EU slow to deliver on promise to cut paperwork

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The European Commission recently said it was "on track to exceed its target of cutting red tape by 25% by 2012". But businesses shouldn't get their hopes up.

So far, only a few of the Commission's major proposals have been fully approved. The other initiatives to simplify rules and reduce paperwork are still being debated by EU member states and the European Parliament.

While the Commission contends it could ultimately cut red tape by 31%, "I wouldn't say we've gotten anywhere close so far," said Andrea Renda, senior research fellow at the Centre for European Policy Studies, who was a consultant to the Commission on the project.

The challenges are many, but from the beginning, the method of measuring the paperwork burden has been criticised as flawed.

In addition, the target is based on the Commission's proposals, not on the sometimes weaker versions that are passed by the European Parliament and EU member states.

Ultimately, what really matters to businesses is how rules are streamlined at national level. Many member states have earned reputations for tacking their own regulations onto EU rules.

European business spend €130 billion complying with national and EU-wide regulations, according to the Commission. Over the past decade, businesses say their time is increasingly spent on paperwork, and smaller companies argue they shouldn't have to comply with all of the rules that apply to large corporations.

Listening

Commission President José Manuel Barroso said in a recent speech (8 October) that "a key part of getting legislation right is listening to the people who will be affected by it".

He should listen to Mary Boughton.

Her family's business makes herbal veterinary medicines in Dorset, a rural county in the southwest of England. They have 12 employees, including Boughton and her daughter, who now spend 20% of their time on administrative tasks.

"It's certainly increased more since we joined the EU," said Boughton, a co-director of Dorwest. "It's increased a lot in the last five years, especially the employment issue, which is a big issue and very time consuming."

She has to get copies of passports or driver's licences, for example, to prove her workers are legal residents.

"We know all of our employees, and we have to jump through the same hoops as if we were British Airways," Boughton said.

On top of that, she said, she now has more problems exporting within Europe than outside because EU rules are interpreted differently by member states.

Some strides

Of course the EU has made some strides toward alleviating bureaucratic headaches.

In June, a new directive helped business by making electronic invoices equivalent to paper versions, speeding up transactions and saving an estimated €18 billion.

Soon, member states could have the option of exempting micro-companies with fewer than 10 employees from certain European accounting rules. That would save an estimated €6.3 billion a year. The Parliament has endorsed the plan, but it is still pending in the Council.

"After my discussions with President [Nicolas] Sarkozy, France will now give in and no longer block this proposal," said Edmund Stoiber, who leads an EU High Level Group on reducing red tape.

Stoiber and Barroso are expected to meet on Tuesday (7 December) and will publish a progress report on the Commission's initiatives to slice through red tape.

At national level, all member states now have targets for reducing red tape, with the UK, Germany, Denmark and the Netherlands making the longest strides.

"In Germany, steps have been already undertaken in the right direction," said Tobias Thomas, director of economic policy at the Association of German Chambers of Industry and Commerce (DIHK). In 2006, companies spent a total of €48 billion annually on some 9,200 publication and documentation requirements. By next year, that will drop to €37 billion.

In Slovakia, the government has pledged to meet the EU target of slashing red tape by one quarter by 2012. Government agencies have been cooperating with entrepreneurs and small- and medium-sized businesses to define what they consider to be the biggest administrative burdens in terms of legislation. Rules related to health insurance were identified as the biggest burden.

And in Spain, cooperation between the government and the Spanish Employers Federation (CEOE) has yielded significant results. Last year, they proposed 125 simplification measures with an estimated savings of €3.3 billion. This year, those results are expected to double.

Slow pace

Nevertheless, business groups are less than sanguine about the progress and the fact that the EU-wide programme will end in 2012 – with many proposals still tangled in debates – and no penalties for countries that don't comply.

And of course, what eventually becomes law or final recommendations must be implemented at member-state level, which can take months or years.

In addition to the slow pace of reform, the EU plan could also be perceived as a failure by businesses due to the challenges of estimating the reduction and cost savings.

The goal of 25% was based on 2005-2006 levels of bureaucracy. Much additional legislation has been passed since then, especially in the area of financial services. The original target was also set by sampling companies in a handful of countries and assuming they complied fully with existing legislation at the time, which is often not the case.

"The big problem is the original data on which it's based is so flawed that everything that is based on that is a 'guestimate'," said Renda of the Centre for European Policy Studies.

"It's such a big exercise, the final data may be very inaccurate," he explained.

The EU executive is working to lower costs for SMEs by reducing the administrative burden of unnecessary regulation by 25% by 2012. In the process, it hopes to shed its long-standing reputation as an overly bureaucratic institution. 

As well as cutting back on existing regulation, new legislation is analysed to ensure that it does not add to the burden on businesses. In 2007, the Commission established an independent High Level Group of Independent Stakeholders on Administrative Burdens (HLG) chaired by Edmund Stoiber, charged with pinpointing specific areas where red tape can be cut.

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