Documents considered by the Committee on 9 March 2011, including the following recommendation for debate: Use of Passenger Name Records for law enforcement purposes - European Scrutiny Committee Contents

6 Functioning of Single Market for services



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COM(11) 20

Commission Communication: Towards a better functioning Single Market for services — building on the results of the mutual evaluation process of the Services Directive

Legal base
Document originated27 January 2011
Deposited in Parliament2 February 2011
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 16 February 2011
Previous Committee ReportNone, but see footnotes
To be discussed in Council10-11 March 2011
Committee's assessmentPolitically important
Committee's decisionCleared


6.1 According to the Commission, services are the driving force of the EU economy, with nine out of ten new jobs being created in this sector. It notes that the structural reforms required to create a genuine Single Market on the basis of the Services Directive (2006/123/EC) are at the heart of the "Europe 2020" strategy,[28] and that its Communication "Towards a Single Market Act"[29] stressed the need to further deepen the single market in this area, and to build upon the results of the "mutual evaluation" process provided for in that Directive. It has sought in this Communication to present the main results of that evaluation, and to suggest ways in which the benefits of the Directive can be consolidated and complemented by a set of further actions.

The current document

6.2 The Commission says that the Single Market for services has been one of the cornerstones of the European project as a means of improving the life and daily welfare of its businesses and citizens, and that it is today the main driver of the EU economy, with services accounting for over two-thirds of EU GDP and the source of all net job creation in recent years. However, it believes that the sector is not yet delivering its full potential, since services still represent only around one-fifth of total intra-EU trade, and it notes that trade in services between the EU and the rest of the world has been growing faster than that within the Single Market. As result, it says that both the choice for service users and Europe's potential for innovation have been hampered, and that the EU economy therefore needs a more integrated, deepened Single Market in this sector. In particular, it says what, whilst the Services Directive has been a crucial milestone, more needs to be done in this area, and in the process to complement other action at EU level to improve the functioning of services markets, notably as regards the retail market, the Europe 2020 flagship initiative on the digital agenda, and the Single Market for e-commerce.


6.3 The Commission notes that services are very diverse and often complex, as are the rules imposed on them by Member States, and that they are more susceptible to barriers than goods, due to such factors as their intangible nature and the importance of the provider's know-how, with SME providers being hit harder than larger firms. It also points out that many of these barriers are common to a wide variety of services, and have a number of common features, in that they often arise from administrative burdens, the legal uncertainty associated with cross border activity, and the lack of mutual trust between Member States.

6.4 It highlights the adoption of the Services Directive in 2006, which it says covers activities representing about 40% of EU GDP and employment, and that its implementation by the end of 2009 required an unprecedented effort at all levels. It suggests that, even though implementation is not yet completed in some Member States, the Directive constitutes a major step in removing barriers and simplifying legislation, with hundreds of requirements having been abolished in sectors such as retail, the regulated professions, construction, tourism and business services, and with many Member States having set up specific mechanisms to prevent new barriers emerging. However, it also observes that the full potential of the Directive — which it suggests would involve economic gains of up to €140 billion (or up to 1.5% of EU GDP) — will be realised only when all Member States complete all the required legislative changes, and that such changes represent only one strand, with major administrative changes also playing a significant role.


6.5 The Commission goes on to highlight the role of the mutual evaluation process provided for in the Directive, which it describes as an innovative and evidence-based exercise of "peer review", requiring Member States to carry out a systematic and comprehensive review of their legislation and to assess a number of legal requirements typically imposed on service providers. It says that the overall assessment has been very positive, in that it has put in place a structured dialogue between Member States and enabled a detailed picture to be drawn up, under which Member States have critically assessed their rules and those existing in other Member States from a Single Market perspective, and remaining obstacles have been identified.

6.6 The Commission says that part of the problem appears to be that a number of EU rules adopted over the years to help the functioning of the Single Market for services are not being used to their full extent and are applied inconsistently. It also notes that services are often subject to a number of different EU instruments, some of which apply in a horizontal manner like the Services Directive or the e-commerce Directive (2003/31/EC), whilst others, such as the Directive on the Recognition of Professional Qualifications (2005/36/EC), regulate issues of central relevance to a large number of service activities, or have a significant impact on the services sector (such as those regulating business-to-consumer transactions or the protection of the environment). In addition, it says there is sometimes a lack of clarity as to how these instruments interact, leading to uncertainty as to which rules apply.

6.7 The Commission goes on to identify certain other difficulties revealed by the mutual evaluation. These include:

  • Member States reserving certain service activities for certain operators (for example those with specific qualifications), particularly in the case of cross-border services, this being cited most frequently as a barrier to the Single Market;
  • requirements on legal form[30] and capital ownership;[31]
  • the imposition of insurance on cross-border service providers, even where the provider is adequately insured in its place of establishment.

The Commission says that there is a need to make the Single Market a concrete reality, and this requires more dialogue between Member States, and between them and service providers; greater transparency; and increased enforcement at the national level.


6.8 In the light of this evaluation, the Commission proposes to take a number of further steps, as follows:

  • it will, as a matter of priority, seek to achieve a complete and correct transposition and implementation of the Services Directive in all Member States, and will hold in the first half of 2011 bilateral meetings with those where that process is currently incomplete;
  • it will carry out in parallel a first economic assessment of the actual implementation of the Directive and of its impact on the functioning of services.
  • it will also carry out in 2011 a "performance check" on how different pieces of EU legislation are applied and how they work on the ground, taking into account those beyond the Services Directive, and based on concrete sectors and activities (though it suggests that the cross-cutting nature of many barriers will make it possible to identify horizontal issues as well): it says that, on the basis of the mutual evaluation, the construction, tourism and business services sectors are likely to be good candidates for such a check, and that it will, if required, propose further measures by the end of 2012.

6.9 In addition, the Commission proposes a number of targeted actions relating to specific issues which merit examination on more detail. These include the reservation of activities to service providers with specific qualifications; the effects of restrictions imposed on the legal form and capital ownership of such providers; and the difficulties posed by cross-border insurance obligations. It will also seek to consolidate the system under the Services Directive which obliges Member States to notify new requirements affecting the free movement of services, and to help service providers, in particular small and medium-sized enterprises, to enforce their rights in the Single Market.

The Government's view

6.10 In his Explanatory Memorandum of 16 February 2011, the Minister for Employment Relations, Consumer and Postal Affairs at the Department for Business, Innovation and Skills (Mr Edward Davey) says the Services Directive is a wide-reaching and complex piece of legislation, and that, when fully implemented across the EU27 and 3 EEA members, should bring an estimated increased growth to the UK of £4-6 billion per annum. He adds that, in order to realise the contribution which the Directive can make to economic growth, all Member States will need to meet their commitments, and that the mutual evaluation process has proved to be a good means of shedding light on how services are regulated across Member States, and on the impact of the Directive on those regimes.

6.11 He says that the Government therefore welcomes this document, and its proposals for further action, in particular the proposed scrutiny of Member State implementation and an assessment of the impact of remaining barriers, commenting that, whilst some restrictions are clearly justified for reasons of public policy, there is merit in scrutinising further some of the other requirements.

6.12 The Minister goes on to point out that the mutual evaluation has shown that Member States have retained nearly 3,000 regulatory requirements for services, including those for shareholding, specific legal forms, tariffs and restrictions on multi-disciplinary activities, and that these requirements are mainly in the area of regulated professions in the private sector, such as accounting, surveyors, architects etc, with over 800 'regulated professions' in Europe, many for historic reasons. He welcomes the fact that the Communication addresses those issues, and adds that assessing the notification requirements of the Directive, and so ensuring transparency, the proposal to work with the insurance industry and others to identify difficulties for business wishing to operate cross borders, and the proposal to assess the redress available to service providers, in particular SMEs, who find their single market rights infringed, will also enlighten the debate on how best to develop the Single Market in services.


6.13 Although this Communication provides a useful summary of the action taken in the (relatively short) period since the Services Directive come into effect, and of the further steps which the Commission proposes to pursue in 2011 in this area, it does not appear to us to raise any issues requiring further consideration. Consequently, whilst we are drawing the document to the attention of the House, we are content to clear it.

28   (31373) 7110/10: see HC 5-xiv (2009-10), chapter 1 (17 March 2010). Back

29   (32132) 13977/10: see HC 428-x (2010-11), chapter 11 (8 December 2010). Back

30   For example, a prohibition on providers of craft services being limited liability companies. Back

31   For example, that shareholders in companies offering tax advice services should themselves be qualified advisers. Back

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