Select Committee on European Union Sixth Report



63.  The two possible broad EC legislative approaches to achieving greater trade between Member States are for the Commission either to propose a series of sector-specific directives as it did for an internal market in goods, or to propose what is called a "horizontal framework Directive" which sets out broad framework principles which apply to all the areas within its scope. The Services Directive adopts the latter approach based on the principle of "mutual acceptance".

64.  Evelyne Gebhardt, the MEP responsible for the European Parliament's draft report on the Services Directive, told us she would prefer to have more harmonisation through sector-specific legislation (Q 430). A number of our witnesses agreed with Ms Gebhardt that sector specific legislation would be preferable to a horizontal directive. However, as this chapter shows, on balance we believe that the weight of evidence is in favour of a horizontal approach as proposed by the Commission.

65.  Harmonisation, that is to say, sector specific legislation that seeks to establish common standards for all Member States, can be contrasted with the principle of mutual acceptance. The difference between the two approaches can be illustrated in the following way: under the principle of mutual acceptance, all Member States may agree to recognise basic professional qualifications from other Member States allowing European Union professionals, subject possibly to some minimum adaptation requirement, to work in a Member State other than that in which they qualified. This is different from seeking to harmonise the professional qualifications of, say, doctors across all Member States. Experience has shown that the latter is a far more cumbersome and lengthy process and is often politically highly sensitive.

66.  In seeking to achieve a more effective internal market in goods, the European Union and its Member States pursued a legislative process of sector-specific directives which laid down harmonised requirements for certain goods. This was because to establish an internal market in, for example, cars tyres it was essential that the precise rules covering for instance the permitted composite materials for a tyre, its width and grip must be the same throughout the European Union so that a car manufacturer in France can source its tyres from Italy without any problems. As the Labour MEP Philip Whitehead, Chairman of the European Parliament's Committee on the Internal Market and Consumer Protection told us, this process of harmonisation "took about ten years to produce an internal market in goods. That led to something like 250 or more sectoral proposals coming out". (Q 441) Harmonising national rules across a broad range of sectors is a complicated process which takes a long time to achieve.

67.  Whereas harmonisation of rules may be necessary to establish an internal market for some goods, it is not necessary for an internal market in services. This is because there are a number of fundamental differences between goods and services. One difference between most manufactured goods and services is that standardisation in production allows goods to benefit easily from economies of scale. The provision of services, on the other hand, often involves an individual or idiosyncratic element—what would be an attractive design for a building for one client will strike another as inappropriate. A second difference between goods and services it that it is possible to define precisely what form a manufactured good should have, whereas it is very difficult to define in advance the form and nature of every service. A third difference between goods and services is that goods are objects, whereas the essential element of a service is that in most cases it relies heavily on the person who provides it. It is not possible to define precisely what makes up, for example, the output of a plumber. Two architects with the same training may have entirely different types of projects at which they excel.

68.  The Commission argues that although a sectoral approach has proved successful in removing barriers in financial services, as there are 83 non-financial service sectors, harmonisation of services would be too extensive and the same issues would have to be covered in many areas. The Commission points out that the workload involved in sector-specific legislation would be likely to involve a timescale stretching much beyond the Lisbon target date of 2010. The Commission therefore proposed a horizontal approach[27] applying across all service sectors. The Commission justifies a horizontal directive by saying that it "could provide legal certainty for service providers without imposing over-complex rules and provide for a system of administrative co-operation, the application of the country of origin principle, and where necessary harmonisation, in a single instrument."[28]


69.  The Commission's decision to propose a horizontal directive met with a mixed reception in the European Parliament. In February 2003, the European Parliament passed a resolution which "welcomed the proposals for a horizontal instrument to ensure free movement of services"[29] In contrast to the European Parliament's statement in 2003, the German Socialist MEP Evelyne Gebhardt represented the view of many MEPs in 2005 by telling us that although legislation is needed in this area it should be based on harmonisation of service sector by service sector (Q 441).

70.  The Conservative Michael Harbour MEP (from the UK), on the other hand, supported the Commission's horizontal approach telling us that, "If we try to harmonise everything, we will wait forever" (Q 414). Mr Whitehead told us that "The Labour Group within the Socialist Group here, is aligned with the British Government view, namely that the passing of the Services Directive will be a major step forward in the establishment of the internal market ... That cannot be gainsaid; it is an important element" (Q 430).


71.  It is also proving difficult to find a consensus in the Council of Ministers on a horizontal services directive. Diverging views in the Council about the Services Directive were reflected in the meetings we had in Germany and Poland. During our inquiry, the sternest critics of the horizontal approach came from Germany. On our visit to Berlin, we were presented with the SPD Parliamentary Group's "Initial Evaluation of the Services Directive", which states "the large-scale abandonment of harmonisation is the Directive's major shortcoming in terms of achieving its intended goal of creating a competitive single market for services".

72.  The opposition to a horizontal directive expressed by the German Socialists in Berlin and Evelyne Gebhardt in the European Parliament is shared by the UK Trades Union Congress (TUC). Although the TUC told us that it is not against the idea of a horizontal Directive in principle, it wishes to see a greater scope for derogations in favour of host country regulation. Amicus[30] went further, describing the draft directive as impractical and unworkable (Amicus written evidence).

73.  A different view was presented to us by the CBI who commended the Commission for taking a framework approach to this proposal. In the past "business has seen an overload of the wrong sort of legislation" (Q 71) and "a tradition within the Commission to [produce] 25 draft directives answering every question known to man but leaving us without the will to do anything about it." (Q 60) The CBI believes that the directive "could make a positive contribution to making the EU work for business" (Q 71).


74.  We believe that EC legislation to facilitate an Internal Market in services must rely on a horizontal approach and cannot be based on stringent harmonised rules. Hence we agree with the Commission's approach. If the EU is to achieve the (revised) Lisbon goal of greater economic growth with more and better jobs by 2010, a horizontal directive will be the only way of reaping the full benefits of an internal market in services.

75.  We believe the most powerful argument for a horizontal framework directive on an internal market in services is the length of time it took to achieve the legislative basis for an internal market in goods. We see a clear danger in the sector-by-sector harmonisation of regulations route that negotiations will become bogged down for many years.

27   SEC(2004)21: Extended Impact Assessment of Proposal for a Directive on Services in the Internal Market, 13 January 2004. Back

28   SEC(2004) 21, p. 28 Back

29   European Parliament Resolution, 13 February 2003 at Back

30   The UK's largest manufacturing, technical and skilled persons' trade union . Back

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