SPECIAL FEATURE - No 10 (December 97)

STRENGTHS AND WEAKNESSES OF THE SINGLE MARKET The first Scoreboard and business opinion survey

Outstanding Single Market Directives will be implemented across the EU by 1 April 1998 if Member States respect the timetables they have now set themselves, according to the first edition of the Single Market Scoreboard issued on 19 November. In addition, the Scoreboard confirms that the vast majority of Member States have put in place structures to allow citizens and business to seek rapid redress when they encounter problems exercising their Single Market rights. However, the Scoreboard also reveals disturbing delays in Member States responses to formal infringement proceedings and that some Member States fail to reply at all. A survey, conducted by an independent contractor on behalf of the European Commission, confirms the problems encountered or perceived by business. The survey reveals yet that the business world expresses a cautious optimism in the Single Market.

I.THE FIRST SCOREBOARD

The Scoreboard is a new tool for citizens, economic operators, Member States and the EU institutions to assess the application of Single Market rules, in terms of implementation of Directives, outstanding infringement procedures and progress with applying the Action Plan for the Single Market (see SMN N.8). As announced in the Action Plan, which was endorsed by the Amsterdam European Council, the Scoreboard will be published twice a year, notably for the attention of the EU's Council of Internal Market Ministers and the European Council.

"The effective implementation of Single Market Directives promised by the Member States will make a significant difference to citizens and economic operators, given that at the moment more than 25% are still not implemented in one or more Member States, which means that the Single Market is still far from complete" commented Commissioner Mario Monti. "However, it will require a major political effort by the Member States to meet the legislative deadlines they have promised to meet, and I will be pursuing infringement cases in all cases where measures are not implemented on time. Concerning infringement procedures, the Scoreboard reveals that many Member States' attitude is unacceptably lax because they fail to respect infringement procedure deadlines or fail to reply at all. It is essential that infringement procedures are accelerated and made more effective."

The Scoreboard has been established because effective application of Single Market rules is essential to the Single Market fulfilling its potential to promote employment, competitiveness and sustainable growth. The crucial importance of effective application of Single Market rules was reflected in the Action Plan and has just been reconfirmed by the business survey conducted for the Commission (see further on II). The Scoreboard allows different aspects of the application of Single Market rules to be monitored.

Implementation of Directives

As of 1 November 1997, there were still 359 out of 1339 Single Market Directives not implemented in all Member States, some 25% of the total. The overall rate of non-implementation varies from around 3% in Denmark and in the Netherlands to around 10% in Austria. The sectors where non-implementation in one or more Member States is the greatest problem are transport (60%), public procurement (55.6%) and intellectual and industrial property (50%). Some Member States (France and Spain) are on average around two years or more late in meeting implementation deadlines.

However, all Member States have now submitted for the first time detailed timetables for implementing outstanding Single Market Directives, as required by the Action Plan. Although detailed timetables have not been supplied for all of the outstanding Directives (98% in the case of Sweden to just 19% in Italy), the Scoreboard concludes that the bulk of outstanding Single Market Directives would be implemented by 1 April 1998 if the notified legislative timetables are respected. Moreover, if the legislative programmes submitted by the Member States are met in full and on time, the 1 January 1999 target for full transposition of Single Market Directives is within reach.

On the other hand, respecting the timetables submitted will require a very substantial acceleration of legislative procedures. Unfortunately, there is still no date set for implementing around 15% of outstanding Directives and some Member States have indicated they will be unable to meet the 1.1.99 deadline for some Directives. Future editions of the Scoreboard will therefore keep track of actual implementation.

Problem-solving and enforcement

The Single Market will not operate effectively until its rules are fully respected and any problems arising are resolved quickly and effectively, which is why both the Action Plan and the Amsterdam European Council emphasised the necessity of more rapid and effective procedures for problem-solving. The Action Plan addresses both formal infringement procedures and informal arrangements for cooperation on enforcement and problem-solving between Member States. The two systems are interdependent, in that successful and rapid bilateral/multilateral resolution of complaints between Member States depends at least to some extent on the perceived threat of efficient infringement procedures.

With a view to reinforcing existing cooperation and ensuring rapid, cost-effective resolution of Single Market problems encountered by citizens and business, the Action Plan required Member States to designate coordination centres, set up contact points in their administrations to which citizens and business may address problems and provide information about their own structures and procedures for enforcing Single Market rules.

• The Scoreboard reveals that all Member States except Greece (and to a lesser extent Italy) have notified the required details concerning the contact points. The challenge is now to make sure that citizens and business are aware that these contact points exist (one of the functions of the dialogues with business and with the citizen to be launched in 1998 to raise awareness of Single Market rights) and that Member States work together to resolve problems raised.
• The situation concerning enforcement structures and procedures is less encouraging, with only eight Member States having notified the Commission.

Concerning infringement proceedings, the Scoreboard analyses Member States' record on responses to letters of formal notice and reasoned opinions (respectively the first and second stages of formal infringement proceedings under Article 169 of the Treaty).

Member States are required to respond to infringement letters within the established deadlines not only by the Action Plan, which they have endorsed, but also by their legal obligation under the EC Treaty to cooperate with the Commission. These deadlines are normally set at two months, but the Scoreboard reveals that the average response time is almost twice that, with some Member States taking 150 days or more (Portugal, Italy and Belgium). Moreover, Member States failed to reply at all to 11% of letters of formal notice and of reasoned opinions.

The existence of an infringement procedure does not mean there is a proven breach of Community law - only the Court of Justice may rule definitively on the matter. However, an infringement procedure does indicate that the Commission, either on the basis of its own inquiries or following a complaint, considers that there may be a violation. During the period 1.9.96 to 1.9.97, the Commission issued letters of formal notice in 242 cases of incorrect implementation and incorrect application of Single Market rules and reasoned opinions in 68 cases. It also referred Member States to the Court of Justice for alleged breaches of Single Market rules in 27 cases. During the reference period, Italy (40) and France (35) received most letters of formal notice and France (13) and Spain (11) received most reasoned opinions. Belgium (6), France (5) and Germany (4) were the countries referred most often to the Court.

Most infringement cases are resolved before reaching the Court. Of cases related to Single Market rules on which the Court ruled in the period 1.9.96 to 1.9.97 most were against Belgium (9) followed by Italy (7). In the same period, there were 19 infringement cases pending against Member States (including 1 before the Court) for failure to comply with a Court ruling for breach of Single Market rules (5 against Ireland, 4 against Italy).

II.BUSINESS SURVEY

The benefits expected from the Single Market are starting to feed into the economy and trade between Member States, according to an opinion poll carried out throughout the European Union (EU) in September 1997 among more than 3500 business executives (500 from large enterprises and about 3000 from Small and Medium-sized Enterprises (SMEs). It confirms that competition has intensified and most obstacles to EU trade have been removed.

"In the run-up to the single currency, which will effectively remove the last psychological barrier to cross-border trade, businesses' responses are encouraging as they show that, independently of their size, large, medium and small businesses are taking advantage of the possibilities offered by the Single Market", commented Commissioner Mario Monti. "The results confirm that we are on the right track but that the job remains unfinished and it is urgent to pursue our action to close the remaining gaps".

Confidence in the Single Market

Businessmen interviewed consider that there is more competition today both at national and European level than in 1993. This has resulted in lower prices, improved product variety and better quality. Although these effects cannot be exclusively attributed to the Single Market, since many other factors affect the markets' development, the Single Market is seen to be acting as a catalyst. Some 45% of all companies interviewed reckon that more competition as a result of the Single Market has been positive or very positive for their business. Only a quarter of the companies perceives more competition negatively. As might be expected, the intensity of competition has been more strongly felt by the companies that have experienced lower prices in their markets and have seen their market share drop.

SMEs' views are relatively more cautious than those of large companies. Nevertheless, more than 40% of SMEs consider the Single Market to have been beneficial for their business. This renewed evidence of SMEs' dynamism in seizing the opportunities offered by the removal of obstacles to the EU trade should encourage Member State governments to complete the Single Market agenda.

One out of two businessmen consider that obstacles to cross-border trade obstacles have either disappeared altogether or have been significantly reduced. Positive views are stronger in manufacturing and among large enterprises. Business leaders who consider that administrative and regulatory obstacles have been significantly reduced in the last five years by far outnumber those who claim the opposite (about 35% against 7%). However, around a quarter of the business executives interviewed consider that not much has changed and therefore, that they continue to face obstacles in trading cross-border.

Remaining problems

The grey areas identified by business, where further progress needs to be achieved, concern particularly the following:

• VAT rules, national technical specifications and testing/certification and
• approval procedures;
• monitoring competition and maintaining a level playing field;
• public procurement;
• effective problem solving.

Barriers to cross-border trade

Despite the progress in eliminating barriers to intra-EU trade there remains a significant share of businesses that have encountered difficulties as a result of regulatory obstacles in the Single Market. Concerning potential trade obstacles, 59% of large enterprises and 55% of SMEs reported that they have encountered at least one obstacle and on average around three in carrying on business across frontiers.

At the top of the list come VAT rules. This is particularly the case for SMEs where more than one firm in five claims to have experienced problems in this regard. This is hardly surprising and supports the Commission argument that there is a need to overhaul and reform the present VAT system, as proposed by the Commission in its programme for the introduction of a common VAT system. Although these are perceived obstacles rather than established cases, they have to be considered carefully by Member States as business perceptions affect companies' strategy and behaviour.

While businessmen do not really fear an outright refusal of products/services (less than 10 % of companies said this was a problem) it is clear that non-harmonised legislation is generally perceived to reduce the benefits companies would expect to draw from a Single Market.

Competition conditions

Increased competition between economic operators is accentuating the concern of businesses to improve their competitiveness and ensure a level playing field. The impact of the Single Market upon competition can be experienced upstream of production, i.e. between the different suppliers of a company, as well as downstream, i.e. when a company wants to sell its products. Increased competition is affecting companies in different ways at national and EU level and in different markets. It is not surprising therefore, that around 1 out of 5 businesses consider that distortions of competition have increased in the Single Market mainly due to government aid and subsidies that favour local competitors, anti-competitive practices from other competitors and differences in social legislation that distorts competition. Competition seems to have been equally intense at national and EU level and to have been felt in all sectors.

Public procurement

The survey pays particular attention to public procurement where market opening is still lagging behind. Even though the survey suggests that business believes that EU public procurement does not, by any means, discourage small businesses (26% of all small firms surveyed express interest in selling to the public sector, a level equivalent to that of the larger players interviewed) and that the legislation may be starting to bite, the perception is that significant barriers remain.

Around 35% of respondents feel that things have yet to change. A significant percentage of respondents, especially SMEs (10% of small firms surveyed), indicate that obstacles may have actually increased over the last three years, perhaps reflecting restructuring and concentration in several industrial sectors.

Between 60 and 70% of respondents to the survey identify at least one direct restriction to targeted procurement markets. This may result from the fact that perceived barriers are both from a direct regulatory nature (i.e. resulting from poor or non-application of Community legislation) or a non-regulatory nature. The latter include traditional obstacles to trade such as linguistic or cultural barriers or the need, for marketing and commercial purposes, to establish a local presence. A very large number of respondents, however, allege that local preference and the reluctance to take on board new (and probably, therefore, foreign) suppliers are still standard purchasing practices. This may or may not be the result of an infringement of Community rules in this area.

Some findings are particularly worrying. Almost 50% of larger companies indicating that restrictions affect their access to public procurement markets believe that purchasers are awarding contracts on the basis of criteria other than price and quality. Similarly, some 40% of small firms in the sample indicate that their access to procurement markets is hindered by the lack of publication of calls for tenders. These two items are supposed, nevertheless, to be covered by key transparency and non-discrimination provisions built into the procurement Directives.

Many of these issues have been the subject of consultations on the basis of the Green Paper on "Public procurement in the EU: exploring the way forward" issued by the Commission in November 1996 (see SMN N.6). The results of these consultations, will be published in a Commission Communication in early 1998.

Problem solving

One of the Commission's priorities is to encourage Member States to solve problems in the operation of the Single Market quickly and effectively. This may represent a considerable challenge to administrations' culture if one judges from business perceptions. Around 20% companies in the survey have found themselves in a situation that would justify introducing a formal complaint to public authorities (national or European) for problems in the functioning of the Single Market. However, most avoid introducing a formal complaint.

A careful analysis of the answers obtained in this survey points out to two main problems:

• either businesses, particularly SMEs, seem not to know what procedure to follow to resolve a problem or
• businesses are discouraged from introducing a complaint for a combination of reasons: procedures are too costly/complex and the efforts required outweigh the advantages expected.

The situation should be improved by the system being set up under the Action Plan for the Single Market of pragmatic problem-solving between Member States based on contact points for business and citizens to raise Single Market problems with Member States' administrations. There has been encouraging progress on putting this system into place but it must of course now be made to work in practice.

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