Legally and politically important
Not cleared from scrutiny; further information requested
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 + ADDs 1–2, COM(17) 821
9.1The EU Services Directive (2006/123) aims to ensure that all new regulatory measures imposed by EU countries affecting a wide range of services are non-discriminatory, proportionate and justified by public interest objectives, with the aim of removing barriers to intra-EU services trade. It contains notifications procedures for both cross-border provision of services and secondary establishment which require the Member States to notify the Commission of regulatory changes which could act as a regulatory barrier to trade; however, certain limitations of these procedures render them ineffective, meaning that Member States are able to circumvent Commission scrutiny of new regulatory measures which may, in some cases, act as non-tariff barriers to trade and protect domestic businesses from competition.
9.2To address these concerns the Commission has proposed, as part of a wider Services Package, a Directive which would widen the coverage of the existing procedure and strengthen it in various ways (see Background for a detailed account of the proposed Directive). In its Explanatory Memorandum of 30 January 2017 the Parliamentary Under Secretary of State for the Department of Business, Energy and Industrial Strategy (Lord Prior) said that the Government was supportive of the proposed Directive but that its work was ongoing regarding impacts of the proposal, including the proposed timescales, implementation costs and administrative burden.
9.3In its report of 1 March 2017 the European Scrutiny Committee noted that the proposal was aligned with longstanding UK interests in liberalising intra-EU trade in services, and rejected French and German subsidiarity concerns as unfounded. The Committee also asked a wide range of questions about the proposed notifications procedure and its Brexit implications.
9.4The Minister responded to the Committee in a letter on 28 March 2017. Regarding the proposal’s impacts, he said that it would improve the functioning of the Single Market, and that the expanded scope of the notifications procedure “would not significantly increase the cost or administrative burden of notification”. The Minister stated that the Commission’s power to disapply national rules where the notifications procedure has not been followed “could have the effect of making the enforcement of the Services Directive through the notifications procedure significantly more effective”.
9.5However, the Minister also noted that, although most Member States recognised the need to improve the notifications process, some did not fully support the proposal, on the grounds that it would result in an unacceptable level of Commission interference in the work of national parliaments, and were seeking to weaken it various ways.
9.6On Brexit, the Minister stressed that regulatory cooperation of the kind envisaged by the Directive is achievable outside FTAs and not in breach of WTO rules, and that, even if the UK leaves the EU, EU subsidiaries of UK companies will benefit from the removal of barriers to trade in the EU market, particularly where Member States’ services regulation does not discriminate between EU and third country nationals.
9.7In a follow-up letter of 10 July 2017 the Minister updates the Committee that a General Approach was agreed at the Competitiveness Council on 29–30 May 2017. A compromise position was reached that involved the removal of insurance schemes from the scope of the proposal and the exemption of late stage parliamentary amendments from the requirement to notify prior to adoption. The clause setting out that a breach of one of the elements of the notification procedure constitutes a ‘substantial procedural defect of a serious nature as regards its effects vis-à-vis individuals’ has also been removed in the compromise text.” The Minister acknowledges that this compromise position “represents a reduction from the original ambition” but states that the “core provisions … remained intact”.
9.8The agreement of a General Approach by the Council does not constitute a scrutiny override because the Committee granted the Government a standing scrutiny waiver for this file until the new European Scrutiny Committee was reappointed.
9.9The notifications Directive will now be considered by the European Parliament with the Internal Market and Consumer Protection committee being the lead committee, and Sergio Prieto Gutiérrez (S&D, Spain) the rapporteur. The Minister undertakes to provide further updates in due course and indicates his willingness to answer any further questions the Committee may have.
9.10We thank the Minister for his detailed responses to our questions, and for his update regarding the General Approach that has been agreed by the Council of Ministers.
9.11We request a more detailed account of how the text of the Council’s General Approach alters the Commission’s original proposal as summarised in the Government’s Explanatory Memorandum. In particular, we ask:
9.12Concerning the implications of Brexit in relation to the proposed Directive, we ask for further information on the following points:
9.13We retain the proposal under scrutiny and ask the Government to respond to these questions, and provide any further updates, by 13 December 2017.
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), + ADDs 1–2, COM(17) 821.
9.14The 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.
9.15These procedures have proven ineffective for a variety of reasons. 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 legal consequences. Member States are not required to demonstrate that proposed measures 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.
9.16These failings mean 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. The Services Directive has, as a consequence, proven to be less effective than was originally envisaged.
9.17On 10 January, as part of a package of legislative and non-legislative proposals on services, the European Commission published a proposal for a Directive (hereafter ‘the Directive’) clarifying and reforming the services notification procedures laid out in the Services Directive 2006/123/EC, with the intention of addressing the limitations described above. It is intended to complement the existing notification procedure applicable for goods and information society services.
9.18The Directive modifies the existing notification procedure by:
9.19The Parliamentary-Under Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior) welcomed the proposal, and said that the Government had specifically called for reforms to the notifications procedure. He said that the Government did not anticipate that the proposed reforms would entail a substantial increase in the administrative burden or cost of the notifications procedure.
9.20On Brexit, the Minister said that until exit negotiations are concluded, the UK remained a full member of the EU and would continue to negotiate, implement and apply EU legislation. The departmental assessment of the proposal noted that the Directive would require transposition, which would entail new secondary legislation and some amendment of existing legislation that regulates the current notification procedure. Following agreement of the Directive, Member States would have one year to transpose its requirements into domestic law, after which time those provisions would apply.
9.21In its report chapter on the proposal on 22 February 2017, the European Scrutiny Committee outlined its views in relation to the proposal.
9.22On subsidiarity, the Committee observed that, although the European Affairs Committee of the French Sénat and the European Affairs Committee and the Committee of Laws of the Assemblée Nationale had issued reasoned opinions in relation to the proposal, it supported the Government’s assessment that the proposal’s policy objectives could only be effectively achieved through EU action, and that the proposal was therefore not in breach of the principle of subsidiarity.
9.23More generally, the Committee noted 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 that “this proposal addresses many of the essential areas for improvement”. However, the Committee also noted that the Government’s calls for a reformed notifications procedure predated the UK’s decision to leave the EU, and that the proposal’s implications, including the balance between the benefits it would create for UK stakeholders and the costs of implementing it, would be significantly modified by this decision.
9.24The Committee also requested further information regarding numerous aspects of the proposal, including:
9.25Regarding the Brexit-related implications of the proposal, the Committee asked the Government if:
9.26The Committee retained the proposal under scrutiny and requested an update regarding negotiations in Council Working Parties by 29 March 2017. It also drew the Minister’s Explanatory Memorandum and the Committee’s conclusions to the attention of the Business, Energy and Industrial Strategy Committee and the Exiting the European Union Committee.
9.27The Committee’s questions and the Minister’s responses are provided below.
9.28The Minister responded:
“Under the 2006 Services Directive, Member States are already required to notify the Commission of new or amended rules affecting businesses that provide services. The current proposal introduces an obligation to notify draft regulation at least three months prior to adoption. To implement this, we would need to amend the Provision of Services Regulations 2009 to require competent authorities (such as regulators, local authorities and the devolved administrations) to notify draft measures with at least three months’ notice. We envisage that improved coordination measures will be necessary to ensure all Competent Authorities meet those timelines.
“Extending the scope of the notification procedure (as set out below) will improve the clarity and coherence of existing EU obligations. At EU level, this will improve the functioning of the Single Market by ensuring that new measures comply with the Services Directive. At the UK domestic level, we do not believe this will significantly increase the cost or administrative burden of notification. The UK has an excellent approach to domestic regulation due to our better regulation principles and independent Regulatory Policy Committee, which ensures that our regulation of services does not impose a disproportionate burden on business and therefore does not constitute a disproportionate barrier to trade. In the development of in-scope measures, we already assess compliance with the Services Directive. This greatly reduces the risk of our own legislation being challenged after notification through the ‘alert’ mechanism which, if issued, would require a period of a further three months during which the legislation cannot be adopted.”
9.29The Minister responded:
“The current notification procedures for establishment and cross-border provision of services lack clarity and coherence. The scope of the notification requirement for cross-border provision is currently wider than that for establishment: the scope for cross-border covers any requirements on service providers, while for establishment the scope covers only those requirements listed in the Article 15 ‘grey list’. This proposed Directive expands the scope of the notifications required for restrictions on establishment to cover all authorisation schemes (Article 9 of the Services Directive), professional indemnity insurance requirements (Article 23) and restrictions on multi-disciplinary practice (Article 25). The proposed Directive would also extend the existing Decision procedure whereby the Commission requests that a Member State refrain from adopting measures deemed incompatible with the Services Directive. The proposal extends this procedure to cover cross-border provision, as it currently applies only to requirements for establishment listed under Article 15 of the Services Directive.
“If it has concerns about the compatibility of the measure with the Services Directive, the Commission will also be able to issue an ‘alert’ resulting in a three month standstill period to allow for proper evaluation of the proportionality of the measure. This will enhance the Commission’s power to prevent Member States from adopting any clearly disproportionate measures. Member States will be required to justify why the measures are required and demonstrate proportionality. The improvements to transparency will also promote dialogue between Member States and the Commission and provide the latter with a broader understanding of measures adopted by Member States. This will facilitate post-hoc enforcement where measures clearly do not comply with the Services Directive.”
9.30The Minister responded:
“With regards to the position of other Member States, European Council conclusions in December 2016 called for EU institutions to ‘further increase the level of ambition’ and commit to ‘removing remaining obstacles within the Single Market’. At the February 2017 Competitiveness Council, Member States broadly welcomed the objectives’ of the Services package proposed by the Commission. I do not believe that resistance is notably greater against the enforcement of the Services Directive for cross-border than it is for establishment, and this has not arisen during Working Groups. Many examples of rules affecting services in Member States apply to both establishment and cross-border provision, so greater coherence will be valuable.”
9.31The Minister replied:
“I note the reasoned opinions of the French Sénat and Assemblée Nationale, as well as those of the German Bundestag and Bundesrat which were submitted following your letter. I fully agree with your position on subsidiarity: clearly an objective of deepening the Single Market through reform of the notifications procedure cannot be achieved at national level, and these proposals do not represent a concern for the principle of subsidiarity. In response to the specific concerns of the Sénat and Assemblée Nationale, I would note that Member States have always been required by the Services Directive to make sure that the measures they adopt in relation to cross-border services and establishment are in compliance with the Services Directive. This proposal relates to the procedure for notification of those measures and poses no additional substantive restrictions on the content of the legislation that may be adopted by Member States. The proposed Directive will improve the enforcement of that Directive, and the procedural requirements are proportional to that aim. I would also note that the requirement to notify three months in advance of adoption is present in the field of goods, in the Technical Standards Directive (2015/1535) regulation of goods.”
9.32In response, the Minister said that:
“The Commission and the Council Legal Service’s assessment is that committing a ‘substantial procedural breach of a serious nature’ in the adoption of a measure may render the measure inapplicable, with impacts on relations between individuals, as is the case with the goods notification procedure set out in the Technical Standards Directive (2015/1535) (see the case of CIA Security International SA v Signalson SA and Securitel SPRL). This could have the effect of making the enforcement of the Services Directive through the notifications procedure significantly more effective. I also continue to urge the Commission to improve its enforcement procedures against Member States with disproportionate restrictions on trade in services in their stock of already-adopted legislation.”
9.33The Committee also asked a number of questions about the Brexit implications of the proposal.
9.34The Minister responded as follows:
“At this moment, it is not possible to reach a judgement on this issue. As the proposal stands, the transposition deadline is 1 year following the Directive’s adoption by the Council of Ministers and the European Parliament. The Maltese Presidency is aiming to reach General Approach during its term. The UK will shortly invoke 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.”
9.35The Minister responded:
“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.”
9.36The Minister replied:
“As the Prime Minister has made clear, a successful and competitive European market will remain in our national interest as we build a new relationship with the EU that will give our companies the maximum freedom to trade with and operate in the European market. The proposed measures provide the opportunity to improve the functioning of the Single Market while we remain members. EU subsidiaries of third-country companies are considered EU companies within the single market, and UK businesses will also benefit from the removal of disproportionate barriers as they continue to trade with and operate in EU countries post-exit, particularly where Member States’ services regulation does not discriminate between EU and third country nationals.”
9.37The Minister provided the following update:
“Negotiations in working groups are proceeding at pace, with the Presidency having now produced two compromise texts. Divergences of opinion amongst Member States remain. We understand that the Presidency hopes to reach a General Approach on the text during their term, although this may not be possible given current Member State positions.”
9.38He added that:
“The Maltese Presidency has prioritised the proposals published in January 2017 to improve the functioning of the Single Market in services and has previously expressed an ambition to achieve a General Approach on the notifications dossier during their Presidency. Member States have expressed divergent views on the current proposal in Council Working Groups to date:
“I do not share the concerns over subsidiarity expressed by some Member States. As noted in my response above, I do not believe this proposal would significantly constrain the ability of the UK Parliament to legislate or significantly increase the cost or administrative burden of notification.”
9.39The Minister added that if the Committee had any further questions he would gladly answer them and provide further updates as negotiations progress.
9.40On 10 July 2017 the Minister wrote to the Committee with an update regarding the different legislative elements of the services package, including the notifications procedure. In his letter the Minister states:
“I am pleased to report that a General Approach was agreed on both the notifications and proportionality test Directives at Competitiveness Council on 29–30 May 2017. On the notifications proposal, a compromise position was eventually reached involving the removal of insurance schemes from the scope of the proposal and the exemption of late stage parliamentary amendments from the requirement to notify prior to adoption. The clause setting out that a breach of one of the elements of the notification procedure constitutes a ‘substantial procedural defect of a serious nature as regards its effects vis-à-vis individuals’ has also been removed in the compromise text.”
9.41The Minister adds that:
“The notifications and proportionality test Directives will now be considered by the European Parliament and, in particular, by the Internal Market and Consumer Protection committee. The rapporteurs are Sergio Prieto Gutiérrez (S&D, Spain) for the notifications proposal and Andreas Schwab (EPP, Germany) for the proportionality test proposal.”
9.42The Minister undertakes to provide further updates in due course and indicates his willingness to answer any further questions the Committee may have.
Thirty-third Report HC 71–xxxi (2016–17),(1 March 2017).
50 Thirty-third Report HC 71–xxxi (2016–17), (1 March 2017).
51 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.
52 Article 3 (4).
28 November 2017