Harmonization in Europe: Who is to benefit?

Civis Mundi Digitaal #52

door Lode Goukens

Probably the most important policy by the European Union in the past decades has been harmonization. The mere fact most electric appliances can travel between different member states (with exception of the UK) has been the removal of a protectionist obstacle. The case of harmonization has been no subject of media storms and even lesser a subject public interest. But there are reasons to assess the facts and list up a few do’s and don’ts. The reason to address this in an essay are the new standards for e-invoicing which have been published in 2017.

Figure 1 the euro plug Directive 2006/95/EC - electrical equipment

Mobile communications

A maybe more interesting prowess by the European Union (and executed with European taxpayers money) is the GSM-standard for mobile phones. In the 1990s the new mobile communications standard was developed by the European industry as a means of protecting the telecommunication industry in countries such as Belgium, France, Germany and the UK. This mobile phone standard started as a European research project funded by the European Union and widely adopted by state phone operators and local (often state owned) industrial players. Going into too much detail in the intricacies of Esprit and Race would take too long. The standard was to be digital, harmonized and turning all analog portable phones obsolete. It worked. After decades of profits followed by decay and consolidation most companies are now part of global multinationals and production has shifted to Asia. Giant players such as Alcatel, Siemens, Sagem and Matra are nowadays mere casework for financial archeology. The acronym GSM remained but the French wording was replaced by a different English phrase. European technology conquered the world because of a common technological standard.

The European telecommunications industry fared well by it and competition started in telecommunication services. Unfortunately, a competition between incumbent national operators backed by financial parties.  The newcomers except for Vodafone were seldom real businesses, but financiers teaming up with incumbents from other European member states. In the end the European citizen ended up paying the license fees governments earned by auctioning off oligopolies. The license fees more or less were advances, running in the hundreds of millions of euros, on taxes upon future profits. Luxemburg was the only member state auctioning of the licenses based upon a business plan instead of upon the sack of silver offered to the government. The consumer, the small businesses etc. paid by consequence for these licenses instead of for the services offered. The floatation on the stock exchange or the exit strategies of the financial partners were the real agenda. Much of the created wealth was funneled away to the financial sector and bottomless treasuries. A gsm operator soon proved to be a license to print money.

Harmonization worked, but not primarily for the citizens of Europe but rather for the governments, banks and former telecommunications monopolists who profited extensively from the success. The citizen just had to pay for it one way or another. Given the addiction to mobile phones these citizens didn’t even seem to care. The actual lack of competition in the mobile phone market has its roots in this strange process.

e-invoicing directive

                Now the three officially recognized European Standardization Organizations: the European Committee for Standardization (CEN), the European Committee for Electrotechnical Standardization (CENELEC) and the European Telecommunications Standards Institute (ETSI) published in 2017 the first deliverables on Electronic Invoicing (by CEN/TC 434). The CEN website proudly states:^[1]

“The predicted impact in the business-to-business field across Europe is of up to €40 billion of benefits. However, there are still some obstacles that hinder the direct benefits of such eInvoicing:

• wide range of formats used;
• cross-border transactions are difficult within the EU due to different national rules which govern the validity and acceptability of electronic invoicing (eInvoicing) in legal, financial and administrative terms;
• uncertainty about eInvoicing systems’ security and potential misrepresentation in fraud which create concerns among consumers as well as among tax authorithies.

Hence, the European Commission requested  the ‘European Committee for Standardization’ (CEN) to develop a European Standard for eInvoicing to harmonize practices across  Europe and to respond to the EU Directive 2014/55/EU on electronic invoicing in public procurement.”^[2]

The Dutch standardization organization NEN holds the secretariat and standards were developed by the members of CEN.

The question again might be who will benefit from this harmonization? Is the harmonization playing the game of multinationals or can the harmonization benefit PME’s, self-employed workers or consumers? That governments and multinationals with e-procurement systems applaud the standard is evident. It cuts costs and forces suppliers to comply with bureaucratic procedures. For the large organizations it will be probably also a good instrument to squeeze out small competitors unable to comply immediately or reluctant to spend the funds needed to implement the new standards.

                Scholars such as Hylke Dijkstra and Sophie Vanhoonacker recently wrote a short but interesting article why academics should study European foreign policy.^[3] It is a shame nobody bothers to write a similar call to study harmonization. The benefits and the perversions are well worth looking into. The issue of the Journal of Common Market Studies contained several good essays.

                While studying European initiatives about e-procurement my surveys the past years showed that almost no public procurement functionaries doubted the advantages of e-procurement. Discussions focused on administrative issues such as the validity of digital signatures and the obstacles they posed on tenderers from other EU member states. Never the issue of distorted competition between PME’s and multinationals was raised. The tendering procedures by nature are procedures to simplify work at the side of the issuer of the call for tender. Platforms soon also became more important than equality and fair level playing fields. Especially multinationals also implemented platforms for electronic tendering forcing their suppliers to comply with ERP (enterprise resource planning) systems. The national and local governments just followed a trend in the shift from paper to digital. But there are some pitfalls. Where a private company can decide freely how to force their suppliers into shackles, a governmental organization should take into account other reasoning. Reducing risks of corruption, creating transparency and harmonization are only a few that come to mind. Often in the past public procurement has been blamed to be prone to customization to one or another supplier’s wishes.  E-procurement would not solve this problem. This bias however would not prove to be the biggest issue to tackle. The biggest issue would be the squeeze out of PME’s.

                A squeeze out built upon standards and upon technological knowledge, even for jobs where technology wasn’t involved. PME’s must take the hurdle of preparing the electronic documents needed during the procedures. In the end the amounts of documents, forms, certifications would only increase while PME’s were already struggling with an overload of bureaucracy. Maintenance jobs started going to multinational companies setting up a system of subcontractors for the actual work. The PME’s bit by bit are becoming helots of oligopolistic multinationals. Their independence and their livelihood is at stake. Free enterprise is becoming a far cry.

                The new standards for e-invoicing will be a costly burden and PME’s will be bound to contracts by services companies in order to be able to tender. The e-invoicing will reduce the profit margins of PME’s considerably and the subscription pricing will increase steadily when e-invoicing will be obligatory. The spoils of the governments investments will go to large players directly or indirectly. Local players will lose contracts ignoring decades of good services to local government to competitors lacking any local relation (be it employment or physical presence). The local governments should be aware that there are implications of this kind of harmonization. The multinationals are not paying municipal taxes, they are often not paying any taxes at all. The VAT regulation on delivery of goods and services in the EU and the intracom VAT regulation shall deprive member states of enormous amounts of income. The question who is to benefit of the e-invoice directive and its translation into national law?^[4]

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