Commission publishes results of major study and prepares Action Plan

The Single Market is beginning to have a positive effect on the EU's economic performance but has yet to fulfil all its potential. Solid evidence of these positive effects, based on an exhaustive survey conducted over the past two years, has been revealed in the Communication on the Impact and Effectiveness of the Single Market presented to the Dublin European Council on 13-14 December. The positive results in terms of growth, employment, trade and greater competition have been achieved in spite of the delays in adopting and in applying important parts of the credibility of the Single Market legislation. This review confirms that the essential legal framework for a Single Market is now in place and that proper enforcement of common rules across the entire Single Market is the major priority. For the credibility of the Single Market, there must be vigorous attempts to ensure the effective application of Community law. The Communication puts forward the main priorities and calls for a new commitment to the Single Market, from all those who must contribute to making the Single Market a success - national authorities, the European Institutions and the economic operators themselves. The European Council in Dublin took note of the Commission's intention to submit, based on this Communication and before the Amsterdam European Council, an Action Plan and a timetable covering all necessary measures that must be taken to ensure that the full potential benefit of the Single Market is achieved before the single currency is introduced.

"For the first time", commented Single Market Commissioner Mario Monti, "there is objective confirmation that the Single Market is indeed serving as the launching pad for attaining higher levels of job creation and sustainable growth and for improving competitiveness, as outlined in the Commission's Confidence Pact for Employment".

Impact and effectiveness

The Commission's analysis suggests that the benefits and 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 not only run contrary to the legal and political credibility of the Single Market, but it is now clear that they limit its positive contribution to growth, competitiveness and employment. Once public authorities at national and Community level have put in place Single Market rules, it is up to economic operators to make the most of them. The Commission's analysis shows that where economic operators have taken up these opportunities, the benefits are significant.

On the basis of the review exercise, the Commission has outlined a series of clear policy recommendations for action at national and Community levels so that the Single Market's full potential can be achieved:

• 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 and more resources be committed to this task at national level. 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) and where Community policies in related areas such as competition, 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 Communication also underlines that the introduction of a single currency in 1999 will also make the Single Market more effective, by eliminating transaction costs and exchange risks and by generally increasing transparency and competition.

In terms of economic impact the news is encouraging. There are clear signs of significant change in the European economy even if it is still too early for many Single Market measures to have taken full effect. The Commission's analysis shows the following positive, albeit preliminary effects of the Single Market:

• up to 900,000 more jobs than would have existed in the absence of the Single Market
• in 1994, Community income is estimated to have been 1.1% to 1.5% higher due to the Single Market - an increase of ECU 60-80 billion.
• inflation rates which seem to be 1.0% to 1.5% lower than they would have been in the absence of the Single Market
• intra-EU manufacturing trade was boosted by 20-30%.

Furthermore, there is now evidence of:

• 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 are available to retail, public sector and industrial 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, which in turn allow a wider choice of suppliers
• greater mobility between Member States for both workers and those not economically active (including students and retired people)
• confirmation of economic convergence and cohesion between different EU regions
• greater attractiveness for investment: the EU absorbed 44% of global foreign investment flows in early 1990s, compared to 28% in the middle of the 1980s
• sectoral specialisation by Member States has decreased leading to greater convergence of production structures.

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-1980s when:

• all goods were stopped and checked at frontiers
• most products had to comply with different laws in each Member State
• services such as transport, telecommunications, banking and broadcasting were not subject to open competition and
• citizens who were not employed could not usually reside in another Member State.

A new commitment to the Single Market

A series of specific priority measures are outlined in the Communication as the basis for a new political commitment to the Single Market. The issue of effective application and enforcement of Community law 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. It is also important for ensuring equivalent levels of safety and security throughout the Union. The Communication suggests an innovative approach, building on a number of recent initiatives, including:

• specific initiatives to strengthen Community rules;
• creating a framework for enforcement policy;
• audits of national enforcement measures;
• mobilising scientific and technical expertise;
• speeding up Commission infringement procedures;
• better enforcement instruments for the Single Market;
• monitoring the operation of the Single Market.

Reducing over-regulation at both the national and Community level is crucial. Some national legislation untouched by the Single Market Programme is still a significant and perhaps unnecessary barrier to market access and cross-border operations.

National rules do not need to be harmonised on the scale of the 1985 White Paper, but procedures should be set up to allow a review at EC level of national legislation which could obstruct the Single Market, as well as "early warning" measures which permit oversight of new national legislation. This could involve, inter alia:

• a register of national market-fragmenting measures based on notifications from Member States and the private sector, on the basis of which the Commission would make proposals for action to be taken by the Member States
• exchanges of information between Member States on their efforts to simplify national legislation.

To rationalise Community rules, the Commission has already launched the SLIM (Simpler Legislation for the Internal Market - see page 6) initiative which aims at the development of ideas for the simplification of Community Directives and, where appropriate, the national rules which implement them.

As for completion of the Community legislative framework, a number of key elements in the 1985 White Paper have yet to be implemented concerning removing border controls on persons at internal frontiers, taxation issues (notably a common origin-based VAT system, eliminating double taxation, approximation of taxation of investment income), the creation of a European company law system and adjustment of existing Single Market legislation to remove unnecessary ambiguities or complexity.

Single Market rules also have to be appropriate for tomorrow's economy, so that the Commission is taking action notably as regards the needs of the information society (new services need a Single Market to be viable), biotechnology (the key for developing a wide range of new products; medicines, agricultural products and foodstuffs inconceivable a few decades ago) and services (which account for some 70% of employment). As a true single energy market is also required, the Commission will propose the final steps required after evaluating experience gained with the first phase of market opening.

Complementary action at Community level is essential to ensuring the future success of the Single Market. Areas where the Commission is taking action include: the single currency, employment and social policy, competition policy, tax policy, information policy, environmental policy, enterprise policy, Trans-European Networks, research and innovation policy and consumer policy.

The economic benefits of the Single Market should be even greater in an enlarged Union which includes the associated countries of Central and Eastern Europe. The challenge of extending the Single Market to these countries on their accession to the Union must be met.

Examples of concrete benefits identified by review studies

Numerous examples of the benefits of the Single Market have been identified by the studies and surveys undertaken for the Commission as part of its review of the impact and effectiveness of the Single Market. This is a summary of some of these examples:

Elimination of trade barriers:

• The abolition of the requirement to use customs documentation and to undergo customs formalities for cross-border trade has given rise to savings for intra-EU traders of about ECU 5 billion per annum (0.7% of total value of intra-EU trade).
• Conflicts between some 100,000 sets of national technical specifications which existed in the mid-1980s have to a large extent been overcome, either by mutual recognition of different national rules or by the development of EU standards. In the absence of EU action, some 76% of intra-EU trade by value would risk disruption by technical barriers to trade. The food, drink and tobacco processing machinery industry estimated savings of slightly more than 1% of the production value (some ECU 85 million) as a result of changes in the level of regulation, in particular technical regulations.
• Despite the late entry into force and poor application of EU public procurement legislation, public purchases of non-domestic origin increased from 6% in 1987 to 10% of total public sector purchases in 1994. Procurement liberalisation also contributed to some substantial price reductions in some sectors such as rail rolling stock (20-30% reduction in prices) and power generation and distribution equipment (30-40% reduction).

Effects on manufacturing:

• In the automotive industry, the move from separate national systems to a single harmonised pan-EU Type Approval system for authorising sales led to savings of up to ECU 30 million for car manufacturers. These savings stem largely from a 10% reduction in the cost of developing a new model and do not include further savings from greater technical efficiency in production of components and vehicles.
• Telecommunications equipment prices of have decreased by approximately 7% (1985 to 1995) as a result of Single Market measures. This is equivalent to annual cost savings of between ECU 1.5 and 2.0 billion. Production has also increased by some ECU 1 billion per year.
• The time taken to grant marketing authorisation for pharmaceuticals has been substantially reduced thanks to the new centralised procedure at the European Medicines Evaluation Agency (EMEA). It now takes up to one year to get authorisation for the 15 Member States, compared to up to 5 years per country before 1995.

Effects on services:

• The number of cross-border branches in the banking sector increased by 58% between 1993 and 1995 (from 308 to 487) following introduction of the "home country control" principle by the 2nd Banking Directive.
• There has been a 25% increase in the freedom of capital movements since 1990, according to pan-EU surveys of financial institutions.
• In the road transport sector, average savings on a typical 1000 km journey are between 5-6% of total costs as a result of the elimination of road haulage quotas and border delays. Between 1990 and 1995, the volume of road haulage deliveries within one Member State carried out by a haulier from another Member State (so-called `cabotage') increased by 300%.
• In the distribution sector, the Single Market has prompted remarkable gains in efficiency and significant cost reductions. These gains have been passed on to upstream manufacturing and downstream retailers and consumers (see below - efficiency and competition).
• Following the liberalisation of air transport in 1993, some 800 new licences to operate have been granted, especially to small carriers. New routes have been opened and new carriers are successfully penetrating markets. Economy fares decreased substantially, leading to an increase in the share of economy fares from 60% of total fares sold in 1985 to 71% in 1995. Lower and more flexible fares have stimulated an estimated 20% increase in the rate of growth of air passenger transport demand.
• Increasing liberalisation in telecommunications services for voice telephony has resulted in a reduction in prices of phone calls to the US by some 42% between 1990 and 1995. Moreover, the successful introduction of the GSM mobile telephone standard has increased competition in telecommunications as a whole, given rise to some 80,000 new jobs (with both operators, suppliers and manufacturers) and fostered the international competitiveness of the EU telecommunications equipment industry.

List of individual studies ("The Single Market Review series")

Impact on Manufacturing

Food, drink & tobacco processing machinery
Pharmaceutical products
Textiles & Clothing
Construction site equipment
Chemicals
Motor Vehicles
Processed Foodstuffs
Telecommunications equipment

Impact on Services

Insurance
Air Transport
Credit Institutions and Banking
Distribution
Road Freight Transport
Telecommunications liberalised services
Advertising services
Audio-visual services and production
Single Information market
Single Energy market
Transport networks

Dismantling of Barriers

Technical barriers to trade
Public procurement
Customs and fiscal formalities at frontiers
Industrial property protection
Capital market liberalisation
Currency management costs

Impact on Trade and Investment

Foreign direct investment
Trade patterns inside the Single Market
Trade creation and trade diversion
External access to European Markets

Impact on Competition and Scale Effects

Price competition and convergence
Competition issues
Economies of Scale
Intangible Investments

Aggregate & Regional Impact

Regional growth and convergence
The cases of Greece, Spain, Ireland and Portugal
Trade, labour and capital flows: the less developed regions
Employment, trade and labour costs in manufacturing
Aggregate results of the Single Market programme (CGE Modelling)

Results of the Business Survey

Information regarding publication dates, prices and placing of orders for these studies:
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