Not cleared from scrutiny; further information requested
(a) Proposal for a Regulation of the European Parliament and of the Council on the legal and operational framework of the European services e-card;
(b) Proposal for a Directive on the legal and operational framework of the European services e-card
(a) Article 114 TFEU
(b) Articles 53(1) and 62 TFEU
Business, Energy and Industrial Strategy
(a) (38453), 5284/17 + ADDs 1–2, COM(16) 824; (b) (38452), 5283/17 + ADDs 1–3, COM(17) 823
4.1The EU Single Market is exceptionally integrated in a number of service sectors for which specific regulatory frameworks exist (e.g., financial services, aviation, broadcasting); however, it is less integrated for business services covered by the ‘horizontal’ Services Directive, which leaves significant discretion to Member States regarding how a number of its provisions are interpreted and applied. 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.
4.2The Commission now proposes to tackle these issues through a Services Package, of which the European services e-card is one element. This is a fully electronic procedure which 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. 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.
4.3The proposal does not go quite as far as the previous Government had hoped, due to resistance from some Member States, notably Germany and France. While 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.
4.4On 30 January 2017 the Parliamentary Under-Secretary of State at the Department for Business, Energy and Industrial Strategy (Lord Prior) submitted an Explanatory Memorandum outlining the Government’s views on the proposal. The Government supports the proposed e-card procedure, which is in line with the policy of successive Governments to deepen the EU Single Market in services; however, the Minister also observed that once the UK left the Single Market its service providers would not be able to secure an e-card through a UK-based coordinating authority, and would also be subject to different levels of regulatory restrictiveness with regard to cross-border service provision and secondary establishment.
4.5In its report of 1 March 2017 the Committee concluded that “the proposal is aligned with longstanding UK policy as well as the interests of UK service providers”, and also that “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”. The Committee retained the proposal under scrutiny and sought further information regarding detailed aspects of the proposals, as well as their implications in the context of the UK’s impending departure from the European Union.
4.6On 28 March 2017 the Minister submitted a long letter which responded to the Committee’s questions, the contents of which are provided later in this chapter. In it, the Minister confirms that progressing the e-card proposal through the Council is proving slower than with other elements of the package, and negotiations in working parties are ongoing. Regarding Brexit, the Minister stated that, “absent an arrangement between the UK and the EU, the e-card procedure would cease to function in the manner set out in the Explanatory Memorandum”, and that if the UK were to trade with the EU on the basis of WTO terms, EU Member States would be allowed to discriminate against UK service providers in a way that they cannot, while the UK is a member of the Single Market.
4.7In correspondence before the General Election recess the Committee granted the Government a standing scrutiny waiver for this file in the Council of Ministers, until the Committee was re-formed post-election.
4.8In a subsequent update, the Minister informed the Committee that General Approaches have been agreed for both the notifications procedure and the proportionality test Directives at the 29–30 May 2017 Competitiveness Council, but that progress on the e-card proposal is slower. The Government expects that the Council working group will complete its first read-through of the Directive and Regulation in July, after which an issues paper will be presented by the Estonian Presidency, outlining the main issues and possible options for moving forward.
4.9We thank the Minister for his detailed response to our questions, as well as his update from the 29–30 May Competitiveness Council. The Committee notes his comment that the proposed e-card Directive and Regulation are more contentious than other elements of the package, with some Member States regretting that they are not more ambitious, while others feel that they travel too far in the direction of the Country-of-Origin principle. We also note that:
4.10The Government’s assessment of the implications of the proposal for the UK in the context of its impending departure from the European Union is that:
4.11We ask the Government to provide us with further information about:
4.12We retain the proposed Regulation and Directive under scrutiny pending answers to these questions. We ask for a response from the Minister by 29 November 2017, or earlier if there is any prospect of a political agreement being reached before then, whether in working parties, COREPER or the Council.
(a) Proposal for a Regulation on the legal and operational framework of the European services e-card: (38453), + ADDs 1–2, COM(16) 824; (b) Proposal for a Directive on the legal and operational framework of the European services e-card: (38452), + ADDs 1–3, COM(17) 823.
4.13The Regulation and Directive that will give effect to the European services e-card are integrally connected and should be considered as a single legislative proposal.
4.14The 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”.
4.15The Commission identifies four drivers that underpin this problem:
4.16Collectively, 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.
4.17To 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.
4.18The 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’.
4.19The 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.
4.20Alongside 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.
4.21Service 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.
4.22For 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.
4.23There procedures vary for accessing the two main types of e-card after the coordinating authority in the home Member State conducts the initial verification:
4.24The 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:
4.25The Parliamentary Under-Secretary for the Department of Business, Energy and Industrial Strategy (Lord Prior) has provided thorough responses to the Committee’s questions. As a preamble, he noted that negotiations in working parties were underway and had focused on the legal structure of the proposal and operational procedures.
4.26The Minister’s responses are provided below (questions in bold).
4.27The Minister responds:
“The legislative proposals for the e-card are complex and discussion is ongoing in Working Groups about how it will work in practice. As the Commission provides further clarity and negotiations on the legal texts make progress, our work is ongoing to understand the administrative impacts of conducting verification procedures. The intention of the process is to verify information already held by Government, and in the course of negotiations I intend to ensure that the Government is not committed to unrealistic timetables for conducting verification procedures.”
4.28Further updates on progress in the Council are provided in the Minister’s letter of 10 July 2017 (below).
4.29The Minister responds:
“I recognise the importance of this question, and note that the assessment is ongoing. I will gladly update the Committee when we have further clarification from the Commission and Council working groups and have assessed this more fully with the relevant UK competent authorities.”
4.30In response, the Minister says the Government was “considering its position on charges and will update the Committee on this in the future, following completion of the assessment of administrative impacts”.
4.31The Minister says that:
“At this moment, it is not possible to reach a judgement on this issue. As the Committee notes, the e-card procedure will require a start-up period following its adoption by the Council of Ministers and the European Parliament. The legislative proposals are complex and Working Groups are progressing less quickly than those for the notifications and the proportionality test. The UK has invoked the Article 50 exit procedure, beginning a two-year exit negotiation period that may be extended by unanimous agreement. While we remain a member of the EU, the UK will comply with all of its responsibilities and obligations, including the implementation of EU legislation.”
4.32The Minister responds that:
“As above, I recognise the importance of this question, and note that the assessment is ongoing. I will gladly update the Committee when we have further clarification from the Commission and Council working groups and have assessed this more fully with the relevant UK competent authorities.”
4.33In response, the Minister states that:
“The Committee’s assessment is correct: absent an arrangement between the UK and the EU, the e-card procedure would cease to function in the manner set out in the Explanatory Memorandum. The Government’s general approach is that the same rules and laws will apply on the day of Brexit as they did before, and Parliament will have every opportunity to debate and scrutinise the Great Repeal Bill during its passage through Parliament.”
“I will gladly update the Committee on the impact of the Great Repeal Bill on the services e-card provisions in due course.”
4.34The Minister replies that:
“Regulatory cooperation is frequently agreed as part of Free Trade Agreements and is also possible outside the scope of an FTA, under World Trade Organisation rules. It is not possible to comment on the details of the Government’s negotiating position with the EU at this stage. The precise form of the agreement between the UK and the EU will be subject to negotiations and the Government is looking at all possible options. The Government has been clear that we do not seek membership of the Single Market. Instead we are seeking an agreement that allows for the freest possible trade in goods and services between the UK and EU Member States.”
4.35The Minister replies that:
“EU subsidiaries of third country service providers have access to the single market as EU nationals, i.e. with the rights and obligations set out under the Treaties. UK companies’ ability to set up subsidiaries will be subject to the UK’s new market access regime as a third country.”
4.36The Minister responds:
“Leaving the EU will not put a stop to UK businesses’ ability to access EU markets and to set up in and invest in EU countries. However, in certain sectors, particularly those which are highly regulated, different EU countries impose rules restricting the ability of non-EU firms to operate in the market. The Government is working with businesses and other organisations to inform our approach as we shape our future relationship with Europe. We remain committed to making Britain the best place in Europe to own and grow a business—that means supporting businesses trading with and expanding into the EU.”
4.37The Minister responds:
“As above, it is not possible to comment on the details of the Government’s negotiating position at this stage. The precise form of the agreement between the UK and the EU will be subject to negotiations and the Government is looking at all possible options. The Government has been clear that we do not seek membership of the Single Market. Instead we are seeking an agreement that allows for the freest possible trade in goods and services between the UK and EU Member States.”
4.38The Minister responds:
“As the Committee notes, a range of barriers to cross-border trade within the Single Market still remain. These include administrative obstacles as well as divergent and disproportionate regulations. Within the EU, Member States are not permitted to discriminate by nationality or country of company registration. With third countries, this discrimination is permitted, within the GATS commitments. This discrimination is more prevalent in more highly regulated services sectors. The Government is working with businesses to understand their concerns relating to services market access and other issues, and is seeking a deal that allows for the freest possible trade in services with the single market.”
4.39The Minister responds:
“I believe that the services package will improve trading conditions for third countries trading with EU Member States. Firstly, subsidiaries owned by third countries have full access to the benefits of the services package, as set out above. Secondly, the greater scrutiny of the proportionality of services and professional services regulation will be beneficial, particularly where Member States do not discriminate between EU and third country nationals. Thirdly, the services package will improve the competitiveness of markets and facilitate growth, which will be advantageous to the EU’s trading partners.”
4.40The Minister offers the following summary of negotiations:
“Since the publication of the services package, Working Groups on all three legislative elements of the package have been held under the Maltese Presidency, with the notifications and proportionality test Working Groups moving at a faster pace than those for the two e-card legislative proposals. I refer the Committee to my letters concerning the notifications and proportionality test proposal for a fuller update on those working groups.
“At this stage, discussions in the working group on the services e-card have focused on its legal structure and operational procedures. Member States have requested, and the Commission has provided, further clarification of the operational details and timelines of the e-card. Member States continue to consider how the e-card could be implemented. Discussion has taken place on the dual legal structure of the e-card proposal, and whether the combination of the Regulation and the Directive is the best solution.
“Overall, Member States have divergent views on the proposal. Some Member States shared the UK’s disappointment that the proposal was not more ambitious, and many have emphasised the need to examine the proposal carefully to ensure it really does provide substantial benefits to businesses without overburdening domestic authorities. Some Member States have more fundamental misgivings about the proposal, and have voiced the concern that it moves towards the ‘country of origin’ principle. I would strongly disagree with this concern, as the proposal facilitates administrative cooperation rather than enabling service providers to comply with their home state regulation instead of the regulation in their country of activity.”
4.41Following the Competitiveness Council on 29–30 May 2017 the Minister wrote to provide the Committee with an update on the services package. He states that a General Approach was agreed on both the notifications and proportionality test Directives. Negotiations on the European Services E-card are proceeding more slowly:
“On the e-card proposal, we expect the Council working group will complete its first readthrough of the Directive and Regulation in July. An ‘issues paper’ is expected to be presented by the Estonian Presidency after the summer which will highlight the major issues where concerns over the proposal have been expressed within the working group and possible options for moving forward the negotiation.”
32 Thirty-third Report HC 71–xxxi (2016–17), (1 March 2017).
20 November 2017