MONDAY 23 JULY 2007

Mr Marco Cilento

  Q300  Lord Powell of Bayswater: As you know, the Commission are carrying out a major review of the Single Market and they are going to report in October or November. Do you expect them to cover some of these social market issues that you have been talking about? We talked to the Commission this morning and I cannot say that these issues were reflected in their description of what they will report on.

  Mr Cilento: When we talk about the internal market we try to focus on the social aspects because our core business, our mission, is to try to bring the social aspects into the internal market. We succeeded a lot in the 1990s when the social partners, not only the unions, were able to write the Social Chapter of the Treaty with their own hands. In the 1990s we had a lot of promise but it was not enough, we think in the review of the internal market there is still a lot to be done in the social field to make it sustainable. In the last five years, let us say in the new century, the Commission has not been dealing with these social aspects and the Commission has said openly there is no room for social regulation now. We see the effect of that is that workers and citizens are further from the European institutions than they have ever been in the past. Of course, there are many ways to take care of the social aspects, not only by introducing new legislation but introducing new policies. We are aware that with this institutional setting, with this Treaty, with this number of countries, it is very difficult to build something because there are too many battles, it is too difficult to make policies, and in the Parliament and the Council it is difficult to do everything so it is easier not to do anything than building some policies. This is one of the reasons why we are pessimistic on the capacity of the European Union to produce effective or strong social policies in reviewing the Single Market strategies.

  Q301  Lord Powell of Bayswater: Although you would like the Commission to do more on the social dimension in the Single Market you are not expecting them to do so?

  Mr Cilento: We are not expecting that. The result on the future of the new Treaty will be a key point and everything could change with the new Treaty. Maybe the Commission is going to do something in terms of helping Member States to deliver part of their resources to some social aspects, for instance building modern, new labour markets, investing more on the creation of skills and the creation of new career opportunities, helping the mobility of workers. These are things that can be done but the role of the Commission will be more that of promoting and co-ordinating and not managing real European policies.

  Q302  Chairman: Could I just ask you to develop a little further your last comment about the potential under a new Treaty, that there might be better "protection" or the introduction of measures to improve the social market. In what ways do you think that might happen? The British press speculated that the alleged removal of the words "free and unfettered competition" from the text of the Treaty that was not accepted, or was not introduced, the potential Treaty that has been remitted to the Intergovernmental Council, might protect employees within a particular country either through the designation of national champions or the prevention of external competition, removing people's jobs. When we had an evidence session with the British Europe Minister and I put that question to him the answer was that the removal of the words from the draft Treaty and into a protocol implied that there was no substantive difference, that the European Union still believed in free and open competition. What is the view of your organisation towards international competition?

  Mr Cilento: I am sorry, I did not want to interrupt you. Which part of the Treaty has been removed that you are referring to, I did not catch the words?

  Q303  Chairman: Removed from the former draft Treaty which was not proceeded with were the words "free and unfettered competition". Those words were put into a protocol.

  Mr Cilento: This is a bit more complicated because in terms of fair competition we are convinced that somehow the European Union needs to have very clear refined points in the Treaty in order to orientate the policies of the European institutions. We think that fair competition will continue to be one of the most important activities to guarantee that the market can really work in a fair way, if I can say that, and will be one of the strategic activities of the European Commission and it will continue to be like that. We hope that some balances can be introduced in the main rules of the European Treaty and in this way we are aware that competition cannot be a dogma for all aspects of the Single Market, it cannot be the principle we have to refer to in all aspects of the Single Market. If the Treaty is built in a way that can give opportunities to underline some aspects that are more important than competition, where the social welfare of the citizens must be protected, all of these aspects are welcome if the Treaty is built in a way where these aspects will emerge. For instance, we have always considered that some kinds of services are too important to people, what we call the services of general interest, and competition cannot be the way these services are ruled, although there will be some exceptions. This is one chapter. Another issue is that sometimes Member States look at governments' needs for instruments to carry out their industrial policies and they cannot use monetary policies any more specifically in the European area, they cannot use the tax system because there are very strong constraints, they need new tools to produce industrial policy in order to attract business, in order to keep employment. Today these policies are created on services that they can offer to the companies that decide to establish their businesses. I am referring to network services, energy, communication, transport sometimes. We are aware that sometimes Member States, but not only Member States even regions or other local government, want to keep in their hands the way these services are managed. They do not have to be the owner but they want to have a voice in how these services are provided. We are convinced that in this case competition rules cannot always be --- I do not know if that is an answer to your question.

  Q304  Chairman: That is a very clear answer. For you, if it is to be assumed by the IGC, that would have to manifest itself in some amendment of what was agreed in Germany recently in June because, as I understand it and as the Committee understands it, there is no qualification to the concept of free and unfettered competition. One quite understands the legitimacy of proper protection for a mobile workforce and I wonder if I can ask you a question about that. You talked about protection but can you give us some examples of where you see a mobile workforce in a free internal market needing protection? Is it working hours, social security, for example pensions, health, and housing? I am talking about protection.

  Mr Cilento: This is one of the biggest challenges that Europe has in front of it because the social system is very complicated and there are many items on the table. From time to time we are obliged to deal with these issues when they arrive on the table. For instance, with the Services Directive we had to deal with the protection of employees in respecting the Country of Origin Principle and it meant defending the collective bargaining system in each country and the working conditions. This is one of the main issues when we say social protection, in this case to make sure that workers in the same workplace can enjoy the same working conditions, or workers who are employed within a 200 metre space of one another can have the same protection system. It is a system of respecting the rules of the countries where they are employed or running their work. This is the first thing to do to help people and workers to move to another country or to exploit the opportunities coming from the Single Market. We should get the pension systems closer in order to ensure that the rights that have been gained in one country can be exported to other countries, so if you move from one country to another, spend ten years in one country and move to another country, you can be sure of the pension you will receive. This is another big, big problem. On social security it is very difficult to imagine that countries can facilitate or support workers' mobility if there are too many differences in the way they treat unemployed people. It is very difficult to imagine that the system can continue to have countries ensuring income for dismissed people at 90 per cent of their salary for three years and countries where there are no unemployment benefits. These are distortions that cannot be sustainable in the future. This is just to give you an example of how we consider it to be complicated to create a real labour market in which there is a good degree of mobility of workers.

  Q305  Lord Powell of Bayswater: Would you then say the solution is levelling up to the highest level?

  Mr Cilento: Some policies should be done at European level and all countries should be engaged in implementing this developed protection in order to get the legislation and protection closer in order to have fair competition.

  Q306  Lord Powell of Bayswater: How is that affordable financially in some of the poorer European countries?

  Mr Cilento: When the Commission talked about flexicurity, for example, we criticised the fact that they always talk about flexibility of work but they never give solutions on how to find money for ensuring protection of employees. If they are sincere in suggesting a flexicurity policy to deliver they should be sincere enough or open enough to talk about own resources. I cannot imagine that countries with large debts or weak economies can really afford a flexicurity policy.

  Q307  Baroness Eccles of Moulton: I have got a few odd questions. You mentioned social dumping earlier on, is it actually happening? Does it happen?

  Mr Cilento: We see that every day.

  Q308  Baroness Eccles of Moulton: Could you give an example?

  Mr Cilento: I had a negotiation with a multinational company which was based in the UK and the company decided to close down two factories in Italy and France, to move them to Eastern Europe, even if the two factories were profitable just because, thanks to the cost of the work in these Eastern European countries, they could earn more than they earned in Italy and France. Why is the work cheaper in Eastern European countries? Not only the amounts paid for the salaries but—it is difficult to say—they are free not to respect certain rules in terms of collective agreements, for instance, or they do not have any structure or organised workers to negotiate with so they can do it on an individual basis instead of a collective basis. This gives a big advantage to them. If you consider the increase of real wages in the Eastern European countries, they increase slower than in the other countries even if the nominal value is increasing more than in the Western countries and it makes the work in those countries more profitable.

  Q309  Baroness Eccles of Moulton: Is this a relatively new phenomenon since the membership grew, since the EU got bigger? It is the new Member States that have made this possible, is it?

  Mr Cilento: No. The idea that we are supporting is that it is possible to do it even moving factories and production outside the European Union. The fact that the ten new Member States have such different economic situations as a part of the European Union make it easier but at least we now hope their situation will improve.

  Q310  Baroness Eccles of Moulton: It is catch-up, is it not?

  Mr Cilento: Absolutely. That is why we are supporting the enlargement of the European Union but not under these conditions. The enlargement caused a lot of problems but in economic terms it makes it easier to locate the activities in business and we hope that these countries will grow fast. We have had some good experiences with the previous enlargements but the problem exists.

  Q311  Baroness Eccles of Moulton: Is this not something that in a way has to be lived with while the economies of the new Member States catch up and it is not something you can prevent while this improvement in the economic state of the new Member States improves?

  Mr Cilento: Could you say that again, please?

  Q312  Baroness Eccles of Moulton: This particular transfer from a Member State that has a higher economic level to a new Member State that has a lower economic level is something that cannot be prevented while the new Member States are actually catching up and reaching a higher economic level after which there is no advantage in doing it.

  Mr Cilento: Indeed. When the situation is more balanced the countries can compete on the quality of the workforce they can provide and this is what we are looking for. We want to oblige countries to invest in their own human resource infrastructure but not to have competition in relation to lower conditions. We consider companies have the need to have their facilities in Europe because it is an important market and it is important to be here. We do not believe that all of the production will move outside Europe, there are some sectors which suffer from the globalised market but many other sectors can survive in Europe. We want to be sure that the Single Market can be well-balanced and perceived by people as an opportunity for everybody, not to have a bad reaction so that people reject the European project. In this game there are only losers, no winners. If they can manage to have a short-term return today exploiting big differences among different national systems in the long-term then they are going to destroy this and there is no value in that. That is why we consider that the Single Market today needs stronger social dialogue.

  Q313  Baroness Eccles of Moulton: You said at the beginning in your introduction that there are 60 million members of the trades unions within the EU, more or less. Obviously that includes the new members as well. Is it known at all how those 60 million are distributed between the public sectors and the private sectors across the Member States? Presumably there will not be too many who are working in the informal sector because then they would not really have access to trades union membership, I would not imagine, but maybe one should include the informal sector as well.

  Mr Cilento: We have a mission to represent the interests of all workers, members or non-members. In an organisation like ETUC with democratic rules and such a large membership we are not able to discriminate between individual situations. We are aware of the dimension of the formal economy in Europe and we consider the solution is to push countries to make this economy emerge. As an Italian I can say this because a big part of our economy is an undeclared economy and we know how difficult this can be and it will be a big challenge. I am convinced in this case that Europe can do a lot and the trades unions as part of the social dialogue and with the capacity to promote social legislation or social policy we can do a lot, as we have demonstrated in Italy. We are not discriminating because we are not able to discriminate between members and non-members, formal and informal, we are a full legal situation where rights can be exploited.

  Q314  Baroness Eccles of Moulton: Are unemployment levels very uneven across the 27 Member States or on the whole is pretty well everybody enjoying high employment levels?

  Mr Cilento: I would focus on the regions of Europe. There are regions of Europe where there are very difficult situations in terms of employment. We have regions with full employment and regions with 50 per cent unemployment. This is one of the reasons why I was saying it is very difficult to talk about fostering the internal market, renewing the Single Market, without considering different social situations in different areas of Europe. If we really want to have an effective and more integrated Single Market we should deal with this aspect otherwise the project will not work. We are aware of these differences.

  Q315  Lord Whitty: I understand what you are saying about the pressures on employment standards that have taken place over the last few years across Europe, but do you think that much of this is primarily—this partly goes to Lady Eccles' first question—because of the lack of effective social provision at European level or in the enforcement of it? Does it not reflect more the internal pressure of having enlargement with a low paid, relatively unprotected workforce in the accession countries internally and then externally the pressure of globalisation? Is that not what has undermined what up until the mid-1990s was pressure for better protection standards for European workers? In other words, it is an economic problem, not a legislative problem.

  Mr Cilento: It is not only an economic problem. I do not consider this is the result of an economic process that cannot be avoided. If we decide that companies must compete on certain aspects of their activities they will do it, but we should be able to exclude some items from the competition, for instance labour and some of the social aspects, and not only workers' protection but also consumer protection. We consider that some aspects are not part of the competition: health and safety, health protection of consumers and certain other aspects. We decided that on these issues there is no competition. We are not to be swayed by the economic processes but to have a grip on the economic processes. The results that some countries have had in terms of competitiveness and keeping their social systems demonstrate that this is possible. It is possible to follow the economic processes connected to globalisation and stronger competition while keeping the social equation. Keeping the social equation means having stronger companies because in many, many countries when people work in companies they are very motivated, they are very close to the company and that means they are able to keep up with demands in certain periods. This has created a situation which is more creative and is oriented to the competition, to the system not only the single company.

  Q316  Lord Whitty: I suppose what I am trying to say is the reason labour standards and social standards have been undermined is because of an excess of labour supply. This is true whether it is in China or making goods which previously were produced in Europe or internally with an increase in the number of workers available from Eastern Europe. It seems to me that you are putting too much weight, in other words, on the lack of formal social protection, or advances in formal social protection, and not enough on the external crude, if you like, economic pressures on the labour market.

  Mr Cilento: You mean there are too many potential workers. For me it is the effectiveness of the labour market. Today the labour market is not as effective as it could be. I see the capacity of the business to exploit the opportunities of the markets in Europe but also the global market to be higher than the capacity of workers to benefit from this. I do not think this is a question of quantity of people in the labour market or pressure from the other side of the world, but it is how we organise the labour market. The capacity of the workers to exploit the opportunities of the labour market is not well-developed today because they do not feel able to change work, they do not feel they have the resources to be mobile or to be proactive in the labour market, they do not have the hope that they will improve their positions. For instance, for one company it is very easy to analyse the situations in other regions of Europe or of the world, to assess the benefits and costs of localisation, and they have resources to do that, but for workers it is very difficult to say what the future will be if they go to another place or change job. If we do not invest in increasing this capacity for people to exploit the opportunities in the market it is very difficult to measure whether this system can work.

  Chairman: That is extremely helpful. I am afraid we have run out of time, we must return by train. Thank you very much indeed for very clear and comprehensive answers to our questions and, frankly, for making us think about the different dimensions of this issue of improving the internal market. Thank you very much indeed.