Select Committee on European Union Thirty-Seventh Report


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 alternative—taking a sectoral approach—would 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produce legal instruments that would not be able to deal with new emerging service sectors and might moreover become outdated by not being able to deal appropriately with the fast-evolving activities they set out to regulate.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 cross-border services.

  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 proposals.

  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 provisions—from meeting requests for information from other Member States to the rollout of the aforementioned information exchange system—as 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 agreed Directive.

  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 protection—and that these benefits are not outweighed by the costs associated with the Directive.

3 October 2005

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