9. The central principles governing the Internal
Market, a market without obstacles to the free movement of goods,
persons, services and capital, are set out in the EC Treaty. The
right of establishment
ensures that nationals and companies of one Member State can freely
move to another Member State in order to carry out activities
as self-employed persons and to set up and manage undertakings.
The freedom to provide services
ensures that nationals or companies of one Member State can provide
their services in another Member State. Employed persons benefit
from the provisions on the free movement of workers.
These principles of the right of establishment, free movement
of services and the free movement of workers, are the three so-called
"fundamental freedoms" central to the Internal Market
and relevant to the Commission's proposed Directive on Services
in the Internal Market
with which this report is concerned.
10. The principles of freedom of establishment
and free movement of services have been clarified and developed
over the years through the case law of the European Court of Justice.
In particular, the Court has made clear that freedom to provide
services applies not only where the person providing the services
and the recipient are established in different Member States but
also where the person providing the services offers those services
in a Member State other than that in which he is established,
wherever the recipients themselves may be established.
11. In addition, European Union legislation is
already in place for an internal market in financial services,
gas and electricity supply services, some transport services,
telecommunications and broadcasting. Cross-border trade in services
was further simplified by an agreement in the Council on 6 June
2005 of a directive on the Recognition of Professional Qualifications
which establishes rules for those with certain professional qualifications
to work in any other Member State.
12. However, despite progress in these specific
service sectors and despite the basic principles set down in the
original Treaty of Rome, the overall Internal Market for services
is far from working well.
13. There are two main reasons why an internal
market in services is considered important for the European Union.
As services account for 54% of European Union Gross Value Added
(GVA), fully opening
up the internal market for services is expected to make a considerable
contribution the Lisbon goal of more economic growth and jobs
in the European Union by 2010. The second reason for prioritising
the development of an internal market in services is that the
European Union service sector is much larger than the manufacturing
sector and reducing the present barriers to an internal market
in services will have a considerable positive effect on the cost
and quality of services to consumers, whether these consumers
are other service providers, manufacturers or private consumers.
14. However, despite these incentives, experience
has shown that reducing barriers to service industries trading
in any EU Member State cannot develop at its own pace through
existing measures of EU legislation.
15. The Commission has said that "services
are the engine of economic growth". This view is different
from many traditional perspectives on services. Traditionally
they have frequently been considered little more than low-paid
activities such as office cleaning. In fact, services accounted
for around 50% of GVA in the UK economy in 2002 (DTI evidence).
This dominance of services in generating Gross Value Added is
reflected in the EU as a whole where the figure of Gross Value
Added is 54% of EU Gross Domestic Product. This is illustrated
by Table 1 which shows a breakdown across service activity in
the UK as well as in Poland, France and Germany. Although there
are obvious broad differences between the economies of these countriesFrance
has more agriculture than Germany or the UK and Germany has a
much bigger manufacturing base than the other three countriesthe
dominance of service activities is evident in all four countries.
It is notable that, with the exception of financial activities
and real estate, the figures for Poland and the UK are broadly
|Agriculture, fishing etc
|Mining, extraction, quarrying etc
|Electricity, gas water
|Wholesale, retail, hotel and restaurant
|Transport and communication
|Financial activities, real estate etc
|Public administration and defence, education
|Health and social work
|Other social and professional services
|Non-public services plus construction
|Source: UK: Annual Abstract of Statistics, 2004.
|EU25, France and Germany: International Statistical Yearbook, 2004:
|Polish Source: Provided as evidence on our visit.
|For EU25, France and Germany, Mining, Manufacturing and GEW are combined. Financial services is defined rather more broadly. The figure listed opposite health and social work roughly covers the last three categories.
|Non-public services plus construction is defined as the sum of construction, wholesale and retail and financial activities, for the purposes of this table.
|Note: Categories may not match exactly across countries.
16. In the UK in 2002 services accounted for 32% of UK global
exports and 23% of imports. The problem for the European Union
as a whole, however, is that although 54 % of EU Gross Domestic
Product derives from services, cross-border trade in services
only amounts to 20% of intra-EU trade.
17. In order to unlock the potential for more
intra-EU trade in services, the Commission published in January
2004 its draft Directive on Services in the Internal Market.
The proposal aims to provide a legal framework that will eliminate
18. The second objective, namely the free movement
of services between Member States is the subject of our inquiry
and Report. On this, the draft Directive provides for:
19. There was widespread support among our witnesses
as to the need for a Services Directive. Evelyne Gebhardt MEP,
who is critical of the Commission proposal agreed: "it is
important to have a Services Directive, because we have a good
deal of protectionism in Member States and we do not really have
an open market for services." (Q 430)