COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL - THE IMPACT AND EFFECTIVENESS OF THE SINGLE MARKET
Date: 1996-10-30
Institutions: European Commission
Subjects: EU law, competitiveness, employment policy, impact study, single market

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  30.10.1996 
COM(96) 520  final 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

THE IMPACT AND EFFECTIVENESS 

THE SINGLE MARKET 

THE  IMPACT AND EFFECTIVENESS  OF THE  SINGLE  MARKET 

SUMMARY 

TABLE OF  CONTENTS 

1 THE ECONOMIC IMPACT OF THE SINGLE MARKET PROGRAMME 

1.1  Introduction 

1.2. Trade and foreign  direct  investment 

1.3  Market structures 

1.4 Income, employment and convergence 

2. A SINGLE MARKET WORKING  FOR ITS CITIZENS 

2.1  Free movement of persons 

2.2 The Single Market and  social policy 

2.3 Consumer  interests 

2.4  Environmental  protection 

3. THE EFFECTIVENESS  OF THE SINGLE MARKET PROGRAMME 

3.1  The scale of the challenge 

3.2  Survey results 

3.3  Products 

3.4 Services 

3.5 Capital 

3.6  Public procurement 

4. REMAINING  OBSTACLES TO FREE MOVEMENT... 

4.1  Ineffective  implementation, enforcement  and  redress 

4.2 Gaps in the  legislative framework 

4.3 Over-complicated  rules 

4.4 Old and  new obstacles at national  level 

4.5  Management of Community  Legislation 

4.6 The  Single Market and  services of general  interest 

5.  A RENEWED  COMMITMENT  TO THE SINGLE MARKET 

5.1  Effective  application  and enforcement  of Community  law 

5.2  Reducing over-regulation 

5.3  Completion  of the  legislative framework  at Community  level 

5.4  Complementary  action at Community  level 

5.5  Conclusions: the need  for a renewed  commitment to the Single  Market 

Appendix  1 : Sources of information for this review 

1 

3 

3 

3 

4 

5 

6 

6 

7 

7 

8 

10 

10 

10 

11 

13 

14 

15 

17 

17 

18 

20 

20 

21 

21 

23 

23 

24 

24 

25 

26 

THE  IMPACT AND  EFFECTIVENESS OF THE  SINGLE  MARKET:  SUMMARY 

1.  Jobs  and  sustainable  growth  are  at  the  top  of  the  Union's  agenda.  The  Commission's 
Confidence  Pact,  "Action  for  Employment  in Europe",  identified  the  Single  Market  as the 
launching  pad  for  attaining  higher  levels  of  job  creation  and  sustainable  growth.  The 
Commission now has solid evidence of the positive effects  of the Single Market, based on a 
first exhaustive survey of its economic impact and effectiveness  conducted over the past two 
years.1 

2.  In terms of economic  impact the news is encouraging.  It  is still  too  early  for  many  Single 
Market  measures to have taken  full  effect  but there are clear  signs of significant  change in 
the European economy.  We now have evidence of the following  positive, albeit preliminary 
effects  of  the  Single  Market  in  triggering  the  expected  reinforcement  of  integration, 
competition, economic performance  and benefits for consumers: 

•  growing competition between companies in both manufacturing  and services; 
•  an accelerated  pace of industrial restructuring, with the resultant benefits  in terms of 

greater competitiveness; 

•  a  wider  range  of  products  and  services  available  to  public  sector,  industrial  and 
domestic consumers at lower prices, particularly  in newly liberalised  service  sectors 
such as transport, financial services, telecommunications and broadcasting; 

•  faster  and  cheaper  cross-frontier  deliveries  resulting  from  the  absence  of  border 

controls on goods; 

•  greater  mobility  between  Member  States  for  both  workers  and  those  not 

economically active (including students and retired people). 

3.  Calculations of the overall economic effects  of these changes suggest that the SMP has resulted 

in: 

•  between  300,000 and  900,000 more jobs  than would  have existed  in the  absence  of 

the Single Market; 

•  an extra increase in EU income of 1.1-1.5% over the period  1987-93; 
• 
•  economic convergence and cohesion between different  EU regions. 

inflation rates which are 1.0-1.5% lower than they would be in the absence of the SMP. 

4.  These benefits  have been gained without any reduction in safety  standards for consumers or 
workers. 
In  many  areas  standards  of  protection  for  the  citizen  have  in  fact  increased. 
Citizens  of  the  Union  also  enjoy  more  personal  freedom  and  have  more  choice  than  ever 
before.  The  Commission's  survey  confirms  that  Community  legislation  in  the  Single 
Market  area  has,  taken  as  a  whole,  created  the  basic  conditions  for  free  movement  and 
economic efficiency.  The situation  in today's  Single  Market  is in sharp contrast  to that  of 
the mid-1980's when: 

•  all goods were stopped and subject to checks at frontiers; 

A more detailed  account  of the Commission's  findings  can  be obtained  from  the Office  of Official  Publications 

in the following  documents: 
•  38 background  studies and  1  business  survey (to be published  Nov.  1996 - Jan.  1997); 
•  A (100  page)  Working  Document  of  the  Commission  Services  summarising  the  main  findings  of  the  studies 

(Nov.  1996) 

2  A more detailed  analysis of the economic  impact will be published  in "European  Economy"  (Dec.  1996) 

1  b 

•  most products had to comply with different  laws in each Member State; 
•  services  such  as transport,  telecommunications,  banking  and  broadcasting  were  not 

subject to competition; and 

•  citizens who were not employed could be subject to restrictions on residence and risk 

losing social security rights in another Member State. 

5.  It  is up to  economic  operators  to  make  the  most  of the  Single  Market.  The  role  of  public 
authorities  at  national  and  Community  level  is  confined  to  creating  appropriate  economic 
and institutional conditions. In the context of a more favourable  economic climate, operators 
will  be  better  placed  to  exploit  to  the  full  the  opportunities  that  are  now  available.  This 
report shows that where these opportunities are taken the benefits are  significant. 

6.  The Commission's  analysis  suggests that these opportunities  would have been even  greater 
if  Member  States  had  been  more  diligent  in  putting  in  place  the  Single  Market  measures 
already  agreed and applying the principles of the Community  law on which they  are  based. 
Delays in applying and enforcing  Single Market rules at national  level continue to limit the 
Single Market's positive contribution to growth, competitiveness and more employment. 

7.  The  Community  must  build  on  its  successes  and  iron  out  the  remaining  political  and 
practical  difficulties  which  inhibit  the  Single  Market's  full  potential  from  being  achieved. 
The Commission is putting forward  clear policy recommendations for action at two levels: 

•  first  and  foremost,  at the national  level, where  the  main  responsibility  for  applying 
Single  Market  rules  lies.  The  Commission  is  urging  that  enforcement  of  Single 
Market legislation and Treaty rules be stepped up. In addition, the Commission  calls 
for vigorous action to be taken to reduce excessive regulation at national level which 
inhibits both competition and competitiveness; 

•  at  the  Community  level, where  further  efforts  must  be  made  to  complete  the  1985 
agenda  in a few  key areas (such as abolition of border controls on persons, taxation 
and  company  law),  where  further  means  have  to  be  devoted  to  the  control  of 
implementation  and  to  updating  the  legislation  and  where  Community  policies  in 
related areas such as competition, consumer policy, information  and the environment 
may  need  to  be  developed  further  in  order  to  ensure  the  most  effective  use  and 
development of the Single Market. 

The  introduction  of  a  single  currency  in  1999  will  also  make  the  Single  Market  more 
effective,  by  eliminating  the  constraints  which  now  result  from  exchange  risks  and  by 
generally increasing transparency and competition. 

8.  In  its  conclusions  to  this  report,  the  Commission  calls  for  action  to  deliver  a  properly 
working  Single Market. It spells out what is required  in terms of a renewed  commitment to 
the Single Market, not only at the highest political  level - the European Council  in Dublin -
but also from all those who must contribute to making the Single Market a success - national 
authorities, the European Institutions and, above all, economic operators themselves. 

1 

THE ECONOMIC  IMPACT OF THE SINGLE MARKET  PROGRAMME 

1.1 

Introduction 

The  Single  Market  Programme  (SMP),  as  set  out  in  the  Commission  White  Paper  of  1985, 
constituted  the  most  ambitious  and  comprehensive  supply-side  programme  ever  launched.  It  has 
begun to remove the  market  rigidities and  barriers to mobility  which  in the mid-1980s  gave  rise to 
and  poor 
persistent 
competitiveness. 

economic  under-performance, 

rising  unemployment 

reflected 

in 

Implementation  of Single  Market  liberalisation  measures  is proceeding  well.  Without  a doubt,  the 
elimination  of  frontier  controls  and  delays, the  free  circulation  of  capital  and  the  liberalisation  of 
financial  services  have  been  widely  and  warmly  welcomed  by  economic  operators.  However, 
implementation  of  a  certain  number  of  measures  has  encountered  problems  (technical  barriers, 
public  procurement).  The  evaluation  exercise  begun  here  seeks  to  identify  and  estimate  the 
economic  effects  of  measures  taken  to  eliminate  trade  barriers  only  to  the  extent  that  they  have 
actually  been successfully  carried  out. 

it  is  important  to  underline  that  the  following  assessment  cannot  be  definitive  and  unqualified, 
because: 

•  first,  it  is  difficult  to  isolate  the  effects  which  can  be  attributed  exclusively  to  Single  Market 
integration.  The  past  decade  saw  the  accession  of  five  new  Member  States,  German 
reunification,  the economic transformation  in Central  and  Eastern  Europe, a substantial  increase 
in the  volume  and  effectiveness  of  Community  Structural  Fund  assistance,  a  globalising  world 
economy  and  the  information  technology  revolution.  These  developments  have  affected  the 
dynamics of the  Single  Market. 

•  second,  the  Single  Market  legislation  is  still  to  take  full  effect.  Much  of  it  did  not  come  into 
force  until  1994  or  1995;  some  will  not  be  implemented  until  after  the  year  2000.  Economic 
operators  are  still  adapting  to  the  new  regulatory  and  commercial  environment  and  have  had 
little time to adjust  to new freedoms;  the recent recession  may have made them  reluctant to take 
advantage  of  new  opportunities.  There  has  been  insufficient  time  for  the  effects  of  regulatory 
change to work  through. 

Given  the  nature  of  Single  Market  measures,  their  implementation  has  resulted  in  essentially 
microeconomic  effects  and  modifications  to the structure of production  and trade  inside the EU. As 
a  consequence,  the  analysis  focuses  on  identifying  and  measuring  microeconomic  phenomena. 
Nevertheless,  an  attempt  is  also  made  to  evaluate  the  macroeconomic  impact  on  income  and 
employment. 

Elimination  of  trade  barriers  has  the  following  expected  microeconomic  consequences: 
lifting 
barriers will  lead to  improvements  in the allocation  of resources to take advantage  of  specialisation 
based  on  comparative  advantage  and  economies  of  scale.  There  is  a  danger  that  the  removal  of 
barriers  might  be  accompanied  by  a  re-segmentation  of  national  markets  via  anti-competitive 
behaviour  (e.g.  cartels, abuse  of  dominant  position,  state  aids). Competition  policy  is an  essential 
tool  for  preventing  such  behaviour  and  for  translating  efficiency  gains  into  lower  prices and  better 
quality  for  consumers. 

1.2.  Trade and foreign  direct  investment. 

The  Single Market has  led to an  important  increase  in trade and  in the EU's  share of foreign  direct 
investment  at  world  level.  However, the  increase  in trade  amongst  Member  States  has  not  been  at 
the  expense  of  trade  with  third  countries.  Furthermore,  a  relative  convergence  of  Member  States' 
production  structures  can  be  discerned  as  a result  of  specialising  in the  same  sectors  but  different 
price-quality  niches, a development  which eases the process of Monetary  Union. 

The  analysis  carried  out  demonstrates  that  lifting  trade  barriers  has  increased  trade  volumes 
between  Member  States  by  20-30%  in  manufacturing  products.  This  growth  has  not  been  at  the 
expense  of  exporters  from  outside  the  Community  who  have,  in  fact,  also  benefited  from  the 
creation  of  the  Single  Market.  Fears  expressed  that  the  Single  Market  would  be  less  open  to 
imports  have 
foreign  suppliers  have  turned  out  to  be  groundless.  Extra-EU  manufacturing 
increased  their share of consumption  over the period  1980-93 from  12 to  14%. 

As  for  trade  inside  the  Community,  a  noticeable  change  in  the  nature  of  flows  can  be  detected. 
increased  sectoral 
to  have  reinforced 
The  Single  Market  does  not  seem 
specialisation,  with  Member  States  concentrating  on  particular  activities  according  to  their 
respective, comparative  advantages; 
instead,  Member  States  are  increasingly  specialising  within 
industrial  sectors  in  certain  price-quality  ranges.  Consumers  have  benefited  from  the  resulting 
increased  range of products  available  for  sale. 

trends  towards 

Member States are therefore  active  across the whole  spectrum  of economic  activity,  differentiating 
themselves  from  each  other  by the  price-quality  market  niche  that they  strive  to occupy. The  result 
has  been  a  convergence  of  Member  States'  industrial  structures.  This  is  particularly  important  in 
the context of Monetary  Union. 

Regarding  foreign  direct  investment,  one  can  see  that  the  Single  Market  has  made  the  EU  more 
attractive  as  a  location.  As  a  result,  the  EU  absorbed  44%  of  global  foreign  investment  flows  in 
the  early  1990s,  compared  to  28%  in the  middle  of  the  1980s.  The  Single  Market  seems  to  have 
had  a particularly  strong  impact  on the  financial  services  sector. 

13 

Market  structures 

The European  economy  has  undergone  profound  restructuring  characterised  by  an explosion  in  the] 
number  of  mergers  and  acquisitions.  Nevertheless,  there  has  been  an  increase  in  competition  on 
national  markets, which  has  led  to a greater convergence of prices for goods and  services. 

An  important  part  of  these  foreign  direct  investment  flows  has  been  associated  with  mergers  and 
acquisitions,  which  have  themselves  multiplied  as the  Single  Market  has  been  implemented.  This 
applies,  in  particular,  to  cross-border  mergers  and  acquisitions  between  Community  firms. 
Between  1986  and  1995,  the  number  of  mergers  and  acquisitions  has  increased  from  720  to  2296 
in  industry  and  from  733  to  2602  in  services.  However,  70%  remain  purely  domestic  operations 
between  firms  from  the  same  Member  State.  This  could  reflect  firms'  desire  to  pursue,  at  least  in 
the  first  instance,  a defensive  strategy  nationally,  leaving  some  European  level  restructuring  to  the 
future. 

Restructuring  which  has  already  been  carried  out  has  led  to  increases  in the  level  of  concentration 
at the  SU  level  considered  as a  whole.  Taking  manufacturing,  between  1987 and  1993 the  share of 
the  four  largest  firms  increased  from  20.5%  of  the  total,  on  average,  of  European  turnover,  to 
22.8%.  Nevertheless,  there  has  also  been  a decline  in  concentration  at national  level,  even  though 
the average  size  of  firms  has  been  rather  stable.  This  development,  apparently  paradoxical,  has  a 
two  part  explanation:  on  the  one  hand,  declines  in  the  market  share  of  dominant  firms  on  their 
home  markets  due to  increased  competition;  on  the  other  hand,  increases  in these  dominant  firms' 
share  of  the  European  market  due  to  a  strategy  of  pan-Europeanisation.  In  other  words,  Europe-
wide,  large  firms'  volume  of activity  has grown,  but the  geographic  distribution  of this  activity  has 
changed,  with  relative  declines  on  home  markets  and  increases  on  other  Member  State  markets. 
This  development  is  significantly  less  marked  for  service  activities,  especially  those  that  remain 
heavily  regulated,  where  increases  in  national  concentration  can  actually  be  observed.  These 
sectors may  witness  major  pan-European  restructuring  in the  future. 

Intensification  of competition  has  reduced  the  increase  in firms'  profit  margins  (of the  order  of  0.5 
percentage  points  between  1987 and  1991),  particularly  in  sectors  where  trade  barriers  used  to  be 
most  significant.  In  some  of  these  sectors  this  has  led  to  price  reductions,  benefiting  consumers. 
Furthermore,  the  opening-up  of  markets has encouraged  the convergence  of  prices  across  Member 
States  for  various  goods  and  services.  This  convergence  is all  the  greater  the  larger  the  degree  of 
liberalisation  due  to  the  Single  Market.  As  a  result,  between  1985  and  1993  the  coefficient  of 
variation  for  prices  (including  taxes)  between  Member  States  for  identical  goods  and  services 
shrank: 
from  22.5%  to  19.6%  for  consumer  goods,  and  from  33.7%  to  28.6%  for  services. 
Conversely,  the  coefficient  of  variation  actually  increased  for  energy  products  from  21.1%  to 
In  other  words,  in  sectors  where  national 
31.7%,  and  for  construction  from  22.1%  to  27.4%. 
markets  remain  very fragmented,  no convergence  can  be seen. 

1.4 

income, employment  and  convergence 

The  Single  Market  has had  a positive  impact on  income. It is also  one  of the  forces  contributing  to] 
a certain  convergence  on the part of outlying Member  States. The  level  of employment would  have E 
! 
been  lower  in its absence. 

The  combination  of microeconomic  processes  described  above  has been  used  to try  to  estimate  the 
macroeconornic  impact  of  the  Single  Market  Programme  using  various  models.  These  estimates 
indicate  that  investment  has  been  boosted  by  I  to  3%, whilst  inflation  has  been  reduced  by  I  to 
1 l/i%  by  comparison  with  what  these  variables  would  have  been  in  the  absence  of  the  Single 
Market.  As  a  result,  Community  income  in  1994  is  estimated  to  have  been  LI  to  1.5 percentage 
points  higher  due tc the  Single  Market  - an  increase  of 60 to  80 billion  ECUs. Around  half  of  these 
improvements.,  the  rest  from 
in  competition  and  efficiency 
effects  came  from 
improvements  in technical  progress associated  with  the  Single  Market. 

increases 

For several  reasons, the  recent  EU's  employment  record  has  been  poor.  Economic  analysis  shows, 
however,  that  the  SMP  has produced  a higher  employment  levet  than  would  he ye bee?? t h i e v ed  in 
its  absence.  The  difference  is  estimated  at  between  300,000  and  900,000  jobs.  However,  this 
positive  effect  has  been  overshadowed  by  unfavourable  economic  conditions  not  ear..ri?3S?.ed  with 
the  SMP. 

Furthermore,  higher  levels  of  Community-wide  income  have  been  accompanied  by  & cert&in 
convergence  in  favour  of  the  majority  of  Member  States  on  the  Community's  periphery  with 
Ireland,  Spain  and  Portugal  experiencing  growth  above  the  Community  average.  This trend  results 
from  the  joint  effect  of  accession  (in  the  case  of  Spain  and  Portugal),  increasing  support  from 
structural  and  cohesion  fund,  and  the  Single  Market.  Economic  analysis  shows  that  the  SMP  has 
had a specific  positive  impact on  convergence. 

To conclude, the  macroeconornic  impact  of the  Single  Market, as far  as  it can  be detected  so  far,  is 
clearly  positive.  Undoubtedly,  these  effects  will  continue  to  grow  in  the  future,  to  the  extent  that 
the  Single  Market  is properly  implemented  and  economic  operators  actually  readjust  themselves  to 
the new, more competitive  environment  created. 

2. 

A SINGLE  MARKET  WORKING  FOR  ITS  CITIZENS 

The  Single  Market  is  much  more  than  an  economic  enterprise.  Together  with  other  Community 
policies,  it  has  contributed  significantly  to  lower  prices  and  more  consumer  choice, the  extension 
of  personal  freedom  and  rights,  higher  living  standards,  better  health  and  safety  at  work,  product 
safety  and  reliability, and'a safer  environment. 

2.Î 

Free movement of  persons 

The Single Market  is essentially  complete  in this area, with the notable exception  of the removal  of 
border  controls  on  people.  Some  clarification  of  legislation  may  be  necessary,  however  and 
implementation  at national  and  local  level  must be  improved. 

The  freedom  to  move  from  one  country  to  another  to  work,  study  and  reside  is  one  of  the  most 
tangible  benefits  of the  Union  for  individuals.  Free movement  of workers  has been  a reality  for  the 
six  founding  members  of  the  European  Community  since  1968  and  now  applies  to  all  Member 
States and three of the  EFTA  countries (Norway,  Iceland  and  Liechtenstein). Supporting  measures, 
such  as  the  mutual  recognition  of  equivalent  diplomas  or  the  right  to  transfer  social  security 
entitlements,  increase  opportunities  for  individuals  and  their  dependants  to  relocate  anywhere  in 
the EU. 

Within  the  framework  of  the  SMP,  legislation  also  provided  for  aggregation  and  portability  of 
workers'  acquired  pension  and  social  security  rights. Efforts  have since focused  on extending these 
freedoms  to  the  unemployed,  such  as  students  and  retired  people,  and  on  strengthening  mutual 
recognition  of  equivalent  educational  and  vocational  qualifications  so  that  employed  and  self-
employed  people  are  able  to  make  use  of  their  right  to  free  movement  without  being  penalised  in 
the  field  of social  security.  The  EURES  network  also  provides  services  and  information  about  EU 
job vacancies and  living and working  conditions. 

Labour  force  surveys  show  a  slow  but  steady  increase  in  EU  nationals  working  in  other  Member 
States.  However,  migration  is confined  to  specific  occupations  such  as  managers,  professionals  or 
specialised  technicians  and  contracted  workers  in  the  building  sector,  and  is  most  prevalent  in 
border areas where  Intra-EC migration  increased  by  18% between  1987 and  1994. 

In  fact,  there  has  been  no  large  scale  migration  of  labour  within  the  Community.  Increased  trade 
between  Member  States as a consequence  of the  Single  Market and the  fact  that capital  has  proved 
more  mobile  than  labour  have  substituted  for  migration.  Cultural  and  linguistic  differences  also 
continue to deter worker  relocation. 

The  Single  Market  legislative  framework  is essentially  complete  in this  area.  Although  significant 
progress  has  been  made, there  remains  a need  for  further  efforts  at  Union  level,  not  least to  ensure 
that the existing  Community  provisions are  up-to-date,  understood  and  applied.  It is also clear,  not 
least  from  the  Commission's  surveys  of  the  functioning  of  the  Single  Market,  that  some  real 
obstacles - both  legal  and  practical  - still confront  European  citizens seeking to exercise their  rights 
to  free  movement  and  residence  within  the  Union.  The  Commission  has  launched  a  number  of 
initiatives  such  as  the  High  Level  Panel  on  Free  Movement,  and  "Citizens  First!"  information 
action.  In  order  to  address  these  issues  the  Green  Paper  "Education,  Training  and  Research  : the 
obstacles  to  transnational  mobility"  also  analyses  remaining  obstacles  to  mobility  for  students, 
trainees,  the  unemployed,  reseachers,  voluntary  workers  (whether  citizens  of  the  EU  or  legal 
residents) and  proposes some  lines for  action. 

Community-wide  agreement  has  not  been  reached  on  the  removal  of  border  controls  on  the 
movement  of  individuals.  Progress  between  the  majority  of  Member  States  has  been  on  the  basis 
of  intergovernmental  agreements  only.  The  maintenance  of  border  controls  represents  national 
preferences  for  carrying  out  identity  checks  against  terrorism,  drug  trafficking  and  other  public 

order  controls  at frontiers,  rather than  internally. This  failure  is an  impediment  to  full  exploitation 
of the opportunities afforded  by the Single  Market. 
The Single Market  and social! policy 
2.2 

The  SMP  has  influenced  the  EU's  social  environment,  while  social  policies,  at  national  and 
Community  level,  have  facilitated  the  smooth  operation  of  the  Single  Market.  Fears  that 
investment  would  flow  substantially  to  Member  States  with  lower  labour  costs,  cr  which  have 
opted out of some elements of the common  social  policy appear  largely  unfounded. 

Many  social  measures  form  an  integral  part  of  the  Single  Market  framework.  Social  security 
provisions  recognising  periods  of  insurance  in  another  Member  State  and  the  European  Works 
Councils  Directive  and  the  Directive  on  the  posting  of  worker?;  are  among  the  examples  of 
measures  which  support  the  free  movement  of  people  and  ensure  that  the  Single  Market  prevents 
competition  based  on  lowering  levels of social  protection. 

Outright  harmonisation  of  social  policies  is  not  a  Community  objective.  However,  the  realisation 
of the  Commission's  1989  Social  Action  Programme  has  led  to  the  establishment  of  a  framework 
of basic  minimum  standards, for  example  in the  field  of health  and  safety  at work.. These  provide  a 
bulwark  against  using  low  social  standards  as  an  instrument  of  unfair  economic  competition.  The 
continuing  aim  should  be  to  develop  and  improve  standards  for  all  the  Member  States  of  the 
Union. 

The  SMP  has  accelerated  the  internationalisation  of  companies.  Multinationals  um  restructuring 
and  reorganisation  across  the  Community  to  sustain  competitiveness.  The  expectation  of  a  shift  in 
economic  activity  towards  Member  States  with  low  labou?  costs  has  also  not  beer:  borne  out. 
Competitive  undercutting  of  pay  and  conditions  by  firms  exploiting  Member  Stes  dii^fere^oes  in 
labour  costs  cr  regulations  is  rare. Most  EU  and  non-EU  multinationals  admit  that  except  for  very 
specific  functions  and  sectors,  for  example  centralised  management  for  airlines,  other  faeto:;5  have 
been  more  important  in  location  decisions.  In  the  manufacturing  sector,  for  ex&rcpkï,  vr&nsport 
facilities  or  logistics are determinant. 

Adequate  social  security  protection  is a precondition  for  use of the  right  to  move  within  the  Union. 
Without  such  protection,  disparities  between  the  social  security  schemes  of  the  different  Merita-
States  would  adversely  affect  people  moving  across  frontiers,  Measures  co-ordinating  the  social 
security  schemes  of  Member  States, guarantee  that  rights to  social  security  benefits  acquired  a? in 
the  process  of  being  acquired  under  national  legislation  (for  example  pensions,  heaiih-  insurance, 
family  benefits)  will  not  be  lost when  people  leave their country  to work to look for  a job,  x  reside 
or to stay elsewhere  in the  Union. 

2.3 

Consumer  interests 

The efficiency  and  smooth  functioning  of the  Single Market depend  aiso en  eô7iïûlncTs~â"7icTrârïc~l 
influence.  A  proper  functioning  of  the  market  implies  that  a  fair  share  of  benefits  v^li  £^ttfe  te  j 
consumers.  An  efficient  Single  Market  needs  strong  consumer  organisations  with  at cess  -  cU??.;  ! 
information  and  instruments  to  represent  and  enforce  consumers'  rights.  The  SMF  \\z:  of t.~ed I 
| 
retailers and consumers  wider access to cheaper and  better products and  services. 

European  consumers, as well  as  businesses, were  meant  to  benefit  from  greater  compétition.,  lower 
prices,  a  wider  variety  of  products  and  services  and  new  distribution  channels.  The  evidence 
already  presented  in  Chapter  1 shows  that  this  is  beginning  to  happen.  In  accordance  with  Article 
100a(3), high  levels of consumer protection  are embodied  in harmonising  legislation 

Considerable  progress  has  been  made.  There  is  evidence  of  a  switch  to  EU-wide  soureing, 
particularly  in  products  such  as  electrical  household  appliances,  branded  food  and 
furniture.  In 
manufacturing  sectors,  such  as  foodstuffs  and  textiles,  evidence  on  price  levels  is  inconclusive:  in 

7 

service  sectors,  such  as  air  transport  and  telecommunications,  price  reductions  may  not  be 
exclusively  linked  to  the  SMP.  However,  the  acceleration  of  price  convergence,  particularly  in 
consumer  goods  where  quality  variation  is  limited,  is  due  to  the  SMP.  Lower  prices  and  greater 
for  medical  and 
price  convergence  have  been 
pharmaceuticals  products)  or  consumer  preferences  for  national,  regional  or  local  products 
(particularly  for foodstuffs,  where only branded  products benefited  from  improved  market access). 

inhibited  by  price  controls  (particularly 

Consumers  have  had  access  to  a  wider  range  of  products  and  services,  particularly  for 
telecommunications  equipment,  financial  services, and more  inter-city  flights  in air transport. 

The  benefits  of  more  choice  and  keener  prices  have  generally  not  compromised  the  safety  or 
welfare  of  consumers.  The  SMP  put  consumer  safety  before  the  free  circulation  of  goods  and 
services.  Open  markets  might  have  led  to  additional  risks,  for  example  as a result  of  variations  in 
standards and of free  circulation  of imported  goods and  services. So the SMP was  accompanied  by 
the  convergence  of  conformity  assessment  systems,  tougher  penalties  against  producers  of 
defective  products and early  warning and withdrawal  systems for  use in emergencies. 

The  promotion  of consumers'  interests depends  on the availability  of clear and  correct  information 
on  which  rational  and  transparent  choices  should  be  based.  This  is  a  precondition  for  the  proper 
functioning  of the  single  market.  In this respect,  denomination  and  labelling  information  should  be 
an  effective  and  proportionate  means  of  informing  consumers  without  being  used  by  Member 
States to fragment  the market and to protect national  producers. 

Community  actions  such  as  those  intended  to  improve  access  to  justice  and  cross-border 
applicability  of guarantees are critical  if consumers are to exploit  Single Market opportunities.  But 
because  the  amounts  involved  are  often  small,  cross-border  law-suits  are  rarely  feasible.  The 
Commission  has already  proposed  some  innovative  solutions  to meet  the  needs  of consumers  with 
genuine  grievances  so that cross-border  shopping can earn consumers'  confidence.  More  generally, 
consumer  policy  needs  to  be  integrated  into  other  single  market  action  (such  as  liberalisation, 
information,  or  financial  services  where  consumers  still  face  difficulties 
in  protecting  their 
interests)  in order to better take into account and promote consumers'  interests. 

2.4 

Environmental  protection 

Environmental  policy  and  the  Single  Market  are  complementary.  It  is  still  too  early  to  make  a 
definitive  assessment  of the  environmental  impact  of the  SMP.  Better  coordinated  arrangements 
for  environmental  protection  and  fewer  differences  between  Member  States'  legislation  are 
essential to avoid  new technical trade barriers while ensuring that environmental policy  objectives 
are met. 

Article  2  of the  EC  Treaty  provides  that  the  Community  shall have  as its task,  by  establishing  a 
common  market, to promote,  inter alia "a  sustainable  and  non-inflationary  growth  respecting  the 
environment".  Both  policies  must  strive  for  a  more  efficient  use  of  resources,  including 
environmental  resources, the cost of which must be properly  taken  into account. The link  between 
these  policies  recognised  in  the  Treaty  is  complemented  by  a  widespread  recognition  among 
businesses  of  the  need  for  environmental 
legislation.  For  some  sectors,  environmental 
requirements  have  been  an  incentive  for  businesses  to  invest  in  new  environmentally-friendly 
technologies which  have also increased  competitiveness. 

Prior  to  the  implementation  of the  Single  Market,  expectations  about  the potential  environmental 
impact  of the  Single Market were quite pessimistic. It is too early to make a definitive  assessment 
and to quantify  the environmental  impact of the SMP in order to validate or disqualify  those  fears. 
However,  the  studies  undertaken  for  this  review  estimate  important  medium-term  gains  for  the 
fully 
environment  when  Single  Market  measures 

in  some  sectors  such  as  energy  are 

implemented. Thus a single energy market is likely to increase gas consumption, far less polluting 
than other fuels, and decrease C02 emissions by 105 million tonnes p.a.. 

As regards transport, it is difficult  to assess the contribution which the Single Market has made to 
traffic  growth in the first half of this decade. However, growth in road freight  transport in EU-15 
has been around  15% between  1990 and  1994, and average  annual  growth  rates  in road  freight 
traffic  were  slightly  higher  between  1990 and  1994 than  during  the  1980s.  The  environmental 
concern  associated  with  those  trends,  in  the  absence  of  major  improvements  in  vehicle  fuel 
economy, is the increase in both particulates and C02  emissions which makes it difficult  for the 
Community  to  achieve  inter-alia its  C02  stabilisation  and  reduction  objectives.  In  addition, 
increasing traffic  puts additional pressures on the environment  in transit regions (e.g. the Alps). 
At  the  same time, technological  improvements  made  to vehicles  under  Community  legislation, 
e.g., in harmonised technical specifications  introducing stricter emission standards, will at least in 
the  future  lead  to  reductions  in  air  polluting  emissions  from  road  transport.  Early  estimations 
foresee  considerable  emission  reductions  in  the  field  of  regional  transport  of  goods.  It  is  also 
hoped that progress on fair  and efficient  pricing  in transport  as well as the proposed  revision of 
the current fiscal  framework  for heavy goods vehicles (COM/96/331) will result in an additional 
substantial  reduction  in  emissions.  Finally,  it  is  expected  that  the  strategy  to  revitalise  the 
Community's  railways  will,  in  the  longer  term,  strengthen  the  competitive  position  of  this 
environmentally more benign form of transport. 

Measures  to provide  for  free  circulation  within  the  SMP, such as technical  specifications,  have 
embodied  high  levels of protection  for  the environment,  in accordance  with  Article  100a(3). In 
'new approach' legislation, environmental protection and energy-efficiency  are often enshrined as 
'essential requirements' 

However,  as  in  other  areas  where  there  is  a  growing  awareness  of  the  need  for  an  adequate 
regulatory framework  to meet the concerns of today's citizens, there is a risk that  Member States 
may adopt diverging legislation in the environmental field which may result in the  fragmentation 
of the  single  market.  A  Community  framework  may  in  many  cases  be  the  best  guarantee  that 
actions taken have their full  impact and strike an appropriate balance between  single market and 
environmental objectives. 

Examples of areas of national regulation which require scrutiny in this context include: 

•  emissions  and  hazards which,  although  partially  regulated  at  EU  level  (e.g.,  use  of  titanium 

dioxide), is mostly covered by national legislation (emissions of solvents); 

•  national  eco-label  schemes,  which  are  currently  proliferating  in  spite  of  progress  with  the 
development of the Community eco-label may lead to market distortions and confusion  among 
consumers; 

•  waste management  regulations, where insufficient  enforcement  or inadequate  implementation 

have resulted in different  requirements for producers at national level. 

The Commission considers that the proper integration of single market and environmental  policy 
to ensure the best possible progress towards the achievement  of Treaty objectives  is a key issue 
for  the  Community.  Further  reflection  is  needed  among  European  Institutions  about  how  to 
achieve  this  balance.  The  Commission  therefore  intends  to  initiate  a  political  debate  on  this 
subject on the course of 1997. 

3. 

THE EFFECTIVENESS  OF THE SINGLE MARKET  PROGRAMME 

The SMP has transformed  the conditions  under which  cross-border  business  is carried  out. Most  of 
the  principal  obstacles  to  integration  of  product,  service  and  capital  markets  have  been  removed. 
Internal  political  boundaries are no longer strategically  important  for  business. 

The process of removal  of barriers  is more advanced  and the legislative  framework  is more  mature 
for  product  markets  than  for  services.  Distortions  of  investment  decisions  and  cross-border 
transactions  in some service markets are still widespread.  This is partly explained  by structural  and 
behavioural  impediments, but regulatory  or administrative  obstacles still apply  in some sectors. 

In  several  areas,  Single  Market  rules  have  yet  to  be  completely  implemented.  But  even  here,  the 
necessary  structures  have  been  put  in  place  to  eradicate  remaining  barriers  and  prevent  their 
replacement. These make the recent gains  in completing the Single Market  irreversible. 

The  removal  of  trade  barriers  and  wider  commercial  horizons  have  helped  to  increase  options  for 
European  businesses.  The  barriers  are  coming  down  and  companies  can  win  new  market  share  if 
they  grasp the  emerging  opportunities.  Whether the  Single  Market  will  deliver  on  its promise  now 
depends primarily  on the responsiveness of companies to new market openings. 

3.1 

The scale of the challenge 

Competition  in  the  European  economy  was  severely  limited  in the  mid  1980s  by  barriers  to  trade 
and 
investment  between  the  Member  States.  Cross-border  shipments  required  voluminous 
paperwork  and  faced  interminable  delays  at  frontiers.  Manufacturers  had  to  re-engineer  products 
for  each  national  market.  Public  procurement  markets  were  shielded  from  cross-border  and  local 
competition;  contracts  were  usually  awarded  to  local  suppliers.  Service  providers  were  either 
prohibited  from  providing  cross  border  services  and  operating  in  other  Member  States  or  faced 
insurmountable  barriers.  Businesses  anxious  to  reorganise  on  a  pan-European  footing  were 
confronted  with  legal  and  fiscal  complications.  Exchange  controls  and  other  obstacles  hindered 
cross-border  financial  transactions.  The  victim  of  this  protectionism  was  the  consumer,  who  paid 
too much  and  had  less choice. 

The  SMP  aimed  to  remove  these  obstacles  to  free  circulation  of  goods,  services,  capital  and 
persons.  However,  the  positive  impact  of  single  market  legislation  may  be  countered  by  national 
regulations  which  are  not  inconsistent  with  internal  market  rules  or  by  anti-competitive  business 
practices. These  may  stand  in the way  of the development  of efficient  product,  services  and  labour 
markets  that  can  adjust  easily  and  quickly  to  increased  outside  competition.  Although  Member 
States  are  responsible  for  most  of  the  features  of  the  business  environment,  it  is  also  the  role  of 
Community  competition  and  state  aids  policies  to  ensure  that  firms  do  not  engage  in  anti 
competitive  behaviour,  that  the  operation  of  providers  of  services  of  general  economic  interest  is 
consistent  with  the  competition  provisions  of  the  Treaty,  and  that  state  aids  do  not  distort 
competition. 

This  chapter  assesses  whether  legislation  to  remove  obstacles  to  the  free  circulation  of  goods, 
services, capital  and  for  opening  up of procurement  markets has been effective,  i.e., to what  extent 
obstacles to free  movement  have been  overcome. 

3.2 

Survey  results 

The  economic  evidence  that  the  Single  Market  is  working  is  backed  up  by  the  perceptions  of 
European  business,  which  clearly  sees the  SMP  as  having  removed  a  series  of  obstacles  to  cross-
border  transactions  and  as  having  increased  market  opportunities.  Two  major  surveys,  one 
involving  organisation  representing  50%  of  EU  industrial  production  and  48% of jobs,  the  other 

10 

using  replies from  13,000  European  businesses, confirm  this  positive  perception  by  industry.  The 
approval  rating,  however,  is  higher  among  manufacturing  firms  than  services  (31  to  5 1%  for 
manufacturing  and  15 to 37% for  services).  The proportion  of companies  seeing the  Single  Market 
as  effective  is  even  higher  in  sectors  where  non-tariff  barriers  were  most  prevalent  and  onerous 
(i.e. electrical  machinery,  food,  chemicals, transport). These  findings  represent  business  across  the 
spectrum, since the survey was not confined  to sectors most directly  affected  by the  SMP. 

Larger  companies  are  particularly  outspoken  in  their  positive  assessment  of  Single  Market 
integration;  47% of  large  companies  with  more  than  1000  employees  consider  that  the  SMP  has 
successfully  eliminated  obstacles to EU trade  in their sector, as opposed  to 38% of firms with  20 to 
49  employees.  Intervening  sizes  of  firm  hold  intermediate  positions.  This  pattern  is  repeated  for 
views  on  specific  measures.  Lower  levels  of  enthusiasm  on  the  part  of  SMEs  may  reflect  their 
generally  more national  or  local  scope.  Many  sectors most  sensitive to the  SMP  are  dominated  by 
higher  than  average  sized  firms  (telecommunications  equipment,  electrical  machinery,  chemicals 
and  man-made-fibres,  pharmaceuticals, motor vehicles and machine tools). 

Compliance  costs  are  a  big  problem  for  most  SMEs.  Large  companies  can  redeploy  staff  to  deal 
with  the  associated  paperwork.  Smaller  companies  say  that  this  imposed  fixed  cost  represents  a 
higher  proportion  of  their  turnover  than  that  of  a  larger  company.  Nevertheless,  SMEs  in  some 
sectors  have  expressed  positive  views  about the  impact  of the  Single  Market  on  their  activity.  For 
example, in the detergent and cosmetics sector,  SMEs have had  better access to  European  markets, 
and  in the  construction  machinery  sector,  29% of  SMEs as opposed  to  7%  of  large  firms  feel  that 
the Single Market has encouraged  them to sell  abroad. 

Within  this  broadly  positive  picture  SMP  effectiveness  varies.  The  Commission's  findings  are 
the  headings  of  products,  services,  capital  and  public  procurement 
summarised  under 
liberalisation. 

3.3 

Products 

Single  Market  legislation  has  assured the  free  movement  of most  products  and  the  new  regulatory 
system  is generally  welcomed.  Border  controls  have  been  successfully  abolished.  Implementation 
of the  remaining  Directives  will  enable  full  exploitation  of the  benefits.  The  principle  of  mutual 
recognition  is  difficult  to  apply  in  practice  but  the  problem  is  being  addressed.  More  European 
standards  are  needed  to  eliminate  non-regulatory  obstacles  to  market  access.  On  the  whole, 
producers can now confidently  work to product  specifications  for  a Single  Market. 

It  is  above  all  in  the  market  for  manufactured  products  that,  in  contrast  to  the  situation  that 
prevailed  a  decade  ago,  the  dimensions  and  the  characteristics  of  the  Single  Market  can  be  seen 
emerging.  The two  outstanding  contributions  to this change  situation  are the  abolition  of  customs 
and fiscal  formalities  and the elimination  of technical  barriers to trade. 

Abolition  of customs  and fiscal  formalities: 

Changes  in  customs  and  fiscal  procedures  have  reduced  by  two-thirds  the  supplementary  cost  of 
cross-border  shipments, eliminated  60 million  customs  forms  and  allowed  for  an  85% decrease  in 
the  number  of  Community  transit  movements.  These  savings  amount  to  about  0.7%  of  the  value 
of  intra-EU  trade,  or  5  billion  ECU  per  annum.  Traders  now  regard  the  change  as  generally 
beneficial,  although  adjustment  costs  and  current  arrangements  for  fiscal  declarations  on  cross-
border  transactions  are  seen  as cumbersome.  In  general, traders  welcome  the  abolition  of  physical 
stoppages  at  internal  frontiers.  However,  two-thirds  of  respondents  to  a  special  survey  regard  the 
present  VAT payments system as transitional  and want an origin-based  system. 

11 

Abolition  of technical  trade  barriers: 

The  greater  part of Community  trade  in products  is subject  to  legally  binding  specifications  or tests 
with  which  they  must  comply  before  being  placed  in  the  market.  In  the  past,  these  mandatory 
requirements  (over  100,000  of  them  existed  in  1985)  were  defined  at  national  level,  excluding 
partner  country  products  from  the  market  unless  they  were  re-engineered  or  tested  to  local 
specifications,  possibly  at  considerable  cost.  There  are  now  signs  that  business  believes  that 
technical  harmonisation  and  mutual  recognition,  introduced  to  remove  the  barriers,  have  been 
effective.  In key  product  sectors (chemicals, mechanical  engineering, office  equipment,  foodstuffs, 
motor  vehicles),  35  to  50%  of  respondents  to  the  Eurostat  survey  regard 
the  technical 
harmonisation  and  mutual  recognition  measures as effectively  overcoming technical  barriers. 

The  measures  introduced  have been  based  on a number of distinct  elements.  It is useful  to  consider 
them  separately.  Most  have  had considerable  success, but they  have also had their  difficulties. 

•  Detailed  harmonising  legislation  cover  products  accounting  for  some  30% of  industrial  output. 
including  chemicals, 

Endorsement  of  efforts 
pharmaceuticals, and  motor  vehicles  has been  particularly  marked. 

remove  barriers 

these  sectors, 

in 

to 

•  New  approach  Directives  cover  at  least a further  17% of output.  Where the  measures  have  been 
in  force  for  some  time,  as  with  the  Pressure  Vessels  Directive,  they  have  been  favourably 
received.  The  new  approach  is distinctive  because  of the  choices  it offers  to  the  producer  as  to 
the technical  solution  chosen  and as to the choice of any test or certification  body.  It is  therefore 
perhaps  unsurprising  that  anxieties  seem  to  focus  around  the  early  days  of  operation  of  the 
Directives and  how this  flexibility  is to be interpreted  in practice. 

•  Harmonised  European  Standards  offer  optional  fast  track  compliance  with  new  approach 
Directives.  Some  problems  have  been  experienced  due  to  delays  in  the  delivery  of  the 
standards.  This  reflects  the  time-consuming  nature  of  standards  writing  - on  average  it takes  5 
years  for  the  private  sector  standards  bodies  to  draft  and  obtain  consensus  on  a  European 
Standard.  Notwithstanding  notable  shortfalls  in  areas  such  as  construction  products,  the 
standards  bodies  have  made  rapid  strides  in adapting to the  surge  in demand.  It is expected  that 
the  bulk  of  the  standards  required  for  the  operation  of  the  new  approach  legislation  will  be  in 
place  within  two  years.  80%  of  standardisation  now  takes  place  at  European  or  international 
level,  as  compared  to  80%  at  national  level  only  10 years  ago.  The  onus  will  be  on  European 
industry,  if it wants the harmonised  standards, to provide  sufficient  resources  to finish the job. 

•  The  SMP offers  producers  increased  flexibility  to choose  bodies  for  test and  certification.  There 
has been  a shortage  of choice  of such  bodies  in some  sectors and  in some  Member  States. Much 
depends  on  the  diligence  of  the  Member  States,  both  in  expediting  the  notification  of  suitable 
bodies and  in ensuring that a uniformly  high standard of performance  is met. 

•  Un-harmonised  national  requirements  affects  some  25%  of  output.  Market  access  for  these 
products  depends  on  mutual  recognition  and  this  is  proving difficult  to enforce  in a way  which 
guarantees  access  to  al!  Member  State  markets.  The  entry  into  force  in  1997  of  a  new 
notification  procedure  for  national  measures  restricting  market access should  reduce  uncertainty 
about the application  of mutual  recognition. 

Despite  these  caveats,  the  surveys  make  clear  that  the  Community  has  succeeded  in  establishing 
ground-rules  and  an  institutional  infrastructure  which  is capable  of  delivering  a technical  barrier-
free  Single  Market. 

Further, this progress  has been  based  on  high  levels of health, safety,  environmental  and  consumer 
protection.  Only  rarely  have  national  authorities  contested  these  as  being  insufficient.  Fears 
expressed  in the  early  days  of  the  SMP  have  proved  groundless;  improvements  in  free  circulation 
have  been  achieved  without  putting  these  overriding  requirements  at  risk.  The  Commission's  use 
of independent  scientific  advice  when  preparing  harmonisation  measures  intended  to protect  public 

12 

health  has  certainly  made  a  big  contribution  to  this.  Its  independent  scientific  committees  have 
been  particularly  useful.  Recourse to such  advice  in the  management  of Community  rules will  help 
to  prevent  problems  and  to  provide  rapid  and  effective  responses  to  those  problems  which  do 
emerge. 

Even  where  regulatory  problems  have been  resolved,  some  producers  have experienced  difficulties 
in  persuading  economic  operators  to  accept  the  results  of  conformity  assessment  from  bodies 
which 
they  do  not  know,  or  the  adequacy  of  voluntary  national  standards  and  marking 
requirements  with  which  they are  unfamiliar.  The Commission  encourages  market-led  initiatives  to 
remove  obstacles  to  mutual  recognition  and  intcr-changcabilily  of  marks  or  to  develop  common 
European  standards  and  marks.  But  this  is  not  a  regulatory  problem.  Only  a  change  of  customer 
attitudes can overcome this non-regulatory  technical  barrier. 

Yet  this  shows  how  far  consumer  confidence  is crucial  to  the  operation  of  the  Single  Market.  For 
the  market  to  work  well, customers  need  to  be  sure  that  products  do  indeed  meet  the  requirements 
for  placing  on  the  market.  This  is  especially  so  for  those  with  which  they  are  unfamiliar.  This 
confidence  could  be  undermined,  in  the  Single  Market,  by  a  suspicion  that  products  could  be 
placed  on  the  market  in  another  Member  State  and  then  circulate  freely  without  being  in 
conformity,  either  because  the  common  technical  specifications  had  not  been  implemented  there, 
or  because  the  lack  of  an  adequate  mechanism  for  detecting  and  punishing  false  declarations  of 
conformity,  inadequate  controls  at  external  frontiers,  or  inadequate  supervision  of  lest  procedures. 
The  achievement  of  free  movement  has  reinforced  the  need  for  agreed  inspection  and  surveillance 
procedures  to  prevent  such  concerns  from  arising.  More  attention  (o  this  area  is  neeceo  in  the 
future  management  of the  Single  Market. 

3.4 

Services 

The  Community  has  established  a  basic  legal  framework  in  manv  service  markets.  The  most I 
i 
obvious  restrictions  have  been  removed.  But  legislative  measures  have  only  been  ccixkig  on 
stream  since  1993.  Delays  in  transposing  the  new  rules  into  national  law  have  impeded  progress  j 
! 
(e.g. insurance).  Further  measures  may  be needed, particularly  for  financial  services. 

More  effort  has  been  needed  to  integrate  service  markets  than  products.  The  measures  aimed  to 
eliminate  deep-seated  unchallenged  obstacles 
to  cross-border  provision  of  services  and 
establishment  in  partner  countries.  Prior  to  the  SMP,  national  markets  were  segregated  iirough 
quantitative  restrictions  on  trade,  by  means  of  outright  prohibitions  on  competition  from  non-
domestic  suppliers  (road  freight  transport)  or  privileged  treatment  for  them  (air  transport).  Other 
requirements  in  national  regulations  increased  the  cost  of  entry  or  establishment  (financial 
services) or deterred  cross-border  provision  of services  (insurance). 

The  SMP aimed  to separate decisions  on  market access  from  technical  rules on  supervision,  market 
stability,  safety  and  consumer  protection  by  setting  minimum  EU  licensing  requirements  for 
operation  (subject  to  'home  country  control1).  In  other  sectors,  where  services  could  be  offered 
across  borders,  harmonisation  of  general  interest  provisions  was  necessary  to  allow  for  the  home 
country  control  principle  to  be  applied.  In  professional  or  regulated  services,  where  the  right  to 
practice  is  often  conditional  on  holding  specified  qualifications,  the  approach  of  the  "mutual 
recognition" of equivalent  qualifications  was  pursued. 

Services  targeted  by  the  SMP  account  for  over  50%  of jobs  and  added-vaiue  In service  sectors, 
including  sectors  with  high  growth  and  job  creation  potential.  Other  service  sectors  have  been 
indirectly  but  significantly  affected.  The  physical  organisation  of  distribution  and  shipment 
networks  has  been  transformed  to  meet  the  needs  of  an  integrated  market.  These  market  services 
contribute  to other  sectors: every  100 ECU  of  industrial  output  embodies  20  ECU  of service  inputs. 

13 

Table  1 shows  the  effectiveness  of  EU  measures  for  services  sectors  as  perceived  by  economic 
operators. The  SMP has successfully  removed  most  of the targeted  restrictions.  In road  freight,  air 
transport  and  telecommunications  liberalised  services,  operators  can  now  freely  provide  services 
across  borders.  Removal  of  the  restrictions  has  fundamentally  changed  operator  capacity  to  win 
custom  in  partner  countries.  Between  1990  and  1995,  there  has  been  a  300%  increase  in  the 
volume  of  road  transport  services  delivered  by  partner  country  hauliers  within  the  territory  of 
individual  Member  States. This  has  allowed  for  more  efficient  provision  of  pre-existing  volumes 
of  haulage  services.  In  air  transport,  new  alliances  and  new  market  entrants  are  removing  rigid 
structures, to the benefit  of consumers. In banking  services, the  introduction  of the  'single  banking 
licence'  has  substantially  reduced  the  cost  of  establishment  in  partner  countries;  cross-border 
branches have  increased  by 58% in the 2 years since the  legislation  entered  into  force. 

In telecommunications,  the  liberalisation  of telecommunications  equipment,  data  and  value-added 
télécoms services, satellite  services and, from  1996, mobile communications  and the  use of  utility-
owned  networks  and  cable  TV  networks  has  removed  barriers  to  investment  and  led  to  lower 
prices  and  better service.  In  isolated  instances, however,  such  as  insurance, the  measures  have  not 
yet succeeded  in opening up national  markets. The approximation  of  legislation  undertaken to  date 
still  contains  some  loopholes  which  are  used  to  hamper  cross-border  provision  of  services  or 
establishment  (such as national rules on protection  of the "general  good" in financial  services). 

These  problems,  discussed  further  in  Chapter  4,  require  case-by-case  examination  and  further 
measures  may  have to be taken to remove  remaining  restrictions.  Furthermore, the  Commission  is 
concluding  consultations on the  'freedom  to provide  services'  and  'general  good'  provisions of the 
Second  Banking  Directive  and  a Green  Paper  consultation  on  Consumers  and  Financial  Services. 
More general  initiatives may be needed, especially  in the area of new Information  Society services. 

3.5 

Capital 

Almost  all  impediments  to  free  movement  of  capital  have  been  removed.  Remaining  national 
restrictions  derive  from  taxation  law  or  prudential  controls  in the  financial  services  field  and  are 
not  a  serious  impediment,  except  for  continuing  restrictions  on  investments  by  pension  funds; 
However,  the  lack  of  a harmonised  approach  to  taxation  of  income  from  capital  remains  a  major 
distortion of the market. 

Capital  restrictions  on  long-term  investment  flows  and  commercial  transactions  have  long  been 
abolished.  Directive  88/361  introduced  complete  liberalisation  of  capital  movements  in  the  EU 
from  1990  (all  derogations  have  now  expired).  In  1993,  controls  on  exchange  and  financial 
transactions  were  removed.  The  adoption  of  new  Treaty  provisions  prohibited  all  restrictions  on 
capital  movements and payments between Member States. 

These  freedoms  are  qualified  by  Member  States'  right to  restrict  capital  transfers  where  permitted 
by  their  fiscal  law  or  to  ensure  application  of  national  prudential  controls  in  the  area  of  financial 
services. These rights are used by some Member  States for different  financial  markets; ten  Member 
States  have  entered  reservations  within  OECD  against  freedom  of  establishment  and  operation  of 
branches of foreign  insurers, banks and other financial  institutions. 

The  most  significant  restrictions  affect  investment  undertaken  by  pensions  funds,  six  Member 
States  currently  restrict  a  range  of  pension  fund  investments.  Where  restrictions  go  beyond 
prudential  necessity,  they  amount  to  breaches  of  the  Treaty  and  prevent  the  maximisation  of 
returns  for  both  the  fund's  members  and  the  employer.  Technological  advances  and  the  global 
freedom  of capital  movements  make a single capital  market crucial  to EU competitiveness,  growth 
and jobs. 

Flows of capital  are also distorted  by national differences  in the tax treatment of income on  savings 
and the tax deductibility  of life  insurance  premiums  and  mortgage  interest  payments.  It should  be 

14 

Table  1: Effectiveness  of  Single Market measures  in removing  barriers to  the  free  provision  of  services  (as perceived by economic  operators) 

Banking 

Insurance 

Cross-border  service  restrictions 

7 7 D i s c r i m i n a t o ry  conditions 
for  cross-border  sale of 
services 

•f  Restrictions  on  marketing  and 

service  content 

7 7 D i s c r i m i n a t o ry  conditions 
for  cross-border  sale of 
services 

S  Restrictions  on  marketing  and 

service  content 

Restrictions  on 
Establishment 
sS  Discriminatory 

conditions  for  licences 

Restrictions  on Factor 
flows 
*S  Capital  controls 

Barriers 

Re^ulaTolTTte^hlu^aTbaTrilrs3 

sS  Prudential 
S  Conditions  for  sales 

requirements 

sS  Discriminatory 

"TT Capital  controls 

conditions  for  licences 

S  Consumer  protection 
Conditions  for  sales 

Road  freight  transport 

J"*  Bilateral  quota  restrictions  on 

sS  Discriminatory  licensing 

the  access  to  other  EC markets 

conditions 

S  Cabotage  restrictions 
s  S  Recognition of 
diplomas 

S S  Exclusive  rights  for 

licensing  of  air  carriers 
©  Ownership rules  in  third 
country  Dilaterais 

Cabotage  restrictions 

7 
s  S  Designation  and 

capacity  restrictions 

sS  Weights  and  dimensions 
S  Road  safety  rules 
S 
Speed  limiters 
S  Resting  hours 
*S  Conditions  for  sales 
sS  Security  and  safety  rules 
©  Airport  charges 

Fiscal  issues 

Others 

^o>  Tax  on  savings 
® 

Investment  income 
tax 

©  Death  duties 

^ 

Taxation  of 
reserves 
©  Taxation  of 

premiums 

©  Contract  law 

s  S  Excise  duties 

sS  Border  formalities  for 

goods 

•  VAT 

S 

Border  formalities  for 
passengers 

* 

S  S  Access  to  computer 
reservation  systems 
State  aids,  unfair 
practices 
<§>  Fair  access  to 
networks 

sS  Exclusive  rights  on: 
mobile,  data  and 
satellite  services 
®  National  licensing  rules 
for  broadcasters 
©  Media  ownership 
restrictions 

sS  Exclusive  rights  to 
sell  equipment 

7 

7 

Technical  conditions  for  use of 
networks 

Technical  conditions  for  use of 
networks 

No restrictions 

sS  Restrictions  on  free 
movement  of  goods 

* 

VAT 

sS  Border  formalities  for 

goods 

*  Technical  barriers  on 

products 

Air  transport 

•fS  Price  restrictions 

7 7 B i l a t e r al  restrictions  on 
free  access  to  other EC 
markets 

s S  Price  restrictions 
©  Slots  allocation 

Telecoms  liberalised 
services 

S  Discriminatory  conditions  for 

access  to  network 

TV  Broadcasting  services S  Restrictions  on  cross-frontier 

broadcasting 

s  Rental  and  Lending  rights 
S  Term  of- copyright  protection 
S  Copyright  applicable  to  satellite 

and  cable 
No restrictions 

Distribution  (Fast 
moving  consumer 
goods) 

Advertising 

©  Types  of  products  and  media 
Comparative  advertising 
© 

No restrictions 

*  Restrictions  on  media  *  Misleading  advertising 

Content  restrictions 

ss  Barrier  effectively  removed;  ^ 

Barrier  partially  removed;  ®  Remaining  barrier;  -  Not  relevant 

These type of barriers tend to increase the cost of supplying services internationally and could be considered equivalent to technical barriers in manufacturing 

recalled  that  Directive  88/361  also  referred  to  the  need  for  Fiscal  harmonisation,  the  absence  of 
which  may  give  rise  to  distortions  in  capital  flows  that  are  likely  to  be  accentuated  by  a  single 
currency. 

Despite  these  constraints,  almost  all  formal  impediments  to  free  circulation  have  now  been 
eliminated.  The  outstanding  OECD  'reservations'  are  limited  to  certain  financial  instruments  and 
geographical  areas  and,  except  for  pension  fund  restrictions,  do  not  apply  to  a  large  volume  of 
capital  market  transactions.  Between  1984  and  1994  the  volume  of  foreign  assets  and  liabilities 
held  by  investors  or owed  by  borrowers  in other  Member  States  doubled.  In the  UK,  for  instance, 
outward  portfolio  investment  stocks  rose  from  6  to  60% of  GDP  between  1979  and  1993,  whilst 
the  inward  stock  rose  from  6  to  42%  of  GDP  over  the  same  period.  In  countries  such  as  France, 
Italy  and  Spain, where  capital  restrictions  were  previously  significant,  the  Single  Market  has  led to 
the  removal  of  liquidity  constraints.  Demand  for  borrowing  by  investors  can  now  be  more  easily 
met  by  capital  inflows  from  partner  countries  and  returns  on  capital  investment  across  the  EU  are 
steadily  converging. 
In  addition,  capital  market  liberalisation  has  reinforced  the  pressure  on 
national  authorities  to comply  with  fiscal  and  monetary  disciplines. 

3.6 

Public  procurement 

For the  full  benefits  of procurement  liberalisation  to  be achieved,  more effort  is needed  both  from 
national  public  authorities  to  implement  the  Directives and  from  purchasing  entities  to apply  them 
to  their  procurement  procedures.  It  is  also  necessary  to  improve  access  for  suppliers.  Where 
public  purchasers  and  firms  seeking  to  do  business  with  public  entities  have  applied  the 
liberalised  framework  of Community  rules, they  have  in some  cases  brought  economies  to  public 
budgets and  new business to dynamic  enterprises. 

Open  competition  in  public  procurement  is  the  key  to  a  vigorous  enterprise  economy  and 
successful  Single  Market.  Public  procurement  accounted  for  1  1.5%  of  EU  GDP  in  1994, or  ECU 
721  billion  (the  combined  size  of  the  Belgian,  Danish  and  Spanish  economies  or  ECU  2,000  per 
citizen).  About  110,000  of  EU  public  authorities  are  estimated  to  be  required  to  follow  public 
procurement  procedures. 

Even though  the overall  figure  of  10% import  penetration  of procurement  markets  is disappointing, 
15% to 25% of products  like office  machinery,  medical  equipment, télécoms equipment  and  motor 
vehicles are now procured  from  suppliers  in other  Member States. 

On  the  supply  side,  a  Commission  survey  of  1,600  procurement  active  suppliers  showed  high 
response  rates  to  new  market  openings  (of  90%  and  70%  to  domestic  and  cross-border 
opportunities  respectively).  Tenders  for  new  cross-border  opportunities  led  to  44%  winning  new 
business  and  31%  selling  to authorities  in other  Member  States;  36% reported  increased  domestic 
competition.  This reflects  the  increase  in transparency  in the  market:  the  number  of tender  notices 
published  in  the  Official  Journal  of  the  European  Communities  increased  from  12,000  in  19X7 to 
95,000  in  1995. 

But  these  results  still  fall  far  short  of  the  total  potential  benefits.  85% of  public  authorities,  many 
of  which  are  very  small  and  engaged  in  limited  volumes  of  procurement,  are  not  publishing 
tenders. 

One  of  the  reasons  for  this  under-achievement  is  of  course  the  substantial  delay  in  incorporating 
the  I I  procurement  Directives  into  national  legislation  and  enforcing  them  effectively.  Only  72% 
o(  the  national  implementing  measures  required  have  been  taken.  There  are  39  procedures 
currently  in motion  for  lack of  implementation,  or unsatisfactory  implementation  of the  Directives. 
Overall,  only  3  Member  States  have  completely  and  correctly  transposed  all  the  Directives.  The 
European  Council  in  Florence  singled  out  the  procurement  sector  as  requiring  an  acceleration  of 
national  transpositions  efforts.  Market  surveillance  and enforcement  remain  a serious  issue. 

15 

For  its part, the Commission  is considering such  issues as effective  application  and  enforcement  of 
the  legislation;  how  market  access  can  be  improved  by  information,  training  and  electronic 
procurement;  how  the  application  of  public  procurement  law  can  also  take  account  of  other 
policies  on  Trans-European  Networks  (TENs),  SMEs,  the  Cohesion  and  Structural  Funds;  and 
access to third  countries"  procurement  markets. 

16 

4. 

REMAINING  OBSTACLES  TO  FREE  MOVEMENT 

If 
the  Union's  efforts  to  complete  a  Single  Market  have  largely  been  effective,  there  are  no 
grounds  for  complacency.  It  is  inevitable  in  a  project  as  complex  as  the  SMP  that  problems  will  be 
encountered  in  the  definition  and  implementation  of  the  new  ground-rules.  This  chapter  looks  in 
more  detail  at  the  obstacles  to  the  functioning  of  the  Single  Market,  as  background  to  setting  the 
priorities  for  further  action  in  Chapter  5. 

4.1 

Ineffective  implementation,  enforcement  and  redress 

Agreed  Community  rules  must  be  put  into  law  in  every  Member  State  and  applied  effectively  and 
fairly.  Regrettably  this  is  not  always  the  case.  Member  States  have  not  yet  fully  delivered  on  their 
commitments. 

The  Commission  has  been  actively  pursuing  these  shortcomings,  in  particular  by  opening  formal 
infringement  procedures  against  Member  States  which  do  not  Iul 111 their  obligations,  but  the  real 
remedy  is  more  determined  action  at  the  national  level.  This  review  also  confirms  the  diagnosis  of 
the  Commission's  Strategic  Programme  for  the  Internal  Market  (1993)  that  the  lack  of  consistency 
between  legal  systems  in  the  individual  Member  States  affects  the  exercise  of  Single  Market  rights. 

•  Transposition 

Although  the  transposition  rate  for  Single  Market  measures  is  steadily  improving,  with  an  average 
rate  of  90.%  for  EU-15,  inadequate  transposition  is  still  a  concern.  56%  of  the  1985  White  Paper 
measures  have  been  transposed  in  every  Member  Slate.  Substantial  delays  have  occurred  and  poor 
quality  transposition  is  also  preventing  business  from  fully  exploiting  the  potential  of  the  Single 
Market. 

Member  States  may  also  use  different  transposition  techniques,  which  can  result  in  legislation 
which,  after  transposition,  leads  to  legal  uncertainties  and  problems  of  interpretation.  The  result  is 
that  interested  parlies  may  have  to  cope  with  different  requirements,  according  to  the  Member 
States  in  which  they  operate,  which  leads  to  high  compliance  costs.  Typical  examples  are  public 
procurement  and  recognition  oi'  diplomas.  But  the  costs  do  not  only  fall  on  businesses  and 
citizens;  recent  Court judgements  have  shown  that  Member  Stales  can  under  certain  circumstances 
expose  themselves  to  substantial  claims  for  damages  by  inadequate  transposition. 

•  Enforcement 

Uneven  enforcement  of  EU  legislation  is  often  regarded  as  the  most  persistent  barrier  to  trade  or 
fair  competition  within  the  Single  Market  because  overcoming  it entails  close  scrutiny  of  national, 
regional,  or  even  local  practices.  What  is  needed,  above  all,  is  mutual  confidence  between  the 
Member  States.  Yel  enforcement  methods  arc  far  from  harmonised  across  Member  States,  leading 
to  two  major  concerns  : 

the  risk  of  exploitation  oi'  inadequate  enforcement  by  some  producers  or  service  providers, 
which  will  undermine  the  high  level  of  protection  which  the  legislation  aims  to  uphold;  and 

distortion  of  competition  between  producers  as  a  result  o^  differences 
that 
enforcement  is  carried  out.  Business  is  complaining  about  the  uneven  and  sometimes  allegedly 
discriminatory  application  of  controls,  both  between  and  within  Member  States. 

in  the  way 

The  lack  of  familiarity  with,  and  consequent  incorrect  application  of.  Community  law  by  national 
civil  servants  is  a  frequent  cause  of  complaint  from  both  businesses  and  individuals  trying  to 
exercise  their  rights  in  the  Single  Market. 

There  is  a  pressing  need  to  ensure  effective  and  equivalent  enforcement  in  every  Member  State,  if 
necessary  by  adopting  new  rules,  for  certain  aspects  of  harmonised  product  legislation.  In  the  area 
of  harmonised  product  legislation,  particularly  where  the  producer  alone  is  responsible  for  assuring 

17 

that  his  product  conforms  to  the  law,  effective  market  surveillance  is  required  to  deal  with  such 
subjects  such  as  mutual  assistance  between  control  authorities,  information  exchange,  common 
control  programmes,  audits,  training  and  data-bases. 

Another  kind  of  enforcement  problem  may  arise  in  areas  where  market  opening  relies  on  the 
'mutual  recognition'  principle.  Inspectors  in  one  Member  State  may  have  difficulty  in  identifying 
the  requirements  with  which  products  or  service  providers  must  comply  or  in  assessing 
the 
conformity  of  the  product  or  service  provider  to  those  requirements.  There  is  a  need  for  more 
exchange  of  information  about  national  regulations  and  related  conformity  assessment  procedures. 

•  Redress 

The  absence  of  effective  remedies  may  hinder  the  correct  enforcement  of  Community  legislation. 
The  provision  of  effective  remedies  requires  a chain  of  mechanisms,  from  the  capacity  to  identify  a 
defective  product  to  the  willingness  and  ability  to  take  measures  to  remove  it  from  the  market  and. 
if appropriate,  impose  sanctions. 

Redress  can  be  sought  by  private  parties  through  the  courts  but  here,  too,  there  are  barriers.  The 
legislation  may  hinder  redress. 
absence  of  effective  judicial  remedies  to  enforce  Community 
Common  measures  to  guarantee  proper  enforcement  of  harmonised 
law  by  the  courts  have 
sometimes  been  introduced  (e.g.  for  the  Community  Trade  Mark),  but  elsewhere  the  enforcement 
of  the  liability  of  the  State  by  private  parties  in  civil  actions  may  be  limited.  In  some  cases,  it  is 
unrealistic  to  expect  individuals  with  limited  resources  to  take  action  before  national  courts.  Even 
when  such  action  is  taken,  the  degree  of  awareness  of  Community  law  among  legal  practitioners  is 
sometimes  very  low. 

4.2 

C a ps  in  the  legislative  framework 

Eleven  years  after  the  1985  White  Paper  programme  was  agreed,  a  'hard  core"  of  its  proposals  still 
remains  to  be  adopted,  and  market  liberalisation 
in  sectors  which  were  not  covered  by  that 
programme  has  not  been  completed.  Some  adjustment  of  existing  measures  is  also  needed  to 
clarify  and,  in  some  cases,  simplify  Community  rules. 

(a)  Non-adoption  of  White  Paper  measures 

The  main  stumbling  blocks  arc  in  key  areas  affecting  business  management,  such  as  company  law, 
and  corporate  taxation,  financial  services  and  the  liberalisation  of  the  transport  and  energy 
markets.  In  particular,  the  failure  of  the  European  Union  to  put  in  place  a  consistent  and  simplified 
taxation  system  at  EU  level  or  to  remove  discriminatory  provisions  which  create  distortions 
between  Member  States'  tax  regimes  has  prevented  companies  from  conducting  operations  as  a 
single,  integrated  Union-wide  business.  This,  in  turn  has  inhibited  their  contribution  to  higher 
employment.  The  importance  of  these  problems  is  consistently  conllrmcd  in  submissions  from 
business  organisations. 

The areas  in  which  the  original  Single  Market  agenda  has  not  been  delivered  arc  : 

•  Company  taxation 

A  more  coherent  approach  to  the  tax  treatment  of  company  income  within  the  Single  Market  is 
long  overdue.  There  is  still  no  policy  framework  for  eliminating  all  forms  of  double  taxation  on, 
and  other  possible  obstacles  to,  cross-border  income  flows  within  the  Single  Market.  Such  a 
framework  would  also  prevent  tax  losses  as  a  result  of  cross-border  arbitrage,  avoidance  or 
evasion.  Problems  often  referred 
to  by  business,  which  arc  only  partly  covered  by  current 
Commission  proposals,  include  the  absence  of  a  common  system  for  EU-wide  consolidation  of 
losses  within  groups,  the  tax  treatment  of  permanent  establishments  compared 
to  domestic 
companies,  the  persistence  of  withholding  taxes  on  interest  and  royalty  payments  within  groups  of 

18 

companies  as  well  as  for  inter-company  dividends,  and  the  uncompleted  network  of  "bilateral 
conventions". 

•  Approximation  of  taxation  treatment  of  investment  income 

The  current  co-existence  of  different  national  systems  of  taxation  for  investment  income  and  the 
current  distortions  between  residents  and  non-residents  which  prevail  in  some  countries  lead  to 
distortions  in  capital  movements. 

•  An  origin-based  VAT  system 

Many  of  the  concerns  voiced  today  do  not  in  fact  stem  from  the  transitional  regime  but  rather  from 
is  based  on  physical 
difficulties  with  the  Community  VAT  legislation. 
monitoring  of  the  movement  of  goods  and  as  such  is  no  longer  suited  to  modern  business  practices. 
In  addition,  special  arrangements,  options  and  powers  allowed  by  Directives,  together  with 
derogations  and  differences  in  implementation  of  common  provisions,  have  led  to  divergence  in 
the  way  the  common  VAT  system  is  applied.  The  recently-proposed  work  programme  for  an 
origin-based  VAT  system  aims  to  get  rid  of  these  problems  by  removing  any  distinction  between 
domestic  and  intra-Community  transactions  and  providing  legislation  which  can  be  applied  and 
enforced  equitably  throughout  the  EU. 

The  present  system 

•  Company  law 

Cross-border  mergers  arc  still  hampered  by  legal  problems.  Two  unadopted  proposals  (the  tenth 
Directive  and  the  European  Company  Statute)  would  complete  the  legal  framework  and  allow 
companies  to  reap  considerable  cost  savings  through  simplified  organisation  and  administration. 
This  is  a  high  priority  for  facilitating  business  in  Europe.  The adoption  of  the  proposed  framework 
Directive  on  take-over  bids  would  provide  several  means  of  guaranteeing  minimum  standards  o( 
protection  for  shareholders  in  case  of  take-overs.  This  measure  docs  not  tackle  structural  barriers 
to  take-overs  but  could  provide  a  framework  of  greater  legal  security  which  would  make  it  easier 
to  address  these  other  obstacles  later. 

(b)  The  need  for  adjustment  of  existing  measures 

This  review  has  identified  some  instances  where  existing  measures  do  not  meet  the  needs  of 
economic  operators  wanting  to  engage  in  cross-border  transactions,  either  because  of  imprecise 
provisions  or  narrow  scope. 

•  Unclear  legislation 

Some  SMP  rules  have  resulted  in  divergent,  occasionally  even  conflicting,  interpretations  in  the 
to  some 
Member  States.  Lack  oi'  clarity 
led 
enforcement  problems.  Other  sector-specific  measures  (machinery 
in  the  work  place,  the 
'leased  line"  Directive,  and  the  transparency  Directive  for  pharmaceutical  products)  have  also 
given  rise  to  problems  of  interpretation. 

in  the  public  procurement  Directives  has 

In  the  foodstuffs  sector,  questions  have  arisen  about  the  balance  between  harmonised  and  non-
harmonised  measures  and  about 
The 
interaction  of 
Commission  intends  to  address  these  issues,  amongst  others,  in,a  wide-ranging  Green  Paper  on 
Food  Law. 

the  various 

legislative 

texts. 

the 

•  Limited  scope 

In  a  few  eases.  Single  Market  legislation  has  not  adequately  covered  all  barriers  to  trade  or 
anticipated  new  developments  in  the  market  as  lor  example  the  difficulties  caused  by  the 
absence  of  a  single  authorisation  procedure  for  insurance  intermediaries  or  national  installation 
rules  in  respect  of  certain  industrial  products. 

19 

4.3 

Over-complicated  rules 

In  a  limited  number  of  cases,  the  implementation  of  the  SMP  has  generated  additional  costs  for 
business, of two kinds: 

• 

• 

the  first  is  short-term,  transitional  costs  of  change  to  harmonised  systems  and  new  technical 
requirements  (such  as  the  need  to  prepare  and  translate  documentation  for  compliance  with 
Machinery  Directive); 

the  second  is the  cost  of  excessively  complex  and  detailed  regulation,  which  forces  companies 
to  invest  substantially  and on a permanent  basis  in order to comply.  For example,  INTRASTAT 
imposes  relatively  high  reporting  requirements  on  traders  compared  to  the  previous  system. 
Current  arrangements  for  indirect  taxation  can  be  burdensome  in  respect  of the  place  of  supply, 
the need  for  fiscal  representatives  and  the  introduction  of special  schemes  for  distance  selling  or 
new  means  of  transport.  Both  of  these  issues  have  now  been  addressed  by  initiatives  taken  by 
the Commission,  namely the SLIM  initiative and the recent  proposal  of a work  programme  for  a 
new common  VAT  system. 

4.4 

Old and  new obstacles at  national  level 

Simplification  of national  rules would  contribute  to a more efficient  Single  Market.  The  successful 
abolition  of  the  "first  line"  of  market-fragmenting  measures  has  increased  the  importance  of 
removing  remaining  national  regulatory  obstacles  to cross-border  transactions. 

While  national  rules  may  serve  public  policy  objectives,  they  are  not  always  proportionate  to  the 
desired  objectives  and  some  may  be  protectionist  in effect.  Many  of  these  obstacles  were  familiar 
to the architects of the original  SMP. 

An  illustration  can  be found  in the  pharmaceuticals  sector,  where  national  regulations  in  respect  of 
price  and  reimbursement  schemes  delay  access  to  national  markets  and  may  be  used  to  encourage 
local  products. 

Uncoordinated  technical  legislation  aimed  at  protecting  the  environment  and  consumers  is 
frequently  seen  by  business  as  a  complication  in  the  Single  Market  and  a  reason  for  a  greater 
degree  of  harmonisation  of  rules.  In  some  cases,  the  problem  may  be  linked  to  shortcomings  in 
existing  EU  legislation  as,  for  example,  in  waste  recovery,  where  there  is  little  restriction  on  the 
type  of  measures  that  Member  States  can  adopt.  In others. Community  rules  have  been  overtaken 
by  additional,  more  stringent  specifications  at  national  level.  Such  differentiation  has  a  significant 
impact  on  smaller  companies  seeking  to enter  new  markets.  Although  many  of these  measures  can 
be justified  by  Treaty  provisions,  they  may  sometimes  be  out  of  proportion  to  their  objectives. 
Invocation  of  the  subsidiarity  principle  and  recourse  to  Article  100a (4)  to justify  the  maintenance 
of  national  environmental  protection  measures  also  worries  some  sectors,  particularly  chemicals, 
although  to  date  recourse  to  Article  l()0a(4)  has  been  limited  to  a  handful  of  cases  with  limited 
trade  effects. 

The  advent  of  information  society  services  is  also  bringing  with  it  the  risk  of  uncoordinated 
national  initiatives  to  address  public  policy  concerns.  The  Commission  has  recently  made  a 
proposal  for  mechanisms  to  reinforce  regulatory  transparency  in the  single  market  for  information 
society  services  in order to ensure a more co-ordinated  approach  where  necessary. 

More  generally,  the  persistent  tendency  of  some  Member  States  to  prescribe  detailed  technical 
regulations  for  products  represents  a  constant  threat  to  the  Single  Market;  on  average  more  than 
450  new  national  technical  rules  for  products  arc  notified  to the  Commission  every  year.  There  is 
little  sign  yet  that  Member  States  arc  ready  to observe  the  self-discipline  in  rule-making  that  they 
advocate  so vociferously  for the  Union. 

20 

4.5  Management of Community  Legislation 

(a) Scientific  expertise 

The  objective  of  the  management  of  technical  regulations  is  to  keep  the  protection  of  the  health 
and  security  of  EU  citizens  and  of the environment  at a high  level.  Directives  therefore  need  to  be 
adapted  according  to the  latest  scientific  knowledge. 

•  The efficiency  of regulations depends on a fast  decision  making  process; the  food  additives case 
provides  an  example  of  the  difficulties  which  arise  when  procedures  are  excessively  slow  and 
cumbersome. 

•  The  adaptation  of  directives  should  be  based  on  independent  scientific  evidence  in  respect  of 

relevant  processes, production  methods,  inspections, sampling and  testing  methods. 

The  Commission  has  a  number  of  scientific  committees  involved  in  the  preparation  of  proposals. 
In order  to  strengthen  the  credibility  of  their  decisions,  these  bodies  need  to  be  reinforced  in  their 
autonomy,  structure  and  composition. 

The  availability  of  scientific  knowledge  at  Community  level  is  a  requirement  for  legislation 
guaranteeing  the  best  possible  protection  of  health,  security  and  the  environment,  but  it  also 
enables  the  Community  to react  to new  challenges  demanding  new  regulations,  in order  to  prevent 
the appearance  of new  obstacles to trade. The  Commission  will  increasingly  make  use of  scientific 
expertise  available  from  its  Joint  Research  Centre  to  contribute  to  questions  related  to  the 
protection  of health, security  and the  environment. 

(b) The external  aspects of the Single  Market 

The  development  of  internal  Community  legislation  is not  independent  from  the actions  of the  EU 
in the external  sphere: 

•  Member  States'  commitments  in  international  negotiations  can  affect 

their  commitments 

towards the Community  and  vice  versa; 

• 

it  is  in  the  interest  of  the  Community  to  base  internal  legislation  on  the  outcome  of  progress 
achieved  by  international  bodies  in  so  far  as  the  standard  guidelines  and  recommendations  of 
those  bodies  are  scientifically  justified  and  capable  of  meeting  the  Commission's  specified 
levels of health  protection. 

The  Single  Market  implies  that  the  EU  needs  to  negotiate  coherently  in  international  trade  matters 
in order  to achieve  further  market  openings  through  bilateral  or multilateral  means  such  as  Mutual 
Recognition  Agreements  in the field of recognition  of conformity  assessment  results. 

The  Single  Market  is  also  a  critical  factor  for  the  promotion  of  the  global  competitiveness  of 
European  business:  firms  have  to  operate  in  a  wider  market,  thus  prompting  rationalisation  of 
operations,  reduction  of  costs  and  innovation  and  diversification  of  products;  the  introduction  of 
competition  in  upstream  activities  leads  to  a  reduction  o\~  costs  for  inputs;  and  the  increased 
competition  that  they  face  in  their  own  sectors  pushes  business  to  become  more  efficient  and  cost 
competitive, and  to offer  higher quality  products and  services. 

4.6 

The  Single  Market  and services of general  interest 

Efforts  to  establish  a  Single  Market  in  services  of  general  interest,  where  Member  States  have 
traditionally  awarded  special  or  exclusive  rights  to  designated  suppliers,  have  made  significant 
progress but are still  incomplete. 

In  telecommunication  services,  value-added  services  have  already  been  liberalised  and  the 
deadline  for  liberalisation  of  voice  telephony  and  infrastructures  is  imminent.  In  these  areas,  the 
definition  of  transparent  rules  to  guarantee  access  to  networks  under  fair  and  competitive 

21 

conditions  and  to  promote  consumer  interests,  and  subject  to  guarantees  for  certain  regulatory 
objectives,  such  as  the  provision  of  universal  service  or  technical  requirements  for 
inter 
operability,  is currently  receiving  much  attention. 

the  element  of  customer  choice, 

In energy,  although  important  steps  were  made  in  the early  1990s  in the  form  of  the  Directives  on 
transit  and  price  transparency,  efforts  at  market  liberalisation  are  only  now  coming  to  fruition.  A 
common  position  for  a  Directive  concerning  common  rules  for  the  Single  Market  in electricity  was 
agreed  in  July  1996  which  foresees  limited  but  progressive  market  opening  and  competition  and 
introduces 
thus  breaking  existing  monopoly  situations. 
Progressive  market  opening  will  liberalise  one-third  of  each  national  electricity  market  after  a 
period  of  six  years.  Substantial  benefits  for  all  consumers  can  only  be  expected  from  full 
liberalisation:  additional  gains  for  consumers  would  amount  up  to  ECU  10-12  billion  per  annum, 
an  equivalent  of  ECU  30  per  inhabitant  - or  twice  as  much  as  gains  anticipated  from  the  opening 
already  agreed.  The  introduction  of  third  party  access  in  gas  would  also  lead  to  savings  of  900 
million  ECU  per annum  for consumers  and  substantial  additional  gains could  result  from  increased 
gas-to-gas  competition. 

Further  attention  to  the  regulatory  framework  for  liberalisation  will  be  required  if  the  full  benefit 
from  integration  is  to  be  reaped.  Competition  rules  will  be  a  key  tool  for  regulating  the  market 
(both  through,  ex-ante  guidance  and  case-by-case  application).  In  the  transition  to  effective 
competition  in sectors where  access to networks  is important,  action  on two  fronts  will be  needed: 

•  agreement  on  common  rules  to provide  transparency  in the  behaviour  of  network  operators  and 
clear  criteria  regarding  conditions  for  access  to  the  network  and  the  services  provided  over 
them; 
rigorous  application  of  EU  competition  rules  alongside  implementation  of  the  regulatory 
framework. 

• 

Effective  liberalisation  would  be  assisted  by  the  separation  of  regulatory  responsibilities  and 
operational  activities.  The application  of  the  principle  of  the  Single  Market  to  rail  transport  and  to 
postal  services should  also result  in significant  cost  reductions  and consumer  benefits. 

22 

5. 

A RENEWED COMMITMENT  TO THE SINGLE  MARKET 

In this concluding  chapter,  the  Commission  puts  forward  the  basis  for  a new  political  commitment 
to  the  Single  Market.  This  constitutes  a  call  to  action  to  all  parties  concerned  with  making  the 
Single  Market  a  success:  the  national  authorities  in  the  Member  States,  the  economic  agents  for 
whom the market  has been created  and the  Institutions of the  Union. 

The  Commission  identifies  the  main  areas to  be addressed  in order to achieve  full  commitment  to 
the  Single  Market.  This  will  involve,  in the  first  place,  living  up to commitments  already  entered 
into,  including: 

•  effective  application  and enforcement  of existing Community  law; 

• 

reducing the burden  of over-regulation,  particularly,  but not exclusively  at national  level,  which 
still  impedes the operation  of the market; and 

•  filling  in the  few  important  gaps  in the Single  Market to meet objectives  that were set  in  1985. 

It will  also require a new commitment  to meet new challenges. 

5.1 

Effective  application  and enforcement  of Community  law 

Proper  enforcement  of  common  rules  across  the  entire  Single  Market  is  the  major  priority.  This 
issue  is  widely  perceived  as  a  problem  by  businesses  and  individuals,  who  suffer  from  delays  in 
implementation  of  the  law  in  some  Member  States,  and  variations  in  its  interpretation  and 
enforcement  from  one  Member  State  to  another.  But  it  is also  important  for  ensuring  equivalent 
levels  of  safety  and  security  throughout  the  Union.  This may  require  change  in  the  administrative 
and even judicial  culture  in each  Member State. 

Enforcement  issues  present  a  growing  challenge  and  should  be  given  greater  attention  at  the 
political  level.  All  parties  concerned  should  be  ready  to  consider  a  more  innovative  approach,  to 
include the following  programme: 

•  Specific  initiatives  to  strengthen  Community  rules:  more  effective  rules  for  enforcement  are 
in  particular  a  strengthening  of  market  surveillance  of  compliance  with 

required  and 
Community  requirements. 

•  A  framework  for  enforcement  policy:  Member  States  should  be  more  open  in  discussion  of 
enforcement  and  be  ready  to exchange  detailed  information  about  their  enforcement  structures, 
procedures and  problems. 

•  Audits of  national  enforcement  measures are needed  in order  to establish  a high  level  of  mutual 

confidence  between  enforcement  agencies  in the  Member  States. 

•  Mobilising  scientific  and  technical  expertise:  more  systematic  recourse  should  be  made  to 

independent  scientific  and  technical  expertise 

•  Speeding  up  infringement  procedures:  rapid  follow-up  to  well-founded  complaints  and  where 
necessary  the  pursuit  of  infringement  procedures  against  the  Member  States  will  be  given  high 
priority. 

•  Better enforcement  instruments  for the  Single  Market, as well  as wider  involvement  of  national 

courts  in  enforcement. 

•  Monitoring  the  operation  of  the  Single  Market,  should  be  steppted  up  by  improvement  of 
national  collection  of  statistical  data  on  services  and  greater  use  of  the  Commission's  network 
of  Euro-Info  Centres. 

23 

5.2 

Reducing  over-regulation 

Some  national  legislation  untouched  by  the  SMP  is  still  a  significant  and  perhaps  unnecessary 
barrier  to  market  access  and  cross-border  operations.  Specific  measures  are  needed  to  increase  the 
visibility  of  such  legislation  and  to  simplify  it  where  possible.  Action  already  underway  to 
simplify  Community  legislation  for the Single  Market should  be extended. 

(a) Community  rules: 

The  Commission  has  already  launched  the  SLIM  (Simpler  Legislation  for  the  Internal  Market) 
initiative  which  aims  at  the  development  of  ideas  for  the  simplification  of  Community  Directives 
and,  where  appropriate,  the  national  rules  which  implement  them.  A  report  on  four  areas 
(INTRASTAT,  construction  products,  ornamental  plants  and  recognition  of  diplomas)  will  be 
presented  to  the  Council  shortly.  On  the  basis  of  these  results  the  Commission  will  define  the 
working  method  and  scope of further  work. 

(b) National  rules: 

The  following  measures should  be considered: 

•  A Register of  national  market-fragmenting  measures, which  will  allow a review  at  Community 

level  of national  legislation  which  is alleged  to obstruct  the Single  Market. 

•  Reduction  of  administrative  burdens  arising  from  Member  States'  regulation,  in  particular 

measures to address the  issues of simplification  of the start-up phase  for  business. 

•  Exchange  of  information,  in particular about  Member  States' experience  in reviewing  their  own 

regulations  in order to assess the need  for them  or to reduce their costs. 

5.3 

Completion  of the legislative framework  at Community  level 

There  are  a few  important  gaps  in the  legal  framework  necessary  to  ensure  the  free  movement  of 
goods, services, capital  and  persons. These  result  either  from  a failure  to  act  on  proposals  already 
made or from  new developments  in society which  make common  rules necessary. 

a).  Finishing off the  1985 White  Paper: 

A  number  of  key  elements  in  the  White  Paper  blueprint  have  yet  to  be  implemented.  The 
outstanding  gaps  are  critical  to  furthering  growth,  competitiveness  and  employment  and  in 
ensuring  the  full  participation  of citizens  the  Single  Market.  Proposals  have  been  presented  to  the 
Council  in respect of a number of key areas: 

Measures  to  ensure  the  free  movement  of  persons:  The  legal  framework  necessary  to  ensure  the 
free  movement  of  persons  is not  yet  in  place.  In  political  terms  the  persistence  of  border  controls 
on persons at some  internal  frontiers,  if not all, is the most  important  failure  oflhe  SMP.  Proposals 
for  three  Directives  necessary  for  the  removal  of  border  controls  are  before  the  Council  and 
Parliament  and  must  be  acted  upon.  The  Commission  may  also  wish  to  propose  additional 
measures  to  improve  further  the  right  for  persons  to  move  and  reside  freely  within  the  territory  of 
the  Community.  Further  work  is  also  required  to  facilitate  the  acquisition  and  preservation  of 
entitlements  to social  benefits. 

Taxation  issues:  This report  has  highlighted  a number  of areas  in which  the  absence  of  a  common 
or  coordinated  approach  to  taxation  constitutes  an  impediment  to  the  operation  of  the  Single 
Market. 

•  A  common  system  for  Value  Added  Tax:  Until  the  distinction  in  the  tax  treatment  of 
"domestic"  and  "cross-border"  operations  is  removed  it  will  not  be  possible  for  business  to 

24 

treat the entire  Single  Market  as  its home  market. The Commission  has recently  put  forward  a 
multi-annual  work  programme  to achieve this objective. 

•  Eliminating  double  taxation  and  other  obstacles  to  cross-border  income  flows:  Lack  of 
progress  on  the  harmonisation  of  the  tax  treatment  of  companies  or  individuals  operating  in 
more  than  one  Member  Stale  has  been  one  of  the  most  conspicuous  failures  of  the  original 
SMP.  It also represents a serious obstacle to the generation  of more jobs. 

•  Approximation  of taxation  of  investment  income:  Different  national  systems  of taxation  of 
investment  income are still  leading to distortions  in the Single  Market  for capital. 

The creation  of a European  company  law system:  The absence of a Community-wide  company  law 
system  imposes  additional  costs  on  the  significant minority  of  firms  wishing  to  be  established  in 
more than  one  Member  Stale. 

legislation  contains  unnecessary 
Adjustment  ol"  existing 
ambiguities  or  complexity.  The  main  areas  for  immediate  action  are  construction  products  and 
financial  services; others will  be  identified  in due course. 

legislation:  Some  internal  market 

b). A Single  Market for tomorrow's  economy: 

The  needs  of  the  information  society:  As  national  authorities  seek  to  establish  rules  for  the 
operation  of  information  technology-based  services, they  may  inadvertently  re-fragment  the  Single 
Market.  The Commission  will  present  an  action  plan  considering,  inter  alia,  legislative  measures 
necessary  to  ensure  the  functioning  of  networks  for  the  communication  and  transmission  of 
information,  or the  possibility  of  extending  the  principle  of'mutual  recognition'  of  national  rules 
to these emerging  markets. 

Biotechnology:  Biotechnology  provides  the  key  for  developing  a  wide  range  of  new  products, 
while  ensuring  safety  and  the  protection  of  health  in  the  fields  of  medicine,  agricultural  products 
and  foodstuffs.  Without  common  science-based  legislation  compatible  with  the  Single  Market, 
European  research  and  exploitation  of  its results  will  be discouraged  and  placed  at  a  disadvantage 
compared  with  its competitors. 

Specific  initiatives  for  services:  The  importance  of  services  for  the  Union  economy  (about  70  per 
cent  of employment)  means  that  additional  measures  may  be  needed  to overcome  the  obstacles  to 
the cross border provision  of services or establishment. 

A  single  energy  market:  After  evaluating  the  experience  gained  in  the  first  phase  of  market 
opening,  the  Commission  will  propose  the  final  steps  required  to  build  a  real  single  market  for 
electricity.  Building  on  the  success  demonstrated  by  the  unanimous  common  position  of  the 
Council  on electricity,  similar efforts  are now being  initiated  to  liberalise  the gas  market. 

5.4 

Complementary  action  at Community  level 

A legal  framework  is not enough  for a Single  Market.  Other  policy  instruments  will  have  to  come 
into play  in order to promote  full  use of the Single  Market; first and  foremost,  a single  currency. 

A  single  currency:  The  Euro  is  the  most  important  means  of  consolidating  and  increasing  the 
efficiency  of the  Single  Market.  It will  not only  reduce  transaction  costs  and  remove  the  exchange 
risks  associated  with  cross-border  trade  and  investment,  but  also  increase  price  transparency, 
thereby  enhancing  competition. 

Employment  and  social  policy:  The  Community  should  support  national  training  and  active 
labour  policies,  notably  through  the  European  Social  Fund.  Community  social  policy  will  also 

25 

continue  to  ensure  that  free  movement  of  persons  is  not  hampered  by  national  social  policy 
measures  and  that high  social  standards can  prevail  in the Single  Market. 

Competition  policy:  The  introduction  of  a  Single  Market  requires  even  greater  vigilance  in  the 
implementation  of  competition  policy.  The  current  framework  may  need  to  be  reconsidered  in 
respect of streamlining  Community  guidelines on state aids. 

Tax  policy:  In  its  recent  report,  the  Commission,  taking  into  account  the  views  expressed  by 
members  of  the  High  Level  Group  of  personal  reprepresentatives  of  Finance  Ministers,  gave  its 
assessment  of the need  for a coherent overall  tax policy at Community  level. 

Information  policy:  The  Commission  is already  implementing  a number  of  initiatives,  such  as  the 
'Citizens  First!"  information  action, to meet the  growing  need  for  permanent  access to  information 
about  individual  rights  and  opportunities  in the  Single  Market  and  clear  sign-posting  to  problem-
solving contact  points  in national  and  local  administrations. 

Environmental  policy: The  Single  Market  is based  on  sustainability  and  adequate  protection  of  the 
environment.  Uncoordinated  national  initiatives  may  run  the  risk  of  achieving  sub-optimal 
effectiveness  in terms of environmental  policy  as well as  impeding the benefits  of a Single  Market. 
The  Commission  is  determined  to  improve  the  integration  of  environmental  policy  within  the 
Single  Market. 

Enterprise  policy:  The  Multi-annual  SME  Programme  can  assist  smaller  firms  in  the  Single 
Market,  notably  by  the  improvement  of  the  business  environment  and  the  Europeanisation  of 
business  strategies  for  SMEs, through  the  provision  of  information  and  support  services  providing 
transnational  co-operation  opportunities. 

Trans-European  Networks:  Infrastructure  networks  need  to  be  integrated  to  accommodate  the 
increasing  mobility  in  goods,  services  and  people.  Public  and  private  resources  can  jointly 
accelerate  the  development  of  trans-European  infrastructures.  Overcoming  the  barriers  to  such 
public private partnerships  should  be a priority  for the  Community. 

Research  and  innovation  policy:  Community  Research,  Development  and  Technology  policy 
contributes  to the scientific  knowledge  necessary  for the  implementation  of the  Single  Market  in a 
number  of  fields  (health,  standardisation  and  telematics).  The  progressive  development  of 
Community  innovation  policy  will  help to create the conditions for a better use of the  opportunities 
created  by the Single  Market, notably  through  high-technology  start-ups. 

Consumer  policy  will  need  to  enhance  consumer  interests,  especially  in  respect  of  financial 
services, services of general  interest and the  Information  Society. 

5.5 

Conclusions: the need for a renewed commitment  to the Single  Market 

The  Single  Market  under  the  impetus  of  decisions  already  taken  will  undergo  important 
developments  in the  coming  years.  This Communication  has  shown  how  far  the  Single  Market 
has already  fundamentally  modified  the economic  and  political  environment  within  the  Union. 

•  On the economic  front,  many  of the expected  benefits  of a Single  Market  without  internal 
frontiers  are  beginning  to  make  themselves  felt,  in  terms  of  increased  competition 
between  firms,  industrial  restructuring,  lower  prices  and  more  choice  for  consumers. 
Although  the  overall  economic  effect  of  these  changes  has  so  far  been  relatively  modest 
in  terms  of  extra  economic  income  or  extra jobs,  a  process  is  well  under  way  which  will 
is  getting  more 
in 
yield 
competitive  at  the  international  level  -  as  the  growing  foreign  direct  investment  in  the 
Union  shows.  The  strategy  of  European  businesses  is  also  changing  to  become  more 
oriented  to a wider  market. 

important  dividends 

increasingly 

the  future. 

Business 

26 

»  Politically,  too, the  existence  of  a  Single  Market  has  radically  altered  the  framework  for 
national  decision-making  on  matters  which  affect  the  market.  The  new  mobility  of 
economic  resources  means  that  national  rules  increasingly  need  to  take  account  of  these 
market  effects.  In  addition,  the  inter-dependence  of  Member  States  in  ensuring  that  the 
objectives  of  common  legislation  are  met  has  increased.  In  a  market  without  internal 
frontiers  the  protection  of  security,  safety  and  health  are  indivisible;  the  effective 
enforcement  of the law has become a common, rather than a purely national  concern. 

The  Single  Market  remains  politically  centre-stage  as  a  key  instrument  by  which  the  current 
priorities of the Union can be  delivered. 

•  First, jobs.  As the Commission  indicated  in the  Confidence  Pact, making the most  of the 
Single  Market  is  the  first  step  towards  generating  employment  in the  Union.  Increased 
competition  generated  by open markets  is the key to  international  competitiveness  which 
will  secure  the  livelihood  of our  citizens  in the  longer  term.  Already  there  are  signs  that 
the existence  of the  Single  Market  is beginning to make  a positive  contribution  to  overall 
employment  levels  in  the  Union,  even  during  a  severe  recession.  A  more  favourable 
economic  climate should produce even better results in  future. 

•  Second,  the  Community  is  faced  with  the  trend  towards  the  globalisation  of  the  world 
economy.  The  move  to  the  Single  Market  represents  by  far  the  most  extensive  and 
successful  example  of  the  elimination  of  barriers  between  national  markets. 
If  the 
momentum  is  sustained,  both  at  the  level  of  the  market  framework  and  of  business 
adaptation  to  it,  then  the  Community  will  be  well  placed  to  influence  and  exploit  the 
wider  opportunities  which  globalisation  will  offer.  Progress  towards  the extension  of  the 
Single  Market  to  services  of  general  interest  will  accelerate  this trend,  as will  the  effects 
of full  entry  into force  of the legislation already  in place. 

•  Third,  the  achievement  of  EMU  will  contribute  to  the  efficient  operation  of  the  Single 
Market  by  elimination  of  transactions  costs  and  exchange  risk  of  cross-border  payments 
and by eliminating  the  sub-optimal  allocation  of resources to which  currency  fluctuations 
can  give  rise.  But  the  Single  Market,  by  promoting  convergence  and  a  more 
economically  homogeneous  environment, will contribute to the conditions for the  success 
of EMU. 

• 

Fourth,  the  Union  commitment  to  develop  its  relationship  with  the  Central  and  Eastern 
European  Countries  (CEECs),  through  the  Europe  Agreements  and  through  negotiations 
for  enlargement,  places  the  take-over  of  the  acquis  of  the  Single  Market  by  the  CEECs 
squarely  on  the  agenda.  The  preparation  of  the  CEECs  has  already  begun  within  the 
framework  of the  pre-accession  strategy.  The  success  with  which  the  Single  Market  can 
be  extended  to  these  countries  will  be  strongly  influenced  by  the  extent  to  which  they 
perceive  it  as  comprehensive  and  fully  operational,  based  not  only  on  a  complete  and 
coherent  legal  framework,  but on the institutions, structures and  practices to support  it. 

These  huge  rewards  can  still  escape  us  if  wc  are  not  fully  committed  to  delivering  a  Single 
Market  that  works.  If the  major  effort  of  pulling  a common  legal  framework  into  place  for  the 
Single  Market  is largely  behind  us, what  is needed  now  is to ensure  that  the conditions  exist  in 
every  Member  State  to  allow  businesses  or  citizens  to  take  full  advantage  of  this  framework. 
This requires  a commitment  at every  level: Community,  national, regional  and local.  Making  a 
success  of  the  Single  Market  also  requires  the  engagement  of  economic  operators  as  well  as 
those responsible  for  making and applying the rules. 

27 

Appendix  î  : Sources of information  for this  review 

a). The scope  of the  Singte Market  Programme  (SMP) 

For the  purposes  of this  review, the  SMP  has  been  taken  to  comprise: 

• 

the  282  measures  outlined  in  the  Commission's  White  Paper  of  1985  which  aimed  to  remove 
outstanding  fiscal,  technical  and  physical  barriers  to  the  free  circulation  of  products,  services, 
capital  and  persons; 

©  pre-existing 

legislative  measures  which  provided  an 

important  basis  for  single  market 
large  extent,  the  1985  White  Paper  completed  an  already  extensive 
completion.  To  a 
construction.  However,  the  measures  identified  in  1985  were  particularly  important  as  they 
addressed  residual  obstacles  which  had  the  effect  of  preventing  much  of  the  benefit  of  earner 
actions  from  being  reaped; 

•  additions  to  the  programme  of  legislative  measures  to  bring  about  single  market  completion  in 
areas  which  had  been  overlooked  in  the  1985  White  Paper  (these  included  libéralisation-  of 
certain  network-based  services,  such  as telecommunications  and  energy  markets); 

• 

flanking  Community  policies  designed  to optimise  the  functioning  of  the  single  market,  s;?ch  as 
competition  policy  and  measures  to  promote  regional  cohesion. 

b) The  research  effort: 

In  order  to  provide  a  thorough  and  informed  response  to  the  Council  mandate  for  this  review,  the 
Commission  launched  an  extensive  information-gathering  exercise.  This  has  comprised  38  Sadies 
and  an  extensive  survey  of business  opinion,  as described  briefly  below  : 

19 studies  of  manufacturing  and  services  sectors  : each  aimed  to  determine  whether  i  T: Single 
Market  measures  under  review  have  led  to  the  disappearance  of  barriers  to  free  circulation  and 
identify  any  remaining  obstacles to cross-border  transactions; 

•  6  "barrier  studies"  : each  aimed  to  assess  progress  in  dismantling  the  most  important  non-tariff 
industrial 

barriers  (technical  barriers,  public  procurement,  customs  and  fiscal  formalities, 
property  protection,  currency  management  and  capital  market  liberalisation); 

• 

the  economic  impact  of  removing  barriers  was  examined  in  a  further  13  studies,  which  dealt 
inter  alia  with  trade  and  investment  flows,  price  convergence,  competition  and  competitiveness, 
employment  and  labour  markets, and  economic  cohesion. 

•  a  major  survey  of  the  awareness,  attitudes  and  reactions  to  the  Single  Market  programme  at 
level  was  coordinated  by  the  Statistical  Office  of  the  European  Communities 
company 
(Eurostat),  based  on  replies  from  13,000  enterprises 
in  12  Member  States;  it  asked  a 
representative  sample  of  firms  with  more than  5 employees  in the  services  sector  and  more  than 
20  employees  in  the  manufacturing  sector,  (24,000  in  all)  to  rate  the  success  of  the  Single 
Market  programme  and  its  impact  on their  strategies  and  operations. 

Other  sources  of  evidence  about  the  effectiveness  of  Single  Market  legislative  measures  have  also 
been  considered,  including  independent  studies or surveys  carried  out  in the  Member  States. 

c).  Data  issues: 

Throughout  this  analysis  an  effort  has  been  made  to  obtain  up-to-date  Community-wide  data  from 
a  single  source  (Eurostat).  The  advantage  of  data  from  this  source  is  that  it  is  based  on  uniform^ 
definitions  and  builds  on  reliable  data  collected  at  regular  intervals  by  national  statistical  bodies. 
This  approach  had  to take  account  of the  following  considerations: 

•  many  of  the  data  series  examined  in  this  review  are  relatively  specialised  and  are  not  collected 
with  great  regularity  (as  with  price  level  data,  where  surveys  are  only  carried  out  at  5-yearly 

28 

intervals).  In  such  cases,  it  has  proved  impossible  to  obtain  data  for  the  period  after  the  last 
survey  (1993). 

many  of  the  concepts  involve  ratios  or  relative  indicators  which  require  a  combination  of  two 
sets  of  data  used  in  the  analysis  (such  as  price-cost  margins or  concentration  indices).  In  many 
cases,  all  relevant  data  is  not  available  from  Eurostat  and  use  has  been  made  of  specialised 
databases  (e.g.  Visa,  PI MS,  Amdata).  More  complex  data  of  this  kind  often  lags  behind  more 
accessible  indicators such as trade  flows; 

much  of  the  analysis  classifies  data  by  sectoral  groupings,  as  with  productivity  and  efficiency 
effects,  for  example,  where  comparisons  are  undertaken  by  degree  of  sensitivity  to  the  SMP. 
This  level  of  analysis  requires  data  which  is  disaggregated  by  sector,  such  data  only  becomes 
available after  some  delay; 

• 

data  problems  are  particularly  pronounced  in  respect  of  service  sectors.  This  reflects  lack  of 
attention  to  service  sectors  in  the  past,  because  of  the  mistaken  belief  that  they  were  not 
affected  by  internationalisation.  In  addition,  many  of  the  traditional  concepts  related  to  cost, 
productivity  and  trade  do  not  always  find  a quantifiable  equivalent  in  service  sectors.  Lack  of 
data  availability  for  services  has  proved  to  be  a  particular  difficulty  in  the  course  of  this 
analysis. Quantified  findings  quoted  in respect of individual  service  sectors are often  taken  from 
the  specially-commissioned  studies  for  these  sectors,  and  involve  calculations  performed 
specifically  for the purposes of this review. 

29 

ISSN 0254-1475 

COM(96) 520 final 

DOCUMENTS 

EN 

10  04  m 

it «3 

Catalogue number  :  CB-CO-96-558-EN-C 

ISBN  92-78-10840-5 

Office  for Official  Publications of the European  Communities 

L-2985 Luxembourg 

So