Internal market Services Package

For an imaginary review, we have been looking at building blocks of the European internal market (single market) at mid-term. The blog entry Services in the internal market strategy prepared the way for the Services Package launched by the European Commission in January 2017.

The press materials about this major element serve as your short cut or executive summary, before we embark on the scenic route.

Services Package launched

On 10 January 2017 the European Commission launched A services economy that works for Europeans IP/17/23:

The proposed measures aim to make it easier for services providers to navigate administrative formalities, and to help Member States identify overly burdensome or outdated requirements on professionals operating domestically or across borders. Rather than amending existing EU rules in the area of services, the Commission focuses on ensuring they are applied better, as evidence shows that implementing them to their full potential would provide a significant boost to the EU economy.

The four concrete initiatives, briefly explained, were:

• A new European Services e-card
• A proportionality assessment of national rules on professional services
• Guidance for national reforms in regulation of professions
• Improved notification of draft national laws on services

The press release was accompanied by the customary background memo, with 38 hypothetical questions and answers, both on background and individual proposals, on how to make the rules and administrative practices of the EU member states less incompatible, MEMO/17/11, with a summary of the scope of services targeted (or not) by the Services Package:

The Services Directive applies to important services sectors such as business services, construction and retail services. It does not apply i.a. to financial services, healthcare services, public social services, electronic communications services and networks, and transport services. These sectors and services may be subject to sector-specific legislation and in any event to the overall freedoms enshrined in the Treaty.   

Here are links to the four individual parts of the Services Package 2017, each page (some of them somewhat truncated) with links to various documents for further study:

European services e-card

Notification procedure for authorisation schemes and requirements related to services

Proportionality test before adoption of new regulation of professions

Guidance on reform needs for Member States for regulation in professional services

This concludes the short cut or the executive summary to the 2017 Services Package. I am going to send the postcards from the scenic route from my Finnish blog Eurooppaoikeus and my Swedish blog Grahnblawg.

Ralf Grahn

Services in the internal market strategy

In the preceding blog posts and in the latest entry Internal market mid-term we have looked for building blocks for an imaginary review when the EU Commission reaches mid-term.

The purpose of this blog entry is to present the European Commission’s intentions regarding services in the 2015 internal market strategy, as an introduction to a coming article about the 2017 services package.  

Internal market in services

According to the political guidelines of the Juncker Commission, we need to complete the internal market in products and services and make it the launch pad for our companies and industry to thrive in the global economy, also when it comes to agricultural products.

The European Commission expanded on the theme in its internal market strategy:

Upgrading the Single Market: more opportunities for people and business; Brussels, 28.10.2015 COM(2015) 550 final

The role of the accompanying Commission staff working document A Single Market Strategy for Europe - Analysis and Evidence; Brussels, 28.10.2015 SWD(2015) 202 final;  was illustrated in the blog entry Services in EU single market strategy.  

The new single market strategy came against the background of the Investment Plan for Europe and the European Fund for Strategic Investments (EFSI), the European Energy Union, the Digital Single Market Strategy, the Action Plan for a Capital Markets Union and the Trade for All communication (plus TTIP work), while promising a Circular Economy package and a Labour Mobility package, with taxation and road transport thrown in for good measure; everything having to pass through the better regulation eye of the needle (pages 1-2).   

This left the strategy communication to deal with two of the four internal market freedoms, consequently arguing for more seamless trade in goods and services (page 2):

These measures need to be complemented by a true European Single Market for goods and services.

For all the progress made, too many significant economic barriers remain, notably in the area of services. The Commission estimates that more ambitious implementation of the Services Directive would add 1.8 % of EU GDP.

Service actions

One of the first promises of the new internal market strategy was to enable the balanced development of the collaborative economy, also known as the sharing economy, which includes peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music video streaming. The Commission promised guidance concerning these services and a European agenda for the collaborative economy (pages 3-4).

In order to open up professional services, the Commission promised guidance on regulated professions, first in priority sectors. An analytical framework for member states and mutual evaluation were promised for the EU members, plus legislative proposals to address regulatory barriers (pages 7-9).

With regard to cross-border services in general, the Commission promised to launch a legislative initiative introducing a services passport with a harmonised notification form and an electronic document repository to increase certainty and reduce barriers for service providers, who want to access other EU markets in order to expand their activities (page 9).

The Commission promised to set out best practices on retail establishment and operational restrictions in the single market, in order to give consumers better choices (page 10).

The Commission’s pledged legislative proposals and enforcement action to address geo-blocking and other forms of discriminations concerning access, price or conditions by market operators, on the grounds of place of residence or of nationality (page 11).

The Commission planned a Joint initiative on Standardisation with the European standardisation community, as well as dedicated guidance on service standardisation (page 12).

According to the EU Commission, intellectual property-intensive sectors account for 39 % of GDP and for 35 % of jobs in the EU (page 14), but it may be more debatable if they are a force for innovation or an obstacle to growth. The Commission repeated its promise in the Digital Single Market Strategy for Europe to review the IPR enforcement framework according to a ‘follow the money’ approach, in order to respond to the increasingly cross-border nature of infringements (page 15).

A whole section was dedicated to the improvement of the delivery of the Services Directive, by reforming the notification procedure (pages 17-18). The Commission wanted to extend the successful features of the existing procedure for goods and information society services to other services, including the requirement to notify draft legislation and transparency for stakeholders.

The quickest and clearest route to the promised single market strategy proposals is through the roadmap on pages 21-22.

Later mid-term review?

This blog has wanted to study the internal market in the mid-term review season, but maybe the European Commission has decided to follow a different time-table regarding the single market. The concluding remarks in the communication on the internal market strategy for goods and services gave an indication (page 20):

By the end of 2017, the Commission will review progress on its implementation and, on the basis of comprehensive economic analysis, consider whether additional action is needed to meet its objective of a deeper and fairer EU Single Market.

Services Package

Anyway, one of the new developments we have to take into account is the publication of the European Commission’s Services Package 10 January 2017, summarily presented in the press release: IP/17/23.

After this preparatory blog post we turn to the Services Package in the next entry.

Ralf Grahn

Internal market mid-term

Behind by design seems to lead the EU to the Sisyphean internal market and other policy areas, where the Juncker Commission is left to practise the art of the possible: Monitoring the European Commission’s progress.

Having found no comprehensive internal market (single market) mid-term review process or document, we turn to elements illustrating mid-life during the current Commission term.

Is the European Commission able to inspire the EU member states and the other European Union institutions to market reforms?

Single market integration and competitiveness

Instead of the statutory Single Market Pillar of the Annual Growth Survey and the European Semester the European Parliament had called for repeatedly, the European Commission published its latest:

Single market integration and competitiveness report 2016 (European Commission, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs; 128 pages)

A few snippets, by way of introduction. We learn that (p. 5-6):

The evolution of productivity is the main determinant of competitiveness in the long run. Despite a relative slowdown in productivity growth in the USA, the correction of macroeconomic imbalances and the introduction of reforms in some EU Member States, the productivity gap between the USA and the EU still persists. The recovery remains tepid and fragile and the subdued aggregate demand is not contributing to stimulate investment and innovation.

This report identifies progress in the introduction of reforms, but there is still considerable scope for improvement in many areas and countries.

The internal market success story is modified (p. 9):

Compared to the USA, the size of EU firms remains relatively stable during their business life. Once established in the market, EU firms are unlikely to grow or shrink in size. This structural difference between the US and the EU seems to be a result of the relatively lower dynamism of EU markets.

However, some progress is noted, according to the World Bank’s Doing Business scores (p. 9):

Public sector regulations define the business environment in which firms operate. The US is considered to have a more dynamic business environment than the EU. According to the World Bank rankings, the EU has improved its business environment and is closer to the global frontier in 2016 than it was in 2010 (by 3.5 percentage points).

Deepening the internal market remains a challenge in three areas relevant for the efficient allocation of resources in the EU (p. 11):

Accounting for over 14% of GDP, public procurement activities have a significant economic impact on national economies and their efficient operation can contribute to improving the quality of public expenditure and reducing budgetary imbalances while contributing to innovation and the modernisation of Member States' economies.

Activities in the construction value chain present low productivity levels with multiple regulatory restrictions and low cross border trade activity.

Productivity improvements are particularly needed in business services markets, where rigidities are still considerable at national and Single Market levels despite some progress in a number of Member States.

A summary of conclusions is presented on page 14.

The business environment in the USA seems to be clearly superior to the EU seen as a whole (p. 55):

The World Bank Doing Business ranking of business environment in over 100 countries reflects the greater dynamism of business in the USA: USA is ranked 7th, while the EU is on the 31st place.

Single market integration

After discussion about competitiveness and growth factors (against the benchmark USA), chapter 6 discusses integration in the single market (from page 68):

Previous sections of this report have shown the importance of market efficiency in the allocation of resources for competitiveness and how it depends, to a considerably degree, on labour and product market regulations.

The characteristics and quality of the common regulatory framework provided by the Single Market also have a considerable impact on the individual and collective competitiveness of EU Member States. This became apparent during the past financial crisis when the regulatory framework applicable to financial markets proved to be insufficient to cope with the requirements of highly complex and integrated EU financial markets under stress.

At a general level (p. 75):

There are three main channels through which the Single Market can be expected to absorb and spread out the impact of asymmetric shocks:

• Labour markets: local labour market dynamics and flows of labour from surplus regions to regions where labour is in demand.

• Capital markets: flows of capital from regions of low to regions of higher return.

• Goods and services: a shift in intra-EU trade patterns in favour of the worst off economies, as a consequence of improving terms of trade.

A potential fourth channel could be exchange rate and interest rate adjustments, but with 19 Member States already having adopted the single currency and most of the remaining nine having pegged their exchange rates against it, the scope for Single Market shock absorption through monetary mechanisms is limited. In relation to third countries though, exchange rate adjustments remain a powerful channel for shock mitigation.

Thus, the effectiveness of the Single Market in absorbing shocks and facilitating an efficient allocation of resources hinges on the elimination of barriers to the free circulation of goods services, people and capital in the labour, capital and goods and services markets.

After finding the current internal market inadequate to resist shocks, the report discusses key areas in more detail: best value for money public procurement (from page 82), rigidities and market failures in the complex construction value chain (from page 94) and partly as a rehash of the 2015 report, services, especially the wholesale and retail distribution sectors (from page 111).  

Just a few random picks among the observations:

• The Single Market for public procurement is not sufficiently integrated and further opening could boost economic efficiency and growth (p. 93),

• In 2015, the Commission launched a fitness check of EU legislation in the fields of Internal Market, Energy Efficiency, Environment and Occupational Safety and Health, which aims at identifying overlaps or inconsistencies between the various relevant legal acts and analyse burdens and benefits for enterprises of the construction sector, including products manufacturers. The results will be presented in 2017 (page 104).

• Retailers wanting to establish in other Member States may face regulatory restrictions. Member States impose requirements relating to the size of retail outlets or to their location which may result in market entry barriers for certain store formats or business models and may affect secondary establishment. Such restrictions can have a negative impact on market structure and dynamics (page 124).

• For non-grocery retail e-commerce is completely changing the market conditions. Integration happens through cross-border retail sales. Member States should provide a regulatory framework supportive to the development of e-commerce and ensure a level playing field between physical and on-line retail (page 126).

Food for thought

The Single market integration and competitiveness report 2016 offers national governments and EU institutions elements to contemplate market reforms, but it does not really quantify or assess the adequacy of the current internal market strategy of the European Union:

Upgrading the Single Market: more opportunities for people and business; Brussels, 28.10.2015 COM(2015) 550 final

Neither does the 2016 report lay the foundation for a mid-term review based on what it would take to catch up with the United States of America, to name the obvious internal market benchmark.

Single EU regulator, single EU rule book

In practical terms, where the Single market integration and competitiveness report 2016 left off, Bruegel picks up the slack ahead of the mid-term’s invitation for the Commission to reflect on the future of the internal market, as on other priorities.  

Bruegel offers a policy contribution paper Making the best of the European single market (2017), which discusses what to do about the lack of growth and fairness when the easy parts of the internal market have been done.

In terms comprehensible to national politicians and administrations, the authors outline how to increase productivity growth, a new investment agenda and how the EU and its member states should promote fairness.

Even if the discussion is conducted within the existing treaties, it is refreshing to see main building blocks examined, instead of swarms of wafer-thin amendments to limited legal acts.

But I wonder if the EU member states are ever going to be able to break out of the Sisyphean internal market they created, if they fail to build the internal market and the digital single market according to the litmus test: each part as good or better than in the federal United States and Canada.

Ralf Grahn

Monitoring the European Commission’s progress

The member states, who own the European Union, have designed a structural underachiever, including in the area hailed as the greatest success story of the EU: the internal market (single market). Se the blog entry Sisyphean internal market.  

Perhaps no Celestial City is in sight, but it is still important to see the strategically based progress of the Juncker Commission.

Call for action 2016

A year ago, the Commission called for swift action regarding various proposals pertaining to the Single Market Strategy, the Action Plan on Building the Capital Markets Union (CMU) and the Digital Single Market Strategy:

Delivering the Single Market Agenda for Jobs, Growth and Investment; Brussels, 1.6.2016 COM(2016) 361 final

Annexes [to the Communication]; Brussels, 1.6.2016 COM(2016) 361 final ANNEXES 1 to 2

A year on, I wanted to highlight this communication as a clearly written document on two of the Commission’s priority areas and the important CMU project.

Legislative priorities 2017

In addition to building the Single Market, the Capital Markets Union and the Digital Single Market, the Energy Union and the Economic and Monetary Union are among the priorities worth watching, if we are interested in the agenda for jobs, growth and investment.

The Joint Declaration on the EU’s legislative priorities 2017, the European Parliament, the Council and the European Commission decided to give priority treatment to legislative proposals under six headings:

1. Giving a new boost to jobs, growth and investment
2. Addressing the social dimension of the European Union
3. Better protecting the security of our citizens
4. Reforming our migration policy in a spirit of responsibility and solidarity
5. Delivering on our commitment to implement a connected Digital Single Market
6. Delivering on our objective of an ambitious Energy Union and a forward looking climate change policy

The individual and clearly referenced proposals are on offer in the Working document to facilitate the the monitoring and tracking of the follow-up annexed to the Joint Declaration on the EU’s legislative priorities for 2017 (both documents dated 13 December 2016).

Legislative Train Schedule update

The European Parliament offers a monitoring tool, for some metaphorical reason called the Legislative Train Schedule, built around the ten political guidelines (priorities) of the Juncker Commission (2014). Last updated in March 2017, the schedule offers general information about a priority area, as well as more detail about individual initiatives or proposals.

In addition to the screen version (with links and further links), there is also a  print version (pdf) to read or download for each of the ten Commission priorities, generally. Each offers something in the range of a hundred pages.

However, the fourth policy priority, a deeper and fairer internal market with a strengthened industrial base, has been divided in a corresponding manner into five sub-groups, each with its own print version: products, services including transport, financial services, labour and taxation.  

In other words, we find the proposals sorted under the headlines of the priorities of the European Commission, with the internal market modification mentioned:

1. A New Boost for Jobs, Growth and Investment

2. A Connected Digital Single Market

3. A Resilient Energy Union with a Forward-Looking Climate Change Policy

4. A Deeper and Fairer Internal Market with a Strengthened Industrial Base

4 A. Products

4 B. Services including Transport

4 C. Financial services

4 D. Labour

4 E. Taxation

5. A Deeper and Fairer Economic and Monetary Union

6. A Reasonable and Balanced Free Trade Agreement with the U.S.

7. An Area of Justice and Fundamental Rights Based on Mutual Trust

8. Towards a New Policy on Migration

9. A Stronger Global Actor

10. A Union of Democratic Change  

Mid-term reviews

The Juncker Commission, appointed for the period from 1 November 2014 to 31 October 2019, is at mid-term right now. Midway invites everyone to evaluate progress and the Commission to set the sights for the remainder of the mandate.

This means that in various policy areas conducive to investment, economic growth and new jobs, assessments and reviews are taking place.

In addition to the Single Market, the Capital Markets Union and the Digital Single Market, the Energy Union and the Economic and Monetary Union are among Commission priorities to watch.

Ralf Grahn