American Enterprise Institute

Right Direction, Wrong Territory: WHY THE EU’S DIGITAL SINGLE MARKET RAISES
WRONG EXPECTATIONS
Author(s): MATTHIAS BAUER
American Enterprise Institute (2017)

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Right Direction,
Wrong Territory
WH Y THE E U ’S D I G I TA L S I N G L E M A R KE T
RAISES W R ONG E X P E C TAT I O N S

MATTHIAS BAUER
M A RC H 2017

A M E R I C A N E N T E R P R I S E I N S T I T U T E

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Executive Summary

I n the United States, tech startups have immediate access to hundreds of millions of potential customers—
not so in Europe, where regulation of digital and nondigital industries differs substantially across individual
countries.
The most prominent attempt to harmonize national laws that regulate digital businesses and markets for digi-
tal products and services across Europe is the Digital Single Market (DSM), an initiative of the current European
Commission. While not misguided in spirit, the DSM is unlikely to solve the systemic problems with the Euro-
pean Single Market unless it is combined with reforms that address regulatory heterogeneity in the EU’s nondig-
ital goods and services sectors. Advertising the DSM as the EU’s flagship initiative creates the risk that EU citizens
and political leaders will lose sight of the fragmentary nature of the EU’s nondigital markets.
To become a tech powerhouse, the EU has a long way to go in deepening the European Single Market, espe-
cially across conventional, nondigital sectors. European institutions must make the case to European citizens
and policymakers for regulatory cooperation and setting evidence-based standards, including regulatory cooper-
ation arrangements under the umbrellas of the Transatlantic Trade and Investment Partnership Agreement and
other EU trade agreements.

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Right Direction, Wrong Territory
WHY THE EU’S DIGITAL SINGLE MARKET RAISES
WRONG EXPECTATIONS
MATTHIAS BAUER
P olicymakers in Europe tend to be confused about
policies that would allow European economies to
grow at pre-crisis rates. Some call for an end of fiscal
austerity. Others call for deregulation. A small num-
ber advocate deeper economic integration under the
auspices of the EU’s Single Market. Since the current
European Commission led by Jean-Claude Juncker
took office in November 2014, it has made creation of
a genuine Digital Single Market (DSM) in the EU a pri-
ority. The Commission and the European Parliament
identified digital technologies and digital business
models as crucial to Europe’s internal and interna-
tional competitiveness. Accordingly, the EU’s DSM
strategy, adopted in May 2015, sets out 16 initiatives to
address three overarching objectives:
• To create better access for consumers and busi-
nesses to digital goods and services across
Europe,
• To put in place the right conditions and a level
playing field for digital networks and innovative
services to flourish, and
• To maximize the growth potential of the digital
economy.
To strengthen Europe’s digital economy, EU law-
makers currently focus almost exclusively on barriers
explicitly enumerated by the DSM strategy, including
policies to stimulate investment in high-speed inter-
net infrastructure, measures against “unjustified”
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cross-border geo-blocking, and policies to harmo-
nize national data privacy and consumer protection
legislation.
Each of these legislative initiatives should be
judged on its own merits. Although the EU is gener-
ally moving in the right direction in seeking a greater
harmony of national laws that regulate digital busi-
nesses, its policy priorities are on the wrong territory.
The remedies proposed by EU’s Digital Agenda will
not cure the EU’s structural Single Market disease.
This is because the EU’s most pressing structural
impediment to digital businesses developing and
scaling up is the regulatory heterogeneity in nondig-
ital industries. Due to fragmented regulatory frame-
works for many goods and most services sectors, it
will remain difficult for any digital business to con-
test traditional industries by digitalizing old-economy
business models and to grow by expanding across
national EU borders.
The EU’s exclusive focus on digital barriers has
created another problem. The promotion of politically
easy-to-sell digital policies distracts public attention
away from the fragmentary nature of the EU’s Single
Market. It also creates the risk that European citizens
and, thus, political leaders will lose sight of the mer-
its of harmonized, nondiscriminatory rules that fos-
ter competition, contestable markets, and economic
development across and beyond the EU.
The backlash against the Transatlantic Trade and
Investment Partnership (TTIP) agreement between
the EU and the United States, which is meant to
include a modern and comprehensive chapter on
RIGHT DIRECTION, WRONG TERRITORY
good (evidence-based) practices of regulatory coop-
eration, can be attributed to EU institutions’ and
most member state governments’ failure (or lack of
willingness) to convincingly communicate the con-
sequences of legal fragmentation and discriminatory
national laws existing in the EU. Far too often, the
EU’s free trade agreements as well as the EU Single
Market integration were sold exclusively on the back
of simplistic narratives about economic growth and
job creation, which ignored the underlying mecha-
nisms at work.
The DSM in the Context of the EU’s
Internal Market Policies
To strengthen Europe’s digital economy, EU lawmak-
ers—guided by the insight that digital technologies
“know no borders”—focus almost exclusively on the
barriers enumerated in the DSM strategy. The adop-
tion and diffusion of digital technologies within tra-
ditional European goods and services sectors could
become the main drivers of new business models,
product innovation, and employment. But here lies
the problem: the traditional, nondigital markets still
“know” national borders.
The European Commission and the European
Parliament identified digital technologies and digital
business models as the key components of Europe’s
internal and international competitiveness. Follow-
ing the Lisbon Strategy’s objective to turn the EU into
the “most dynamic and competitive knowledge-based
economy in the world by 2010,” the Digital Agenda
for Europe was conceived as one of the seven top ini-
tiatives of the Europe 2020 strategy. Released in 2010,
the Europe 2020 strategy set out the importance of
information and communication technologies (ICT)
for the achievement of a DSM. Accordingly, the Com-
mission highlighted the need for a reliable European
legal framework to stimulate investments in a com-
petitive high-speed internet infrastructure and in
related services. In addition, the Commission stated
the aim to create a true Single Market for online con-
tent and services governed by clear European rights
regimes.1 Shaped by the objectives of the Europe 2020
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Matthias Bauer
strategy, the DSM strategy adopted in May 2015 sets
out 16 initiatives that aim to address the three overar-
ching objectives2 summarized in Table 1.
Achievements in DSM Legislation as of
November 2016
The recently issued Commission’s working plan for
2017 reiterates its focus on the DSM:
Releasing the full additional growth potential of
connected Digital Single Market by completing the
implementation of the Strategy will remain high on
the agenda in 2017. As announced in last year’s Work
Programme, we will deliver the remaining propos-
als in the next few months, such as the Value-Added
Tax (VAT) REFIT [Regulatory Fitness and Perfor-
mance] package covering proposals on e-commerce,
e-publications and e-books and initiatives on advanc-
ing the data economy including addressing unjusti-
fied barriers to the free flow of data within Europe.3
The program listed the connected Digital Single
Market as the fourth of the new initiatives undertaken
by the Commission. The Commission’s working pro-
gram further states:
Connectivity is key, and the Commission will deliver
on its promise to bring about the abolition of mobile
roaming charges by mid-2017. We will review the
progress made towards completing the Digital Sin-
gle Market and will identify where further efforts are
needed by the co-legislators and any necessary fur-
ther proposals.4
For the time being, however, most digital agenda
policies are at the proposal stage or pending legis-
lative approval by the European Parliament and the
Council of European Union and further implementa-
tion by the member states. In 2016, European Com-
mission made 14 legislative proposals (see Table 2 and
Appendix A).5
These initiatives have their own merits and
will also create their own distortions. While a full
RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Table 1. The EU’s 2015 DSM Strategy

Pillar Policy Initiative

Objective 1. Better access
for consumers and businesses
to digital goods and services
across Europe
• Rules to make cross-border e-commerce easier, including consumer protec-
tion rights
• Better enforcement of consumer rights
• More efficient cross-border parcel delivery
• An end to discriminatory practices in geo-blocking
• A renewed approach to apply antitrust law in the e-commerce sector
• A reform of European copyright legislation
• An increase in access of broadcasting services across Europe
• A reduction of the administrative burden of complex value-added tax (VAT)
procedures in cross-border sales

Objective 2. Creating the • An ambitious modernization of EU telecoms legislation

right conditions and a level
playing field for digital net-
works and innovative services
to flourish
• A review of the audiovisual media framework
• An inquiry of online platforms as a dominant player in digital markets from
the perspective of competition law
• A modernization of the EU data privacy legislation (e-privacy directive)
• Measures on cyber and network security

Objective 3. Maximizing the
growth potential of the digital
economy
• The promotion of the free flow of data by a European “Free Flow of Data
Initiative” and a “European Cloud Initiative”
• The definition of interoperability standards in various areas of the DSM (e.g.,
e-health, transport planning, and energy)
• An inclusive digital society

Source: European Commission, “Digital Single Market Strategy for Europe—Analysis and Evidence,” 2015, http://eur-lex.europa.eu/
legal-content/EN/TXT/?uri=CELEX%3A52015SC0100; and European Commission, “A Digital Single Market Strategy for Europe,”
2015, http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0192.

evaluation of these initiatives cannot be done at this
stage because few legislative proposals have been
launched, only a few of these initiatives explicitly
aim to tackle regulatory fragmentation of the EU’s
nondigital markets.
To an American reader used to the idea of largely
unfettered interstate commerce within the United
States, the Single Market narrative may give the
impression of streamlined national regulations in
Europe. In reality, the EU’s regulatory landscape is
still characterized by various degrees of harmoniza-
tion and mutual recognition in the goods and services
sectors.6 It is a patchwork of legislative and regula-
tory models. The current “nondesign” of Europe’s
market policies reflects the fact that from the very
beginning the Single Market was built on a vague
political vision rather than a smart political agenda.
This causes a great deal of confusion and uncertainty
about what entrepreneurs (and consumers) legally
can or cannot do across borders, and what permits
are required to engage in the markets in other EU
countries. This fragmentation and regulatory het-
erogeneity will not go away even if the DSM strategy
delivers on its promises.

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RIGHT DIRECTION, WRONG TERRITORY
Table 2. Overview of Proposed DSM Policies
DSM Policy
Digital contracts for Europe
EU copyright rules
Geo-blocking
Portability of digital content
Parcel delivery
Audiovisual media services
Telecoms
Radio spectrum policy
Free Wi-Fi for Europeans
Note: For an overview of the status of the legislative proceedings, see Appendix A, http://www.aei.org/publication/appendix-a-
right-direction-wrong-territory/ (online only).
Source: European Commission.
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Matthias Bauer
Stated Objective of Policy Proposal
• Alignment of contract rules for digital content and physical goods
• Better choice and access to content online and across borders
• Improved copyright rules on education, research, cultural heritage, and
inclusion of disabled people
• A fairer and sustainable marketplace for creators, the creative industries, and
the press
• Addressing geo-blocking and other forms of discrimination based on cus-
tomers’ nationality, place of residence, or place of establishment within the
internal market
• Ensuring the cross-border portability of online content services in the internal
market
• Improvement of delivery services for consumers and small- and medium-
sized enterprises (SMEs)
• Ensuring cost-effective solutions and promote interoperability of delivery
services between operators and e-retailers
• Providing rules to shape technological developments
• Creating a level playing field for emerging audiovisual media
• Preserving cultural diversity
• Protecting children and consumers
• Safeguarding media pluralism
• Combating racial and religious hatred
• Guaranteeing the independence of national media regulators
• A sound regulatory framework for electronic communications, promoting
competition and consumer rights
• Promoting investment in broadband networks supporting high-speed internet
• Supporting wireless technologies, such as 3G and LTE, through the radio
spectrum policy program
• Protecting mobile users from high roaming charges when traveling in the EU
or internationally
• Taking a leading role in international discussions on internet development
and governance
• Harmonizing spectrum-access conditions to enable interoperability and
economies of scale for wireless equipment
• Working toward a more efficient use of spectrum
• Improving the availability of information about the current use, plans for use,
and availability of spectrum
• Promotion of free Wi-Fi connectivity for citizens and visitors in public spaces
such as parks, squares, public building, libraries, health centers, and muse-
ums everywhere in Europe
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RIGHT DIRECTION, WRONG TERRITORY
Regulatory Heterogeneity and the
Impact on Digital Business Models
Differences in country-specific regulations and reg-
ulatory diversity hamper trade in traditional non-
digital sectors. As is discussed below, regulatory
heterogeneity is a key factor determining the deci-
sions of European online businesses to engage in
cross-border commerce in the EU. Since it is hard for
digital business models to gain ground and expand in
a fragmented nondigital world, EU lawmakers need to
address “national regulatory silos” beyond what the
EU has identified as its priorities in its DSM agenda.
Since most digital business models aim to “digitalize”
old sectors, fragmented nondigital markets pose a
challenge for any startup or incumbent firm aiming to
roll out a digital business to another European coun-
try, let alone to the EU market as a whole. Different
national regulations of traditional nondigital sectors
still effectively prevent businesses from experiment-
ing with ideas and business models that could add
value to product and service offerings in nondigital
sectors, such as through a more efficient exploitation
of ICT capital and large volumes of industry data.
Although the pace of structural economic change
that arises from technological innovation is difficult
to project ex ante, the economic literature is fairly
clear about the factors encouraging or discouraging
structural economic renewal. While changes in con-
sumer tastes, demographics, and work habits drive
structural change, the institutional and regulatory
environment is also crucial. On the other hand, tight
regulatory measures effectively hinder economic
adjustment and productivity-enhancing structural
economic change. At the same time, business reg-
ulations have a cultural effect because they affect
existing production patterns, business models, and
work habits.
The variation in country-specific productivity
(growth) rates and in levels of regulatory heteroge-
neity reflects the lack of economic convergence in
European Single Market and the incompleteness of
the European Single Market. The Single Market is
still characterized by restrictive regulatory standards
and their heterogeneity.7 Although progress has been
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Matthias Bauer
made over the past 20 years, the lack of harmoniza-
tion of national laws and the deficiencies in the EU’s
mutual recognition framework remain the rule rather
than the exception. The impact of anticompetitive
product market regulations goes beyond the markets
that are explicitly targeted by these regulations. Tight
regulations have knock-on effects on downstream
sectors and their competitiveness, such as when firms
use the output of highly regulated sectors as interme-
diate inputs in the production process.
Subsidies, establishment barriers, and differences
in tax systems hinder economic adjustment processes
by effectively protecting low-productivity incum-
bents from competition. In other words, these policy
instruments can protect incumbents that would not
survive in a less distortionary and more harmonized
regulatory environment. Removing regulatory obsta-
cles to entrepreneurship and investment, and eventu-
ally to competition, would therefore encourage firms
to experiment and invest resources in new ideas,
products, and business models.8
Openness to trade is another driver of a
productivity-enhancing reallocation of an econo-
my’s domestic resources.9 The ease of doing busi-
ness across borders is crucial for foreign companies
to operate, invest, and innovate in other jurisdictions
and to stimulate local business cycles. In practice,
however, regulatory obstacles often prevent compa-
nies from investing in foreign markets or servicing
foreign customers. Heterogeneity in regulations is
found to significantly impact a company’s choice in
how to service foreign markets for most product and
services sectors.10
As a result, the main barrier for the expansion of
businesses is regulatory heterogeneity, not the level of
regulation. Many regulatory measures increase a com-
pany’s fixed cost of market entry because they need to
set up resources and processes to comply with diverse
country-specific provisions. Without a functioning
system of mutual recognition or harmonization, the
cost of market entry adversely affects firms’ total aver-
age cost per unit of output, increasing it with every
new nondomestic export market.11 One consequence
of regulatory heterogeneity is to prevent firms from
engaging in international trade. That adversely affects
RIGHT DIRECTION, WRONG TERRITORY
intra-industry competition, cross-country innovation
spillovers, and economic convergence. For services
sectors, Kox and Lejour show that regulatory hetero-
geneity creates a market entry barrier for SMEs and
negatively affects services exports.12 Therefore, as
argued by Pelkmans and De Brito, regulatory hetero-
geneity is not only costly to businesses, but also detri-
mental to consumers who are confronted with higher
prices and less product variety.13
“Nondigital” Regulatory Heterogeneity
in the EU
As for market regulations in EU member states, sur-
vey data reveal substantial differences in both the
scope and the restrictiveness of sectoral regulations.
These reflect the enduring resistance of EU member
states to giving up various legislative and regulatory
powers (see Figures 1–4). Regulatory heterogeneity in
traditional nondigital markets therefore remains an
important source of variation in EU member state’s
productivity levels. The intra-EU total factor produc-
tivity levels, for example, are not converging. Between
2000 and 2009 the aggregate total factor productiv-
ity of Northern European countries increased, while
it decreased for several Southern European coun-
tries, which show higher average levels of regulatory
restrictiveness. Diverse laws regulating investment,
market entry, entrepreneurship, state-owned enter-
prises, and network industries remain a core feature
of the Single Market, as are diverse sets of rules for
a wide range of services sectors including telecoms,
transport, retail, and professional services. Figure 1
provides the aggregate OECD indices of product mar-
ket regulation.
In commerce, national legislation remains the
dominant source of law. Technical and administra-
tive barriers to trade, widely known as nontariff barri-
ers to trade (NTBs)—such as horizontal regulations,
national product standards, market entry regulations,
and red tape—began to be dismantled only with the
launch of the Single Market Program in 1985. More
than 24 years after the original 1992 deadline, Euro-
pean firms still confront myriad national and even
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Matthias Bauer
regional laws. They also face innumerable regula-
tory provisions driven by inconsistent national and
sometimes regional public policy objectives. Exam-
ples include national copyrights regimes and edu-
cation systems as well as local and regional rules,
such as regulations on taxi transport and waste man-
agement.14 True, waste management and taxi ser-
vices can be regarded as nontradable sectors with a
degree of heterogeneity of preferences that ought to
be reflected in different regulatory practices. How-
ever, the regulatory status quo systematically discour-
ages cross-country investment and the dissemination
of new, much more efficient technologies and busi-
ness models (taxi services) and prevents efficient and
innovative foreign suppliers from engaging in regional
tender procedures (waste management services).
According to the OECD’s 2013 product market
regulation (PMR) index, the Netherlands shows the
lowest aggregate value for regulatory restrictiveness,
suggesting that Dutch regulations are on average the
least restrictive in terms of the burden they create for
established businesses and for investors and startups.
Market-specific regulations in Greece, on the other
hand, were most restrictive, indicating that businesses
already operating or willing to operate in Greece face
serious obstacles due to national laws (see Figure 1).
For member states that are covered by the OECD’s
survey, the restrictiveness of both horizontal and
industry-specific regulation varies widely. That
impairs the functioning of the Single Market (see Fig-
ure 2). Although the barriers to trade and investment,
for example, are generally modest in most member
states, policy heterogeneity is most significant in this
policy field. It implies that it is comparatively easy
to invest across borders for those businesses that
have sufficient financial and human administrative
resources to deal with diverse country-specific obli-
gations, compared with investing or simply trading
across EU borders. Accordingly, diversity in national
regulations can be regarded as a subsidy to larger
businesses, effectively discriminating against SMEs.
In licensing and permitting laws, regulatory provi-
sions and procedures tend to be highly complex. At
the same time, the heterogeneity of national legisla-
tion is considerable. The same is true for government
RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Figure 1. 2013 OECD Product Market Regulation Indices of Single Market Economies

Greece 1.74
Slovenia 1.70
Poland 1.65
Sweden 1.52
France 1.47
Luxembourg 1.46
Ireland 1.45
Spain 1.44
Belgium 1.39
Hungary 1.33
Portugal 1.29
Germany 1.29
Finland 1.29
Estonia 1.29
Slovak Republic 1.29
Italy 1.26
Denmark 1.22
Austria 1.19
United Kingdom 1.08
Netherlands 0.92
0.0 0.5 1.0 1.5 2.0

Source: Organisation for Economic Co-operation and Development, Indicators of Product Market Regulation, 2013, https://www.
oecd.org/eco/growth/indicatorsofproductmarketregulationhomepage.htm.

involvement in network service sectors. Accordingly, services as well as telecommunications, regulatory

a comprehensive reform package addressing regula-
tory heterogeneity would significantly affect intra-EU
trade. As outlined by Fournier et al., aligning PMR
indicators to the average of the top half of the best
performers would bring down regulatory heteroge-
neity by one-fifth and could increase intra-EU trade
intensity by more than 10 percent.15
Heterogeneity in market regulations is also a typi-
cal feature of network services industries such as air-
line services and telecommunication as well as postal
and transport services. Retail markets across the EU
are characterized by significant differences in national
regulations, and that holds true for a large number of
professional services.
As shown in Figure 3, over the period between 2008
and 2013, the progress in regulatory convergence was
slow. Most sectors do not exhibit any advances in regu-
latory convergence. For engineering and architectural
diversity within the Single Market even increased as
expressed by the absolute distance between minimum
and maximum restrictiveness levels.
The OECD’s services trade restrictiveness indices
exhibit a similar picture (see Figure 4). In this core
category, regulatory heterogeneity is a salient charac-
teristic of all services sectors covered by the OECD’s
surveys. Differences in restrictiveness reflect general
regulations that apply across all sectors of the econ-
omy, such as barriers to the movement of employees,
barriers to competition, restriction on foreign entry,
and transparency in the rule-making process.
Figure 5 shows a negative relationship between
the level of regulatory restrictiveness and the size
of ICT capital investment across certain regulatory
categories. Total ICT capital investment tends to be
lower the higher market entry barriers; the stron-
ger regulatory protection of network, retail, and

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Figure 2. Cross-Country Regulatory Heterogeneity in the EU

Horizontal Indicators
Explicit barriers to trade and investment 0.62
License and permits system 0.47
Complexity of regulatory procedures 0.42
Government involvement in network sectors 0.35
Command and control regulation 0.35
Scope of state-owned enteprises 0.29
Barriers in services sectors 0.24
Barriers to network sectors 0.23
Regulatory protection of incumbents 0.21
Barriers to entrepeneurship 0.17
State control 0.15
PMR aggregate 0.14

Sectoral Indicators
Airlines 1.24
Telecom services 0.67
Professional services 0.47
Retail services 0.41
Legal services 0.37
Road transport 0.37
Rail transport 0.34
Postal services 0.28
Accounting services 0.28
0 0.2 0.4 0.6 0.8 1 1.2 1.4

Note: Numbers represent calculated variation coefficients based on national regulatory restrictiveness indices in 2013. The countries in
sample are Sweden, Finland, Belgium, Netherlands, United Kingdom, Germany, Italy, Austria, France, and Spain.
Source: Organisation for Economic Co-operation and Development, Indicators of Product Market Regulation, 2013, https://www.
oecd.org/eco/growth/indicatorsofproductmarketregulationhomepage.htm; and author’s calculations.

professional services sectors; and the wider the scope
of state control and regulatory protection of incum-
bent companies.16 For digital companies, entering
a foreign market governed by regulations that are
different from domestic laws increases compliance
costs, often to punitive levels. Regulatory compliance
can take various forms: the choice over the legal form
of market entry, the adoption of products and ser-
vices, and the way products and services are allowed
to enter the market.

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Figure 3. Diversity in Regulatory Restrictiveness in Services Sectors

Variation in Regulation in EU Network Sectors

Telecom Services 2008

Telecom Services 2013

Postal Services 2008

Postal Services 2013

Rail Services 2008

Rail Services 2013

Road Transport Services 2008

Road Transport Services 2013

Airline Services 2008

Airline Services 2013

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

Variation in Regulation in EU Professional Services Sectors

All Professional Services 2008

All Professional Services 2013

Legal Services 2008

Legal Services 2013

Accounting Services 2008

Accounting Services 2013

Architecture Services 2008

Architecture Services 2013

Engineering Services 2008

Engineering Services 2013

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

Variation in Regulation in EU Retail Sectors

Retail Services 2008

Retail Services 2013
Retail Licences and Permits 2008
Retail Licences and Permits 2013

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

Note: The box plot shows the minimum, first quartile, median, third quartile, and maximum regulatory restrictiveness levels. Dots repre-
sent mean values.
Source: Organisation for Economic Co-operation and Development, Indicators of Product Market Regulation, 2013, https://www.
oecd.org/eco/growth/indicatorsofproductmarketregulationhomepage.htm.

10

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Figure 4. Heterogeneity in Services Trade Restrictiveness

Accounting Air Transport Architecture

Broadcasting Commercial Banking Construction

Computer Courier Distribution

Engineering Insurance Legal

Logistics Cargo-Handling Logistics Custom Brokerage Logistics Freight Forwarding

Accounting Air Transport Motion Pictures

Railfreight Transport Roadfreight Transport Sound Recording

Telecom

Note: The box plot shows the minimum, first quartile, median, third quartile, and maximum regulatory restrictiveness levels. Dots repre-
sent mean values.
Source: Organisation for Economic Co-operation and Development, Services Trade Restrictiveness Index, 2014, https://stats.oecd.
org/Index.aspx?DataSetCode=STRI.

11

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Figure 5. Regulatory Restrictiveness and Investment in ICT Capital: Average Share of ICT
Investment for 2001–09

0.9 1.0 1.1 1.2 1.3 1.4 1.5 2.0 2.4 2.8 3.2 3.6 4.0 4.4 4.8
18% 18%
United Kingdom United Kingdom
Share ICT Investment Total Industries

Share ICT Investment Total Industries

16% 16%

14% 14%

Netherlands Japan Netherlands Japan

12% 12%

Belgium Belgium
Finland France France
Austria Germany Finland Germany Spain
10% Spain 10% Austria

Italy
8% Italy 8%
Aggregate Product Market Regulation Entry Barriers in Services Sectors

0.5 1.0 1.5 2.0 2.5 3.0 3.5 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
18% 18%
United Kingdom United Kingdom
Share ICT Investment Total Industries

Share ICT Investment Total Industries

16% 16%

14% 14%

Netherlands Japan Netherlands Japan

12% 12%

Belgium France Spain Belgium

Germany France Germany
Spain Austria
10% Austria Finland 10% Finland

8% Italy 8% Italy
Entry Barriers in Network Sectors Regulation in Retail Services

0.4 0.8 1.2 1.6 2.0 2.4 2.8 0.5 1.0 1.5 2.0 2.5 3.0
18% 18%
United Kingdom
United Kingdom
Share ICT Investment Total Industries

Share ICT Investment Total Industries

16% 16%

14% 14%

Netherlands Japan Netherlands Japan

12% 12%

Belgium Belgium
France Germany France Germany Spain
Finland
10% Spain Austria 10% Austria Finland

8% Italy 8% Italy

Regulation of Professional Services Complexity of Regulatory Procedures

1.4 1.6 1.8 2.0 2.2 2.4 0.6 0.8 1.0 1.2 1.4 1.6 on the
(continued 1.8 next page)
18% 18%
United Kingdom United Kingdom
CT Investment Total Industries

CT Investment Total Industries

16% 12 16%

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Japan Japan
Netherlands Netherlands
12% 12%

Belgium
 16% 16%

Share ICT Investment Total Indus

Share ICT Investment Total Indus

14% 14%

Netherlands Japan Netherlands Japan

RIGHT DIRECTION,
12% WRONG TERRITORY 12% Matthias Bauer
Belgium Belgium
France Germany France Germany Spain
Finland
10% Spain Austria 10% Austria Finland

Figure 5 (continued). Regulatory Restrictiveness and Investment in ICT Capital: Average Share of
ICT Investment
8% for 2001–09 Italy 8% Italy
Regulation of Professional Services Complexity of Regulatory Procedures

1.4 1.6 1.8 2.0 2.2 2.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
18% 18%
United Kingdom United Kingdom
Share ICT Investment Total Industries

Share ICT Investment Total Industries

16% 16%

14% 14%

Netherlands Japan Netherlands Japan

12% 12%

Belgium Belgium
France
Austria Spain Finland France Austria Germany
10% Germany 10% Spain Finland

8% Italy 8% Italy
Scope of State Control Regulatory Protection of Incumbents

Note: The countries in sample are Sweden, Finland, Belgium, Netherlands, United Kingdom, Germany, Italy, Austria, France, Spain, and
Japan. See also endnote 16.
Source: Author’s calculations based on Organisation for Economic Co-operation and Development, Indicators of Product Market
Regulation, 2013, https://www.oecd.org/eco/growth/indicatorsofproductmarketregulationhomepage.htm#indicators; and EU
KLEMS, 2011, Growth and Productivity Accounts; and author’s calculations.

Lessons from the EU’s Legislative unnecessary national laws restrict businesses from
Initiative on “Unjustified Geo-Blocking” serving customers across European borders. While
copyright issues are explicitly excluded from this
In the DSM strategy, the European Commission wants legislative initiative, the EU’s main objective is to
to create a seamless European digital marketplace, in address “unjustified market fragmentation strat-
which all industries can take full advantage of what egies” that are based on customers’ nationality or
digitalization offers. The Commission committed place of residence.18 For most businesses, however,
itself to “make legislative proposals in the first half of geo-blocking of digital content and the modification
2016 to end unjustified geo-blocking.” With its legisla- of digital offers are indispensable to comply with dif-
tive proposals, the Commission aims to address a key ferent national laws. Geo-blocking is a direct conse-
priority of the European Council, which concluded in quence of regulatory market fragmentation within
May 2015 that “action must be taken . . . to remove the the EU. Accordingly, it is not geo-blocking that hits
remaining barriers to the free circulation of goods and consumers and prevents European businesses from
services sold online and tackle unjustified discrimina- expanding. Rather, it is legislative fragmentation of
tion on the grounds of geographic location.”17 traditional sectors at the level of the national member
Geo-blocking, which encompasses the blocking state that imposes significant costs on businesses and
or modification of digital content (including offers consumers alike (see Table 3).
of physical goods and services) based on custom- A substantial number of sector-specific and hori-
ers’ place of residence within the EU, is a textbook zontal regulations are still fragmented along national
example of how disproportionate, unjustified, and lines. Differences in horizontal legal provisions, for

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Table 3. Taxonomy of Stated Concerns Justifying Blocking and Modification of Digital Offers

A. Legal Compliance with National Law B. Efficient Business Administration,

of EU Member States Profitability, and Freedom of Contract
A.2. National B.1. Efficient
A.1. Sector-Specific Horizontal Business B.2. Profitability and
National Law Regulations Administration Freedom of Contract

Physical goods 1. National consumer 1. Lack of financial 1. Unviable markets, risk of

1. National product safety
regulations
2. National technical regu-
lations
3. National labeling
requirements
4. National waste manage-
ment regulations
5. National construction
material regulations
Nondigital services
6. National regulations of
financial services
7. National regulations of
professional services
8. National regulations for
the provision of public
services
protection regulations
2. National data protec-
tion regulations
3. National regulations
of “terms and condi-
tions”
4. National regulations of
warranty and “right to
return”
5. National VAT regimes
6. Diverging fiscal
requirements beyond
national VAT require-
ments
7. National protection of
brands and trademarks
resources sunk costs, and mitigation
2. L ack of internal of general business risk
administrative 2. M arket entry and access
capacities and contracts providing
3. L ack of external for “exclusive territory”
administrative distribution
capacities 3. D ifferences in willingness
4. L ack of local pres- to pay and price differ-
ence entiation according to
5. L anguage barriers national demand charac-
6. L ack of adequate teristics
logistical and deliv- 4. B rand reputation consid-
ery solutions erations
7. L ack of adequate 5. M itigation of fraud and
payment methods counterparty risk

Digital services
9. National copyright laws
10. National regulations
on telecommunication
services
11. National regulations on
the provision of digital
content

Sources: Author’s classification based on UK Department for Business, Innovation and Skills, “UK Position on Geoblocking,” 2016,
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/491116/bis-16-10-geoblocking-eu-consultation-
response.pdf; BusinessEurope, “Geo-Blocking and Different Treatment in the Single Market,” December 18, 2015, https://www.
businesseurope.eu/sites/buseur/files/media/position_papers/internal_market/2015-12-18_pp_geo-blocking.pdf; European eCom-
merce and Omni Channel Trade Association, “EU Commission Consultation on Unjustified Geo-Blocking,” December 28, 2015, http://
media.wix.com/ugd/b18286_fe252d2af7214ab983a8573bd763d1d6.pdf; Swedish Trade Federation, “Swedish Trade Federation’s
Reply to Geo-Blocking Consultation,” May 2016, http://ec.europa.eu/information_society/newsroom/image/document/2016-5/
swedish_trade_federation_13498.docx; and EuroCommerce, 2015, “Eurocommerce Position on Geoblocking,” December 23, 2015,
http://ec.europa.eu/information_society/newsroom/image/document/2016-5/eurocommerce_13463.pdf.

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RIGHT DIRECTION, WRONG TERRITORY
example, require cross-EU-border online traders to
adapt to national VAT, consumer protection, and data
protection laws. In sector-specific regulations, busi-
nesses must customize products and services accord-
ing to national product safety regulations, national
technical regulations, national labeling requirements,
national waste management regulations, and national
construction material regulations (see columns 1 and
2 in Table 3). For example, an architectural service
provider in Athens cannot simply offer its services
via an online platform to Berlin customers without
aligning their product offers and services packages
with country-specific requirements. Similarly, a con-
struction materials provider in Warsaw must adapt
its product portfolio to Swedish product and building
standards to qualify for Stockholm demand.
The variation in national regulation and the sur-
rounding legal uncertainty affect digital businesses’
market entry and market expansion decisions.
Administrative barriers and compliance risks affect
the firms’ assessment of legal and financial invest-
ment risks, let alone the need to set up additional
resources to administer country-law specific contract
requirements or to fulfil local commercial presence
requirements (see columns 3 and 4 in Table 3). Addi-
tional and unnecessary regulation works like a tax or
a tariff. It drives a wedge between the price of produc-
tion and consumer’s nominal willingness to pay. That
is, it effectively destroys a certain number of mutu-
ally beneficial exchanges that would have occurred
otherwise, with adverse effects on competition and
employment, let alone on the development of profes-
sional qualification and vocational training.
Taxi markets are a compelling example of unjusti-
fied, discriminatory regulation of nondigital services at
national and local levels, which prevents digital busi-
ness models from gaining ground anywhere in Europe.
A regulation of entry persists in many—importantly,
not all—member states despite overwhelming evi-
dence of lack of competition, high consumer prices,
poor quality, and monopolistic rents of taxi license
holders in traditional taxi services markets. License
systems are still a major feature of many (not all) local
taxi markets in the EU, which is why innovative taxi
app providers are prohibited from operating. Licenses
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Matthias Bauer
are granted by local governments and usually capped
to control market supply, while at the same time prices
are set by law rather than supply and demand.
Conclusions
Irrespective of the nature of business models in ques-
tion, regulation sets the institutional context for eco-
nomic activity and entrepreneurial discovery. The
digital economy is not unique in the sense that regu-
latory heterogeneity would be higher in “native-born”
digital sectors than elsewhere. In the EU, most tra-
ditional nondigital, or less digitalized, goods and ser-
vices sectors are still regulated in a highly fragmented
fashion, leading to high costs of entry and of doing
business across borders and, consequently, to a lower
contestability of traditional markets.
Legal barriers in the offline world create costly
barriers for both goods and services trade. Regula-
tory heterogeneity makes it difficult for companies to
establish operations in other countries without costly
adaptions of business models to foreign laws and reg-
ulations. For European digital and nondigital indus-
tries to become more innovative and internationally
competitive, policymakers must effectively address
regulatory fragmentation in the EU’s internal goods
and services markets where heterogeneous national
regulations still dominate.
The Digital Single Market is a worthy ambition,
but it will not unleash the potential of Europe’s dig-
ital economy unless combined with deep reforms
addressing regulatory heterogeneity in nondigital
sectors. That is where the main obstacles to Europe’s
digital future lie. It is not important whether new dig-
ital innovations carry a European or foreign passport.
The merit of any innovation primarily comes with its
adoption. Accordingly, the important reform strategy
for lifting Europe’s economic growth is rather the
capacity of economies to quickly transact and adapt
to new technologies and innovative business models.
Recognizing the lack of harmonization in tra-
ditional sectors and its adverse impact on digital
businesses not only requires new thinking about
specific policies for digital sectors. It also requires
RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

considerable reforms of general market policies,
aimed at creating a genuine nondigital European Sin-
gle Market, which is arguably the most fundamental
precondition to ease structural economic change and
to create a true cross-national DSM.
“Nobody can fall in love with the single market,”
Jacques Delors used to say. The current degree of
harmonization and mutual recognition under Sin-
gle Market regulation suggests that this realization
has remained a guiding principle and hidden work-
ing title for many EU policy proposals. So far the EU’s
DSM agenda has followed the path of least resistance,
as European institutions have tried to raise as little
political friction as possible. The EU’s declared pri-
ority focus on “pure” digital barriers bears another
rather systemic problem. The promotion of politically
easy-to-sell digital policies distracts public attention
from the protracted fragmentariness of the EU’s Sin-
gle Market. It also compounds the risk that European
citizens and political leaders alike will lose sight of the
merits of harmonized and nondiscriminatory rules
that foster competition, economic development, and
convergence and increase the contestability of mar-
kets across and beyond the EU.
The ongoing backlash against TTIP and further
liberalization of international trade at large, which is
meant to include a modern and comprehensive chap-
ter on fact- and evidence-based regulatory coopera-
tion, can be attributed to the failure of EU institutions
and most member state governments to convincingly
communicate the everyday shortcomings of legal frag-
mentation and discriminatory national laws in the
EU. These range from national technical regulations
in goods sectors to diverse national regulations of pri-
vate and public services markets.
DSM policies’ overall economic impact on digi-
tal and nondigital businesses will likely be trivial, as
will be the overall economic impact on jobs and new
economic opportunities in the EU. Past failures to
emphatically communicate the economic and social
merits of a truly level regulatory playing field within
the EU as well as regulatory cooperation in EU trade
agreements with the United States and other coun-
tries are at the heart of European citizens’ distrust
of the EU and national political antagonism. EU pol-
icymakers and national governments must reinvig-
orate the narrative that the European Single Market
is at the heart of the project of European integration.
They must also point out unequivocally that inter-
national regulatory cooperation in general is key for
well-regulated, contestable, competitive, and nondis-
criminatory national markets.
About the Author
Matthias Bauer is a senior economist at European
Centre for International Political Economy.

© 2017 by the American Enterprise Institute. All rights reserved.

The American Enterprise Institute (AEI) is a nonpartisan, nonprofit, 501(c)(3) educational organization and
does not take institutional positions on any issues. The views expressed here are those of the author(s).

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RIGHT DIRECTION, WRONG TERRITORY
Appendix A
Appendix A is available at http://www.aei.org/publication/appendix-a-right-direction-wrong-territory/.
Appendix B
EU Competence in the (Digital) Single
Market
The issue of EU competence is crucial for under-
standing EU lawmaking because any EU legal acts
will bind the member states and constrain their
competence to the extent of the legally binding act.
In principle, the EU has only competence conferred
on it by the EU Treaties, so-called attributed compe-
tence, which has been developed gradually through
the various subsequent stages of the development of
the treaties.
Prior to 2009, drawing a clear line on the scope of
the EU competence was a challenging exercise, cre-
ating tensions and resulting in turf wars among the
EU institutions and member states on whether the
matter at issue fell within the scope of EU exclusive
or shared competences. To ensure the development
of the EU law, the development of Court of Justice
of the European Union case law interpreting treaty
provisions would have to be taken into account as
well as development of the EU secondary legislation
(directives and regulations specifying the legal norms
enshrined in the broad treaty provisions).
In sum, the EU can only act within the limits of
powers assigned to it, consequently where the EU
competence, at least to some extent, does exists. As
clearly explained by Craig and De Burca:
EU competence resulted from a symbiotic interac-
tion of four variables: Member State choice as to
the scope of the EU competence, as expressed in
the Treaty revisions; Member State and since the
SEA [Single European Act], European Parliament
acceptance of legislation that fleshed out the Treaty
Articles; the jurisprudence of the EU Courts; and
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Matthias Bauer
decisions taken by the institutions as how to inter-
pret, deploy, and prioritize the power accorded to
the EU.19
The Lisbon Treaty provided for a tripartite divi-
sion in EU competences to achieve greater clarity.
Consequently, pursuant to Articles 2–6 of the Treaty
on the Functioning of the European Union (TFEU),
one can distinguish between the nature and the
scope of EU competence, dividing it into exclusive
(Article 3), shared (Articles 2(2) and 4), and supple-
mentary, complementary, and supportive compe-
tences (Article 6).
Shared competence is a default position in the
Lisbon Treaty.20 The adoption of harmonized leg-
islation in internal market primarily includes Arti-
cle 114 of the TFEU as a legal basis for the EU acts.
The well-established principle of EU law primacy,
acknowledged for the first time in Costa v Enel,21
ensures that in the event of a conflict between the EU
and domestic law, the latter should be set aside to the
extent of incompatibility,22 and the national law must
be interpreted and applied, insofar as possible, so as
to avoid a conflict with a Community rule.23
Within the group of competences, the EU can-
not supersede the member states. The competences
not conferred with the EU, remain with the member
states. Moreover, since Maastricht Treaty, the prin-
ciple of subsidiarity ensured that EU should exer-
cise the competence, currently enshrined in Article
5(2) TFEU. The EU has a number of legally binding
and nonbinding instruments serving the purpose
of achieving the EU objectives. Article 288 TFEU
provides the spectrum of the EU legislative acts,
including a regulation, a directive, a decision, and a
recommendation.
RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

EU Regulations on the form and method applied in its implementa-

EU regulations are binding in their entirety and
directly applicable in all member states, being the
most efficient instrument in achieving the harmoni-
zation in the internal market because they become
automatically a part of the internal domestic systems.
Taking the example from the Digital Single Market
agenda, the regulation on cross-border parcel deliv-
ery services will effectively ensure that the same rules
apply across the EU, ensuring affordable, high-quality
cross-border delivery services can build trust in
cross-border online sales. EU regulations are also the
most rigid of its legal instruments.
tion. Moreover, the directives do not necessarily have
to be addressed to all the member states. The court
held that EU directives have direct effect, permitting
individuals to rely on them in any action against the
state,24 including the damages stemming from the
non-implementation of the contested directive.25
In the Digital Single Market agenda, an example of
a directive can be illustrated on the one addressing
geo-blocking and other forms of discrimination based
on customers’ nationality, place of residence, or place
of establishment within the internal market.
Decisions and Recommendations

EU Directives According to Article 288, the decisions are binding in

In order to ensure some flexibility in the adoption
of the EU law, directives are adopted to harmonize
certain areas or to introduce complex regulatory
change. Whenever the EU adopts the directive, it
effectively bounds the member states as to the end
result that has to be achieved, leaving some flexibility
their entirety, and a decision with specified addressees
is binding only on them. In contrary, the recommen-
dations and opinions adopted by the EU institutions
have no binding force, as the soft law instruments.
Lastly, by virtue of Articles 290–291, the Commission
can further precise the EU legislation in the form of a
delegated or an implementing act.

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Appendix C

The Development of the EU Law in the
Nondigital Single Market
The Single European Act, signed on February 17, 1986,
constituted a fundamental step toward achieving the
EU internal market. It focused on promoting better
legislative rules allowing for the facilitation in har-
monizing the legislation as well as introduced a new
approach to the EU market.
First, the act contained new procedures aiming at
facilitating the legislative process in order to achieve
the complete internal market, which are currently
found under Articles 26 and 114 of the TFEU. Nota-
bly, Article 26(2) defines an internal market as an area
without internal frontiers, in which there could be free
movement of goods, services, persons, and so forth,
amounting to an ongoing, dynamic policy objective.
As of today, the emphasis of this provision shifted
toward regulatory obstacles in ensuring the effective-
ness of the four freedoms. The Single European Act
also provided for a dichotomy of the EU legislative
powers over the internal market, currently covered
by Articles 114 and 115. The general legislative power
provided in Article 114 authorizes the EU institutions
to adopt any measures under ordinary legislative pro-
cedure, on condition that such measures must be
intended to improve the conditions for the establish-
ment and functioning of the internal market.26
In contrast, Article 115 provides for a rigid unanim-
ity rule, authorizing only adoption of directives. This
article can be used as a legal basis for the EU legisla-
tive process only if the measure directly concerns one
of the EU freedoms. Article 114 never did provide, nor
does it provide, for any general power in adoption of
the EU market regulations. The measures must gen-
uinely have as their object the improvement of the
establishment and functioning of the internal market.
To the extent of the most developed freedom in
movement of goods, the principle of mutual recogni-
tion in the EU internal market provides for a notifi-
cation requirement of any laws that could hinder or
even prevent free movement of lawfully produced
goods marketed within the EU market. Any such
restriction should be justified under Article 36.

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Notes

1. European Commission, “Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth,” March 3, 2010, http://eur-lex.
europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF.
2. European Commission, “Digital Single Market Strategy for Europe—Analysis and Evidence,” 2015, http://eur-lex.europa.eu/
legal-content/EN/TXT/?uri=CELEX%3A52015SC0100; European Commission, “A Digital Single Market Strategy for Europe,” 2015,
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0192.
3. European Commission, “Commission Work Programme 2017: Delivering a Europe That Protects, Empowers and Defends,”
October 25, 2016, 6, http://ec.europa.eu/atwork/pdf/cwp_2017_en.pdf.
4. Ibid., 7.
5. Appendix A (available only online) summarizes the state of play in the EU’s legislative processes. Appendix B gives a brief over-
view of EU competence in (digital) law-making. Appendix C gives a general overview of the development of the EU law in the nondig-
ital Single Market.
6. European Parliamentary Research Service, European Added Value Unit, “Single Market for Goods,” part 1 of “The Cost of
Non-Europe in the Single Market,” September 2014, http://www.europarl.europa.eu/EPRS/EPRS_STUDY_536353_CoNE_Single_
Market_I.pdf; European Parliamentary Research Unit (EPRS), European Added Value Unit, “Single Market for Services,” part 2 of
“The Cost of Non-Europe in the Single Market,” http://www.europarl.europa.eu/RegData/etudes/STUD/2014/536354/EPRS_STU(2014)
536354_REV1_EN.pdf; and Patrick Messerlin, “The European Union Single Market in Goods: Between Mutual Recognition and
Harmonization,” Australian Journal of International Affairs 65, no. 4 (2011): 410–35.
7. EPRS, “Single Market for Goods”; and EPRS, “Single Market for Services.”
8. Era Dabla-Norris et al., “The New Normal: A Sector-Level Perspective on Growth and Productivity Trends in Advanced Econo-
mies,” International Monetary Fund, March 2015, https://www.imf.org/external/pubs/cat/longres.aspx?sk=42730.0; Organisation for
Economic Co-operation and Development, The Future of Productivity, preliminary version, 2015, http://www.oecd.org/eco/growth/
OECD-2015-The-future-of-productivity-book.pdf, Diego Restuccia and Richard Rogerson, “Policy Distortions and Aggregate Produc-
tivity with Heterogeneous Establishments,” Review of Economic Dynamics 11, no. 4 (October 2008): 707–20; and Paul Conway and
Giuseppe Nicoletti, “Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and High-
lights,” Organisation for Economic Co-operation and Development, Economics Department Working Papers No. 530, December 7,
2006, http://dx.doi.org/10.1787/362886816127.
9. Nobuo Kiriyama, “Trade and Innovation: Synthesis Report,” Organisation for Economic Co-operation and Development, 2012,
http://www.oecd-ilibrary.org/trade/trade-and-innovation_5k9gwprtbtxn-en.
10. Kommerskollegium, “Online Trade, Offline Rules: A Review of Barriers to E-Commerce in the EU,” May 2015, http://www.
kommers.se/In-English/Publications/2015/Online-Trade-Offline-Rules/; Kommerskollegium, “Single Market, Four Freedoms, Sixteen
Facts,” May 2015, http://www.kommers.se/In-English/Publications/2015/Single-Market-Four-FreedomsSingle-Market-Four-Freedoms-
Sixteen-Facts/; and Hildegunn K. Nordås and Henk LM Kox, “Quantifying Regulatory Barriers to Services Trade,” Organisation for
Economic Co-operation and Development, Trade Policy Papers No. 85, February 19, 2009, http://www.oecd.org/tad/42505876.pdf.
11. Some opponents of greater degrees of regulatory harmonization in the EU argue that regulatory competition is needed to ensure
sound regulatory practices that are fit for purpose. Such arguments miss the point given that the world of today counts more than 170
non-EU countries to look at for regulatory comparison.
12. Henk Kox and Arjan Lejour, “Regulatory Heterogeneity as Obstacle for International Services Trade,” CPB Netherlands Bureau
for Economic Policy Analysis, September 2005, https://www.cpb.nl/en/publication/regulatory-heterogeneity-obstacle-international-
services-trade.
13. Jacques Pelkmans and A. Correira De Brito, “Enforcement in the EU Single Market,” Centre for European Policy Studies, 2012,
https://www.ceps.eu/publications/enforcement-eu-single-market.
14. For a comprehensive analysis of regulations of taxi market, which are among the most regulated sectors in OECD countries, see
an OECD report summarising the OECD Competition Committee debate on improving competition in taxi services. Organisation for

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RIGHT DIRECTION, WRONG TERRITORY Matthias Bauer

Economic Co-operation and Development, “Taxi Services: Competition and Regulation,” 2007, http://www.oecd.org/regreform/
sectors/41472612.pdf.
15. Jean-Marc Fournier et al., “Implicit Regulatory Barriers in the EU Single Market: New Empirical Evidence from Gravity Models,”
Organisation for Economic Co-operation and Development, Economics Department Working Papers No. 1181, January 5, 2015, http://
www.oecd-ilibrary.org/economics/implicit-regulatory-barriers-in-the-eu-single-market_5js7xj0xckf6-en.
16. As for the complexity of regulatory procedures, the positive slope of the line is driven by two distinct outliers: Italy, which shows
a low share of ICT capital investment with a low level of regulatory complexity, and the UK, which shows a high share of ICT capital
investment (for the reasons discussed above) and a high degree of regulatory complexity. Eliminating the UK and Italy from the data-
set would result in a negative sample correlation between the size of ICT capital investment and the complexity of regulatory
barriers.
17. European Commission, “European Council Conclusions, 25–26 June 2015,” 7, http://www.consilium.europa.eu/en/press/press-
releases/2015/06/26-euco-conclusions/.
18. European Commission, “Legislative Initiative: Proposals to Address Unjustified Geo-Blocking and Other Discrimination Based
on Consumers’ Place of Residence or Nationality,” 4, 2015.
19. Paul Craig and Grainne de Burca, EU Law: Text, Cases and Materials, 5th ed. (Oxford, UK: Oxford University Press, 2011), 74.
20. Ibid, 101.
21. Case-6/64, Falminio Costa v. ENEL, ECR 585, 593.
22. Case-106/77, Simmenthal, 1978 ECR 629.
23. Case-106/89, Marleasing, 1991 ECR I-732.
24. Case-41/74, Van Duyn v. Home Office, 1975 Ch 358.
25. Cases-6 and 9/90, Francovich and Bonifaci v. Republic of Italy, 1991 ECR I-5375.
26. Case-376/98, Germany v. Parliament and Council, 2000 ECR I-8419, known also as the “Tobacco Advertising case.”

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