Select Committee on European Union Sixth Report

Completing the Internal Market in Services

CHAPTER 1: Introduction

1.  The four fundamental freedoms on which the European Community has been based since its beginnings just under fifty years ago are the free movement of capital, goods, persons and services. Therefore, in principle businesses and self-employed individuals have had since then the freedom to offer their services in any Member State of the European Union.

2.  As a result, one might expect flourishing European Union cross border trade in services. Yet this is not the case. Whilst services account for around 54% of European Union Gross Value Added, in 2001 cross border trade in services amounted to only 20% of total trade in the Internal Market[2]. There is a large potential for a functioning Internal Market in services which would contribute to driving forward the renewed Lisbon Agenda[3] goals of greater economic growth and more jobs in the European Union.

3.  The Commission has therefore proposed a Directive which seeks to encourage greater cross-border trade in services by providing a legal framework that will eliminate obstacles to:

  • The freedom for service providers to establish their business in any Member State; and
  • The free movement of services between Member States.

4.  It seeks to give "both providers and recipients of services the legal certainty they need in order to exercise these two fundamental freedoms enshrined in the Treaty."[4]

5.  Our Report concentrates on the second objective, namely the free movement of services between Member States. This subject has raised the most controversy. In order to eliminate obstacles to the free movement of services the draft Directive provides for:

  • The application of the Country of Origin Principle;
  • The rights of recipients to use services from businesses established in other Member States; and
  • In the case of posting of workers, an allocation of tasks between the Member State of origin and the Member State of destination.

6.  In order to establish mutual trust between Member States so that obstacles to trade can be overcome, the draft Directive provides for harmonisation of legislation to guarantee protection in certain areas such as consumer protection, stronger mutual assistance between national authorities, measures to promote the quality of services and encouragement of codes of business conduct at Community level.

7.  The Commission's Proposal has been criticised. Opponents argue, for example, that if the new EU Member States can compete in the market for services on an equal basis without applying the often higher social rights as well as health and safety and environmental standards of some of the EU 15, the lowest level of standards in the European Union will become the norm. Other opponents of the draft Directive argue that its scope is too wide and that sector specific legislation would be more suitable. Others fear that consumer protection rights will be weakened.

8.  We analyse these concerns in this report and conclude that, in the main, they are unfounded. The thrust of the draft Directive should be supported. The Services Directive is essential to remove unnecessary and unjustified obstacles to trade thereby making the European Union more competitive in a global economy.

2   Commission Extended Impact Assessment of Proposal for a Directive on Services in the Internal Market, SEC(2004)21. Back

3   At the March 2000 Lisbon European Council, Member States agreed a ten year goal and accompanying strategy to modernise the EU economy and social model by 2010. This became known as the "Lisbon Agenda". In 2005, after it had become clear that the original Lisbon goals would not be achieved by 2010, the programme was refocused on greater economic growth and more jobs. Back

4   Proposal for a Directive of the European Parliament and of the Council on Services in the Internal Market SEC(2004)21  Back

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