EUROPEAN COMMISSION

Brussels, 19.12.2017

SWD(2017) 471 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council

on the mutual recognition on goods lawfully marketed in another Member State

{COM(2017) 796 final}
{SWD(2017) 472 final}
{SWD(2017) 475 final}
{SWD(2017) 476 final}
{SWD(2017) 477 final}

Contents

Introduction

1.Regulatory Context

2.Economic Context: non-harmonised products in the EU

3.Problem Definition

3.1.Magnitude of the problem

3.2.The drivers of the problem

3.2.1.Lack of awareness about the mutual recognition principle and Regulation

3.2.2.Legal uncertainty as regards the scope of mutual recognition

3.2.3.Legal uncertainty as regards the application of mutual recognition and unreliability of the outcome

3.2.4.Lack of trust and cooperation among authorities

3.3.The consequences of the problem/ Who is affected and how

3.4.Foreseen evolution of the problem

4.Analysis of Subsidiarity

4.1.Legal Basis

4.2.Subsidiarity and Proportionality

5.Objectives

5.1.General Policy Objectives

5.2.Specific Policy Objectives

6.Policy Options

6.1.Discarded options

7.Analysis of Impacts

7.1.Assessment of the impacts

8.Comparison of Options

8.1.Effectiveness

8.2.Efficiency

8.3.Coherence

8.4.Potential for reduction of administrative burdens for companies

9.Monitoring and Evaluation

9.1.Operational Objectives

9.2.Indicators for the monitoring

Annex 1 Procedural Issues and Consultation of Interested Parties

1.Identification

2.Organisation and Timing

3.Consultation Of The Regulatory Scrutiny Board

4.Consultation and Expertise

5.Limitations and assessment of robustness of findings

Annex 2 Synopsis report of the stakeholder consultation

1.OBJECTIVES OF THE CONSULTATION

1.1.Consultation methods and tools

2.RESULTS OF THE CONSULTATION ACTIVITIES

2.1.Meetings of the Mutual Recognition Consultative Committee

2.2.Stakeholder conference of 17 June 2016

2.2.1.Main meeting

2.2.2.Workshops

2.3.Public Consultation

2.3.1.How stakeholders see mutual recognition and its potential shortcomings

2.3.2.Functioning of the Mutual Recognition Regulation

2.3.3.Assessment of communication when using Mutual Recognition

2.3.4.Priorities to improve Mutual Recognition

2.3.5.Options

2.4.Surveys carried out by the external contractors

2.5.Other contributions received (position papers or e-mail)

3.FEEDBACK TO STAKEHOLDERS

Annex 3 who is affected and how

Annex 4 Analytical Models Used In Preparing The Impact Assessment

1.Methodology for the market analysis

2.Methodology for the estimation of the magnitude of the problem

3.Methodology for case studies

4.Estimation of the Market for Non-Harmonised products

4.1.Estimate of the market value of current intra-EU trade in non-harmonised products falling under the mutual recognition principle

4.1.1.Analysis at the sectorial level

4.1.2.Analysis at product level

4.2.Estimating the magnitude of the problem triggered by suboptimal functioning of the mutual recognition principle

4.2.1.Introduction and exporting decision tree

4.2.2.The Sub-optimal Functioning of the Mutual Recognition model

4.2.3.Number of enterprises undertaking non-harmonised trade

4.2.4.Lost Opportunity

4.2.5.The Sub-optimal Functioning of the Mutual Recognition (SFMR) model

4.2.6.Conclusion

Annex 5 harmonised non harmonised and partially harmonised products- sector and product level analysis

1.Harmonised, Non-Harmonised and partially harmonised sectors - Classification used in the market analysis (Sectorial Level)

2.Products classified as non or partially harmonised in the market analysis (Product level) by sector

Annex 6 – Main Findings of the Evaluation of the REFIT Evaluation on the Principle of Mutual Recognition and the Mutual Recognition Regulation No (EC) 764/2008

Annex 7 assessed literature and jurisprudence

1.Literature

2.Recent case law of the CJEU on mutual recognition

Annex 8 The Declaration of Compliance

1.EU Product legislation under the 'New Approach'

2.The EU declaration of conformity in EU Product legislation

3.Comparison between the role of the manufacturer in EU harmonisation legislation and in the Mutual Recognition proposal

4.Comparison between the declarations of conformity

5.The Suppliers declaration of conformity in international trade

5.1.The use of the suppliers' Declaration of Conformity in global trade

5.2.International standard EN ISO/IEC 17050-1

5.3.U.S. International Trade Commission

5.4.The Use of Supplier’s Declaration of Conformity in the U.S.

5.5.Case study: Australia

5.5.1.Introduction

5.5.2.Supplier’s Declaration: an Assessment

5.5.3.Impact of SDoC on Stakeholders

5.5.3.1.Regulator

5.5.3.2.Suppliers

5.5.3.3.End User

6.Evaluating the trade effects of suppliers' declaration of conformity

Annex 9 The SME Test – Summary of results

Annex 10 Glossary of Technical Terms and Abbreviations

Introduction

Achieving a deeper and fairer single market, that builds on its strengths and fully exploits its potential in all its dimensions, represents one of the key political priorities of the European Commission. 1 The follow-up and the implementation of the Single Market Strategy, Upgrading the Single Market: more opportunities for people and business, adopted on 28 October 2015 2  constitute one of the main objectives of the 2017 Commission Work Programme. 3

Within the Single Market, free movement of goods is the most developed of all four fundamental freedoms and generates around 25 % of EU GDP, 75 % of intra-EU trade. The EU accounts for around one sixth of the world’s trade in goods. Trade in goods between EU Member States (intra-EU trade) was valued at EUR 3 063 billion in 2015 4 . However, there is still work to do to ensure a deep and fair European Single Market. The enforcement of common safety and environmental rules is still not functioning optimally and, where there are no common rules, the principle of mutual recognition is not being applied. The 'Goods Package' announced in the 2017 Commission Work Programme, intends to address both these fundamental problems, with proposals on compliance and enforcement of EU harmonisation legislation and on mutual recognition.

In the Single Market for goods, regulatory obstacles are prevented and removed through relevant EU legislation on specific products (i.e. through EU harmonisation legislation). This is for example in the case of toys, cosmetic products or pyrotechnical articles. Where no EU rules exist (non-harmonised areas), the Directive (EU) 2015/1535 on the notificaiton of national technical rules (the former Directive 98/34/EC) aims to prevent regulatory obstacles within the EU, at an earlier stage, and the principle of mutual recognition would be used to overcome them, at a later stage.

Mutual recognition is seminal for a proper functioning of the single market for goods, through the elimination of technical obstacles to genuine free movement. In areas where no specific EU legislation is in place, national rules that lay down requirements to be met by such products co-exist. In principle, national regulations may still create barriers to intra-EU trade if rules in different Member States diverge. The principle of mutual recognition requires however that a good that is lawfully marketed in one Member State should not be prohibited in another Member State, unless the latter has sound reasons for banning its sale. Mutual recognition applies to products that are not subject to EU harmonisation legislation or only partly covered by it; this is the case, for example, of a wide range of consumer products such as textile, footwear, childcare articles, jewellery, tableware or furniture, for example.

The adoption of Regulation (EC) No 764/2008 (‘the Regulation’) 5 was a partial 6 response to the weak application of the principle of mutual recognition in the field of goods, triggered by the lack of awareness about the mutual recognition principle, legal uncertainty when applying the principle and the lack of administrative cooperation among national authorities. The Regulation was aimed mainly at establishing a procedural framework to minimise the possibility of national technical rules creating unlawful obstacles to the free movement of goods between Member States 7 .

In December 2013, the Conclusions on Single Market Policy, adopted by the Competitiveness Council, noted that to improve framework conditions for businesses and consumers in the Single Market, all relevant instruments should be appropriately employed, including harmonisation and mutual recognition. 8 The Commission was therefore requested to report to the Council on the sectors and markets where the application of the principle of mutual recognition is economically most advantageous, but where its functioning remains insufficient or problematic. In its Conclusions on Single Market Policy of February 2015, the Competitiveness Council urged the Commission to ensure that the principle of mutual recognition would function effectively and to bring forward proposals to that effect, as appropriate 9 .

In response to the indications that the functioning of the principle might not be optimal, and taking into account the request of the Council, the application of the principle of mutual recognition was subject to an evaluation. 10 Building on the external evaluation, the Commission's Evaluation on the functioning of mutual recognition included an assessment of the functioning of the Regulation as well, in order to have a full picture of the obstacles impeding the optimal functioning of mutual recognition (hereafter, the Evaluation) 11 .

This Evaluation has concluded that mutual recognition is not functioning well and that the principle and the Regulation had limited effects in meeting the foreseen objectives. With regards to supportive information and data, this impact assessment is also supported by the information contained in the Evaluation. The initiative has been linked to the REFIT programme due to the impacts the malfunctioning of mutual recognition have on the functioning of the internal market.

This initiative should be looked at along with other initiatives currently under preparation and in particular the initiative on enforcement and compliance with the EU harmonisation legislation on products, the Action Plan on SOLVIT and the proposal for a Single Digital Gateway to complement each other and contribute to reducing barriers to trade in the Single Market. Further and better compliance and enforcement will reduce unfair competition and ensure a more level playing field for businesses. An enhanced SOLVIT will facilitate informal problem resolution and the Single Digital Gateway will not only ensure visibility for the Product Contact Points established under the Regulation (PCPs) but also improve their functioning by subjecting them to the quality criteria in terms of online availability and quality of information and services provided to economic operators.

1.Regulatory Context

Free movement of goods in the internal market and the principle of mutual recognition

As one of the four main fundamental freedoms, free movement of goods is a cornerstone of European integration and essential for European competitiveness. Free movement of goods in the internal market is ensured through EU common rules on products (EU harmonisation legislation) and the principle of mutual recognition.

EU harmonisation legislation sets out common requirements on how a product has to be manufactured, which includes rules on i.e. characteristics of the product, size, composition, etc. Its aim is not only the elimination of barriers and the free movement of goods in the single market, but also ensuring that only safe and otherwise compliant products find their way into the EU market, in such a way that honest economic operators can benefit from a level playing field, thus promoting at the same time an effective protection of EU consumers and professional users and a competitive single market. The adoption of EU common rules prevents Member State from regulating those technical aspects of products and products complying with such rules are guaranteed free movement across the single market.

However, EU harmonisation legislation covering every product and aspect of a product is neither a feasible nor a desirable objective  12 . Adopting EU common rules is a costly and time consuming process, where a balance needs to be struck between different approaches and should be reserved for those products and aspects of products where there are significant barriers to the free movement across the Single Market which cannot be addressed otherwise.

Where there are no EU common rules, or when only some aspects of the products are covered by EU common rules, Member States remain free to adopt national technical rules laying down requirements to be met by those products, such as rules relating to designation, form, size, weight, composition, presentation, labelling or packaging. These national technical regulations are however subject to the provisions of Articles 34 to 36 of the Treaty on the Functioning of the European Union (TFEU), which prohibit quantitative restrictions or measures having equivalent effect, and to the principle of mutual recognition. In addition, they also need to be notified under the Directive (EU) 2015/1535 13 in order to ensure that no unjustified barriers to the Single Market are allowed.

The principle of mutual recognition is embedded in Articles 34 and 36 of the TFEU and has been further elaborated on case law, especially the "Cassis de Dijon" case 14 .

It means that in the absence of EU harmonised rules, if a business is lawfully selling a product in one Member State, in compliance with the applicable national technical rules of that Member State, it should be able to sell it in other Member States without having to adapt it to the national rules of that Member State where such products already meet equivalent levels of protection to those imposed by the importing Member State 15 . Barriers to free movement which result from differences in national legislation may only be accepted if the national measures:

-are necessary to satisfy mandatory requirements (those being public interests such as health, safety, consumer protection and environmental protection) which justified overriding the principle of free movement of goods, and

-can be justified with regard to the legitimate purpose and are proportionate with the aims.

Exceptions to the mutual recognition rule should be interpreted narrowly. Considering the exceptions, mutual recognition should not be viewed as entailing lower health and safety standards, or as limiting the market surveillance capabilities of national authorities; but rather as striking a careful balance between free movement and objectives of public interest.

Figure 1-1 16

EU harmonisation legislation and mutual recognition are both necessary to achieve a fairer and deeper internal market. Mutual recognition is essential to guarantee the free movement of goods in the European Single Market where diverse and sometimes conflicting national technical rules can continue to coexist. When properly applied, mutual recognition guarantees the protection of the public interest whilst not creating excessive red tape.

The practical application of the principle of mutual recognition

The application of this general principle is, in practice, extremely complex. It requires, inter alia, an assessment of whether a product has been lawfully marketed in another Member State and an assessment of the equivalence of the rules in the Member State of origin to allow the non-application of the technical rules in the importing Member State. The latter should not be understood as a comparison of the theoretical intrinsic equivalence of the two Member States rules, but of the practical results produced by applying them in terms of how a particular product adequately protects the public interests at stake.

1.    Some practical modalities on how mutual recognition should work in practice are defined by the Regulation.

In particular, the Regulation introduced:

·Product Contact Points: to provide, upon request, information on the technical rules applicable to a specific product, the contact details of the competent authorities in charge of supervising the implementation of the technical rule in question and the remedies available in case of dispute between the economic operator and the competent authority.

·Non-exhaustive list of products: Mutual recognition does not apply to products fully or to those aspects partially covered by EU harmonisation legislation. To facilitate the identification of products to which the mutual recognition principle may apply, the Regulation introduced an obligation for the Commission to put in place a non-exhaustive list of products which are not subject to EU harmonisation legislation.

.

·Procedure for decisions denying market access: The Regulation lays down in particular the rules and procedures to be followed by the national authorities of a Member State when taking or intending to take a decision, in accordance with the national technical rules, which would hinder the free movement of a product lawfully marketed in another Member State and subject to Article 34 TFEU. In particular, the Regulation places the burden of proof on the national authorities intending to deny market access. A written notice has to be sent to the economic operator, informing him about their intention to deny market access, and specifying the technical rule on which the decision is based, and the supporting technical or scientific evidence which makes the decision justified and proportionate. The economic operator has the right to submit comments. Any decision denying market access taken after receiving comments from the economic operator shall be notified to him, and shall state the grounds on which it is based, the technical or scientific evidence supporting the decision and, when applicable, the reasons for rejecting the economic operator's arguments. The decision shall also indicate the remedies available under national law in order to challenge the decision.

·Reporting obligations: Member States have to submit yearly reports on the application of the Regulation. Furthermore, every decision denying market access, as well as the grounds on which it is based, has to be individually notified by Member States to the Commission, in addition to the notification of the economic operator.

2.    The application of the principle of mutual recognition is also made possible by the inclusion of a mutual recognition clause 17 in national technical regulations. It provides legal certainty for economic operators, as they are informed about their rights, thereby actually putting the aforementioned principle into practice.

3.    The Commission monitors whether Member States comply with the EU law and whether their national rules undermine the free movement of goods. To ensure that internal market rules are respected and applied correctly in the area of non-harmonised goods, the Commission follows up complaints based on alleged breaches of Article 34 TFEU and takes action, where necessary, to ensure that those restrictions which cannot be justified are eliminated.

2.Economic Context: non-harmonised products in the EU

Mutual recognition applies to non-harmonised products and to partially harmonised products, i.e. products which are in part covered by EU harmonisation legislation but which still have other aspects which are subject to national rules. It is difficult to have a strict separation between these two categories of products: while there are products which are subject to detailed EU rules (and considered as harmonised) such as toys, pyrotechnical articles or cosmetics, many products are however subject to EU harmonisation for at least specific aspects while the rest is left for national legislation and therefore subject to mutual recognition. Mutual recognition therefore applies to many consumer products where EU harmonisation measure is almost absent such as childcare articles, clothing, textile and footwear, furniture, jewellery, sports accessories. It also applies to products more heavily regulated by EU harmonisation measures regarding those elements not covered by these measures, for example, to food and food supplements, fertilising or construction products.

Whatever the scope for national rules (the totality of the product or many aspects of it), mutual recognition should apply to address any differences in technical requirements in the Member States. Therefore, for the purposes of this impact assessment, non-harmonised products should be understood as also including those products which are partially harmonised as they are still subject to national rules and thus, mutual recognition. More information on the economic relevance of products subject to mutual recognition can be found in Annexes 4 and 5.

Over the period from 2008 and 2014, around 0.89 million enterprises were operating within non-harmonised sectors, representing more than 50% of the total number of active enterprises in the manufacturing economy 18 .

Figure 2-1: Number of active enterprises: non-harmonised sectors vs overall manufacturing sectors (EU28, 2012-2014) NACE Digit-3 level

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

Around 87% of the enterprises operating within the non-harmonised sectors are micro enterprises (i.e. with less than 9 employees) and around 11% are small and medium enterprises (i.e. with a number of employees between 50 and 250) 19 .

In terms of turnover, non-harmonised sectors represent a significant contribution to the economy. As shown in the figure below, enterprises operating within non-harmonised sectors contribute to around 20% of the total value of market sales of manufacturing sectors (€1,158 billion out of €5,690 billion, corresponding to the overall turnover produced within the manufacturing sectors).

In addition, considering the period 2008 – 2015, the following was observed:

·The (average) annual value of intra EU exports of non (or partially) harmonised products has been equal to €335 billion ;

·The value on intra EU exports of non-harmonised products represented the 18% of the value of intra EU exports.

Figure 2-2: Value on non (or partially) harmonised products. Intra EU Exports, € billions, 2008 -2015

3.Problem Definition 

Mutual recognition is instrumental to removing barriers to intra-EU trade when harmonisation is either not desired or technically impossible. However, mutual recognition is not functioning well 20 . The weak use of the principle of mutual recognition and the limited impacts the Regulation had in achieving the foreseen objectives of ensuring free movement of goods in the Single Market points that there is a lot of potential to be unleashed.

Businesses rarely rely on mutual recognition to sell their products in another Member State. Companies check the applicable rules in the Member State where they want to sell their products and if national rules prevent them from selling them, most of them adapt their product to those rules (87% adapt their products to national rules straight away or have tried to rely on mutual recognition but received a negative decision and after they adapted their product) 21 . For other companies, particularly SMEs, national technical rules act as barriers to enter those national markets, and they refrain from selling their products in those countries 22 . Where companies try to rely on the principle of mutual recognition, national authorities find it difficult to accept, on the basis of mutual recognition, products on their markets that do not conform to their national rules, to which technical, historical and cultural background they are well acquainted. Therefore, they deny market access to those products. 68% of companies which replied to the 2016 public consultation have tried to rely on mutual recognition, and for half of them, market access was denied. When market access is denied, it appears that companies find it extremely difficult to challenge these national decisions 23 .

Stakeholders reported recurrent problems with the application of the principle of mutual recognition in certain specific sectors such as construction products, food and food supplements, food contact materials, fertilisers or childcare products; some of these sectors are of particular economic relevance 24 .

Whilst the Regulation was adopted to facilitate the application of the principle of mutual recognition, it has not achieved its objectives. Generally, the 2016 public consultation shows that only half of the economic operators responding consider that it is easier to sell products in other Member States since the Regulation entered into force. 25

3.1.Magnitude of the problem

Due to the complex nature of mutual recognition and the wide variety of products to which it applies, accurately estimating the magnitude of the problem triggered by its suboptimal functioning is not straightforward. Therefore, several elements were taken into account in the analysis, in order to illustrate the significance of the effects that a suboptimal mutual recognition may have.

First, the model 26 presented in figure 3-1 has been used to determine the costs that a company might incur when entering the market without fully benefiting from mutual recognition. The objective of the model is to distinguish the socio-economic costs of the malfunctioning of mutual recognition; the model contains seven components, and uses data about the value of intra-EU trade to calculate key costs. The model is underpinned by an enterprise decisions tree that considers routes to successful market entry and decisions not to export. By estimating the number of enterprises entering new markets with non-harmonised products, it is possible to apply an estimate of the number of days work required by enterprises to overcome sub-optimal functioning. This element of the model provides details of transactions costs. The second component of the model (cost of delayed market entry) estimates the cost per week of enterprises note being able to trade. These costs can then be treated separately, or combined to give a total estimate of costs associated with sub-optimal functioning of the Mutual Recognition principle.

Figure 3-1: Decision tree diagram for export decisions associated with products not covered by the Mutual Recognition principle 27

This diagram represents the route that enterprises can follow when deciding not to export or when entering another EU Member State market. The model provides a representation for an enterprise considering intra-EU exporting one product in one EU Member State. This model has been designed as a simplified framework to illustrate a complex process, and is a simplified representation of the reality of the market. A model where the values can be changed, based on the type of products, company and feedback received was preferred, as it allows an evolving estimation, reflecting the reality of the market. The values used for calculating the size of the problem based on this model are assumptions based on feedback from a very limited number of stakeholders and thus need to be treated with caution as they are not necessarily representative  28 . They vary substantially upon the number of products intended to be marketed and the number of markets targeted. Details can be found in Annex 4.

Second, the comparison of the value of the intra EU exports with domestic consumption 29 shows that for harmonised products the value of intra EU exports is 55% of domestic consumption, while for the non-harmonised and partially harmonised goods it represents only 35%. This might be also a sign of the effects that suboptimal functioning of mutual recognition has on trade, based on the assumption that in the harmonised area, due to uniform and standardised rules applicable in all EU Member State, there are no (or few) barriers to trade.

Figure 3-2: Intra EU exports as % of the domestic consumption: harmonised vs non- harmonised or partially harmonised products, 2008-2015 30

Lastly, a global estimation of trade barriers in general can be used to compliment the previous findings. The fact that most companies feel compelled to adapt their products to national requirements constitutes a barrier to trade on the internal market. The magnitude of these barriers is also likely to be significant. A study done for the European Parliament 31 tried to estimate the magnitude of the impact that non-tariff barriers to trade have on the internal market. It concluded that a reduction of such barriers could lead to an increase in intra-EU trade of more than 100 billion EUR per year. While the concept of non-tariff barriers in the paper is broader (including not only lack of mutual recognition or harmonisation but also discriminatory procedures and less favourable tax or subsidy treatment), it provides an indication that the problem of mutual recognition not working well in practice is economically significant.

3.2.The drivers of the problem

A number of factors explain the fact that mutual recognition is currently not functioning well, in particular, the lack of awareness about mutual recognition, the legal uncertainty with regards to its scope and the practical obstacles related to its application. According to the 2016 public consultations, businesses find that the difficulty to challenge a national decision denying market access is the main obstacle to the functioning of mutual recognition 32 , followed by the insufficient communication between national authorities of different Member States, the lack of awareness and the legal uncertainty with regards to its scope.

There is still a significant lack of awareness and an important lack of legal certainty which hampers the effective functioning of mutual recognition. When businesses are aware of mutual recognition, the uncertainty with regards to its scope and application makes them reluctant to use the principle for entering new markets. First of all, it is difficult to know if mutual recognition applies to a particular product or not 33 . Secondly, when businesses rely on mutual recognition, the outcome is uncertain. In particular, the evidence that will be required to demonstrate that the product has been lawfully marketed in another Member State or the tests that will have to be completed vary among Member States. Furthermore, Member States are entitled to argue that mutual recognition does not apply where overriding public interests such as health, safety, consumer protection and environmental protection justify specific national requirements. Finally, if market access is denied, businesses can only challenge these decisions in the national courts which is a long and costly process.

3.2.1.Lack of awareness about the mutual recognition principle and Regulation

The first condition for businesses and national authorities to use and apply mutual recognition is to be aware of it and what it means in practice for companies. However, there are still a significant number of businesses and national authorities unaware of mutual recognition. One of the specific objectives of the Regulation was to increase awareness of the mutual recognition principle. The stakeholders' consultation and the desk research performed by the Commission services show that there are businesses and national authorities still unaware about the mutual recognition principle and Regulation. Lack of awareness about the principle triggers lack of awareness about how this principle should be applied or the conditions under which mutual recognition could be denied. In many cases businesses simply assume that they need to adapt their products to the national rules if they want to sell them in another Member State. In other cases, this is required by the national authorities, to the detriment of mutual recognition 34 .

Surveys carried out in 2004 35 and 2014 36 show a low level of awareness about mutual recognition among businesses. In 2004, 46% of the respondents declared being aware of mutual recognition; 54 % of the companies interviewed in 2014 declared not knowing about it or having heard of it but not being familiar with the details. The public consultation carried out in 2016 37 shows however a significantly higher level of awareness; 7% of the respondents declared being aware of mutual recognition. The differences in the declared level of awareness can be explained by the fact that the consultation process was different (targeted surveys versus open consultation).

The level of awareness about mutual recognition among national authorities is mixed. The results of the public consultation carried out in 2016 shows that when national authorities check if products available on their market coming from another Member State comply with the national rules they are enforcing, 53% verify if they are already lawfully marketed in the Member State of origin while 46% don’t.

Furthermore, confusion arises with regards to prior authorisation procedures; when such procedures are in place, economic operators cannot rely on the principle of mutual recognition to place their products on the national market. In fact, the Regulation does not apply to prior authorisation procedures, as the requirement that the placing of a product on the market is subject to prior authorisation is not a technical rule within the scope of the Regulation. However, the decision to deny prior authorisation merely because the product does not comply with the national rules in the Member States having the prior authorisation procedure is a decision within the scope of the Regulation 38 .

Despite the fact that businesses indicated in the 2016 public consultation a high level of awareness, they still very much support the need for additional awareness raising campaigns: 95% of them replied 39 that awareness raising is still necessary, and ranked the lack of awareness as being the third main obstacle to a smooth functioning of mutual recognition. Also, Member States addressed the need for additional awareness campaigns. During the 2016 public consultation 40 , 84% of national authorities consider that awareness-raising is still necessary. When asked to rank priorities for improving mutual recognition by order of importance, awareness-raising was ranked as the first priority, with 52% of responding national authorities supporting it. National authorities replying to this consultation are representing PCPs (31%) but also other authorities than PCPs (69%). The need for additional awareness raising campaigns is also highlighted by numerous Member States in their annual reports on the application of the Regulation. The outcome of the stakeholders' event held in June 2016 "Single market for products: fresh ideas to unleash full potential" 41 points into the same direction; national authorities participating stressed that awareness raising, for both economic operators and national authorities is essential for improving the functioning of mutual recognition.

The Regulation had a limited effect in increasing awareness of the mutual recognition principle, mainly due to the suboptimal functioning of the PCPs. This makes it difficult for businesses to know when mutual recognition can be used for entering a market and what their rights are. Most stakeholders agreed however that PCPs are a very useful tool, with a lot of potential. They need however to be strengthened in terms of administrative cooperation and network, in order to be efficient with regards to their objectives.

3.2.2.Legal uncertainty as regards the scope of mutual recognition 

Determining if a product might benefit from the mutual recognition principle is not straightforward, as mutual recognition applies to a very wide range of products, i.e. products or aspects of products which are not covered, fully or partially, by EU harmonisation legislation. Therefore, clarifying whether mutual recognition should apply to a given product requires detailed knowledge of rules on products 42 .

The main tools to guide economic operators to knowing if mutual recognition can be invoked for a product are:

1.The Product Contact Points (PCPs) established by the Regulation. However, there are problems with the functioning of PCPs. In the period between the entry into force of the Regulation on 13 May 2009 and today 43 , the Product Contact Points received 8024 questions from economic operators.

The PCPs that were most contacted are France and the Czech Republic, followed by Slovakia. The low number of inquiries received shows that PCPs and the assistance they can offer are sub-optimally used 45 , the main issues underlined by economic operators in relation to PCPs are the long delays for receiving an answer, the quality of the answer or even the absence of it. The activity of PCPs is also undermined by the lack of administrative cooperation. They are also affected by the complexity of the questions they receive, the variety of products covered by mutual recognition and language limitations.

2.The list of products to which mutual recognition might apply put in place by the Regulation. This was done as a database, which is available online on the Commission's website on mutual recognition. The list of products contains goods classified according to the Combined Nomenclature 46 but it has not provided sufficient or reliable information to users. This is because the list lacks user-friendliness, it is extremely difficult to take into account products partially harmonised appropriately and it does not reflect harmonisation legislation newly adopted or repealed.

3.The mutual recognition clause 47 , when inserted in national regulations, raises awareness (for businesses and relevant national authorities) about the application of the mutual recognition principle and the Mutual Recognition Regulation to products coming from other Member States and which are not in line with that particular technical rule. However, the use of the clause is still poor and it has not shed sufficient light on when mutual recognition is applicable. During the PCPs survey carried out in 2014, only 28% of the respondents indicated that a mutual recognition clause is included systematically in all relevant national rules 48 . The overview 49 of the draft national technical regulations notified between 2012 and 2014 shows poor use of the mutual recognition clause:

3.2.3.Legal uncertainty as regards the application of mutual recognition and unreliability of the outcome

The application of the principle of mutual recognition is also hindered by practical obstacles. Technical barriers may be intentionally adopted to protect national or regional markets or be the result of lack of trust that other national regulations offer an adequate protection of public interest. In addition, national authorities are entrusted with enforcing their national technical rules and it is difficult for them to accept a product which does not conform to such rules. This is for example the case for compulsory, nationally conducted tests; extra labelling requirements; stringent rules on the use of languages 51 or reference to mandatory national conformity marks. In other instances, , the application of the mutual recognition principle is sometimes knowingly disregarded because potential users find that the outcome when trying to invoke the principle is uncertain and unreliable.

In particular, the following elements that hinder in practice the application of mutual recognition were identified:

1.Evidence required by national authorities

One of the main reasons is the lack of clarity in the concept of "lawfully marketed", as Member States have different requirements as regards the evidence to be submitted and are often very cautious towards products lawfully marketed in another Member State. The objective of the Regulation was to reduce the risk of seeing market access denied, by allowing communication between the businesses and the national authorities in order to prevent problems of free movement of goods. In practice, however, the outcome is not very positive. Placing the burden of proof on Member States did not have any added value as regards the lack of clarity in the concept of "lawfully marketed", which triggers the possibility for economic operators to invoke the mutual recognition principle to sell their products in other Member States. This is because the Regulation only indicates who has the burden of proof, without defining the concept of "lawfully marketed", nor the kind of evidence needed to demonstrate that a product was lawfully marketed. Furthermore, there is no jurisprudence from the Court of Justice on this concept. Thus, businesses report that Member States have different requirements with regards to the evidence to be submitted in order to demonstrate that a product is "lawfully marketed".

In the 2016 public consultation, businesses ranked the need to increase legal certainty when using mutual recognition as the second priority for the Commission.

Furthermore, the principle of mutual recognition excludes the unnecessary duplication of controls already carried out by another Member State and presumes recognition of tests carried out in another Member State especially where the results are available and may, at request, be given. In this respect, the Regulation sets out an obligation on Member States authorities to accept any test performed by conformity assessment bodies covered by an accreditation certificate in line with Regulation (EC) No 765/2008.

Still, in practice, tests already conducted in another Member State, also by accredited bodies, are often not recognized in other Member States 52 . This places a burden on the economic operator to duplicate tests in the Member State of destination. Duplication of testing comes at an economic cost – not only of the test but also for the delay of accessing a market. 

2.Assessment of the need to apply national requirements to products lawfully marketed in another Member State

Member States can deny market access where the Member State of origin does not provide an adequate level of protection of the public interests in question; this requires national authorities to look at the practical effects that the application of their national rule would produce and the level of protection that would be achieved. The burden of proof that the restriction on the free movement of goods is justified 53 and necessary 54 to effectively protect the public interests invoked falls on the Member States and not on the economic operator. Such analysis is not straightforward and national authorities tend to automatically apply the national rules at the cost of mutual recognition. The Regulation requires these decisions to be notified to the Commission, however in many instances, no notification is sent.

The obligation to notify every administrative decision denying market access was also intended to bring more legal certainty for economic operators when invoking their right to mutual recognition. In the period between the entry into force of the Regulation on 13 May 2009 and today, the Commission has received 3918 notifications. All notifications received come from 6 Member States, and one Member State, namely Portugal, accounts for around 80% of the notifications received. Most of notifications refer to precious metals, and some relate to foodstuff, fertilisers, food additives and electrical equipment. There are discrepancies between the number of notifications received by the Commission and the number of administrative decisions indicated by Member States in the annual reports. For example, some Member States are indicating in their annual reports that a certain number of administrative decisions have been taken, while these have never been notified to the Commission. Other Member States are reporting that no administrative decisions have been taken, while complaints received show the contrary. This points to the fact that Member States are not always notifying administrative decisions denying or restricting market access to the Commission.

3.Difficulty challenging administrative decisions that deny or restrict market access.

The Regulation does not put in place any specific procedure to challenge administrative decisions denying market access; it only mentions the obligation on Member States to specify, in the administrative decision denying market access, the legal remedies available under the law in force in that Member State and the time limits applying to these remedies. The only option for challenging such decisions lies therefore in the legal means offered by national law (national courts, tribunals or other instances of appeal). Such proceedings are very long and costly for businesses, estimated between 5000 and 100 000 Euro per product and per market 55 . Other alternative non-judicial problem-solving mechanisms, such as SOLVIT, have not proved to be an effective solution for businesses up to now. Only a fraction of the cases submitted in SOLVIT are coming from businesses (107 out of 2414 in 2016). Within these 106 cases only 27 concerned goods and 5 mutual recognition related issues. Furthermore, the resolution rate of businesses cases is lower, especially for goods related cases. Most goods cases are about the justification of a national measure restricting the marketing of a good or the provision of a service. It is often very hard to analyze, prove and successfully argue before a national authority in an informal way that a given measure is disproportionate, especially where large sums are involved. Demonstrating that a particular national restrictive measure is unjustified would require technical expertise and formal powers that SOLVIT centers do not enjoy nowadays (for example in the area of mutual recognition and non-harmonised goods) 56 .

When asked to rank obstacles to mutual recognition by order of importance 57 , the difficulty in challenging administrative decisions denying or restricting market access was considered as the main obstacle by businesses (62% of businesses responding to the 2016 public consultation), and 72% considered that ensuring effective remedies for taking action against such decisions should constitute the Commission's main priority.

3.2.4.Lack of trust and cooperation among authorities

The lack of trust among authorities and the lack of efficient administrative cooperation, further contribute to these drivers. Before the adoption of the Regulation, dialogue between the national authorities of different Member States was very difficult, mostly due to the lack of a common address book /network. The Regulation tried to remedy to this problem by introducing the Product Contact Points and the telematic network 58 . Despite this, administrative cooperation remains suboptimal, for various reasons. Many Member States highlighted, in their annual report, the difficulties PCPs have in identifying and contacting the responsible authorities in their own administration in order to reply to requests received from economic operators. Some Member States managed over the years to put in place a network of experts, but the variety of products covered by mutual recognition and national legislation involved, as well as the different internal organisation in certain Member States make this task very difficult. Also, there is a lack of administrative cooperation between PCPs. The absence of a network, allowing rapid communication and exchange of information delays the work of the PCP when replying to a request from economic operators. Many are complaining about the absence of reply from their colleagues from other Member States, or about long delays to receiving an answer. Often, the answers received are of low quality as regards the information transmitted 59 .

During the survey carried out in 2014, the interviewed PCPs indicated the main problems with regard to administrative cooperation:

Figure 3-3: 2016 public consultation 

One PCP indicated that sometimes the delay for receiving a reply is 40-50 working days. Another indicated that the intervention of the Commission was necessary in order to obtain a reply.

Additionally, the administrative cooperation between PCPs is also undermined by the difficulty to communicate in a common language, especially when technical terms are involved. This issue is almost unanimous among PCPs, and was raised during the surveys, interviews, in the annual reports as well as during the meetings of the Consultative Committee on mutual recognition.

3.3.The consequences of the problem/ Who is affected and how 

Due to the suboptimal use of mutual recognition, barriers to free movement of non-harmonised goods remain; thus, a single market for goods is far from being achieved. Those most affected by the problem are economic operators, who are not benefitting fully from the internal market and their existing rights. They face additional costs to enter a new market or even lose market opportunities. National authorities rely on their own national rules and this undermines the free movement of goods. Consumers and final users cannot fully benefit from more choices on the market and thus lower prices that the single market for goods should provide, while maintaining the level of protection of public interest they are entitled to.

The following consequences can be identified for economic operators, consumers and national authorities, resulting from the non-functioning of mutual recognition:

The financial costs caused by lack of mutual recognition are high for the business operators.

First of all, business need to find out what the applicable national rules, requirements and administrative procedures are in the Member State of destination and assess if mutual recognition can be used to sell products in another Member State without being able to rely effectively on PCPs in order to obtain this information. This is particularly challenging for SMEs; according to the public consultation on the start-up and scale-up initiative, resources required to navigate the regulatory complexity are the third-biggest problem for SMEs. 60  Costs also related to assessing if mutual recognition can be used to sell products in another Member State. Very few economic operators (2%) are outsourcing this assessment, while 26% are doing it internally. 46% are doing both, depending on the product. The lack of additional information does not allow for an estimate of the actual costs incurred when the assessment of whether or not mutual recognition can be used is outsourced. When done internally, economic operators spend on average 54 hours on doing the assessment; however, the number of hours indicated varies from one company to another. Most indicated only a few hours (less than 10) while two indicated spending more than 500 hours on this. The average cost per hour is 78 Euro. When trying to demonstrate that a product is already lawfully marketed in a Member State, businesses indicate that the average number of hours spent is 16, and the average cost per hour is 76 Euro.

High costs are also triggered by the need to adapt the products to the applicable national rules, when mutual recognition is either denied or not used for penetrating the market. These adaptation costs are estimated to be 61  between 1000 and 150 000 Euro per product and per market.

Other indirect costs may be generated by the lack of well-functioning mutual recognition. There is a distortion of competition and of the level-playing field as cross-border operators face higher costs than local operators. Also, companies may be able to pass on these costs to the consumers, leading to higher prices. If the market is not big enough, or if the costs are too high, businesses may be discouraged and give up on entering that market. This is particularly relevant for SMEs. For example, more than half of SMEs say that administrative procedures related to exporting to other Member States are too difficult to comply with and therefore deter many firms from exporting. 62 According to the Commission’s 2014 Competitiveness report, only 14% of SMEs are trading across borders in the EU compared to 85.4 % of large manufacturing firms 63 . This translates into lost opportunities for businesses as well as costs resulting from delays for entering a market. In addition, it also generates a loss of competitiveness and innovation. High costs are also relating to delays for entering a market, estimated 64  between 3000 and 500 000 Euro per product and per market, and to lost opportunities, when businesses renounce entering a market because of different national rules requiring adaptation of the products. On average, the latest are estimated to be 65 between 10 000 and 500 000 Euro per product and per market. The estimate of the adaptation costs appears to be lower than the estimation of costs linked to lost opportunities and delayed entry on the market. This may be due to the specific profile of the respondents to the public consultation who were able to provide estimates, as testing costs can vary significantly from one product to another. The variety of products and how this translates in terms of costs is also highlighted later on (see table 7-8).

Economies of scale are crucially important for innovative firms that spend a large fixed cost in research and development (R&D) and need a large internal market to cover these costs 66 .

Economic operators also face costs related to challenging administrative decisions denying market access; but they considered them as less important, mainly because few economic operators choose to do so. The estimates 67 are between 10 000 and 100 000 Euro per product and per market.

Figure 3-4: Public consultation 2016

These results confirm the findings of the external study carried out in 2015 68 , where businesses underlined transaction and adaptation costs as being very significant. They perceived testing as being costly – more than 40% of them have rated testing as being a very significant cost. The testing costs vary considerably, depending on the sector and the product, but some examples from different sectors are provided in Figure 7-18. Internal company staff time and administrative costs are perceived to be very significant by 32% and 30% of the companies, respectively. In the interviews carried out by the contractor, many companies mentioned that these types of costs naturally follow the testing costs and are therefore closely related to the issue of Member States demanding additional tests. Lastly, around 26% of businesses perceive the adaptation of products to local technical requirements to be a very significant cost. Furthermore, it is interesting that for all four categories, over half of the companies perceive the costs as either very significant or significant.

Figure 3-5: Company survey: What are the typical cost items involved and how significant are they? 69

Note: N=28-31 (not all companies answered all questions)

As regards the costs, the survey and the subsequent interviews carried out by the contractor revealed the same wide range of costs as those from the 2016 public consultation, depending on the different sectors. Similarly, few economic operators were able to put a figure on the costs faced due to the incorrect application of the mutual recognition principle. Of those that provided estimates, the costs ranged from 0.5% of the annual turnover, to 20% of the turnover. This is mainly due to the variety of products covered by mutual recognition.

The problem also affects national authorities, who are faced with lack of legal certainty regarding whether national rules should be applied to a product or not. Administrative costs are also incurred resulting mainly from the complexity of the legislations in place, which make it difficult to identify all rules applicable to a product and the scope for applying mutual recognition, and the difficulty of demonstrating that a product has been 'lawfully marketed' in another Member States (the latter being estimated for example EUR 420 000 in one sector such as fertilisers).

The lack of effective communication and cooperation further contributes to these indirect costs. The fact that PCPs don't efficiently exchange information, within their own administration and with PCPs from other Member States, delays the replies that they provide to businesses and impacts their quality. Furthermore, the assessment by national authorities of whether a product can be placed on their market based on mutual recognition is delayed and undermined by the fact that they don't properly cooperate and communicate with their colleagues in the Member State where the product under assessment has been lawfully marketed.

Figure 3-6: Problem tree

3.4.Foreseen evolution of the problem

Absent any action at EU level, it is foreseen that in the medium term, the problem of the lack of functioning of mutual recognition, and the underlying reasons, will remain.

The current procedures to support the use of mutual recognition would remain in place.

As such, obstacles to free movement of goods stemming from national rules will continue being addressed via existing tools: ex ante by the Directive (EU) 2015/1535, at the time of their adoption, and ex-post by the Regulation, at the time of their application to individual cases (national decisions denying market access). The clarification of legal uncertainties will be left to the case law of the Court of Justice of the European Union. Businesses and national authorities will continue to use the tools available (list of products to which mutual recognition may apply, guidelines, mutual recognition clause, Product Contact Points) to try to understand when mutual recognition applies in relation to a specific product.

The Product Contact Points network will continue functioning as up until now, and possibly benefit from being integrated into a wider network, which would act as a single entry point for all available business-related services. Under this wider network, the provision of online information on products for economic operators would be facilitated through the 'Single Digital Gateway' (proposal forthcoming). The proposal for an EU Single Digital Gateway is expected to introduce a new obligation to provide information on national product rules online on a website, instead of upon request as now. Member States will need to provide a summary of the applicable rules for product categories, but may also refer to the assistance services for more detailed information tailored to specific products. This follows good practices already adopted by many Member States. 70 It is expected that having access to the information online will facilitate the accessibility and awareness of the role of PCPs and of national product rules by businesses. In addition, this initiative is expected to improve the functioning of PCPs by setting out quality criteria and the obligation to provide information online. However, the lack of awareness of the principle of mutual recognition, as well as the shortcomings in the functioning of PCPs, which have been constant despite the adoption of the Regulation, are expected to remain given that there are no current factors which could promote a higher awareness of the principle and its functioning.

Under the current provisions of the Regulation the Commission could undertake further work to update the list of products which may be subject to mutual recognition and make it more helpful and user friendly. The Commission will continue to ask for the inclusion of a mutual recognition clause for draft national technical rules notified under Directive (EU) 2015/1535, but its use is not expected to increase in the future given that the Commission has been encouraging the use of the clause in the past without it leading to significant results in terms of use or clarity.

Complexity and uncertainty around the application of the principle of mutual recognition will also remain. Businesses and national authorities will continue relying on guidance from the Commission in order to demonstrate that a product has been lawfully marketed; which however has not significantly solved the practical problems encountered while trying to rely on the application of mutual recognition. The outcome to be expected by businesses when trying to rely on the principle will remain uncertain. The burden of proof that a product should not be allowed market access remains on the national authorities. National authorities would remain obliged to notify both the economic operator and the Commission of all administrative decisions denying market access. Since its entry into force, the Commission services published several guidelines on the application of the principle of mutual recognition in various sectors and on what 'lawfully marketed' stands for. These elements do not appear as sufficient to address the problems described. These have not resulted in the expected improvement, in particular as regards the proof of lawful marketing of a product in a Member State. The Commission can use an existing IT system to support the notification process, however, the number of notifications of national decisions denying market access is also not expected to increase in the future.

The use of SOLVIT would remain an alternative for economic operators who wish to challenge administrative decisions denying market access. The foreseen Commission's action plan for improving SOLVIT aims to improve the awareness of its services to businesses, inter alia to increase the number of cases submitted against a national decision denying market on mutual recognition grounds and the legal expertise of the SOLVIT centres in areas of interest to businesses such as the mutual recognition on goods. But it does not alter the informal character of SOLVIT and thus would still have limitations in offering efficient remedies for challenging unjustified decisions denying market access. Furthermore, without providing for the Commission technical assistance and further involvement for the goods cases, it is not expected that SOLVIT will produce better results for these cases as compared to the current situation.

It is not expected that Member States undertake any specific initiative to facilitate the functioning of mutual recognition. Furthermore, in problematic sectors where mutual recognition cannot facilitate free movement of goods, harmonisation of essential requirements can be used in order to ensure market assess for businesses. This is the case for example for fertilising products, for which a Commission proposal for an EU regulation was adopted on 17 March 2016 71 . This proposal will replace the current Regulation (EC) No 2003/2003 by, inter alia, extending it to currently non-harmonised products. 

However, whilst harmonisation may take place where this is justified, necessary and proportionate, such measures cannot cover the totality of products and aspects of those products in the internal market, without there being any scope anymore for national rules. Whenever there are national technical rules, there will be a need to ensure the mutual recognition of those in order to guarantee the free movement of goods.

4.Analysis of Subsidiarity

4.1.Legal Basis

The right to act is established on the basis of Article 114(1) TFEU dealing with the establishment and functioning of the internal market and specifying that measures can be adopted for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.

4.2.Subsidiarity and Proportionality

Mutual recognition only applies in cross border situations where an economic operator would like to trade in a Member States a product already lawfully marketed in another Member State.

Action by Member States alone cannot solve problems associated with the application of the principle of mutual recognition across the single market. To be effective, the application of the principle needs to be based on common solutions to be applied equally by all national authorities. Only such common procedures can guarantee that national authorities will apply the principle in the same manner, thus allowing companies to benefit from an equal treatment regardless of the country where they try to market their product. Leaving the procedural aspects of the application of the mutual recognition principle to each Member State would weaken the principle by dismantling the modus operandi into 28 different and possibly contradictory procedures.

Therefore, EU action is both appropriate and justified to ensure the effective application of the principle.

The European added value of the mutual recognition rules was strongly underlined by the respondents to the 2016 public consultation. Most of them agreed that having a common set of rules guarantees equal treatment, and that relying on national rules only would undermine the internal market.

The EU has the right to act to ensure the functioning of the single market for goods. Pursuant to Article 26(2) of the Treaty on the Functioning of the European Union (TFEU), the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. The prohibition, as between Member States, of measures having equivalent effect to quantitative restrictions on imports of goods is one of the main principles of the Treaty (Articles 34 to 36).

5.Objectives 

Based on the problems described in section 4, the following objectives have been identified.

5.1.General Policy Objectives

The overall objective of the initiative is to achieve a fairer and deeper single market for goods through a higher level of and better mutual recognition.

5.2.Specific Policy Objectives

The specific objective will be to improve the functioning of mutual recognition by:

·Increasing awareness of mutual recognition.

·Increasing legal certainty for businesses and national authorities on when the mutual recognition principle can be used.

·Increasing legal certainty about the application of mutual recognition; both business and national authorities should know what they can reasonably expect when mutual recognition is, or ought to be, applied. This will reduce the risk for businesses that their products will not get access to, or will have to be unjustifiably withdrawn from the market.

·Enhancing communication, cooperation and trust among national authorities, so that they can act as a facilitating tool to ensure the functioning of mutual recognition.

6.Policy Options

In order to address the problem identified in section 3 and its underlying drivers, a number of policy options have been identified. These options include a baseline scenario, soft law and legislative measures. The measures are presented from the softest to more far-reaching means to tackle the drivers and render mutual recognition fully effective. The soft law option 2 could be combined with any of the other legislative options (options 3, 4 or 5). Options 3, 4 and 5 would be mutually exclusive. Option 3a (free movement for products complying with European Standards) and 3b (transparency for administrative decisions) would be superseded by option 4. Option 4 provides for a voluntary declaration of compliance which would contain information on the compliance of the product with the applicable requirements. When European standards have been applied, the reference to such standards would be mentioned in the declaration and national authorities would now that compliance with those standards is ensured. In addition, option 4 provides for a fast-track appeal procedure where administrative decisions denying market access can be challenged, at last resort, by a binding opinion from of the Commission. This is in principle a more powerful incentive for Member States to apply correctly the principle of mutual recognition than the transparency of administrative decisions mentioned in option 3b.

Option 5 is construed as a self-standing option in that, providing for a pre-marketing authorisation procedure, intends to provide a different approach to offer a definitive answer on market access for the product and would not necessitate addressing the different drivers individually by additional means.

6.1.Discarded options

The option relating to repealing the Mutual Recognition Regulation has been discarded at an early stage. The Evaluation has concluded that, despite its current shortcomings, the Regulation remains relevant and that common procedures for the application of mutual recognition are still necessary. The lack of effectiveness was not triggered by the way the measures where designed but rather by their lack of ambition. The measures had the potential to achieve its objectives but were not strong enough to deliver the expected results. In particular, during the 2016 public consultation, there was overwhelming support from stakeholders in this respect even if their opinion on whether the objectives of the Regulation had been achieved was more mixed 72 . This is why repealing the Mutual Recognition Regulation altogether is discarded and other options have been envisaged building on the measures currently set out in the Regulation and enhancing them. However, if one of the options leading to a review of the Regulation is retained, this revision may also lead to removing certain provisions of the current Regulation which have not proved effective such as the obligation for Member States to report annually on the functioning of the Regulation. The information provided by Member States in this context was limited in terms of content and usefulness.

Also, the option of proposing further harmonisation measures on specific basic requirements which would cover certain aspects of all products (such as traceability requirements, for example, since labelling requirements are often subject to national rules and have proved to be problematic for the application of mutual recognition) has been discarded. Adopting EU harmonisation legislation on specific products which appear particularly problematic, where this is justified, necessary and proportionate is always possible. Conversely, adopting horizontal harmonisation measures covering certain common aspects for all products is not likely to address the current problem drivers and the current situation is expected to be maintained, i.e. obstacles for companies in getting access to new markets, implying costs related to re-testing, lost markets and opportunities, etc. This is because these products will remain partly harmonised products, and for the elements not subject to the EU harmonisation legislation, they will still be subject to mutual recognition and to potentially conflicting national rules. This option would therefore not improve the functioning of mutual recognition.

The option of introducing a third party declaration of compliance has also been discarded at an early stage. This option looked into the possibility of introducing a declaration of compliance to be issued by a third party. Such a third party would be a body designated by the Member State in which the product is legally marketed, e.g. by the national Product Contact Point established in accordance with the Regulation. By issuing the declaration, this third party would take responsibility as regards the content of the declaration which would give more reassurance as to the compliance of the product; however, the responsibility as regards the compliance of the product would always remain with the economic operator. Such third party declaration of compliance could have been voluntary or mandatory. In both cases, such declaration would imply heavy costs for businesses as it would require the intervention of a third party in the drafting of the declaration.

Also, it would appear disproportionate, as it would apply to all types of products, contrary to the current situation for harmonised products. In the harmonised sectors, the type of conformity assessment procedure (requiring or not the intervention of a third party) is chosen by the legislator depending on the level of complexity and risk posed by a product. For example, electrical products (such an electrical kitchen appliance or a lamp) 73 do not require the intervention of a third party conformity assessment body, while other more complex products such as lifts 74 or fuel dispensers 75 do.

The intervention of third party certification also represents an important cost for business 76 .

6.2.Option 1: Baseline

The baseline scenario is the "no policy change" option. This implies that the Mutual Recognition Regulation in its current version remains the applicable legal framework. See more details in section 3.3.

6.3.Option 2: Soft law instruments to improve the functioning of mutual recognition

This option refers to the adoption of an action plan containing non-legislative measures to further boost the application of the mutual recognition principle. This option would not include a revision of the Regulation, and therefore the PCP network and the procedure to be followed by national authorities for denying market access would remain as they are today.

The action plan would contain, in particular, the following measures:

6.4.Option 3: Minimum legislative changes to Regulation (EC) No 764/2008 to improve the functioning of mutual recognition

Under this option, containing several complementary sub-options, the Regulation would be revised; the changes to be introduced would address the drivers identified while allowing for more flexibility in the use of the mutual recognition principle.

In particular, the following changes would be introduced in the Regulation:

6.5.Option 4: Comprehensive legislative changes to Regulation (EC) No 764/2008 to improve the functioning of mutual recognition

Under this option, comprehensive regulatory changes would be made to the current legislation.

In particular, the following changes would be introduced in the Regulation:

6.6.Option 5: Legislative changes to the Regulation to introduce a voluntary prior authorisation to placing on the market

Under this option, the suboptimal functioning of the mutual recognition principle would be addressed by intervening in a pre-marketing phase to prevent obstacles to free movement of goods rather than in a post-marketing phase as it is the case today. By introducing a system of prior authorisation to placing products on the market, economic operators would have confirmation that their products can have market access in the Member State of destination before actually entering that market. This voluntary procedure is currently not available at the moment. The Regulation would be amended to reflect the introduction of such a pre-marketing procedure.

Figure 6-1: Table with options in relation to the objectives and problem drivers

7.Analysis of Impacts

7.1.Assessment of the impacts 

Policy option 1- Baseline

The impacts of this option can be found in sections 3.1, 3.3 and 3.4.

Policy option 2- Soft law instruments

Policy option 3 – Minimum legislative changes to regulation (EC) No 764/2008 to improve the functioning of mutual recognition

Policy option 4- Comprehensive legislative changes to Regulation to improve the functioning of mutual recognition

Policy option 5- Voluntary prior authorization to placing on the market

8.Comparison of Options

8.1.Effectiveness

As regards the effectiveness of the different options to achieve the policy objectives identified it is considered that option 2 (soft law) is the most effective to increase awareness on mutual recognition, since it will consist of training and awareness raising campaigns targeting not only national authorities but also stakeholders. This is why a score of +++ was given. However, this option alone will only have a limited impact in addressing the policy objectives for ensuring legal certainty on the scope of mutual recognition and on the outcome that can be expected, and thus ensuring the free movement of goods based on mutual recognition; this is why a score of + was given for these policy objectives. Since this option will also provide for a system of exchange of officials, it is expected to address the need for better trust and cooperation among authorities. However, in view of the fact that it will necessarily apply to a limited number of officials, a score of ++ has been given. Option 3 (European standards, transparency of decisions and enlarged role of PCPs) will address all policy objectives but only to a limited extent. Increased awareness of the principle of mutual recognition will be ensured via the PCPs; this is why it is expected to only have a limited effectiveness and a score of + has been given. Similarly, it is expected to be only slightly efficient in ensuring more legal certainty on the scope of the principle. This option will be very effective in providing legal certainty on the outcome to be expected when relying on European standards, but only for those products or aspects of products for which European standards exist and have been identified for the purposes of mutual recognition; this is why a score of ++ has been given. Option 4 (declaration of compliance, fast track appeal and strengthened PCPs) is expected to achieve all policy objectives in the most effective manner. Option 5 (voluntary prior authorisation) will bring more legal certainty on the application of mutual recognition for those economic operators requesting it who will know in a definite manner whether they can have market access for a specific product, but for the rest of products and/or economic operators it will not address the policy objectives in a sufficient manner. This is why a score of ++ has been given for the efficiency for achieving the policy objective of ensuring legal certainty on the application of mutual recognition. However, by providing for a pre-marketing assessment of the product, this option will not be addressing the awareness or the legal certainty on the scope, nor the cooperation among authorities and this is why a neutral score (0) against those policy objectives has been given.

8.2.Efficiency

When comparing the costs and benefits of each option, Option 2 (soft law) will entail costs for the EU budget and minimum costs for the Member States, while it will not lead to costs for economic operators; but it will have the most benefits in terms of raising awareness of mutual recognition. However, since it will not be sufficiently effective for the other policy objectives, a score of ++ has been given. Option 3 (European standards, transparency of decisions and enlarged role of PCPs) does not trigger an important economic burden for any of the stakeholders but it is also not expected to lead to substantial benefits in the context of the policy objectives. The process for referencing European standards in the context of mutual recognition will be time consuming and burdensome, involving a committee of Member States representatives and the adoption of implementing acts. This is why a score of + has been given. Option 4 (declaration of compliance, fast track appeal and strengthened PCPs) will lead to costs for economic operators (in terms of drafting the declaration of compliance) which have not been deemed as very high and for Member States (for enlarging the PCPs) but will also lead to cost-saving for businesses when demonstrating that their products are lawfully marketed in the Member State of origin and when appealing national decisions denying market access. It is also expected to produce the highest benefits in terms of better functioning of mutual recognition and increasing intra-EU trade flows and thus, competitiveness of EU companies including SMEs. This is why a score of +++ has been given. Finally, while option 5 (voluntary prior authorisation) will lead to certain benefits for those economic operators requesting it, it will trigger the highest identified administrative burden and costs for both Member States and businesses. This is why a score of -- has been given.

8.3.Coherence

Option 2 (soft law) consists of training and information campaigns and as such is not considered inconsistent with any other EU policies. This is why a score of ++ has been given. Option 3 (European standards, transparency of decisions and enlarged role of PCPs) is coherent with the European standardisation policy and by enlarging the role of PCPs, it will also help in facilitating a joint assessment of EU harmonisation rules and the application of mutual recognition for economic operators. In addition, this will also be consistent with the current initiatives to ensure that economic operators have better access to information to benefit from the Single Market, in particular online (the Single Digital Gateway). This is why a score of ++ has been given. Option 4 (declaration of compliance, fast track appeal and strengthened PCPs) will also be consistent with current initiatives such as the Single Digital Gateway and facilitate a joint assessment of all rules applicable to the product (harmonisation rules and mutual recognition). This is not only due to the strengthened role of PCPs, but also because of the fact that the Declaration of Conformity is a document required by all EU harmonised rules. Setting up a similar documentary form of evidence for mutual recognition will be particularly useful for those products which are partially covered by EU harmonisation rules and for which this Declaration of Conformity has to be prepared in any case in accordance with those rules. Also, the fast-track appeal procedure would be supported by current initiatives which aim to improve SOLVIT 114 so that it becomes a useful tool for businesses. This is why a score of +++ has been given. Option 5 (voluntary prior authorisation) contradicts the EU policy for free movement of goods in general, favouring a post market approach in controlling the compliance of the products and will represent in this respect a step back on what has been achieved for the Single Market for goods to date. This is why this option is considered very incoherent with other EU policies, and a score of -- has been given.

Table 8-1: Comparison of the options

The scores are given on the basis of Commission expected results against the specific policy objectives as explained above; +++ being very positive, ++ positive, + slightly positive, 0 neutral, - negative and – very negative.

Accordingly, the preferred option would be a combination of Option 2 (soft law instruments) and Option 4 (clarification of the scope of the regulation, introduction of a declaration of compliance and of a fast-track appeal procedure for businesses and strengthening the role of PCPs). This combination will address in the most effective and efficient manner all policy objectives to lead to a better functioning of the Single Market for non-harmonised products through more and better mutual recognition.

The Action Plan on mutual recognition is expected to raise awareness and understanding on the rights and obligations that all stakeholders involved (national authorities and businesses alike) have when relying on mutual recognition. This is expected to facilitate acceptance of products lawfully marketed in one Member State in other national markets without requiring it to follow technical adaptations. Economic operators will be able to gather more reliable and complete information from PCPs. When Member States authorities want to assess a product relying on mutual recognition, the voluntary declaration of compliance is expected to simplify the dialogue between businesses and national authorities, and provide more legal certainty on what to expect. Finally, when market access is denied, businesses will have the possibility to seek a solution via a fast track appeal procedure, which will ensure that market access is denied only where legitimate and proportionate public interests need to be protected. Administrative cooperation and better communication channels will increase trust among national authorities; all of this contributing to creating a favourable environment for mutual recognition and to ensure that companies can rely on this principle to reap the benefits of the Single Market.

As mentioned previously, a study done for the European Parliament 115 shows that a reduction of barriers to trade could lead to an increase in intra-EU trade of more than 100 billion EUR per year. The fact that mutual recognition does not function well is, de facto, a regulatory burden triggering barriers to trade. Therefore, the actions described in the preferred option will improve the functioning of mutual recognition and thus result in simplifications for businesses, e.g. easier access to markets.

8.4.Potential for reduction of administrative burdens for companies

The mutual recognition principle and the supporting measures currently set out in the Regulation were designed to facilitate free movement of goods in those areas where marketing conditions for products are not harmonised at EU level. Therefore, the sub-optimal functioning of mutual recognition is as such a burden for businesses and any efforts in improving the functioning of the principle and adapting the regulatory measures to the reality of the market should be considered as a simplification and a reduction of administrative burdens.

9.Monitoring and Evaluation

Monitoring and evaluation have traditionally been a major problem for mutual recognition. The monitoring and evaluation system to be put in place must avoid the shortcomings identified in the Evaluation. The proposal will therefore specify that the reporting of activities and of the administrative decisions taken will be enhanced, and reported via an IT tool (this will be implemented via existing tools, such as ICSMS or IMI), to ensure full transparency and follow-up.

Furthermore, traditional tools such as the monitoring of complain and infringements, the SOLVIT and TRIS mechanisms will remain monitoring tools to be used. The Single Digital Gateway (SDG) can also be used to monitor the actives of PCPs, as they will be integrated into this network and access to their services will be facilitated by the single entry point offered by the SDG. Additionally, the lack of accurate quantitative data on mutual recognition (size of the market, number of products, costs and benefits) will be addressed by a systematic survey intended to gather the missing data and to prepare and service future evaluations. For this purpose, existing survey tools at EU level, such as the Commission's Innobarometer 116 , could be used.

9.1.Operational Objectives 

·Enhance awareness of mutual recognition, inter alia through regular training sessions for businesses and national authorities and the exchange of officials in national authorities. The Commission expects that, after the train the trainer has been ensured where it is expected that around 20 to 40 trainers be trained, at least 2-5 national events will be organised per year. Also, the Commission expects that around 5 to 15 exchanges of officials will take place each year.

·Ensure that Member States introduce a clear mutual recognition clause in all relevant national technical rules which are notified under Directive (EU) 2015/1535. The Commission expects that with a clearer clause, easier to integrate in notified drafts, the use of the clause would increase by 50%.

·Introduce a voluntary declaration of compliance facilitating the effective right to free movement within the internal market for products lawfully marketed in another Member States. The Commission expects that the declaration would be used by 60% of businesses operating in the non-harmonised area.

·Ensure that businesses can appeal national decisions denying market access through a fast-track procedure. This will be based on SOLVIT and, where appropriate, by the Commission intervention. The Commission expects that the resolution rate of goods related cases by SOLVIT would increase by 200%.

·Streamline the notification procedure for administrative decisions denying mutual recognition via an IT tool. The Commission expects that the IT tool would increase the number of notifications, reaching a level of at least 90% of decisions being notified.

·Strengthen the role of PCPs to become a central point for information on all products (including harmonized ones). The Commission expects that the number of requests and that the level of awareness and satisfaction would increase by 50%.

·Set up an administrative cooperation forum which would meet at least once a year where all national authorities would participate and discuss issues related to the application of mutual recognition. The Commission expects to have at least one meeting per year, reaching participation from at least 25 Member States.

9.2.Indicators for the monitoring 

·Number of events organised (awareness campaigns and trainings), and number of persons participating in the events or receiving the training, as well as their level of satisfaction

·Number of officials participating in the exchange of officials' scheme

·Number of notifications of draft national rules containing a mutual recognition clause

·Number of economic operators using the declaration, their level of satisfaction and their input in terms of costs reduction

·Number of notifications of administrative decisions denying or restricting market access

·Number of cases introduced by business in SOLVIT and resolution rate

·Number of appeals to the Commission and number of binding decisions adopted by the Commission

·Number of complaints received on the misapplication of the mutual recognition principle

·Number of requests received by PCPs, deadlines for responding and level of satisfaction of economic operators

·Number of administrative cooperation meetings organised and number of participants

Annex 1 Procedural Issues and Consultation of Interested Parties

1.Identification 

Lead Directorate General: Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).

This initiative is identified in the Agenda Planning with the reference 2017/GROW/005.

2.Organisation and Timing

Work on the Impact Assessment started after the adoption of the Commission's Single Market Strategy in October 2015. The Inception Impact Assessment was published on 13 May 2016.

An Inter-Service Steering Group (ISSG) chaired by DG GROW was set up in October 2015 and with the participation of the following Directorates General: Legal Service of the Commission (LS), Secretariat General (SG), DG Agriculture and Rural Development (AGRI), DG Economic and Financial Affairs (ECFIN), DG Energy (ENER), DG Environment (ENV), DG Justice and Consumers (JUST), DG For Mobility and Transport (MOVE), DG Health and Food Safety (SANTE), DG Taxation and Customs Union (TAXUD), DG Trade (TRADE), DG Maritime Affairs and Fisheries (MARE).

The ISSG met in total nine times (29/01/2016, 07/03/2016, 21/04/2016, 29/09/2016, 28/11/2016, 27/01/2017, 13/02/2017, 27/02/2017 and 06/03/2017). The minutes of the last ISSG meeting were submitted to the RSB together with the draft IA report.

3.Consultation Of The Regulatory Scrutiny Board

The Regulatory Scrutiny Board of the European Commission assessed a draft version of the present impact assessment and issued its opinion on 7 April2017. The Regulatory Scrutiny Board gave a positive opinion on the Impact Assessment report. It considered that the report had an overall good presentation and recommended, as further improvement, to better explain the choice of options and how these would work in practice. The report should also draw clearer conclusions on how far the expected outcome of the revision will have an impact on the functioning of the mutual recognition on the ground and contribute to a well-functioning internal market. Finally, it should better assess the potential to simplify administration and reduce burdens (REFIT). The Impact Assessment has been amended to address the comments made by the Regulatory Scrutiny Board in its opinion.

4.Consultation and Expertise

The application of the principle of mutual recognition, including the functioning of the Regulation has been subject to an evaluation 117 . As part of that process, an external evaluation on the application of the principle of mutual recognition was conducted 118 . Its aim was to evaluate the application of the mutual recognition principle by Member States, in order to identify shortcomings and to present possible ways of enhancing the application of the principle. The external evaluation was based on a combination of data sources and data collection tools, which included a literature review, statistical data, web-based surveys among different target groups and in-depth interviews with Member States and relevant stakeholders. The study was conducted between 2014 and 2015, over the course of 9 months.

In the framework of the external study for the evaluation mentioned above, four different surveys were launched on 9 October 2014 and completed on 5 January 2015. These were a company survey, a survey of national business associations, a survey of national sector associations, and a product contact point survey. Following the survey, qualitative interviews with national business associations and Product Contact Points in each Member State were also carried out. The objective of the qualitative interviews was to shed more light on the implementation of the mutual recognition principle in the Member States, in particular with respect to ‘sensitive’ areas such as notification practices (or lack thereof).

In addition, a stakeholders' event titled "Single Market for Products: Fresh ideas to unleash the full potential" was organised on 17 June 2016 and dealt with, amongst other things, the application of mutual recognition, to identify the main issues related to its functioning and to identify possible ways forward. 144 participants attended the event, representing businesses (62), national authorities (60) and others (22).

Following the delimitation of the scope of this Impact Assessment, an online public consultation was carried on from the 1st of June until the 30 of September 2016 (17 weeks) accessible via the Your voice in Europe website. The consultation was made available to the general public, and aimed to gather data on the functioning of mutual recognition, the current problems as well as possible options for improvement. 153 replies were received during the public consultation, representing 91 companies, 45 national authorities and 17 citizens.

Simultaneously with the online public consultation, or shortly thereafter, the Commission received position papers from a number of stakeholders, including consumer organisations, business associations, Member States, individual economic operators etc. The summary of opinions of these stakeholders is set out in Annex 2.

Stakeholders' views were also discussed in bilateral meetings that took place during 2016.

During the 8th meeting of the Consultative Committee on mutual recognition which took place on 25 October 2016, the problem definition and drivers as well as the envisaged options were presented and discussed with Member States representatives.

The Commission presented the initiative and sought the views of SMEs at the Small Business Act regular meeting with European SME associations on 7 December 2016.

To provide input for this Impact Assessment, a study on the costs and benefits of the revision of the Mutual Recognition Regulation was carried out between September 2016 and March 2017 in order to estimate the magnitude of the problem triggered by a suboptimal functioning of mutual recognition and to analyse the impacts of the different options envisaged for addressing this problem. In the context of this study, a survey was conducted in December 2016 and January 2017, addressing different categories of stakeholders. In parallel, the contractor carried out 25 targeted interviews, addressing different categories of stakeholders such as Member States and business associations. Five case studies were also further investigated, in order to corroborate the findings and ensure their robustness, while illustrating in practical terms the implication and impacts of the specific issues at stake.

Desk research was conducted for the purpose of the evaluation of the mutual recognition principle and Regulation, by the contractors in the framework of the external studies mentioned under 2.1 and by the Commission's services. Available literature on the topic, annual reports from the Member States as well as all notifications 119 received between 2009 and 2016 were scrutinised. Also, the Commission services examined the complaints received from economic operators concerning a malfunctioning of mutual recognition and the draft national regulations notified on the basis of Directive (EU) 2015/1535. The desk research involved case studies in sectors where the application of mutual recognition is problematic and cases from the SOLVIT database. The literature review comprised a review of existing business and academic literature on the non-harmonised areas in the EU internal market. Annex 7 contains a full overview of the assessed literature, and a summary of the notifications and annual reports received.

5.Limitations and assessment of robustness of findings

Assessing the magnitude of the difficulties linked to the functioning of mutual recognition and its actual and potential impacts on stakeholders is not straightforward. Indeed, several factors are making the evaluation of the application of mutual recognition a difficult exercise.

First, mutual recognition, when it is working properly, is invisible; this is because it is impossible to monitor when and how many times goods are allowed to enter a market on the basis of the mutual recognition principle. Only the number of products for which market access has been denied can be estimated, on the basis of the monitoring tools in place by the Regulation (notification of administrative decisions denying market access and annual reports). However, this doesn't represent a full picture of the situation, as only 6 Member States are notifying decisions to deny market access 120 . The complaints received and the divergences noticed between the annual reports and notifications show that not all decisions taken are being notified to the Commission.

It is possible to estimate, based on intra EU trade statistics, the number of non-harmonised products lawfully marketed in one Member State and placed on the market of other Member States. However, this doesn't show how many products were marketed on the basis of the mutual recognition principle. This is because businesses may decide, on commercial grounds, not to use mutual recognition, and to align their products on the existing national rules in the Member States where they want to market their products. Some large companies choose to design and produce products fitting the highest requirements, and thus complying with all national technical rules.

Second, the results of the stakeholders' consultation might need to be treated with caution, as the consultations, targeted or opened, were not representative of different sectors, Member States and company types.

The surveys carried out in 2014-2015 by the external consultant registered a low rate of responses. 199 businesses and 20 national or sectoral associations participated in the survey. The businesses survey did not result in a representative sample. There was a significant geographical bias with respect to the geographical coverage. Companies from Portugal (36), the UK (22) and Lithuania (21) were significantly overrepresented, while there were no responses from 9 EU Member States or from any of the EEA countries. Also, large companies were overrepresented in the survey, while small companies were underrepresented. 29% of the participating companies were large companies with more than 250 employees, while they represent around 1% of the EU's company population 121 . 26% were medium-sized companies with 50 to 250 employees and 27% are small companies with 10 to 49 employees. Micro companies with less than 10 employees accounted for 18%. Also, the business associations had generally not put a high priority on responding to the survey, which can be either because they don't monitor issues related to mutual recognition, or because their members don't approach them in relation to these issues. Only a minority of sectors and Member States were represented in the survey. As regards the survey targeting PCPs, its main limitation came from the fact that PCPs are only the interface between business and national authorities in charge of applying the mutual recognition principle. Thus, they are not always familiar with the practicalities of the application of the mutual recognition principle, and they don't always have insight as regards the denial of market access for certain products. Furthermore, not all PCPs across the EU participated in the survey. PCPs from Austria, Bulgaria, France, Germany, Italy and Spain did not submit any responses to the survey, but, with the exception of Italy, they were subsequently interviewed. PCPS from Portugal and Romania were represented twice (as they have several PCPs), and out of the EEA/EFTA countries, Liechtenstein and Norway participated. More details are provided in the synopsis report.

As regards the public consultation carried out by the Commission, it gathered 153 replies only. Businesses actively participated (91) but without reaching a representative sample; large companies were overrepresented (19%), while, as mentioned previously, they only represent 1% of the EU's company population. Also, when asked to quantify the costs and benefits of the Regulation, most businesses indicated that such estimation is impossible. Only a few replied (between 11% and 26% depending on the questions), and the replies contain considerable variations. This is why case studies were used in order to complement the lack of accurate information on costs and benefits. Member States were represented in the consultation by both PCPs (13) and other authorities (32), but without reaching a good geographical balance: no replies were received from Cyprus, Denmark, Finland, France, Greece, Ireland, Luxembourg, Malta and UK 122 .

The overview of the notifications of draft national technical rules for the assessment of their compatibility with EU law by the Commission under Directive 2015/1535 provides some insight on the sectors were a high regulatory activity at national level can be observed, and where the use of mutual recognition is more relevant 123 . From 2011 to 2013, 2114 notifications were received (675 in 2011, 734 in 2012 and 705 in 2013). The construction sector saw the highest number of notifications, with many measures related to energy efficiency of buildings and concrete structures, road pavements and constituent materials, fire safety of buildings. Construction was followed by agricultural products, foodstuffs and beverages (food hygiene, the composition and labelling of foodstuffs and beverages, food packaging, minimum price for alcoholic beverages, composition and marketing of alcoholic and non-alcoholic beverages). Notifications were also received in the telecommunications sector (radio equipment and telecommunications terminal equipment, radio interfaces, hardware and software for the collection, management and use of data gathered by electronic mechanisms installed on board vehicles (black box)) and in the environment sector (packaging and packaging waste, recyclable products, processing of biodegradable waste). This information was used in order to identify sectors where numerous national technical rules exists or were introduced, in order to see if market access problems can be linked to important regulatory activity. However, the use of this information is limited and should be treated with caution, as many issues related to compatibility with EU law are solved before the adoption of the national rule, during the stand still period. Furthermore, the assessment performed under this Directive is linked to the compatibility of the national rule with EU law, while the Mutual Recognition Regulation covers the application of a national rule to a specific individual case. Thus, while the national rule is compatible with EU law, its application in a specific individual case may be incompatible. Therefore, the notifications alone cannot be used as a good proxy for estimating the number of market access denials in specific sectors.

All these factors make the precise measuring of the mutual recognition principle and Regulation's effect quite challenging. The contributions received following the various surveys and consultations carried out did not allow to a statistically representative result to be reached. However, the stakeholders' consultation was very wide, and, together with the multitude of information sources used, it allows the gathering of a strong indicative picture of the functioning of mutual recognition, reliable enough to be used as a basis for further decision making.

Annex 2 Synopsis report of the stakeholder consultation

1.OBJECTIVES OF THE CONSULTATION 

The 'Single Market Strategy' (COM(2015)550 of 28.10.2015) highlights the need to strengthen the single market for goods in the field of mutual recognition. This principle allows products lawfully marketed in a Member State and not subject to European harmonisation legislation to enjoy the right to free movement, despite lack of compliance with national technical rules of the Member State of destination. However, the principle is not yet used at its full potential as shown in a recent evaluation of the mutual recognition principle.

To improve the application of the mutual recognition principle, the Commission will present an EU-wide Action Plan to raise awareness of the principle of mutual recognition. The plan will also include specific actions for sectors in which mutual recognition could achieve the greatest increase in EU competitiveness (e.g. construction). The Commission will also investigate the need for a revision of Regulation (EC) No 764/2008 to ensure a better application among businesses and national authorities. The objective of the consultation was therefore to seek stakeholders' views on the current and future application of Mutual Recognition.

1.1.Consultation methods and tools

The members of the Mutual Recognition Consultative Committee 124 were asked to provide their feedback on the previous meetings on 2 December 2015 and 25 October 2016.

A public consultation in all EU official languages has been published on a consultation website hosted on Europa. The consultation has run from June to September 2016.

The public consultation has been supplemented by a stakeholder conference organised by the Commission on 17 June 2016.

2.RESULTS OF THE CONSULTATION ACTIVITIES

2.1.Meetings of the Mutual Recognition Consultative Committee

The consultative “Mutual Recognition Committee” held its seventh and eighth meetings on 2 December 2015 and 25 October 2016 respectively. The Committee's members are representatives of Member States dealing with mutual recognition issues. The Commission presented the envisaged actions for raising awareness of mutual recognition and asked for feedback and input on these actions. Member States welcomed the activities presented and stressed the importance of awareness raising in relation to the correct application of the mutual recognition principle. The Commission presented also a preliminary analysis of the main problems generated by the suboptimal functioning of mutual recognition, as identified in the framework of the ongoing evaluation. The delegates agreed that mutual recognition should not be only a right that economic operators may invoke, but also a principle that national authorities should apply. Furthermore, the Commission presented the preliminary options for improving mutual recognition and asked for feedback from the delegations. Some representatives were not convinced that there are benefits in fully revising the Regulation, whilst all of them agreed that some adjustments are necessary and that many of the problems can be solved with the actions foreseen in the Action Plan.

The participants supported also the option to clarify the scope of the Regulation, and mainly the mutual recognition principle, thus articles 34-36 TFEU, where guidelines are more appropriate to achieve this objective. The Commission also proposed having a clearer mutual recognition clause, such as a standard model, which could be adapted to particular cases, would be proposed, for systematic integration in new national technical rules. Another point discussed was the need for an updated and user friendly product database.

The Commission presented then the possible introduction of a declaration of compliance with the technical rules of the Member State where the product is being lawfully marketed, to facilitate the access of this product to the market of the other Member States. The declaration would offer a presumption of compliance for the economic operator; this presumption could be rebutted by national authorities, who would have the duty to prove the non-compliance. Some Member States considered that this option would introduce a significant administrative burden on economic operators but market surveillance authorities would welcome such declaration, as it would facilitate their tasks.

Another point discussed was the introduction of incentives for national authorities to ensure they comply with the obligation to notify administrative decisions denying or restricting mutual recognition. More transparency for these decisions would be an incentive for Member States to apply the mutual recognition principle, as it would render less acceptable the absence of notifications or the lack of proper justification supporting the administrative decisions to be notified. Using an IT tool allowing Member States to notify would also give all notifications more visibility. Furthermore, the Commission examines the possibility of creating a new fast track mechanism which would be an alternative to the costly and lengthy court procedures currently available. It would be inspired by the "safeguard procedure" operating in the area of products covered by Union harmonisation legislation, which allows a Member State or the Commission to intervene in order to challenge a national decision which is considered as potentially breaching EU law. The fast track appeal procedure would be very quick (no longer than 3 months), and free of charge for businesses and any other complaint they may address to the Commission. The option of a system of prior authorisation to placing products on the market was presented afterwards. Products lawfully marketed in the market of one Member State would be placed on the market of another Member State only after a prior examination of the product by the receiving Member State. Many Member States expressed their opposition to this option, as it would hinder the free movement of goods.

Another point of discussion was the option of ensuring free movement of goods guaranteed by compliance with European standards. This implies the recognition, by the Commission, and after consultation of Member States, of certain European standards in the area of non-harmonised goods via implementing acts. This option refers only to already existing European standards and not to mandating the developments of new ones. Member States considered that focusing on essential requirements is more beneficial than using standards.

Additionally, the Commission sought Member States' opinion on the option of strengthening of the role of the Product Contact Points in order to provide information on all applicable rules for all products. Member States supported this option as the Product Contact Points lack resources and staff. The Commission proposed also the integration of the Product Contact Points in a wider network, e.g. the Single Digital Gateway. Delegations consider that the Single Digital Gateway initiative is not advanced enough in order to able to provide input on this option.

Another option presented was the harmonisation of certain basis requirements. Member States were strongly against this option, since partial harmonisation only for the sake of free movement does not bring benefits proportionate to the level red tape it adds.

2.2.Stakeholder conference of 17 June 2016

A stakeholders' event was organised on 17 June 2016, to identify the main issues related to the functioning of mutual recognition and to identify possible ways forward. 144 participants attended the event, representing businesses (62), national authorities (60) and others (22), such as consumer organisations, representatives of trade unions. The detailed minutes can be found at: http://ec.europa.eu/DocsRoom/documents/17963 .

2.2.1.Main meeting

Knut Sauerbier, responsible for product compliance and IP at BRITA, explained how mutual recognition functions for businesses by providing the example of drinking water treatment.

Camilla Hjermind, Head of Division of International Relations of the Danish Business Authority of the Ministry of Business and Growth presented the practical difficulties encountered while applying the principle of mutual recognition.

Jacques Pelkmans, Senior Fellow at CEPS in Brussels and visiting Professor at the College of Europe, outlined the main problems faced with mutual recognition, one of the EU's greatest innovation.

Following the three presentations, the floor was given to the participants at the conference to discuss the topics.

2.2.2.Workshops

Workshop 1: Proving and assessing lawful marketing of products in other Member States: a more practical approach

The first workshop was held on the topic of proving and assessing the lawful marketing of products in another Member State. The participants were to discuss a more practical approach on this issue. The workshop gathered around 30 participants and had a balanced representation of national authorities, businesses and associations.

Workshop 2: How to make mutual recognition a practical tool for businesses

The second workshop discussed how to make mutual recognition a practical tool for businesses. The workshop involved 46 stakeholders. Participation was well balanced among national authorities, businesses, associations and Commission services. The workshop was moderated by Annette Dragsdahl, Senior Adviser at the Confederation of Danish Industry.

2.3.Public Consultation

153 replies were received during the public consultation. Businesses were strongly represented (91), followed by Member States authorities (45), and citizens (17). This includes respondents that did not want their replies published: 16 businesses, 9 authorities and one citizen. The remainder of the respondents agreed to have their response published either fully or anonymously. All replies are included in the statistics.

45 authorities from Member States replied to the public consultation. 31% are Product Contact Points, the rest are other authorities involved in this area. Among the group of citizens there are two consumer organisations. Individual companies (44) and business organisations (44) were equally represented, while only 3 chambers of commerce replied to the consultation. In terms of company size, the responses are roughly balanced between small and large 125 companies.

In terms of activity sectors, manufacturing is the most represented sector (46%), followed by wholesale and retail trade (13%), agriculture, forestry and fishing (8%) and water supply (6%).

The geographical representation is quite well balanced for businesses. As for national authorities, 18 Member States and Norway participated in the public consultation. No replies were received from Cyprus, Denmark, Finland, France, Greece, Ireland, Luxembourg, Malta and UK. The majority of consumers chose not to indicate their country of establishment.

The numbers and percentages used to describe the distribution of the responses to the public consultation come from the answers provided under the EU-Survey tool.

2.3.1.How stakeholders see mutual recognition and its potential shortcomings

The majority of responding companies wishing to sell products in another Member State check the applicable rules in that Member State, and, if these rules prevent them from selling the product, most of them adapt it. This happens despite the fact that 70% of them are fully aware of the mutual recognition principle. More than half of the businesses responding tried to use mutual recognition for entering a new market. Among them, half had their market access denied, and only 2% challenged this decision successfully.

35% replied that they do not rely on mutual recognition for entering a new market, mainly because they do not know about it (15%) or because they do not trust it (4%).

When national authorities check if products available on their market and coming from another Member State comply with the national rules they are enforcing, 53% verify if they are already lawfully marketed in the Member State of origin while 46% do not.

Despite the indicated high level of awareness about mutual recognition, the majority of respondents consider that awareness-raising remains necessary.

As regards the obstacles to the functioning of mutual recognition, businesses identified the lack of quick remedies for challenging national decisions denying market access as the highest one, followed by insufficient communication among authorities. 52% of the respondents faced such obstacles themselves.

2.3.2.Functioning of the Mutual Recognition Regulation

Effectiveness: to what extent has the Regulation achieved its objectives?

The majority of respondents are aware of the Regulation, and consider that most of the tools put in place are useful and still necessary. As regards whether or not the Regulation has met its objective, the feeling is mixed among businesses and national authorities. Generally, very few economic operators consider that it is easier to sell products in other Member States since the Regulation entered into force. The majority consider that the Regulation has not improved the situation, or do not know, either because they do not use mutual recognition or they do not sell products abroad.

Efficiency: costs and benefits of the Regulation

As regards the costs of implementing the Regulation, national authorities ranked them as average. On top of the choices provided by the consultation, authorities also indicated additional costs linked to the absence of an updated list of products to which mutual recognition may apply. Some consider that additional costs are triggered by the administrative procedures, seen as long and time-consuming. Despite the costs, national authorities agree, fully or partially, that the Regulation brings benefits in terms of facilitating market access.

As regards businesses, the main costs incurred are triggered by the need to adapt the products to the applicable national rules, when mutual recognition is either denied or not used for penetrating the market. These costs are estimated 126 on average at 23 000 Euro per product and per market. High costs are also related to delays in entering a market, estimated 127 at 115 000 Euro per product and per market, and to lost opportunities, when businesses relinquish entering a market because of different national rules that require their products to be adapted. On average, the latest are estimated 128 at 136 000 Euro per product and per market. The costs related to challenging administrative decisions denying market access are considered as less important, mainly because few economic operators choose to do so. The estimates 129 are around 32 000 Euro per product and per market. There are however considerable variations in the answers.

Costs were also related to assessing if mutual recognition can be used to sell products in another Member State. Very few economic operators (2%) are outsourcing this assessment, while 26% are doing it internally. 46% are doing both, depending on the product.

In terms of benefits that the regulation brings, the perceptions of responding businesses are quite mixed. While Member States tend to consider that the costs of the Regulation are proportionate to the benefits it generates, businesses mostly disagree with only 9% agreeing.

Coherence

There is a consensus among respondents as regards the coherence of the Regulation. Most of the respondents are not aware of any overlaps between the Regulation and other initiatives/legislation/policies. The overlaps indicated by those replying positively are linked to Solvit, RAPEX, ICSMS and Regulation 765/2008 on market surveillance.

EU added value

The European added value of the mutual recognition rules is also strongly underlined by the respondents. Most of them agree that having a common set of rules guarantees equal treatment, and that relying on national rules only would undermine the internal market. 

2.3.3.Assessment of communication when using Mutual Recognition

Most of the responding businesses have never contacted a Product Contact Point to obtain information on the applicable product rules, mainly because they are not aware of their existence. Among those having contacted Product Contact Points, it is quite difficult to identify their level of satisfaction or the reasons behind it.

Responding Member States consider the communication with authorities within their own country as good, while communication with authorities from other Member States is rather average or poor. As regards communication between national administrations and businesses, the assessment by authorities is quite mixed between good, average and poor. The main reasons for poor communication are related to the lack of knowledge about mutual recognition, language issues and the absence of an appropriate IT tool to facilitate communication.

2.3.4.Priorities to improve Mutual Recognition

Stakeholders have different views as regards the possible priorities with regard to mutual recognition. If businesses rank the need for effective remedies as being the highest priority, Member States and citizens opt in favour of increasing awareness about mutual recognition.

2.3.5.Options

All options put forward for making mutual recognition easier to apply and more reliable received a high level of support among stakeholders.

As to what would be the most appropriate alternative to mutual recognition, the majority of stakeholders agree that harmonisation is the most appropriate tool to use when mutual recognition doesn't work properly.

2.4.Surveys carried out by the external contractors

In the framework of the external study evaluating the functioning of the mutual recognition principle 130 , four different surveys were launched on 9 October 2014 and completed on 5 January 2015. These were a company survey (199 participants), a survey of national business associations and of national sector associations (20 participants), and a product contact point survey (26 participants). Following the survey, qualitative interviews with national business associations and Product Contact Points in each Member State were also carried out.

The findings of the surveys and interviews show that the application of the mutual recognition principle is challenging. Stakeholders outlined that there are still barriers to free movement of lawfully marketed goods due to additional requirements and tests existing in certain Member States. The lack of knowledge and awareness about mutual recognition was also pointed out as being problematic, as companies and national authorities do not know when and how the principle should be applied, in particular with regard to the type of products falling under the scope of mutual recognition and to the type of documentation required for demonstrating that a product has been already lawfully marketed. Poor communication and cooperation among national authorities has also been pointed out as a weakness, contributing to the poor functioning of mutual recognition. In terms of efficiency, many businesses declared having to carry out additional tests at the request of the Member States on the territory of which they are trying to sell their products.

In the framework of the study assessing the costs and benefits of the different options envisaged for improving mutual recognition, a survey and interviews were carried out by the external contactor. The stakeholder consultation focused not only on the current functioning of mutual recognition – and its main issues – but also on how to revise the Regulation, through the policy options proposed by the Commission. Targeted surveys and interviews allowed an understanding of stakeholders’ point of view about the Policy Options. With respect the obstacles to the implementation of MR National authorities highlight that: the wide scope, size and fragmentation of the market falling under mutual recognition and the presence of many different national legislations may create difficulties in having clear, structured and smooth procedures to apply mutual recognition; products falling in areas where partial harmonisation and/or some EU standards exist create difficulties for authorities, since a mix of national and EU rules may apply, requiring more effort from their side to check and decide; a certain lack of communication exists also across Member States. This may result in difficulties for a national body to understand why a product was lawfully marketed in another Member State and what relevant rules apply, without investigating and asking for further information or clarification.    Businesses highlighted several obstacles as well, in particular relating to the interaction with national authorities, especially in terms of obtaining easy access to information, concerning mainly relevant legislation and procedures in place especially because of language barriers, proving that the product is already lawfully marketed in another Member State since National Authorities require different information and evidence. Time required to receive a response from national authorities has a significant impact in delaying the entry into the market or even discouraging them to enter. Considering the issues highlighted by stakeholders both economic operators and national authorities agree that measures to improve the MR Regulation have to be taken. Within each category of stakeholder, preferences and opinions about the feasibility and priority of policy options (and sub-options) seem to be heterogeneous. While among National Authorities there is quite a spread consensus about the need for intervention, either through soft-law or hard-law instruments, economic operators appear to be more cautious on the effectiveness of the proposed options in avoiding delayed market access and reducing costs for them. However, economic operators and national authorities appear to be in favour of mixing different sub-options, rather than the adoption of a single, full policy option.

2.5.Other contributions received (position papers or e-mail)

Several interested parties submitted separate position papers, many of which revealed that indeed national technical rules are being used as a basis to deny mutual recognition and that no effective mechanisms exist for businesses to question national decisions denying mutual recognition. For this reason, they consider that more ambition is needed to improve trust among Member States and the improvement of transparency of national decisions will alleviate this lack of trust.

Concerning the principle of mutual recognition, some stakeholders mentioned that it could further be strengthened by the introduction of a presumption of conformity to independently tested products. They argue that the Commission should provide for a conformity assessment by independent third parties as a precondition for a corresponding presumption of conformity with regard to the product marketed in another member state because they are not involved in the design, manufacture, supply, repair or maintenance of the item to be assessed.

The scope of the Mutual Recognition Regulation should be clarified, better structures for proportionality assessments should be put in place, and an informal set-up could ensure better sharing of best practices among Member States. Also, dissuasive means should be introduced to ensure that Member States notify according to their obligations in the Regulation. Moreover, effective remedies must be available to businesses in order for them to get quicker clarity on decisions taken against their products on the Single Market, including enhanced transparency to see the decisions. In addition, the Product Contact Points should be optimised and give businesses easy access to information about national decisions and technical rules. Also, there is an overall need for redeeming trust and strengthening cooperation among Member State authorities across the Single Market.

One proposal, made by some stakeholders, is that the notification of article 2.1 administrative decisions (Regulation (EC) No 764/2008) is brought together with the procedure used in the harmonised sectors. The Commission should also consider other measures in order to integrate the non-harmonised and harmonised goods sector not only at the practical level but also in the policy level still fully respecting the principle of mutual recognition.

The lack of trust between competent authorities should be overcome and national decisions should become more transparent. A Quick Assessment Procedure, allowing an evaluation of decisions denying market access without a binding decision, is a potential tool that can lead to better understanding of the Mutual Recognition principle and improve the functioning of the current Regulation.

3.FEEDBACK TO STAKEHOLDERS

The consultation processes provided a wide range of views regarding the implementation of the Regulation in terms of what has worked well and what has not worked so well, seen through the eyes of these stakeholders. The meetings with the stakeholders provided an early opportunity to promote the engagement of the national authorities, thus enhancing the chances of a good response rate.

The overall objective of this initiative is to achieve a deeper single market for goods through higher and better mutual recognition. This will be done by increasing awareness on mutual recognition, enhancing legal certainty for businesses and national authorities when using mutual recognition and improving administrative cooperation and trust among authorities. This will result in unleashing the full potential of the internal market, by facilitating the use and application of mutual recognition, reducing the risk for businesses that their products will not get access to or will have to be unjustifiably withdrawn from the market and offering more choices at lower prices for consumers.

In line with the assessment carried out, and presented in Section 7 of the Impact Assessment, the preferred option would thus be a combination of Option 2 (soft law instruments) and Option 4 (clarification of the scope of the regulation, introduction of a declaration of compliance and of a fast-track appeal procedure for businesses and strengthening the role of PCPs). This combination will address in the most effective and efficient manner all policy objectives to lead to a better functioning of the Single market for non-harmonised products through more and better mutual recognition.

Option 2 (Soft law) was supported by all stakeholders, but considered effective only if complemented by other comprehensive tools. Furthermore, during the last meeting of the Consultative Committee on mutual recognition (25 October 2016), there was consensus among Member States representatives on the fact that this option will be extremely effective in increasing awareness of the mutual recognition principle and therefore Member States representatives highly supported it.

Option 3 (minimum legislative changes to the Regulation) was considered by Member States and economic operators as potentially effective, but to a lesser extent than other options. During the 2016 public consultation, 46% of national authorities, 81% of businesses and 64% of citizens agreed with the need to introduce dissuasive measures to ensure that the obligation for national authorities to notify administrative decisions denying or restricting mutual recognition is respected. This option was however not retained since it was considered that it would not address the problem in an effective and efficient manner.

Option 4 (clarification of the scope of the regulation, introduction of a declaration of compliance and of a fast-track appeal procedure for businesses and strengthening the role of PCPs) was considered as the most effective way to achieve the policy objectives and in reducing costs for business. During the 2016 public consultation, the sub-options assessed above received a lot of support from stakeholders and 74% of businesses considered ensuring effective remedies to challenge national decisions should be the Commission's first priority. This option has been assessed as the most effective and efficient to ensure legal certainty regarding the scope and the application of mutual recognition and this is why it has been retained.

There was a consensus among stakeholders that option 5 (voluntary prior authorisation) cannot remove the existing obstacles to mutual recognition. As demonstrated in the Impact Assessment this option will entail a high administrative burden and costs, both for Member States and companies, while not effectively addressing the problem, so it has not been retained.

The option related to repealing the Regulation and the option of proposing further harmonisation measures on specific basic requirements covering certain aspects of products have been discarded at an early stage, as well as the introduction of a third party declaration of compliance.

More information on how the different options have been assessed and the option retained, and on the views of the different stakeholders on each of these options can be found in Sections 7 and 8 of the Impact Assessment.

Annex 3 who is affected and how

The preferred options are option 1- soft law, combined with option 4- comprehensive legislative changes.

Annex 4 Analytical Models Used In Preparing The Impact Assessment

This section presents the methodology followed to estimate the market value and the magnitude of the problem, as well as to collect information among stakeholders about the current implementation of mutual recognition, its main obstacles and issues and sentiment about the proposed policy options.

1.Methodology for the market analysis

The approach for the market analysis has been based on the identification of non-harmonised and partially harmonised products in a “residual way” (e.g. excluding all sectors/products for which EU harmonised product rules exist, hereafter harmonised sectors). After that, we implemented a two-stage approach. Namely:

·An analysis at sectorial level oriented towards the macro dimension of the market for non (or partially) harmonised products, looking at:

oThe number of economic operators that are active within the economic sectors for which EU harmonised product rules do not exist (here after non-harmonised sectors); 131  

oThe current contribution of the non-harmonised sectors to the EU manufacturing economy.

·An analysis at product level focused on the value of non-harmonised products that are traded within the EU Single Market.

Results from the analysis at sectorial and product level have been combined to identify the sectors for which the value of trade of non (or partially) harmonised products is more relevant.

Furthermore, in order to identify the variables to be included in the analysis, we tried to identify the available statistics that are useful for the scope of the study. All data used within this study have been extracted from two databases:

·Structural business statistics (SBS) 132 provided by EUROSTAT have been used to describe the structure of non-harmonised and partially harmonised sectors and measure their economic performance;

·EU trade since 1988 by Standard International Trade Classification (SITC) 133 provided by EUROSTAT allowed us to estimate the value of intra EU trades of non-harmonised and partially harmonised products.

More in detail, the approach followed consisted of the following steps:

·Step 1. Identification of EU legislative acts introducing harmonised product rules (i.e. harmonising legislation)

·Step 2. Review of EU legislation introducing harmonised product rules;

·Step 3. Identification of the corresponding NACE Divisions (DIGIT 2) and NACE group (DIGIT 3) that are impacted by the EU Regulation (i.e. harmonised sector) and that should be excluded from the analysis.

·Step 5. Identification of the NACE Divisions (DIGIT 2) and NACE group (DIGIT 3) for which harmonised product rules do not exist (i.e. non or partially harmonised sectors) and that should be included in the analysis

·Step 6. Selection of the most appropriate products (NACE group – DIGIT 4) for which no harmonised product rules exist and that should be included in the analysis.

Figure A4-1: Methodological approach. Example for “medical devices”

Results from this exercise are presented in annex 5. In particular:

·Annex 5.1. presents the list of harmonised, non-harmonised and partially harmonised economic sectors (as per NACE DIGIT-3 classification) that have been used for the analysis at sectorial level;

·Annex 5.2. presents the list of products (as per NACE DIGIT-4 classification) that have been considered as non (or partially) harmonised for the analysis at product level.

All the steps presented so far were needed to overcome the following issues:

·There is not an updated list of non-harmonised and partially harmonised products/sectors;

·Definitions of sectors/products in the regulation are usually different from nomenclatures used within statistics;

·Statistics at sectorial/product level use different nomenclatures (e.g. intra EU trade uses the Standard International Trade Classification [SITC], production values use the PRODuction COMmunautaire [Prodcom] nomenclature, business demographics uses the Statistical Classification of Economic Activities in the European Community [NACE]);

·Difficulties in identifying non (or partially) harmonised products within sectors that are highly harmonised. One of the most complicated cases is represented by the Food and Drink sector (see Box 1).

Box 1: Food and drink products

2.Methodology for the estimation of the magnitude of the problem 

The objective of the model is to distinguish the socio-economic costs of a sub-optimal functioning of the mutual recognition principle by identifying and investigating relevant socio-economic costs. Figure A4-2 provides an overview of the key components of the model to estimate the impact of sub-optimal functioning of the Mutual Recognition principle, henceforth called the SFMR model. The model is underpinned by an enterprise decisions tree that considers routes to successful market entry and decisions not to export, further details are provided in chapter 4.

Figure A4-2 highlights that the model is comprised of seven components or stages. Calculations for components one, two and four were presented in the previous chapter. The model uses data from the value of intra-EU trade by EU Member States to calculate key cost elements associated with sub-optimal functioning of the Mutual Recognition principle. These include unnecessary compliance costs and adjustment costs.

By estimating the number of enterprises entering new cross-border markets with non-harmonised products (stage three of the model), it is possible to apply an estimate of the number of days work required by enterprises to overcome sub-optimal functioning (stage five). This element of the model provides details of transactions costs. The second component of the model (stage six - cost of delayed market entry) estimates the cost per week of enterprises note being able to trade.

Components five and six can then be treated separately, or combined to give a total estimate of costs associated with sub-optimal functioning of the Mutual Recognition principle.

Figure A4-2: Key components of the model to estimate the cost of sub-optimal functioning of the Mutual Recognition principle

Note: Elements with asterisks can be changed in the model and/or updated when data from field research becomes available.

As noted, the model is underpinned by clear and transparent assumptions that can be adjusted to enable sensitivity analysis in the model.

3.Methodology for case studies

Five case studies were constructed and carried out in this project. Their objective is to allow us:

·To ensure a higher level of detail, which would not be feasible to obtain only through desk research and online survey, on specific topics emerged throughout the study that can help to better understand the impacts of the problems that emerged in the application of the mutual recognition principle and of the options envisioned;

·To provide enriched and more robust estimation of the cost and benefits of problems encountered in the application of the mutual recognition principle and of the options under analysis;

·To illustrate in practical terms the implication and impacts of specific issues in the application of mutual recognition.

Based on the results of the desk and field research, the team identified possible case studies, approved by the Commission, considering products or categories of products that appear relevant to be explored in a more detailed analysis.

Case studies were carried out through:

·Brief desk research that provides an overview of the product and collecting economic data and information;

·Interviews to collect information on the current actual implementation of mutual recognition in the sector – and in specific Member States, main costs and potential benefits of the proposed policy options, involving both:

oRelevant national authorities, to understand the actual implementation of the Regulation, the main procedures in place and the possible revision that could be made in the light of the proposed options;

oEconomic operators – both businesses and business associations – active in the relevant sector, to collect information on the actual problems/obstacles faced and costs incurred by companies trying to enter the relevant market, as well as understanding the impact the proposed policy options would have in addressing them.

Each case study is presented below, providing both an overview of the case and relevant product/sector, as well as the issue and the details based on desk and field research.

4.Estimation of the Market for Non-Harmonised products 

This section provides an estimate of the market value of current intra-EU trade in non-harmonised products falling under the mutual recognition principle, in order to understand the size of the EU market currently affected by the Regulation;

4.1.Estimate of the market value of current intra-EU trade in non-harmonised products falling under the mutual recognition principle

As described above, the market analysis follows a twofold approach.

·An analysis at sectorial level oriented towards the macro dimension of the market for non (or partially) harmonised products,

·An analysis at product level focused on the value of non-harmonised products that are traded within the EU Single Market.

The size of the market and of the value of traded goods for which the Mutual Recognition should apply to allow the research team to have figures for the estimate of the magnitude of the problem and for the next steps, with the assessment of the policy options.

4.1.1.Analysis at the sectorial level

For the analysis at sectorial level, we extracted from SBS data related to the following dimensions:

·Business Demographic;

·Input related;

·Output related.

The analysis has been undertaken on the indicators detailed in the following table.

Table A4-1: List of indicators for the sector-level analysis

We identified the economic sectors (i.e. sectors identified with a 3-digit NACE code) that are potentially impacted by Regulation (EC) No 764/2008 and for which the Mutual Recognition principle should be applied (see annex5).

As regards this sectorial analysis it is important to underline that:

·Data is available at NACE Digit 3 – level only for the period 2012 – 2014. Thus it is almost difficult to identify some trends

·All results should be considered as an upper estimate because some economic sectors might contain one of more products for which harmonised product rules exist.

As shown in Figure A4-3 , over the period from 2012 and 2014, around 0.99 million enterprises were operating within non-harmonised sectors, representing more than 50% of the total number of active enterprises in the manufacturing economy (around 2 million active enterprises are operating under Section C of NACE classification named Manufacturing). 1 presents the correspondence between the list of NACE DIGIT-3 codes and the way they have been considered in the analysis (i.e. harmonised or non/partially harmonised. 

Figure A4-3: Number of active enterprises: non-harmonised sectors vs overall manufacturing sectors (EU28, 2012 – 2014), NACE Digit-3 level

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

It is very important to underline that around 87% of the enterprises operating within the non (or partially) harmonised sectors are micro enterprises (i.e. with less than 9 employees) and around 11% are Small and Medium Enterprises (i.e. with a number of employees between 10 and 250). If compared to harmonised sectors the relevance of micro enterprises is higher in non/partially harmonised sectors.

Figure A4-4: Size of enterprises operating (2012 – 2014, EU 28), NACE Digit-3 level

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

Furthermore, at EU28 level more than 8 million person are employed within the non (or partially) harmonised sectors (i.e. around 31% of all people employed in the manufacturing sectors), with no significant variation over the period considered.

Figure A4-5: Number of persons employed: non (or partially) harmonised sectors vs overall manufacturing sectors (2012 – 2014, EU28, millions)

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

The magnitude of the non- (or partially) harmonised sectors can be also appreciated if wealth creation (i.e. added value and turnover) is considered. In particular, the value added produced in non (or partially) harmonised sectors decreased by 15% during the period 2012-2014 (i.e. passing from €360 to €305 billion) and its contribution to the overall value added of the manufacturing sectors passed from 24.4% in 2012 to 22.9% in 2014.

Figure A4-6: Value added at factor cost: non-harmonised sectors vs overall manufacturing sectors (2012 -2014, EU28), € billion

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

Also in this case, within the period 2012–2014, micro enterprises and SMEs contributed to the 59.5% of the value added produced operating in non-harmonised sectors (i.e. €200.2 billion out of €336.5 billion) that corresponds to the 14.1% of the overall added value produced in the manufacturing sectors (€ 1,417.2 billion).

Table A4-2: Value added at factor cost per size of enterprises: non-harmonised sectors vs overall manufacturing sectors (average 2012-2014, EU28), € billion

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

Finally, relevant results emerged also considering the turnover. As shown in the figure below, enterprises operating within non (or partially) harmonised sectors contribute to around 20% of the total value of market sales of manufacturing sectors (€1,158 billion out of €5,690 billion, corresponding to the overall turnover produced within the manufacturing sectors).

Figure A4-7: Turnover: Non-harmonised sectors vs overall manufacturing sectors (2012-2014, EU28), € billion

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

If the size of enterprises is considered, micro enterprises and SMEs that are doing business in non (or partially) harmonised sectors generated the 11.7% of the turnover generated within the entire manufacturing economy (€662.2 billion out of €5,690 billion).

Table A4-3: Turnover per size of enterprise: non-harmonised sectors vs overall manufacturing sectors (average 2012-2014, EU28), € Billion

Source: Structural Business Statistics, Annual enterprise statistics by size class for special aggregates of activities (NACE Rev. 2) (sbs_sc_sca_r2), EUROSTAT (2016)

4.1.2.Analysis at product level

The second type of analysis, at product level, is aimed at understanding the market value of all traded products for which EU harmonised product rules do not exist. 138  

The indicators considered in the analysis have been also extracted from Eurostat statistics currently available and are presented in the following table.

Table A4-4: Indicators computed for the analysis at product level

All EU-28 Member States have been considered and the time period covered by data is 2008-2015. In terms of sectors, the manufacturing sectors listed in the following table have been included in the analysis. In particular the NACE codes used in the analysis have been grouped using the International Standard Industrial Classification of All Economic Activities (ISIC) 140 . Each sector contains both harmonised and non or partially harmonised products. Annex 5 lists all non or partially harmonised products per each sector that have been used for the analysis at product level.

Table A4-5: Manufacturing Sectors included in the analysis at product level

While the analysis at sectorial level provided an estimate of the number of economic operators that are potentially impacted by a sub optimal functioning of the Mutual Recognition and how they are contributing to the EU economy, the analysis at product level provides an assessment of the value of traded goods that should comply with the existing harmonised product rules.

The value of non (or partially) harmonised products has been estimated by considering the value of intra EU exports for these types of product. The 2 presents the list of products (as per NACE DIGIT-4 classification) that have been considered as being non (or partially) harmonised.

In particular, considering the period 2008 - 2015:

·The (average) annual value of intra EU exports of non (or partially) harmonised products has been equal to €335 billion ( Figure A4-8 );

·The value on intra EU exports of non-harmonised products represented the 18% of the value of intra EU exports ( Figure A4-8 );

·The value of intra EU exports of non or partially harmonised goods increased by 14.2% (i.e. passing from € 338 to € 386 billion), the same variation can be observed for harmonised good (i.e. the value passing from € 1,513 to € 1,725 billion).

Figure A4-8: Value on non (or partially) harmonised products. Intra EU Exports, € billions, 2008 -2015

The following table shows the average value of intra EU exports for non-harmonised and partially harmonised products for each sector, where the 83% (around €515 billion out of €681 billion) of products are manufactured by:

·Manufacture of basic metals and fabricated metal products, except machinery and equipment;

·Manufacture of textiles, apparel, leather and related products basic metals and fabricated metal products;

·Manufacture of transport equipment;

·Manufacture of wood and paper products, and printing.

Please refer to Annex 5 for the list of products that have been classified as non or partially harmonised for each sector.

Table A4-6: Value of non-harmonised products per sector (Intra EU trade, average 2008 – 2015, € billions)

Source: EU trade since 1998 by SITC, EUROSTAT (2016)

Another interesting element emerged if the value of the intra EU Exports is compared with the domestic consumption (i.e. value of production – value of extra EU exports + value of extra EU imports): while for harmonised products the value of Intra EU exports is 55% of the domestic consumption, for non or partially harmonised products the Intra EU exports represent only 35% of the domestic consumption. This might be a sign of a suboptimal functioning of the Mutual Recognition that leads to potential barriers for intra EU trade in the case of non- or partially harmonised products.

Figure A4-9: Intra EU trades (exports) as % of the domestic consumption: Harmonised vs non or partially harmonised products, 2008-2015

Source: PRODCOM statistics, EUROSTAT (2016)

The results presented so far, as already mentioned, should be considered as an upper estimate of the market value for non-harmonised and partially harmonised products, due to the degree of sectoral aggregation. Even if, as showed in 2, we used up to 4 digits statistics, the estimated value cannot indicate itself if the MR is working or not. The implementation of the MR principle might be optimal in many subsectors, even if non-harmonised. This can be related to the fact that there is little regulation anyway or that, may be, countries rely on the same (European) standards, or that MR problems are more sector specific.

This chapter presents the revised model for the estimation of the magnitude of the problem arising from sub-optimal functioning of the Mutual Recognition principle.

4.2.Estimating the magnitude of the problem triggered by suboptimal functioning of the mutual recognition principle 

4.2.1.Introduction and exporting decision tree 

This section presents a model for estimating the costs associated with the current sub-optimal functioning of the Mutual Recognition principle.

The approach adopted is innovative. No previous studies could be found that model or calculate costs arising from the current sub-optimal functioning of the Mutual Recognition principle  141 . In 2003 Pelkmans 142 identified three core costs – information, transaction and compliance. These elements are utilised and further developed in this study. Pelkmans also identified that there will also be waiting costs associated with the ‘number of products waiting for EU regulation before free movement could become a reality for business’ 143 . These are included in the model as ‘Costs of delayed market entry’. Discussions with Pelkmans have identified that these elements are as relevant now as they were when his conceptual study was completed in 2003.

The previous section presented a number of options for enterprises to follow in order to export products. Figure A4-10 provides a decision tree diagram to represent the route that enterprises can follow when deciding not to export or when entering another EU Member State market with a product not covered by the Mutual Recognition principle.

Figure A4-10. Decision tree diagram for export decisions associated with products not covered by the Mutual Recognition principle

The decision tree captures the three main options (and subsequent steps) that an enterprise undertaking intra-EU exports of partial or non-harmonised products needs to consider. These key options are incorporated in the model developed within this section. The model provides a representation for an enterprise considering intra-EU exporting of one product in one EU Member State 144 , this includes:

·Market entry decision – The starting point for figure A4-10 is the consideration by an enterprise to export. At that point they can decide to proceed and incur time and other costs before entering a market. Alternatively, they can decide not to attempt to export, these decisions will generally be underpinned by economic rationale (e.g. the perceived costs of exporting do not offer sufficient rewards) or enterprise staff may not welcome the risk or other pressures of exporting.

·If an enterprise decides to export they can follow one of two routes. Adjust their products to meet the requirements of the Member State markets they want to enter. Even if this strategy is followed the enterprise will have to demonstrate to national authorities that their product does meet the requirements of the Member State targeted for exporting.

·Demonstrating meeting regulatory requirements (action 2 in decision tree graphic) – Interviews are ongoing with enterprises to provide insight on how they meet regulatory requirements. As noted previously Pelkmans identified three components to this action. A two-stage process is usually evident. Firstly, this option requires an assessment of information about Mutual Recognition principles for their product and the requirements for the target Market State (Pelkmans described these as ‘information costs’). There was a relatively high level of agreement amongst those interviewed that this, on average, takes between 10 and 30 hours for a single product. However, some larger businesses with many products reported undertaking continual monitoring of relevant information.

The second step is demonstrating to relevant authorities that the product can be sold lawfully in another Member State – Pelkmans described these as ‘transaction costs’. Interviewees suggested that this took between 30 and 50 hours. Pelkmans noted that undertaking these two activities should usually ensure that the third component identified – compliance costs; associated with judicial presentation or review – should be avoided. None of the businesses interviewed in connection with the decision tree model had incurred judicial costs. Since these judicial costs can usually be avoided by incurring ‘information’ and ‘transaction’ costs these are not included in the model.

At the average personnel costs quoted by enterprises (€60 per hour) the maximum time period of 80 hours (30 hours for information costs and 50 hours for transaction costs) equates to a cost of €4,800 per enterprise (per product per Member State). In the model this value can be adjusted, the default value is €4,800.

·Adjusting the product to meet market requirements (action 3 in decision tree graphic) – As noted above interviews are ongoing with enterprises to provide an insight to how many adjust products and the cost of adjusting products. Interviewees found it difficult to provide a precise cost for adjusting products due to different circumstances and the adjustments required. But the average estimate was two per cent of production costs. In the model this value can be adjusted, the default value is €16,800 145 .

·After adjusting the product an enterprise would still need to demonstrate to relevant authorities that the product can be sold lawfully in another Member State (hence the arrow ‘feeding back’ to the preceding element (demonstrating meetings regulatory requirements) of the decision tree in figure A4-10.

However, it is possible that after undertaking product adjustments that the enterprise may decide not to continue. Hence the vertical ‘no’ arrow in figure A4-10 which indicates a ‘lost opportunity’

·Cost of delayed market entry (action 4 in decision tree graphic) – The preceding elements take time and prevent immediate entry to the market. Enterprises suggest the average length of delay is about a month. They also report that the average cost of delay is between one and ten per cent of turnover, the average value is four per cent. In the model this value can be adjusted, the default value is €8,600 146 .

The preceding elements of the decision tree model have focused on the costs for businesses that decide to try and enter a market. Fairly robust insights to these costs have been obtained from businesses.

A further significant element that needs to be considered is the potential lost opportunity to those businesses that decide not to try and enter markets. These costs (from a lost opportunity) are independent from those of the business that do export and should regarded separately.

Lost opportunity costs are much harder to estimate. The majority of businesses in most sectors do not export for a wide variety of reasons. The proportion of businesses deciding not to export due to one reason - the sub-optimal functioning of the Mutual Recognition principle - is very difficult to estimate. Nonetheless, for completeness this study provides a transparent estimate of the possible number of businesses and the value of lost trade. These subjective assumptions are explicitly presented below and the spread sheet model enables relevant values to be adjusted to enable sensitivity analysis.

·Lost opportunity (action 1 in decision tree graphic) – Lost opportunity is difficult to investigate because it represents the outcome of a ‘do nothing’ option. However, logic would dictate that if rewards were high enough all enterprises would do something. Therefore the enterprises that ‘do nothing’ are probably those that predict that perceived costs of the preceding elements (actions 2 and 3) will be greater than the benefits they might receive, plus a small ‘premium for the risk’ of ‘doing something’.

Enterprises suggest their estimate of lost opportunities was between one and ten per cent of turnover, with an average value of 3.5 per cent of turnover. This represents an average value for of intra-EU exporting enterprises of €7,525 per annum.

The other difficulty concerning ‘lost opportunities’ is the number of enterprises that might have seriously considered exporting. The average number of enterprises undertaking intra-EU exporting of non-harmonised products is 14.7 per cent (262,940 enterprises). Clearly it would not be reasonable to assume that the remaining 85.3 per cent (approx. 1,520,000) of enterprises producing non-harmonised products but not exporting should be included in ‘lost opportunity’ calculations. Interviews with enterprises did not provide an insight to their perceptions of lost opportunity because those willing to respond were all exporters. The model therefore assumes that the number of enterprises seriously considering intra-EU exporting, but deciding not to go ahead, will be twice the number that actually do export. In the model the number of enterprises that incur a ‘lost opportunity’ is set at 29 per cent (twice the 14.7 per cent that export; 441,000 enterprises) of non-harmonised producing enterprises that do not export, this value can be adjusted in the model.

The decision tree has been developed into a model that can be adjusted (for the key components documented above, in a manner similar to sensitivity analysis), to estimate the costs of sub-optimal functioning of the Mutual Recognition principle. The methodology is founded on the analysis of the value of intra EU exports (in non-harmonised products) presented in the preceding chapter. Previous analysis in this study focused on the Standard International Trade Classification (a classification of goods used to classify the exports and imports - SITC). Data related to this classification did not provide an accurate insight into the number of enterprises in the sectors or the proportion undertaking Intra-EU exporting.

The decision tree has been developed into a model that can be adjusted (for the key components documented above, in a manner similar to sensitivity analysis), to estimate the cost of sub-optimal functioning of the Mutual Recognition principle. The methodology is founded on analysis of the value of intra EU exports (in non-harmonised products) presented in the preceding chapter. Previous analysis in this study (submitted in December 2016) focused on the Standard International Trade Classification (a classification of goods used to classify the exports and imports - SITC). Data related to this classification did not provide an accurate insight into the number of enterprises in the sectors or the proportion undertaking Intra-EU exporting.

The current approach therefore uses the statistical classification of economic activities in the European Community, abbreviated as NACE 147 . This approach provides more granular insights and importantly detailed insights into the number of enterprises in sectors and exporting. Enterprise level data enables ‘real-world’ insights from interviews with enterprises, undertaken during the study, to be introduced into the model. This overcomes the shortcoming earlier in the study (due to a lack of information about the number of enterprises with SITC data) of making assumptions about enterprise exports and the number of companies undertaking intra-EU exports.

4.2.2.The Sub-optimal Functioning of the Mutual Recognition model

Like any model the Sub-optimal Functioning of the Mutual Recognition model (henceforth called the SFMR model) is a simplified framework designed to illustrate complex processes, using mathematical techniques. The model establishes an argumentative framework for applying logic and mathematics that can be independently discussed and tested and that can be applied in various instances. The model does not pretend to be a theoretical representation (such theories do not exist). Instead, it builds on previous conceptual studies and provides the basis for discussing key parameters and drawing conclusions from a model that is an approximate representation of economic facts. Feedback from the Commission has been beneficial in further refining the model and its underlying assumptions.

As noted above the model is a representation of reality. However, the values presented in the various components of the new model are founded on feedback from enterprises 148 . The default values, described earlier, are based on input from nine enterprises that took part in the first round of interviews. As more interviews with enterprises are completed the values presented in the various components of the model can be further refined. But it is not expected that values will change very much.

The model provides estimates of costs. It will probably be most useful in providing an insight to the relative differences of costs in different parts of the model and the different non-harmonised sectors. This should help policymakers to focus activities in the areas or sectors that offer the highest level of returns.

4.2.3.Number of enterprises undertaking non-harmonised trade

The research team have developed an approach that converts SITC Trade volume (€) to NACE codes whilst aligning non-harmonised NACE categories. This can then be reliably cross-tabulated with Eurostat data on the number of enterprises exporting. EC studies have also investigated worldwide exports and intra-EU exporting at enterprise level. We have thus found a method to robustly estimate (from Eurostat data) the number of enterprises at EU28 level undertaking intra-EU exports.

Table A-4-7 provides an overview of trade volumes and the number of enterprises producing and intra-EU exporting non-harmonised products. The average number of enterprises intra-EU exporting is 14.7 per cent of enterprises (262,940) in the non-harmonised sectors. However, as the table indicates there is considerable variation between sectors – ranging from 10.6 per cent of enterprises in the ‘Other manufacturing, and repair and installation of machinery and equipment’ (but this still represents 65,227 enterprises) to 35.2 per cent in the ‘Manufacture of computer, electronic and optical products’ sector, despite the relatively high percentage figure the number of enterprises intra-EU exporting is only 1,766.

If policymakers decided to focus improvements on the sectors with the highest number of enterprises they should select the ‘Manufacture of wood and paper products, and printing’ (71,706) intra-EU exporting enterprises) and ‘Other manufacturing, and repair and installation of machinery and equipment’ (65,227). These two sectors comprise 136,933 enterprises or 52 per cent of intra-EU exporting enterprises.

Interestingly these two sectors also comprise the enterprises with some of the lowest average turnover in the nine non-harmonised sectors examined in this analysis (wood €156,000 per enterprise per annum, other manufacturing €44,000). These relatively small sized/turnover enterprises are probably the least able to afford costs associated with meeting or demonstrating market requirements in other EU Member States (estimated at €9073 for enterprises adjusting products and demonstrating market compliance). It must be highlighted that these observations relate to average enterprises sizes, larger and smaller enterprises will obviously operate in the markets.

Table A4-7: Trade volume and enterprises undertaking non-harmonised intra-EU exporting

Source: Structural Business Statistics

Costs associated with the decision tree model

Table A4-8 uses the evidence based default values presented in section 4.2.1 to provide an overview of costs associated with market entry for non-harmonised products.

Table A4-8: Enterprise costs associated with market entry for non-harmonised products

Table A4-8 provides an overview of the costs of getting one non-harmonised product into a single EU Member State. The table shows that in nearly all sectors the lowest proportion of costs (average €4,775 per enterprise) is associated with demonstrating meeting regulatory requirements. Section 4.2.1 noted that on average these represented only 80 hours of time per enterprise.

Costs are obviously increased for enterprises that incur this regulatory cost and undertake product adjustments, on average these costs are €9,073 per enterprise undertaking this route to intra-EU exporting.

The largest costs are associated with a delay in market entry, this was estimated to cost four per cent of turnover or approximately €8,596 per enterprise.

4.2.4.Lost Opportunity 

The estimate presented in Error! Not a valid bookmark self-reference. uses a multiplicand of 441,000 enterprises (previously described in section 4.1 as the number suff ering a lost opportunity at twice the number that actually do export, this equates to 29 per cent of non-harmonised non-exporting enterprises). This provides an average value for intra-EU exporting enterprises of €7,525 per annum.

Table A4-9 provides an overview of the level and cost of lost opportunities in the sectors examined. Section 4.2.1 noted that this element of the model is more subjective and enterprises choose not export for a wide variety of reasons. The proportion of enterprises not exporting due to the sub-optimal functioning of the Mutual Recognition principle is very difficult to estimate. The model assumes that the number of enterprises seriously considering intra-EU exporting, but deciding not to go ahead, will be twice the number that actually do export. The number of enterprises that incur a ‘lost opportunity’ is set at 27 per cent in the model (twice the 14.7 per cent that do export of non-harmonised products), this value can be adjusted in the model. Section 4.2.1 also highlighted that enterprises estimated lost opportunities averaged a value of 3.5 per cent of turnover. The estimate presented in Error! Not a valid bookmark self -reference. uses a multiplicand of 441,000 enterprises (previously described in section 4.1 as the number suffering a lost opportunity at twice the number that actually do export, this equates to 29 per cent of non-harmonised non-exporting enterprises). This provides an average value for intra-EU exporting enterprises of €7,525 per annum.

Table A4-9: Enterprise costs associated with lost opportunities for intra-EU exporting

4.2.5.The Sub-optimal Functioning of the Mutual Recognition (SFMR) model

Figure A4-11 provides an overview of the key components of the model to estimate the costs of sub-optimal functioning of the Mutual Recognition principle. Preceding sections have described each component of the model and the assumptions used in calculations. As noted earlier, it is important to stress that the model provides costs associated with an enterprise introducing one product into one EU Member State.

Figure A4-11: Costs and lost opportunity calculations associated with the decision tree diagram for export decisions associated with products not covered by the Mutual Recognition principle

As noted earlier The SFMR model has been developed as an MS excel spreadsheet. It enables users to change the values of all the key assumptions.

The final component of the model enables users to enter values for enterprises introducing more than one product into more than one EU Member States per annum. The model does not take account of whether exporting enterprises will continue to export in later years, nor does it examine any further costs associated with the sub-optimal functioning of the Mutual Recognition principle.

Table A4-10: Results of sensitivity analysis examining different numbers of products and Member States targeted by exporters per annum

Table A4-10 provides an overview of costs associated with different numbers of products and different numbers of Member States targeted for exporting.

Table A4- 7 highlighted that the value of intra-EU exporting is €383 billion and the average turnover per intra-EU exporting enterprise is €215,000. Many of the scenarios presented in Table A4-10 would therefore appear to be unrealistic. Most enterprises would not be able to afford the costs associated with multiple products or markets (for many of the scenarios in Table A4-10 costs per enterprise are above the average enterprise turnover). Equally, it is unrealistic to assume that costs associated with market entry would come close to or exceed the total size of the market (see the two final scenarios in Table A4-10 ; in relation to the value of intra-EU exporting [€383 billion].

This observation about the number of products being developed matches the results from the enterprises. Only one claimed to be developing more than one product a year for EU exports. This company, with 48 employees, was also the only one providing an insight to the number of EU countries targeted for new products – it was targeting only two Member States.

4.2.6.Conclusion

The SFMR presents a model to estimate the magnitude of the problem. It should be possible to make revisions to the model when additional feedback from enterprises is derived from the case study component of the research.

Due to the nature of the problem and complexities and costs that would be associated with a detailed evaluation it is not possible to undertake a complete evaluation of the problem. The model therefore contains assumptions that have been fully explained in preceding sections. Assumptions in the model are based on feedback from exporting enterprises 149 . Commentators and observers might have different views concerning some of the assumptions. Without further evidence no single viewpoint should be regarded as ‘correct’. For this reason values associated with assumptions in the model can be changed. And changes (to ‘default’ values) can be made when field research is complete.

Nonetheless, the model still has provided an estimate of costs associated with the sub-optimal functioning of the Mutual Recognition principle. Table A4-8 provides an overview of the assumptions (in brackets) and key results described in preceding sections.

Annex 5 harmonised non-harmonised and partially harmonised products- sector and product level analysis

1.Harmonised, Non-Harmonised and partially harmonised sectors - Classification used in the market analysis (Sectorial Level) 150

2.Products classified as non or partially harmonised in the market analysis (Product level) 151 by sector