Services in the Internal Market


The directive on services in the internal market was designed to break down barriers to trade in services across the EU, and help complete the single market. Despite most member states having failed to implement it by an end-2009 deadline, the European Commission harbours hopes of its completion by summer 2010.

Article 49 of the 1957 Treaty establishing the European Community stipulates that "restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of member states who are established in a State of the Community other than that of the person for whom the services are intended".

But in reality, this principle is limited by a number of barriers that prevent service providers from setting up shop in another member state or providing their services there. 

The EU's internal market programme of the 1990s ensured that barriers to trade in goods were mostly dismantled, but the services sector was largely left out so that service providers, such as architects and lawyers, wishing to offer their services outside their home country still face huge obstacles in the form of different national standards and legislation. 

Removing such obstacles would provide a major boost to the European economy, as the services sector accounts for 70% of jobs and GDP in the Union.

This was the aim of the draft 'Services Directive' presented by the Commission on 13 January 2004, which was later dubbed the 'Bolkestein Directive' after the then Internal Market Commissioner Frits Bolkestein.

After much wrangling between member states,the directive was adopted on 12 December 2006 and a deadline of 28 December 2009 was set for all countries to transpose it into national law. This deadline was missed by most EU countries (EURACTIV 26/11/08), meaning that the European Commission is now obliged to begin infringement proceedings.

However, the Commission, while stating that it does intend to launch infringement procedures, has argued that as most member states are at an advanced stage of transposition and should have the directive in place before the summer of 2010, they are hopeful the process will be complete before they actually need to go to court.

'Country of origin' principle vs. 'Freedom to provide services'

In the Commission's initial 2004 draft, service providers would, temporarily, have been subject to the laws of their country of origin rather than those of the country where the service is provided. They could thus test a new market without having to register with the authorities. This principle was the most controversial part of the proposal as many of Europe's older member states worried that cheaper workers from the eastern EU countries would flock massively to the West, pulling down social standards. 

Instead, the article was renamed 'freedom to provide services' and holds that member states must "ensure free access to and free exercise of a service activity within [their] territory," while allowing them to continue applying their own rules on conditions of employment, including those laid down through collective bargaining agreements. 

Concretely, this means that service providers will not need to be established in the territory in which they are seeking to work before they can obtain authorisation, register with a professional body or association, or be banned from setting up a certain type of infrastructure which they may need to supply the services in question.

Only requirements concerning public policy, public security, public health or the protection of the environment may be imposed on a service provider, so long as they are "non-discriminatory, necessary and proportional". 

A wide ranging scope of services

The directive applies to both private professionals and businesses. These include:

  • Services of general economic interest. Member states can define which services belong to this category. Typically, the definition includes postal services, water supply, electricity and waste treatment, but in fact, only some of the provisions of the directive apply to these services. The provisions labeled as 'freedom to provide services' do not apply, whereas the rules relating to establishment in another member state do. 
  • Business services such as management consultancies, certification and testing, facilities management (including office maintenance and security), advertising, recruiting, services of intellectual property rights and services of commercial agents. 
  • Services provided both to businesses and to consumers like legal or fiscal advice, real-estate services, construction (including architects), distributive trades, the organisation of trade fairs, car rental and travel agencies. 
  • Consumer services like tourism, leisure services, sports centres and amusement parks.  

The excluded services are:

  • Non-economic services of general interest (SGIs);
  • Public and private healthcare and social services,  such as social housing, childcare and family services;
  • Industries already covered by sector-specific legislation, such as financial serviceselectronic communications  and transport (including port services);
  • Audiovisual services;
  • Gambling and lotteries, and;
  • Professions and activities linked to the exercise of public authority (e.g. notaries) and tax services.

The directive does not affect: 

  • Labour law
  • criminal law;
  • posting of workers, or;
  • social services.   

The Commission agreed to give assistance to member states for the proper implementation of the Services Directive, but by doing so officials said they would neither provide legally-binding interpretation nor amend the provisions of the directive.

The EU executive also promised to consider further harmonisation within the services sector.

How does the directive benefit the consumer?

According to the Commission, the Services Directive brings consumers a variety of benefits, such as:

  1. Abolition of national requirements restricting the use of a service supplied by a provider established in another member state (e.g. the obligation for service recipients to obtain a specific authorisation to receive services provided from another member state are prohibited).
  2. Service providers are not allowed to discriminate, in their general conditions of access to a service, between recipients on the basis of their nationality or place of residence; this is particularly relevant in an e-commerce context.
  3. Establishing a network of assistance bodies which upon request will give people thinking of using service providers from other member states general information about the requirements applicable in that other member state, a means of redress and contact details of associations or organisations from which providers or recipients may get practical assistance.
  4. Service providers will have to make easily available to recipients key information about themselves and their services, so that service recipients, in particular consumers, are clearly informed about who they are dealing with, what services are being offered and under what conditions and prices. Service providers must make available to recipients a whole range of information, including the name of the register in which the provider is enrolled and the professional rules applicable (for regulated professions). In this way, consumers and businesses will benefit from being able to make informed decisions when using services in other member states.

Member states: Deadline disaster or slight delay?

While the provisions in the current directive remain the subject of great debate in Europe, the bigger question at the moment is when EU member states will finally complete the process of bringing the directive into their national law systems.

When the 29 December 2009 deadline expired, a clear majority of EU countries had failed to implement the directive (EURACTIV 29/01/10).

A February 2009 report by Eurochambres, the European assotiation of chambers of commerce, found that only nine of the 27 member states had complied fully with the deadline: the Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, the Netherlands, Sweden and the United Kingdom.

Eurochambres representatives did not mince their words in describing this “unfinished job” as “unacceptable” and “extremely patchy”.

Member states, they argued, have failed to live up to their obligations and did not make implementation of the directive a priority. Greece, Ireland, Italy and Slovenia were “named and shamed” as being particularly far behind.

The Commission must now live up to its legal obligations and immediately begin infringement procedures against the offending countries, they said.

British Conservative MEP Malcolm Harbour, who heads the European Parliament’s internal market committee, said that real political engagement from these members was now key to closing this chapter.

Commission says summer 2010 deal is possible

Responding to these calls for action, Commission officials said that they would not “shy away” from taking member states to court. However, they were quick to stress that their goal was not to punish member states, but rather to “get them to deliver”. In other words, they will begin infringement proceedings, but only as a means to push EU countries towards final implementation.

The vast majority of countries are in a position to finish the job before summer 2010, they claimed. Indeed, the Commission is putting its faith in the current arrangement, whereby member states are meeting in “clusters” to assist each other in moving forward – they “definitely are taking the initiative,” officials said.

Eurochambres, too, expects this ‘mutual evaluation’ phase to represent a “key peer pressure exercise among member states”.

The directive, which some claim will cover up to 40% of EU jobs, is the single most important and powerful piece of legislation for completing the single market of the past decade, according to Harbour.

During his hearing before the European Parliament, French commissioner-designate for the Internal Market Michel Barnier said he favoured negotiations rather than binding legal pressures. He said he planned to visit each of the 27 member states to discuss with governments and economic and social representatives the slow implementation of the directive.

"I was not proud when the tale of the Polish plumber was bandied about in my country. It would be better in any case to speak of the Luxembourg plumber, who has to grapple with four different legal systems if he wants to work in a 40-kilometre radius," Barnier admitted.

Commenting on his organisation's findings, Eurochambres’ Secretary-General Arnaldo Abruzzini said: "Some member states did not use the three-year implementation period properly. The delays in several countries make the EU-wide picture extremely patchy and create a suboptimal situation for a service provider seeking to enter another EU national market."

"Disappointingly, a number of member states clearly did not consider this directive's implementation as a political and economic priority. We now expect the European Commission to take the appropriate steps vis-à-vis those countries which are lagging behind. Moreover, we expect the 'mutual evaluation' phase in 2010 to represent a key peer pressure exercise among member states. The Services Directive is crucial for businesses, an 'unfinished job' is not an acceptable outcome," he said.

Outgoing Internal Market Commissioner Charlie McCreevy stressed the directive's importance for citizens and businesses. He voiced his conviction that the principle of the freedom to provide services, which replaced the country-of-origin principle, will "enhance legal certainty".  

MEP Malcolm Harbour (ECR, UK) called the vote "an important date for European citizens," adding: "This directive is about enhancing the standards of life of people throughout Europe." He recalled that the directive obliges member states to take 40 measures to remove barriers to the cross-border provision of services and to improve their procedures in 65 cases. 

European Parliament rapporteur Evelyne Gebhardt MEP called the Services Directive an example of "policies for the people," stressing that the Parliament had managed to remove the disputed Country of Origin principle and protect consumers' rights.

  • 16 Feb. 2006: Parliament voted through a modified (some argued "watered down") version of the Commission's proposal
  • 24 July 2006: Council adopted its common position on the directive almost unanimously. Only Belgium and Lithuania abstained.
  • 15 Nov. 2006: Parliament agreed to the text.
  • 27 Dec. 2006: Final legislative act published in the Official Journal. 
  • 28 Dec. 2009:  Deadline for member states to transpose the Directive into their national legislation. 
  • Jan-March 2010: Member states meet in "clusters" to conduct mutual evaluations.
  • 22-23 March 2010: Commission and Academy of European Law to co-host a conference on 'the state of play in implementation of the Services Directive'.
  • March-June 2010: Commission to evaluate member states' progress.

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