COMMISSION STAFF WORKING DOCUMENT 2023 Annual Single Market Report: Single Market at 30

Disclaimer: This document is a European Commission staff working document. It does not represent an official position of the Commission on this issue, nor does it anticipate such a position. Table of Contents Introduction 1. Delivering growth and jobs: Single Market integration in the past 30 years and future outlook 1.1. Single Market integration in goods and services Potential for further integration in services and goods 1.2. Benefits of the Single Market for SMEs 1.3. Benefits and opportunities of the Single Market for people 1.4. Single Market in capital: improving financing and investment opportunities for citizens and businesses 1.5. Enablers of a well-functioning Single Market 1.6. The EU Single Market integration in international comparison 1.7. Projection of EU rules and standards: the “Brussels effect” 2. Improving the availability of goods and services, skills, technologies and investments in the Single Market vital for achieving EU strategic priorities 2.1. Services for consumers and businesses 2.2. Supply chain resilience and strategic dependencies 2.2.1. Better understanding strategic dependencies, monitoring supply chain challenges, and improving the EU framework to better anticipate and react in crisis 2.2.2. State of play of measures to mitigate strategic dependencies and develop strategic capacities 2.2.3. Critical raw materials and supply chain disruptions

2.3. Supporting availability of right skills 2.3.1. Skills policy 2.3.2. Recognition of professional qualifications 2.3.3. Posting of workers 2.4. Increasing investments 2.5. Transformation of the economy 3. Jointly managing the Single Market 3.1. Member States’ role in improving trust and shared management of the Single Market 3.1.1. Progress on enforcement of Single Market rules 3.1.2 The Single Market Scoreboard as a tool to assess Single Market performance 3.1.3 Role of EU agencies 3.1.4. Effective policy coordination and novel ways of collaboration at EU and Member State level 3.2. Leveraging new collaborative tools 3.2.1. Leveraging digital technologies at EU and MSs level to make the Single Market work better 3.2.2. Leveraging the potential of data, data sharing and data spaces – future-oriented outlook 3.2.3. Making Single Market work on the ground: example of market surveillance



Introduction

The Single Market is without any doubt one of the EU’s greatest achievements. The Single Market is vital for EU businesses and SMEs to grow, flourish, be competitive and expand internationally. The Single Market is vital for people in the EU to prosper. This anniversary 2023 edition of the Annual Single Market Report marking the 30 years anniversary of the Single Market, has therefore a twofold objective. Firstly, it takes stock of the integration of the Single Market of the last thirty years, highlights the Single Market benefits and key achievements for people and businesses, and its impact on growth and jobs in the EU. Chapter 1 assesses the functioning of the Single Market by looking at the progress in the integration in goods and services, people, and capital and financial integration. It highlights important enablers such as the competition policy, standards, public procurement policy, and intellectual property rights. These all help to complete the Single Market, create a competitive business environment, allowing European companies to grow and compete internationally. Second, the 2023 edition discusses the Single Market from a longer-term perspective through the challenges that the EU is currently facing. A well-functioning Single Market plays a key role in the EU’s competitiveness, strong economic base and open strategic autonomy. However, the environment in which the Single Market operates today is significantly different. Challenges such as increasing geopolitical tensions, global competition, climate change and risks related to strategic dependencies pose threats that were unknown or were much less pressing than thirty years ago. Work on tackling barriers continues. However, the challenges highlight the need to ensure that goods, services, skills, strategic inputs (i.e. critical raw materials and decarbonised energy), transformational technologies and investments that businesses and individuals require are available and accessible within the Single Market. Progress in these areas will boost EU’s competitiveness and productivity, strengthen the EU’s open strategic autonomy and allow companies to make the most of the green and digital transitions. Chapter 2 therefore presents considerations that are vital for the Single Market to function smoothly and deliver on the EU’s objectives. These include ensuring availability of services, tackling supply chain challenges and boosting supply chain resilience, addressing strategic dependencies, delivering on green and digital transitions and ensuring availability of right skills and funding. The Single Market and the approach to its governance have evolved over the last 30 years. For example, a large part of the Single Market in goods has already been harmonised. This has been a key factor in developing a well-functioning Single Market for goods with an unhindered flow of goods across national borders. For the Single Market to operate smoothly, the EU and national levels need to work together better. The report therefore discusses the potential of novel approaches and partnerships, as well as collaborative tools, in improving trust among authorities and better working together in addressing persisting Single Market barriers and obstacles. The report also discusses the potential of digital technologies and user friendly e-government solutions in helping reduce the administrative burden for businesses and administrations. The Single Market Scoreboard is published in parallel to this report and complements it by providing additional data on the outcomes that the Single Market is achieving by setting up sound business framework conditions for the EU economy and reinforcing its competitiveness.



1.Delivering growth and jobs: Single Market integration in the past 30 years and future outlook The Single Market is one of the EU’s greatest achievements. It has spurred economic growth and made the life of European businesses and consumers easier. The Single Market today consists of almost 450 million consumers and represents 18% of world gross domestic product (GDP) . Trade within the EU and with the rest of the world accounts for almost one third of total world trade . The Single Market provides a springboard for EU companies to flourish and grow their markets, and it gives access to trading across borders without additional administrative costs. Single Market integration has benefitted all Member States by acting not only as a driver of exports, but more generally as a source of growth and, job creation. Member States trade more within the EU (18% of world trade) than with the rest of the world (13% of world trade). Over the past decades the Single Market has advanced the most with respect to the movement of capital and goods. Trade in services and movement of people have also seen substantial progress but less pronounced, partially due to their nature and the persistent presence of barriers. The Single Market is also a powerful job engine, facilitating mobility. For example the EU system of mutual recognition of professional qualification which facilitates professional mobility for EU citizens, has enabled over 800 000 people to establish themselves in another Member State since 1997. Chapter 1 presents an analysis of the Single Market in the past 30 years and highlights the progress and achievements in integration in goods, services, capital, benefits for citizens and the international dimension. 1.1. Single Market integration in goods and services The Single Market has become progressively more integrated since 1993, as businesses increasingly expanded their activities across national borders through exports or by establishing a permanent presence in other Member States. Trade and cross-border establishment are two complementary means of achieving Single Market integration in both goods and services markets. Businesses often use one after the other as they expand across the Single Market: first they trade across borders (with lower investment risks), then they establish a permanent presence in the host Member State(s) involving more resources. In many cases, both means are also used together as businesses internationalise having a permanent presence in several Member States while at the same time also trading across borders with others. Therefore, integration in goods and services is therefore assessed for both trade and establishment. Trade The level of integration of trade in goods within the EU has doubled over the last three decades . Trade in goods within the EU has increased over the last three decades not only in absolute terms but also in relation to the size of the EU economy, enabling increased integration. While in 1993 trade integration in goods for the 12 Member States composing the Single Market at the time stood at 11%, it has gradually increased to 23% in 2021 for today’s EU-27. A number of visible shocks to trade (e.g. during the global financial crisis) led only to temporary drops in integration levels. This increase in intra-EU trade integration went hand-in-hand with a steady decrease in intra-EU trade costs, which are today significantly lower than trade costs with third countries . The Single Market remains the main source of trade in goods for the EU (being about 60% higher than EU trade in goods with the rest of the world), even after the withdrawal of the UK. Finally, the importance of intra-EU trade as a source of value added in EU production has increased consistently: today the Single Market flows account on average for about 25% of the value of a product manufactured in the EU. Figure 1: EU integration (trade vs GDP, 1993-2021) within the Single Market (intra) and with the rest of the world (extra) Source: European Commission services, based on Eurostat. Note: the graph shows trade flows in goods and services within the EU and with the rest of the world as a share of EU GDP. The vertical dotted lines in the graph highlight breaks in the time series, due to changes in the composition of the Single Market. Trade is measured by the average of imports and exports. Also in services, trade integration within the EU has doubled as well since 1993. While in 1993 trade integration in services stood at 3%, this had increased to 6% by 2021. Today, trade in services within the Single Market remains broadly at the same level as EU trade in services with the rest of the world. Overall, integration of trade in services within the EU continues to be below trade integration in the area of goods. This nevertheless hides a wide variety of integration levels across different services sectors. Services of a more digital nature and/or lower regulatory complexity are generally traded more within the Single Market. On the other hand, services of a less digital nature (often requiring a certain level of physical proximity between customer and supplier) and/or operate in an environment of higher regulatory complexity typically show lower levels of integration of trade within the EU. Figure 2: Integration of trade within the EU (trade versus turnover, 2020): divergence across services sectors – examples Source: European Commission based on Eurostat. Note: integration is calculated as trade (average imports and exports) versus turnover for 2020 (based also on the EBOPS-NACE correspondence table ). For sectors noted with an asterisk show integration levels for 2019 are given.

Establishment In addition to trade, cross-border establishment is an important channel of achieving Single Market integration. Today, intra-EU affiliates are estimated to account for about 12% of the total value added generated in the EU. Intra-EU establishment is particularly important for manufacturing sectors such as basic metals (where intra-EU affiliates generate 22% of total value added), non-metallic mineral products (22%), motor vehicles (22%) and transport equipment (21%). In services, intra-EU establishment is important for sectors such as retail (14%) and electricity supply (14%). This is reflected also when looking at the perspective of industrial ecosystem, where intra-EU establishment is relatively more important for the mobility (driven e.g. by intra-EU establishment for transport and motor vehicles) and energy-renewables ecosystems. Figure 3: Intra-EU and extra-EU establishment as source of total EU-27 value added (2019): manufacturing sectors (left), larger services sectors (right) and industrial ecosystems (bottom) Source: European Commission based on Eurostat. Note: graph shows proportion of EU value added generated by domestic businesses, intra-EU affiliates and extra-EU affiliates. Data per ecosystem (bottom) includes both goods and services (see Annual Single Market Report 2021 (p. 208)). Insufficient data is available for the proximity, and social economy ecosystem. Data for the health ecosystem does not include health services (NACE_R2 Q86-88), so it mainly reflects the production of pharmaceuticals. Data for the agri-food ecosystem does not include agriculture, forestry and fishing (NACE_R2 A). In terms of integration through trade and establishment, the services Single Market is a wide variety of sectors with very different degrees of integration. Broadly four types of services can be discerned: services mainly integrating through establishment (e.g. retail, wholesale); services mainly integrating through cross-border trade (e.g. R&D services); services integrating through both trade and establishment (e.g. telecommunications, advertising and market research, computer services); services with low Single Market integration (trade and establishment), still strongly dominated by domestic providers (e.g. construction, highly regulated professional services). Developments in European company law since the 1960s have facilitated freedom of establishment of companies, including small to medium-sized enterprises (SMEs), while increasing transparency and legal certainty, and providing appropriate protection to shareholders, creditors and employees. The recent changes to EU company law, made in response to digital developments, enabled entrepreneurs to set up new businesses or branches and to submit company information to business registers fully online, and has resulted in more company data being available free of charge (e.g. on legal representatives). The updated EU company law also sets out clear procedural rules for cross-border operations to enable companies to move and reorganise in the Single Market with necessary safeguards. The initiative on upgrading digital company law aims to increase transparency regarding companies in the Single Market by using digital tools, such as the Business Registers Interconnection System (BRIS). This will help reduce administrative barriers when companies and public authorities use company information in cross-border situations, for example by reducing formalities and using the ‘once-only’ principle. At the same time, it will help SMEs to expand across borders. Potential for further integration in services and goods There is untapped potential for increased Single Market integration in services. The achievable level of integration likely varies, depending on the specific nature of the service concerned. For example, ICT services are more easily traded than personal or office support services. Still, there is unexploited potential. For instance, the Single Market Scoreboard shows that, as regards services between 2017 and 2021, there has been little if any progress in the reduction of regulatory barriers for entry and exercise of professions. In some sectors where physical proximity between service provider and customer is still important (e.g. in social and proximity services) more integration through establishment is likely possible. In other areas (e.g. professional services), the potential of innovation and increasingly available digital tools, available data and platforms may drive further cross-border services trade. In fact, a growing number of services can today be performed remotely thanks to the use of smart technologies. Recent estimates highlight the potential benefits of further action in services. Most potential likely lies in those services that are both economically important and exhibiting lower levels of integration, such as construction (6% of EU GDP), wholesale and retail (11%), professional services (7%), and tourism services (3%). Based on proxies of a country’s regulatory barriers affecting services, the potential benefits of removing obstacles to free intra-EU services are estimated at between EUR 279 billion (when the gap with the Member States performers that are performing best in terms of obstacles is reduced by 50%) and EUR 457 billion (if the gap is reduced by 80%) of additional GDP per year in the long term. The Single Market in services and goods are today strongly intertwined. Achieving further progress in the area of services thus also offers important (positive) spill-over effects for EU industry. Services are a fundamental input for manufacturing. Overall, around 38% of the overall value added embedded in the demand of manufacturing industries in the EU is generated by services. Looking at specific manufacturing sectors, services value added ranges between 22% (mining and quarrying, non-energy producing products) and 43% (food products, beverages and tobacco). The services providing the highest share of value added in the overall manufacturing sector are wholesale and retail followed by professional, scientific and technical activities and administrative and support services. This also confirms that it is important to approach the analysis of EU industries from an ecosystem perspective, encompassing all players operating in a value chain from the smallest start-ups to the largest companies and taking into account the role of service providers as well as industrial manufacturing companies. Such an integrated ecosystem approach is taken, for example, in the development of the transition pathways (see Chapter 2.5). Figure 4: Share of services’ value added in final demand of EU manufacturing sector (2018) Source: European Commission, based on TiVA 2021 data (underlying data collected in 2018). Note: “scientific services” includes professional, scientific and technical activities, “admin services” includes administrative and support services, and “transport” includes land and pipelines. The area of goods also holds potential for further integration. Services are often the focus of discussions around the remaining potential of the Single Market. However, obstacles in the Single Market in goods still exist. Stakeholders generally confirm the Commission assessment of the important remaining obstacles in the Single Market in goods and services. In 2020, the Commission presented a comprehensive inventory of barriers preventing the proper functioning of the Single Market and holding back the EU economy. This assessment highlighted 31 horizontal and 52 sector-specific barriers. The business community has broadly confirmed this analysis. Not all of these barriers fall within the scope of EU policy. Many relate to national regulation and administrative as well as business practices. Examples of important Single Market barriers identified in the 2020 Commission assessment and confirmed by stakeholder analyses include a lack of information and complex national procedures, meeting national requirements in the area of services, administrative requirements for posting workers, issues related to taxation, specific obstacles in the area of goods (e.g. labelling requirements, problems with mutual recognition) as well as broader issues such as transport bottlenecks and a lack of skilled workers and mobility. Businesses have called for further action to address these obstacles. The Commission is addressing these issues with Member States in order to reduce regulatory complexity and to streamline administrative procedures (See Chapter 3). It is also important to address those Single Market obstacles which may hinder the EU’s pursuit of the twin (green and digital) transitions. Services are key to achieving the green transition but barriers to the free movement of services risk slowing the transition. Lengthy and diverse national permitting criteria and procedures for renewable energy projects is one important example. Measures taken to address these and other Single Market barriers are described in Chapter 3. 1.2. Benefits of the Single Market for SMEs The Single Market has played a key role in boosting SMEs’ internationalisation and competitiveness. As shown in Figure 5a, the vast majority of exporting businesses are SMEs, and the Single Market is their key export destination. This is true across both goods and services. According to the 2020 Eurobarometer on SMEs, start-ups, scale-ups and entrepreneurship, 23% of all EU SMEs exported to countries within the Single Market, 9% exported to European countries outside the EU, and 4% exported to North America. Exporting SMEs trading products across the EU are a key source of integration. The number of EU micro firms exporting goods within the Single Market is almost twice the number of those exporting goods outside of the EU. In contrast with extra-EU exports, intra-EU exports are less concentrated in a few (larger) businesses, highlighting the important role of the Single Market for EU SMEs. Figure 5a: Number of EU enterprises exporting goods by size class (2020) Figure 5b: Concentration in goods exports by largest exporters (2020) Source: European Commission based on Eurostat (ext_tec01, 2020). Note: columns show the number of enterprises exporting goods within the Single Market (blue) and to the rest of the world (red) by size class. Data does not cover Luxembourg. Source: European Commission based on Eurostat (ext_tec02, 2020). Note: columns show the proportion of total goods exports captured by the top (largest) exporters in each Member States for intra-EU (blue) and extra-EU trade (red). Internationalisation of SMEs still lags behind that of large companies, but thanks to the Single Market, it has made steady progress. Since 2012, every year has seen a steady growth in the number of exporting SMEs, with the exception of 2020, when pandemic-induced border restrictions and lockdowns led to a decline in the number of exporting SMEs. Even though overall shares of exporting enterprises show SMEs still lag behind large enterprises (26% of SMEs export, while 53% of large companies export), it is important to bear in mind that even non-exporting SMEs can participate indirectly in the global economy by being upstream suppliers of exporting firms. Such indirect contribution of SMEs to Member States' export performance is very significant: when indirect exports are taken into consideration, SMEs account for more than 50% of value added of exports.

This important contribution of SMEs to international value chains is clearly visible when looking at industrial ecosystems. SMEs account for more than 50% of value added in six out of the fourteen industrial ecosystems (see Figure 6). As industrial ecosystems span across national borders and rely on cross-border supply chains, SMEs have a crucial role to play in the competitiveness of industrial ecosystems by supplying larger players within the ecosystem, even when they are not exporting themselves. This includes the smallest enterprises with less than 10 employees: the differences in the value added contribution of SMEs across the various ecosystems mainly reflect differences in the value added contribution of micro- enterprises. Figure 6: SMEs contribution per ecosystems (in value added) Source: European Commission, based on 2022 Annual Report on European SMEs The current economic context is highly challenging for SMEs, and it is more important than ever for them to fully benefit from the Single Market. By 2022, the SMEs have been partly recovering from the COVID-19 pandemic but their recovery is threatened once again by supply shortages and rapidly increasing prices for energy and raw materials, further exacerbated by the unprovoked and unjustified Russian invasion of Ukraine. While 2022 still saw solid employment growth in SMEs of 2.9% due to momentum from 2021 and strong growth in the first half of the year, the future outlook is decidedly reserved. The latest EU Economic Forecast expects stagnation, with only 0.3% growth in 2023, while inflation is expected to remain high with 7.0% during 2023. This will have a significant impact on SMEs, with preliminary forecasts expecting employment in SMEs to fall again by 1.3% in 2023. Deterioration in the late payments by public administrations which has increased significantly compared to pre COVID – 19 period, is further complicating the fragile situation. Policymakers on European, national, regional and local levels are partnering to counter this sombre outlook in order to ensure SMEs can take full benefit of the Single Market, close the gaps between the share of exporting SMEs and exporting large enterprises and thus safeguard SMEs’ resilience during yet another crisis. 1.3. Benefits and opportunities of the Single Market for people Since its introduction 30 years ago, the Single Market created substantial benefits and opportunities for EU citizens. Thanks to the Single Market people can move around the EU almost as freely as within a single country. EU citizens can study, live, shop, work and retire in any EU country, and enjoy products and services from all over Europe. The Single Market allows citizens across the European Union to access services from the other Member States under terms and conditions similar to those originating in their home countries. Hundreds of technical, legal and bureaucratic barriers to free trade and free movement between EU Member States have been reduced or removed altogether. The increased competition between EU companies has fuelled innovation, leading to a greater choice of goods and services for EU consumers at lower prices and better quality. Affordable cross-border parcel delivery and more choice for energy, health and banking services are other tangible benefits for EU citizens and consumers. Common high standards within the Single Market lead to safer products and services for consumers, stronger consumer protection and higher environmental sustainability and circularity. They also preserve our shared cultural heritage and diversity by protecting cultural goods and treasures. The Single Market is also a powerful job engine. EU citizens can also make increased use of cross border mobility and employment opportunities in other Member States. Thanks to the free movement between Member States, people can work where they want, visa-free and benefit from the recognition of their professional qualifications across the Single Market. The mobility of EU citizens enhances the cohesion of the Single Market, contributes to dissemination of knowledge and innovation and provides opportunities for upward economic and social mobility. A recent Eurobarometer confirmed that Europeans are widely supportive of labour mobility: 58% see the positive contribution to European integration and only 9% think that free movement could be negative for European integration. However, so far mobility is relatively small: only around 17% of Europeans have worked (or still work) in a different country and mobility is far more attractive for high-skilled (tertiary educated) citizens. Digitalisation of the labour market and new forms of work in a digital environment, often have strong cross-border implications (platform work, cross-border telework). More than 10 million EU working-age citizens live in another EU and EFTA Member State than their country of citizenship. Additionally, there are 1.6 million workers residing in one Member State and working in another Member State. Posting of workers is an important dimension of cross-border mobility within the Single Market. It allows businesses established in one Member State to post their own workers temporarily to provide services cross-border in another Member State, subject to certain host country provisions on working conditions and health and safety. The number of posted workers in the Single Market is continuously increasing, in particular between neighbouring countries and closely integrated economies. In 2019, there were around 2 million posted workers and 5.8 million postings in the EU (see Figure 7). Figure 7: Share of posting notifications registered in the national declaration tools: breakdown by sending Member State (EU-27, 2019) Source: European Commission, based on De Wispelaere, Pacolet, De Smedt (2021). Note: data covers posting notifications received by 20 Member States (no data available for IE, EL, ES, HR, LV, NL, SI). A notification by a posting undertaking to the national declaration tool of the host Member State may include several postings. EU social security coordination rules are contributing to the enabling of free movement of persons. The rules ensure that citizens preserve, or do not lose, their social security protection in cross-border situations. In 2021, almost 14 million Europeans lived in another Member State, of which about 10 million were of working age. More than 3.5 million portable documents attesting the applicable social security legislation, were issued and almost 235 million European Health Insurance Cards were in circulation. Moreover, digitalisation of social security coordination makes it easier for mobile citizens to exercise their social security rights and facilitates information exchange between social security authorities/institutions. EU programmes, such as the European Social Fund Plus (ESF+) support the labour mobility within the Union, with a priority given to the youth employment. The ALMA (Aim, Learn, Master, Achieve) initiative under the ESF+ targets disadvantaged young people aged between 18 and 29 and aims to help them find their way to the job market. Implementation of ALMA is starting, with 16 Member States having included ALMA in their national or regional programmes. Moreover, results of social innovation projects are very promising. In 2014-2020, they extended to 15 Member States and has allowed almost 7,000 individuals to acquire skills, knowledge and capacity through work-related experiences abroad. The Single Market is also a vector of social progress and social inclusion for citizens enabling business models, rooted in social economy values, to respond with products and services to the needs of local communities and help the twin transition happen leaving no one behind. Strengthening the social dimension of the Single Market, in line with the European Pillar of Social Rights is particularly relevant in the current context, with our societies deeply affected by the COVID-19 pandemic, the rocketing energy prices and inflation, and the need for fair and inclusive green and digital transitions. With 2.8 million entities in the EU, the social economy offers concrete and innovative solutions to many of these key challenges. EU Consumer rights constitute a pillar of the Single Market. The Single Market for consumer goods and services offers a large set of harmonised rules that concern more than half of the EU GDP (the share of private spending). Consumers and retail traders across the EU benefit from the same laws that define market rules on unfair commercial prices or contract terms, and on guarantees or consumer rights relevant for e-shopping. For instance, 80% of consumers in the EU trust that retailers and service providers respect their rights and a high proportion (43%) are confident buying in another EU country through e-shopping. Ensuring that products circulating in the Single Market are safe is also key for people`s health and safety. Some products and risk categories are regulated under EU sectorial legislation, whereas the EU general product safety framework provides a safety net for consumers, preserving safety of products and risks not covered by other EU legislation. In this way, EU consumers are always protected against any kind of dangerous products sold offline or online. Benefiting from the Single Euro Payments Area (SEPA), consumers can make cashless euro payments to anywhere in the European Union, as well as in 9 non-EU countries and territories. More than 529 million people living in the SEPA area make about 146 billion electronic payments every year. Consumers experience the same ease and convenience when making euro transactions with the same payment instruments, in particular credit transfer and direct debit, as when paying within their home country.

1.4.Single Market in capital: improving financing and investment opportunities for citizens and businesses Thirty years ago, with the Maastricht Treaty, the free movement of capital became a fully-fledged fundamental freedom, a vehicle for financial integration and a safeguard for cross-border investments in the European Union. The free movement of capital was extended to non-EU countries, making the EU one of the world’s most open investment destinations. It comes with the necessary safeguards to protect EU’s strategic assets and important public interests. An integrated financial system is a key building block for the wider integration of markets for goods and services in the European Union, ultimately increasing financial stability and economic growth. The Single Market expands financing options for firms, channels capital where needed most, and broadens investment opportunities for savers and helps firms and households diversify risk. Policies in the areas of free movement of capital, EU Banking Union and Capital Markets Union aim to lift barriers to intra-EU cross-border investment and integrate the EU financial markets. In the last two decades, intra-EU27 holdings of foreign direct investments (FDI) and portfolio investments (PI) kept increasing and were almost 5 times higher and 4 times higher, respectively, in the second quarter of 2021 compared to the beginning of 2002 (see Figure 8b). Financial integration also advanced significantly and, measured by the quantity-based and the price-based composite indicators for the euro area in 2021, it was 8 times higher compared to 1999 (quantity-based indicator) and 11 times higher compared to 1995 (price-based indicator), as Figure 8a shows. Figure 8a: Financial integration: quantity and price based composite indicators for the euro area (1991-2021) Figure 8b: Intra-EU27 holdings of foreign direct investment and portfolio investment instruments, euro trillions (2002 Q1-2021 Q2) Source: European Commission based on ECB Financial Integration and Structure indicators dataset. Note: A value of 1 corresponds to the highest degree of integration. The price-based indicator is based on monthly data and integrates 10 indicators. The quantity-based indicator is based on quarterly data and integrates 5 indicators. Source: European Commission based on Eurostat Balance of Payments statistics. Between 2008 and 2011, the financial crisis and sovereign debt crisis imposed vast costs on the private and public sectors of the European Union. It slowed the integration of capital markets. Costs of capital across countries began to diverge and increase. Regulatory framework for the EU Single Market in financial services took a quantum leap and regulatory reforms undertaken at EU level. These together with an improved oversight have helped restore financial stability and the financial system. The revamped regulatory framework also positively contributed to a well-functioning and stable financial sector and ultimately to resilience of financial integration and the whole economy during the COVID-19 pandemic. After an initial decline during the COVID-19 pandemic, European financial integration resumed at a substantially faster pace than in previous crisis episodes and by the end of 2021 the

price-based and quantity-based composite indicators of financial integration2 had surpassed

their levels at the immediate onset of the pandemic (Figure 8a).. The 2008-2009 financial crisis and the consecutive European sovereign debt crisis resulted in the (re)fragmentation of the EU banking sector and the (re)emergence of dangerous interlinkages between national banking sectors and their respective governments. Following the crisis, the EU set up a Single supervisory mechanism (SSM), comprising the ECB and the national supervisory authorities, and the Single Resolution Board (SRB), responsible for common resolution actions. Their work is crucial in ensuring an effective management of banking crises in a cross-border context and thus minimise cross-border frictions and spill-overs. Completing the Banking Union is a politically complex endeavour, but progress in the coming years is essential if the EU is to be sufficiently resilient to address any future financial crises. The Single Rulebook provides a single set of harmonised rules applicable for banks and other financial intermediaries in all EU Member States. European financial legislation was previously based on directives which left room for significant divergences between Member States’ implementations. This led to different approaches and to legal uncertainty, enabling certain market players to exploit regulatory loopholes, distorting competition, and making it burdensome for many firms and investors to operate across the Single Market. Moreover, the financial crisis has shown that in integrated financial markets, these divergences can have disruptive effects for financial stability, market integrity and investor protection. The Single Rulebook aims to address these shortcomings and lays the foundations for a more resilient, more transparent, and more efficient European financial sector. The digital dimension of financial services has been growing for some time and the effects of the COVID-19 pandemic have accelerated the shift towards digitalisation, including in the field of consumer financial services. The Single Market can offer benefits of scale in digital finance and allow the EU to close the gap with its main global competitors. Recent developments have, however, also shown that the innovation benefits linked to digital finance can bring significant risks to investor protection and even financial stability. The EU is currently a frontrunner in regulating digital finance, notably in the fields of payments, crypto-assets and cyber-resilience. The EU financial system so far has proved to be resilient to the increasing geopolitical tensions and economic uncertainty and the European banking sector as a whole is well capitalised. Close coordination between relevant authorities and prudent risk management practices in the financial sector are key to addressing vulnerabilities effectively, while avoiding market fragmentation. The Commission, together with European Supervisory Authorities, European Central Bank and international regulatory bodies, continues to monitor risks, including those relating to non-bank financial intermediation and those that are prone to emerge with the increased use of decentralised finance structures. The ongoing reviews in banking, insurance and anti-money laundering will further strengthen financial sector resilience. The current economically challenging environment make these efforts even more urgent. The Capital Markets Union aims to develop and integrate EU capital markets in order to improve financing and investment opportunities for individuals and companies. It supports the Commission’s main political objectives such as sustainable economic growth, the green and digital transitions, macroeconomic resilience, global competitiveness of European firms and the EU’s open strategic autonomy. The need to address the effects of climate change and environmental degradation has emerged as one of the defining challenges of our era. The EU is confirming its leadership with the Green Deal responding to this challenge. EU sustainable-finance policies, based on the EU’s taxonomy, disclosure rules for non-financial and financial companies, investment tools, including benchmarks, and a proposal for a European green bond standards, support the green transition by helping to facilitate private funding to green projects and companies. Further progress is required in order to complete the implementation of the EU sustainable finance agenda, and foster usability, inclusiveness, transition finance and the resilience, as announced in the Renewed Sustainable Finance Strategy . 1.5.Enablers of a well-functioning Single Market We can assess the functioning of the Single Market by looking at its progress as regards goods and services, people and capital. However, we can also profitably analyse the Single Market from the perspective of its enablers. Competition policy, trade policy, standards, public procurement policy, intellectual property rights and transport policies all help to complete the Single Market. Barriers in these areas can help us identify potential for further progress because improving these enablers can help achieve welfare gains. Competition policy

Competition policy, and its enforcement, is a key pillar of the Single Market. It ensures that markets remain open, competitive and dynamic. It sets predictable market conditions, enabling companies to send and receive the right price signals to make the necessary investments and offer a better choice of innovative products and services at affordable prices. It addresses behaviours that lead to fragmentation of the Single Market, helping to preserve a level playing field. It also enables strong and diversified supply chains, helping to increase the Single Market’s resilience. Competition policy and enforcement enable the EU industry to lead the green and digital transitions and foster the resilience of the Single Market. The in-built adaptive capacity of competition rules is essential to address both the ongoing crises that affect the EU and the longer-term challenges of the twin transition. In specific terms, it is estimated that interventions concerning mergers, cartels and antitrust generated direct customer savings in the range of EUR 12-21 billion per year in the period 2012-2021. Competition enforcement also generates indirect deterrence effects and positive non-price effects on innovation, quality, and productivity which are likely to be significantly larger, but also more difficult to calculate. These effects are particularly beneficial for citizens and businesses in periods of high inflation. Recent Eurobarometer surveys also highlight the value of competition policy and well-functioning markets. Among citizens, a large majority agrees that competition allows for more choice for consumers (83%), that it encourages innovation and economic growth (82%) and allows for better prices for consumers (74%). On the business side, a large majority of SMEs find that competition policy encourages innovation (89%), allows for more choice (84%) and helps EU companies become more competitive on global markets (73%). Cohesion policy Cohesion policy is a major contributor to the integration of EU markets. It aims to foster sustainable growth, promoting the integration of regional economies, strengthening infrastructure, fostering innovation, uptake of digital technologies and foreign direct investment flows. By promoting a balanced and sustainable development of Europe`s regions, it contributes to the wide geographical and societal dissemination of the benefits associated with the integration of EU markets. Since its inception, the financial resources for addressing economic and social imbalances at Community level have grown substantially. Originally below 4% of the Community budget, today they represents more than one third of the budget. Cohesion policy is also a major source of financing of growth and competitiveness of SMEs, and investments in human capital contribute to further integrating EU labour markets. Standards The EU's ambitions towards a climate neutral, circular, digital and resilient economy cannot be delivered without European standards. The fast pace of innovation, our green and digital ambitions and the implications of technological standards for our EU democratic values require an increasingly strategic approach to standardisation. The Standardisation Strategy of February 2022 outlined a new approach to standards within the Single Market, as well as globally, to ensure a stronger and globally competitive European standardisation system with the EU values at its core. Having a strong global footprint in standardisation activities and leading the work in key international fora and institutions will be essential for the EU to remain a global standard-setter. Important actions have since been launched or implemented. The co-legislators adopted the legal amendment to Regulation 1025/2012 on European standardisation, which strengthens the integrity of the decision-making process in European standardisation organisations for harmonised standards, the Commission nominated a Chief Standardisation Officer and launched the High-Level Forum on Standardisation to bring more high-level alignment between EU policy and standardisation priorities. Important international dialogues are taking place - for example in the context of the EU-US Trade and Technology Council (TTC) - where alliances with like-minded partners on strategic standardisation matters are brokered. In the research and innovation field, a standardisation booster and code of practice for researchers on standardisation are rolled out, projects on the pre-normative needs of industrial ecosystems and education and skills aspects are being launched in 2023. During the past decade, building blocks of the Connecting Europe Facility, such as eID, eDelivery and eSignature, promoted the adoption of open standards and technical specifications, enabling interoperability across borders and sectors. An EU foresight on future standardisation needs for the green and digital transition, such as circular technologies, is developed on the basis of research and innovation insights, in line with the Standardisation Strategy. Public procurement Given the vast size of the public procurement market, estimated at some 14% of EU GDP, public procurement is an important enabler of a well-functioning Single Market. Public Procurement Directives make it easier for companies to bid cross-border, allow for joint-cross border procurement which involves buyers from two or more Member States. The current rules make it less complex for SMEs to access public procurement market, giving them more possibilities to participate in public contracts. Intellectual Property Intellectual property (IP) plays a key role in ensuring that the Single Market can deploy its full potential and lead its green and digital transformation. Intellectual property rights create the necessary incentives to support innovative companies and SMEs to scale up. It is essential to accelerate the uptake of innovative solutions and to develop new technologies, products, and services to address the societal challenges. They do not only enable them to exploit the benefits of the Single Market but also to compete globally on a level playing field, for example with the new EU scheme protecting geographical indications for craft and industrial products. The IP rights also play an essential role in supporting European companies in their efforts to reduce dependencies on critical innovations and technologies, for example by promoting transparency and EU high standards, facilitating licensing to share IP, encouraging the development and increasing the technological uptake of standard essential patents, promoting data sharing and improving tools to cope with crisis situations like compulsory licenses. The Commission has been working to ensure that EU innovators have access to fast, effective and affordable protection tools through the future Unitary patent planned for 2023, modernising EU legislation on industrial designs, and revamping legislation on patents. Taking into account that companies that own intellectual property rights have 55% higher revenue per employee than firms which do not, as well as a higher chances to succeed and better access to finance, the Commission is rolling out, jointly with the EUIPO, a SME Fund to boost the uptake of intellectual property rights by European innovating SMEs with “IP vouchers”. The goal is to ensure that EU SMEs protect their products, services and innovations in the Single Market and beyond, with registered trademarks, designs, patents and, soon, plant varieties rights. Single Market Programme With EUR 4.2 billion over the period of 2021-2027, the Single Market Programme provides an integrated package to support actions that strengthen the Single Market. The Programme provides funding to improve market surveillance, problem-solving support to citizens and business, enhanced competition policy, support SMEs competitiveness and sustainability, ensure food safety, consumer protection, support consumer and end-users in financial services, specific activities in the field of financial reporting and auditing standards, and European statistics. 1.6. The EU Single Market integration in international comparison The EU Single Market has not only integrated previously distinct national markets by removing barriers to trade but also by setting common regulations to establish a level-playing field based on common competition policy. Figure 9 highlights that the EU can be considered highly integrated overall in the area of goods, both in terms of total trade as well as trade compared to the size of the specific economic bloc concerned. Interestingly, this is confirmed by recent research showing that over the past decades the EU has become more integrated than the US from a regulatory standpoint with stricter requirements in the EU for Member States to accept internal flows of goods and services than exist in the US internal market. In addition, intra-EU trade costs in goods are estimated to be lower than trade costs faced when trading products across US federal states. Figure 9: Trade integration (goods) of the EU versus other economic blocs (2019) Source: European Commission analysis based on Eurostat, UN Comtrade, WorldBank and US Freight Analysis Framework The Single Market has progressed beyond the original lifting of trade barriers and competition dimensions, having achieved a notable degree of monetary and fiscal integration with the establishment of a single monetary authority (the European Central Bank) and currency (the euro) among some member states. This has in turn supported the principal objectives of the Single Market by facilitating trade, easing labour and capital mobility, reducing transaction costs, facilitating price stability and increasing resilience to economic shocks.

The EU is a sui generis political and institutional system, with an unparalleled level of integration, particularly with regards to its social and cultural aspects. Compared to other regional integration blocs, which predominantly focus on free movement of goods, the EU Single Market also promotes the equally important dimension of free movement of people. This is reflected in initiatives such as ERASMUS+ programme for mobility of students, and the Erasmus programme for entrepreneurs , the Bologna Process bringing more coherence to higher education systems across Europe , and abolishing roaming surcharges within the EU. Compared with the EU, a number of a regional groups focus largely on economic integration and do not seek comparable levels of integration on political, fiscal or monetary policies. For example, the Agreement between the United States of America, the United Mexican States, and Canada (USMCA) is a Free Trade Zone in North American primarily seeking economic cooperation by reducing tariffs on goods and services in order to facilitate trade. In USMCA, while trade of goods and services is relatively free, movement/mobility of people is not facilitated (with all three members having separate strict immigration policies), and more extensive policy measures such as those used to facilitate intra-EU trade (common currency and competition policy) are not sought under the Free Trade Agreement. Other ‘supranational’ political and economic projects fall short of the EU’s ambitions. This is for instance the case of ASEAN, which to some extent similarly to the EU, is an ‘intergovernmental’ association (although without similar supranational institutional structures), between states in East and South-East Asia. Currently, ASEAN provides only an economic framework to facilitate bilateral cooperation between Asian countries, but it does not have an aspiration to become a fully integrated ‘Asian Union’. An example of a more ambitious intergovernmental organisation focused on economic cooperation is the Southern Common Market, also known as MERCOSUR. MERCOSUR has 4 full members (Argentina, Uruguay, Paraguay and Brazil) and several associate countries . Participating countries of MERCOSUR have the ambition to eliminate non-tariff barriers and have a common competition policy to complete its internal market, in a similar way to the EU. On the other hand, MERCOSUR members do not wish to institutionalise MERCOSUR into a supranational political body promoting further economic and political integration. Despite having a MERCOSUR Parliament, all country members prefer little political integration with minimal regional bureaucracy and limited common policies. The Single Market has also inspired other regional groupings through its global outreach regional partnerships and governance systems. For example the African Union bases the framework of its economic partnership agreement to a large extent on the Single Market. Equally, its governance structure appears to be mirroring the institutional makeup of the EU. 1.7.Projection of EU rules and standards: the “Brussels effect” The scale of the Single Market together with the EU regulatory leadership, the ability to shape international standards and project EU standards and values, provide a vital tool for Europe to project its interests, in a time of big geopolitical challenges. The European Union and its stakeholders promote work in international standards-setting bodies to develop global standards in line with EU values, interests and legislation. When this is not possible, the European Commission promotes elaboration of world-class European standards with international relevance. Because of the economic importance of the Single Market, the impact and relevance of the EU’s rules and values, such as its high standards on safety, environmental and data protection are enhanced and create an important economic leverage and clout internationally, a phenomenon referred to in academia as the ’Brussels effect’. According to Bradford (2012), the Brussels Effect is “the EU’s unilateral power to regulate global markets” , which is contingent on the EU’s market power. The “Brussels effect” is measured through the use of five key factors: 1.Market size: The extent of any state’s market power depends on the attractiveness of its consumer market compared to alternative markets available . Because of the attractiveness of the Single Market producers throughout the world adjust their production standards to meet EU regulatory requirements to ensure continued access to the European market and its large and affluent customer base. 2.Regulatory capacity: The EU’s ability to design rules and enforce them, including under the supervision of European regulatory authorities affords it significant leverage in imposing regulatory requirements and sanctions to companies in case of non-compliance, via its competition, market surveillance, or trade defence instruments frameworks, among others. 3.Stringent standards: Due to the force of its Single Market, the EU has the ability to impose stringent and convincing standards (notably social standards), hence fostering a ‘race to the top’. 4.Inelastic targets: With nearly 450 million customers in the Single Market which do not need to travel to other countries to buy their products, firms need to comply with EU standards to guarantee that their goods are sold in the EU. Therefore, EU regulatory standards can be imposed on global companies seeking to access the lucrative EU market. 5.Non-divisibility of production/supply: by imposing its regulatory requirements within its own borders the EU can encourage the adoption of EU norms globally. Instead of producing and exporting different products with different national/regional regulatory standards to different countries, firms may align themselves to the Single Market and EU regulations, in order not to split their productions lines. Certain sectors see a particularly important uptake of EU-style regulations by third countries. Figure 10 shows the share of EU-style regulations in the total number of regulations adopted by 83 third countries in a given sector over the 2009-2019 period. A regulation is defined as the combination between a detailed measure (either sanitary and phytosanitary measures or technical product requirements) and the product it applies to. It is considered to be “EU-style” if the EU has a similar measure in place on the same product adopted at most five years before. Considering the period 2009-2019, the sectors with the highest uptake of EU-style regulations are Vegetable products, Prepared foodstuffs & Beverages, Animal products, Precision & medical instruments and Textiles, where more than one third of all regulations adopted in the sector in question are similar to the EU. In the sectors corresponding to Mechanical appliances; electrical equipment and Footwears & gears between 20% and 30% of all regulations are similar to the EU. Finally, sectors such as Products of the chemical or allied industries, Transport equipment, Base metals & articles of base metal, and Miscellaneous (including toys) have an uptake of EU-style regulations of more than 10%. Figure 10: Share of EU-style regulations in the total number of regulations adopted by third countries within a sector over 2009-2019 Source: European Commission calculations (paper forthcoming) based on the Non-Tariff Measures data from TRAINS-UNCTAD, including detailed information on Sanitary and Phytosanitary (SPS) Measures and Technical Barriers to Trade (TBTs) for 83 countries. In this context, a regulation refers to a combination of a specific non-tariff measure (either SPS or TBT) and the product to which it is associated. For instance, storage transport conditions for oranges and storage and transport conditions for orange juice are considered as two different regulations. Besides mandatory regulations, third countries also voluntarily adopt EU standards, mainly in sectors such as Construction activities, Transport and vehicle standards and Electrotechnology standards. According to Christen et al. (2022) and as shown in the figure below, the highest number of adopted standards by third countries in 2021 refer to construction activities (16% of all active standards adopted by third countries), transport and vehicle standards (14%), and electrotechnology standards (13%). Many of these standards are also equivalent to International Standard Organization (ISO) or the International Electrotechnical Commission (IEC) standards. This reflects not only the EU’s good track record in translating international standards to European standards, but also its capacity (the Brussels effect) to speed up the adoption process of these standards in third countries. The sector corresponding to household appliances and Heating, ventilation, and air conditioning (HVAC) is characterized by the highest adoption by third countries of EU standards with an underlying EU directive in 2021 (69%). Other sectors with an important rate of adoption by third countries of EU standards following an EU directive are healthcare and health & safety standards sector (60%), and the mechanical and machinery sector (59%).

Figure 11: Sectoral distribution of standards adopted by third countries in 2021 Source: CEN and CENELEC (2021). Extracted from the report “The Brussels Effect 2.0. How the EU Sets Global Standards with its Trade Policy” by Christen et al. (2022). When focusing on a particular example, that of the EU Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), Figure 12 below shows the number of REACH related standards developed by CEN (the European Committee for Standardization) and adopted by other countries. According to Christen et al. (2022), the REACH related CEN standards the EU have been adopted as national standards by the standard setting bodies of Albania, Bosnia and Herzegovina and Morocco. The most adopted CEN standard is relevant for the determination of certain restricted substances used for the coloration of textiles. The Chinese standard setting organization (SAC) also adapted a REACH-associated CEN standard relevant for demonstrating the conformity of articles with the restriction on nickel (a substance which may cause allergic reactions). Figure 12: Number of adopted standards driven by the EU REACH Regulation over time Source: CEN and CENELEC (2021). Extracted from the report “The Brussels Effect 2.0. How the EU Sets Global Standards with its Trade Policy” by Christen et al. (2022). eInvoicing is another example of an area, where the EU benefits from the “first-mover advantage”. Interest in the European model based on the EU standard for eInvoicing is growing internationally. The EU champions digital partnerships with likeminded third countries and promotes a free flow of data with trust while maintaining the European values and leadership in protection and an appropriate level of personal data protection for cross-border data flows. Countries, such as Australia, New Zealand, Japan and, in certain fora, US, which are adopting models similar to the EU model, are favouring eInvoicing as a quasi-mandatory element in all formal and informal trade discussions under the digital trade chapter, bilateral(including those with the EU) and multilateral. eInvoicing is a key element of the “Digital Trade Principles”, an output of the non-binding Digital partnerships. 2.Improving the availability of goods and services, skills, technologies and investments in the Single Market vital for achieving EU strategic priorities A lot has been achieved in integrating the Single Market over the last 30 years. Important barriers have been removed, and essential rules for free circulation of people, goods, services and capital have been harmonised. (See Chapter 1 presenting the benefits and main achievements of the Single Market over the past 30 years). However, the environment in which the Single Market operates today is significantly different: Challenges such as increasing geopolitical tensions, global competition, climate related challenges, and risks related to strategic dependencies pose threats that were unknown or were much less pressing than thirty years ago. Many of those challenges already impact or have the potential to negatively impact the smooth functioning of the Single Market and could spill over and weaken the EU economic base. Supply chain challenges, from energy products (e.g. natural gas) and basic raw materials (e.g. magnesium) to high-tech products (e.g. semiconductors) require attention. Otherwise there is a risk of delaying the EU’s economic recovery and slowing down our pursuit of the twin transitions. The current Russian aggression against Ukraine and high energy prices raise critical competitiveness challenges for the EU’s Single Market and the twin transition. The State aid Temporary Crisis Framework, adopted by the Commission in March 2022 to tackle the economic challenges stemming from Russia’s war against Ukraine, has enabled Member States to use the flexibility foreseen under State aid rules in order to support the economy, mobilising EUR 672 billion of national funding by 23 January 2023. In parallel, the Commission is also pursuing an unprecedented review of more than 20 of its competition rules and guidelines, making sure all competition instruments – mergers, antitrust and State aid control – remain fit for Europe’s path towards the green and digital transitions and for a resilient Single Market. A well-functioning Single Market plays a key role in the EU’s competitiveness, strong economic base and open strategic autonomy. For example, the COVID- 19 pandemic showed the fragility of the Single Market (e.g. unilateral export restrictions imposed by Member States). At the same time, it also highlighted the power of the Single Market in enhancing resilience (e.g. addressing the supply crisis of personal protective equipment or scaling up COVID-19 vaccine production, and introducing solidarity lanes, etc.). Our defensive and offensive strategies have the Single Market at its core and they help the EU to remain open to trade and investment, competitive and connected to the world. Being assertive against unfair and coercive practices and ready to enforce rights, is in our DNA, and EU favours international cooperation to address global problems. This leads to a greener and fairer world, strengthens existing alliances and engages with many partners. Well-functioning Single Market is indispensable for achieving the EU’s strategic priorities. The Single Market provides the platform and scale for successful policy measures that have more impact. Measures at EU level are more effective in helping the EU reach its strategic objectives and respond to longer-term challenges, such as those caused by geopolitical changes, address strategic dependencies and accelerate the green and digital transitions. The challenges that the EU is facing highlight the importance to give equal focus and priority to ensure goods, services, skills, strategic inputs (i.e. critical raw materials and decarbonised energy), transformational technologies and investments that businesses and individuals require are available and accessible within the Single Market. This will enable the EU to boost its competitiveness and productivity, make the most of the green and digital transitions and strengthen the EU’s strategic autonomy. The Single Market plays vital role for successful green and digital transitions in number of ways, such as facilitating fast and accelerated diffusion and uptake of clean and digital technologies, fostering transition towards circularity, steering investments in breakthrough technologies, in particular clean technologies and enabling businesses to access the required goods, services, skills, technologies, and decarbonised energy and investment. Chapter 2 presents different aspects of availability that are needed for the Single Market to function smoothly and deliver on the EU’s objectives. These include ensuring availability of services, tackling supply chain challenges and boost supply chain resilience and strategic dependencies which are possible risks to availability in the Single Market, and in particular to delivering on green and digital transition. A particular focus is given to critical raw materials. This chapter also discusses the importance of ensuring availability of right skills and funding.

2.1.Services for consumers and businesses Consumers and businesses benefit from the availability of goods and services across the EU. Consumers enjoy higher quality and cheaper products and services, businesses can not only offer their goods and services across Europe but also source goods and services from the European market. However, if services, which are in principle offered in the Single Market, are not available or accessible for citizens and businesses, the Single Market in services is not functioning as it should. Tackling barriers in the area of services is particularly important, given the large potential for increasing cross-border trade and investment. Some types of barriers have proven to be persistent: 60% of the barriers that businesses report facing today are of the same type as were reported 20 years ago. Reasons behind lack of availability and accessibility of services include amongst other low trade and investment, a lack of skilled workers, regulatory and administrative burden, supply shortage of product inputs and low labour mobility. These are described in detail in other chapters of this report. Not all of these barriers fall within the scope of EU policy as many relate to national regulation and administrative as well as business practices. To encourage and support Member States reforms, the Commission has repeatedly issued recommendations to Member States on the regulation of services, as part of the European Semester and specifically in relation to professional services, to encourage and support Member States reforms. The impact of a lack of availability of services concerns all industrial ecosystems of the EU economy and has a significant negative impact on the green and digital transition and on EU economic competitiveness. Examples of such disruptions can be seen in the construction ecosystem, for example, through delayed installation of clean energy technologies such as solar panels and heat pumps, in the tourism ecosystem (hotels, restaurants and travel providers offering reduced services) and in business services (lack of availability and choice, and high prices for industry sourcing those). As shown in Chapter 1, comparisons between extra-EU trade in services and the Single Market for goods reveal that the Single Market in services has still a lot of untapped potential. The fact that the EU trades more services with non-EU partners than within the Single Market, confirming that services are tradable and many more are becoming tradable as a result of digitalisation. The green and digital transitions are creating additional demand for new types of services in ecosystems such as construction (e.g. energy audits, building insulation), renewable energies (e.g. installation of heat pumps, solar technologies), mobility (e.g. vehicle sharing), retail (e-commerce) and tourism (e.g. digital guides). Moreover, many services are changing in their nature as a result of digitalisation that allows, for example, professional services to be delivered increasingly from distance and across-borders. The intermediation of services via platforms has also created significant business opportunities and demand for new services, not least in tourism and proximity services. Ensuring the availability of such services in full respect of legitimate public interest objectives may imply services policy adjustments, such as the recent Commission proposal for a Regulation on short-term rentals. . Instead of a one-size- fits- all policy response, a combination of policy measures can make a difference and bring substantial benefits, by ensuring that that regulation is justified and proportionate, reducing administrative burden and enhancing cooperation between authorities, facilitating mobility of professionals and addressing the skills gap. Such measures will also need to be tailored to each industrial ecosystem, in particular for those having a high services content and potential for cross-border trade, as listed in Chapter 1. In order to respond to the increasing demand for products and services accessible for persons with disabilities the European Accessibility Act aims at increasing the availability of accessible products and services in the internal market by removing barriers created by divergent rules in Member States. Both companies and customers will benefit from the Act’s common accessibility requirements. On the one hand, companies (in particular SMEs) will find it easier to trade with other EU countries and gain certainty that they can sell their products and services throughout the EU. On the other hand, as the Act will drive innovation, customers will benefit from a wider and more socially inclusive offer at more competitive prices. 2.2.Supply chain resilience and strategic dependencies 2. 2.1. 2.2. Supply challenges experienced over the last years, from energy products (e.g. gas) and basic raw materials (e.g. magnesium) to high-tech products (e.g. semiconductors), highlighted the need for better understanding and anticipating of strategic dependencies and vulnerabilities. The EU gains resilience from open world markets integrated in global value chains (i.e. through cost reduction, economies of scale, risk reduction, access to foreign inputs). However, supply chain disruptions can affect specific products and inputs that are particularly critical for society and the EU economy. Since 2020, a number of supply challenges occurred, originating from a number of sources (logistic disruptions due to lockdowns in China, price increases associated to higher input costs due to higher energy prices, and disruptions due to the war). Shortages, price increases or both have been documented for many products across different sectors, such as pharma, electronics, commodities or energy-related sectors. Supply chain crunches and challenges risk delaying the EU’s economic recovery and slowing down our pursuit of the twin transitions. The changing global geo-political setting is putting at risk the security of supply of energy and of essential raw materials that are needed for successful green and digital transitions. Furthermore, the EU’s commitment to the green and digital transitions will also increase the future needs for specific goods (e.g. raw materials) and technologies (e.g. batteries), creating additional supply and price pressures as well as new business opportunities. Recent experience shows that an open and functioning Single Market has a key role in boosting the EU resilience against supply chain challenges. The size of the Single Market and the potential it offers for diversification and collaborative production to build up capacity, in particular in EU strategic areas, substantially reduce vulnerabilities and reinforce EU resilience. This has been clearly demonstrated by the handling of the supply crisis of personal protective equipment and the scaling up of vaccine production during the COVID-19 pandemic. The two examples show that the Single Market acts as the EU’s raincoat in crisis, reduces the risk and adverse effects of major economic shocks, which ultimately affect our industries and businesses. Ongoing efforts to build-up EU capacities at all stages of the raw materials value chain and across the EU provide another telling example of the strength of the Single Market as a driver of resilience. Since the start of the COVID-19 pandemic, the Commission, Member States and stakeholders have stepped up efforts to map out the EU’s strategic dependencies, assess related risks and take action to address them. This section discusses in greater detail the ongoing work to better understand strategic dependencies, monitor of supply chain challenges and improve the EU framework to better anticipate and react in a crisis. Effective competition enforcement prevents anticompetitive agreements that would limit product availability or hike prices. At the same time, substantive measures are being rolled out to alleviate identified strategic dependencies, in particular those critical for the green and digital transitions, through trade and diversification and by enhancing build-up of domestic capacity in strategically important sectors and supporting circularity. The latest state of play of the measures rolled out is outlined in the second part of section 2.2. 2.2.1.Better understanding strategic dependencies, monitoring supply chain challenges, and improving the EU framework to better anticipate and react in crisis

Commission services work towards better understanding the key strategic dependencies: In the context of gathering a better understanding of the EU’s strategic dependencies and monitoring supply chain risks, the Commission completed two analyses (May 2021 and February 2022) on the EU’s strategic dependencies and capacities. These included 11 in-depth reviews of strategic areas, such as raw materials, active pharmaceutical ingredients, li-ion batteries, clean hydrogen, semiconductors and cloud and edge computing, rare earth magnets and magnesium, solar PV, chemicals, cybersecurity and IT software. In addition, several other relevant exercises to map dependencies and risks have been completed often in collaboration with industry stakeholders. As an example, Box 1 discusses the impact of supply chain disruptions in construction ecosystem. Further efforts are being taken to ensure a better monitoring on supply chain risks. Events such as the COVID-19 pandemic and the Russian aggression against Ukraine have highlighted the fragility of certain global supply chains. Hence, the importance of monitoring them and developing early warning systems that asses the risk of bottlenecks. This is particularly relevant when disruptions affect critical products and inputs for our society and our economy, such as the raw materials used upstream by technologies needed for the green transition. However, existing monitoring tools are rather scarce and in the most cases do not allow the tracking of the real-time evolution of economic variables showing distress. This is understandable given the complexity and multi-dimensionality of supply chains. To partly bridge that gap, an indicator-based system has been built using very high-frequency information from customs data, which allows for a dynamic monitoring and captures early signals of distress in EU’s supply chains. The so-called “SCAN” (Supply Chain Alert Notification) uses quasi-real time movements in quantities and prices - signalling possible mismatches between supply and demand to identify pressures and possible signs of bottlenecks. The two basic economic indicators are then complemented with additional ones in an attempt to identify the existence of underlying structural factors driving the stress. These additional indicators refer for example to the degree of EU dependency from foreign sources or to the existence of global single points of failure. SCAN has been so far applied to strategic upstream inputs into green technologies, given that monitoring the universe of traded products is neither desirable nor practical. The COVID-19 pandemic demonstrated that the EU’s dependencies on external supplies of key medical countermeasures including vials, syringes, personal protective equipment and other products essential for the production of therapeutics, vaccines, and diagnostics can adversely impact security of supply in the Single Market. The work of the Commission`s Health Emergency Preparedness and Response Authority (HERA) also covers the industrial dimension of pandemic preparedness and the supply chain for crisis-relevant medical countermeasures. In the preparedness mode, HERA aims to identify bottlenecks within and outside the EU and market failures that could limit production capacity of medical countermeasures and raw materials during a health crisis, including through collecting feedback from industry via the Joint Industrial Cooperation Forum. HERA is also establishing a state-of-art IT system for intelligence gathering, threat assessment, mapping medical countermeasures, supply chain risk management and management systems for stockpiling. The transparency of the supply chain will serve as an early warning system and will also allow the Commission services to identify structural deficits with regard to the industrial capacity of certain critical goods necessary for health emergencies. In addition, in April 2022, the Commission announced the creation of EU FAB, a network of manufacturing facilities which aims to ensure that sufficient and agile manufacturing capacities for different vaccine types are available and can be activated quickly in the event of a public health emergency. For pharmaceuticals, the Commission clearly highlighted in the 2020 Pharmaceutical Strategy for Europe the need to strengthen the security of medicines supply across the EU and avoid shortages. As part of these efforts, a Staff Working Document was published in October 2022 underlining ongoing and new actions to identify critical medicines, strategic dependencies, optimise regulatory pathways, promote manufacturing, and improve procurement, intelligence and global cooperation to strengthen supply chains for medicines. A particular attention was put on active pharmaceutical ingredients produced outside the EU and potential source of vulnerabilities for medicines supply chains. As supply chain disruptions impacted many businesses, a Supply Chain Resilience platform was set up by the Enterprise Europe Network (EEN) to assist impacted European businesses and mobilise business support organisations all over Europe to find alternative solutions. The platform was originally used to identify supply chain disruptions for the EU. Initially established as a long-term matching platform for medical supplies at the beginning of the COVID-19 pandemic, it proved very efficient in addressing supply chain bottlenecks Since March 2022, it has been further developed as a cross-sectoral global platform, offering European and Ukrainian SMEs a partner search tool to assist with an increasingly urgent need for assistance to companies that have lost their import/export markets inter alia in Ukraine, Russia, Belarus, and due to the blockade of the Suez canal and closing of major Chinese and Asian harbours due to lockdowns. It offers the opportunity to make targeted and time-efficient contacts with all actors in industry, academia and government. The goal of the platform is to help interested European companies gain access to the raw materials and/or (semi)-finished goods they need to keep production going. Furthermore, in order to face the crisis in Ukraine and keep Ukrainian goods moving, the European Commission launched the EU-Ukraine Solidarity Lanes Business Matchmaking Platform. This platform, under the coordination of EEN Ukraine, contributes to the implementation of one of the actions foreseen under the EU-Ukraine Solidarity Lanes Action Plan and brings EU and Ukrainian businesses together to find practical solutions to the export of agricultural products from Ukraine. The two platforms demonstrated significant capacity. The Supply Chain Resilience Platform reached the impressive number of 862 registered European and International companies and almost 400 marketplace opportunities. The platform offers a very good potential to support European companies, with minimal effort on their behalf. First partnerships came out of it, 300+ meetings between companies were matched so far. The total number of co-organisers is 160, which are EEN organisations, clusters and international trade organisations linked to the platform, making it a huge success. Most recently, the Commission proposal for a Single Market Emergency Instrument aims to leverage the power of the Single Market to anticipate and react to the next crisis, establishing a crisis management framework to pre-empt and limit the impact of a potential crisis on the EU’s industry and economy. It will support a strong and open Single Market in times of crisis by putting in place a new governance structure as well as frameworks for contingency planning, vigilance and emergency, with the objective to safeguard the free movement of persons, goods and services and maximise the availability of products needed in the crisis response. Box 1: Case study: Impact of supply chain disruptions in the construction ecosystem The construction industry is highly dependent on a number of supply chains, in particular those of steel, aluminium, ceramics (bricks and tiles), glass, wood, bitumen and cement and concrete. Price spikes and capacity cuts in these supply chains have immediate and strong impact on the construction industry, affecting price competitiveness, negatively affecting Member States budgets for public works, and beyond. Several product groups in the construction ecosystem show an important degree of import concentration. The main strategic dependencies for construction products are at the beginning of the value chains and at the level of raw materials. Moreover, the general move towards digitally powered smart buildings creates a dependence on electronic components. For example, a shortage of chips has recently caused problems in the production of solar panels (inverters), home automation and automatic window screens. The Russian invasion of Ukraine has disrupted a number of the ecosystem’s vital supply chains for construction: the sectors that depended on imports from Russia, Belarus or Ukraine, such as wood and steel, were most impacted. Geographically, the strongest impact occurred in the eastern countries of the EU (Finland, Baltic States, Poland, Slovakia and Hungary). Importantly, SMEs are more strongly impacted by such disruptions, due to their smaller physical stock, lower financial buffers and smaller bargaining power. On Figure 13, we see a strong increase of the percentage of companies reporting a shortage of material and/or equipment as a factor limiting their output, right after the beginning of the Russian invasion. By the end of 2022, the impact of this factor has fallen back to a pre-invasion level. After strong price increases during the period February-May 2022 for construction materials from wood and steel (see Figure 14), prices are now stabilizing after adjusting internal trade and transport routes, and also due to some slowing down of the demand. The initial strong differences in impact between the Member States were smoothed out as a result of these adjustments. Since July 2022, the main concern for the supply chains are due to the impact of high energy prices, such as cement products, bitumen, bricks, roof tiles, glass and aluminium profiles. Prices for these products are expected to rise further. Capacity cuts by producers, especially in the supply chains of ceramics, steel and aluminium, are invoking further price rises. Public authorities, acting as buyers of public construction or infrastructure have been strongly affected by the price and supply uncertainties in the construction sector. Public buyers receive a low number of tenders or even no tenders at all, due to economic operators avoiding the price risk of public contracts. To avoid this, public authorities can work with stronger price indexation mechanisms, but this in turn leaves the overall budget uncertain. In the case of running contracts, construction companies are faced with price spikes and supply chain problems, leading to requests for renegotiations of contracts in terms of price and delivery times and in some situations even leading the impossibility to execute contracts. 2.2.2.State of play of measures to mitigate strategic dependencies and develop strategic capacities

As shown during the COVID-19 pandemic, the Single Market can facilitate access and availability of the needed inputs, goods and services for European industry to withstand the headwinds in the short run. Also in the long run, the Single Market is essential to ensure resilience and competitiveness of the EU economy. Moreover, it can act as the catalyst of green and digital transformation of the EU’s industrial ecosystems. The Updated Industrial Strategy of 2021 proposed a balanced mix of policy measures to address the EU’s strategic dependencies and strengthen supply chain security along supply and value chains through trade and diversification and by developing EU capacities in strategic areas. Trade and diversification through international partnerships Whenever possible, the EU is working with international partners to strengthen supply chains and underpin businesses efforts to diversify imports. For example, cooperation in the framework of the EU-US Trade and Technology Council aims to strengthen resilience across several of the areas for which the EU faces important strategic dependencies (e.g. raw materials, active pharmaceutical ingredients and semiconductors). To further enhance security on supply chains and raw materials, the EU is actively developing collaborations and coordination of policy actions with third countries, including through strategic partnerships on raw materials and full use of the broader range of trade policy. This is key to ensure access for the European industry to the needed raw materials for a broad spectrum of applications in the context of digital and green technologies, such as wind turbines, solar PV panels, electric vehicle drives, power tools, and electric bikes, etc., as well as defence and health. The EU-US Joint Taskforce on COVID-19 Manufacturing and Supply Chains has resulted in a common list of critical materials for the production of medicinal products, in particular COVID-19 vaccines and therapeutics for global supply chain monitoring. EU continues pursuing international partnerships to increase supply chain security and diversify sources. New international partnerships have been concluded to increase supply chain security and availability of diversified sourcing options. As part of the Action Plan on Critical Raw Materials, the Commission is building partnerships with like-minded resource-rich countries, making use of all external policy instruments and respecting its international obligations (e.g. strategic partnerships on raw materials with Canada (from June 2021), Ukraine (July 2021), Kazakhstan and Namibia (both concluded in November 2022). To diversify its supply chains further, the Commission is working towards establishing additional mutually beneficial raw material value chain partnerships with countries in Africa, Latin America, Western Balkans and with Australia, via trade and investment agreements or Memoranda of Understanding establishing cooperation on specific matters such as energy and raw materials. In addition, the EU's Digital Partnership with Japan (May 2022) focuses on building resilient supply chains for digital products and hardware (including semiconductors), with Singapore and South Korea having also expressed interest in developing Digital Partnerships. Developing EU strategic capacities in key areas The assessments of the EU’s strategic dependencies from 2021 and 2022 found that many of the identified strategic dependencies fall within areas and technologies that are critical for green and digital transition. In the future, in many of these areas, the Single Market can play a strategic role, including in developing new capacities or strengthening the existing ones, for example through innovation and scale or by securing access to relevant raw materials. Different policy measures are being rolled out to secure availability in critical areas by building European capacities. They range from industrial alliances accelerating activities that would not develop otherwise in the EU, facilitating stronger cooperation and joint action in specific industry sectors or value chains, targeted support for R&I, enhanced circularity and substitution, regulatory framework that stimulates innovation and investment in the EU, to mobilising funding - EU (e.g. RRF) and national. Key examples of enabling regulatory framework are the proposal for European Chips Act and the proposal for Critical Raw Material Act that the Commission is preparing, as announced in the State of the Union address (See 2.2.3 on Critical Raw Materials). Horizon Europe and its predecessor, Horizon 2020 mobilise research and innovation in strategic value chains. Cross-border cooperation on technology development in European Partnerships with industry like Clean Hydrogen, Clean Steel, Processes4Planet, Innovative Health Initiative and Key Digital Technologies creates a common understanding of opportunities and challenges in innovative technologies for climate-neutrality, independence from fossil fuels, circularity and electronic components and systems in key EU industrial ecosystems. For example, the Battery Partnership (BATTEU) was established with industry to support research all along the battery value chain underpinned by a budget of EUR 925 million. Since the launch in 2021, EUR 270 million have been awarded to 40 projects in the batteries area. These partnerships enable systematic engagement with a variety of stakeholders and end-users, including standardisation bodies and international partners and they strengthen linkages within their respective ecosystems and along the value chains. This paves the way for faster and wider development of relevant standards for the Single Market, early identification of regulatory obstacles hindering the entry and roll-out in the Single Market and removing or reducing such obstacles for the Single Market through joint action including open innovation testbeds and regulatory sandboxes, where adequate. As shown by the Battery, Hydrogen and Raw Materials Alliances, industrial alliances are valuable tools in strategic areas to accelerate activities that would not develop otherwise, to enhance resilience of strategic supply chains, identify investment needs, build project pipelines, identify regulatory bottlenecks and build new strategic capacities. Alliances can help to attract private investors to discuss new business partnerships and models in a manner that is open, transparent and fully compliant with competition rules. The work on the European Battery Alliance, launched in 2017, is ongoing and keeps producing value added for the battery industry by supporting development of an innovative, circular and sustainable battery eco-system in the EU, ensuring that Europe’s emerging battery industry can compete on a level playing field. Since the launch of the alliance in 2017, a battery value chain in the EU emerged fast, driven by rapidly growing demand for batteries. The alliance helps to create a strong momentum and vast business opportunities in the battery value chain, and mobilised to date EUR 127 billion of mostly private funds in investment and estimated 111 industrial projects underway. The Commission continues supporting industrial alliances; in 2022 new industrial alliances have been launched in areas of photovoltaics, renewable and low-carbon fuels value chains and zero emissions aviation. An alliance on space launchers is currently under review. (See Figure 15 – State of play of industrial alliances). Figure 15: Overview of industrial alliances Source: European Commission The European Solar Photovoltaic Industry Alliance was launched on the 9th of December 2022 to accelerate solar photovoltaic (solar PV) deployment in the EU. The objective is to develop an EU solar PV industrial ecosystem, to help secure and diversify supplies of solar PVs value chain components and supply raw materials, and scaling up EU manufacturing of competitive, innovative, and sustainable solar PV products. With the alliance's support, the EU could reach 30 Gigawatt of annual solar energy manufacturing capacity by 2025 across the full PV value chain. Beyond Industrial Alliances, the Commission is also supporting High Level Discussion Platforms in strategic areas. European Hydrogen Week, European Sustainable Energy Week, Raw Materials Week and EU Industry Days became leading industry events, and provide platforms for dialogue, engagement and mobilisation. They bring together key stakeholders, can inform policymaking and drive innovation. The Raw Materials Week generates knowledge sharing between key stakeholders to address critical raw materials and helps to mobilise efforts towards a more resilient industry. The 2022 Industry Days stimulated discussions between industrial ecosystems on their green and digital pathways, which are essential to strengthen the resilience of companies and SMEs in Europe. Industrial Forum Task Force 3 discussed in a number of workshops organised throughout 2022 specific topics in the area of strategic dependencies (i.e. energy, raw materials and chemicals), as well as horizontal themes such as the general understanding of strategic dependencies, skills and the circular economy. In the area of hydrogen, clean hydrogen partnerships are being built since 2017, and so far, 38 European Hydrogen Valleys have been created as a part of the Mission Innovation Hydrogen Valleys Platform. For instance, the 2022 Raw Materials Week highlighted the importance to decrease dependencies while supporting EU industry competitiveness and green transition. The annual High-level Conference focused on raw materials partnership and opportunities for Ukraine recovery, synergies on raw materials supply chain in Europe, and highlighted the need for an integrated energy system for a sustainable and resilient Single Market. The Raw Materials Week was centred on the 9th annual high-level conference of the European Innovation Partnership (EIP) on raw materials, a stakeholder platform bringing together representatives from industry, public services, academia, and NGOs, and focused on managing renewable energy transition, securing supply of raw materials, partnerships with Ukraine, and sustainable sourcing. There has been significant private and public investments in the strategic areas of hydrogen, batteries, and semiconductors/microelectronics. In many of these areas, it was facilitated in part by Important Projects of Common European Interest (IPCEI) designed to support breakthrough innovation and infrastructure in areas critical for EU open strategic autonomy and resilience, through close collaboration across industry, Commission and Member States authorities. In July 2022, the Commission approved the first IPCEI in the hydrogen technology value chain (“IPCEI Hy2Tech”) covering 15 Member States and 35 companies participating in 41 projects. The Member States will provide up to EUR 5.4 billion in public funding, which is expected to unlock additional EUR 8.8 billion in private investments. In September 2022, the Commission approved the second IPCEI focused on hydrogen infrastructure and industrial processes (“IPCEI Hy2Use”) covering 13 Member States and 29 companies participating in 35 projects. The Member States will provide up to EUR 5.2 billion in public funding, which is expected to unlock additional EUR 7 billion in private investments. To date, 5 IPCEI projects have been approved by the Commission in the strategic areas of batteries, microelectronics and hydrogen representing a total of EUR 18.7 billion of national funding/State aid, triggering twice the amount in additional private investments (See Figure 16). Since the launch of the first IPCEI in the area of microelectronics, an increased number of Member States have participated in IPCEIs in these strategic areas. Furthermore, the Commission is currently assessing first information received for further IPCEIs on hydrogen, on cloud, health and a second IPCEI on microelectronics. The Commission will support efforts from Member States on potential IPCEIs focused on breakthrough technologies and innovation along the solar and wind energy and heat pumps value chains. The process is rather technical and requires close collaboration across industry, Commission and Member States authorities.

Figure 16: Overview of the existing IPCEIs in the area of batter