1.  The CBI speaks for some 240,000 businesses that together employ around a third of the private sector workforce. Member companies, which decide all policy positions, include 80 of the FTSE 100, some 200,000 small and medium-size firms, and over 150 sectoral associations.

What has the impact of the recent developments of the European Union been on the single market?

  2.  The Single Market is no doubt one of the greatest achievements of the European Union, and successive enlargements have contributed to its success. In 2007, the Single Market comprises approximately 500 million inhabitants, making it the world's largest trading bloc. Citizens from Belfast to Bucharest, Stockholm to Sardinia, can all take advantage of the four freedoms contained within the Treaty, in theory allowing them to live, study, work, buy and sell goods and services anywhere within the EU. For business, the Single Market offers a domestic market of 500 million customers.

Are there significant barriers to firms seeking to offer their goods or services, or consumers accessing these goods or services, in other member states of the European Union? If so, what are the most important of those barriers? What measures are needed to overcome those barriers?

  3.  Enlargement of the European Union in 2007 created the world's largest trading bloc. However, the opportunities that this great domestic market of 500 million consumers promised have yet to materialise. Despite the four freedoms in place, backed up with years of jurisprudence, many barriers still exist. One of the greatest shortcomings of the Internal Market is the lack of implementation and enforcement of Internal Market legislation in a number of Member States. This patchwork implementation has resulted in a number of national barriers remaining in place, restricting companies from truly benefiting from the advantages of a fully functioning Internal Market. This is particularly evident in the field of energy policy where, despite legislation in force, the market remains highly fragmented and extremely difficult for new entrants to penetrate domestic and non-domestic markets.

  4.  Enforcement of the basic principles and legislation of the Internal Market is of paramount importance for the well-functioning of the Internal Market, and plays a central role in the perception of citizens and companies, especially SMEs, about Europe. Enforcement is understood in this respect in both the non-harmonised areas where the mutual recognition principle applies, and in harmonised areas where EU rules exist and must be transposed, implemented and applied, and sanctions are envisaged for non-compliance.

  5.  Enforcement involves various aspects and different tasks according to the different levels in the decision-making process. The quality of legislation is also of key importance: it must be clear and easy to understand in order to avoid different interpretations and conflicts between areas of law. Better knowledge of the main Internal Market principles should be ensured at European and national level, including amongst legislators, officials and judges.

  6.  Member States should play a decisive role for efficient enforcement. However, they are not fulfilling their responsibilities adequately and the Commission's watchdog role is increasingly difficult to discharge in an enlarged Europe. In this regard, it is important that more resources are allocated at EU and national level to ensure correct enforcement.

Do you consider further legislative measures by the commission to be necessary for the completion of the single market? If so, what measures would you consider?

  7.  Legislation can play an important role in the completion of the Internal Market but it is only one instrument in the mix. Traditionally EU legislators have been too quick to come forward with legislative proposals in order to address the malfunctioning of the Internal Market in a specific sector. It is our view that legislation should be the last resort, backed up with sound economic justification as to why the legislative route is the best way forward.

  8.  Before suggesting new legislation, EU legislators should look at the existing body of EU legislation, assess what is working and what is not, identify the real shortcomings and address them—this may require amending existing legislation, but our experience suggests that most of the problems that business encounters are due to Member States failing to implement, enforce or comply properly with existing EU rules. The European Commission should play a greater role as defender of the Treaty in policing Internal Market legislation.

Are the current provisions for monitoring functioning and performance effective?

  9.  No. Greater action is required by the four main actors—national administrations, the European Commission, national courts and the European Court of Justice—in order to improve the monitoring of how Internal Market rules function. A review of the division of their competences and responsibilities for monitoring and enforcement should be carried out. Equally, cooperation between them should be enhanced and made more operational.

  10.  The Commission also has an important role in monitoring and assisting Member States and to act as a facilitator for better cooperation and exchange of knowledge between them. Member States should co-operate with the Commission in order to ensure correct transposition and implementation of Internal Market legislation. Also, more exchange of best practice should be promoted. This could take various forms, including transposition workshops and guidance, and meetings managed and organised by the Commission in which representative stakeholders should also participate. The co-operation that took place between the Member States and the European Commission throughout the transposition of the Unfair Commercial Practices Directive is a model that could be replicated in other areas.

Is there a need for greater co-operation between national regulatory authorities?

  11.  Better coordination between national regulators should be promoted. The establishment of an independent mechanism for national regulators to cooperate, coordinate and take decisions on important cross-border issues on behalf of the Commission seems necessary for better integration of these markets.

Are the current remedies available to the commission to enforce single market legislation adequate; and are they used effectively?

  12.  Better enforcement of the Internal Market calls for the greater development of monitoring tools and indicators to assess the implementation and performance of Member States' enforcement of Internal Market legislation, including both the executive and judiciary authorities. To achieve this objective, a system for reporting and data collection between Member States and the Commission should be put in place.

What is your opinion of the of the country of origin principle, whereby a company registered to provide services in one member state is automatically qualified to provide those services in any other member state on the basis of home country regulation? Does this principle constitute the best basis for single market measures?

  13.  The CBI fully supports the Country of Origin Principle as this provides business with legal certainty when operating cross-borders. The Country of Destination Principle may act as a deterrent for businesses, particularly SMEs, as this would require them to have knowledge of all legislation affecting them in each Member State to which they are providing goods and services. This in turn would be detrimental to the consumer and it would ultimately reduce choice.

Do the concepts of the "national champion" and "economic nationalism" pose a threat to the single market?

  14.  Open and competitive markets are at the very core of a fully functioning Internal Market. The recent trend of protectionism within the EU, whether in the name of protecting "national champions" or "economic nationalism" is contrary to the four principles of the European Union.

Should there be a greater role for technology and research in facilitating the single market?

  15.  Research and technological development conducted at the European level can, and does, help to facilitate the Single Market. However, this must only be seen as an added benefit, not the raison d'etre for the European Research Area (ERA). Research and technological development should be funded on the basis of quality, and its likely economic and quality of life impacts, and should not be led by social cohesion or Single Market agendas. Currently, ERA policies focus firmly on the "PUSH" side of the innovation equation—generating research activity, facilitating researcher movement, creating infrastructure. These aspects are important and necessary, but the "PULL" side must also be considered: creating new markets for technology and innovation, creating intelligent customers (public and private, corporate and individual) and creating demand for innovation, all of which will drive research investment and innovation activity across the economy. Increasingly, this pull side is being recognised as the factor that deserves most attention because of its potential and because it often lies outside of the standard envelope covered by government science and innovation policy. With an effective Single Market in place, Europe will be better placed to develop the critical mass of market size and first users that will enable new products, services and processes arising from our investments in innovation to compete more effectively in global markets.

Has there been sufficient unbundling of gas and electricity markets in all member states?

  16.  The CBI welcomed the outcome of the Commission's review of competition in the energy market, which concluded that there were several deficiencies in the transposition of the Internal Market Directives, including insufficient unbundling of transmission and distribution system operators, regulated prices preventing entry from new market players, discriminatory third-party access to the network and insufficient competences of regulators. In the first instance therefore, there needs to be a focus on correct implementation of the existing provisions under the Directives to ensure that there is the required legal and functional unbundling of Transmission System Operators. In this regard, we welcome the Commission's action against major infringements in twenty member states over the past year.

  17.  The CBI agrees with the Commission findings that the existing unbundling provisions are not sufficient, and that there is a danger of discrimination and abuse where companies control energy networks as well as production or sales. We share the Commission view that ownership unbundling is a key element for the establishment of a truly open and competitive internal market and the only certain way to ensure non-discriminatory access to networks. However, if the Independent System Operator model is favoured, this will need to go hand in hand with the establishment of a strong independent regulator and regulatory framework at member state level, which has been the key to the success of this approach in Scotland. Currently, this is absent in many member states.

Is there agreement on the fundamental importance of a genuine single market to support a common European strategy for energy?

  18.  The creation of a properly functioning single European energy market is key to the delivery of the EU's security of supply and climate change objectives, as well as ensuring competitive pricing within the EU. UK business has been suffering as a result of the lack of liberalisation in the EU eg winter 2005 saw low gas imports at times of shortages and excessively high prices, and the lack of transparency in the EU market has made it difficult for market players and users to predict supply. In light of this, we welcome the measures (eg unbundling, more harmonisation of independent regulation at national level, greater transparency) in the Commission's Strategic Energy Review to accelerate EU market opening.

Should there be a single EU energy regulator?

  19.  The CBI does not believe that there is a case for a single EU energy regulator, but there is a need to level up the powers of national regulators so that they are better able to implement market liberalisation, including existing (and future) unbundling provisions. In addition, there is a need for national regulators to be given independent powers to co-operate and take decisions on important cross-border issues.

  20.  We believe that there is a need for greater transparency, and support the adoption of mandatory minimum transparency standards so that all companies in Europe are able access the same information and to operate on a level playing field. Strong national regulatory powers will be crucial if such standards are to be adequately enforced.

Is the EU telecommunications market genuinely cross-border at present?

  21.  Within the Internal Market, telecommunications liberalisation has been a major success in allowing the growth of a certain degree of competition at a national level, reducing prices and facilitating choice. However, inadequate enforcement and widely diverging application of the rules are preventing the full benefits from being achieved both at the national level and even more so at a pan-European level. The current system has not delivered a true Internal Market, with businesses facing different regulatory approaches in different countries. Application of the regulatory framework should aim at ensuring competitive supply and encouraging major new investments in new networks and services.

  22.  The CBI supports greater action from the Commission in this area, based on the principles of better regulation and subsidiarity. National regulatory authorities (NRAs) are closest to the market and ultimately should be best placed to make regulatory decisions, but the CBI recognises that NRAs are not always able to deliver the necessary level of consistency and certainty.

  23.  The European Commission has proposed a "Euro-regulator" as one option for addressing this issue. The CBI does not support this idea: an additional layer of policy or decision-making on top of the existing institutional arrangements is unnecessary and is unlikely to gain acceptance from stakeholders. But more extensive consultation and decision-making between the Commission and the European Regulators Group (ERG) would facilitate greater consistency and a stronger relationship between the EU-level objectives and national-level operations.

  24.  The Commission should use this year's review of telecoms legislation to create a more consistent and competitive environment. Within such an environment, the independence of national regulators from political interference is crucial, as they are best placed to conduct detailed market analyses and to respond accordingly. The Commission does not need extensive veto powers over decisions of national regulators. Instead, a selective extension, based on a system of checks and balances, involving greater engagement of the ERG, would be more effective.

Is the current EU regulatory framework for telecommunications sufficiently technology neutral?

  25.  Technology neutrality is one of the founding principles of the current EU regulatory framework. Retaining a technology-neutral approach is vital to ensuring the regulatory framework does not stifle innovation and technological developments in the fast-moving world of communications. The current framework is sufficiently technology-neutral to not give preferential treatment to one technology or platform over another. As we move into an environment converged upon the internet protocol, it will be increasingly important that the framework is kept technology-neutral. This is equally applicable if the Commission is to move forwards with its innovative plans for developing spectrum markets in the EU.

Does this regulatory framework require modernisation?

  26.  DG Information Society and Media are currently reviewing the regulatory framework for electronic communications, with their proposals due to be published by autumn 2007. The regulatory framework requires modernisation to ensure Europe has the electronic communication networks and services necessary to support the advanced applications and services businesses are running across these networks in order to improve business their performance and competitiveness.

  27.  Europe's businesses require access to modern communications networks and services which offer the bandwidth, quality, resilience and innovative qualities that can underpin advanced use of applications and services. Network operators need appropriate returns for the risks involved in investing in high-speed networks and services, in a marketplace where demand is uncertain. Users and consumers more generally are looking for new and innovative services which operate seamlessly across technical devices and platforms. Overall, a competitive market will drive innovation, investment and consumer benefit.

  28.  The needs of all will be best met in an environment of increasing choice and open competition. This should be characterised by a transition away from the need for detailed consumer regulation such as retail price controls as competition becomes more effective—the more regulation can be concentrated on the genuine economic bottlenecks, the quicker can be the move to a more open commercial model.

What has been the impact of the implementation of the Financial Services Action Plan as a whole; and in particular the Markets in Financial Instruments Directive?

  29.  The Markets in Financial Instruments Directive is one of the cornerstones of the Financial Services Action Plan (FSAP). Although implementation is on track in the UK there are delays in implementation of national legislation in other Member States. To date the UK, Ireland and Romania are the only Member States to report full implementation.

  30.  Delays in implementation will give firms less time to prepare for the new regulatory environment and there is a real risk of legal uncertainty as investment firms providing services in other Member States could be uncertain as to which legal regime is applicable.

Do you support the Commission's code of conduct on clearing and settlement?

  31.  The conditions for access to post-trade services and interoperability between systems must be agreed by June. If these do not meet the needs of users or those who are pushing for more choice, the whole voluntary approach to reform will be open to doubt and regulatory intervention by the Commission will be hard to oppose. Despite the provisions of the Code itself (that appeared to guarantee genuine rights of access and interoperability) there is still resistance in some quarters to taking the steps that will deliver a more competitive industry structure.

3 July 2007