Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Committee for Exiting the European Union
(a) Proposal for a Directive of the European Parliament and of the Council on the legal and operational framework of the European services e-card introduced by
Regulation (b) Proposal for a Regulation of the European Parliament and of the Council introducing a European services e-card and related administrative facilities
(a) Articles 53(1) and 62 TFEU
(b) Article 114 TFEU
Business, Energy and Industrial Strategy
(a) (38452), 5283/17, COM(16) 823; (b) (38453), 5284/17, COM(16) 824
4.1The UK’s business services sector is exceptionally well-developed and competitive. For this reason successive UK governments have long harboured concerns about the limitations of the EU’s Services Directive—the regulatory framework which governs cross-border services trade within the Single Market for a wide range of economic activities.
4.2Although the Services Directive has liberalised trade in business services within the Single Market in some respects—e.g., by prohibiting various forms of discrimination against service providers from other EU Member States—it also leaves significant discretion to Member States regarding how some of its provisions are interpreted. This has led to uneven implementation, with Member States applying disparate levels of regulatory restrictiveness to cross-border service provision and secondary establishment on their territories.
4.3In addition to regulatory restrictions on service provision, businesses seeking to provide services in another EU Member State must also navigate complex administrative procedures in each host country in order to verify that they meet all of the necessary requirements. This can involve extensive paper correspondence in other languages, including the provision of certified translations of documents. Member States also adopt diverse approaches as regards insurance obligations and access to insurance for provision of services, making it difficult and costly for service providers to contract insurance coverage for cross-border operations.
4.4These obstacles mean that cross-border trade is artificially low in a number of business service sectors, which has detrimental effects on both service providers (who are unable to grow their international operations) and consumers (who face higher prices), and also negatively affects the competitiveness of businesses in the wider economy (business services such as management consultancy and marketing are an important input to many types of business).
4.5On 10 January 2017 the European Commission brought forward a package of legislative and non-legislative proposals regarding business services intended to facilitate cross-border service provision within the Single Market.
4.6The European services e-card is one element of this package. The proposal, which will be given effect by a regulation and a directive, will create a fully electronic procedure that will allow service providers seeking to expand into other EU markets to deal exclusively with a coordinating authority in their home country and in their own language. The coordinating authority will verify that the service provider is legally established in its home country, then provide this information to the equivalent authority in the host country, which will clarify what requirements (if any) the provider must meet to operate on its territory. A lighter touch procedure will be used where a business seeks to provide services cross-border, without establishing a commercial presence in the host country. Successful applicants will be issued with an e-card which will act as proof of establishment and authorise the provider to operate in the host country.
4.7While the e-card procedure will reduce the administrative difficulties that service providers face when seeking to expand into other Member State markets, it does not reopen the Services Directive. The same overarching regulatory framework will continue to apply, and Member States will retain control over the domestic requirements that service providers must satisfy in order to operate within their territory.
4.8The Minister (Lord Prior of Brampton, Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy) is broadly supportive of the proposal, which is in line with the policy of successive Governments to deepen the EU Single Market in services. However, the UK’s exit from the EU means that the proposal is likely to bring limited benefits to UK stakeholders: in the absence of alternative arrangements, UK service providers will not be able to secure an e-card through a UK-based coordinating authority, and will also be subject to different levels of regulatory restrictiveness with regard to cross-border service provision and secondary establishment, on the basis of third country status.
4.9The proposal is unlikely to be agreed rapidly as the Minister states that it is controversial. Once the legislative process concludes, the proposal will be progressively implemented over a transitional period. The Directive allows two years for legislative transposition of its provisions into domestic legislation. The Regulation will enter into force shortly after publication and will require the UK to designate a coordinating body to perform tasks in accordance with the Regulation. The text that accompanies the Regulation notes that implementation will involve “a start-up period from 2018 to 2021, followed by full-scale operation”. It therefore appears unlikely that the European services e-card system will be fully operational before the UK leaves the EU.
4.10We thank the Minister for his summary of the European Commission’s proposal to create a European services e-card.
4.11We note the Minister’s observation that “services sectors are fundamental to European competitiveness, making up 70% of Europe’s total economy and generating over 90% of new jobs”, but that “substantial barriers to cross-border trade and investment in services still remain”.
4.12We also note that the UK has a particularly strong interest in the business services sector, which is illustrated by:
4.13On this basis we conclude that the proposal is aligned with longstanding UK policy as well as the interests of UK service providers. However, the significance of the proposal, and the precise balance between the benefits that it will create for UK stakeholders and the cost of implementing it, are clearly altered by the UK’s imminent exit from the EU.
4.14We ask the Minister to respond to the following questions about the European Services e-card.
4.15Timescales—The Minister notes the short timescales within which coordinating authorities will have to conduct verification procedures. Does the Minister consider the proposed timescales to be realistic?
4.16Administrative burdens—The Minister notes that some administrative burdens are not abolished but shifted from service provider to coordinating authority, and in this regard notes that the Government intends to assess the possible implications of the verification process in more detail. We request a summary of the outcome of this assessment.
4.17Charges—Under the proposal, Member States will be able to introduce charges for businesses to use the service in order to recoup some of the costs of administering the new system. Does the Government intend to introduce charges, and, if so, at what level?
4.18Implementation timescales—Implementation of the European services e-card proposal will involve a start-up period from 2018 to 2021, followed by full-scale operation. Given that the Government intends to trigger Article 50 in March 2017, how likely is it, in the Minister’s assessment, that the e-card proposal will be fully operational before the UK leaves the EU?
4.19Implementation costs—Does the Government accept the Commission’s assessment of the cost to Member States of setting up and operating the e-card, and what is the Government’s assessment of the costs that the UK in particular will incur? Will the Government continue to incur these implementation costs even if it becomes apparent in Article 50 negotiations that the UK will not continue to participate in the e-card scheme once the UK leaves the EU?
4.20Great Repeal Bill—The reciprocal character of the e-card, and its links to other EU rules and systems (e.g., the Services Directive; the Internal Market Information System) suggest that, even if the Government chose to retain its provisions in domestic legislation through the Great Repeal Bill, the e-card procedure would cease to function in the UK, post-exit, in the absence of a new bilateral arrangement. Does the Minister share this assessment?
4.21E-card substitute—Does the Minister believe that it would be possible and desirable to negotiate a substitute for the e-card that would continue to apply after the UK left the EU? Do WTO MFN rules mean that such an agreement would have to form part of a comprehensive UK-EU Free Trade Agreement, or could it exist in the absence of a FTA?
4.22Subsidiaries—The Staff Working Document that accompanies the proposal states that businesses from third countries (including the UK, post-exit) will be able to secure European services e-cards to operate in other EU Member States, but only where they establish a subsidiary in an EU Member State and make their application through its coordinating authority.
4.23Internal Market Information System (IMI)—The functioning of the European services e-card proposal is underpinned by the EU Internal Market Information System (IMI). The IMI Regulation (1024/2012) states that where international agreements are concluded with third countries “it should be possible to include the counterparts of IMI actors in such third countries in the administrative cooperation procedures supported by IMI” provided they meet EU data protection standards. Does the Government intend to seek to continue to participate in administrative cooperation procedures supported by the IMI?
4.24Market access—We note that the Government is concerned that “substantial barriers to cross-border trade and investment in services still remain” even within the Internal Market. We ask the Minister to provide us with a broad overview of the extent to which the restrictions that UK business service providers currently face when trading with the EU to those that it would face as a third country, noting that there is considerable variation between sectors and that countries’ applied MFN regimes are sometimes lighter than the commitments listed in their WTO (GATS) schedules. Which business service sectors are likely to be more disrupted, in the Government’s assessment, and which are likely to be less affected?
4.25Impact of the services package on third countries—While the services package is intended to liberalise intra-EU services trade, and only applies to businesses and professionals in EU Member States, to what extent are the measures likely to also reduce the restrictiveness of trading with these Member States for businesses in third countries?
4.26Areas of contention—The Minister observes that aspects of some of the proposals are controversial, which may delay progress in the Council of Ministers. Based on progress in Council Working Groups we ask for an update of any aspects of the services package that are proving controversial.
4.27We retain the file under scrutiny and ask that the Minister respond to the above questions, and provide an update on progress in Council Working Groups, by 29 March 2017.
4.28We draw our report to the attention of the Business, Energy and Industrial Strategy Committee and the Committee for Exiting the European Union.
Proposal for a Directive of the European Parliament and of the Council on the legal and operational framework of the European services e-card introduced by Regulation …[ESC Regulation]… : (38452), 5283/17; COM(16) 823; (b) Proposal for a Regulation of the European Parliament and of the Council introducing a European services e-card and related administrative facilities: (38453), 5284/17; COM(17) 824.
4.29The Services Directive (2006/123/EC) codified EU rules regarding the freedom to provide cross-border services on a temporary and on a permanent basis for a wide range of service providers, with the aim of deepening the Single Market in services. Sectors covered include the distributive trades (including retail), the activities of most regulated professions, construction, management consultancy, computer programming and many others.
4.30The Services Directive does not cover economic activities for which a sector-specific EU regulatory framework governing market access exists—such as financial services, broadcasting services and transport services. It also excludes Services of General Economic Interest (SGEI): a range of economic activities that public authorities consider to be of particular value to citizens and which they have determined would not be supplied (or would be supplied under different conditions) if there were no public intervention. Examples of SGEIs include transport networks, postal services and social services.
4.31For businesses looking to establish themselves in other EU Member States, the Services Directive prohibits a number of requirements (e.g., nationality requirements and rules forbidding a provider from having an establishment in more than one Member State) and identifies other requirements which are permissible so long as they are non-discriminatory, necessary and proportionate.
4.32For cross-border provision of services on a temporary basis, the Services Directive sets out seven ‘suspect’ requirements that may only be imposed subject to a list of public interest justifications (these include an obligation on the provider to have an establishment in the territory of the host state, a ban on the provider setting up a certain form or type of infrastructure, the application of specific contractual arrangements between the provider and the recipient preventing or restricting service provision by the self-employed); otherwise Member States must allow providers established in another Member State to provide services on their territory and may only make that service provision subject to a requirement if it is non-discriminatory, necessary and proportionate.
4.33Although studies have shown that the Services Directive has reduced barriers to intra-EU services trade, generating economic benefits, its effects have been less far-reaching than envisaged. In part this is because the Directive leaves scope for Member States to impose restrictions on the freedom of establishment and the freedom to provide services where they deem them to be non-discriminatory, justified and proportionate. These criteria leave room for interpretation, and as a consequence there has been significant divergence between different Member States’ interpretations of what restrictions are justified and proportionate meaning that some EU markets are consequently more restrictive than others. A mutual evaluation process by Member States in 2010–11 confirmed that the Directive had been unevenly implemented by Member States.
4.34In 2015, in response to these concerns, the European Commission adopted the Single Market Strategy in which it indicated its intention to bring forward measures designed to tackle barriers to services trade within the EU. It said that it would attempt to improve the opportunities for businesses and professionals to move across borders, which would include a ‘services passport’ in order to streamline the administrative procedure that EU service providers have to follow when seeking to expand their activities to other EU countries.
4.35The scope of the services passport was the subject of significant debate among the Member States. The UK and a number of like-minded countries lobbied the Commission to introduce an ambitious proposal for a services passport, which would not only reduce administrative burdens but also seek to reduce the level of restrictiveness to services trade; however, many Member States were wary of any proposal to reopen the Services Directive itself, in part due to the political backlash generated by the original ‘Bolkenstein’ draft of the Directive, which would have extended the country-of-origin principle (used in the Single Market for goods) to services markets.
4.36On 10 January 2017, following a lengthy public consultation and period during which the proposals were developed, the European Commission brought forward a package of legislative and non-legislative proposals on services designed to facilitate cross-border services trade. Each of these proposals is covered in a separate chapter in this week’s report. The proposals include:
4.37The Regulation and Directive that will give effect to the European services e-card are integrally connected and best considered as a single legislative proposal.
4.38The Commission’s starting point for the proposal is the lack of Single Market integration which exists for a variety of service sectors. This lack of integration is most pronounced for construction services and a number of other business services, including architecture. As a result, relatively few service providers provide services cross-border or set up a secondary establishment elsewhere in the EU, which means that competition is reduced, leading to an inefficient allocation of resources, limited choice for consumers and high prices. As services are an important input into the operations of many other businesses, “underperforming business services also carry an important cost in terms of the competitiveness of the EU’s industrial economy”.
4.39The Commission identifies four drivers that underpin this problem:
4.40Collectively, these problems mean that service providers wishing to do business in another EU Member State on either a temporary or a permanent basis find it hard to navigate complex administrative formalities in different languages and with substantial paperwork. These complexities act as non-tariff barriers to cross-border trade and prevent businesses from exploiting export opportunities.
4.41To address these concerns the Commission proposes to create a ‘European services e-card’—a simplified and fully electronic procedure for self-employed people and companies that provide construction or businesses services (such as accounting, tax advice, architecture, engineering, IT) to complete the administrative formalities required to provide services in another EU country.
4.42The procedure consists of two parts. First, the home Member State must verify that the service provider is established on its territory in line with its applicable rules. Then it relays the request to provide services to the host Member State, which checks that the business complies with domestic restrictions on service provision. Where applicants are successful, the procedure will result in the issuance of a standardised electronic certificate—the ‘European services e-card’.
4.43The e-card will act as proof of establishment in the home Member State and authorisation to provide services in the host Member State. The e-card will be specific to either temporary service provisions or secondary establishment, and must be requested for each Member State in which the provider wishes to operate.
4.44Alongside their application for a services e-card, service providers may also request certification of their professional liability insurance coverage and track record in their home Member State. This certificate is to be provided by the home Member State’s insurance distributor on request. The proposal establishes an obligation on insurance distributors and bodies appointed by a Member State to provide compulsory insurance to deliver an insurance certificate upon request of their policyholders. It also defines the essential elements of such a certificate and envisages the possibility for the Commission to define a standard form through implementing acts.
4.45Service providers can apply for two types of e-card: one for the temporary cross-border provision of services into the host Member State, and another for the secondary establishment of a business in the host Member State in the form of branches, offices or agencies.
4.46For both types of e-card, service providers would apply in their home country and national language using a standardised, automatically-translated online form connected to the existing EU Internal Market Information System (IMI) platform. A designated coordinating authority in the provider’s home country then rapidly verifies the necessary data to confirm that the provider was legally established in the home Member State and transmits this information and the details of the application to the host Member State, which would assess the application in light of domestic requirements.
4.47There procedures vary for accessing the two main types of e-card after the coordinating authority in the home Member State conducts the initial verification:
4.48The e-card is intended to reduce the administrative complexity for service providers of seeking authorisation to expand their operation into other EU Member States in the following ways:
4.49The Minister (Lord Prior of Brampton, Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy) acknowledges the importance of services sectors to the European economy and that barriers to services trade still exist:
“Services sectors are fundamental to European competitiveness, making up 70% of Europe’s total economy and generating over 90% of new jobs. However, substantial barriers to cross-border trade and investment in services still remain.”
4.50Furthermore, the Minister notes that the proposals reflect a longstanding UK interest:
“The UK has been a strong supporter of a liberalised EU services market and, along with likeminded Member States, has lobbied consistently for the introduction of a services card to remove barriers to cross-border trade in services.”
4.51The Minister endorses the basic objective of the proposal, which is to reduce “administrative barriers to trade”, writing that:
“In particular, its ‘once only principle’—which stipulates that service providers should not be asked to submit the same information twice—is expected to reduce burdens upon businesses, who will no longer have to repeatedly demonstrate compliance with certain requirements in each Member State in which they operate.”
4.52The departmental checklist for analysis of EU proposals, which is provided in support of the Government’s Explanatory Memorandum, specifically notes that “as SMEs tend to be disproportionately affected by admin costs, SMEs are likely to disproportionately benefit from related savings brought about by this proposal”.
4.53The Minister cautions that some administrative burdens, rather than being removed completely by the proposals, are instead “shifted from service provider to coordinating authority”. He provides two examples of this:
“During the proposal’s implementation phase, Member States will be required to inform the Commission of all the conditions relevant for verifying legal establishment under their legislation. Member States’ designated coordinating authorities will also ultimately be responsible for verifying the information provided to them by the service provider.”
4.54The Minister states that the Government “will assess the possible implications of this process in more detail”; however, he anticipates that “any such impacts upon coordinating authorities will be low, particularly because the process will use the functionalities of the existing Internal Market Information (IMI) System and a public interface linked to it online”.
4.55The Minister states 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.”
4.56The Minister also provides a short summary of the legal implementation of the proposals:
“The European services e-card is legislated for in both a directive and a regulation. As far as the Regulation is concerned, this will be directly applicable in UK law. As such, it is generally not necessary in principle to transpose its provisions into domestic law. However, there are occasions where it will be necessary to transpose certain requirements of an EU regulation in order to make it workable and enforceable in a Member State. There is one element of the services e-card regulation that the UK will need to transpose; to designate a coordinating body to perform tasks in accordance with the Regulation.
“The Directive will require transposition. It is anticipated that copy out will be used for UK implementing legislation, but further amendments may be required to domestic legislation implementing the Services Directive to align both regimes.”
4.57The Government does not discuss the continuing applicability of the proposals after the UK leaves the EU. As an EU measure, it appears straightforward that it will no longer apply to the UK itself when it leaves, and that there will be no possibility of the UK’s coordinating authority being able to provide a business looking to provide services in another EU Member State with a European services e-card. However, recital 22 of the Directive does note that businesses from third countries that establish subsidiaries within the EU will be able to acquire an e-card through a coordinating authority within any EU Member State:
“The European services e-card is available to providers previously established in a Member State. While subsidiaries of companies from third countries should be able to apply for an e-card, branches, agencies or offices of such companies should not, in accordance with Article 48 of the TFEU which reserves freedom of establishment and free movement of services to companies and firms constituted in accordance with the laws of a Member State and having their registered office, central administration or principal place of business within the Union.”
16 The other components of the package (the notifications procedure for the Services Directive, the proportionality test for regulated professions, and a Communication on reform recommendations for regulated professions) are also covered in chapters of this week’s report.
17 The Pink Book 2016, Chapter 9, Table 9.11 (Trade in services by type of service 2015).
18 The Staff Working Document states that “subsidiaries of companies from third countries established in the EU would be able to apply for a card as well” but that “ Branches, agencies or offices of such companies should not, in accordance with Article 48 of the Treaty which reserves freedom of establishment and free movement of services to companies and firms constituted in accordance with the laws of a Member State and having their registered office, central administration or principal place of business within the Union”.
19 The IMI Regulation (1024/2012)
20 Providers of business services refers here to those activities that fall within the scope of the Services Directive.
21 The Services Directive covers a variety of business service sectors, including: distributive trades (including retail and the wholesale of goods and services); activities of most regulated professions such as legal and tax advisers, architects, engineers, accountants or surveyors; construction services and crafts; business-related services such as office maintenance, management consultancy, event organisation, debt recovery, advertising and recruitment services; tourism services such as travel agents; leisure services such as sports centres and amusement parks; installation and maintenance of equipment; information society services such as publishing for print and web, news agencies, computer programming; accommodation and food services such as hotels, restaurants and caterers; training and education services; rentals and leasing services including car rentals; real estate services; household support services such as cleaning, gardening and private nannies.
22 EU Commission, “The economic impact of the Services Directive: A first assessment following implementation” (June 2012)
23 EU Commission, Evaluation of the implementation and next steps (webpage)
24 EU Commission, “Upgrading the Single Market: more opportunities for people and businesses” (28 October 2015)
3 March 2017