The basis of the freedom to provide
services on a temporary or occasional basis
51. In our previous inquiry we felt it important
that where businesses operate in another Member State on a temporary
basis, they are able to do so in a way which reduced the informational
and regulatory requirements placed upon them by up to 24 other
Member States. In our follow up inquiry we were keen to assess
whether the basis for temporary or occasional operation in another
Member State had changed, and if so whether this change was positive
or negative.
52. In our first Report we saw the CoOP as "an
essential part of enabling SME service providers to break into
the markets of other Member States". We have considered whether
or not the change in the underlying basis for temporary provision
of services in other Members States from the CoOP principle to
a Freedom to Provide Services on the basis of destination country
rules is a change of substance and whether it will change the
effectiveness of the draft Directive in ensuring an effective
single internal market in services.
53. The Minister assured us that "In practice,
the conditions under which a host country may regulate are limited
and the derogations are likely to be interpreted very narrowly"
(Q 84).
54. He went on to tell us that "Existing
ECJ case law means that where someone already possesses an equivalent
authorisation from a Member State, where they establish or fulfil
the requirement, the host Member State must accept it. The authorities
would then use the mutual assessment provisions to make checks
and transfer the necessary information about the provider"
(Q 89).
55. The Government's Revised Partial Regulatory
Impact Assessment concludes that the loss of economic benefits
by moving from a CoOP to the Freedom to Provide Services is in
the order of 10-20% of potential benefit to the GDP. The Assessment
also concludes that the effects of the negative change away from
the CoOP probably outweigh the positive effects of deleting some
general derogations and clearer limits on what host Member States
may impose.
56. Arlene McCarthy MEP told us that in her view
"the country of origin principle does not exist per se
in European primary law, and where it has been laid down in technical
legislation there have been tendencies … to narrow down the
scope of application or confine it to a means of avoiding duplication
or administrative controls". She added that she believed
that in the revised draft Directive, the CoOP had been "amended"
rather than "deleted". (Q 150)
57. Oliver Bretz from Clifford Chance took issue
with the view that the CoOP did not exist in European primary
law and told us that the change of emphasis from the CoOP to the
Freedom to Provide Services within the revised draft had no effect
upon the existing rights of businesses under the EC Treaty as
upheld by the Court of Justice, and that "the country of
origin principle in relation to services was already enshrined
in the case law of the European Court". (Q 164)
58. Mr Bretz told us that as the Treaty is supreme
over any secondary legislation, such as this Directive, it is
impossible for a Directive to remove the CoOP. The ECJ interprets
all Directives through the filter of the Treaty and of existing
case law, leaving the Directive "just a more specific statement
of the obligations of the Member States in allowing service providers
to provide services and allowing recipients of those services
to receive those services" (Q 164-5)
59. Since the EC Treaty contains a freedom, reinforced
by court decisions, to provide services on a temporary basis,
the role of the Directive is arguably to reiterate that freedom,
to provide a more explicit framework within which that freedom
can be exercised and to provide a convenient source to which a
service provider operating outside its home base can point if
challenged. Mr Bretz suggested that there may be "a dynamic
effect of getting this Directive approved on top of the legal
basis itself" (Q 200)
60. On the other hand, there may be a gap between
perceptions and legal rights, acting as a brake on service provision.
A business may understand its obligations in its home country
but be wary of legal requirements and nuances in up to 24 other
Member States. Thus witness views differed on the practical extent
of the freedom.
61. The Federation of Small Business (FSB) considered
that the ease and benefits of temporary operations had largely
been lost in the new draft Freedom to Provide Services that although
it would "make [the provision of services across Member State
borders] easier" it would not "entice people to do it,
that would have been a major bonus from a small business point
of view. That is not the case any more." (Q 6)
62. The Confederation of British Industry (CBI)
expressed the concern that these restrictions left something of
a "grey area" where "Member States could argue
that they have directed a specific kind of requirement which is,
in essence a barrier" and that this barrier "still exists
even though perhaps it has been reduced." (Q 4)
63. In practice SMEs may feel that the emphasis
will still, as now, be upon understanding and meeting all the
rules and regulations of up to 24 other Member States before testing
out markets elsewhere in the EU, notwithstanding that the revised
draft seeks in Article 16 to limit the restrictions that can be
imposed upon them.
64. It may be that the appetite of small business
for testing particular local restrictions on service activity
through the courts is not strong. Mr Harbour told us that businesses
will as a result of the Directive have the new right to sue for
damages against a Member State which infringes these rules, once
transposed, in Member States courts. (Q 215)
65. This right to seek damages will require confidence
on the part of SMEs throughout the EU for it to be properly exercised.
Both Mr Harbour and Ms McCarthy emphasised the positive role which
EU SOLVIT offices have already begun to play in troubleshooting
for small businesses and were keen for the scope of such schemes
to be expanded. (Q 156 & Q 215)
66. Ms McCarthy told us that any shift in emphasis
towards a host country basis for regulation must be taken in the
context of the Mutual Recognition of Professional Qualifications
Directive. Under this separate Directive, someone seeking to set
up a business in another Member State would "simply have
to demonstrate if [they] are that person that [they] have a level
of proficiency which again the host Member State would be obliged
to acknowledge". She added that the original draft of the
Services Directive would have required consumers seeking redress
for unsatisfactory service provision to go to the provider's home
country, which would have raised many practical difficulties.
The revised Services Directive allows consumers to seek redress
in their own Member State. (Q 153)
67. Janet Williamson from the Trade Union Congress
(TUC) was of the view that "we do see a major shift here"
with the dropping of the CoOP and that "the revised Article
16 does address the issue on justified barriers but without causing
the problems that we had with the previous drafting." (Q
51)
68. The emphasis in the draft Directive for
the freedom to provide services on a temporary basis has clearly
changed. We regret this change. We understand some of the reasons
why this has happened although we continue to believe that many
of the concerns expressed over the original draft Directive could
have been met without abandoning the CoOP.
69. We also note the view expressed to us by
Clifford Chance that notwithstanding the revisions in the draft
Directive, the ECJ may effectively uphold the right to provide
services on a temporary basis within a CoOP framework.
70. On a more positive note, the sets of reasons
why temporary provision of a service may or may not be permitted
has been clearly set out and might be regarded as quite rigorously
drawn. These are set out in Article 16 of the revised draft Directive.
It includes directly only issues of public policy, public security,
public health and the protection of the environment, and these
must be proportionate and must not be discriminatory.
71. There is a "blacklist" of illegitimate
reasons for restricting the freedom to provide services; for example
a service provider need not hold an identity document specific
to a particular service activity. The Minister told us that there
was now "absolute clarity about what the intention is behind
the Article and there is also a clarity of outcome, and as a consequence
of that there is now a buy-in by all the stakeholders." (Q
86)
72. We consider the new basis to provide a
framework which provides sensible limits on host country regulatory
requirements. This constitutes a first step in liberalising service
provision, albeit under a host country approach.
Derogations and Exclusions
73. The list of exclusions and derogations in
the Commission's revised draft is longer than the list contained
in the original draft. Exclusions are those sectors which are
entirely removed from the provisions of the Directive. Derogations
are sectors to which the Freedom to Provide Services does not
apply.
74. In the revised draft Directive, services
that are generally publicly provided across all EU countries (services
of general interest, in the language of the Directive) are excluded
altogether. Services of general economic interest are now derogated
from the freedom to provide services. We were opposed to this
in our original report and we regret that change.
75. Several of the significant newly excluded
sectors, for example Financial Services, Legal Services Transport
and Electronic Communications Services, and Health are the subject
of other Directives relating to free movement. There are significant
derogations from the key Article 16 (the Freedom to Provide Services)
listed in Article 17. The main elements here are Gas, Electricity,
Water and Postal Services, which have their own Directives.
76. Mr Bretz viewed the new exclusions and derogations,
together with the revised definitions contained in the text, as
an attempt "to address or at least pay lip service to the
many, many concerns that were expressed especially by the environment
around social protections, labour laws and those sorts of things",
but that they had fundamentally changed nothing. (Q 193)
77. Hannah Reed from the TUC told us that they
held reservations over the exclusions relating to labour law.
In her view, the text sought "to limit the scope of the labour
law exemption to only employment laws derived from Europe".
The TUC supported the "direction of the amendments"
but felt that the exemption should be redrafted to additionally
cover domestic labour law. (Q 52)
78. On the contrary, the FSB told us that they
considered the list of exclusions to be "too extensive"
but reported that the Commission had informed them of its intention
to pursue the excluded areas with specific sector-by-sector legislation.
(Q 43)
79. Because services in total are conceived very
broadly in the Directive, to include both Construction and Energy
(hence excluding only manufacturing and agricultural sectors),
the potential coverage before exclusions and derogations is
of the order of 82% of UK GDP. After exclusions, the DTI estimate
that approximately 49% of UK GDP (and a similar proportion of
UK employment) is covered by improvements in the freedom to establish
a business across the EU. After allowing for Derogations (largely
related to the energy sector) in respect of Article 16, around
44% of UK GDP, and also of employment, is covered by the freedom
to provide services in the revised Directive. These figures are
set out in the table below:
TABLE 1
UK Activity covered by the Services Directive
