EC program to deepen the Single Market for services – guide

— last modified 27 January 2011

While services currently represent two-thirds of the EU’s GDP and employment, they only make up for around one-fifth of total intra-EU trade. Today, only about 8 per cent of European SMEs do business in other Member States. This lack of dynamism not only hampers choice for consumers, but also prevents small and innovative businesses to grow, develop their activities and become more competitive. To unlock this potential of the Single Market for services by 2012, the European Commission has today adopted a set of targeted actions to tackle remaining problems. The Services Directive aims precisely at removing unnecessary and burdensome obstacles to trade in services in the Single Market. One year after the implementation deadline, the Commission and the Member States have completed an assessment of how the Directive has been implemented on the ground. The results of this so-called “mutual evaluation” exercise conclude that, while much has been achieved so far, the Single Market for services is not yet delivering its full potential.

1. Why do we need to improve the functioning of the Single Market for services?

A more thriving EU services sector is a priority for the Commission, given the potential for additional growth this represents. Services are the driving force of the EU economy and statistics show that around nine out of ten new jobs are created in this sector. As identified in the Commission’s Annual Growth Survey, the EU will only meet its ambitious Europe 2020 targets for sustainable and inclusive growth if urgent structural reforms are prioritised in services and product markets to improve the business environment.

Nevertheless, the EU Single Market for services is still not functioning properly and needs further attention – this is the outcome of an extensive evaluation of the Services Directive.

A number of legal and administrative barriers still make it difficult for businesses and consumers tobuy and sell services in and from other EU countries. They also make it difficult for SMEs and the self employed to start new activities or to expand at home or abroad. In some cases, SMEs are required to complete unnecessary burdensome formalities and comprehensive registrations before they can cross the border to provide a service. Many largely unjustified restrictions also limit the choice of business models available to entrepreneurs in this important sector. Currently, services trade only represents 20% of total trade in the EU.

2. What is the Services Directive?

To remove a large number of obstacles to services trade, the Services Directive was adopted at the end of 2006. This EU law requires EU Member States to remove unjustified or disproportionate legal and administrative barriers to the setting-up of a business or the provision of cross-border services in the EU. It also aims to dismantle barriers affecting service recipients (whether consumers or businesses) wanting to have access to services from other Member States. The Directive had to be transposed and implemented in all EU countries by 28 December 2009.

The objective of the Communication adopted today is to assess the progress made on the implementation of the Services Directive. It shows that the Services Directive has been a crucial milestone in improving the legal framework for services in Europe. At the same time, it highlights that further improvements need to be made to make EU markets work better and create the growth and jobs the EU desperately needs. It also identifies key priority actions to carry out to move towards a better functioning Single market for services.

3. What services are covered under the Services Directive?

The Services Directive covers a wide range of service activities, representing around 40% of EU GDP and employment. It covers services such as construction and crafts, retail, most of the regulated professions (such as legal and fiscal advisers, architects, engineers and accountants), business-related services (such as office maintenance, management consultancy and advertising), tourism and related services, real estate services and private education services. Several service sectors are excluded from its scope, notably financial services, telecommunications networks, transport services, health services, gambling activities and certain social services.

The Directive applies to two main situations:

• The permanent establishment of businesses, i.e. cases where an individual entrepreneur or business wants to set up a permanent establishment (such as a company or a branch) in its own country or in another EU country. Examples: a carpenter from Hungary who wants to establish a business in Sweden, or a Spanish company that wants to set up a new retail store in its own country.

• The cross-border provision of services, i.e. cases where a business already established in an EU country wants to supply services in another EU country, without setting up a permanent establishment there, or cases where a consumer living in one EU country wants to buy services from a provider established in another EU country. Examples: a painter established in France is commissioned to paint a house in Germany, or a consumer from Finland wants to use an architect established in Estonia.

4. What are the benefits of the Services Directive?

The Services Directive makes it easier for potential entrepreneurs and existing businesses to start or expand their activities at home or abroad by:

• removing burdensome legal and administrative barriers;

• obliging each EU country to set up a “Point of Single Contact” allowing businesses to complete all administrative steps online;

• obliging national administrations to cooperate with administrations in other EU countries to avoid duplication of controls on businesses and significantly reduce the administrative burden on business.

The Services Directive is also to give consumers wider choice, better value and easier access to services across the EU:

• consumers will get better information on services providers and their services, such as information on after-sales guarantees and redress;

• consumers should suffer no discrimination based on their nationality or place of residence.

In economic terms, conservative estimates predict that the implementation of the Services Directive has the potential to bring about economic gains of up to €140 billion euro, representing up to 1.5% growth of EU GDP. ¹

For other “before and after” examples of the benefits of the Directive, please click here.

5. What have the Member States done to implement the Services Directive?

The Services Directive triggered an unprecedented process of legislative simplification and structural reforms. It had to be fully implemented in all EU Member States by the end of 2009. This proved to be a particularly challenging endeavour for Member States, as the Services Directive required the simplification of a wide range of laws and regulations at national, regional and local level. These rules needed to be checked and, where necessary, changed or abolished.

More than 1 000 implementing measures (new horizontal laws and “omnibus” laws containing changes to different pieces of existing legislation) have so far been notified by Member States to the Commission.

Simplifications introduced in the Member States are manifold. Some practical examples:

• An industrial cleaning company established in Denmark providing services for several buildings in Germany will no longer be required to enrol in the German trade register.

• A qualified tourist guide established in Poland who wishes to provide their services in Belgium (by accompanying a group of Polish tourists, for example) will no longer be required to establish themselves in advance in Belgium or to obtain authorisation from the authorities there.

• A UK consultancy firm can now electronically submit all formalities for setting up a subsidiary in France to a dedicated “Point of Single Contact”.

Please click here for an overview of further examples.

The Services Directive has also led to the setting-up of the Points of Single Contact (PSCs) – e-government portals for businesses that are now operational in most Member States. Through these PSCs, businesses should be able to obtain all relevant information and complete their administrative formalities online.

Furthermore, the Directive brought about the creation of a comprehensive network of administrative cooperation to facilitate the free movement of services, which now links up over 5 000 authorities across the EU. A multilingual electronic tool, the Internal Market Information system or “IMI”, is used to allow a fast and efficient exchange of information between these authorities.

6. What concrete changes have been made in Member States’ legislation?

National rules applicable to services in the EU have been simplified significantly with the implementation of the Services Directive.

As regards the permanent establishment of a business:

• Many prior authorisation schemes have been abolished or simplified. There has been a trend in a number of Member States to replace authorisations by simple prior declarations. Also, most Member States have by now incorporated the principle of tacit agreement in the granting of authorisations, their unlimited duration or the recognition of their national validity in their legal systems.

• Other changes in legislation affecting the establishment of service providers have been particularly important in the area of the regulated professions. Many Member States have simplified or abolished requirements relating to fixed tariffs (for example for architects and engineers) or obligations to take a specific legal form, etc.

Businesses can now provide their services more easily across borders without having to be established there, notably because many Member States have made important changes aimed at lifting unjustified barriers to the provision of cross-border services on their territory. For instance:

• prior authorisations imposed on those that want to provide cross-border services have been removed in many countries;

• a number of notification requirements imposed on cross-border service providers have also been abolished.

For an overview and concrete examples of simplifications made across the EU, please click here.

7. What still remains to be done?

Significant progress has been made in the large majority of Member States. A number of them have already indicated to the Commission that they have fully completed work. But this is not the case in all countries and efforts will need to be stepped up to finalise the required changes in legislation and to set up fully operational Points of Single Contact(PSCs).

• Adoption of implementing legislation: Most Member States have opted for the adoption of one “horizontal” law to implement the general principles and obligations established in the Directive. An alternative and equally valid approach is to implement such general principles and obligations on the basis of several acts – an approach that was chosen in Germany and France. In addition, all Member States needed to modify or abolish existing laws and regulations to ensure their conformity with the Directive. This was the most complex and work-intensive part of the implementation process. Of the 25 countries that chose to adopt a “horizontal law”, 23 Member States have by now finalised adoption of this text. The adoption of horizontal legislation has accumulated serious delays in Austria and Luxembourg, where the laws are still in Parliament.

• 20 Member States have by now indicated to the Commission that they have completed their changes in specific legislation. The Commission is in the process of analysing whether this is the case and all the required changes have been adopted in these countries. In the eight remaining countries, the state of progress varies widely. Germany has almost concluded the adoption of changes in sector-specific legislation. France still has some proposals pending in Parliament. Belgium has adopted most changes at federal and regional level. In Austria, Greece, Ireland, Luxembourg and Slovenia, the drafting of the required changes to sector-specific legislation have accumulated a significant delay.

• Points of Single Contact (PSCs): A so-called “first generation” of electronic PSCs is now operational in 22 Member States. In these countries it is now possible for businesses to obtain all the information that is needed to start or develop their activities online. In most of them, key administrative procedures can already be completed electronically. The five remaining countries – Greece, Italy, Romania, Slovakia and Slovenia – will need to step up efforts significantly to set up their electronic PSCs.

National PSCs 

More information about the state of implementation on the Services Directive

8. What further remaining gaps have been identified?

The results of the extensive evaluation of the Services Directive show that the Directive has been a major step towards a better functioning Single Market for services. Burdensome requirements –such as unnecessary or over-complicated prior authorisations schemes- have been abolished or simplified significantly in many service sectors.

However, the evaluation has also clearly shown that the Single Market is not yet functioning to its full potential. Problems and barriers remain in particular when businesses want to provide their services temporarily across borders. This slows down growth opportunities notably for small companies and reduces choice for consumers.

9. What new actions does the Commission propose to make the Single Market for services work better?

Based on the results of the extensive evaluation of the Services Directive, the Commission has highlighted today the need to take action in three different areas:

• It is important to make sure that the Services Directive is implemented and applied fully and consistently in all EU countries. Significant differences remain between the Member States, which prevent the creation of a true level playing field.

• There is a need to carry out a Single Market “performance check”. There is often lack of clarity as to how different EU rules applying to services are implemented in practice, and how they interact on the ground. This can create uncertainties, additional costs and barriers for businesses and consumers.

• The “mutual evaluation” identified a number of legal requirements that seem to affect mobility in the Single Market (such as the obligation on providers to take a specific legal form). Further analysis is needed to evaluate the impact of these restrictions and ways forward.

10. On what basis does the Commission decide on these actions?

Throughout 2010, the 27 EU countries and the European Commission closely cooperated to examine the main results of the implementation of the Services Directive. This innovative process, called “mutual evaluation”, was foreseen by the Services Directive itself. A public consultation was carried out in parallel.

The “mutual evaluation” process focused on a number of legal requirements typically imposed on service providers:

• Requirements on the establishment of businesses (such as authorisation schemes for starting a business, territorial restrictions, capital ownership requirements or restrictions on the legal form that a business can choose, etc.).

• Requirements on the cross border provision of services (such as mandatory entry in business registers, notification or insurance obligations, etc.).

During the Directive’s three year implementation period (end 2006 – end 2009), all EU countries had to review and assess the necessity and proportionality of these requirements to see if they should be maintained, modified, or if they had to be abolished.

In order to be able to allow for an effective and transparent comparison of the results of implementation involving all EU countries, it was necessary to carry out this “mutual evaluation” process. Furthermore, the Directive sets out general principles and criteria and it left the Member States a certain margin of appreciation in their assessment.

11. How was the “mutual evaluation” carried out in practice?

Practical work started early in 2010 with Member States meeting between January and March in small “clusters” of countries to discuss the situation in those individual countries and prepare further discussions. It then continued between March and October with “plenary meetings”, in which all EU countries and the Commission participated. At these meetings specific requirements and the main services sectors covered by the Directive were examined (such as regulated professions, real estate, tourism services, business services, etc.).

12. Were the Points of Single Contact part of the evaluation?

No, certain implementation related questions – such as the setting up of the “Points of Single Contact” – did not form part of this exercise, which only focused on the legal framework applicable to services. But, in parallel, the Commission and the Member States are working closely together to further improve the existing “Points of Single Contact”.

13. What does the Single Market “performance check” consist of?

Service providers are subject to a multitude of national and EU rules. For example, an architect based in Belgium who works for clients in the Netherlands, depending on the situation, may be subject to:

• the Services Directive;

• the Directive on the recognition of professional qualifications;

• the Directive on electronic commerce;

• other existing EU rules governing business to business and/or business to consumer transactions.

Often these instruments apply jointly. For the Single Market to deliver tangible benefits, it is essential that these rules are implemented and applied consistently on the ground, and that they facilitate the trade in services. The mutual evaluation has shown that sometimes this is not the case.

It is in this context that the Commission proposes to conduct a “performance check” of the Single Market. The performance check will be based on concrete case studies and service sectors and will be defined in 2011 together with the Member States.

14. What is the Commission doing in the meantime on the enforcement of the Services Directive?

In June last year, the Commission sent out reasoned opinions to 12 Member States because they had not yet notified to the Commission the adoption of all the regulatory changes required by the Services Directive (see IP/10/821). The Commission has been working in close contact with these Member States to speed up work and will decide on next steps in the near future.

As set out in the Communication adopted today, it is a priority for the Commission to make sure that the Services Directive is implemented and applied fully and consistently in all EU countries. In the first half of 2011, the Commission will carry out a series of bilateral meetings with those Member States where there are strong indications of incorrect or incomplete implementation of the Services Directive. When needed, the Commission will take further formal enforcement measures.

As guardian of the EU Treaties, it is the Commission’s role to ensure that EU law is correctly applied. If, in the eyes of the Commission, a Member State infringes EU law – for example by failing to correctly transpose EU rules into national law – it has the option to launch an infringement proceeding against this Member State under Article 226 of the Treaty on the Functioning of the EU, and if necessary, may refer the case to the European Court of Justice.

More information:

http://ec.europa.eu/internal_market/services/services-dir/index_en.htm

¹ : Source: “Expected economic benefits of the European Services Directive”, Netherlands Bureau for Economic Policy Analysis (CPB), November 2007.

Source: European Commission