Select Committee on European Union Thirty-Seventh Report


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[40] 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 citizens—particularly 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 productivity.

  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 liberalising.

  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 recently.


  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 provisions.

  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 McCartney MP

  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 share?

  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

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