Legally and Politically important
Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Exiting the European Union Committee
Proposal for a Directive of the European Parliament and of the Council on the enforcement of the Directive 2006/123/EC on services in the internal market, laying down a notification procedure for authorisation schemes and requirements related to services, and amending Directive 2006/123/EC and Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System.
Article 53(1), 62 and 114 TFEU
Business, Energy and Industrial Strategy
(38450), 5278/17; COM(17) 821
2.1The Services Directive (2006/123/EC) established that national rules restricting the right of establishment and the freedom to provide services falling under the Directive must be non-discriminatory, proportionate and justified by public interest objectives. To ensure that all new regulatory measures imposed by EU countries fulfilled these conditions, the Services Directive introduced two notification procedures whereby EU countries would notify the Commission of new or changed regulatory measures affecting services.
2.2These procedures have proven ineffective in a number of respects. There is no binding requirement for Member States to notify draft regulations before they have been adopted. External stakeholders have no access to notifications, and failure to notify other parties of proposed measures does not have any legal consequence. At no point are Member States required to demonstrate that the measures proposed comply with the Services Directive. The Commission’s power to issue Decisions that block non-compliant measures only applies to establishment, and not to cross border service provision.
2.3These failings mean that it is not currently possible to ensure that all new Member State regulation of services is non-discriminatory, justified and proportionate. To effectively enforce the Services Directive under the current rules the Commission would have to initiate legal infringement proceedings against Member States concerning already adopted measures, which is costly, politically difficult and less efficient than ensuring that non-compliant measures are not adopted in the first place. As a consequence the Services Directive has been less effective than was originally envisaged.
2.4On 10 January, as part of a package of legislative and non-legislative proposals on services, the European Commission published this proposal for a Directive (hereafter ‘the Directive’) clarifying and reforming the services notification procedure laid out in the Services Directive 2006/123/EC, with the intention of addressing these limitations. It is intended to complement the existing notification proceeding applicable for goods and information society services.
2.5The Directive modifies the existing notification procedure by:
2.6The Minister (Lord Prior of Brampton, Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy) welcomes the proposal, and states that the Government has specifically called for reforms to the notifications procedure. He states that the Government does not anticipate that the proposed reforms will entail a substantial increase in the administrative burden or cost of the notifications procedure.
2.7On Brexit, the Minister states that until exit negotiations are concluded, the UK remains a full member of the EU and will continue to negotiate, implement and apply EU legislation. The departmental assessment of the proposal notes that the Directive will require transposition, which will entail new secondary legislation and some amendment of existing legislation that regulates the current notification procedure. Following agreement of the Directive, Member States will have one year to transpose its requirements into domestic law, after which time those provisions will apply.
2.8We thank the Minister for his Explanatory Memorandum concerning the draft Directive.
2.9Although the European Affairs Committee of the French Sénat and the European Affairs Committee and the Committee of Laws of the Assemblée Nationale have issued reasoned opinions in relation to the proposal, we share the Government’s assessment that the proposal’s policy objectives can only be effectively achieved through EU action, and that the proposal is therefore not in breach of the principle of subsidiarity.
2.10We note the Minister’s comment that “the UK has been a strong supporter of a liberalised EU services market and, along with likeminded Member States, has called strongly for better enforcement of the notifications procedure” and his assessment that “this proposal addresses many of the essential areas for improvement”.
2.11However, we also note that the Government’s calls for a reformed notifications procedure predate the UK’s decision to leave the EU, and that the proposal’s implications, including the balance between the benefits it will create for UK stakeholders and the costs of implementing it, will be modified by this decision.
2.12We request further clarification of the following points.
2.13The Minister states that the Government will examine the implications of the various timelines the Directive proposes, and will also assess in greater detail the implications of extending the scope of the notifications requirements. We ask the Minister for updates on its findings in relation to both these issues.
2.14As the proposal modifies the two existing notifications procedures contained in the Services Directive, can the Minister clarify the extent to which the proposed changes will affect enforcement of the Services Directive in relation to, respectively, cross-border services and establishment? Are Member States in Working Groups more resistant to effective enforcement of the Services Directive in relation to either cross-border services or establishment, and, if so, why?
2.15We understand that the European Affairs Committee of the French Sénat and the European Affairs Committee and the Committee of Laws of the Assemblée Nationale have issued reasoned opinions in relation to the proposal. We ask the Minister to comment on these or any other subsidiarity concerns that have been raised in Working Groups.
2.16We ask for the Minister’s analysis of the provisions concerning the legal consequences of a breach of the notification requirements. Will they act as an effective enforcement mechanism against the defaulting Member State; and will they have any impact on relations between individuals, as is the case with the notification procedure in respect of goods?
2.17In view of the Article 50 timetable envisaged by the Prime Minister and the timescales for the agreement of the Directive and its transposition into domestic legislation, we ask the Minister to clarify whether he anticipates that the Directive’s main provisions will take effect in the UK before we leave the EU, and, if so, for how long.
2.18Does the Minister believe that, post-exit, the UK could continue to participate in the proposed notification procedure or an equivalent mechanism on the basis of a bilateral agreement? Do World Trade Organisation rules mean that such an arrangement would have to be part of a wider Free Trade Agreement (FTA), or could it be agreed outside scope of an FTA?
2.19Assuming that the UK does not continue to participate in the notification procedure or an equivalent arrangement post-exit, we ask the Minister to clarify whether the Directive will have any continued impact, direct or indirect, on UK businesses seeking to provide services to customers in the EU (via cross-border service provision, secondary establishment, or through an EU subsidiary).
2.20The Committee retains the proposal under scrutiny. We request responses to the above questions as well as an update regarding negotiations in Council Working Groups by 29 March 2017.
2.21We draw the Minister’s Explanatory Memorandum and our conclusions to the attention of the Business, Energy and Industrial Strategy Committee and the Exiting the European Union Committee.
Proposal for a Directive of the European Parliament and of the Council on the enforcement of the Directive 2006/123/EC on services in the internal market, laying down a notification procedure for authorisation schemes and requirements related to services, and amending Directive 2006/123/EC and Regulation (EU) No 1024/2012 on administrative cooperation through the Internal Market Information System: (38450), 5278/17; COM(17) 821.
2.22The Services Directive aims to ensure that service providers and recipients enjoy the freedom of establishment and the freedom to provide services across borders. National rules restricting these freedoms should be non-discriminatory, proportionate and justified by public interest objectives.
2.23Under the Services Directive, Member States are currently required to notify new or changed legal requirements affecting services (after which, for requirements affecting the freedom of establishment the Commission may issue a Decision requesting the Member State in question to refrain from adopting the regulation). This aims to prevent the emergence of new barriers.
2.24Despite this, many barriers remain in place: the requirements of the current notification obligation and the consequences of non-notification are limited. Member States are not obliged to notify draft regulations before they have been adopted; and external stakeholders have no access to notifications, leading to a lack of transparency. This makes it hard to prevent disproportionate regulations.
2.25Regulatory requirements are permitted if they are non-discriminatory, justified by a public interest and proportionate. However the current notification procedure does not contain a clear obligation for Member States to provide a thorough and explicit assessment. Current notification obligations are wide in scope for requirements on temporary cross-border service provision, but more limited regarding establishment requirements. Moreover, there is a lack of clarity and potential absence of legal consequences of failure to notify.
2.26Stakeholders agree that the current process is defective. The Commission carried out a public consultation of the business community and public authorities between January and April 2016. The Government reports that a substantial majority of respondents found the current notifications procedure unsatisfactory.
2.27The Minister (Lord Prior of Brampton, Parliamentary Under Secretary of State, Department for Business, Energy and Industrial Strategy) states that “The UK has been a strong supporter of a liberalised EU services market and, along with likeminded Member States, has called strongly for better enforcement of the notifications procedure. This proposal addresses many of the essential areas for improvement”.
2.28He also notes that the proposal introduces a series of timelines for notifications:
“Member States must notify the Commission of draft (or proposed) new or amended legislation at least three months prior to adoption. There follows a consultation period of three months. During the first two months of this period, the Commission and other Member States may submit comments to the notifying Member State. The proposal also provides that the Commission may alert the Member State to any concerns; such an alert will prevent the Member State from implementing the legislation for an additional three-month period. Within this additional three-month period, the Commission may adopt a binding Decision preventing the Member State from implementing the measure (a power already allowed under the Services Directive).”
2.29The Minister adds that:
“The proposal further adds a new two-week deadline during which Member States must notify the adoption of new or amended legislation (where previously they were required only to notify their intention to adopt). The extension of notification requirements to include all authorisation schemes, professional liability insurance, and multi-disciplinary activities also widens the scope of notifications beyond that currently required of Member States. We will assess in more detail what these changes might mean for UK notifications, but do not anticipate a substantial increase in administrative burden or cost.”
2.30In relation to the proposed timescales, the Minister states that “the UK Government will examine in more detail the possible implications of these timelines, and will seek clarification from the Commission at the earliest opportunity”.
2.31The Minister states that the requirement introduced by the proposal for Member States to demonstrate a measure’s necessity, proportionality and non-discriminatory effect “goes further than the requirement under the Services Directive simply to verify that legislation satisfies these conditions”. He provides some further detail about how this will work in practice:
“The measure does not specify a particular form for the demonstration of proportionality. However, where the scope of this measure overlaps with that of the ‘proportionality test’ for the regulation of professions, Member States will be required to submit a single proportionality assessment in line with the ‘proportionality test’ legislative proposal. Robust proportionality assessment is good practice and falls in line with domestic better regulation process, so we anticipate that these changes will have minimal impact upon the UK.”
2.32The Minister states that the proposal was published on 10 January 2016 and has already been introduced in Working Groups. He adds that “the Maltese Presidency are prioritising the services package and have expressed the desire to finalise discussions in the Council under their Presidency”.
2.33On 16 February 2017 the European Affairs Committee of the French Sénat adopted a reasoned opinion in relation to the proposed reforms. The reasoned opinion objects to the three month consultation period that is required, following notification, before national legislators can introduce a measure; the Commission’s ability to block the adoption of measures where such a notification has not been issued; and considers that, through the introduction of these constraints, the Commission and other Member States could potentially interfere in national legislative procedures. In the Assemblée Nationale, a draft reasoned opinion was adopted by the European Affairs Committee on 22 February and by the Committee of Laws on 23 February.
2.34Concerns have also been raised in the German Bundestag and Bundesrat, although no decision has yet been made as to whether to issue a reasoned opinion. A significant number of other national parliaments (Austria, Belgium, Czech Republic, Finland, Denmark, Latvia, Netherland, Portugal, Poland) appear not to have subsidiarity concerns at this time.
2.35The Commission justifies the conformity of the proposal to the principle of subsidiarity on the basis that, given the transnational nature of the EU single market, an effective verification procedure which checks that draft national measures are consistent with the provisions of the Services Directive can only be achieved at EU level. In this way it envisages that the notification procedure will contribute to “the approximation of national laws, regulations or administrative provisions as regards the services covered by the Services Directive” and “improve the functioning of the EU single market for services and promote job creation and growth”.
2.36The Minister (Lord Prior of Brampton) states that the Government “is in accordance with this position”:
“The EU has competence to deal with issues affecting the functioning of the Single Market, and coordinated EU action and enforcement are necessary to remove regulatory and administrative barriers to trade in services. The deficiencies of the current notifications procedure, and the impacts stemming from this, impact upon the wider economy of the EU and the provision of services. The objectives of this proposal cannot be sufficiently achieved by the Member States and, therefore, action at EU level is required to ensure coherence of the Single Market.”
2.37Our assessment is that the proposed Directive does not breach the principle of subsidiarity. The principle of subsidiarity, as defined in the treaties, requires that the EU only act when the objectives of a proposal can be more effectively achieved at EU level than by the Member States. It is clearly not possible to achieve the stated objectives of the policy—to increase the existing notification procedure’s efficiency, to improve the quality of the notifications submitted, and to improve compliance, leading to more effective pre-enforcement of the Services Directive and the smooth functioning of the Internal Market—at Member State rather than Union level. This is the basis on which the proposal’s conformity to the principle of subsidiarity should be evaluated and it is clear that it is not in breach.
2.38Secondary considerations that support the need for EU action include that it is well-established by multiple analyses that the Services Directive has not been as effective as intended and that the failings of existing notification procedures have contributed to this, and that this has had detrimental economic effects. Furthermore, the proposal does not actually change EU law regarding the restrictions that Member States can impose on service providers: it merely ensures that the notification procedure can ensure that proposed measures are compliant with EU law, before they are adopted by Member States.
2.39In summary, although Member States may wish to object to the proposal for political reasons—e.g., because they do not want an effective notification procedure as this will require them to ensure that measures introduced domestically comply with the Services Directive, or because they do not want increased Internal Market integration in business services as this could expose some domestic service providers to competition from other businesses from other Member States—and may accordingly seek to oppose or amend the proposal during the legislative process, it is difficult to mount a coherent argument that the policy objective can be more effectively achieved at Member State level than at Union level.
2.40On Brexit, the Minister notes that:
“On 23 June 2016, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation.”
2.41The Minister states that it is likely that the proposal will interact to some extent with UK Regulations implementing the following EU legislation: the Professional Qualifications Directive; the Services Directive; the Technical Standards Directive; the European services e-card (to be negotiated); the Directive on a proportionality test for regulated professions (to be negotiated); the Directive on guidance for professions (to be negotiated). However, he states that “it is not clear at this stage whether any of these pieces of legislation would need to be amended when the proposed Directive comes into force”.
9 The other components of the services package (the services e-card, the proportionality test for regulated professions, and the Communication on reform recommendations for regulated professions), are covered in separate chapters of this week’s report.
10 Article 3 (4).
12 Article 5 (TEU
3 March 2017