Opinion of the Economic and Social Committee on the 'Freedom to set up a business (SMO)'
Date: 1998-05-27
Institutions: European Economic and Social Committee
Subjects: approximation of laws, freedom to provide services, right of establishment, single market, small and medium-sized enterprises

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Official Journal of the European Communities

27.7.98

Opinion of the Economic and Social Committee on the ‘Freedom to set up a business (SMO)’

(98/C 235/03)

On 18 March 1997 the Economic and Social Committee, acting under the third paragraph of
Rule 23 of its Rules of Procedure, decided to draw up an opinion on ‘Freedom to set up a
business (SMO)’.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 6 May 1998. The rapporteur
was Mr Folias.

At its 355th plenary session (meeting of 27 May 1998) the Economic and Social Committee
adopted the following opinion by 88 votes, with one abstention.

1.

Introduction

of specific obstacles which have been reported or
identified.

1.1.
In its work in recent months on the functioning
of the Single Market, the Single Market Standing Study
Group has frequently identified problems related to the
opportunity to set up businesses and operate branches
of existing companies in other EU countries.

1.2.
The progress thus far achieved in creating a
Single Market, with the many new opportunities it offers
SMEs and the self-employed to operate in Member
States other than their own, cannot be denied.

At the same time, however, the continuing existence
of numerous obstacles to the freedom to establish
businesses in other Member States is also undeniable.

1.6.
‘Freedom to set up a business’ must not be seen
as a way of exempting a company from the rules of the
host country. The purpose is to help individuals or
companies wishing to set up business in a Member State
and not to demand that they meet more rigorous or
different conditions from local businesses. In this case
‘more rigorous conditions’ means any unfair treatment
that creates obstacles or prevents a business from setting
up.

It is not easy to separate the problem of setting
1.7.
up business from other aspects of the Single Market,
e.g. freedom to provide services. Since the ESC has
already produced several opinions on the various types
of obstacles that affect the functioning of the free
market (1), this opinion focuses on practical suggestions
to help individuals and firms set up business.

1.3.
It should be borne in mind, in the interests of
accuracy, that points relevant to the 15 Member States
also apply to the three EFTA/EEA countries (Norway,
Iceland and Liechtenstein) which, under the EEA agree-
ment, are also considered to belong to the Single Market.

2. Findings

1.4.
The purpose of the present opinion is to show
that much remains to be done in completing the Single
Market, to call upon all those concerned to make efforts
in the right direction, to provide practical examples of
both real and artificially erected barriers, and to put
forward proposals to overcome such obstacles.

2.1. Numerous and varied problems persist in setting
up businesses in other EU Member States, constituting
a whole range of ‘obstacles’ to the freedom of establish-
ment. Beyond these, however, there are others facing

1.5.
In order to achieve these aims, use will be made
of the findings of the questionnaires which were drawn
up, distributed and returned complete, the information
recorded at the hearing in Nice (France), and a sample

(1) Impact and effectiveness of the Single Market — OJ C 206,
7.7.1997, p. 65; SME’s — Cross-border relations — OJ C
206, 7.7.1997, p. 70; The Single Market and the protection
of the environment: coherence or conflict — OJ C 19 of
21.1.1998, p. 95; Preventing new barriers from arising in
the Single Market — CES 453 of 25.3.1998, p. 98; Removal
of certain obstacles to trade — CES 643 of 29.4.1998, p. 98.

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companies or independent professionals after they have
set up, which prevent them from offering their services.

4. Examples of specific obstacles

2.2. Many national restrictions are due to the particu-
lar care that certain Member States take to protect
their own consumers. Governments’ entirely legitimate
interest in protecting their consumers — a central task
of theirs — should not be to justify making it difficult
for businesses to set up.

3.

Identified obstacles

A series of actual obstacles which have been reported or
recorded is set out below, highlighting the problems
faced by businesses.

4.1.
The labour codes of one Member State require
local modelling agencies to set up a guarantee fund of
at least ECU 15 000. This means that modelling agencies
from other Member States cannot operate in the country
concerned, even occasionally, without setting up the
type of same fund.

3.1. Obstacles to free establishment have been found
to be multiple and varied, national and regional,
subjective and objective; some can be removed while
others are insuperable without individual or collective
efforts.

Artisans avoid being employed in another Mem-
4.2.
ber State, as they must have a tax representative — whose
services come very dear — to deal with payment of their
indirect tax charges.

3.2. Legal obstacles

The following is a brief list of those occurring most
frequently in a number of different countries:

— Recognition of qualifications;

— Recognition of requirements for practising a pro-

fession;

— Obtaining permission to exercise a profession;

— Requirements for establishing a business;

— Official red tape;

— Ban on entry to certain professions (dispensing

chemists, notaries, engineers, etc.);

— Legal form of companies.

In countries with decentralized administrations, specific
regional conditions exist that create additional obstacles.

3.3. Subjective obstacles

— Lack of information on national laws;

— Linguistic difficulties;

— Lack of data on target markets;

4.3.
7 000 estate agents fulfilling all the necessary
conditions are officially licensed by the national au-
thorities of one Member State. Under these conditions,
only four(!) non-local agents have succeeded in obtaining
a licence.

The relevant department of a Member State’s
4.4.
Finance Ministry requires a written statement in cases
where travellers have more than ECU 7 500 in cash on
their person when entering or leaving the country.
As enforcement, officials search travellers’
luggage,
regardless of nationality.

4.5.
For years the relevant administration in a Mem-
ber State has been dealing unsympathetically with
requests for VAT refunds to companies of another
Member State who have paid the tax in that country
when taking part in international trade fairs and are
entitled to a refund. Similarly, the terms and procedures
required make requests impracticable.

4.6.
The Member State’s authorities restrict the right
to payment for services of non-resident intermediaries
(insurance agents, estate agents, etc.).

4.7.
In order to work in a given Member State,
security companies must have their head offices in that
country, and both members of the board and employees
must be residents. Public order and security are the
reasons invoked for this.

— Unfamiliarity with local rules and principles;

— Different culture, way of thinking;

— Different patterns of consumer behaviour.

4.8.
A company from an EFTA country was unable
to fulfil a contract for construction work in a Member
State, because the local authorities would not allow it
to be placed on the local construction register on the
grounds that it did not belong to a Member State.

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5. Proposals

The proposals set out here come from businesses
which have suffered the practical consequences of these
obstacles, from exchanges of views, and are, of course,
made with a view to helping to remove such obstacles.

The ESC calls for the creation of an environment
5.1.
in the EU where the setting up of companies and
individuals in other Member States is seen as a means
of creating jobs and boosting economic activity. Cultural
exchange, above all, is at the heart of this dynamic
vision. In this spirit, the Commission must launch a
publicity campaign to provide information about the
rights of companies and individuals to set up business
in the country of their choice, provided they comply
with its basic legislation.

5.2. General proposals

— to create data-banks listing the appropriate au-
thorities, and channels through which information
can be obtained;

— to promote development and better use of the Euro
Info Centres, which could play a decisive role in
providing information and explanations to compa-
nies, and to organize bilateral or multilateral meet-
ings to exchange views, as well as to publish a yearly
report describing the problems most commonly
encountered when setting up a business;

— to set up national ‘one-stop shops’ as part of the
professional chambers (of commerce, crafts,
...)
providing standardized services;

— to draw up a comparative table on the individual

legislation of each Member State;

— the preparation by each Member State of Internet
sites, in the 11 languages, containing comprehensive
guidelines about the conditions and legislation in
effect for setting up on the markets, for each
sector; the Commission can also provide information
centrally on its existing Internet pages (EUROPA,
ISPO, etc.);

— further improvement in the use of ‘Europartenariat’;

— allocation of more resources for venture capital and

seed capital;

— a Community initiative seeking to harmonize individ-

ual laws in specific areas;

— the final conclusion of the Commission’s efforts to
determine a form for the European company, so that
businesses can choose a legal basis whereby they can
expect to be treated in the same way throughout
Europe (1);

— priority access to sources of funding at both European
(‘growth and employment’) and national level, for
the purpose of setting up business activities.

5.3. Specific proposals

— direct negotiations between those concerned and
national and regional authorities to settle specific
issues;

— cooperation between professional chambers (of com-
merce, crafts, ...) to exchange views and experiences
which will be communicated to national adminis-
trations and the competent Community bodies;

— alerting and informing MEPs, and possible lodging
of proposals and/or questions in the European
Parliament, also on the initiative of representatives
from business entities;

— freedom of establishment uninfluenced by company

size;

— equal opportunities regardless of company size;

— special provisions for non-profit enterprises and

charitable bodies.

6. Post script

Through its Single Market Observatory and the
6.1.
present opinion, the Economic and Social Committee
seeks to define a substantial and documented approach
to the major problem of obstacles to the freedom to
set up a business, which is seriously hampering the
completion of the internal market.

6.2.
In order to achieve this aim, the ESC would
appeal to the parties concerned who are both responsible
for creating, and capable of effectively tackling, these
problems, albeit to varying degrees.

— best possible use of the Community’s new Joint

European Ventures programme;

(1) European Company Statute — OJ C 129, 27.4.1998, p. 1.

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6.2.1.
Firstly, it calls upon the Commission to make
concerted practical efforts to explain the workings of
the Single Market, and so produce specific findings based
on regularly documenting the practical consequences of
EU measures.

6.2.2.
Lastly, the Committee urges those Member
State companies and entrepreneurs who consider it in
their interest to establish themselves and operate in
another market to roll up their sleeves, harness all their
undoubted dynamism and exploit every opportunity
they have to overcome by their own efforts as many
obstacles as they can.

Brussels, 27 May 1998.

The President

of the Economic and Social Committee

Tom JENKINS

Opinion of the Economic and Social Committee on the ‘Communication from the Commission
— European capital markets for Small and Medium-sized Enterprises: prospects and potential
obstacles to progress’

(98/C 235/04)

On 13 May 1998 the European Commission decided to consult the Economic and Social
Committee, under Article 198 of the Treaty establishing the European Community, on the
above-mentioned communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 6 May 1998. The rapporteur
was Mr Pezzini.

At its 355th plenary session (meeting of 27 May 1998) the Economic and Social Committee
adopted the following opinion by 101 votes to one, with one abstention.

1. Overall remarks

The European Commission is to be congratulated
1.1.
on its positive and sustained efforts to stimulate the
creation of European capital markets suitable for small
and medium-sized enterprises (SMEs). Its actions were
described in an earlier Communication ‘Reporting on
the feasibility of the creation of a European Capital
Market for smaller entrepreneurially managed growing
companies’ (1), on which the ESC did not deliver an
opinion. These endeavours by the Commission respond-
ed to an earlier request by the Committee to ‘carry out
a feasibility study on the establishment of a recognized
European capital market giving European firms,
especially small firms, access to capital.’

In this follow-up communication the Com-
1.2.
mission has produced a constructive document. Never-
theless, there are certain points, such as the manner in

(1) COM(95) 498 final, 25.10.1995 .

which EU securities legislation operates in practice,
which have not received the detailed examination they
deserve. There are others in which factors other than
those put forward by the Commission are significant.

There are a whole range of other factors besides
1.3.
the adequate provision of finance which determine
whether firms will grow to a significant size. It was
decided that the most significant of these deserved
examination in this opinion in order that a better overall
assessment of the problems might be made. A number
of the recommendations made arise from a fact-finding
mission by the ESC to the USA made in November 1997.
This was largely inspired by the reference to the US
capital markets in the introduction to the Commission
communication and by the encouragement to examine
the US situation given by Commission President Santer
in his speech at the Economic and Social Committee on
28 October 1997. As a result, this opinion covers a much
wider field than the Commission communication, which
merely deals with capital markets for SMEs.