The first wave of EU measures in 1993 to create a frontier-free single market in Europe has over the past decade contributed directly to the creation of more than 2.5 million new jobs, increased growth by 1.8% and added nearly e 900 billion to Europe’s prosperity. The majority of the benefits have been achieved as a result of the free movement of goods and opening up the markets for network industries such as energy and telecommunications to competition.
A major area of economic activity where a single market is yet to have a significant impact is the service sector – which itself accounts for more than 70% of economic activity in the EU – much of which involves Europe’s small and medium sized companies.
In January of this year, the Commission launched the ‘Services Directive’ , containing a major set of measures aimed at removing barriers to cross-border trade in services (see SMN33). New research by the Netherlands Bureau for Economic Policy Analysis* (CPB) points to substantial economic benefits that could be achieved in international trade and investment when the measures are fully implemented. The study concludes that if the proposals were implemented in full, they could lead to an increase in cross-border trade in commercial services of between 13% and 35%. Foreign direct investment in services in the EU could increase by between 16% and 34%.
The net effect could be to increase total intra-EU trade by 1-3%.
Reducing regulatory burdens
The more that regulatory and administrative burdens and their ‘heterogeneity’ can be reduced, the greater the gains, the researchers conclude.
The CPB study, which was commissioned by the Dutch Presidency of the Council of Ministers, has investigated how cross-border service trade and foreign direct investment in commercial service sectors would change if this Directive were to be fully implemented.
The real trade burden of regulation results from the differences in regulation between the country of origin and of destination.
Service providers have to comply with the procedures of the destination country each time they enter a new market, therefore a key issue is the differences in the form and content of national regulations for service markets.
Heterogeneity increases costs
Such divergences increase trade and investment costs of service providers doing business in other EU Member States, concludes the report.
A characteristic of country-specific regulations is that they cause additional fixed costs that often are independent of firm size. This implies that in relative terms the worst effects of policy heterogeneity fall upon small- and medium-size service firms.
Economic research by the OECD also suggests that reforming the regulation of services markets could bring significant economic benefits** which in some particular sectors could be very substantial.
The full texts of the Services Directive proposal and impact assessment are available at: http://ec.europa.eu/internal_market/en/services/services/index.htm
** OECD Report on regulatory reform, 1997
“...if the proposals were implemented in full, they could lead to an increase in cross-border commercial service trade by between 13% and 35%.”
CPB Netherlands Bureau for Economic Policy Analysis
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