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Single Market: business survey reveals cautious optimism

Commission Européenne - MEMO/97/99   19/11/1997

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MEMO/97/99

Brussels, 19 November 1997

Single Market: business survey reveals cautious optimism

The benefits expected from the Single Market are starting to feed into the economy and trade between Member States, according to an opinion poll carried out throughout the European Union (EU) in September 1997 among more than 3500 business executives (500 from large enterprises and about 3000 from Small and Medium Size enterprises (SME)). It confirms that competition has intensified and most obstacles to EU trade have been removed. The survey, conducted by an independent contractor on behalf of the European Commission, accompanies the Single Market Scoreboard also published today (see IP/97/1017).

"In the run-up to the single currency, which will effectively remove the last psychological barrier to cross-border trade, businesses' responses are encouraging as they show that, independently of their size, large, medium and small businesses are taking advantage of the possibilities offered by the Single Market", commented Single Market Commissioner Mario Monti. "The results confirm that we are on the right track but that the job remains unfinished and it is urgent to pursue our action to close the remaining gaps".

Businesses confirm their confidence in the Single Market

Businessmen interviewed consider that there is more competition today both at national and European level than in 1993. This has resulted in lower prices, improved product variety and better quality. Although these effects cannot be exclusively attributed to the Single Market, since many other factors affect the markets' development, the Single Market is seen to be acting as a catalyst. Some 45% of all companies interviewed reckon that more competition as a result of the Single Market has been positive or very positive for their business. Only a quarter of the companies perceives more competition negatively. As might be expected, the intensity of competition has been more strongly felt by the companies that have experienced lower prices in their markets and have seen their market share drop.

SMEs' views are relatively more cautious than those of large companies. Nevertheless, more than 40% of SMEs consider the Single Market to have been beneficial for their business. This renewed evidence of SMEs' dynamism in seizing the opportunities offered by the removal of obstacles to the EU trade should encourage Member State governments to complete the Single Market agenda.

One out of two businessmen consider that obstacles to cross-border trade - obstacles have either disappeared altogether or have been significantly reduced. Positive views are stronger in manufacturing and among large enterprises. Business leaders who consider that administrative and regulatory obstacles have been significantly reduced in the last five years by far outnumber those who claim the opposite (about 35% against 7%). However, around a quarter of the business executives interviewed consider that not much has changed and therefore, that they continue to face obstacles in trading cross-border.

  • Figure 1: Removal of obstacles to cross-border trade of goods and services within the European Union, since 1993

    Large enterprises

    SMEs
    IndustryServicesIndustryServices
    Obstacles have:
    Totally disappeared 12.69.69.69.4
    Significantly reduced40.632.035.531.6
    Practically the same24.430.326.829.5
    Tended to increase5.84.47.66.9
    Never existed11.716.016.117.9
    Don't know4.97.64.44.8

    Remaining problems

    The grey areas identified by businesses, where further progress needs to be achieved, concern particularly the following:

    • * VAT rules, national technical specifications and testing/certification and
    •  approval procedures
    • * monitoring competition and maintaining a level playing field
    • * public procurement
    • * effective problem solving.

    Barriers to cross-border trade

    Despite the progress in eliminating barriers to intra-EU trade there remains a significant share of businesses that have encountered difficulties as a result of regulatory obstacles in the Single Market. Concerning potential trade obstacles, 59% of large enterprises and 55% of SMEs reported that they have encountered at least one obstacle and on average around three in carrying on business across frontiers. Figure 2 lists these obstacles according to the frequency they were cited in the survey.

    Figure 2: Remaining obstacles to trade: goods and services frequency cited

    Type of obstacles

    SMEs

    Large

    firms

    VAT: heavy or complex rules 21.9%18.1%
    Testing, certification or approval

    procedures

    19.9%18.8%
    National specifications requiring

    modifications

    19.2%25.0%
    Different labour or social legislation16.7%15.7%
    Environmental regulations14.8%19.4%
    Health and safety regulations13.6%16.5%
    Other obstacles11.1%14.1%
    Restricted access: special rights or licences10.5%12.1%
    Regulations protecting public interest and or consumers9.9%14.6%
    Refusal of products/services from other MS8.4%10.1%
    Tax obligations: offputting/discriminatory8.3%9.1%
    Poor protection of patents & industrial property6.3%6.4%
    Advertising/promotion/pricing restrictions5.3%7.7%

    At the top of the list come VAT rules. This is particularly the case for SMEs where more than one firm in five claims to have experienced problems in this regard. This is hardly surprising and supports the Commission argument that there is a need to overhaul and reform the present VAT system, as proposed by the Commission in its programme for the introduction of a common VAT system. Although these are perceived obstacles rather than established cases, they have to be considered carefully by Member States as business perceptions affect companies' strategy and behaviour.

    While businessmen do not really fear an outright refusal of products/services (less than 10 % of companies said this was a problem) it is clear that non-harmonised legislation is generally perceived to reduce the benefits companies would expect to draw from a Single Market.

    Competition conditions

    Increased competition between economic operators is accentuating the concern of businesses to improve their competitiveness and ensure a level playing field. The impact of the Single Market upon competition can be experienced upstream of production, i.e. between the different suppliers of a company, as well as downstream, i.e. when a company wants to sell its products. Increased competition is affecting companies in different ways at national and EU level and in different markets. It is not surprising therefore, that around 1 out of 5 businesses consider that distortions of competition have increased in the Single Market mainly due to government aid and subsidies that favour local competitors, anti-competitive practices from other competitors and differences in social legislation that distorts competition. Competition seems to have been equally intense at national and EU level and to have been felt in all sectors.

    Public procurement

    The survey pays particular attention to public procurement where market opening is still lagging behind. Even though survey suggests that businesses believes that EU public procurement does not, by any means, discourage small businesses (26% of all small firms surveyed express interest in selling to the public sector, a level equivalent to that of the larger players interviewed) and that the legislation may be starting to bite, the perception is that significant barriers remain. Around 35% of respondents feel that things have yet to change. A significant percentage of respondents, especially SMEs (10% of small firms surveyed), indicate that obstacles may have actually increased over the last three years, perhaps reflecting restructuring and concentration in several industrial sectors. Between 60 and 70% of respondents to the survey identify at least one direct restriction to targeted procurement markets. This may result from the fact that perceived barriers are both from a direct regulatory nature (i.e. resulting from poor or non-application of Community legislation) or a non-regulatory nature. The latter include traditional obstacles to trade such as linguistic or cultural barriers or the need, for marketing and commercial purposes, to establish a local presence. A very large number of respondents, however, allege that local preference and the reluctance to take on board new (and probably, therefore, foreign) suppliers are still standard purchasing practices. This may or may not be the result of an infringement of Community rules in this area.

    Some findings are particularly worrying. Almost 50% of larger companies indicating that restrictions affect their access to public procurement markets believe that purchasers are awarding contracts on the basis of criteria other than price and quality. Similarly, some 40% of small firms in the sample indicate that their access to procurement markets is hindered by the lack of publication of call for tenders. These two items are supposed, nevertheless to be key transparency and non-discrimination provisions built into the procurement Directives.

    Many of these issues have been the subject of consultations on the basis of the Green Paper on "Public procurement in the EU: exploring the way forward" issued by the Commission in November 1996 (see IP/96/1083). The preliminary results of these consultations will be presented by Commissioner Monti at a conference in Brussels on 9 December and subsequently in the form of a Communication from the Commission.

    Problem solving

    One of the Commission's priorities is to encourage Member States to solve problems in the operation of the Single Market quickly and effectively. This may represent a considerable challenge to administrations' culture if one judges from business perceptions. Around 20% companies in the survey have found themselves in a situation that would justify introducing a formal complaint to public authorities (national or European) for problems in the functioning of the Single Market. However, most avoid introducing a formal complaint.

    Figure 3: Reasons companies evoke for not introducing a complaint

    Reason

    SMEsLarge

    firms

    Don't know7.3%18.4%
    Other reasons11.4%21.1%
    Procedure unknown46.0%21.1%
    Too costly/complex58.1%39.5%
    Efforts outweigh advantages83.7%73.7%

    A careful analysis of the answers obtained in this survey points out to two main problems:

    • * either businesses, particularly SMEs, seem not to know what procedure to
    •  follow to resolve a problem or
    • * businesses are discouraged from introducing a complaint for a combination of
    •  reasons: procedures are too costly/complex and the efforts required outweigh
    •  the advantages expected.

    The situation should be improved by the system being set up under the Action Plan for the Single Market (see IP/97/478) of pragmatic problem-solving between Member States based on contact points for business and citizens to raise Single Market problems with Member States' administrations. There has been encouraging progress on putting this system into place according to the Single Market Scoreboard (see IP/97/1017), but it must of course now be made to work in practice.


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