Minister Humphreys launches a report by Copenhagen Economics highlighting future growth potential in the European Single Market in Services

Heather Humphreys TD, Minister for Business, Enterprise and Innovation, this morning (29th November 2018) launched an independent report entitled “Making EU Trade in Services Work for All”. This report is the result of a collaborative initiative involving her department and the Enterprise Ministries in Denmark, Finland and the Czech Republic. It makes a compelling case for the future growth potential of the European Services Sector if action is taken to reduce restrictions and barriers to cross border trade in services. Copenhagen Economics were commissioned to undertake this study on behalf of the four Member States.

The report was launched at an event in Brussels this morning in the offices of the Irish Permanent Representation to the EU, in the presence of Competitiveness Ministers and senior officials from Europe’s Member States. The EU Commissioner for the Internal Market, Elżbieta Bieńkowska, also participated at the launch.

This report is also included on the agenda at the EU Competitiveness Council, when they meet later today. Minister Humphreys will introduce the findings of the report to her fellow Enterprise Ministers, on behalf both of Ireland, and its partners in this project, Denmark, Finland, and the Czech Republic.

The report demonstrates that the Single Market has not, to date, delivered to same benefits for services - in terms of reducing barriers to intra-EU trade – as it has for goods. It identifies an evidence base for the imperative of making greater progress in making the Single Market a reality for Services and sets out a call for six actions to address this. These include actions at both European level, for the Commission, and at national level, for the Member States.

Speaking at the launch this morning, Minister Humphreys said:

“This important report by Copenhagen Economics, on Services in the Single Market, is a very positive example of leadership by my Department in working jointly with three other Member States – Denmark, Finland, and the Czech Republic – in advancing our common policy interests.

For Ireland, with a relatively small domestic market, it is a tremendous advantage for us to have the EU’s Single Market of over 500 million people on our doorstep, with no tariffs. This is especially valuable as our companies work to diversify into new export markets. In Brussels, I will be arguing for even greater progress to be made in facilitating companies who are seeking to trade their services into other Member States.

The findings in the report are very compelling, in showing the increasing importance of services, not only in their own right, but also as making a vital and increasing contribution to manufactured goods. There is an example in the report which illustrates that 30 services are involved in getting a loaf of bread into the shop, and that the services represent 72% of the final cost of the bread.

These links between services and other parts of the economy are especially true in the digital age, and the report shows that trade in digital services is growing faster than trade in services in general, and much faster than trade in goods. So, making it easier for companies to buy and sell services, especially across borders in the Single Market, is crucial to our competitiveness as digital activity grows.”

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Photo caption: Elżbieta Bieńkowska, EU Commissioner for the Internal Market; Mairead Mc Guinness, Vice President of the European Parliament; and Heather Humphreys, Ireland’s Minister for Business, Enterprise and Innovation, pictured at the launch of the Copenhagen Economics report entitled “Making EU Trade in Services Work for All.”

FURTHER DETAIL

Key Findings

The study identifies an evidence base for the imperative of making greater progress on the Single Market for Services, in terms of the EU’s global competitiveness, productivity, and Europe’s share of global value added, in an economic context where services are contributing an increasingly greater share of manufacturing (“servitisation of manufacturing”) and of digitalisation.

Some of the key findings of the report include:

the Single Market is a key driver of EU welfare, prosperity, and competitiveness
the EU’s share of the global pie is shrinking – measured in terms of trade, FDI, population, and size of the economy - and Brexit will reinforce the downward trend in the EU’s global position
a fragmented services market hampers productivity growth in services – productivity growth in the EU manufacturing sector has been three times greater than productivity growth in the EU services sector
EU productivity growth in services is lagging behind in a global context also - productivity in EU services has grown at an alarmingly slower rate than productivity in US services
Intra-EU trade in services has grown at a lower rate than within other global trading blocs in Asia and America
to date, the Single Market has on average reduced trade costs by 20% for goods, but by only 7% for services
SMEs in the services sector are on average four times smaller than SMEs in manufacturing and deepening the Single Market for Services will be particularly beneficial for SMEs, including because barriers tend to accumulate over the value chain
in some of the most competitive manufacturing countries, services functions make up more than half of the jobs within manufacturing. More than 14 million jobs in the EU are services jobs within manufacturing, and accounting for these, there are more EU export jobs in services than in manufacturing
the process of servitisation of manufacturing has increased in the EU over the past decades, with the services share of value added in manufacturing increasing from 20% in 1995 to 27% in 2011
for example, 30 services are required to produce a loaf of bread, accounting for 72% of the final price
EU manufacturing firms are more servitised than US firms – 27% of value added in manufacturing in the EU comes from services, compared to 20% in the US
the price of services in the EU is on average 11% higher than US prices – therefore, further integration of the Single Market for Services can help bring down services prices and improve EU competitiveness
the services sector accounts for 35% of total R&D expenditure in the EU, and for around 50% of private innovation expenditure

The Identified Gaps

The report identifies four “Gaps” in the current EU regulatory regime for Services. These include:

*adequacy gap - whereby key legislative instruments are outdated in the digital age

*implementation gap – even eight years after the deadline, the services directive is still not fully implemented in all of the member states

*enforcement gap – national measures sometimes introduce draconian restrictive measures which prevent cross-border exchange

*reality gap – in the modern economy where there is an increasing level of servitisation, it makes little economic sense to have such a difference between the depth and width of the Single Market for goods and the Single Market for services

The Way Forward – the Six “Calls to Action” in the report

The report identifies six “Calls to Action”, to make progress. These include actions at both European level, for the Commission, and at national level, for the Member States.

The individual recommendations under each of the six “Calls to Action” are as follows:

Call for Action 1 – Set Direction

The Competitiveness Council could:

consider the performance of the Union and Member States annually with respect to addressing remaining barriers to EU services trade and remaining gaps in the Single Market affecting services as part of the competitiveness check-up (e.g. via a Single Market Scoreboard 2.0, see Section 4.3 below)
identify, in conjunction with the European Commission, horizontal measures to lower barriers for services to enhance the Union’s competitiveness in services

Call for Action 2 – Ensure Fit

The commission could:

actively pursue and broaden the ‘digital by default’ principle stated in the Tallinn Declaration in the design of regulation for the delivery of services to ensure that digital services face no unnecessary barriers
consider more initiatives to strengthen links between the digital economy, manufacturing, artificial intelligence and data flows
assess the workings of EU rules from a firm and or sector perspective holistically across different areas of rules and laws

Call for Action 3 – Measure Progress

The European Commission could:

continue the current monitoring of the elements in the current Single Market Scoreboard
develop a Single Market Scoreboard 2.0 and use it proactively
identify best practice amongst the Member States

Call for Action 4 – Commit to Improve

Member States could be obliged to:

study the five least restrictive member states to identify best practices
set targets to improve, and those below the top category of leaders should aim to move upwards to the next group

Call for Action 5 – Prioritise Efforts

The commission could:

prioritise enforcement and/or new measures to reduce barriers linked to the aim of lifting more restrictive member states up to the next level on the single market scoreboard 2.0 (see above).
prioritise enforcement and/or new measures to reduce barriers to the single market aiming at removing the persisting restrictions (as shown in Section 1.4), which are economically significant, within a given time horizon (e.g. 5 years)
explore sectors which could benefit from the introduction of certain services standards
consider an effects-based approach to enforcement whereby the commission is prioritising sanctions where infringements are most harmful, and aim to ensure that sanctions are proportionate to the harm caused by the infringement

Call for Action 6 – Follow-Up and Adjust

Member States could:

Make mutual recognition of professional qualifications a reality through the simplification of existing processes and by stringently testing the introduction of any new procedures
increase efforts to meet the needs of service providers to get the information they need and complete administrative procedures online - for example by updating the Points of Single Contacts (PSCs) according to the quality criteria in the Single Digital Gateway to make the PSCs fully compliant with the requirements of the services directive

in addition, the commission could:

identify possibilities for the simplification and streamlining of regulation to provide maximum legal clarity
ensure further progress on the suggestion already being on the table to introduce a system of notification of new regulatory requirements
meet the request from businesses to make it easier for businesses to comply with administrative requirements in another member states by electronic means, including via further consultations with businesses and member states as to how this could most appropriately be achieved
finalise the single digital gateway to ensure that bureaucracy is minimised in implementing the gateways, to ensure that compliance costs are minimised
eliminate regional language or local partner requirements
introduce more effective sanctions for non-compliance where the level of the sanction is proportionate to the economic harm
improved forms of redress and dispute resolution, e.g. by exploring ways of improving the use of SOLVIT in the field of services

Copenhagen Economics: Making EU trade in services work for all

This report was prepared for the Ministry of Industry and Trade of the Czech Republic, the Danish Ministry of Industry, Business and Financial Affairs, the Finnish Ministry of Economic Affairs and Employment, and the Irish Department of Business, Enterprise and Innovation.

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