Documents considered by the Committee on 8th December 2010 - European Scrutiny Committee Contents

11 Single Market Act



COM(10) 608

Commission Communication: Towards a Single Market Act for a highly competitive social market economy — 50 proposals for improving our work, business and exchanges with one another

Legal base
Document originated27 October 2010
Deposited in Parliament4 November 2010
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 18 November 2010
Previous Committee ReportNone, but see footnotes
To be discussed in Council10 December 2010
Committee's assessmentPolitically important
Committee's decisionCleared


11.1 According to the Commission, the Internal Market — with its freedom of movement for persons, goods, services and capital, complemented by economic integration, the creation of a single currency, and the development of the cohesion policy — has been one of the main driving forces behind growth in Europe, and has also helped to enhance its international competitiveness, and to enable the EU to deal with the financial and economic crisis. However, it notes that, since the creation of the single market, globalisation has increased the pace of change and opened the way for new competitors: and it suggests that this has created two new challenges — the need to develop skills in high value added sectors, and to help companies, particularly small and medium-sized enterprises (SMEs), to seize the opportunities in these new areas of growth.

11.2 The Commission recalls that, following a request from President Barroso, a former Commissioner (Mario Monti) has produced a report on the re-launch of the single market, which suggests that a "deep and efficient" single market is a key factor in determining the EU's overall macroeconomic performance, and proposes a strategy to safeguard it from economic nationalism, extend it into new areas essential for growth, and build an adequate degree of consensus around it. The Commission sees this as being achieved by the adoption of a Single Market Act — which is not a legislative measure, but a policy manifesto — and which it regards as an essential element of various flagship initiatives comprising the EU 2020 Strategy, particularly the digital agenda for Europe,[51] Innovation Union,[52] and the proposed Integrated Industrial Policy[53] for a globalisation era.

The current document

11.3 The Commission says that the aim of this Communication is to stimulate public discussion on what a Single Market Act might involve, and it considers this under three main headings:

  • achieving strong, sustainable and equitable growth for business;
  • putting Europeans at the heart of the single market;
  • dialogue, partnership and evaluation to achieve good governance.


11.4 The Commission says that the single market is a key factor in the competitiveness of the 20 million businesses in the EU, adding that, since SMEs offer the highest potential, they should receive special attention, as well as targeted measures which reflect their concerns. It notes that, even though the aim of the single market is to remove barriers to free movement, businesses often see fragmentation as a problem, with the variety of different national regulations placing an additional burden on them. It therefore highlights the need to identify where a lack of coordination and harmonisation are hampering the operation of the single market, to pursue an industrial policy which enables Europe to maintain its competitive position on world markets, and to ensure that the financial system works to the benefit of the real economy and encourages sustainable economic growth. However, it notes that the modernisation envisaged in the 2020 Strategy will entail substantial investment, and that, in the context of a global market, Europe is the right level to take action. It then goes on to identify a number of areas where that aim should be pursued.

Promoting and protecting creativity

11.5 The Commission stresses the importance of the single market being as conducive as possible to innovation and creativity, and in particular the need for businesses to be protected against counterfeiting and piracy. It suggests that the continuing fragmentation of the patent system is a problem, especially for SMEs, and that protection is unnecessarily complex and costly, with a lack of uniformity generating high costs, and the divergent rulings in different Member States creating a lack of legal certainty. It therefore believes that the introduction of an EU patent and unified patent litigation system is essential. The Commission also comments on the absence of a European framework for the efficient management of copyright, which it maintains is complicating the process of making knowledge available on line. It therefore points to the need to create a single European digital market, which makes material available whilst protecting right-holders, thereby extending to online services the freedoms enjoyed by physical goods. The Commission also draws attention to the costs of counterfeiting and piracy to the European economy, but notes that a substantial minority believe it is justifiable to purchase counterfeit products, and that the situation has been exacerbated by a lack of sufficiently strong and coordinated enforcement policies for intellectual property rights.

11.6 The Commission says that it will:

  • adopt the existing proposals for the EU patent, its languages and unified patent litigation system;
  • propose a framework Directive on the management of copyright and a Directive on orphan works;
  • set up an action plan against counterfeiting and piracy, including both legislative and non-legislative actions.

New approaches to sustainable development

11.7 The Commission says that international demand for solutions to major challenges, such as climate, energy security, and demographic changes are creating significant growth opportunities for European businesses, and that the Single Market Act should enable those opportunities to be grasped, notably by creating a more efficient standards system, a more consistent approach to energy taxation, and the continued development of single markets for services, defence and environmental products. It suggests that these measures could be implemented as part of the proposed flagship initiative on industrial policy, by further use of the Services Directive and development of the distribution services sector, and by full exploitation of the digital market.

11.8 The Commission also notes the crucial role which a single, interconnected and efficient European transport system would play; the need for the European framework for the taxation of energy products and electricity to enable Member States to make optimum use of taxation as means of achieving more efficient energy use and equal treatment for consumers; the extent to which the divergent national rules on business services, particularly as regards unfair practices, can hinder the operation of the retail market; and the extent to which it would be possible to stimulate the development of energy efficiency markets in the EU.

11.9 The Commission says that it will:

  • develop the single market in services on the basis of the mutual evaluation process set out in the Services Directive;
  • develop electronic commerce, by proposing a Communication on the operation of electronic commerce and guidelines for Member States;
  • propose a legislative reform of the European standardisation framework;
  • adopt a White Paper on transport policy;
  • revise the Energy Tax Directive to better reflect the EU's climate and energy objectives;
  • establish a High Level Group on services to businesses;
  • examine the feasibility of an ecological footprint of products;
  • draw up an energy efficiency plan complementing existing policies in all sectors where energy is consumed.

Small and medium-sized enterprises

11.10 The Commission observes the importance of SMEs as a source of innovation and jobs, and the need for the single market to favour their creation and development, particularly as regards access to finance. It adds that poor access to capital is one of the main problems preventing their expansion, with equity capital often being concentrated in very large stocks to the detriment of smaller firms; that there is a need to bring the Small Business Act[54] into line with the Europe 2020 Strategy; and that current rules on accounting create an unnecessary administrative burden. It says that it will:

  • adopt an action plan for improving SME access to capital markets;
  • assess the Small Business Act and link it with the Europe 2020 strategy;
  • review the accounting Directives to simplify financial reporting obligations and to reduce administrative burden.

Funding innovation and long-term investment

11.11 The Commission says that access to funding is essential for innovation and sustainable growth, and that it ought to be possible to mobilise private savings — if necessary in cooperation with public investments — towards the investment in infrastructure which is central to the success of the Europe 2020 Strategy. It adds that financial markets play a key role, and that the regulatory environment should not hamper long-term investment. It believes that implementation of its Communication[55] on Regulating Financial Services for Sustainable Growth should strengthen these markets, but that new ways are needed to develop alternative forms of corporate governance and innovative incentives for certain types of investment.

11.12 It suggests that one way of mobilising the necessary private investment would be to make use of the EU budget, in partnership with the banking and private sectors, for example through "project bonds", which would be issued by the private sector, with the EU budget being used to improve their rating in order to attract funding through the European Investment Bank (EIB), other financial institutions and private investors. It also says that conditions need to be created for a more active mobilisation of private savings in support of SMEs and the development of European infrastructure, and that it will explore how far the reform of corporate governance can contribute to this: it highlights the need for a regulatory environment to attract venture capital, and for the coordination of rules to avoid the risk of double-taxation; the important role played by public procurement in generating growth and innovation, and the need for an open and competitive pan-European procurement market; the benefits of improving competitive conditions for the award of services concessions and reducing legal uncertainties; and the role of public-private partnerships in mobilising investment in sectors such as energy, waste management and transport infrastructure.

11.13 The Commission says that it will:

  • consider the creation of project bonds to finance European projects;
  • encourage private investment towards achieving the objectives of the Europe 2020 strategy, ensuring unhindered cross-border investments by venture capital funds and eliminating tax treatments that disadvantage cross-border activities;
  • develop legislative proposals to simplify and update European public procurement legislation; and
  • adopt a legislative initiative on services concessions.

Creating a business-friendly legal and fiscal environment

11.14 The Commission says that, in order for businesses to benefit from the single market, measures are needed to reduce the administrative burden; that taxation issues are also crucial; and that the defence and security sectors can trigger growth throughout the economy. In particular, it notes the existence of 27 highly disparate national corporate tax systems, which impede cross-border activities and create significant market distortions and compliance costs, and the consequent need for a common consolidated corporate tax base; the disproportionate burden which the VAT system, with its complex system of rates, exemptions and derogations, places on businesses, and the need therefore to create a more robust and efficient system; the costs for those involved in cross-border activities arising from the absence of a network of national company registers; and the importance of businesses being able to interact electronically.

11.15 It says that it will:

  • improve the coordination of national tax policies, notably by proposing a Directive introducing a common consolidated corporate tax base;
  • publish a new VAT strategy;
  • propose legislation to introduce the linking of company registers; and
  • propose a Decision to ensure mutual recognition of e-identification and e-authentication and revising the Directive on electronic signatures.

Being competitive in global markets

11.16 The Commission notes the part which the single market has played in enabling European businesses to take advantage of the open and integrated nature of world trade, and the consequent importance of ensuring that the EU's internal and external policies are coherent and complementary. It adds that, despite Europe's success so far in exporting its goods and services and attracting foreign direct investment, it needs to defend its interests, and that free trade agreements and trading partnerships must be based on mutual rights and obligations. It says that it will therefore defend European interests and combat unfair trading practices.

11.17 The Commission suggests that greater convergence of international rules will benefit the EU, and that it is important to ensure its businesses have access to external markets, and in particular public procurement, on fair terms: at the same time, it also comments that the single market must remain attractive to potential candidates for accession, and to neighbouring countries. It notes the importance of the G20 process in bringing about both bilateral and multilateral regulatory cooperation, where it says that the EU will take a leading role in furthering financial reform and the wider adoption of international standards: and it also highlights the need to extend the current regulatory dialogues with a number of strategic partners, in areas such as the protection of intellectual property rights, to address protectionist trends, and to achieve greater symmetry between the openness of the EU procurement market and those of its trading partners.

11.18 It says that it will:

  • further develop regulatory cooperation with the EU's main trading partners; and
  • propose a legislative proposal to enhance the EU's capacity to ensure improved symmetry in access to global public procurement markets


11.19 The Commission stresses the need to put people at the heart of the single market, and says that, whilst respecting areas which are the responsibility of Member States, there are many ways in which the human dimension of the social market economy can help to build confidence within a large internal market. It also points out that there are a number of legal instruments which expressly allow the European institutions to incorporate social measures into economic and financial areas, including the Charter of Fundamental Rights and Article 9 of the Lisbon Treaty: and it notes that the non-economic rights of citizens are dealt with in the EU Citizenship Report 2010: Dismantling the obstacles to EU citizens rights.[56]

Improving public services and key infrastructure

11.20 Whilst the Commission recognises that market forces ensure the widest possible choice of goods and services, it believes that the EU's social cohesion is a primary concern, which is not adequately addressed by these alone, and that there is a need to recognise the value of services of general economic interest organised by public authorities in a way which meets users' needs. It says that this is why the EU has pursued the progressive liberalisation of the large network industries, backed up by strict public service obligations, and it adds that a number of such services fall within the scope of EU law, and that the EU and its Member States need a regulatory framework which will allow the public services both to perform their tasks and to develop new services, with particular emphasis placed on the developments of infrastructures enabling high-speed internet access after 2013.

11.21 More specifically, the Commission says that it will take the initiative in providing public authorities with a "tool-kit", enabling them to offer high-quality local services, and that it will continue to provide answers to practical questions raised about the application of EU law in areas such as state aids and public procurement, implement measures to evaluate and compare at European level the quality of services of general interest, and examine the case for extending universal service obligations into new areas. It also highlights the need for an interconnected cross-border infrastructure network, which is at present hindered by a lack of coordination between Member States and the absence of a suitable funding framework at European level, as well as better interconnected energy networks, which address missing links and ensure that energy is used and transported more efficiently: and it notes the need for Europe's radio spectrum to be used efficiently and in a coordinated way to ensure that enough is available to meet the needs of citizens and business.

11.22 The Commission says that it will:

  • adopt a Communication and other measures on services of general interest;
  • revise the Community guidelines for the development of the trans-European transport network;
  • adopt a Communication on energy infrastructure priorities and propose a new European instrument for energy security and infrastructure; and
  • adopt the proposed Decision establishing a European Radio Spectrum Action Programme.

Increasing single market solidarity

11.23 The Commission notes Mr Monti's view that a sense of disillusionment towards the internal market may arise from the perception that successive liberalisations have been at the cost of social rights, and it says that a more all-embracing view needs to be taken, whereby economic freedoms and freedoms of collective action are reconciled, and everyone has the opportunity to benefit from the single market. It suggests that exercising the freedom to provide services involves being able to send staff to another Member State, and that implementation of the Posting of Workers Directive should be improved; it notes that a recent Green Paper[57] launched a debate on the challenges which must be met in order to ensure that workers receive adequate pensions; and that there is scope for a European framework for restructuring exercises which would enable businesses to deal with industrial disputes. It says that it will:

  • ensure that the rights guaranteed in the Charter of Fundamental Rights and social impacts are taken into account during the development of new single market legislation;
  • adopt a legislative proposal to improve the implementation of the Posting of Workers Directive;
  • re-examine the Directive on the activities and surveillance of pension funds;
  • create a European framework for the advance planning of industrial restructuring.

Access to employment and lifelong learning

11.24 The Commission suggests that the single market provides a tremendous opportunity to make better use of training and qualifications and to respond to job offers in other Member States, and it highlights the attraction of being able to train in another country, suggesting that a period abroad should become a standard part of the training of all young Europeans. The Commission also identifies the right to pursue a profession in another Member State as one of the freedoms guaranteed by the Treaty, and the need to remove restrictions on the recognition of qualifications obtained elsewhere, in order to meet the growing need for a qualified workforce; and it also wants to promote the academic recognition of diplomas and periods of training in another Member State. It says that it will:

  • propose a legislative initiative to reform the systems for the recognition of professional qualifications;
  • develop a 'Youth on the Move card' and expand the corresponding internet site; and
  • implement the European qualification framework.

New resources for the social market economy

11.25 The Commission says that the Social Business Initiative must enable the talent and financial resources available in Member States to be tapped by bringing together within the single market those involved with socially innovative projects which stimulate growth; that improvements could be made in the legal environment within which some market economy activities are organised; and that an initiative on corporate governance is needed to redefine the role of businesses in today's economy. It says that it will:

  • propose a Social Business Initiative;
  • propose measures enabling the legal structures of foundations, cooperatives, mutual associations to be improved; and
  • launch public consultations on corporate governance and on improving the transparency of information provided by businesses on social and environmental matters and respect for human rights.

A single market serving consumers

11.26 The Commission says that the single market must add value for consumers, offering a wide variety of high-quality goods and services, coupled with a high level of protection against risks arising from product quality. However, it notes that the information needed to make an informed choice is often lacking, particularly where cross-border transactions are involved, and it says that it will evaluate existing practices where price comparison websites are involved. It also proposes to step up market surveillance for product safety, improving coordination among national authorities; to address the difficulty which many, including students, face in opening bank accounts, and the lack of transparency surrounding bank charges; to enable consumers to derive full benefit from the retail financial services market, by making it easier to change service provider, particularly across national borders; and to look further at the taxation problems which make it more difficult for people to move, set up home and acquire goods and services freely throughout the EU.

11.27 The Commission says that it will:

  • draw up an action plan for the development of European market surveillance, drawing up guidelines for customs controls in the area of product safety and revising the general product safety Directive;
  • adopt a legislative initiative on the access to certain basic banking services and calling for self-regulatory initiatives of the banking sector to improve transparency;
  • propose a Directive on a single integrated mortgage market;
  • adopt a Communication aimed at identifying and eliminating tax obstacles faced by citizens; and
  • propose an amendment of the Regulation on the rights of air passengers and possibly a Communication on the rights of passengers using all means of transportation.

Good governance of the single market

11.28 The Commission says that, if the Single Market Act is to fully achieve its objectives, the European institutions must enter into dialogue, establish partnerships with stakeholders, and evaluate objectively the results obtained; and it says that it intends to engage fully in any debate, urging its partners to enter into discussion on the various initiatives proposed in this Communication. In the meantime, the Commission says that it will continue its evaluation work, including the organisation of single market forums; consider ways of developing the full potential of the Internal Market Information system; look at ways of improving the ability of consumers to obtain redress in the event of a problem; strengthen its partnership with the Member States in the management and implementation of the single market; widen the range of stakeholders consulted on the policies proposed and their implementation; improve the awareness of consumer rights; and strengthen informal problem-solving tools, such as SOLVIT. It says that it will:

  • improve the procedure for evaluating the aquis, in particular by using the 'mutual evaluation' process set out in the Services Directive and applying it to other single market legislation;
  • extend the Internal Market Information System (IMI) to other legislative areas;
  • submit initiatives on the use of alternative dispute resolutions in the EU, supplemented by recommendations in the area of financial services, digital transactions and collective redress;
  • develop a more resolute policy to enforce the rules of the single market;
  • increase consultation and dialogue with civil society in the preparation and implementation of texts;
  • promote a one-stop shop to provide citizens and businesses with information and support; and
  • strengthen informal problem-solving tools.

11.29 The Commission concludes by saying that it intends that the Single Market Act should be discussed throughout Europe over the coming months, with its Action Plan being circulated widely to national and regional parliaments, to economic and social players, and others in civil society. In particular, it has asked for comments by the end of February 2011, and, in the light of these, it will invite the other institutions to agree a definitive version of the Plan for 2011-12, which it says will serve to commemorate the 20th anniversary of the single market at the end of 2012.

The Government's view

11.30 In his Explanatory Memorandum of 18 November 2010, the Minister for Employment Relations, Consumer and Postal Affairs at the Department for Business, Innovation and Skills (Mr Edward Davey) says that the Government strongly supports the idea of strengthening the single market, pointing out that, given its economic importance for both businesses and consumers, it can provide the framework conditions needed for the EU's economy to thrive. The Government therefore considers that a coherent approach tackling existing bottlenecks and shortcomings of the single market is a necessary element of the growth agenda. It also considers that the policy proposals within a Single Market Act should be coordinated with the Commission's Europe 2020 strategy and its initiatives to avoid unnecessary duplication and inconsistent policy decisions. The Government also strongly supports the external dimension of the single market, in particular, the need to ensure that the Europe's market remains open to the world, and that other markets are open to its trade and investment.

11.31 The Minister says that the Government will submit a full response to the Commission's consultation on the Single Market Act, and will continue to consider the proposals in this Communication over the coming months. However, based on this general assessment, it has the following views.

11.32 On the proposals on strong, sustainable and equitable growth for business, it supports:

  • measures to build on the mutual evaluation exercise and develop the single market in services, believing that more could be done to liberalise business-to-business services and that an explicit commitment to resist protectionist and discriminatory policies in the area of financial services is essential, as is facilitating the establishment by retailers of premises in other member states and removing the barriers to cross-border retail services;
  • proposals to reform the standardisation framework in 2011 to make procedures for setting standards more effective, efficient and inclusive, and to extend their scope from goods to services;
  • current proposals for an EU Patent, and the proposal to improve the governance of copyright at the European level and to take action against counterfeiting and piracy;
  • measures which reduce costs and barriers for SMEs, for example by improving their access to capital markets and simplifying financial reporting obligations, and it welcomes the Commission's commitment to ensure that the "Think Small First" principle is implemented in both policy and the legislative procedure, and to review the 2008 Small Business Act;
  • the consultation on corporate governance, observing that the best solutions are owned and driven by market participants, investors and companies.

11.33 The Government is, however, concerned that some of the proposals would limit Member States' flexibility to find solutions suitable for their specific needs, and it will be particularly mindful of the need for the principle of subsidiarity to be respected in areas which are fundamental to national sovereignty, such as taxation, where it would oppose any increase in EU competence.[58] Likewise, it says that a common consolidated corporate tax base would have to ensure that the UK's tax sovereignty and ability to maintain an internationally competitive tax system are not undermined.

11.34 The Government says that, whilst some of the proposals on putting Europeans at the heart of the single market merit further consideration, it is concerned that others are not focussed sufficiently on ensuring the single market's role in removing barriers to free movement and delivering growth. In particular, whilst it agrees that the single market should deliver benefits for citizens as well as businesses, it believes that the best way to do this is to bring about the conditions within which businesses can thrive and create sustainable jobs for the future. It says that it will look closely at those proposals in the Single Market Act which touch on the social and employment dimension, some of which raise difficult policy and legal questions, in order to ensure that any future proposals for EU action do not undermine UK competence, are consistent with the principles of subsidiarity and proportionality, and do not result in the imposition of new costs on Member States or businesses.

11.35 The Government says that many of the proposals on good governance are in the right direction, and it agrees with the Commission that paying more attention to how existing single market legislation is enforced should be a central component of efforts to make the current framework operate effectively. It believes that established mechanisms like the mutual evaluation process developed under the Services Directive, the Internal Market Information system and SOLVIT should be strengthened so as to ensure that businesses and citizens can exercise their Single Market rights, adding that evidence gathered through these networks should feed back into the EU policy-making process and strengthen future single market legislation.

11.36 The Government concludes by saying that, whilst it intends to submit a response to the Commission, it will not conduct a formal consultation on the Communication as this would duplicate the Commission's own consultation exercise, but that it will be raising the Communication with a number of stakeholders, and will take into account evidence gathered in its consultation on corporate governance launched in October 2010. It does, however, stress the need for the Commission to abide by the principles of smart regulation, present proper analysis and evidence to justify its proposals, and to consider alternatives to regulation before committing to legislative solutions.


11.37 As we have noted, the Commission regards this document as an essential element of various flagship initiatives comprising the EU 2020 Strategy, including an Integrated Industrial Policy on which we have recently reported, and, like that document, it is ambitious and wide-ranging in seeking to identify ways in which the single market can be developed to increase the competitiveness of EU industry and hence economic growth, whilst preserving the human dimension of the social market economy. To that extent, it is clearly an important document, which we are therefore drawing to the attention of the House.

11.38 Having said that, the very breadth of the document means that it lacks a certain degree of focus, and its underlying general objective is difficult to dispute. Moreover, whether — and to what extent — the detailed measures recommended are justified seems to us best considered by the House as and when each of them is put forward, rather than on an across-the-board basis. For that reason, we are clearing the document.

51   (31368) 9981/10: see HC 428-i (2010-11), chapter 28 (8 September 2010). Back

52   (32042) 14035/10: see HC 428-viii (2010-11), chapter 8 (17 November 2010). Back

53   (32138) 15483/10: see HC 428-ix (2010-11), chapter 14 (24 November 2010). Back

54   (29791) 11262/08: see HC 16-xxix (2007-08), chapter 8 (10 September 2008). Back

55   (31694) 10822/10: see HC 428-i (2010-11), chapter 71 (8 September 2010). Back

56   COM(10) 603. Back

57   (31793) 12102/10: see chapter 15 of this Report. Back

58   For example, a proposal to amend EU energy tax legislation should not cut across the right of Member States to decide on the measures that will best help them meet their greenhouse gas emission targets. Back

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