OECD to EU: ‘Stop protecting national champions’

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The Organisation for Economic Cooperation and Development (OECD) has hit out at European governments for protecting their markets from outside competition, saying that further reforms to spur competition and strengthen the single market are needed to guarantee the long-term prosperity of all its citizens.

Launching the OECD’s first-ever economic survey of the European Union on 20 September, OECD Secretary-General Angel Gurría said that the EU has already achieved “a great deal” and “made a major contribution to prosperity in Europe”, but added that there is still a fair bit of work ahead if it is to address the growing challenges of globalisation and ageing populations. 

  • Services a “weak spot” 

According to the OECD, the main weak spot in the EU’s internal market is the services sector. It says that despite the adoption last year of the ‘Services Directive’ (see LinksDossier), differences in national laws and attempts to protect ‘national champions’ continue to make it hard for service providers in one country to do business across Europe. 

The OECD thus recommends that the EU make it easier for private individuals and firms to take rapid legal action against unfair trade barriers they face in conducting their daily business. 

One specific area where more work is needed is financial services, it states, and calls on the EU to integrate its fragmented banking industry and speed up the implementation of its single payments area (SEPA) in order to make it easier for companies to transfer money and gain access to capital (see our LinksDossier on SEPA). 

It also criticised member states for the way in which they have implemented the EU’s directive on takeovers, saying that they had “ended up worsening rather than helping the integration of capital markets”. 

  • Network industries lack competition 

The report further calls on the Commission to open up its network sectors, such as electricity, gas, telecoms, transport, ports and postal services to more competition, saying that experience shows that consumers benefited from lower prices and better quality services in those areas that had been liberalised the most. 

Furthermore, the report welcomed proposals made by the Commission this week (EURACTIV 20/09/07) to create a truly pan-European energy market, notably by breaking up “vertically integrated energy giants”. 

  • Need for increased worker mobility

A mobile workforce could strengthen the EU by helping to absorb shocks in neighbouring economies and bringing fresh ideas and new skills to companies, according to the OECD. 

But it laments the low mobility levels in Europe, saying that the language barrier – often used as an excuse for this situation – is just “one explanation, but it is unlikely to be the whole story” (see our LinksDossier on Workers’ mobility). 

It calls on governments to remove temporary restrictions on migrants from the new member states, as well as to work on improving the recognition of qualifications, enhancing the portability of pensions and reducing transaction costs on house sales. 

  • Getting better value from regional funds 

The report notes that despite “considerable” amounts of money being spent on regional policies, “income levels are not converging” between the regions. 

“More of the regional budget needs to be tied to results: if it is not working, funds should be reallocated elsewhere,” stressed Gurría. 

  • Deeper farm policy reforms needed 

Lastly, the report said that the EU should cut its high levels of agricultural support and make it less trade distorting – a move which will not only facilitate the Doha round of global trade talks (see LinksDossier on the WTO Doha Round), but could also lead to better targeting of support to low-income farming households and poorer farming regions, it adds. 

According to OECD Secretary-General Angel Gurría: "The European Commission is making tremendous efforts to get rid of barriers to trade, and we fully support them." But, his report stressed the need for member states to provide "a fresh impetus": "The lion's share of the improvement in trade, investment and price convergence occurred in the 1990s, with less progress since then." 

Governments should thus work to eliminate the red tape which continues to stifle competition and block cross-border trade and investment, he said.

Member states "should stop protecting 'national champions'", he insisted, especially in energy markets, where, "today, vertically-integrated energy giants can treat competitors unfairly and shut out potential entrants". 

The report adds: "Some national regulators may be too soft and competition problems are not always dealt with consistently across the EU." 

The European Commission welcomed the OECD's "comprehensive" review of Community policies, which it said "highlights the impressive performance of the European Community and its "four freedoms" in bringing prosperity to the EU and its citizens". 

Commission President José Manuel Barroso added: "We share the overall conclusion that the Union has played, and should continue to play, an important role in helping Europe meet the challenges posed by technological change, globalisation, population ageing, and climate change. As the OECD has pointed out, we need to sustain efforts and complete our unfinished agenda of reforms." 

The OECD regularly reviews the economies of individual member countries, as well as economic developments in the euro area. 

However, it had never yet examined in-depth the common economic policies of the European Union as a whole. 

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