MONDAY 23 JULY 2007

Mr Carlos Almaraz and Mr Vincent McGovern

  Q280  Lord Powell of Bayswater: You put in an excellent paper in response to the Committee's request for consultation and I think there is a remarkable congruity between what you say and what the Commission were telling us this morning, so it sounds as though your points have been made. I have two questions. You put a lot of emphasis on enforcement, implementation and so on, do you think the Commission have adequate powers to do that or do they need new powers? On the whole, business is normally opposed to governments and institutions having more powers but in this case do you think they need some? Secondly, and quite differently, there has been some speculation that the Commission will try to bring health and taxation into the internal market area. Would I be right to assume that businesses would oppose that?

  Mr Almaraz: On the first question on the powers of the Commission to ensure proper enforcement, what we say is the Commission cannot be the only player in enforcement. The Commission has limited powers. We are not calling for new powers for the Commission, to be honest, what we are saying is what they have at hand should be improved and the bulk of work should come from Member States. The Commission should build a greater partnership with Member States. It cannot be as we have had until now, Member States looking at the Commission as the annoyer, "They are coming again, they are annoying us because we didn't comply with that rule". There has to be a partnership. They have to share responsibilities for the enforcement of the internal market because the internal market does not happen in Brussels, it happens in the UK, in Spain, in Italy, it happens locally. We have to create this new policy in which Member States really believe and invest in their responsibilities of enforcement.

  Q281  Lord Powell of Bayswater: How do you do that though because quite clearly the Member States have not done this?

  Mr Almaraz: First of all, and this is something that we have gathered from the many meetings that we have had with the Commission, the Commission knows very little about the national dimension of the internal market, they have very little information about how the internal market rules are applied in the Member States. Okay, they produce scoreboards about transposition but this is very little information. The fact that you tell me that Spain is late in transposing a directive or they did it on time does not say much. Often the officials we met told us, "We don't have a proper system of information, data, figures, some qualitative assessment of how the internal market translates at a national level and we need that in order to be able to decide the right policy". For us that is an area of work.

  Q282  Lord Powell of Bayswater: So they need additional resources?

  Mr Almaraz: Yes, additional resources to develop some systematic collection of information about the internal market. The internal market happens not only when the Member States transpose directives but it happens when judges apply European law that may be in national law or not, or directly applicable, and it happens when you lodge complaints at a national level. That information is missing and we need that to be improved. Another area of improvement is the means of redress. When you have a problem in the internal market it is not clear what means a company or a citizen has at the national level to get their rights asserted and respected. We now have SOLVIT which, as you may know, is a free on-line system helping citizens and companies when they have a problem of misapplication of European law by a national autohrity, but the picture is very different in one country from another. In countries like Sweden they have 14 people in the network and in France we found only one intern, so that cannot be considered as a way to solve problems in the internal market. It is like when you go to a shop. If I go to a shop in a new country, if I have a problem and it is not resolved I am going to say, "I am not coming back". We see the internal market as a little bit like that for small companies and citizens. If you go abroad and you have a problem you probably do not go back to that country and you are going to say to your neighbours, "In Spain, in Italy, in France, or in the UK, the shops are bad or things go bad". We want to have proper systems of information and redress so that people get their rights and they have a good vision of the internal market and Europe based on their experience. The legally binding system that the Commission has, the infringement procedure, has to be improved and we have given some recommendations. The Commission have probably already told you this because they are working on that to set priorities so that the economically important cases are dealt with and they want to introduce fast-track mechanisms to shorten and simplify the procedures. For us that is not the solution, we do not want to get to that point, we want the solutions ex-ante. We do not want to get to a point where you have the Commission fighting a Member State, for us that would be the last resort. We are trying to put the emphasis on—

  Q283  Chairman: Could you give us some examples over the last five to ten years where enforcement following infringement problems has arisen?

  Mr Almaraz: Sorry?

  Q284  Chairman: Can you give us some examples where there has been a problem and the Commission has attempted to rectify it and has been partially successful?

  Mr Almaraz: During the debate on the Services Directive we had loads of cases of Member States being brought before the Court. A recent judgment that has been confirmed by the Court was in Spain. The Spanish state was brought to the Court of Justice because they required employees in the private security sector to reside in Spain in order for them to provide the services and there was a problem because if I was a French company and I was organising a fair or an exhibition in Madrid for two weeks and I wanted to bring my security guys with me I could not do that because they did not reside in Spain. That requirement was challenged by the Commission and went before the Court of Justice and it had to be rectified, that law had to be modified. That is an example of how enforcement works.

  Mr McGovern: If I may offer an example in the broad area of the free movement of goods, which is one of the four freedoms which we believe is the most advanced of the four freedoms and the one which represents the internal market the most. We consider that it works relatively well, but relatively well is not the same as working perfectly, and for this reason in February the Commission brought forward a package of proposals to try and improve how goods move around Europe. The idea behind that is to improve the existing rules and regulations and the proposals that the Commission brought forward focused on mutual recognition, market access surveillance and the marketing of products in other Member States. It focused on improving existing rules as opposed to introducing new rules based on a sustained period of time whereby the Commission and stakeholders were able to observe how goods move around Europe, to see the barriers that tend to exist through lack of enforcement, lack of awareness, things like that, and look to improve that and as a result they have come forward a new package of proposals.

  Q285  Chairman: Yes, but can you give us any examples?

  Mr McGovern: Actual examples? I can give you some examples from the mutual recognition side. Mutual recognition applies in the non-harmonised areas. It originates from the Cassis de Dijon ruling which the Court of Justice made back in the late 1970s, early 1980s, and as a result of that the movement of goods in the form we have now exists. I have a couple of examples, if you do not mind me reading out of this because they go into some detail. There is an SME company which we know of which encountered difficulties accessing the German market. This difficulty was encountered because additional testing was required on the side of the German authorities. These were tests in addition to what one would expect from mutual recognition. What was interesting about this case was most of the time when SMEs and companies face barriers like this they choose not to fight it because it takes too long, it costs too much and it is a diversion from what their true purpose is, which is to manufacture and produce goods. This company decided to fight at the same time as modifying the goods which there was a problem with so that it could access the market. This happened around 2001-02. The case took a couple of years to come to a conclusion. They estimated that during the years 2002-03 their turnover from the German market was the equivalent of about €280,000 a year. They estimated that the cost involved in extra testing required to access the German market, travelling expenses, additional stock, legal costs, et cetera, to comply with the additional testing came to roughly €70,000 to €80,000 a year. When you consider that their turnover was €280,000 that was a significant chunk from what they made accessing this market. As it turned out, in 2006 a ruling was made in their favour which showed that they were correct in the first place, but they are a rare example of a company that fights barriers that exist because not even at a national level but at an authority level, whether accreditation authorities, whether authorities that are tasked with implementing standards in the market, et cetera, they decided that products coming from outside have to also meet additional testing to satisfy themselves.

  Q286  Chairman: I understand that, but can you give examples where the Commission has taken the cudgels up?

  Mr McGovern: Sorry, the Commission...

  Q287  Chairman: I understand why a small or medium-sized company finds it difficult and expensive to pursue a case but surely the Commission should be championing the rights of SMEs.

  Mr Almaraz: I could mention another example which is in the field of services. The Commission also brought the Greek state to the Court because in the field of tourism the Greek state obliged tourism businesses to provide their services in Greek and there was a UK company providing tourism services in Greece that only had English clients, so they refused to provide their services in Greek and questioned that requirement. The case ended up in the Court of Justice which did not allow Greece to impose that requirement as a condition to open a tourism establishment in Greece. Again, it was a three or four year process and companies cannot live with that timeframe. This UK company probably left Greece, I do not know what happened. It is the way the Commission performs but it cannot be the main actor, that should be for last resort cases and the market goes much more quickly than that. We have not got much to complain about with what the Commission does, we just say that it is not sufficient.

  Mr McGovern: As alluded to earlier on, the Commission also has a resource problem. If we take the field of public procurement, the Commission is responsible for implementing the rules and ensuring that those rules are implemented but, as we understand it, it is down the road as a last resort for DG MARKT, where you were today, to deal with the entire internal market. The Commission has roughly 60 people involved in keeping a check on the rules being implemented, drafting new rules, looking at external issues, so they have a resource problem when it comes to taking Member States and the like to the Court of Justice. If they tend to do it, as Carlos alluded to, it is as a last resort, and it should be as a last resort, it should not be the case that companies should have to go to the Commission if they have a problem accessing the internal market.

  Q288  Baroness Eccles of Moulton: That is all very interesting and has gone some way to answering my question which has appeared to be increasingly simplistic as you have entered into some of the complexities of the way the Commission can operate. You have talked about achieving a level playing field and I just want to hear your thoughts on the fact that the membership of the EU is now so much greater than it was and presumably the sorts of powers that the Commission has have evolved over the years but have they actually kept up with the disparity that now exists throughout the membership? Is it possible within the existing rules to really try to achieve a level playing field, whatever that is, across such a disparity of membership when maybe it is becoming impossible because there will be so many different reactions, responses, problems, barriers, hurdles, et cetera across the spectrum now that simply did not exist before?

  Mr Almaraz: This is one of our biggest fears as companies. Although we have to live with it we do not operate in a political world, and we do not want to. For us, the market should be as economical and market driven as possible, but the reality is different. One of the challenges of a Europe of 27 is as you said, the structures that we have and are they equipped, and we believe they are not sufficiently. That is why we are very hopeful that the Single Market Review will bring us some of the responses that we need in order to reinvigorate Europe and the internal market in the new context that we have. It is not only about the 27 Member States, it is about the increasingly globalised market that we live in, the demographic challenges that our societies have to face and the increasing use of new technologies. There are a number of new conditions that need adjustments that we were talking about earlier on so that the machinery works. One of the ingredients in the recipe is the co-operation of Member States. The Commission alone is not going to make it. It was failing because it does not have the resources and we do not think it is the right way if the Commission is the total guarantor. Member States have to come out and be stronger in defending the internal market and taking up their responsibilities, which are great, and so far they have not been so good in fulfilling those responsibilities. We are now turning to them and telling our companies to demand other national authorities to become more serious about the internal market because the internal market is not about the Commission telling off Member States if they do not do their job, it is about them. As you said, and this is something we believe, legislation has become very difficult, everybody knows that, and when we have something on the table it is very unpredictable how it will end up. Maybe the solution is elsewhere and better implementation, better co-operation between authorities, is the way forward. Legislation is going to become a privilege in the future because it is very uncertain and very difficult in the current structure of the Commission.

  Q289  Lord Powell of Bayswater: Could you make a very quick comment on my question concerning health and taxation.

  Mr Almaraz: There is not much I can say on health and taxation. We have not really addressed that or had a discussion in BusinessEurope so far. The competence of the European Union is very limited in health. It is definitely very important because of the economic dimensions of the health systems in the Member States. Although this is more a personal view, we are quite happy with the competence sharing that we have right now. It is still premature that Europe and the European Union get more competence in health.

  Mr McGovern: On taxation we have some comments. We do not think further tax harmonisation is the route to go. There are rules in place and it is a better use of what is in place that is needed as opposed to further harmonisation.

  Q290  Chairman: One final question: SOLVIT, page 11 of your submission; will it work?

  Mr McGovern: It does work where it is known about and where it is possible to access it. On the example Carlos gave earlier on, it takes Member State co-operation between Member States and at the European level to make it work. It will only work if people know about it, if consumers and companies know about it.

  Q291  Chairman: Can you give us an example of where it is working because we are going to try it out?

  Mr McGovern: Carlos gave you an example. If you want to know where it is working go to Sweden.

  Q292  Baroness Eccles of Moulton: Do not go to France!

  Mr McGovern: Maybe things are changing in France, and maybe in a few years' time, but at the moment the Scandinavians see the value of the SOLVIT system, they see it as helping their citizens.

  Q293  Chairman: Is it working in the UK?

  Mr McGovern: I think I would have to defer that to the CBI to answer your question.

  Q294  Chairman: Is that a veiled "no"?

  Mr McGovern: It is working in some places better than it is in other places. I think the UK is one of the more liberalised markets that we have in Europe, so I would assume there are companies who know about it and are taking full advantage of the SOLVIT system. But it is only those companies who know about it and that is the real problem, getting the knowledge of it out there.

  Chairman: Thank you very much indeed for coming.