Select Committee on European Scrutiny Written Evidence



Letter dated 18 June 2007 from Günter Verheugen, Vice-President of the European Commission to Mr Bill Newton Dunn MEP (submitted as supplementary information following the evidence session on 9 May 2007)

  Thank you very much for your recent correspondence. I understand that unfortunately there are still some misunderstandings regarding the analysis and calculations that underpin the administrative burden reduction programme. I hope therefore that this can serve to unambiguously explain the evidence base on which our ambitious action programme rests.

  Work carried out by the Central Planning Bureau of the Netherlands and DG Enterprise and Industry shows that the administrative burden in the EU varies from 1.5% of GDP in Finland, Sweden and the UK to 6.8% in countries like Greece and Hungary (see annex). This work also estimates the administrative burden across the EU 25 at 3.5% of GDP, or EUR 350 billion. These estimates are well within a range of estimates that have often been quoted in the press. It should be noted that these EUR 350 billion are the result of direct EU level legislation as well as the national implementation of legislation with an EU origin, and national and regional measures.

  Evidence from those countries that have already carried out their own baseline measurements, ie the UK, the Netherlands and Denmark, suggests that the amount of their overall administrative burden that can be traced back to the EU level is between 30 to 40%[16].As this also includes the national implementation of EU legislation, and given there are reasons to believe that this legislation is not always implemented in the most efficient way (eg gold-plating), it is fair to say that the real amount that is due to the EU level is even less than the 30-40% stated above. Thus, it is clear that the majority of the administrative burden does not come from the EU level but that it has its origins elsewhere. This also underderlines the need for a combined effort to reduce the burden by 25% as envisaged by the Commission's action programme.

  The economic impact of this 25% reduction works via increases in labour efficiency. The administrative burden is made up of activities directly related to the need for complying with information obligations that are due to legislation (eg time and effort of filling-in forms). As the administrative burden is reduced, employees spend less time carrying out those tasks but more time being productive (increasing labour efficiency).

  The increase in labour efficiency happens in two stages. In the first stage, more employee time is released for participation in the production process, which raises total production (output). There is, of course, a relationship between labour and capital in production processes. According to economic theory firms optimise this relationship. When more labour is released for production, it follows that the capital stock will have to adjust so that the optimal capital/labour relationship is re-established. This is the second round effect. As capital investment increases, there is an additional productivity gain.

  The first round effect is expected to lead to a rise in the level of GDP of around 1.1%. The second round effect, which will take longer, is estimated to contribute a further 0.2-0.4% to the level of GDP. This means that once the whole process has taken place, the level of GDP will be c 1.5% (or EUR 150 billion in real terms) higher than it would be in the absence of an administrative burden reduction. As this is an increase in the level of GDP, it does not change its long run dynamics, ie the growth rate.

  It should be pointed out that this increase in the level of GDP of EUR 150 billion is due to gains in labour efficiency. This is not the same as saying that 25% of the current administrative burden is EUR 150 billion. Based on the estimate mentioned above, the current administrative burden is EUR 350 billion.

  However, to put this GDP increase into context, the estimated effect of the introduction of the services directive is that it will increase GDP by 0.2-0.8 % and the impact of the 7th R&D Framework Programme is in the region of 0.5-1.0% of GDP.

  It is clear that many information obligations and EU level legislation more widely serve a very important purpose by enabling policies to be implemented and devised efficiently and effectively in areas such as the environment, health and safety etc. The reason why a proportion of them originate at the EU-level is to do with the single market and itself simplification.

  It should not be forgotten that internal market rules exist in order to replace 27 differing national systems. In such a world, the efficient workings of the single market would be hindered, transaction costs higher and intra-EU trade and competition lower. To give but one example, and there are of course many more, until 2000 a company wanting to place radio equipment on the market in all EU countries would be faced by 1,400 national type approval regulations/and there were only 15 Member States at the time! The same product would be tested by each national authority, and each time this would take between two and six months. In April 2000 one Directive replaced all this by a single regime allowing the manufacturers to test themselves in their factory, once and for all, for the whole Union.

  In economic terms, the single market has led to significant benefits for the EU economy. Over the period 1992-2006, the estimated gains of the single market amount to 2.2% of the EU GDP and 2.75 million extra jobs[17].

  The success of the internal market is also widely recognised by the general public and the business community. A survey conducted in 2002 showed that 76% of companies exporting within the EU took a positive view of the influence of the single market on their business. More than 60% of these companies find that the internal market has contributed to their success in selling their products in other Member States. Moreover, Eurobarometer surveys show that 70 to 80% of citizen across the EU have a positive perception of the single market[18].

  We fully recognise however that our rules need to be updated and revised in order to keep the single market efficient and successful. With time reporting requirements can become obsolete, while technological progress in the form of IT developments allows more efficient ways of ensuring the availability of information. That is why we have set ourselves the ambitious goal of reducing the existing burden by 25%.

  I hope this information is useful to you. I would also be more than happy for you to share this letter with any colleagues of yours who may still have queries concerning this exercise so that they too may gain a better understanding of its underlying analysis.

Annex

  A very good illustration of the expected benefits of this exercise is Gelauff and Lejour[19] (2006) who used the Worldscan general equilibrium model for their work. My officials in DG ENTR have carried out similar work which has confirmed the results obtained by

Gelauff and Lejour.

  Gelauff and Lejour use the estimates of the administrative burden those obtained by Kox20 (2005). These estimates are based on data obtained from the Netherlands which was then combined with OECD data on actual business start-up costs to give country specific estimates of the administrative burden. This has led to an estimate of 3.5 % (or EUR 350 billion) for the EU 25. The estimates for each of the EU 25 are given in Table 1 and range from 1.5% (UK, SE and FI) to 6.8 % (GR and HU).

Table 1

ADMINISTRATIVE COST AS % OF GDP
Member State Administrative cost share in
GDP (in %)
21
AT4,6
BL222,8
CZ3,3
DE3,7
DK1,9
ES4,6
FI  1,5
FR3,7
UK1,5
GR6,8
HU6,8
IE2,4
IT4,6
NL3,7
PL5,0
PT4,6
RE6,8
SK4,6
SI  4,1
SE1,5
EU-253,5

20 See http://www.cpb.nl/eng/pub/cpbrreksen/memorandum/136/

21 Values used in Gelauff and Lejour (2006) based on Kox (2005).

22 BL combines Belgium and Luxembourg; RE combines the Baltic Members States, Malta and Cyprus; EU-25 figures are GDP-weighted averages


16   See Commission Working Document COM(2006) 691 final: Measuring administrative costs and reducing administrative burdens in the European Union. Back

17   See COM (2007) 60 final "A single market for citizens-Interim report to the 2007 Spring European Council". Back

18   Europbarometer October 2006. Back

19   See: Industrial Policy and Economic Reform Papers no. 1 at http://ec.europa.eu/enterprise/enterprise-policy/competitiveness/index-en.htm or http://www.cpb.nl/eng/pub/cpbreeksen/document/104/ Back


 
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