5 The Internal Market Strategy 2003-2006
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5868/05
COM(05) 11
| Commission Communication: Second Implementation Report of the Internal Market Strategy 2003-2006
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| Legal base | — |
| Document originated | 27 January 2005
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| Deposited in Parliament | 7 February 2005
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| Department | Trade and Industry
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| Basis of consideration | EM of 22 February 2005
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| Previous Committee Report | None
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| To be discussed in Council | 9 March Competitiveness Council
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
5.1 The Commission's medium-term Internal Market Strategy runs
from 2003 to 2006. The main emphasis is on ten areas that require
action to strengthen the basics of the Internal Market, so that
it can deliver its full potential in terms of competitiveness,
growth and employment:
- facilitating the free movement of goods;
- integrating services markets;
- ensuring high quality network industries; and
- reducing the impact of tax obstacles;[13]
- expanding procurement opportunities;
- improving conditions for business;
- meeting the demographic challenge;
- simplifying the regulatory environment;
- enforcing the rules; and
- providing more and better information.
The Commission Communication
5.2 The report — the second review of the Internal
Market Strategy — begins by outlining the present state
of the Internal Market. It repeats the verdict of last year's
annual report — that three key indicators suggest Internal
Market integration continues to move too slowly:
- where the Internal Market has
made trade much easier, prices have converged most. But "overall,
including in the Euro zone, continuing barriers mean that prices
of similar goods across Member States remain obstinately different";
- manufacturing trade — four times as important
as the trade in services — has stagnated since 2000 and
actually fell in 2003, "a slowdown in trade means less competitive
pressure on prices"; and
- cross-border investment flows among the EU 15[14]
in 2000 were 12 times larger than in 1992 but by 2003 had fallen
to only four times the 1992 level: "the volatility of FDI
flows compared to domestic investment suggests that integration
still has some way to go and that investors do not yet see investment
in the Internal Market in the same way that they see investment
in their domestic markets".
5.3 Services generally attract three times as much
foreign investment as manufacturing (and eight times as much in
2000). And estimates indicate that EU trade could increase by
15-30% if service markets were integrated; in financial services,
integration "could raise EU GDP by an estimated €130
billion (in 2002 prices) and business investment by 6%",
whereas lack of competition "leads to bad deals for consumers:
higher prices, and less access to credit". This is why,
the report says, integrating the EU's service markets, aided by
a Services Directive, is particularly important. The same applies
to tackling legal uncertainty (where failure to apply the principle
of mutual recognition properly was estimated to have cut the trade
in goods by €150
billion in 2000) and opening up the EU's public procurement markets
(in 2002, only 16% of the total value of public procurement was
subject to open tender).[15]
5.4 Annex l of the report, the latest "Internal
Market Scoreboard", examines transposition performance in
the EU 25 as of 15 November 2004. It points out that "the
real target is, of course, 0% because timely and correct transposition
is a legal obligation". As of now, it uses two interim targets:
- a "transposition deficit"
of no more than 1.5%.[16]
For the EU 25 it stands at 3.8%. Although, the report notes,
it has significantly improved since enlargement, when the average
was 7.1%, it is still a long way from the interim target. Moreover,
"the deficit for the EU 15 Member States is 2.9%, which represents
a very significant step backwards after their progress in reducing
the deficit since the Lisbon Summit". Only Lithuania and
Spain met the 1.5% target. The Netherlands, Hungary and Germany
are commended for improving their performance. Conversely, Belgium,
Luxembourg, Italy and Greece are criticised for achieving "their
worst transposition deficits for many years". Whilst the
UK, Ireland, Denmark and Finland came close to achieving the 1.5%
target and are still classed as being in "the first division"
of performers, their performances worsened slightly compared to
the previous scoreboard (the latest figures are 2.5%, 2.4%, 2.3%
and 2.3% respectively); and
- no Member State should have any Internal Market
Directives over two years late in transposition. Only Sweden,
Portugal and the Netherlands achieved this. The UK missed it by
one Directive (that on End of Life Vehicles, which was
subsequently laid in Parliament on 9 February 2005). Though France
almost halved the number of Directives whose transposition is
over two years late, it remains — along with Germany —
in last place. Greece, Italy, Austria, Denmark and Spain "have
all gone into reverse gear, recording their worst transposition
deficits for many years".
5.5 As well as timely transposition, the Report notes
that the rules must be applied correctly if the Internal Market
is to work properly. The Strategy calls for a 50% reduction in
infringement proceedings by 2006. Figures are available only for
the EU 15, as no infringement proceedings have yet been taken
against the ten new Member States. Although some Member States
have improved, the report indicates that improvement is still
required by all Member States.
5.6 The state of play on individual pieces of legislation
or initiatives in each of the ten key areas are set out in Annex
2 of the report. The report says that two-thirds of the actions
foreseen in the Strategy "have been achieved by the end of
2004, although many … in order to contribute to growth and
competitiveness still need to be decided upon in the Council and
Parliament and implemented effectively by the Member States".[17]
Analysis of the current state of implementation "points to
the need for a stronger focus on a number of core strands":
Completing the legal framework
Despite much of the Internal Market's legal framework
already being in place, the report highlights
"important gaps in key economic areas. In the
field of goods, the revision of the New Approach and a
possible regulation on the application of the mutual recognition
principle stand out. Important proposals for action, such
as the Services Directive, are on the table of the Council
and the Parliament and need to be adopted and implemented as soon
as possible. The same goes for the Community Patent and
computer-implemented inventions and the remaining FSAP[18]
measures."
Taking better care of the existing framework
"Agreeing rules at European level is only the
beginning. To produce the desired effects on the ground they must
be implemented on time and effectively enforced in each of the
twenty-five Member States. It is the Member States who have a
crucial role to play in making the Internal Market work on a day-to-day
basis. In particular, this involves co-operating more with each
other and with the Commission, exchanging information, providing
mutual assistance and solving problems."
Ensuring greater coherence and synergy with other
Community policies
The immediate priorities mentioned are the links
to consumer, competition and environmental policy;
the report notes the measures to promote consumer interests that
have been, or are on their way to being, agreed, such as the
Unfair Commercial Practices Directive, the Regulation on Consumer
Protection Cooperation and the General Product Safety Directive.
The report makes it clear that whilst being able to protect consumers,
such measures need to preserve the competition-stimulating effects
of free movement.
Ensuring the internal Market legal framework is
better attuned to the global economic framework
The report calls for a strengthening of dialogue
with major trading partners to promote convergence and reduce
regulatory divergence or conflict, with the aim of agreeing "effective
legislation which enhances market opening and reduces the regulatory
burden for businesses participating in world markets".
The Government's view
5.7 In his Explanatory Memorandum of 22 February
2005, the Minister of State for Trade, Investment and Foreign
Affairs at the Department of Trade and Industry (Douglas Alexander)
says:
"The Government believes that it is beneficial
to the UK for the Commission to play an active role in improving
the operation of the Internal Market. There are a number of weaknesses
in the Internal Market which need to be addressed - of the Internal
Market Strategy assists in prioritising the key issues and in
making transparent the Commission's plans.
"UK priorities for action, which are reflected
in the Strategy, include liberalising services and reaching agreement
on the Community Patent as well as trying to achieve synergies
with consumer policy. It is also encouraging that the Commission
see a strong link between strengthening the Internal Market and
the Lisbon Agenda in order to raise competitiveness in the EU
and we support their attempts at trying to raise the profile of
the Internal Market in this context."
Conclusion
5.8 It is disheartening that, a year on, the Commission
is continuing to make many of the same points in this second Internal
Market review, which is succinct, clear and persuasive. Although
the points are obvious, they are nonetheless important: effective
transposition in all Member States is the only way of making a
reality of the Internal Market, which by common consent is the
keystone of the European economy. In so far as Member States fail
to deliver what they have agreed to, the Commission has little
choice but to continue to reiterate these points.
5.9 This Communication forms part of the "Implementation
Package", alongside the Broad Economic Policy Guidelines
and the Employment Guidelines Implementation Reports (both of
which we considered on 23 February). All three will be presented
as part of the Commission's report to the 22 March Spring European
Council, and will feed into the Mid-Term Review of the Lisbon
Strategy. As that Review gains momentum, and especially in the
wake of the publication of the Kok Report in November 2004 (with
its emphasis on the importance of the Internal Market in enhancing
the EU's competitiveness), raising the profile of the Internal
Market and building stronger support for its completion and effective
functioning in practice should be an integral part of the revised
Lisbon Strategy.
5.10 We hope that the Competitiveness Council
will give the Communication appropriate endorsement at its meeting
on 9 March 2005, and in the meantime we clear the document.
13 While measures in the Strategy include trying to
eliminate double taxation and where possible remove administrative
obstacles, it does not propose any harmonisation of corporate
tax rates. Back
14
The 15 which were Member States prior to 2004. Back
15
COM (05) 11, pages 4-9. Back
16
The percentage of Internal Market Directives not yet communicated
as having been fully transposed, in relation to the total number
that should have been transposed (1579 as at 15 November 2004). Back
17
COM(05) 11, page 10. Back
18
Financial Services Action Plan. Back
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