Internal market Strategy - Priorities 2003-2006

The aim of this strategy is to strengthen the internal market to take full advantage of an enlarged market counting 25 Member States. To this end, the strategy draws up a list of priorities and a work schedule for the period 2003-2006.

ACT

Internal Market Strategy - Priorities 2003-2006 [COM(2003) 238 final - Not published in the Official Journal].

SUMMARY

The strategy is aimed at strengthening the foundations of the internal market: barriers to trade in goods and services must be eliminated, and it must be ensured that European legislation is applied and implemented correctly. The strategy therefore sets out a list of priorities and a schedule for putting them into practice. This should be regarded as a joint work schedule to which the Council, the Parliament and the Member States should devote all their efforts.

Priorities

Facilitating the free movement of goods. Technical obstacles continue to hamper the free movement of goods between Member States and cross-border trade still remains more costly and complex than doing business within a Member State. Free movement of goods (and services) is based above all on confidence in the controls carried out by other Member States. There is therefore a need for measures that strengthen this confidence in the operation of the legal framework for the free movement of goods.

The Commission is proposing the adoption of a new Community Regulation that establishes the key principles of mutual recognition, particularly mandatory notification when mutual recognition is refused. The Commission will first of all consult widely with all parties concerned. With regard to the new approach in the field of technical harmonisation, the Commission has set out the improvements it intends to make in a recent communication on the new approach. The development of European standards could be speeded up through better cooperation among the European standardisation organisations. The Commission will sign partnership and performance contracts with these organisations in 2003. When it comes to sustainable economic development, the Commission plans to take measures, particularly the adoption of a communication and a framework directive, which ensure that environmental requirements are not an impediment to free movement. As regards product safety, the Commission will report on the application of the new reinforced directive in 2006.

Integrating services markets. In the field of services, there are still considerable differences between Member States in their detailed legislation, which is a barrier to the free movement of services. These barriers affect all stages of the business process from the establishment of the business right through to after-sales service, which deters companies, and particularly small and medium-sized enterprises (SMEs), from operating in another Member State.

The Council and Parliament should adopt the proposed regulation on sales promotion and the directive on the recognition of professional qualifications. In 2003, the Commission will also make a proposal for a directive on services in the internal market which will establish a clear and balanced legal framework. Subject to the results of a feasibility study, there are also plans to propose the extension of the screening mechanism for draft national technical regulations (to cover services other than information society services). The remaining Financial Services Action Plan (FSAP) measures, notably the Prospectus Directive, the Investment Services Directive, the Transparency Directive, the Consumer Credit Directive, and the Retail Financial Services Directive should be adopted. The plans for 2003 also include a communication on clearing and settlement in the single European payments area and facilitating cross-border share trading. In early 2004, the Commission will propose a new capital adequacy directive.

Setting up high quality network industries. Over the past ten years, network industry markets have opened up significantly thanks to technological developments and Community legislation. Network industries are subject to specific public service obligations. The Commission will shortly publish a Green Paper in order to launch a wide-ranging debate on the issues to be resolved in this field.

Massive investment will be needed to raise the quality of the infrastructure in Europe, particularly in the accession countries. A closer partnership between the public and private sectors would be useful in generating this investment although some questions still need to be answered.

With regard to the transport sector, the Council and Parliament should rapidly adopt the "second railway package", the proposal on controlled competition for public transport, the package designed to create a single European sky and access to port services. The Commission is to negotiate an open skies agreement with the USA. The Commission intends to bring forward proposals to open the passenger transport market. The Council should rapidly adopt and implement the "energy package" to liberalise the gas and energy markets completely by 2007. The Commission will also undertake a review of the situation in the water and waste-water sector. The directive on opening up substantial sections of the postal services market to competition should be implemented in full.

Reducing the impact of tax obstacles. The existence of 25 different systems of corporate taxation poses a problem for the smooth operation of the internal market. Problems such as the current system of VAT, transfers between two companies in the same group, different tax rates between Member States (e.g. on dividends) and others act as a strong disincentive to cross-border commitments in the internal market.

To reduce tax obstacles, the Commission proposes a revision of the Parent/Subsidiary Directive and of the Merger Directive. In the longer term, the Commission aims to introduce a common consolidated corporate tax base at EU level. On VAT, the Commission will issue a communication setting out measures to modernise and simplify the existing system. On vehicle taxation, it recommends that registration tax should be phased out. On dividends, the Commission will take action to ensure non-discriminatory treatment.

Expanding procurement opportunities. Cross-border participation in contract award procedures is still limited. This lack of competition in the field of public procurement leads to lost business opportunities and, especially, the inefficient use of taxpayers' money. The various national rules should therefore be simplified and harmonised as regards competitive tendering procedures. Public-private partnerships should be encouraged.

The Council and Parliament should adopt the legislative procurement package. Transposition of this legislative package into national law could provide an excellent opportunity for Member States to streamline and simplify their legislation and applicable procedures. The Commission will suggest that Member States confer onto an existing national surveillance authority (or onto another national body) the power to bring cases before a review body or court to seek effective remedies. The recently established public procurement network should be extended to include all Member States and the European Economic Area (EEA). The Member States should ensure that all their operational e-procurement systems are in full compliance with the requirements of the legislative package by the time it enters into force. In the area of European defence procurement, the Commission will present an interpretative Communication of the European Court of Justice's most recent rulings on such matters, as well as a Green Paper on European defence procurement in 2004.

Improving conditions for business. The policy measures required to foster entrepreneurship and innovation are within the direct control of Member States. The Commission organises exchanges of experience and best practice in this field through its BEST programme. However, Internal Market policies are also directly relevant to boosting entrepreneurship and innovation within what is an increasingly knowledge based economy.

The Council should rapidly adopt the final version of the Regulation providing for a Community patent. Likewise, the Directive to strengthen the enforcement of intellectual property rights and the Directive on the patentability of computer-implemented inventions should also be adopted quickly. State aid should be cut back. The Commission will adopt an action plan on company law and corporate governance in the EU. Shorter term actions will include proposals on company law, cross-border mergers and cross-border transfers of seat. The take-over bids Directive should be adopted without delay.

Meeting the demographic challenge. The ageing of the population presents a challenge for pension systems, economic growth, public finances and health systems. Certain measures at Community level can play a useful role as regards occupational pensions, particularly in establishing a prudential framework allowing pension funds to operate efficiently in the Internal Market.

Member States must implement the Pension Funds Directive as planned. After consulting the social partners, the Commission might propose a Directive on the portability of occupational pensions. In addition, the Commission will continue its determined action to tackle tax discrimination against pension funds established in other Member States. In the area of health services - upon which the free movement of persons in the internal market has an impact - the Commission will launch a consultation process in order to develop a shared vision with the Member States.

Simplifying the regulatory environment. Improving and simplifying the regulatory environment is essential for competitiveness. It is also important when transposing European legislation into Member State law.

The Commission will launch a wide-ranging reflection and consultation on the legislative architecture of the Internal Market and issue its conclusions in 2004. The idea of an Internal Market "compatibility test" will be developed with the European Parliament and the Council to offer guidance to legislators at national level as to how to reduce, in the longer term, the risks of the fragmentation of the internal market. The Commission invites the Council to establish a horizontal working group on "better regulation" with which the Commission could interact. Indicators will be developed in cooperation with the Member States to measure progress, particularly in reducing administrative burdens

Enforcing the rules. Member States must play an active role in the day-to-day management of the Internal Market in order to ensure the effective application of the measures taken. The only ways of resolving a problem are to lodge a complaint with the Commission, which could lead to infringement procedures against a Member State, or litigation at national level. These two options involve slow, and sometimes expensive, procedures. The Commission has developed the SOLVIT initiative that is intended to improve the proper application of internal market rules.

Member States should set more ambitious transposition targets to maintain the political pressure on the transposition of directives. The Commission will issue a Recommendation on "best practices" and intensify its preventive dialogue with the Member States. There could also be a case for obliging the Member States to notify the Commission of measures electronically and to provide it with concordance tables. A standard transposition period (2 years), standard sanctions clauses and standard clauses to put administrative cooperation on a stronger footing could all be developed. The Commission also asks Member States to half their number of infringements by 2006.

The Commission will set up a special section on the EUROPA web site informing citizens and businesses how to defend their rights under Community legislation. To improve consumer protection, the Commission will propose a Regulation which will establish a network of public enforcement authorities throughout the European Union.

Improving information policy. Citizens and businesses need to know about their internal market rights and opportunities so that they can make the most of this market. An information policy is thus vital to take the internal market forward.

Member States should develop national plans to raise general awareness of internal market opportunities among their own citizens and businesses. Special attention should be paid to the new Member States, with the existing information tools being expanded gradually. New Internet portals will be set up. The Euroguichets network will be extended so that there is at least one European Consumer Centre in each Member State.

Getting the best out of the enlarged internal market

Incorporating the Community acquis and the enforcement of Community legislation in the new Member States is no small task. There will inevitably be some problems during the initial post-accession period, but these will need to be solved at an early stage in order to avoid the need to invoke the safeguard clause. This clause, which is intended to protect the smooth functioning of the internal market, can be used by the Commission up until 1 May 2007.

The Accession Countries could notify the Commission of their implementing measures even before accession, which facilitates the process of notification and checking of conformity with Community law. The Commission urges the Accession Countries to quickly complete the screening of their legislation and to repeal any discriminatory rules and regulations. The competent authorities and enforcement officials looking at the implications of enlargement should be kept fully informed. The Commission urges officials from the Accession Countries to attend short-term traineeships.

International context of the internal market

Following enlargement, the next challenge for the EU is to develop closer relationships with our new neighbours - Russia, Ukraine, Moldova, Belarus and the Southern Mediterranean countries. Provided that they progressively align their regulations with ours, they could be offered better access to European markets. In today's highly globalised economy, a regulation adopted in another country can have an impact in the EU. The result is that European regulators now need to be much more systematic about talking to their counterparts in our major trading partners.

To implement the "new neighbours" concept, new agreements could be concluded with these countries to supplement the Partnership and Cooperation Agreements or Association Agreements which already exist. The Commission will continue to promote and defend the EU's regulatory approach within international bodies, such as the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). The Commission will also strengthen the dialogue with the USA on financial markets. In addition, the Commission will seek to improve controls at external frontiers via a common risk management approach.

Monitoring

This strategy will be monitored on three levels. The first task is to check whether the proposed measures have been adopted on time. The second task is to ensure that the measures adopted are being properly enforced. Finally, the impact of these measures must be measured, i.e. their effect on markets, businesses and other economic operators.

The Commission already has some indicators to measure the effectiveness of its policies in certain specific sectors. An implementation report on the internal market strategy will be compiled to supplement the report on the functioning of product and capital markets (the "Cardiff" Report), the competitiveness report, and the different Commission Scoreboards.

29.The Annex to this Communication is made up of tables containing the measures for this strategy as well as a provisional timetable.

Background

The Internal Market Strategy is one of the key economic policy coordination instruments at EU level, alongside the Broad Economic Policy Guidelines (BEPG) and the Employment Guidelines (EG). This strategy will also be an important input into the work of the new Competitiveness Council. It is, moreover, a response to the European Parliament's calls for a new initiative to speed up the delivery of key reforms.

The new internal market strategy should also provide a fresh boost in realising the ambitious objective set by the Lisbon process by 2010. Furthermore, with enlargement only a year away, the internal market needs to be strengthened in order to avoid the risk of fragmentation and to take full advantage of the opportunities this enlarged market offers to the Member States. Finally, the strategy should help press ahead with the structural reforms required in order to increase the growth capacity of Europe's economies.

RELATED ACTS

Communication from the Commission "Second Implementation Report of the Internal Market Strategy 2003-2006" [COM(2005) 11 final - Not published in the Official Journal]. The second report on the implementation of the Internal Market Strategy (2003-2006) states that in 2004 the integration of the Internal Market slowed down. The Commission stresses the importance of stepping up integration of the market in the Union of the 25, which offers scope for a significant increase in trade and investment in the short and medium term. The measures adopted in areas such as financial services, network industries or company law in the enlarged Internal Market will soon begin producing positive effects on the ground.

As for the legal framework for the Internal Market, two thirds of the legislative improvement measures that the Commission wished to see in 2004 were fully adopted. However, the report mentions that several important Commission proposals still need to be decided on in Council and Parliament - i.e. those concerning the Community patent, simplification of the recognition of professional qualifications, and pan-European sales promotions

The Commission therefore proposed that urgent action be taken on four fronts:

• Completing the legal framework;
• Taking better care of the existing framework;
• Ensuring greater consistency and synergy with other Community policies;
• Ensuring the Internal Market legal framework is better attuned to the global economic framework.

Communication from the Commission "Report on the implementation of the Internal Market Strategy (2003-2006)" [COM(2004) 22 final - Not published in the Official Journal].

In January 2004, the Commission presented its first report on the implementation of the Internal Market Strategy for 2003-2006. In general, the Commission noted that the results recorded in the first eight months after the strategy was adopted were mixed. Over half of the actions which were to be completed by the end of 2003 have been delivered on time. However, many of those which have been delayed are legislative files which are important, or even crucial, for the EU's future competitiveness.

The Commission therefore proposed that urgent action be taken during 2004 on two fronts:

• first, on the key legislative files such as the Community Patent, the enforcement of intellectual property rights, the recognition of professional qualifications, and the Financial Services Action Plan;
• second, the development and implementation of the concept of "better governance", and more specifically that Member States need to work together in partnership and perform the necessary tasks which are incumbent upon them (faster and better transposition of European law, stronger co-operation between national administrations, etc.).

According to the Commission, success will help breathe new life into the " Lisbon strategy" and strengthen the foundations of the internal market (more intra-EU trade, more competition, better productivity, etc.).

See also

For further information, please consult:

Full version of the Internal Market Strategy 2003-2006 (PDF).

Site of the Internal Market Directorate-General on Internal Market Strategy and Implementation.

Last updated: 13.02.2006