MONDAY 23 JULY 2007

Mr Thierry Stoll, Mr Jens Nymand Christensen, Ms Elizabeth Golberg, Mr Peter Scott, Mr Adriaan Dierx, Mr Andras Inotai, Mr Emanuel Cabau and Mr Luc Tholoniat

  Q200  Lord Haskel: Could you say something about the energy market?

  Mr Christensen: Let us hear from DG TREN.

  Mr Cabau: Thank you very much, my Lord Chairman. I will talk about the gas and electricity internal market. This is the process of liberalisation of the gas and electricity market that started in the 1990s with two series of directives with the first Gas and Electricity Directive in 1996 for electricity and then in 1998 for gas. Then there was a new series of Directives in 2003. Recently, in January 2007 in its Communication on the internal market for gas and electricity the Commission made its first real assessment of the functioning of these markets and the reality is that things have improved a lot. It was a very, very ambitious project because in most Member States the situation was one of national monopolies, so nobody could compete with gas or electricity suppliers and the same companies in most Member States were holding the network at the same time and were the monopoly suppliers. As for any network industry, the process of liberalisation is especially different because we are trying to liberalise supply but we cannot liberalise the infrastructure, the infrastructure has to stay in the hands of the monopolies, that is the pipeline for gas and the electricity line for electricity, so as with telecommunication you have a need to create national regulators that will ensure third party access for competitors. It is a difficult process. Clearly the process has led to very significant improvements with all the main legal frameworks being in place with most Member States, with national regulators in place, third party access in place so the general framework is working, but what is not working in many Member States is you need effective competition to develop and you need market opening to become something effective. It is not enough to have rules, or even strong rules, you need to create the market at some stage. Our conclusions were that some of the rules were not strong enough to enable the development of this market. I guess I will come back later on the more precise issues. Although the picture is that very good and strong progress has been made, it is not enough to have effective competition and effective market opening developing and not enough to have a single EU market developing.

  Q201  Lord Haskel: In your paper about the Single Market for citizens you make a feature of the euro being a big benefit to the citizen. I wonder whether you could say something about that.

  Mr Dierx: The euro and the internal market work together in creating better functioning markets and better internal markets, so I can go into a bit more detail on the inter-relationship between the Economic and Monetary Union and the internal market if you want.

  Q202  Lord Haskel: Really I think what we are interested in is of what benefit it will be to those countries who are not members of the euro.

  Mr Dierx: Of course, if the internal market functions well within the euro area you create more competition within the euro area which leads to lower prices, and since the countries which are not members of the euro area tend to import a lot of goods and services from the euro area they will also benefit from the lower prices and increased competition within the euro area. Of course, the countries which are not within the euro area do not gain all the possible benefits from being inside the euro area. One important benefit for consumers from being inside the euro area is the increased transparency of prices. Consumers within the euro area can compare prices, let us say in Belgium and Germany, they can see if goods are cheaper in Germany and it is fairly easy to go across the border to buy German products if they happen to be cheaper. Increased transparency of prices is a benefit for citizens within the euro area. This is a benefit that UK citizens will not necessarily have as much because they have to make the calculation and they would have transaction costs in terms of the exchange rate exchanging pounds for euros. There are some additional costs involved for non-euro citizens in terms of the functioning of the internal market. I would say there are some benefits from an economic perspective from increased competition within the euro area for non-euro area countries but citizens outside the euro area lose out because they miss this price transparency.

  Chairman: I think we should try and move on now, if we may, to the second group of questions. I am going to turn to Lord Powell to deal with responsibility for the functioning of the market.

  Q203  Lord Powell of Bayswater: Thank you, my Lord Chairman. Can I first say I thought the Commission's interim report was an excellent document and your answers to our questions in writing were extremely helpful. Thank you for that. I was around in 1984-85 when the Single Market initiative was launched and although the goal of a Single Market was in the Treaty of Rome no-one had done anything much about it until the early 1980s, so there had to be a torrent of legislation in the early days to get the thing geared up and running. I very much agree with Mr Stoll that we are probably now past the high watermark for new legislation and the question is how do we make it function more effectively. That is a combination of monitoring, implementation and enforcement. My question is how are we going to make that better? What does it mean in institutional terms? First of all, does the Commission need new powers to make the Single Market work more effectively? Do we need something resembling the Competition Directorate which has strong legal and enforcement powers, is that part of the Commission's thinking? Or are you thinking more in terms of European level regulators who would not necessarily be part of the Commission but, nonetheless, would be European institutions regulating particular sectors of the market and making sure that they work? Alternatively, do you think that we should be using more the technique of bringing together national regulators at the European level, with or without Commission guidance, in order to get better implementation? Finally, do you think it really has to be left to the national regulatory authorities with the Commission looking down from on high, as it were, and intervening when they see that these authorities are not fulfilling their tasks? Maybe the answer is it has to be a combination of all of those, I do not know, it could be. I would be very interested in your thoughts about how we achieve this better implementation and better enforcement because quite clearly there are areas where the Single Market does not work as it was intended to do.

  Mr Stoll: Thank you very much. I think this is indeed one of the key issues for the Single Market Review if we want to improve the functioning of the internal market in the future. It is the responsibility of the Member States, of course, to make sure that EU law is being applied and respected. The Commission has its role defined in the Treaty as the guardian of the Treaties, which it usually performs in the guise of infringements that can lead to court decisions, but our feeling is that this division of labour with Member States being responsible for the application of the law and the Commission sitting on high, as you say, just pushing a button that launches a missile called a 226 Letter is certainly necessary but not sufficient if we want to make sure that we have a smooth application of the rules. You need to look at different areas of enforcement. The very first one, of course, is to transpose directives in a timely and correct fashion and that is, indeed, the responsibility of the member States but we are developing a number of tools to assist the Member States in this task, not just waiting until the expiry of the transposition of the deadline to then check whether Member States have transposed and if they have not then take the legal route. We are now very much involved in talking to the Member States from day one after the adoption of a directive, providing guidance on how they should transpose the directive because we also want to be sure that the directive is transposed in an equivalent way in the 27 Member States. One good example is the Services Directive which was very difficult to negotiate, as you will remember, where we are about to issue a handbook to Member States on a number of issues that they need to take into consideration when transposing the Directive, including such steps as putting in place points of single contact, administrative co-operation, even the IT structures that are necessary to ensure smooth co-operation between administrations. This is quite a new approach to making sure that when the transposition deadline has lapsed we do not have to launch infringements. We will probably have to continue doing so but we hope to minimise this aspect. The second important element is what happens after the directive has been transposed and this is a daily battle, I should say, because even when the directive has been properly transposed it regularly happens that administrations, in good or bad faith, let us be clear, misapply the law. There we very much believe that there is not one single answer, but the one common feature of the various answers is that this should be a shared responsibility between the Commission and the Member States. There are sectors where the directives have imposed the setting up of regulators in the telecoms area, in the financial services area there are regulators, in the postal area, but these regulators should work together and should be able to address issues in common and deal with the problems as they arise. Whether there should be an overarching regulator at the EU level is still an open question because there are pros and cons. By putting in place an overarching regulator there is the risk, in my view, of reducing the responsibility of the national regulators and just adding possibly another layer of bureaucracy or making the functioning of that particular sector more difficult. Of course, it would have the advantage of facilitating or bringing under one roof the behaviour, the practice, of 27 national regulators. This is something that has to be determined on a case-by-case basis depending on the sectors. I want to emphasise the one common feature of whatever approach we choose is that there should be more co-operation between the national administrations. Where there are no regulators this must become a daily task, a daily reflex of national administrations. We know from experience through the setting up of something like the SOLVIT system that the national administrations will do so if they are helped in establishing in particular the IT tools that are necessary to communicate with each other, including in 23 different national languages. There is a lot of work to be done on the use of IT instruments to network national administration in the EU. It would be inappropriate if we had a common legal regime as established under the EU Treaty but we continue to have national administrations that only deal with one part of that Single Market, that is their own national part. Increasingly we would like to see them as co-owners of the Single Market regulations and solving problems on a concrete basis by talking to each other very directly. There is an area which is not directly addressed by your question and that is when we do not have directives, or regulations for that matter. An important part of the internal market is simply built on applying the Treaty rules, Articles 43, 49 and 56, the free movement of capital, and there, of course, the powers of the Commission as guardian of the Treaties are even more important because in the absence of secondary legislation it is up to the Commission to remind Member States of their duties and their obligations. There we need to think about transparency mechanisms where Member States are not bound by directives that they have negotiated and accepted themselves in the legislative process where they have to apply the rules of the Treaty directly. Short of harmonising or other secondary law instruments we should provide for more transparency from the Member States. They should develop a European reflex in making sure before they act or legislate that they look at the internal market dimension of what they are about to do and, if necessary, consult the Commission. We will be most willing to assist Member States rather than having to use our powers under the Treaty too late when they have created legislation that is creating a barrier to the internal market. This governance of the internal market will be key to its success in the future with a common feature, more dialogue, more ownership between the various national administrations, but certainly not a one-size-fits-all solution, it has to look at the specific needs of the various sectors. That is as far as I will go on the general comments on governance of the internal market.

  Mr Christensen: Can I add to that before giving you back the floor? As Mr Stoll says, there is not one single solution to this issue. You may be interested to know that the President, Mr Barroso, intends to take to the Commission immediately after the summer recess a big communication about how the Commission plays its role in better monitoring, implementation and infringement work. The whole idea is to build on the logic that Thierry Stoll has just described involving far more Member States as partners of the Commission rather than going down the legal path, that we work in very close partnership with the Member States, which is a reflection of the fact that the Union of 27 is very different from a Union of six and, therefore, we need to approach our responsibilities with the aim not that we are not fulfilling the role right now but we think we can do better in a Union of 27. It is a far more complex situation to be in with 27 national systems. We know that we need to be willing to monitor the implementation from the perspective of when we identify problems and it is not only a question of problems with the national authorities, it may turn out that we can see in a large number of Member States there are problems with the implementation on the ground or that the legislation does not deliver the objectives set out that was the background for the whole process and, therefore, we may wish the Commission, with Member States, to go into a process of reviewing that piece of legislation and is there a structural problem, why does it not work, was it made for a different kind of union or are there parts of the legislation that merit review because on the ground the national authorities, the local regional authorities, across the board in a number of Member States seem to have trouble delivering the purposes of it. Mr Barroso is coming forward with this communication, which does not mean that we are stepping away from our role of policing on behalf of everybody but we are trying to redefine it in such a manner that we can target it more where it really makes a difference and there has been an important breach of Community law or on the ground it makes a very significant difference for businesses or consumers that Community legislation is not correctly implemented.

  Q204  Lord Powell of Bayswater: I just want to follow up those two very helpful answers. Am I right to interpret that in essence you are saying that you do not see a need for any further transfer of powers or new powers as such to the Commission but it is a question of using moral pressure, persuasion, technology and all sorts of other techniques under the existing Treaties?

  Mr Stoll: Yes, indeed. The Commission is certainly not looking for additional powers. At the last IGC we did think about giving the Commission the possibility of having more direct injunction powers with the Court of Justice but, on the one hand, we feel that we need to look at the existing instruments and, for instance, we are looking at possibly a better use of Article 86 of the Treaty, competition law, where we could take action to force Member States to break down excessive monopoly situations. We want to reflect carefully on using these instruments. We could also imagine asking the Court for more direct, more immediate injunctions where there is a matter of urgency, but these are powers that we hope to use only as a last resort. We want to build up a more preventive and proactive approach upstream than having to deal with the problems when very often it is too late. There are areas where this is very critical. Take mergers and acquisitions, for instance. When Member States take action to thwart a merger or to make it more difficult the only way the Commission can act is by intervening very rapidly and saying very clearly that this would represent an infringement of Community law and try to dialogue with the authorities and bring them into line. This is the best approach possible. Of course there will be cases when we have to go to Court, in particular when we want clarification from the Court itself on important questions of law, but this is clearly not the preferred route. National judges should also become much more involved and in particular have more training in Community law so as to have the reflex to look at incidents of Community law when they have to decide on practical cases. I would also mention that increasingly I think directives will include mechanisms that will allow the Member States to apply the legislation properly and in a networked fashion. By accepting this obligation in the directive the Member States undertake a commitment to do everything possible to apply the law which they have not done in the past. Everything will be helpful but we are not seeking additional powers, we are looking for a much smarter use of existing powers, including in the Member States themselves where they have a lot of unused possibilities to make the application of Community law work much better.

  Chairman: Thank you very much. May we move on now perhaps allocating just ten minutes each to the three last remaining questions which look at specific sectors. If we could turn to telecommunications first, then financial services and then energy.

  Q205  Baroness Eccles of Moulton: Thank you very much, my Lord Chairman. You have given us a great deal of extremely interesting information so far, thank you very much, which has given rise to many questions. As we are now getting a bit short of time I must focus down on telecommunications. This Committee recently has looked at two directives, the one that was updating Television without Frontiers and then the quick Roaming Directive. The first question I would like to ask you is to what extent has the telecoms sector moved towards achieving a Single European Market in the sector or have we simply seen liberalisation of national markets? What evidence is there that a pan-European market would offer greater benefits to consumers? I have got two more questions after that.

  Mr Scott: Thank you for those questions. If I look at the benefits of the Single Market first of all, what I think we can see in something like roaming is that this was a feature which was built into mobile networks from the very beginning, they were designed under a Single Market principle that the user should be able to use that telephone set anywhere in the Community. From the beginning we were able to create mobile networks that worked everywhere in Europe. The recent regulation has addressed the problem of the high price you pay when you travel abroad and in that piece of internal market regulation we have been able to address the high prices directly and bring down those prices and we should be seeing that happening in the near future, in other words this summer. One other thing in terms of evidence of the Single Market. What we are seeing is a number of operators are investing as much in other countries as their own country, so somebody like British Telecom has large business interests in other countries of the EU and the same is true of France Telecom, Telefonica, lots of the incumbent operators are now working in other markets, competing in other markets, and they only do that because of the benefits of the Single Market. The operators certainly see the Single Market as an opportunity to widen their marketing area. For pan-European services, I have mentioned roaming as the typical telecommunication service that benefits consumers, but one of the technical developments that is taking place in telecommunications at the moment is that the networks are getting more intelligent, which means that the provision of the service is no longer linked to the underlying network. If any of you use voiceover IP, which is a system whereby you can use your computer to make telephone calls very cheaply, this is an example of services that can be operated on a pan-European basis, there are a few operators that offer these services on a pan-European basis and consumers are really benefiting from these services right now. It is simply because the Single Market allows the providers of these services to offer them throughout the EU under a standard set of terms and conditions. If we talk about television, things are slightly different there because a lot of the markets are national because of linguistic restrictions. What we are trying to do in the update of the Television without Frontiers Directive is recognise the changes that are coming about and you have more and more means to access television programmes in other Member States and that Directive seeks to allow that to happen to a greater extent, although it has to be said that there are some people, like those who work in Brussels, who maybe do a lot of watching television across borders but the linguistic barriers can cause problems for many consumers. Of course, for the English language programmes where there is a huge amount of content there are clear advantages but for other languages the advantages may not be as obvious.

  Q206  Baroness Eccles of Moulton: Thank you very much for that answer. When it comes to there not being as much cross-border activity in television, and that could mean that there is too much emphasis perhaps on national champions, would you say that was really because of the linguistic problems? I just wanted to ask another question about the Roaming Regulation. Would you see that as perhaps an intervention by the Commission that would tend to be very unusual because there was some thinking when it was in the process of being developed that this could be anti-competitive because it was not allowing the market to sort itself out? I know that it had been given time to sort itself out but it did not succeed quickly enough and there was obviously quite a lot of pressure. Would you see this as perhaps an unusual need to intervene in something that should have been left to the market to sort out for itself?

  Mr Scott: I think in general the Roaming Regulation should be seen as a little bit special. It is not usual for the Commission to get involved in setting retail prices. The roaming market is a rather strange market in that it is not under the control of a single regulator in a single country, it relies on co-operation between regulators, and it is difficult to achieve that level of co-operation without some external influence. That is why over the years the individual national regulators on their own were not able to address the problem of high roaming charges and why the Commission eventually felt it was necessary to step in and give a considerable warning to the operators.

  Q207  Baroness Eccles of Moulton: Would you see in the future better co-operation between the national regulators, so again this sort of intervention would cease to be needed?

  Mr Scott: What we have seen in telecoms is while the regulators can talk to each other and co-operate with each other, if they do not have the means of implementing their agreed policy, a way to make a collective decision binding on all their members, they cannot achieve the level of harmonisation, of consistency, that we would like. As long as they are relying on voluntary co-operation between each other there may always be one or two countries that want to break ranks, so there is a problem there which we have identified and we are still looking at possible solutions.

  Chairman: Shall we move on to financial services.

  Q208  Lord St John of Bletso: Thank you, my Lord Chairman. In your extremely useful comments you have made so far you have made it quite clear that the success of the Single Market will depend on effective partnership, on more co-operation and greater transparency amongst the Member States. In the Financial Services Action Plan there were three specific objectives: one to create a single EU wholesale market; second, to create an open and secure retail market; and, third, to create state of the art prudential rules and structures of supervision in the financial services market. Whilst we appreciate that we have seen substantial reductions in cross-border transfers and payments, and there has been much more success in the wholesale markets, we have seen far less integration in the EU retail services market. My first question relates to why has integration in the retail markets not progressed as well as the wholesale markets, and what can and should be done to address this failure?

  Mr Stoll: Thank you very much. The answer to that question, and the best answer, is before addressing the retail end of the market we had to make sure that the wholesale part of the financial services in Europe was up to speed, was put in order because of its importance in its own right, because of its importance as an engine for economic development and because of the very competitive nature of those markets worldwide. It was certainly a priority for the Commission to make sure that Europe could not only keep pace with developments in a very globalised market but, indeed, could develop a state of the art regulatory environment for this particular sector. This has proved to be very successful indeed, as is shown by the fact that some of our major competitors—the United States—have seen that their regulatory framework was less conducive to competitive development of financial services than the European market and are beginning to look at Europe as a possible model or standard setter for some of its approaches. The whole principles based approach to regulation as opposed to a rules based approach is gaining more and more ground worldwide and is inspiring reforms in the US market. That logic was certainly worthwhile and it has established the European Union as a leader in the area of financial services. The retail end of financial services is obviously less well advanced, although I have some examples where we are beginning to see areas where this is moving fast, certainly in the area of payments, and the introduction and adoption of the Single European Payment area as of 2008 will certainly be a positive element in that direction. We are aware that retail financial services need to be given more focus, more attention, and without giving too many secrets about the Single Market Review it is quite clear that retail financial services will feature as one of the next important areas to look at and to be given priority. We know that in the mortgage area, for instance, the markets are beginning to adjust but we are looking at this particular area as we are looking at areas that very directly affect citizens and consumers, for instance the portability of their bank accounts, the transfer of data when they move banks, things which basically make life easier when dealing with financial services at a retail level. The preoccupation behind your question also addresses one of the issues that it is more difficult to explain and to bring home the macroeconomic benefits of the internal market, whether in particular sectors or overall and, for instance, the development of the wholesale financial markets are less measurable for the citizens but they have created greater stability of the financial framework which is hugely important for individual consumers. They might not realise this but certainly it is a shock when you have a crisis and banks go bankrupt because they have not maintained a sufficient level of provision, et cetera. The whole stability of the financial system is clearly of benefit. We will be looking at the retail end in the context of the Single Market Review and this is going to be a priority for the next couple of areas. There are areas where it will be difficult to make more progress. For instance, in insurance the recent Solvency II proposal will improve the soundness of that particular sector, although bringing this down to the possibility for consumers to access insurance, such as car insurance, across the Union is not going to be easy but we will look at this as well. Finally, the whole aspect of regulation supervision is clearly one that is at the forefront of our minds. We need to put in place sound supervision systems, whether these entail the addition of regulators or not is very much an open question but this is clearly an area of priority identified for the next few years. We are moving from a very successful policy on the wholesale markets and we want to apply the same recipe to the retail market and looking at the supervision side.

  Q209  Lord St John of Bletso: Thank you. If I could just ask two supplementary questions, one perhaps on regulation supervision. Commissioner McCreevy announced in July last year that the Commission would be initiating a Code of Conduct in preference to a directive. Do you think that the integration of the European Union financial services sector can be better achieved by market-led initiatives as opposed to regulatory developments?

  Mr Stoll: Again, this is a question of case-by-case analysis. You are referring to the Code of Conduct on Clearing and Settlement and that was one of the areas that was not well advanced. It illustrates an approach that the Commission is probably going to use increasingly, which is to look first and foremost at the possibilities that the markets themselves can be encouraged or guided towards taking certain solutions themselves. If that proves too difficult or takes too long then the Commission will reserve its right to propose legislation to deal with this particular problem. In the case of roaming this was a good example. The market had been given notice that it was expected to behave in a certain way and it did not, so a directive or regulation, legislative instrument, was deemed necessary. In the area of clearing and settlement there was a broad consensus that guidance, a code of conduct that was business-led, could deliver what was expected and, indeed, the first experience has been positive. The first instalment of the Code of Conduct was delivered on time last December and we now see more transparency, for instance in the operations of clearing and settlement. Of course, there are two more legs to be accomplished and we will have to judge whether this was the right approach and if not then think about legislation. So far we believe this is a good way to do it. We have to look in the context of better regulation for each particular sector, each particular problem, what is the best mix of action, and it could be a combination of a code of conduct, infringements sometimes, more persuasion and, ultimately, legislation.

  Q210  Lord St John of Bletso: Just one final brief question. On small and medium-sized enterprises we have heard and seen a lot of initiatives and a lot of the advantages to the Single Market, however from the coalface a lot of SMEs are experiencing problems in trading across the European Union. What can be done to improve the communication and the incentives for SMEs to more effectively operate across the Union?

  Mr Stoll: The whole area of SMEs' role in the Single Market would deserve a full chapter and I understand the Commission is going to issue a paper on SMEs in the autumn. The first thing that we have to do is provide a legal framework that is conducive to SMEs to take up business. They must feel confident enough to engage in operations across borders, be it in the very material sense, buying or selling goods, but also and, increasingly, in the virtual, on the Internet, on the services provision through the Internet, so the quality of the regulatory framework is one very important element. The second element which we are looking at is how we can reduce the burdens and complexities for SMEs to operate in a wide internal market. The whole simplification exercise that we are engaging in, for instance, will benefit small and medium-sized enterprises even more than it will benefit big companies. There are a number of issues that we should look at. A Community patent, for instance, would certainly be of more interest to small and medium-sized companies than it would to big companies who are used to dealing with different European patents. Basically we have to think small, as it were, when adopting legislation. We have to measure the impact that this might have on small and medium-sized enterprises and facilitate their work as much as possible. The assistance networks, the administrative co-operation when SMEs encounter legal difficulties, they will be more in need of assistance than big companies who can afford the cost of an excellent lawyer to take their matter forward. It is a complete focused look that we have to have on the way the Single Market works to the benefit of small and medium-sized companies. Of course, sector-by-sector there are things that we can be doing, facilitating the provision of accounts, for instance, where there have been measures to lighten the burdens on companies when providing accounts. It would be worthwhile presenting a package of measures that benefit SMEs because there is a lack of visibility still in what is done to benefit SMEs.

  Chairman: I think Lady Eccles has one supplementary on this point.

  Q211  Baroness Eccles of Moulton: When the Directive was in the process of being finalised on the service industry there was a big debate about preserving the Country of Origin Principle which was going to affect SMEs particularly. I believe that the final Directive meant that the Country of Origin Principle was considerably weakened. Could you briefly comment on the effect that might have had on SMEs in cross-border activities?

  Mr Stoll: I think this is very much a question of the glass being half full or half empty. I would certainly say that provided the Member States transpose the Directive properly, put in place the mechanisms for domestic co-operation that are required, the Services Directive will be of benefit to the SMEs because it has quite considerably reduced the areas where Member States can maintain national provisions which can be an obstacles to SMEs who want to provide services across 27 Member States. It has added more transparency in the rules that might continue to apply on a national basis, so there will be an element of legal predictability that will help SMEs. As I say, the whole set-up, the administrative co-operation, the points of single contact, which are the one-stop-shops that will have to be set up in all Member States, will help SMEs do a number of operations in one go without having to address ten different ministries to get ten different administrations and papers that they need to be able to operate. It will definitely facilitate the life of SMEs. That being said, the proof of the pudding will be in the eating and that is why we are watching very closely the transposition of the Services Directive.

  Q212  Baroness Eccles of Moulton: Will the Commission be able to put pressure on the countries that are very slow about introducing the points of single contact, because that seems to be the backstop for SMEs as they no longer have the COP?

  Mr Stoll: This issue and a couple of others have been identified already as the more difficult ones and that is why we are tackling them upfront, upstream with the Member States. We are discussing right now with the Member States how they have to go about designing and designating these points of single contact. Increasingly they see it as a modernisation of their own national administration which will benefit not just operators from other Member States but also national operators because what is true for an SME from Germany will also be true for an SME from the UK when they address these one-stop-shops. It is modernisation of national administrations in the context of service provision which is going to take place.

  Q213  Chairman: May we turn finally to energy and perhaps ask Mr Cabau to bring us up-to-date on the Energy Review and the approach the Commission is taking, and also the timetable for publication.

  Mr Cabau: On the general approach, as you know the need for reform of the general approach was described in detail in the two Communications the Commission published on 10 January 2007. At the moment what is envisaged is to strengthen the current legislation based on four main pillars. One pillar is that we need stronger rules on unbundling. The current powers do not enable us to have effective unbundling across the Union, to have effective separation of the transport interests with the supply and generation of electricity or the production of gas. There is a need for more structural rules to be implemented in the form either of ownership unbundlings, a complete separation of the network asset and the operation of the network with supply interests, or of an independent system operator which would mean that the network operator would be completely independent from supply activities. That is the first pillar, to implement effective unbundling across the European Union. The second pillar would be to have strong and independent national regulators. We have seen from all the work that we have done, and last summer going to each country doing country reviews and surveys of the actual functioning of the market, in many Member States regulators do not have powers that are strong enough or are not independent from the government, which is not a requirement of the current Directive. Effectively we need to set up independent regulators that have all the powers needed for a proper functioning of the market. The third pillar is we have identified a regulatory gap at the EU level, so a number of cross-border situations cannot be addressed properly by the current legal framework. We need to have a stronger regulatory function at the EU level. What was envisaged in the Communication of 10 January was either to have a European regulator or to have stronger co-operation of national regulators either in the existing form or in a stronger, more institutionalised form. Our current thinking is that the middle solution would be the best. We do not need to have a European regulator that will replace national regulators; on the contrary, we still need strong national regulators and the regulatory function at EU level should be there to strengthen the national regulators, not to replace the national regulators. We cannot go with a simple light reinforcement of vague co-operation of national regulators, what we need is a body at European level where the national regulators have an obligation to co-operate together and have the power to adopt any decision that is needed to fill this regulatory gap, so take any decisions that are needed at a cross-border level to make the market work in practice. The fourth pillar arises from the concern that there is a gap at cross-border level and that is TSO co-operation. Transmission network operators need to co-operate at EU level to develop the same technical codes. At the moment technical codes that are needed for electricity transmission, gas transmission, et cetera, are not entirely consistent across the European Union which makes it difficult for suppliers to transport gas or electricity from one Member State to another. Primarily we need a transmission network operator to have a strong obligation to co-operate and to come up with common measures under the control of this European regulatory body and the European Commission. Those would be the four main elements of the package that we are working on. In addition to that we need a set of more technical rules. The main thing is transparency. We need to have a transparent network that has all the information needed for a properly functioning market that should be available to any supplier, so we need to strengthen the current rules on transparency. These are the main elements. We have an issue on consumer rights. The market opening became a reality for domestic customers on 1 July 2007 and we need to have a set of rules to protect the consumers and DG TREN have been working with DG SANCO, for instance, to have a charter of consumer rights. That is a very important element. As to the timing, at the moment we are working on finalising an impact assessment, which is an obligation for the Commission in any legislative package, so we are working on that and that will frame the final proposal that the Commission will make and it is envisaged to have a Commission decision as soon as possible in the autumn. That is the current timing that we are working on.

  Q214  Chairman: Thank you very much. I am just going to ask my colleagues if there are any other burning questions in their minds before I ask a final brief question. If not, the European Union Select Committee heard evidence from Mr Murphy, the European Minister, quite recently and the question was has the principle of free and unfettered competition been in any way compromised by the proceedings of the recent Council of Ministers. We were much reassured by his response but perhaps we can have a similarly reassuring response from the Commission.

  Mr Christensen: This is one of these $1 million questions. To be totally honest about it, I think the Commission President at the European Council aligned himself with the conclusions that we believe the principle has not been weakened but it is clear that we will have to see ultimately that the texts as they come out of the IGC are drafted in such a manner that we ensure the Commission's objective that it is not weakened.

  Chairman: I think perhaps we can end on that positive note. Thank you very much indeed, it has been a very helpful hearing. Thank you.