38th REPORT: THE SERVICES DIRECTIVE REVISITED
Letter from Rt Hon Ian McCartney MP, Minister
of State for Trade, Investment and Foreign Affairs, Department
of Trade and Industry/Foreign and Commonwealth Office to the Chairman
I should like to take this opportunity to respond
to the recommendations in the European Union Committee's Report
on The Services Directive Revisited, which was published on 24
July 2006. I would also like to update you, Lord Woolmer and Sub
Committee B on the progress of the Directive, and to thank the
Members of the Committee for their swift and thorough response.
I last wrote to your Committee on 6 June 2006
regarding the outcome of the 29 May Competitiveness Council. The
agreement reached at the Council is an excellent result for the
UK. We achieved our key negotiating objectives and resisted pressures
to further reduce the scope of the Directive. Furthermore our
economic analysis shows that we have retained at least 80% of
the original welfare benefits.
The European Parliament will hold its second
reading debate on 15 November 2006. The UK's position is to seek
to avoid changes to the current text, and to encourage others
to adopt this position. A number of amendments to the Directive
have been tabled by the European Parliament's Internal Market
Committee, though there is little appetite amongst Member States,
the Commission or the Presidency to alter the text. Assuming the
text that emerges from the European Parliament is acceptable to
the Council then it is possible that the Directive could be adopted
before the end of the year.
I welcome the Committee's conclusion that the
draft Directive should be supported. It is an important piece
of legislation which will help to remove barriers to the cross
border trade in services and will deliver significant benefits
for UK and EU citizensparticularly for small and medium
sized enterprises. It is genuinely market opening whilst upholding
standards in sensitive policy areas. It remains horizontal in
nature and covers a large proportion of service industries. Opening
up the EU market in services will stimulate competition and drive
As I mentioned in my letter of 6 June, the Competitiveness
Council saw a strengthening of the screening provisions. The combined
effect of a transparent and effective screening mechanism, a Point
of Single Contact which applies to temporary service providers,
and the clarity provided by the new Article 16 should create substantial
improvements to the environment in which service providers do
business in Europe. Business will face fewer barriers, and where
there are requirements to be met, business can easily find out
what they are.
The Freedom to Provide Services (Paras 44-72)
The UK Government agreed with your Committee
in supporting the Country of Origin principle and its liberalising
effect. But as noted in the report, the degree of opposition to
it meant that its retention could have threatened an agreement
being reached at all. However, as I stated when giving evidence,
the replacement to the country of origin principle is robust and
The new construction in Article 16 (Freedom
to Provide Services mechanism) continues to make explicit that
there is a freedom to provide services on a temporary or occasional
basis. The codification of this important freedom is a significant
step towards making the internal market a reality.
Article 16 in practice means that Member States
cannot place any requirements on service providers unless they
meet three strict criteria: that they are non discriminatory,
are proportionate and necessary for reasons relating to public
policy, public health, protection of the environment or public
security. The Committee notes that these criteria have been interpreted
narrowly by the European Court of Justice.
In addition, the Council text has added screening
provisions to Article 16 (in Article 39) to further strengthen
it. This means that Member States will have to screen their legislation
against the criteria set out in Article 16 and justify any requirements
they wish to retain. These requirements are reported to the Commission
and other Member States for peer review.
This process should result in a vastly reduced
list of requirements with which operators will need to comply
in order to provide a temporary service in another Member State.
We agree with the Committee's analysis that
the onus will be on the operator to identify any formalities they
must comply with in the host Member State. However, given the
vast list of derogations from the country of origin principle
(now reduced in line with the new Freedom to Provide Services
mechanism), such research would have been necessary in any event.
Indeed, now that the Point of Single Contact has been extended
to apply to Article 16, temporary service providers will find
it easier to identify any procedures.
The Government agrees with the Committee that
the Directive continues to cover a large proportion of the service
sector, and we are pleased that services of general economic interest
remain in scope for established service providers. The Council
also agreed to retain legal services within the scope of the Directive.
As the Committee notes the exclusion of certain policy areas and
service industries from the scope of the Directive is often because
there is already detailed European legislation covering that industry
or the policy area is particularly sensitive.
The Committee reported the TUC's view that the
labour law carve-out covers EU derived legislation only. The Government's
interpretation is that the exclusion is wide enough to cover domestic
labour law, and my officials have discussed this with the TUC
The Committee is right to point out how important
it is for all Member States to establish high quality, user-friendly
points of single contact. In order to avoid "a bewildering
variety of contact points" my officials have been in discussion
with the Commission on how consistency can be achieved.
We are already making good progress in planning
the development of the Point of Single Contact, which is very
likely to be based on the business link system. My officials will
gather the views of potential users, particularly smaller services
providers, and we will ensure these views are communicated to
other Member States. The point of single contact will not just
be a point of "information". Service providers will
be able to complete all formalities through the portal by a series
of deep links. Our approach will meet the Directive's requirements
in a cost effective way. Beyond 2010 the Government may consider
developing the site further once an assessment has been made of
how it is operating.
The report identifies the need for proper implementation.
I agree that implementation will be the key to reaping the benefits
of the Directive and note the Committee's concerns that we should
not underestimate this task. My officials are already heavily
engaged in planning the implementation programme to ensure that
we can screen the relevant legislation carefully to ensure that
it complies with the market-opening criteria in the Directive
and that we can implement the Points of Single Contact and Mutual
Assistance provisions on time.
We agree that it will be vitally important for
us to work with the Commission and other Member States to ensure
the Directive is properly transposed across all Member States,
if UK business, consumers and employees are to benefit. We are
making good progress and have already been asked by a number of
Member States to share our plans with them. The Commission assures
us that it will hold implementation workshops early in the new
year to make sure Member States understand what is required of
them. It will also be able to use its infraction powers if Member
States are recalcitrant.
In addition to our on-going discussions with
the Commission and other Member States through the course of transposition
the screening, reporting and peer review process provides a more
formal mechanism for Member States to comment in detail on how
others have implemented. Peer review will be an on-going process
over the implementation period.
The DTI will work with Government Departments,
Authorities and all interested parties to implement the Directive.
We are encouraging business organisations to work with and influence
their European counterparts and European business organisations
will contribute Commission workshops on the Point of Single Contact.
Competent Authorities will be registered and
will receive training on the use of the internal market information
(IMI) system to assist the mutual assistance process by January
2010. The UK will be contributing to the development of the IMI
database and the practical application of the mutual assistance
The Committee will be interested to note that
the period for implementing the Directive has been extended from
two years to three years. This extension can perhaps be taken
as recognition of the scale of the task ahead by Member States
and the Commission.
Once again, I am very grateful to the Committee
for their thorough, helpful and constructive examination of this
dossier. Some pertinent points were raised, which I hope I have
satisfactorily addressed. I will ensure that the Committee is
kept updated on developments and will write to you following the
European Parliament's second reading in November.
19 October 2006
Letter from the Chairman to Rt Hon Ian
Thank you for your letter dated 19 October 2006.
Sub-Committee B considered your letter at its meeting on 30 October.
We were very grateful to you for both updating
the Committee on the progress of the Services Directive in the
European Parliament and for providing a full response to the issues
raised in our report, The Services Directive Revisited.
We were reassured by the addition in Council
of screening provisions contained in Article 39, which will require
Member States to .justify any restrictions to service providers
contained in their legislation against the Article 16 criteria;
and require them to report any requirements they wish to maintain
to the Commission and other Member States for peer review. We
hope that you are correct in predicting that this "should
result in a vastly reduced list of requirements".
We were however, concerned that the extension
of the implementation period for Member States to three years
may imply that some Member States are already significantly behind
in preparations for the Directive. Is this a concern which you
We understand that on 23 October, the Internal
Market Committee rejected all amendments to the Council's text,
and look forward to receiving an update from you following the
second reading on 14 November.
3 November 2006
40 Correspondence with Ministers, 40th Report of
Session 2006-07, HL Paper 187, Services Directive (8413/06). Back