The European Internal Market and Innovation: The Challenges Ahead

The purpose of the European internal market is to allow all firms in the Union to compete freely, without artificial barriers built up to protect them. The Treaty provisions and the subsequent case law are quite comprehensive and they are meant to eliminate restrictive regulatory barriers, anticompetitive practices by firms and anticompetitive subsidies. However, especially with respect to State measures (restrictive regulatory provisions and State aid) the results that are achieved by the Union depend strictly on the follow on policies that are adopted by Member States. For example in public procurement European law deals mainly with adjudication (and only above a given threshold), while Member States are responsible for execution and sanctioning (and also adjudication below the threshold). Furthermore, in the process of reform of public utilities, liberalizations decided at the European level have to be followed up by coherent decisions at the Member State level. If such Member State interventions are not well thought out, the whole purpose of the reforms collapses. And indeed in public utilities, the European Union started in the 1990s by providing some very general indications to Member States and eventually, having recognized that markets were not sufficiently opened up, making its indications more and more stringent (but still leaving most of the responsibility of reform to Member States). Recently the Service Directive has extended this approach to liberalization to the general category of service activities. The Directive identified regulatory provisions that were prohibited and those that had to be justified by Member States. However the Directive did not introduce general categories of regulatory restriction to be justified, and instead chose to identify them precisely, falling short of providing an all-comprehensive list. A very effective revision of the Directive would be to introduce explicitly in the text the general categories of regulatory restrictions contained in the OECD Toolkit for Competition impact assessment (is the number of players restricted? Is their possibility to compete restricted? Are their incentives to compete restricted?). Should regulations have these effects, Member States would have to justify them. The regulatory reform that would be initiated in this way would promote the introduction of an innovation friendly regulatory structure.