Frits Bolkestein: "The Internal Market Strategy"

The Internal Market has been a very positive force for change in the EU. Since the removal of our internal frontiers 10 years ago, it has created at least 2.5 million extra jobs and added some €900 billion to our prosperity. That is nearly €6,000 per household on average.

As Members of the Kangaroo Group, you can justly be proud of these achievements. After all, you practically invented the Internal Market! You were there at its inception and you have supported it ever since. You deserve much of the credit for its success.

But I know that you will not want to rest on your laurels. You will want to look forward to future challenges. The Kangaroo Group is that kind of organisation. I think of you very much as initiators of change. Indeed, I see you as being rather like the Australian marsupial itself, taking giant leaps forward, as you bound towards the next horizon!

Your vision and energy are needed now. Because taking the Internal Market onto a higher plane is more urgent than ever.

Several important indicators concerning the Internal Market's functioning are beginning to "flash red." The growth in intra-Community trade over the last few years has slowed to a snail's pace. Trade with third countries is growing much faster than intra-EU trade. The process of price convergence, which we saw in the 1990s, has stalled since 1999.

If you care about the functioning of the Internal Market and the contribution it can make to Europe's quality of life, as I know you do, these statistics are very worrying.

And there are plenty of other indicators which are also pointing in the wrong direction. Just look at the most recent transposition figures. Eight Member States are now running a "transposition deficit" which is more than twice the target set by the Heads of State and Government (1,5% or less). It is simply not credible for Ministers to be making grand declarations on competitiveness whilst failing to implement critical measures on time.

Measures do not just have to be implemented correctly and on time. They must also be applied in practice and effectively enforced. Too often, Member States fail to do this. The rising number of open infringement cases up from 700 in 1992 to over 1600 today gives us some clue as to the extent of the problem. But it is just the tip of the iceberg. For each case which results in an infringement procedures, there are literally thousands of others which do not.

It is impossible to overstate the seriousness of this problem. The Internal Market is built on trust. Trust that everybody will be playing by the rules. With the EU increasing in size and diversity after enlargement, this trust will be placed under increasing strain. Fragmentation of the Internal Market - and with it a dwindling of the economic benefits it brings - is a real possibility.

So, what should we be doing to solve these problems? In deciding what to do, we have looked very closely at the 10-point declaration on the completion of the single market which the Kangaroo Group launched at the end of last year. It has been a source of inspiration to us when we prepared our Internal Market Strategy 2003-2006.

Let me mention three or four highlights of the Strategy:

Firstly, we propose to remove as many as possible of the remaining obstacles to the free movement of goods and services. Before the end of the year, I intend to put a proposal to the Commission which will make an Internal Market in services a practical reality. No doubt, there will be resistance to some of the ideas. What is an obstacle to one is a safe haven to another. However, we cannot let short-term interests stand in the way of Europe's future prospects.

We also need to facilitate trade in goods, which still represents more than 80% of intra-EU trade. Survey after survey shows that trading within the EU is still too much like an obstacle course. Most of these obstacles have to do with duplicative testing and certification requirements, lack of European standards, denials of mutual recognition and overzealous trading standards officials in the Member States. These obstacles hit SMEs particularly hard.

Whilst they may not make a politician's heart beat faster, these problems have to be tackled to get trade going again. A number of measures, such as a new Regulation to facilitate the application of the mutual recognition principle for goods, are set out in our Strategy.

Second, we have to reduce the significant tax obstacles that companies encounter when engaged in cross border activities. For this to happen, qualified majority voting in the Council must replace unanimity for tax proposals necessary for the proper operation of the Internal Market. I would be most interested in your views on how we can break the present stalemate on this issue.

Third, we must actively pursue further opening of the "network industries". I must say that I find rather disturbing some of the criticism hurled at the EU from certain quarters about our approach to Services of General Economic Interest rather disturbing. Some of the comparisons made, such as with the California electricity black-out or UK railways experience, are pure demagoguery.

Market opening in telecommunications, postal services, air transport, electricity and gas has been a success story. Prices have dropped. Quality is up. User satisfaction is higher. Today, one million more people are working in these sectors than was the case before market-opening. There is no evidence that market opening has given rise to unacceptable outcomes.

I, therefore, make no apology for the Commission's intention to review the situation in the water sector, as we announced in the Strategy. Water is the only one of the "network industries" which remains largely fragmented and shielded from competition. There may be substantial gains to be made from modernisation in this important sector.

Fourth, we need to create a fully integrated, liquid financial market in Europe. No country can be successful in the 21^st century without a thriving financial services sector and first-rate communications networks.

In financial services, the priority is to adopt the outstanding measures under the FSAP (transparency directive, investment services directive and takeover bids). If this can be achieved, there will be major benefits for all sectors and geographical areas of the European economy. Studies carried out for the Commission point to potential benefits of around one per cent of GDP and an increase in employment of half a per cent. This is not to be sniffed at.

This brings me back to the issue I mentioned at the beginning of my address effective implementation of the rules. Because there is little point in adopting new legislation be it in financial services, services or any other field if that legislation is then dead in the water.

I am convinced that we need a "new" approach to enforcement, particularly in a Union of 25 or more Member States. The Commission is, and will of course remain, the guardian of the Treaty, but this should not be misunderstood as meaning that it is the Commission's job to ensure that rules are complied with. This responsibility clearly rests with Member States. They own the Internal Market, not the Commission. The Internal Market is not a rental car, which you don't need to wash. Ownership means taking full responsibility for maintenance on a day-to-day basis.

We also need to become much more pragmatic. Did you know that half of all our infringement cases take more than 2 years to be resolved? One third takes longer than 4 years. Citizens and businesses need much faster and more effective solutions to their problems. We are beginning to provide this through our SOLVIT network which encourages stronger co-operation between national administrations. The initial results from SOLVIT are very encouraging. It now needs to be widely promoted so that it becomes a recognisable "brand name" across the EU and so that fewer people, when encountering problems, are tempted to shrug their shoulders and give up.

The Strategy also contains new suggestions for building on the SOLVIT initiative. We would like to see an Internal Market "body" or "mechanism" in each Member State which would help to ensure correct application of Internal Market law. These "bodies" or "mechanisms" should be well resourced and highly visible. They should provide citizens and businesses with quick and effective means of redress located in their own Member State. Some Member States, including Sweden, already have such a body. Setting them up across the EU would not only help to improve the functioning of the Internal Market, it would be a tangible step towards bringing the enlarged European Union closer to the citizen.

This proposal raises many questions which will have to be settled before we can take any action. We need your help in developing it further. We would very much welcome your concrete suggestions as to how we can best take the initiative forward.

We recognise that some of the ideas in the Strategy are rather radical. They are bound to run into opposition. That is why we look to you, as members of the Kangaroo Group, for support. Given your willingness in the past to take those giant leaps forward, I know that we can count on you. I look forward to working with you in the coming months.