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Tag ‘single market’

Looking behind headlines about the cost of “Brussels red tape”

Friday, September 27th, 2013

The cost of EU regulation comes up almost weekly in the media, with various very large figures being quoted.

To read some reports one might think that the issue was simple: simply get rid of the regulations – or even of the EU altogether – and whatever astronomical sum has been quoted as the cost of EU law would be recovered for businesses and the taxpayer.

But that is far from the case and many reports on this issue are at best one-sided and at worst deliberately misleading.

Here are twelve points reports often do not have room to mention, or choose to ignore.

1/ The cost figures mentioned – which in many cases are highly contentious anyway – nearly always refer to estimates of the gross economic cost. In other words what it costs companies and individuals to comply with EU rules, without taking account of the benefits of those rules or the costs of not having them. Most UK businesses, while they might well have concerns about certain aspects, recognize the net economic benefits EU-wide regulation brings – see this recent CBI survey, where eight out of ten say they want the UK to remain in the EU.

2/ Some benefits are not primarily economic, but perhaps even more important. Having strict requirements at EU level to ensure that toys are safe, for example, certainly has a financial cost to producers but also saves children from injury and death.  Rules on food labelling help ensure that consumers know what they are buying and feeding to their families. Restrictions on tobacco packaging and advertising and rules on air quality of course involve compliance costs. But they prolong life expectancy and reduce illness. They also reduce public healthcare costs.

3/ The UK government has estimated that the EU single market is worth up to £92 billion in additional wealth annually to the UK. There could be no single market without EU regulation. EU single market rules either replace national rules or, under so-called “mutual recognition”, allow UK companies to trade Europe-wide while complying only with UK rules. There is certainly a gross cost to UK exporters for complying with EU rules requiring minimum standards and consumer safeguards for, say, electrical products. But complying with one set of rules represents a huge reduction in regulatory burden – and thus a big net benefit -compared to having to deal with a patchwork of different sets of national rules.

4/ Opponents of the EU sometimes claim EU regulation places additional burdens on UK companies that do not trade across borders. This presumes national regulation would be lighter, often not the case (see below). In any case, over 300,000 UK companies do trade with other countries in the European Union. Moreover, the reduction in bureaucracy and in costs resulting from being in the single market benefits all businesses and not just those who export to other EU Member States. Many UK SMEs purchase supplies from elsewhere in the EU at competitive prices or employ migrant workers, without excessive red tape. Others – especially in the services sector – benefit from increased demand in the economy that would not be there without the additional wealth generated by the single market.

5/ Some EU regulation is specifically designed to cut business costs and slash red tape. The Services Directive, for example, has eliminated hundreds of discriminatory, unjustified or disproportionate national requirements stopping services providers big and small from trading across borders. To take another example, the unitary EU patent will cut the costs of getting patent protection EU-wide by 80%.

6/ Other types of regulation do create extra costs for businesses, but do so in order to ensure fairness for consumers. For example, EU rules drastically cutting the cost of mobile phone roaming or those requiring proper compensation for airline passengers stranded by delayed or cancelled flights.

7/ Some other regulations may have a significant short-term cost, but help to avoid the risk of a far greater cost in the long-term.  For example, rules prohibiting the use of dangerous pesticides that harm bees have an economic cost if the replacement products are more expensive – but if bees do not flourish then many vital crops will not either, causing far greater economic and environmental damage that does not stop at national borders.

8/ The run-up to the financial and economic crisis is one of the best examples in history of the potential cost of insufficient regulation. Earlier laxity is being corrected in the EU and other jurisdictions. For example, tougher requirements on the level of capital banks must hold are being introduced. This means that banks’ ability to issue loans and trade in the markets is reduced, which reduces profits and has a cost to the economy. But the lack of sufficiently strict capital requirements before the financial crisis was one reason why banks could borrow more and more money, issue bad loans and speculate recklessly. A repeat would cost the economy trillions of pounds and millions of jobs, a huge multiple of the cost of implementing the stricter rules. EU financial regulation aims to stop that happening. By creating a level playing field, it avoids a “race to the bottom” where jurisdictions with weak oversight could attract  business unfairly and endanger everyone in the process.

9/ Another issue rarely reflected in estimates of the cost of EU regulation is whether, if EU rules were removed, Member States would simply introduce their own similar ones. For example, there have been many criticisms of the Working Time Directive. It is being reviewed. But if it were not there at all, that does not mean national governments would completely dispense with rules limiting working time or stipulating minimum breaks.  In most advanced industrial economies, there are such rules and voters might not tolerate their absence. A European framework of social and health and safety rules also means good employers in the UK cannot be undercut by less scrupulous ones elsewhere exploiting the work force and cutting corners on safety.

10/ Burdensome national rules are also sometimes blamed on the EU when they do not stem from EU law at all. In writing EU law into national law, Member States sometimes go much further than what has been agreed at EU level. This phenomenon is known as “gold plating”.  One UK example, on unnecessary requirements for mechanics working on HGVs to be trained to drive such vehicles, can be found here.  In the CBI survey referred to above, 46% of UK businesses saw reducing this sort of gold plating as a priority – more than 39% who cited reducing EU regulation itself as a priority.

11/ In some cases, purely national rules simply would not work. Take the case of pollution of the air or sea from an industrial plant across the Channel or North Sea from the UK.  Strict UK rules on such things would be entirely ineffective if neighbouring Member States did not also have such rules, as windborne or waterborne harmful material cannot be stopped at the ports. EU environmental regulation ensures that citizens have equal protection wherever they are in Europe and that companies cannot gain an unfair advantage by scrimping on environmental protection.  Again, having to make sometimes technically complex arrangements for disposing of waste or cutting emissions has a cost for businesses – but dealing with the consequences of laxer rules or of a patchwork of rules would have a far greater financial cost for taxpayers.

12/ Finally, EU-wide regulation brings benefits for trade with countries outside the European Union. Many other jurisdictions, including sometimes China, wholly or partially implement at home standards and rules similar to those applied in the EU – the world’s biggest market in GDP terms. They do this to make it easier for their companies to trade both domestically and worldwide without using different production lines and without facing “technical barriers” – obstacles to trade arising from a patchwork of fragmented rules in different jurisdictions. External access to the EU single market – and yes, to its body of rules covering a market of 500 million consumers – is also what encourages other large trading nations or blocs to negotiate trade agreements with the EU on terms they would not offer to individual Member States. This is evident in the current negotiations with the US.

What is Europe doing to improve regulation?

Of course, it is right that academics, think-tanks and media should scrutinise the costs of regulation and keep the pressure on the EU institutions to keep them as low as possible, consistent with proper functioning of markets – which cannot work without a legal framework – with safety and with consumer protection.

And EU regulations, just like national ones, are sometimes far from perfect. They have sometimes introduced avoidable costs. They need to be kept under constant review to ensure they have not become redundant thanks to technological change.

It is not good enough just for EU law to comprise a lower overall compliance cost on business than a patchwork of national laws. That cost should be reduced to the minimum compatible with the rules being fair and effective.

And sometimes, when rules or their absence have little or no cross-border effect or when there is no distortion of the single market from having different rules in different places, it is indeed more effective to leave regulation to the discretion of individual national, regional or local governments rather than seek agreement at EU level. That is the principle of subsidiarity. Commission President José Manuel Barroso recently reiterated its importance, saying: “The EU needs to be big on big things and smaller on smaller things”.

So the Commission has in recent years had as a top priority improving the way EU legislation is prepared.

Major consultation exercises with stakeholders and the public precede any European Commission proposal. When draft legislation is submitted to MEPs and national ministers – who collectively make the final decisions on whether EU law will be introduced or changed and in what form it will take – it is accompanied by a detailed impact assessment setting out what the costs and benefits are expected to be. Member State governments have the opportunity to scrutinise and question those impact assessments before taking a position on whether to support the proposal.

In parallel, the Commission has streamlined existing legislation and repealed nearly 6,000 legal acts since 2005. The Administrative Burden programme launched in 2007 is cutting costs to business across Europe by around €38 billion. More detail on these and other initiatives can be found here.

In 2012, the Commission initiated a Regulatory Fitness and Performance Programme (REFIT).  It will publish on 2 October 2013 a report detailing the action to be taken to cut further the costs of EU regulation. That will be based on, among other things, a survey of SMEs asking them to identify the ten EU measures they found most burdensome.

UK and financing of EU budget – looking beyond ONS figures

Friday, August 2nd, 2013

Once again, outlandish headlines have appeared on how much the UK government contributes to the EU budget sparked by the publication of the UK’s balance of payments figures by the Office of National Statistics.

With such claims as “We bankroll EU to tune of £20bn” (Daily Mail), whilst Express reports “Another 1.4bn reasons for us to leave the EU” – (£1.4bn being the alleged rise in the UK’s net contribution in the twelve months ending 2012), readers could be forgiven for thinking the UK simply pours this money down the drain and gets nothing in return.

Of course, there’s more to this story than a quick glance of the ONS figures might suggest.

The figures bandied about do not provide a complete picture of all the EU funding that comes back to the UK.

The ONS figures usually take account of payments only from the EU budget to the UK central and local government sector. For instance, payments to farmers pass through the Department for Environment, Food and Rural Affairs whilst payments under cohesion funding pass through the Department for Communities and Local Government, so both of those are included.

However, they don’t count payments from the EU budget which go directly to British SMEs, experts, universities, NGOs (eg via EU research and innovation and digital agenda budgets) and payments into public private partnerships (such as the EU innovative medicines initiative or green cars schemes) or payments from the EU education and training budget to schools.

In fact, between 2007-2013 the UK will have received €7.5 billion of EU funding for vital science research (eg £23 million towards the setting up of the National Graphene Institute at the University of Manchester will create hundreds of jobs in the North West and attract top researchers to the UK).

And then there are the less easy to calculate benefits which impact the pockets of every Brit, such as lower mobile charges and cheaper cars, or British companies who have benefitted significantly from building large infrastructure in the EU.

But don’t just take our word for it.

The UK government estimates the Single Market brings in between £30 billion and £90 billion a year into the UK economy.

A study published by the Department for Business and Innovation found:

– around 3.5 million jobs in the UK are linked to the export of goods and services to the EU.

– the Single Market may be responsible for income gains in the UK between 2% and 6%, that is between £1100 and £3300 a year per British household.

The only authoritative source for EU budget figures is the EU Financial Report published by European Commission annually.  Last year it revealed the UK’s net contribution for 2011 was €7.255 billion/£6 billion, representing 0.87% of UK public spending (£689 billion) in 2011 and making the UK only the sixth largest net contributor per capita.

The 2012 Financial Report will be issued in September 2013.

Letter to the Financial Times on Brussels strikes right balance on bank rules

Friday, August 5th, 2011

Sir, Your editorial “Blocking the way to bank stability” (August 3), on the European Union’s proposed implementation of Basel III rules to strengthen banks’ capital, seems to be based more on speculation than a close reading of the text.

We are not watering down the definition of capital. The Basel criteria are included in our legislative proposal. We await similar action by other jurisdictions.

The so-called “flexibility” for countries to increase capital requirements above Basel levels is not a matter of interpretation. Our proposals make clear how member states can increase minimum capital requirements to cope with their own specific situations. This is not an option either: those who are faced with higher risks must act to mitigate them. The only thing a national regulator cannot do is to increase capital requirements across the board for all its banks without informing its peers in the EU of the macroeconomic or financial stability reasons for doing so. There is not one situation in which a national supervisor cannot take action and address all the specific risks in a particular bank or in several banks under its supervision.

The UK – and the FT – have championed a single EU market in financial services for many years. So has the European Commission. The leaders of all EU countries called in 2009 for a single rulebook so that banks could operate across borders without facing different rules in each country. That is the right way to restore financial stability and the competitiveness of the banking sector. The Commission believes it has struck the right balance between the single rule book and due consideration for specific national circumstances. It is now for the European parliament and the Council of Ministers to consider the proposals and legislate in the normal way.

Lax supervision by some of those now calling for more autonomy outside the EU framework contributed in no small measure to the financial crisis. If there is a power grab here, it is by people who want to take advantage of the crisis to undo Europe’s single market. They must not be allowed to succeed.

Jonathan Faull,

Director General, Internal Market and Services,

European Commission

Let’s quit EU and link up with America

Monday, October 26th, 1998

The Sun, October 1998
We could … get out from under the deluge of idiotic Euro directives by withdrawing from political union. We could then join the renamed North American Free Trade Association.

The single market operates on the basis of enforceable rules – regulations and directives which have established the free movement of goods, services, capital and persons in the EU. Getting out from under the directives means getting out of the single market. This is not in the UK’s economic interest – as the Sun itself points out.
The EU has already negotiated substantial trade liberalisation with its largest trading partner – the United States. Joining the current Northern American Free Trade Agreement would actually represent a step backwards for UK companies trading with the United States for example in the recognition of product safety standards.
HM Treasury estimates that 50 per cent of UK overall foreign trade is with the European Union. Almost 60 per cent of UK foreign trade in goods is with the other 14 Member States. This myth is potentially damaging for Britain’s trade with both of its most important trading partners.

UK to be invaded by poor quality products

Saturday, January 16th, 1993

Myth: From January 1 1993, our markets will be invaded by products which will either be dangerous or of poor quality: furniture will be made of polyurethane foam (which is highly inflammable), fireworks will contain more explosive powder, prams and chairs for children will not be very reliable, safety hats will not be as safe as they might be, ooker doors will burn children’s hands…In other words the Single Market will be responsible for bringing about poor safety standards.

Response: There is no need for concern. All goods must still comply with existing safety requirements.

The celebrated “Cassis de Dijon” judgement by the European Court in February 1979 is the foundation of the new approach to the free movement of goods in accordance with the essential requirements needed for consumer protection. It specified, indeed, that a product which has been legally produced and marketed in one country can, normally, circulate within the Community. Nevertheless it is specified – and this is the crucial point – that the product must comply with the existing safety requirements, which have been determined either by the importing country or by the Community. In accordance with this double principle, Articles 100A and 100B of the Single European Act specify very clearly that:

(a) the Council of Ministers adopts, on a proposal from the Commission, legislative and administrative provisions based on a high level of consumer, as well as environmental protection for the whole of the Community.

(b) national standards in force before 1.1.1993 will remain valid and will not be systematically harmonised, unless the Council specify otherwise. It is therefore wrong to say or to believe that the safety requirements which had been established by the various Member States in the past will systematically be replaced after 1.1.1993. It is also wrong to believe that national authorities will not not be given the means to face new problems as of 1.1.1993. The Single European Act clearly states that the Member States may still evoke Article 36 of the Treaty of Rome, each time it is justified, whether EC harmonisation measures already exist or not.

The given example of fireworks highlights the current misunderstanding. There is no EC legislation on fireworks. Nonetheless European standards are currently being established by the manufacturers on their own initiative and within the framework of the European Standardisation Committee. At the end of the process, if everyone is satisfied, voluntary standards will apply, which manufacturers may choose to adopt or not. If, on the other hand, a Member State feels that consumer safeguards are insufficient, Article 36 enables the Member State to make legislation; and the European Commission will endeavour to develop a directive. The same procedure applies to the other aforementioned examples (prams, chairs for children, furniture with polyurethane foam), for which there are, at the moment no Community legislation. The Member States may also withdraw from their market, for valid reasons, products which they believe are dangerous for their consumers.

The same applies for products for which there is exiting Community legislation (for example safety hats and cookers). The legislation is adopted by the Council of Ministers, in cooperation with the european Parliament, after having received a proposal from the Commission. Community legislation dictates the essential requirements that products must attain to, and this is set to a high standard; these requirements specify manufacturer’s responsibilities. Voluntary standards are then established, at the request of the Commission, by the European Standardization Committee. These standards are presumed to comply with the esential requirements. Manufacturers who do not produce to these standards must, nevertheless, show compliance with the essential requirements. Article 100A of the Single European Act carries an additional safeguard: “If, after the adoption of a harmonisation measure by the Council … a Member State deems it necessary to apply national provisions on grounds of major needs referred to in Article 36 … it shall notify the Commission of these provisions. The Commission shall confirm the provisions after having verified that they are not a means of arbitrary discrimination”.

All precautions have been taken to ensure that the operations of the Single Market do not constitute health or safety hazards for the E consumer, but that, on the contrary, thry reinforce health and safety protection. National authorities, of course, have an essential role to play in the protection of their consumers, as well as of other consumers in the Community.

EC in the UK

Check the EC Representation in the UK website

Please note that all statements in all entries were correct on the date of publication given. However, older archived posts are not systematically updated in the light of later developments, for example changes to EU law.

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