6th REPORT: COMPLETING THE INTERNAL MARKET
Letter from Ian Pearson MP, Minister of
State for Trade, Investment and Foreign Affairs, Department of
Trade and Industry. Foreign and Commonwealth Office
Thank you for providing us with copies of the
European Union Committee Report on Completing the Internal Market
in Services, which was published on 21 July 2005.
I should like to take this opportunity to respond
to the recommendations you make in the report.
The proposed Services Directive has great potential
to provide a significant contribution to economic growth, competitiveness
and employment in the EU. The Government strongly supports the
aims of this proposal, both in opening the Internal Market and
in contributing to better regulation. We believe that it will
deliver significant benefits for businesses, consumers and employees
here in the UK and across Europe.
During negotiations it is our goal to maximise
the benefits of the Directive while ensuring that essential protections
are not compromised, and we are working closely with other Member
States in the Council, the European Parliament, and the Commission
to achieve this.
Services comprise a vast range of diverse economic
activities, often highly dynamic in nature, a vital necessity
to be able to adapt to new economic circumstances and take advantage
of new market opportunities. For these reasons, the Government
agrees with the Committee in supporting the approach by the Commission
of a horizontal framework Directive in this area.
The alternativetaking a sectoral approachwould
require a large number of legal instruments and take many years
to agree and implement at national level. ln addition, it would
produce legal instruments that would not be able to deal with
new emerging service sectors and might moreover become outdated
by not being able to deal appropriately with the fast-evolving
activities they set out to regulate. The result could be a mass
of complex and contradictory legislation: a backward step for
clarity and better regulation.
We agree with the Committee that Member States
should retain the freedom to define what they consider to be Services
of General Interest. We also support the Committee's view that
there should not be a blanket exclusion for Services of General
Economic Interest from the scope of the Directive as this would
serve to deny the benefit of the Directive to providers in these
sectors. By taking such a step, Member States might deny themselves
the benefit of potentially better quality and/or lower cost services.
We do believe, however, that certain public
services are not suited to being covered by the Directive, for
example publicly funded health services. For these areas, we are
seeking specific exclusions from the scope of the Directive.
The country of origin principle has the potential
to deliver liberalisation in the services sector, creating jobs
and removing unnecessary regulatory burdens on cross-border trade.
However this should not lead to a compromise on UK standards for
the environment, health and safety, workers, animals and vulnerable
people in our society.
The Committee raises the issue of distinguishing
between "establishment" and "temporary service
provision", a concern shared by a number of Member States
including the UK. Some work has already been done to remove uncertainties
around this area, and this is continuing in Council Working Group.
As the Committee notes there is a fine balance to be struck here.
In seeking to provide greater legal certainty in relation to whether
a provider is or is not established, there is a risk of unduly
restricting the freedom to provide cross-border services as set
out in the Treaty and interpreted in the case law of the European
Court of Justice.
The Government agrees that many of the uncertainties
raised can be answered within the text of the Directive and that
further uncertainties can be dealt with during the continuing
negotiations. As noted above, a search for absolute legal clarity
might also lead to a substantial watering down of the liberalising
effects of the Directive. In any event, as part of the implementation
process, Member States will have to provide substantial guidance
to providers and recipients on where they believe host regulations
would apply to a cross-border service provider.
The Government supports the view of the Committee
that the country of origin principle would not lead to a race
to the bottom nor to a levelling down to a lowest common denominator
in terms of regulatory and protective standards.
One of the Government's top negotiating priorities
for the Directive is to ensure that UK standards on health and
safety are upheld in all circumstances. We are grateful to the
Committee for their investigation of potential loopholes. We are
continuing to work with HSE and other stakeholders to ensure that
any drafting chages are limited to those strictly necessary.
We agree with the Committee that consumers stand
to gain significantly from the Directive as a result of a wider
choice of service providers, and better quality provision at lower
prices. Consumers are protected by the derogation from the country
of origin principle for consumer contracts. The harmonisation
measures obliging providers to give information to recipients
will empower the consumer with more information and will increase
consumer confidence. We acknowledge that the proper working of
the mutual assistance and supervision mechanisms proposed in the
Directive will be critical to ensuring trust and confidence in
At the European level it is clear that thinking
on the issue of mutual assistance is at an early stage. However,
work is underway to determine how contact points might function
most effectively and how competent authorities across Member States
might best work together. A sub-group of the Internal Market Advisory
Committee has been set up to consider how an information exchange
system might be developed to meet the requirements set by the
At a national level, the Government is continuing
its dialogue with stakeholders, and has also commissioned a study
to consider the implementation costs associated with the mutual
assistance provisionsfrom meeting requests for information
from other Member States to the rollout of the aforementioned
information exchange systemas well as the provisions for
single points of contact. These costs are likely to be significant,
and therefore the Government considers it important to ensure
that these would be justified by the potential benefits of the
The setting up of the mutual assistance mechanism
will be a significant undertaking, but we note that there are
examples of functioning mutual assistance regimes in other areas
of EC activity, for example in tax; therefore we are confident
that an effective and workable scheme is possible.
As the current President of the Council of the
European Union, the Government is leading negotiations in Council,
and we are closely following progress on the Directive in the
European Parliament. As these continue, we regard it as vitally
important to ensure the right balance between the market opening
potential of the proposal and legitimate levels of protectionand
that these benefits are not outweighed by the costs associated
with the Directive.
3 October 2005