SERVICES DIRECTIVE (8413/06)
Letter from Ian Pearson MP, Minister for
Trade, Investment and Foreign Affairs, Department of Trade and
Industry/Foreign and Commonwealth Office to the Chairman
I am writing to update your Committee on progress
on this dossier in the light of the European Parliament's First
Reading, which took place on 16 February 2006. The adopted position
of the European Parliament (EP) diverges in many significant respects
from the position that had been reached in Council under the UK
Presidency. The EP amendments exclude a number of sectors from
the Scope of the Directive, whilst offering a new approach to
facilitating the free movement of services in Article 16 and deleting
articles 24 and 25, on reducing administrative burdens for the
posting of workers.
The full effect of these amendments is still
being analysed. The EP excluded several large service sectors,
essentially on the basis of concerns over the country of origin
principle. Given the new approach to Article 16 adopted by the
EP, there no longer appears to be a case to exclude such a wide
number of sectors. In particular, I believe that two of the economically
significant sectors excluded from scope by the EP, namely all
legal services and privately funded healthcare, would benefit
from, and should remain covered by, the Directive.
The new article 16 is unclear and possibly internally
inconsistent so requires clarification. It is also important that
its provisions are robust and make a genuine difference to temporary
service providers.
The EP excluded all labour law from the scope
of the Directive and removed Articles 24 & 25. Like many supporters
of the Directive, the UK would have preferred to retain key administrative
simplification measures relating to the "posting of workers"
(Art 24). However, labour law is problematic for a significant
number of Member States and the Commission are likely to accept
that agreement will not be possible unless they follow an approach
similar to that of the EP.
The Commission have indicated that whilst the
EP text will form the basis for their revised proposal, expected
on or after the 4 April, they will resist accepting all the EP
amendments en bloc. There will not be any working groups until
after the Commission has produced its revised proposal. There
is a Competitiveness Council 29-30 May, and a further provisional
date for one on 29 June. The majority of Member States do not
want to rush into agreement without having time to work on improving
the text. It is possible, however, that the Austrians may attempt
to push through political agreement during their Presidency.I
will of course submit a new explanatory memorandum on the revised
Commission proposal as soon as the text is available.
10 March 2006
Letter from the Chairman to Ian Pearson
MP
Thank you for your letter of 10 March 2006,
which Sub-Committee B considered at its meeting on 19 April 2006.
We have been following the progress of the Services
Directive with great interest and it was the subject of our report,
Completing the Internal Market in Services,[40]
published in 2005. We intend to conduct a follow up inquiry into
the revised draft Directive. Now that this has been published,
can you give an indication as to when we can expect the Explanatory
Memorandum which you mention?
We would be grateful if you would keep us informed
of any developments.
24 April 2006
Letter from the Chairman to Ian Pearson
MP
Sub-Committee B considered this document (8413/06),
and your Explanatory Memorandum, at its meeting on 3 May 2006.
As we have just commenced an inquiry into the
draft Services Directive, we will maintain scrutiny on this proposal
at this stage, and look forward to hearing your views on 17 May.
4 May 2006
Letter from the Chairman to Lord Sainsbury
of Turville, Parliamentary Under-Secretary of State for Science
and Innovation
As you will be aware, Sub-Committee B has been
conducting a short follow up Inquiry into the Commission's Revised
draft Directive on Services in the Internal Market. We were grateful
to your colleague Ian McCartney MP for the oral evidence which
he gave to us on 17 May 2006. We have revisited our inquiry of
last summer, Completing the Internal Market in Services,
and sought the views of some key contributors to that inquiry
on how they view the revised draft. I enclose a short document
that summarises the views received, and provides the Committee's
emerging conclusions on the revised draft Directive, ahead of
the Competitiveness Council on 29-30 May.[41]
A full report will be published in due course.
While the Committee is not prepared to release
the proposal from scrutiny at this point, we would, on the basis
of the assurances and information received from you, be content
to the UK agreeing to the text of the Directive in its current
form, or if amended to meet the UK's priorities. We would not
consider such an agreement to constitute an override of scrutiny,
and ask that you provide the Committee with a full report following
the Council.
25 May 2006
Letter from Rt Hon Ian McCartney MP, Minister
for Trade, Investment and Foreign Affairs, Department of Trade
and Industry/Foreign & Commonwealth Office to the Chairman
Further to your letter to Lord Sainsbury of
25 May 2006 on EM 8413/06, I am writing to update your Committee
that political agreement was reached on the Services Directive
at the Competitiveness Council on Monday 29 May 2006. I am grateful
to note that your Committee will not record this as an override
of the scrutiny reserve, in spite of the reserve not having been
lifted. I await the publication of your full report.
As you are aware, this is an important step
towards achieving a truly open market for services in the European
Union and will provide a major boost to Europe's economy. It is
an example of an enlarged Europe delivering major economic reform.
Due to the nature of our economy, the UK is likely to be one of
the biggest beneficiaries, to the tune of £5 billion per
year. Businesses, consumers and jobseekers will all benefit.
As I explained to the Committee on 17 May, I
am keen to ensure that the Directive delivers for UK business
and protects UK interests in sensitive areas. In short, that it
achieves a balance between opening up markets and upholding standards.
The Government promised to ensure that standards
in sensitive areas such as health and safety are not disturbed,
that the vulnerable such as children and the elderly are protected
and that the procedures for establishing in another Member State
work well, add real value and are not needlessly costly.
I am sure your Committee will agree that political
agreement reached at the Council is an excellent result for the
UK and achieves our negotiating objectives. Whilst the text of
the Directive remains broadly unchanged, amendments on our key
remaining issues were secured. Pressures to further reduce the
scope of the Directive and the impact of some of the deregulatory
measures were largely resisted.
In particular, existing wording for certain
important areas, such as in the field of labour law, was maintained,
and clarifications on health and safety and other matters were
secured. Further exemptions from the Directive were successfully
resisted, with one exception, that of notaries. Significantly,
the screening provisions which require Member States to review
their legislation and remove barriers to trade have been strengthened.
I have supplied a copy of the revised Directive to the Committee
Clerk.
The draft Directive will now be considered again
by the European Parliament, possibly before the end of the Austrian
Presidency. Although it is hoped that the text agreed at the Council
will largely be retained, the Parliament may propose amendments
and we will need to ensure that the Directive continues to protect
the UK's sensitive policy areas and that the market opening provisions
are not diluted.
I am grateful to the Committee for the attachment
outlining emerging conclusions on the revised draft Services Directive
and for their ongoing thorough examination of the draft Directive.
I will of course inform you and the Committee members of the outcome
of the Parliament's second reading.
6 June 2006
Letter from Lord Sainsbury of Turville
to the Chairman
Thank you for your letter of 25 May on EM 8413/06.
I am writing to update your Committee that political agreement
was reached on the Services Directive at the Competitiveness Council
on Monday 29 May. I am grateful to note that your Committee will
not record this as an override of the scrutiny reserve, in spite
of the reserve not having been lifted, I await the publication
of your full report.
As you are aware, this is an important step
towards achieving a truly open market for services in the European
Union and will provide a major boost to Europe's economy. It is
an example of an enlarged Europe delivering major economic reform.
Due to the nature of our economy, the UK is likely to be one of
the biggest beneficiaries, to the tune of £5 billion per
year. Businesses, consumers and jobseekers will all benefit.
As I explained to the Committee on 17 May, I
am keen to ensure that the Directive delivers for UK business
and protects UK interests in sensitive areas. In short, that it
achieves a balance between opening up markets and upholding standards.
The Government promised to ensure that standards
in sensitive areas such as health and safety are not disturbed,
that the vulnerable such as children and the elderly are protected
and that the procedures for establishing in another Member State
work well, add real value and are not needlessly costly.
I am sure your Committee will agree that political
agreement reached at the Council is an excellent result for the
UK and achieves our negotiating objectives. Whilst the text of
the Directive remains broadly unchanged, amendments on our key
remaining issues were secured. Pressures to further reduce the
scope of the Directive and the impact of some of the deregulatory
measures were largely resisted.
In particular, existing wording for certain
important areas, such as in the field of labour law, was maintained,
and clarifications on health and safety and other matters were
secured. Further exemptions from the Directive were successfully
resisted, with one exception, that of notaries. Significantly,
the screening provisions which require Member States to review
their legislation and remove barriers to trade have been strengthened.
I have supplied a copy of the revised Directive to the Committee
Clerk.
The draft Directive will now be considered again
by the European Parliament, possibly before the end of the Austrian
Presidency. Although it is hoped that the text agreed at the Council
will largely be retained, the Parliament may propose amendments
and we will need to ensure that the Directive continues to protect
the UK's sensitive policy areas and that the market opening provisions
are not diluted.
I am grateful to the Committee for the attachment
outlining emerging conclusions on the revised draft Services Directive
and for their ongoing thorough examination of the draft Directive.
I will of course inform you and the Committee members of the outcome
of the Parliament's second reading.
7 June 2006
Letter from the Chairman to Lord Sainsbury
of Turville
Thank you for your letter of 7 June, replying
to my letter of 25 May. Sub-Committee B considered your letter
at its meeting on 19 June.
We note the outcome of the Competitiveness Council
on 29 May. We very much hope that this agreement will be "an
important step towards achieving a truly open market for services
in the European Union" and that it will "provide a major
boost to Europe's economy". We nevertheless share your concern
that the market-opening elements of the text of the Services Directive
are not diluted further. We trust that the Government is taking
steps to brief UK MEPs to this effect and we would be grateful
for any updates on the Directive's progress.
We would like to take this opportunity to thank
you personally, and your Department, for all the cooperation you
have provided with our inquiry into the Commission's revised draft
Directive. We will of course be sending you a copy of our report,
which will be published at the beginning of July.
20 June 2006
Letter from the Chairman to Lord Sainsbury
of Turville
Please find enclosed a corrected version of
the Committee's Emerging Conclusions which were sent to you with
my letter of 25 May ahead of the Competitiveness Council on 29
May. The original document contained a drafting error in the final
paragraph.
I would be grateful if you could replace the
Emerging Conclusions which you have on record with this corrected
version for future reference.
23 June 2006
Annex A
EMERGING CONCLUSIONS ON THE REVISED DRAFT
SERVICES DIRECTIVE
INTRODUCTORY REMARKS
The European Union Treaty sets out the free
movement of goods, persons, services and capital as a central
principle governing the internal market. Service industries account
for approximately two thirds of the GDP of EU Member States and
a similar proportion of the labour force. In the European Council
in February 2005, the European Commission identified the creation
of a better functioning internal market for services in the EU
as key to making progress on the Lisbon Agenda and called for
urgent action to achieve it. We were supportive of the first draft
Services Directive and its attempt at legislation to speed up
the liberalisation of services provision. We recognise the considerable
differences of view engendered by that first draft, not least
those concerned with ensuring a balance between social, environmental
and labour market issues on the one hand and the drive to complete
the internal market in this important area on the other. The current
revised draft Directive from the Commission appears to have broader
political support across the EU, not least following extensive
discussions in the European Parliament. The new draft has, of
course, yet to be finally considered by the Council of Ministers.
Whilst we welcome this broader consensus, we have felt it important
for us to examine how this revised version differs from the original
and to comment on any significant issues arising.
Our latest inquiry and these emerging conclusions
relate largely; but not entirely, to those parts of the revised
Directive that deal with the provision of services on a "temporary
basis" as opposed to on an established business basis. We
recognise the importance of the measure relating to the latter
but the main controversies have concentrated upon the former.
We comment below on five issues; a horizontal Directive; the basis
of the freedom to provide services; derogations and exclusions;
the points of single contact; and implementation. We end with
some concluding remarks.
A HORIZONTAL DIRECTIVE
We warmly welcome the fact that the Directive
remains horizontal in conception and application. This should
greatly assist ease the path of legislative process and implementation.
THE FREEDOM
TO PROVIDE
SERVICES
We continue to recognise the considerable importance
that provision of services on a temporary basis has particularly
for small and medium sized firms wishing to "test the water"
of market entry into another Member State in the EU without becoming
formally established there. It also helps market flexibility in
often fast moving service sectors and where business opportunities
are occasional in nature rather than based on long term contracts
of supply.
The first draft Directive offered considerable
comfort to this need for flexibility by setting out a "Country
of Origin Principle" (CoOP) under which a firm could operate
temporarily in another member state under rules applicable in
its country of origin. That principle has been replaced in the
new draft by a switch to country of destination or host country
basis of operations. At the same time, the revised Directive seeks
to set clearer limits to what host countries can impose on businesses
operating there on a temporary basis. This combined package of
host country rules with clearer limits on constraints to doing
business is the basis of a Freedom to Provide Services.
In our first Report we saw the CoOP as "an
essential part of enabling SME service providers to break into
the markets of other Member States". We have considered whether
or not the change in the underlying basis for temporary provision
of services in other Members States from the CoOP principle to
the Freedom to Provide Services is achange of substance and whether
it will change the effectiveness of the draft Directive in ensuring
an effective single internal market in services.
We welcome the fact that the temporary [non-established]
basis of provision of services across borders of Member States
remains fully supported. One view expressed to us is that not
a lot of substance is changed by the revised draft Directive.
Since the EU Treaty contains a freedom, reinforced by court decisions,
to provide services on a temporary basis, the role of the Directive
is arguably to reiterate that freedom, to provide a more explicit
framework within which that freedom can be exercised and to provide
a convenient source to which a service provider operating outside
its home base can point if challenged.
On the other hand, there may be a gap between
perceptions and legal rights, acting as a brake on service provision.
A business may understand its obligations in its home country
but be wary of legal requirements and nuances in up to 24 other
Member States. Thus witness views differed on the practical extent
of the freedom. The Federation of Small Business considered that
the ease and benefits of temporary operations had largely been
lost in the new draft, whereas the law firm Clifford Chance told
us that the change of emphasis from the CoOP to the Freedom to
Provide Services within the revised draft had no effect upon the
existing rights of businesses under the EU Treaty as upheld in
the European Court of Justice.
In practice, however, SMEs may feel that the
emphasis will still, as now, be upon understanding and meeting
all the rules and regulations of up to 24 other Member States
before testing out markets elsewhere in the EU, notwithstanding
that the revised draft seeks in Article 16 to limit the restrictions
that can be imposed upon them. It may be that the appetite of
small business for testing particular local restrictions on service
activity through the courts is not strong. Businesses will as
a result of the Directive have the new right to sue for damages
against a Member State which infringes these rules, once transposed,
in Member States courts.
On a more positive note, the sets of reasons
why temporary provision of a service may or may not be permitted
has been clearly set out and might be regarded as quite rigorously
drawn. These are set out in Article 16 of the revised draft Directive.
It includes directly only issues of public policy, public security,
public health and the protection of the environment, and these
must be proportionate and must not be discriminatory. There is
a "blacklist" of illegitimate reasons for restricting
the freedom to provide services; for example a service provider
need not hold an identity document specific to a particular service
activity. We consider this framework a good first step in liberalising
service provision under a host country approach.
The Government's Revised Partial Regulatory
Impact Assessment concludes that the loss of economic benefits
by moving from a CoOP to the Freedom to Provide Services is in
the order of 10-20 per cent of potential benefit to the GDP. The
Assessment also concludes that the effects of the negative change
away from the CoOP probably outweighs the positive effects of
deleting some general derogations and clearer limits on what host
Member States may impose. There are, however, important non-economic
benefits in meeting concerns in the social and environmental areas
and securing agreement on a draft Directive to free up trade in
services. Overall, the Government's assessment is that the net
annual benefit of the revised proposal compared with no Directive
will be in the range of £7.7 and £8.6 billion. 44 per
cent of the UK GDP and of UK employment is in services industries
covered by the freedom to provide services in revised Directive,
while 49 per cent of GDP and employment is covered by improvements
in the freedom to establish a business across the EU [Tables 2,
3, pages 24, 25].
EXCLUSIONS AND
DEROGATIONS
Some changes have been made between the revised
version of the draft Directive and the original draft in the list
of exclusions and derogations. Exclusions are those sectors which
are entirely removed from the provisions of the Directive. Derogations
are sectors to which the Freedom to Provide Services does not
apply. Services that are generally publicly provided across all
EU countries (services of general interest, in the language of
the Directive) are excluded. Several of the significant excluded
sectors, for example Financial Services, Transport and Electronic
Communications Services, and Health are the subject of other Directives
relating to free movement. There are significant derogations from
the key Article 16 (the Freedom to Provide Services) listed in
Article 17. The main elements here are Gas, Electricity, Water
and Postal Services, which have their own Directives.
Nevertheless, as noted above 44 per cent of
the UK GDP and of UK employment is in services industries covered
by the freedom to provide services in revised Directive, while
49 per cent of GDP and employment is covered by improvements in
the freedom to establish a business across the EU. We are persuaded
that the lists of exclusions and derogations are less daunting
than they might seem and that the revised draft Directive covers
a substantial part of the services sector such that it can make
a major contribution to the growth of cross-border services provision
within the EU.
POINTS OF
SINGLE CONTACT
The draft Directive provides [Article 6] that
Member States shall ensure that it is possible for service providers
to complete appropriate procedures and formalities at contact
points known as points of single contact. Articles 7 and 22 state
that Member States shall ensure that specified information is
easily accessible to providers and recipients of services via
the points of single contact. A fee may be payable for the services
at or by the point of contact.
Given the new framework of the Directive, under
which a good knowledge by a business of its home country requirements
is insufficient to enable it to carry out the activity in another
Member State, the Point of Single Contact assumes considerable
significance in facilitating cross-border trade across the EU.
It will also be helpful to recipients of services provided across
borders.
In its EM and Revised Partial RIA [RPRIA], the
Government makes a distinction between a point of information
and a point of completion. Article 6 of the revised Directive
refers to possible completion of procedure and formalities. The
point of single contact should be provided by each Member State
by three years after the Directive enters into force.
The DTI favours the point of information approach.
The RPRIA calculates that providing the facility to complete necessary
processes through a point of single contact rather than information
about requirements and where to complete them would cost UK government
some £90 million per annum but would add service benefits
to business of more than £200 million per annum. The Government
has indicated that it would seek to ensure that the single points
of contact are points of information, not of completion. In oral
evidence, the Minister told us that the main issue was not that
of cost but the risk of failure to deliver within the timetable
set out a working point of single contact with the capacity to
deliver completion of requirements and processes for businesses.
Businesses, particularly small businesses, would
benefit from the more comprehensive approach of a point of completion.
The government's own RPRIA put a value of over £200 million
per annum for business, mainly for SMEs. However the difficulty
is that the beneficiaries of the point of completion are largely
based in other countries, so the benefits for UK SMEs would flow
from the single points of contact set up in the other 24 Member
States. If a full single point of completion is created in all
Member States, there will be far greater benefits to the Community
as a whole than if each Member State provides a more modest single
point of information.
In some Member States, a single point of information
may not provide incoming businesses with a great deal of help
in completing necessary formalities etc. If each Member State
decides what kind of service it will provide there could be a
bewildering variety of contact points, negating the objective
of providing ease and simplicity in doing business across the
EU. We understand the reluctance of the government to take unnecessary
risks with public money. However, this could be mitigated if a
phased approach were adopted with points of information provided
not later than three years and points of completion no later than
five years after the Directive enters into force.
IMPLEMENTATION
We note the timetables proposed by the Commission,
that the Directive come into force within two years and that points
of single contact be in place within a maximum of three years
of possible adoption in 2006 proposed for the introduction of
this measure. This will require a thorough review by each Member
State of existing relevant law and actions to repeal or amend
that law as appropriate. Articles 15 of the draft Directive requires
Member States to assess requirements imposed on access to and
exercise of service activities and to make a report to the Commission
on the results of that assessment under Article 41. That report
must be completed within two years from adoption of the Directive
and must specify which requirements the Member States plan to
retain and their justifications and also those that have been
abolished by that date. These are ambitious timetables. We hope
they can be met. It is important for UK service businesses, especially
SMEs, that these timetables are met in other Member States as
well as in the UK. Thus in the UK we have a specific interest
in how the implementation timetables are met throughout the EU.
We note that the political will must be coupled
with a strong programme of staged implementation across all MS,
in order that the Directive does not lose impetus. It must be
hoped now that a strong consensus has truly been reached not only
to agree the draft Directive but also to ensure its speedy and
full implementation. The pace and patchiness of implementation
of Directives such as those on the liberalisation of Gas and Electricity
markets demonstrates the possible gulf between agreement of legislative
proposals and their implementation.
CONCLUDING REMARKS
In the time available, we have interviewed witnesses
representing a broad spectrum of both political and economic interests
including MEPs, business organisations and theTUC as well as a
leading law firm. Whilst there may be voices we have not heard,
it is notable that none of the parties questioned was now opposed
to the Directive in its current draft. Several would have preferred
to see changes, but all could live with it in the current form.
We share that view.
The move away from trade in services on a Country
of Origin Principle to a Country of Destination Principle is a
matter of regret. It is a backward step from the original draft,
but we recognise that the alternative to the revised draft Directive
would have been no agreement on the way forward and continued
barriers to trade in services across borders within the EU. The
revised draft Directive should be supported. Whilst we regret
some of the changes, we also recognise that many changes helped
meet real concerns about issues wider than the single market and
helped achieve a workable compromise. The draft Directive is not
the end of the process of liberalising the services market within
the EU but it is a significant step forward.
Letter from Rt Hon Ian McCartney MP to
the Chairman
Thank you for your letter dated 20 June to Lord
Sainsbury. There has been some progress since then with respect
to the process in the European Parliament for the Services Directive.
Meetings in Brussels between Members of the
European Parliament have revealed that most MEPs believe that
the Directive will be adopted quickly without a re-opening of
the debate. However, services of general economic (and non-economic)
interest continue to be a hot topic for discussion: and could
continue outside of the context of the Directive, but possibly
in parallel with its second reading.
We now expect the second reading to take place
in either November or December of this year. My team have provided
MEPs with written briefs and I have made telephone calls to influential
members. I am also aware that during the approach to the second
reading I will need to be ready to undertake targeted visits to
Europe to persuade key groups of MEPs to accept the Council text
and avoid upsetting the delicate compromise that they have enabled
Council to achieve.
I shall of course update you further in the
autumn on any new developments. In the meantime, I look forward
to reading your report.
24 July 2006
40 6th Report of Session 2005-06, HL Paper 23. Back
41
Refer to following letter dated 23 June 2006 from the Chairman
to Lord Sainsbury of Turville. Back
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