as well as the econometric analysis show that retail establishment restrictiveness impacts negatively on changes in the number of outlets and selling space for most store formats (such as supermarkets, hypermarkets and convenience stores). As a result, less shops (and smaller shops) are opened in more restrictive countries, which can be indirectly linked to the accessibility and choice of retailers, as well as price levels.



Source: Euromonitor 2014, Commission analysis Here as well, the regression analysis showed that the observed links were statistically significant. As indicated in the tables below, there appears to be a statistically significant negative impact of the level of establishment restrictions on the growth of the selling space of convenience stores, non-grocery stores and supermarkets, as well as on the growth of the number of outlets of convenience stores, hypermarkets and supermarkets. However, positive links were found between the level of establishment restrictions and the development of discount stores. It has to be noted that the discount sector has been growing dynamically over the past years, benefitting from consumers' increasing orientation towards lower prices. The results may also reflect the fact that discounters display a certain flexibility in terms of location compared to other similar store formats. They become profitable on a smaller surface than supermarkets and can serve both as neighbourhood stores and outskirt outlets, thus replacing both supermarkets and convenience stores on the map of the retail market. The number of discount outlets and their selling space per capita are higher in countries with stricter requirements for entry linked to size thresholds.





Growth of selling space in: Convenience stores Discount stores Non-grocery stores Supermarkets Level of retail establishment restrictions -0.0895** 1.55e-05** -0.0381* -0.0612*** (0.0328) (6.38e-06) (0.0192) (0.0182) Constant 0.279*** 1.25e-05 0.0569 0.225*** (0.0816) (1.57e-05) (0.0471) (0.0447) Observations 24 25 25 25 R-squared 0.253 0.204 0.146 0.330 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Source: Euromonitor 2014, Commission analysis Growth of the number of outlets of: Convenience stores Discount stores Hypermarkets Supermarkets Level of retail establishment restrictions -0.0808* 2.42e-05** -0.0831* -0.0685*** (0.0424) (1.00e-05) (0.0409) (0.0211) Constant 0.247** 1.25e-05 0.373*** 0.232*** (0.106) (2.46e-05) (0.101) (0.0520) Observations 24 25 25 25 R-squared 0.142 0.203 0.152 0.314 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Source: Euromonitor 2014, Commission analysis A further analysis of possible scenarios revealed that if certain restrictions were removed and others limited to a minimum level, this could help to increase of the number of outlets and the selling area for most store formats, in particular in countries with the highest restrictions. It would also have a positive impact on churn rates, and could therefore increase competition in the sector. Results of the regression analyses indicate that, in general, restrictive regulation on establishment may hamper the development of supermarkets, hypermarkets, non-grocery and convenience stores, in terms of the growth of their selling space and the number of outlets. In countries with stricter establishment rules, the number of retail companies entering the market also appears to be lower and the level of concentration of the retail sector higher. Competition may therefore also be lower. In these countries, price level indices for many product categories are also higher, as well as the sales value of existing shops for certain store formats. 2.5.Preventing discrimination of consumers and entrepreneurs Policy context Consumers are in theory well equipped to reach out for the best offers available in the Single Market. They can travel, buy products and services online and use credit cards across borders. However, too often both consumers and firms are still discriminated as regards access to services/goods as well as in terms of prices and sales conditions based on their country of residence or nationality. Discrimination undermines the trust of consumers and increases reluctance to engage in cross-border trade, thus reducing the opportunities created by the Single Market to consumers and businesses. These situations are addressed by the Article 20 (2) of the Services Directive, which prohibits discrimination against service recipients on the basis of their nationality or country of residence. The purpose of this provision is to help service recipients, who can be either consumers or entrepreneurs, to access offers available on the markets of other Member States and make the most of the Single Market. To put such high-level principles in practice and tackle territorial restrictions and geographically based discrimination, particularly in the digital domain, the Commission has already launched a sector enquiry regarding anticompetitive restrictions in e-commerce and has announced in its Digital Single Market Strategy a legislative action to address unjustified geo-blocking. Discrimination based on nationality and place of residence has already been effectively eliminated in the transport sector. Passengers of different modes of transport (air, maritime, bus and coach) can purchase travel tickets without any discrimination based on their nationality or place of residence or on the place of establishment of carriers or ticket vendors. The situation in other sectors is, however, not as encouraging, even in cases in which customers of different nationalities and residences receive the same service/good in the same location. On 24 September 2015, the Commission launched a public consultation allowing stakeholders to present their views on how best to tackle geographically based restrictions imposed by traders to final consumers and firms. The results from this public consultation will complement the analysis contained in this Staff Working Document. Problem and impact Consumers and firms are often discriminated against in two different ways based on their country of residence or nationality: (1) outright refusals to sell (consumers cannot access the service/product at all); and (2) application of different prices or other sales and after-sales conditions. When shopping online, consumers may also experience geo-blocking, i.e. being blocked upfront from accessing a specific webpage or content on a webpage. In some cases, customers are able to access the webpage but are then not allowed to purchase the product or service based on their place of residence. Outside copyright issues, these practices may concern the purchase of both digital goods/services (downloads, apps)