Opinion of the Economic and Social Committee on the 'Communication from the Commission to the European Parliament and the Council on the impact and effectiveness of the single market` (97/C 206/14)

On 21 April 1995 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 4 April 1997. The rapporteur was Mr Pasotti.

At its 345th plenary session (meeting of 23 April 1997), the Economic and Social Committee adopted the following opinion by 59 votes to eight, with seven abstentions.

1. Introduction

1.1. This Commission document is the result of an extremely large-scale study of the workings of the single market. An idea of the scale of the project can be gleaned from Appendix 1 of the communication, which lists the sources of information used.

The chapters of the report consider the different aspects of the SMP (single market programme), and take stock of the progress to date in 'political` terms.

As in any digest (but more so here, in view of the Commission's chosen approach) the communication refers to the main findings of theoretical studies. The Committee hopes that the analytical work on which they are based will be given a wider airing, particularly to elucidate the more 'technical` sections of the document.

1.2. In the summary the Commission finds it necessary to present a brief outline of the results of the SMP. The Committee feels that the effort being put into securing a consensus among all Europe's citizens on the single market is extremely important; it was unfortunate that in presenting figures on the economic effects of the single market in terms of growth, jobs created and inflation, the Commission's rigorous supporting evidence was not available at the same time. As a result, the political impact of the document may have been lessened.

1.3. On unemployment in particular, the figures presented show the continuing gravity of the situation. It is however worth noting that the Commission's confidence pact on action for employment in Europe has shown that the single market is a necessary but not a sufficient condition for sustainable growth and the creation of new jobs. Although employment may be considered as a basic objective of the European integration process, the complexity of its relationship with the single market programme is such that a rigid causal relationship should not be deduced, particularly as this would obscure the need to create a complementary relationship between the SMP and other EU policies.

2. The Committee's approach

2.1. The Committee's contribution to the Commission's work will inevitably focus on the views of those involved in the market, be it as workers, consumers or producers of goods or services. (For brevity they will be referred to hereafter as 'players`.)

In this context the difficult economic circumstances and industry's structural adjustments of recent years have probably limited the positive effects, thus influencing assessments of the measures already taken, but considerable progress has been made.

2.2. When framing and implementing economic policies, ongoing monitoring of measures as they are undertaken is needed in order to identify critical factors. This is particularly true at Community level, because of the complexity of the relationships between the parties involved, the profound differences between countries, and particularly in this instance because of the wide field of application and time scale. For the ideas behind the Commission document to retain political credibility under these circumstances, the underlying technical analysis must be absolutely reliable.

2.3. In order to back up the analytical studies and the verification undertaken by the Commission, the Committee considered it worth gleaning independent views of the progress made towards completing the single market by holding a hearing of the players involved. The methodology used for such a hearing allows accurate comparisons with the similar hearing held by the Committee in 1994, and together they provide an analysis of the progress of the single market in an area in which the Committee has direct competence.

2.4. The hearing also serves as a forum for assessing the qualitative impact of the single market process (on quality of life, the weakest members of society, environmental protection), complementing the quantitative approach taken in the Commission document.

2.5. The Committee's opinion is divided into two parts:

- An assessment of various critical elements of the SMP;

- A summary of the findings of the hearing on the impact on the categories involved.

3. General comments

3.1. A cultural leap forward

3.1.1. Firstly it must be underlined how the players' attitudes have changed: we now feel more like citizens of Europe, and the single market has been a factor in that. Its effects on products, guarantees, regulations and production methods mean that it has a daily influence on our lives to a degree which is, perhaps, inadequately conveyed by the Commission document.

3.1.2. Although it is clear that the old 'physical` customs barriers have today been replaced by 'virtual` barriers formed by constraints and technical standards, it is no less true that single market 'citizenship`, once attained, makes it much easier to travel, sell, buy and live than when there were customs posts at every border.

3.1.3. A variety of factors including public standards, economic policies, and increasing competition are helping to produce an environment in which the players' various abilities can be put to fuller use on a level playing-field. Protected markets are crumbling, opportunities for market-oriented businesses are expanding, monopolistic agreements are being elbowed out.

3.1.4. The players involved in the internationalization process now think in terms of the single market. All the obstacles facing SMEs noted in the document are real, and others will probably come to light in our detailed examination, but today a company that does even the slightest amount of business abroad will take the single market into account when considering an investment or planning a new product.

3.1.5. This profound influence on the players' cultural attitudes is perhaps the most incontrovertible result of the efforts made to date.

3.2. Intensity and depth: criteria for judging the effects of the single market

3.2.1. How deeply has the single market penetrated Europe? The Commission document attempts to sum up the state of the operation of the single market. In some sectors and for some players, the process appears to have been extraordinarily effective. For freedom of movement and the operation of the capital market, the integration process seems to be extremely well advanced. If we consider freedom of movement as it applies to the major industrial and financial conglomerates, it seems likely that what the Commission sees as obstacles still to be removed may actually be transformed into investment opportunities. For these groups and many other companies large enough to take advantage of the single market, it is operating with a very high degree of intensity; but if we venture lower down the scale in the complex structure that is Europe, we see that this intensity is inversely proportional to depth: the lower we go the less intense the effects of the single market. This cannot be ignored when the situation is analysed: the effectiveness of the single market must be assessed for every last company, every last consumer, every last player.

3.2.2. This requirement should not seem 'extreme`; it would only be so if we were contemplating a Europe in which the single market was effective only as a means of optimizing the use of economic resources.

3.2.3. The Committee wishes to see a broader and stronger Union which is more integrated, inter alia at a social level; the need for this is underscored by the fact that the single market functions most effectively for those who were able to operate throughout the EU even without the application of common rules. Conversely, the most serious hindrances, the most costly regulation, and the most damaging delays and indecision by governments and national administrations in applying the rules, are still largely suffered by the players who have always had difficulty in obtaining free movement. There is a danger that small and medium sized businesses, in particular, may not be able to exploit the full benefits of the single market. These businesses are a key component of the EU's manufacturing tissue and, throughout the difficult restructuring process facing large firms, they have made a major practical contribution to maintaining employment and promoting development. For this reason the marginal levels of intensity are the best yardstick by which to judge the effective operation of the single market.

3.3. The time-scale of the single market

3.3.1. Another way of measuring the effectiveness of the single market is to consider the time it has taken so far and the time still available.

Since 1987, measures to establish the single market have followed at an ever-accelerating rate. Nine years on, is it possible to give a date by which this gargantuan project will be completed? A 'mathematical` choice is tricky, but the introduction of the single currency provides a target date in both technical and historical terms.

3.3.2. The effective operation of the single market is a necessary (albeit insufficient) condition for moving on to a single currency. It is one of the most serious commitments which the Union has yet contemplated, and is so difficult and technically complex that, notwithstanding all the thought that has gone into it, nobody can be certain that every aspect has been studied.

3.3.3. For this reason, the consequences could be extremely costly if that date is reached without resolving the issues that the Commission mentions in the final chapter of the document.

3.3.4. If the expense, the insecurity and the problems that the introduction of the Euro will bring are compounded by the costs and problems resulting from a failure to apply the single market with sufficient intensity, the combination of the two processes could disorient the less well integrated players, with unpredictable but certainly harmful consequences.

3.3.5. The completion of the single market must thus be as advanced as possible by the date of introduction of the single currency. Since the 1999 deadline leaves less than two years to complete the single market, steps must be taken to ensure that any outstanding parts of the integration process continue in parallel with the introduction of the single currency.

In this context, the Committee welcomes the Commission's announcement that it will submit an action plan for completing the single market in time for the introduction of the single currency, as advocated by the Committee since 1995.

3.3.6. The Committee feels that, of the economic players, it is small and medium-sized enterprises who are the worst hit by the remaining problems and obstacles. In general SMEs have not been able to fully exploit the benefits expected from the single market. Legislation should therefore concentrate on simplifying administration and on improving information and transparency; this will enable the barriers to be lifted and ensure genuine competition for all.

3.4. Taxation: risks and opportunities

3.4.1. Discussion of the relationship between the single market and monetary union naturally leads on to the relationship between the latter and the other tool of economic policy that is available to Member States: fiscal and budgetary policy. Fluctuations in currency values compensate for the varied structures and different rates of progress of national economies. Since these differences are deep-rooted, the removal of this mechanism presupposes that if the EU is to achieve its economic convergence targets, there must be substitutes such as production factor mobility and the compensatory effect of compatible fiscal and budgetary policies.

3.4.2. Although a certain degree of inherent diversity between Member States' tax legislation should be recognized, the globalization of markets and the international mobility of capital already make it clear that uncoordinated action by Member States will be of limited effectiveness, as was shown in last year's Committee opinion on the single market.

3.4.3. Fiscal policy is clearly a delicate area. Primary evidence of this can be found in the requirement for unanimity in decisions relating to it, a situation which the Committee recognizes in principle as being well-founded. That should not, however, allow the consequences of persistent failure to reach decisions to be underestimated; the introduction of qualified majority voting would be preferable by comparison, at least for the most important issues. Indeed, there is a real risk that the 'inherent` differences in taxation and social legislation mentioned above could be used as surreptitious means for countries to compete unfairly against one another. In this context the Commission communication notes, for example, that the lack of a harmonized approach to taxation of income from capital continues to have a major market-distorting impact, particularly where employment is concerned.

3.4.4. In other major areas such as an origin-based VAT system, the elimination of double taxation, and the harmonization of company taxation in general, there have been significant failures to carry out the measures originally proposed in the white paper. The move to a consistent Community system of indirect taxation tightly integrated into the Single Market Programme would thus be the first important signal that the tax system can be considered as other than the exclusive and absolute domain of national governments. The Committee is working on a specific opinion on this subject.

3.4.5. The Committee therefore greatly hopes that the references to taxation included in the single market fields picked out for further action by the Commission will stimulate a broad debate that will lead to the development of certain specific tax and budgetary policies coordinated at Community level.

3.5. Players and regulators

3.5.1. The market is defined by its rules: it is not possible to speak of the single market without explicit reference to the public authorities. If the players have made headway towards accepting the single market, the same cannot truthfully be said of the majority of public authorities in the Member States and in other countries within the EEA: eleven years on from the adoption of the white paper, little more than half of its provisions have been implemented in every Member State, and there are major differences in the systems for applying them.

3.5.2. The full and active involvement of the public authorities in the completion of the single market must therefore be a prime objective for future action in this area. Decisive pressure towards this end could come from the 'players` themselves, who have to deal on a daily basis with the problems engendered by transposition and implementation of the rules. Their scope for obtaining redress is greatly hindered by the lack of effective means of recourse. Despite significant progress, it is still difficult for private individuals to enforce their rights under the different legal systems. Appealing to the Commission is simpler, but the process is still a slow one.

3.5.3. Furthermore, Member States and other countries within the EEA seem reluctant to simplify their own national legislation on matters such as technical standards, and much remains to be done on services of general interest, starting with a clear definition of what they are; they continue to practise discriminatory treatment in this area. The negative impact of this situation cannot be underestimated. In particular, the costs incurred in complying with European regulations - which are often additional to (and complicated by) national ones - are a burden for the majority of small businesses.

3.5.4. The Committee therefore underscores the need for cooperation between the public authorities of the Member States and other countries within the EEA, both directly and with the EU, for an effective relaunch of the commitment to complete the single market. The Committee hopes that the Commission will give the social players a greater role in this process and make use of the wealth of experience that they possess. As a complement to this, the Committee would also like to see greater legislative use of EU regulations, where possible. If necessary, in areas where operators were likely to suffer seriously as a result of delays, directives could set a time limit for appropriate transposition and provide the option of EU intervention through a regulation if the time limit were unnecessarily breached.

4. The prospects for the single market

4.1. As is clear from the remarks in the closing chapter of the Commission document, determined efforts are required to release the full potential of the SMP. Matters such as the effective application of Community law, the completion of the white paper provisions, and the need to simplify national and Community legislation have already been mentioned.

4.2. In conclusion, the SMP must be viewed in the broader context of all Community policies; these instruments must be coordinated as closely as possible, in order to help the EU to meet the challenges of employment and economic globalization.

4.3. In this context, particular attention needs to be given to the part that the SMP can play both in developing existing agreements (such as with the EEA and with Switzerland) and in the process of preparing the central European countries for EU membership.

5. As was the case for the 1992 programme and the Single European Act, the Intergovernmental Conference on the reform of the Treaty should provide the means for the 1999 action programme to succeed. Changes should, inter alia, concern:

- The incorporation in the Treaty of a new deadline, linked to the introduction of the single currency, for completing the single market,

- The extension of qualified majority voting in Council to matters including the free movement of persons, customs cooperation, and taxation directly affecting the operation of the single market,

- The extension of Community competence to intellectual and industrial property and to certain matters currently included in the third pillar, including the free movement of persons and customs cooperation,

- Stronger powers of initiative and monitoring with respect to the operation of the single market for the European Commission,

- A code of conduct in the operation of the single market for the Member States, to ensure greater levels of self-discipline and constant care to prevent inconsistencies between national and European measures, in order to prevent the creation of obstacles at the earliest stage.

6. Hearing held at the Economic and Social Committee (ESC)

6.1. On 5 March the Committee held a public hearing on the theme 'Which single market for the single currency?` The hearing had a two-fold objective:

- to update the situation on obstacles to intra-EU trade; 62 obstacles had been identified at an earlier hearing held in June 1994;

- to contribute to the Commission's 1999 action plan with a view to making decisive progress towards the completion of the single market in the run-up to the introduction of the euro, as urged by the ESC in 1995.

6.2. Four sessions were held dealing with: freedom of movement of goods; freedom to provide services; fiscal harmonization; and free movement of persons. The following conclusions were reached:

- definite progress had been made in abolishing controls at EU internal frontiers but only served to highlight the remaining legal, technical and fiscal frontiers between the Member States;

- over half the obstacles identified by the ESC in 1994 were still intact, progress in removing most of the other obstacles had been piecemeal and a number of new obstacles had emerged;

- the last few years had seen a fall-off in new EU legal instruments but the number of national regulations (by 1 to 2 per day) had increased and this could create new barriers to trade;

- there was also a major mismatch between EU provisions and national provisions: the common rules, generally directives, remained incomplete, were sometimes applied unsatisfactorily and left too much leeway for waivers and national-level additional provisions;

- the introduction of the single currency was a vital step towards the completion of the single market but it would highlight the shortcomings and malfunctions of the single market. These problems fully justified the establishment of an emergency programme to tackle them;

- the IGC (Intergovernmental Conference) should ensure that such a programme was equipped with the necessary resources for a success. The Member States should adopt a code of good practice in order to stamp out new trade barriers at source. Users should be fully informed of their rights and appeal procedures, and access should be simplified;

- in drawing up its 1999 action programme, the European Commission should also define the term 'single market` more clearly: there is a need to specify the aspects where full unification is required, the fields in which effective mutual recognition of national provisions is required and the areas where different practices will continue to apply in the Member States. A comparison with the operation of the US single market - including taxation aspects - could provide useful pointers for comparison, bearing in mind the specific nature of the EU.

Brussels, 23 April 1997.

The President of the Economic and Social Committee

Tom JENKINS