What is a digital single market?
The single market is and remains the centrepiece of Europe’s economic architecture. From the onset of its modern form back in 1993, it has been growing in size and continuously adapting to the changing economic conditions. 22 years ago, digital technologies were at their infant stage. Since then, they have become a transformative force – at micro-level, for businesses but also globally, in terms of changing economic structures, their impact is yet to be measured.
The digital single market is one of the most promising and challenging areas of progress, creating potential efficiency gains in the amount of €415 billion[i]. It opens up new opportunities to boost the economy through e-commerce, while at the same time facilitating administrative and financial compliance for businesses and empowering costumers through e-government. A functional digital single market becomes an increasingly important part of the single market. Member States are nurturing digital economies and, therefore, the significance of digital economics for the functioning of the single market per se increases. We can even conclude that digital technologies and the single market are working to help each other and are mutually reinforcing.
The digital single market is about removing national barriers to transactions that take place online. It builds on the concept of the common market intended to eliminate trade barriers between Member States with the aim of increasing economic prosperity and contributing to “an ever-closer union between the peoples of Europe”. This concept was further developed into the concept of the single market defined as “an area without internal borders, in which the free movement of goods, persons, services and capital is ensured”. Following up on the Lisbon Strategy[ii], the Europe 2020 strategy introduced the Digital Agenda for Europe[iii] as one of the seven flagship initiatives, recognising the key enabling role that the use of ICTs will have to play if Europe wants to succeed in its ambitions for 2020.
Market and government services developed within the digital single market are evolving from fixed to mobile platforms and becoming increasingly ubiquitous, offering access to information and content anytime, anywhere and on any device (ubiquitous commerce and ubiquitous government). These advances call for a regulatory framework that is conductive to the development of cloud computing, borderless mobile data connectivity and simplified access to information and content, while safeguarding privacy, personal data, cybersecurity and net neutrality.
Why a single market?
The well-known economic rationale for the single market is based on the logic of economic integration.
As a rule, reducing internal barriers:
- boosts internal trade and helps to reduce barriers to market entry
- promotes competition, enabling economies of scale and improving efficiency
- can help to increase attractiveness to foreign investors.
Following this logic, market integration yields higher growth, job creation and welfare gains.
To realise these gains, the single market envisages deeper integration than classic free trade areas or customs unions. It aims to tackle non-tariff barriers often resulting from differences in regulations in order to promote the free movement of goods, services, capital and people among its member states. To that extent, common rules are an instrument towards and play a key role in unlocking the expected economic benefits.
While benefits may not come without costs – for example, adjustment to new rules, fitting of regulation for individual countries and market conditions, and possible “too many” or “too centralised” bureaucratic structures – the assessment of the single market suggests that integration has delivered economic benefits.
The economic rationale for the Digital Single Market
The economic rationale for the Digital Single Market builds on the basic economic theory about the impact of digital technology, market integration, assessments of structural characteristics as well as gaps in Europe, notably:
- The role of technological change and innovations as a key driver of long-term growth, particularly in advanced economies. Basically, there are three channels through which digital technologies can impact growth, i.e. through:
- the sectoral contributions of ICT-producing sectors (for example, equipment and services) to GDP
- investment in ICT capital by firms
- productivity improvements resulting from ICT investments in technology-using sectors
- The observation that investment in ICT has been relatively low in Europe. While that is partly due to divergencies in economies’ sectoral composition, it contributes to concerns about future growth potential.
- The observation that productivity growth in Europe has been relatively low. Divergencies in productivity predate the economic and financial crisis, going back to the 1990s. ICT has been one of the factors explaining it for quite some time. While in the late 1990s the focus had been more on productivity increases in ICT-producing sectors, it shifted to developments in technology-using industries. With the crisis dampening productivity growth and raising concerns about global economic downturn, potential sources to generate long-term growth are now more dearly sought than ever.
The digital single market has the potential to improve access to information, increase efficiency through low transaction costs, dematerialised consumption and reduced environmental footprint, as well as to advance new business and administrative models[iv]. Fostering e-commerce creates tangible benefits for consumers, such as emerging new products, lower prices, greater variety and better quality of goods and services resulting from cross-border trade and price comparison[v]. Wider provision of e-government services would facilitate online compliance by and improve the access to jobs and business opportunities for both citizens and businesses.[vi]
Getting started
A fully functioning Digital Single Market could add about €415 bn per year to EU GDP. It could position the EU as a world leader in the digital economy. To unlock this potential, the Commission proposed in 2015 a Digital Single Market Strategy that lays the foundations of a united and sustainable European digital society. The Digital Single Market Strategy aims to ensure that Europe’s economy, industry and society take full advantage of the new digital era. Along e-solutions and data, and cross-border digital services, the strategy is an integral part of EU’s project for a digital Europe.
Dramatic achievements in the field followed in 2016 and 2017:
End of roaming charges
The EU administration has been working to reduce roaming prices since 2012 when the first price caps on roaming calls were introduced. There are two official reasons for the price caps – roaming charges are deemed to be a distortion on the free market which is a fundamental principle of the EU, and the high price of roaming calls is deemed to suppress the use and development of the technologies in the field.
So, 5 years later, roaming charges were eliminated and since 15 June 2017 Europeans can use their mobile phones like at home when travelling in the EU.
The 2017 Flash Eurobarometer[vii] results show that the vast majority of Europeans recognises the benefits of roaming without additional charges. This is an example of an EU that concretely improves the life of Europeans. Customers are appreciating it, consumption is up and the demand for mobile services when travelling in the EU is very high, which benefits consumers and operators alike.
Modernising data protection
Personal data protection is very important for security and reliability when making use of digital services. Some 500 people per month complain about stolen personal data on the hotline of the Commission for Personal Data Protection. Calls numbered 5926 in 2018 alone, or an average of 494 call per month, shows a report provided by the Commission for Personal Data Protection.[viii]
The General Data Protection Regulation took effect on 25 May 2018. It is an important step in enforcing citizens’ fundamental rights in the digital era and making business easier through simplifying the rules for undertakings in the digital single market. Producing a single piece of legislation will also end the fragmentation and the costly administrative burdens.
Cross-border portability of online content
The Regulation on cross-border portability of online content services in the internal market became applicable on 1 April 2018. It will enable Europeans to fully use the online content they have subscribed for at home wherever they are in the EU. The new regulation will improve competitiveness by fostering innovations in online services and attracting more consumers. It is one of the objectives of the digital single market strategy to create a truly internal market for digital content and services.
The regulation will apply to all online content services which are offered in return for payment. Free to air services, such as those provided by certain public broadcasters will have the option of benefiting from the regulation provided that they verify the country of residence of their subscribers.
Current obstacles to cross-border portability of online services arise from the fact that the rights for the transmission of content protected by copyright such as audio-visual works as well as rights for premium sporting events are often licensed on a territorial basis. Online service providers may choose to serve specific markets only.
Agreement to unlock e-commerce by putting an end to unjustified geo-blocking
A significant barrier to consumers has been identified in the context of online services – unjustified geo-blocking preventing access to digital services or content. Experts find that in some cases it is really necessary but, for the most part, this restriction of users’ access generally results in a loss.
In February 2018, the Council adopted a regulation prohibiting unjustified geo-blocking within the internal market. The new legislation will remove barriers to e-commerce by avoiding discrimination based on customers’ nationality, place of residence or place of establishment.
The new rules will prevent the discrimination for consumers and companies on access to prices, sales or payment conditions when buying products and services in another EU country.
Services where the main feature is the provision of access to or use of copyright protected works, or the selling of copyright protected works in an intangible form, such as online music, e-books, online games and software, are excluded from the scope of the regulation. This will, however, be subject to review by the Commission.
Other services such as financial, audio-visual, transport, health and social services, are also exempt from the scope of application of the regulation, in accordance with the services directive. End of geo-blocking means more choice and therefore a better deal for consumers and more opportunities for business.
Copyright legislation
EU is also working on new harmonization and new copyright law rules – an issue that had to be addressed long ago.
In September 2018, the European Parliament adopted a new Copyright Directive. It obligates all websites to filter all content uploaded by users and automatically delete it in case it contains even small bit of copyrighted material. Another article of the directive, known as “link tax” protects with copyright event the titles of journalistic articles which would impede their sharing in the social networks or their citing.
The legislation has become the centre of a controversy – critics warn that those two amendments are a direct threat to the free flow of information throughout the Internet and will lead to censorship. Many companies also beefed about the new measures. In her blog post in the official blog of Google, YouTube CEO Susan Vojcicki called upon video content creators for the platform to “take action” against the new EU amendments to copyright protection.[ix]
The VAT calculation reform will also be a major task. Amendments aimed at easing the administrative burden of working with different VAT rates have been laid down. The Commission will assess how certain online products such as e-books and other content are to be charged so that these actions fit within the general tax reform.
Benefits to consumers consist mainly in a much wider access to e-books at lower prices – a major problem for the publication and distribution of e-books is the high purchase and distribution price which publishing houses have to pay. If such measures are adopted, the European e-book market’s may well be experiencing a boom.
Having in place good information and communication infrastructure is a prerequisite for innovations. The Commission envisages an ambitious review of the requirements to telecoms towards provision of better services and expanding the opportunities for a reliable telecommunications network.
The strategy also includes measures in support of the fight against illegal content on the Internet, as well as measures to strengthen cybersecurity. Like many other markets, the purpose is to achieve a modern economy offering flexible working conditions both online and offline.
Challenges to the single digital market
Despite being one of the greatest achievements of European integration, the single market has yet to reach its full potential.
Persisting barriers to the free exchange of products and services, insufficient enforcement of existing rules and a low level of cross-border public procurement all limit opportunities for businesses and citizens. This results in fewer jobs and higher prices.
Notwithstanding the e-commerce boom, most business organisations in Europe are still failing to do enough for the digital single market. Data show that only 12% of European traders sell online to consumers in other European countries whereas three times as many (37 %) are trading online in their own countries[x].
Differences in national legal systems of Member States are a major obstacle to cross-border sales for four of ten traders selling online in Europe (39 %). If uniform e-commerce rules are applied in the EU, 57 % of the business organisations active in cross-border online sales are more likely to start trading with other EU Member States.[xi]
In addition to the above, only 59% of Europeans have access to 4G networks. European consumers still lack access to diverse products and better prices. Only 15 % buy online from other European countries while three times as much do so domestically. [xii]
The low consumer confidence in Europe is another problem. Only 38 % of Europeans trust online traders from other European countries and more than 70 billion users have had at least one or several problems with the most popular products sold online (music, anti-virus programs, games, cloud services) in the past 12 months. In consequence, online product consumers have lost between €9 and €11 million.
Europe needs to embrace these changes in order to protect its citizens as well as to allow them to seize the new opportunities. For example, digitizing manufacturing is estimated to bring the EU € 1,25 trillion by 2025.
The EU wants to shape the digital future around topics such as trust, security and e-government, where there is significant room for progress. For example, only 15% of Europeans shop online from another country now.
Conclusion
Big expectations have been attached to the digital single market, but the gains associated with it are unlikely to materialise automatically. The contribution of single market’s digitalisation to the social and economic development of the Union is not unconditional and depends on addressing a number of general and specific challenges to the digital single market development policy.
First, they are contingent on implementation. The Commission relies on Member States’ support to adopt measures and put them into practice. This could considerably prolong the timeline. Take for instance the rules on data protection, arguably a key piece to ensure consumer trust in digital services, where negotiations have been going on since 2012. It is a combination of legal complexity, technological uncertainty, the cross-cutting nature of the issue and different practices across Member States that have made it difficult to find a quick compromise. These factors are particularly valid for areas such as copyright reform.
A large part of the (productivity) benefits that can be reaped from ICT are contingent on use. Yet how ICT gets used – by consumers and firms – and whether it is leveraged to full extent is something that is hard to tackle via legislation. To that extent, strategies and other normative documents can play an encouraging role at best.
For consumers, both convenience and trust influence adoption. In this context, consumer protection issues are likely to gain more prominence in the future, also for the European Commission.
How firms make use of technology is first of all a microeconomic question. Research often emphasises factors such as management practices that affect firms’ ability to capitalise on digital technologies. However, there is a second layer to it: in order to derive the benefits of ICT, organisational changes often prove necessary. Yet the more rigid the (macro)economic structures, the more difficult it is to implement the changes. Here, digitalisation ties in with the larger debate about economic reforms and structural rigidities in Europe.
Taking advantage of the single market is certainly easier where preconditions not only in terms of infrastructure but also skills are met. But interactions go beyond that: a key issue is how flexible economies are and how well they can cope with competitive pressure that digital technologies – and eventually a fully-fledged digital single market – could induce. At the same time, cumbersome procedures and national regulations can hinder the adoption of new business models and their potential to scale up quickly in the single market. Hence, rather than depending on single actions, the success of the policy hinges on interactions of different measures and conditions also on other markets (product, labour, etc.) that are beyond the digital single market strategy.
Finally, perhaps the biggest challenge for realising the digital single market is creating an environment supportive of – or at least allowing for – disruption and creative destruction. This is going to be challenging from a politico-economic perspective because it means dealing with unpredictable processes and sometimes dismantling legacy structures.
[i] A digital single market strategy for Europe, available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/568325/EPRS_BRI(2015)568325_EN.pdf
[ii] https://en.wikipedia.org/wiki/Lisbon_Strategy
[iii] Europe 2020, A European strategy for smart, sustainable and inclusive growth, available at http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007%20-%20Europe%202020%20-%20EN%20version.pdf
[iv] Streaming and Online Access to Content and Services, available at http://www.europarl.europa.eu/RegData/etudes/etudes/join/2014/492435/IPOL-IMCO_ET(2014)492435_EN.pdf
[v] Roadmap to Digital Single Market, available at http://www.europarl.europa.eu/document/activities/cont/201209/20120914ATT51402/20120914ATT51402EN.pdf
[vi] Bernard, C., Conlon, g., Duke, C., Lewis, M., European Union, 2013, European Single Point of Contact, available at http://www.europarl.europa.eu/RegData/etudes/etudes/join/2013/507453/IPOL-IMCO_ET(2013)507453_EN.pdf
[vii] First summer without roaming charges: Europeans see benefits of the new rules, available at http://europa.eu/rapid/press-release_IP-17-3241_en.htm
[viii] Около 500 души месечно се оплакват от кражба на лични данни (About 500 people per month complain about personal data theft), https://www.actualno.com/society/okolo-500-dushi-mesechno-se-oplakvat-ot-krajba-na-lichni-danni-news_590153.html,
[ix] YouTube моли авторите да са против новите правила на ЕС (YouTube asks authors to stand against the new EU rules) https://www.vesti.bg/tehnologii/youtube-moli-avtorite-da-sa-protiv-novite-pravila-na-es-6087744
[x] Защо се нуждаем от единен цифров пазар за Европа? (Why do we need a digital single market for Europe) http://www.europedirect-vidin.eu/index.php/novini/537-zashto-se-nuzhdaem-ot-edinen-tzifrov-pazar-za-evropa
[xi] Ibid
[xii] Ibid
