Explanatory Memorandum to COM(2004)2 - Services in the internal market [SEC(2004) 21]

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dossier COM(2004)2 - Services in the internal market [SEC(2004) 21].
source COM(2004)2 EN
date 13-01-2004
1. NECESSITY AND OBJECTIVE

Services are omnipresent in today's economy, generating almost 70% of GNP and jobs and offering considerable potential for growth and job creation. Realising this potential is at the heart of the process of economic reform launched by the Lisbon European Council and aimed at making the EU the most competitive and dynamic knowledge-based economy in the world by 2010. It has not so far been possible to exploit fully the growth potential of services because of the many obstacles hampering the development of services activities between the Member States.

In its Report on 'The State of the Internal Market for Services' i ("the report"), the Commission listed these obstacles and concluded that 'a decade after the envisaged completion of the internal market, there is a huge gap between the vision of an integrated EU economy and the reality as experienced by European citizens and European service providers.' These obstacles affect a wide range of services such as distributive trades, employment agencies, certification, laboratories, construction services, estate agencies, craft industries, tourism, the regulated professions etc. and SMEs, which are predominant in the services sector, are particularly hard-hit. SMEs are too often discouraged from exploiting the opportunities afforded by the internal market because they do not have the means to evaluate, and protect themselves against, the legal risks involved in cross-border activity or to cope with the administrative complexities. The report, and the impact assessment which relates to this proposal, show the economic impact of this dysfunction, emphasising that it amounts to a considerable drag on the EU economy and its potential for growth, competitiveness and job creation.

These obstacles to the development of service activities between Member States occur in particular in two types of situation:

- when a service provider from one Member State wishes to establish himself in another Member State in order to provide his services. (For example, he may be subject to over-burdensome authorisation schemes, excessive red tape, discriminatory requirements, an economic test etc.);

- when a service provider wishes to provide a service from his Member State of origin into another Member State, particularly by moving to the other Member State on a temporary basis. (For example, he may be subject to a legal obligation to establish himself in the other Member State, need to obtain an authorisation there, or be subject to the application of its rules on the conditions for the exercise of the activity in question or to disproportionate procedures in connection with the posting of workers).

Accordingly, the aim of this proposal for a Directive is to establish a legal framework to facilitate the exercise of freedom of establishment for service providers in the Member States and the free movement of services between Member States. It aims to eliminate certain legal obstacles to the achievement of a genuine internal market in services and to guarantee service providers and recipients the legal certainty they need in order to exercise these two fundamental freedoms enshrined in the Treaty in practice.

Contents

1.

2. BACKGROUND


This proposal for a Directive forms part of a political process launched in 2000 by the European Council:

In March 2000, the Lisbon European Council adopted a programme of economic reform aimed at making the EU the most competitive and dynamic knowledge-based economy in the world by 2010. In this context, the EU Heads of State and Government invited the Commission and the Member States to devise a strategy aimed at eliminating the obstacles to the free movement of services i.

In December 2000, in response to the call launched at the Lisbon Summit, the Commission set out 'An Internal Market Strategy for Services' i, which received the full support of the Member States i, the European Parliament i, the Economic and Social Committee i and the Committee of the Regions i. The aim of this strategy is to enable services to move across national borders within the European Union just as easily as within a single Member State. Above all it is based on a horizontal approach across all economic sectors involving services and on a two-stage process, the first involving identification of the difficulties hampering the smooth functioning of the internal market in services, and the second involving the development of appropriate solutions to the problems identified, and in particular a horizontal legal instrument.

In July 2002, the Commission presented its report on 'The State of the Internal Market for Services', which marked the completion of the first phase in the strategy and provided as exhaustive a list as possible of barriers that exist in the internal market for services. This report also analyses the common features of these barriers and makes an initial evaluation of their economic impact i.

In November 2002, the conclusions of the Council on the Commission's report i, acknowledged 'that a decade after the envisaged completion of the internal market, considerable work still needs to be done in order to make the internal market for services a reality' and emphasised 'that very high political priority should be given to the removal of both legislative and non-legislative barriers to services in the internal market, as part of the overall goal set by the Lisbon European Council to make the European Union the most dynamic and competitive economy in the world by 2010'. The Council urged the Commission to accelerate work on the initiatives foreseen in the second stage of the strategy, and in particular on the legislative instrument.

In February 2003, the European Parliament also welcomed the Commission's report, emphasising that it "insists that the Competitiveness Council reaffirm Member States' commitment to the country of origin and mutual recognition principles, as the essential basis for completing the internal market in goods and services" i and also that it 'welcomes the proposals for a horizontal instrument to ensure free movement of services in the form of mutual recognition, with automatic recognition being encouraged as far as possible, administrative cooperation and, where strictly necessary, harmonisation' i.

In March 2003, with the aim of reinforcing the economic dimension of the Lisbon strategy, the Spring European Council called for the strengthening of the horizontal role of the Competitiveness Council in order to increase competitiveness and growth in the framework of an integrated approach to competitiveness to be set out by the Commission. The establishment of a clear and balanced legal framework to facilitate the free movement of services in the internal market is one of the elements necessary for the success of the new integrated competitiveness strategy.

In May 2003, according to its 'Internal Market Strategy' i, the Commission announced that 'the Commission will make a proposal for a Directive on services in the internal market before the end of 2003. This Directive will establish a clear and balanced legal framework aiming to facilitate the conditions for establishment and cross-border service provision. It will be based on a mix of mutual recognition, administrative cooperation, harmonisation where strictly necessary and encouragement of European codes of conduct/professional rules'.

In October 2003, the European Council identified the internal market as a key area for improving the competitiveness of the European economy and thus creating conditions conducive to growth and employment. It 'calls on the Commission to present any further proposals necessary to complete the internal market and to fully exploit its potential, to stimulate entrepreneurship and to create a true internal market in services, while having due regard to the need to safeguard the supply and trading of services of general interest' i.

2.

3. MAIN FEATURES OF THE DIRECTIVE


a) A framework Directive

The Directive will establish a general legal framework applicable, subject to certain exceptions, to all economic activities involving services. This horizontal approach is justified by the fact that, as explained in the report i, the legal obstacles to the achievement of a genuine internal market in services are often common to a large number of different activities and have many features in common.

Since the proposal is for a framework Directive, it does not aim to lay down detailed rules or to harmonise all the rules in the Member States applicable to service activities. This would have led to over-regulation and a standardisation of the specific features of the national systems for regulating services. Instead, the proposal deals exclusively with questions that are vital for the smooth functioning of the internal market in services by giving priority to targeted harmonisation of specific points, to the imposition of obligations to achieve clear results without prejudging the legal techniques by which they will be brought about, and to the clarification of the respective roles of the Member State of origin and the Member State of destination of a service. The proposal also refers to Commission implementing measures on the way that certain provisions are applied.

While establishing a general legal framework, the proposal recognises the specific characteristics of each profession or field of activity. More particularly, it recognises the specific nature of the regulated professions and the particular role of self-regulation. For example, the proposal provides (Article 17) for a number of derogations from the country of origin principle that are directly linked to the specific characteristics of certain activities; it also contains specific provisions on certain activities such as professional insurance and guarantees (Article 27), commercial communications by the regulated professions (Article 29) or multidisciplinary activities (Article 30); finally, it relies also on alternative methods of regulation specific to certain activities, such as codes of conduct for the regulated professions (Article 39).

Moreover, this proposal is without prejudice to any legislative or other Community initiatives in the field of consumer protection.

3.

b) A combination of regulatory techniques


The proposal for a Directive is based on a combination of techniques for regulating service activities, including in particular:

- the country of origin principle, according to which service providers are subject only to the law of the country in which they are established and Member States may not restrict services provided by operators established in another Member State. It therefore enables operators to provide services in one or more other Member States without being subject to those Member States' rules. This principle also means that the Member State of origin is responsible for the effective supervision of service providers established on its territory even if they provide services into other Member States;

- derogations from the country of origin principle, in particular in Article 17, necessary in order to take account of differences in the level of protection of the general interest in certain fields, the extent of Community-level harmonisation, the degree of administrative cooperation, or certain Community instruments. Some of these derogations will apply for a transitional period up to 2010, and are intended to allow time for additional harmonisation on certain specific questions. Finally, derogations on a case-by-case basis are possible, subject to certain substantive conditions and procedures;

- the establishment of obligations of mutual assistance between national authorities, which is vital for ensuring the high level of mutual trust between Member States on which the country of origin principle is based. In order to ensure that supervision is effective, the proposal provides for a high degree of administrative cooperation between authorities by organising the allocation of supervisory tasks, exchange of information and mutual assistance;

- targeted harmonisation to ensure protection of the general interest in certain essential fields where too wide a divergence in the level of protection, notably in the field of consumer protection, would undermine the mutual trust that is vital to the acceptance of the country of origin principle and could justify, in accordance with the case-law of the Court of Justice, measures restricting freedom of movement. Harmonisation is also provided for as far as the simplification of administrative procedures and the elimination of certain types of requirement are concerned;

- alternative methods of regulation that are important for the regulation of service activities. The proposal fully recognises their role and encourages the parties concerned to draw up, at Community level, codes of conduct on particular issues.

4.

c) Coordination of the processes of modernisation


The proposal for a Directive aims to coordinate, at Community level, the modernisation of national systems for regulating service activities with a view to eliminating the legal obstacles to the achievement of a genuine internal market in services. The report emphasises the resistance to modernisation of the various national legal frameworks and notes that 'The fundamental principles of the Treaty, the importance attached to them by the Court, and the follow-up to the ambitious programmes of 1962 and 1985, have not always resulted in the adjustment of national legislation which might have been expected'. i

Adapting legislation case by case and Member State by Member State following infringement procedures by the Commission, would be an inefficient way of responding to this need for modernisation, as it would be entirely reactive and would lack a shared political will to move towards a common objective i. The adjustment of legislation by all the Member States according to common principles and a common timetable will instead make it possible to benefit on a European scale from the resulting economic growth, to avoid distortions of competition between Member States that make their adjustments at different rates, and to encourage improved mobilisation around this objective, also in terms of allocation of national and Community administrative resources.

In order to transpose the Directive, Member States must:

- simplify the administrative procedures and formalities to which service activities are subject (Sections 1 and 2 of Chapter II), particularly by means of single points of contact (Article 6), the use of electronic procedures (Article 8) and simplification of the authorisation procedures for access to and the exercise of service activities (Articles 10-13); it should be noted that the obligations to communicate information (Article 7) and to make available electronic procedures (Article 8) do not prevent Member States from maintaining other procedures and methods of communication in parallel;

- eliminate from their legislation a number of requirements listed in the Directive that hamper access to and the exercise of service activities (Articles 14, 21, 29);

- guarantee in their legislation the free movement of services from other Member States and consequently adapt any rules that would hamper such movement (Articles 16, 20, 23 and 25);

- evaluate the justification and proportionality of a number of requirements listed in the Directive which, where they exist in their regulations, may significantly restrict the development of service activities (Articles 9, 15 and 30). This evaluation should lead to the elimination of unjustified requirements and will be the subject of mutual evaluation that could conclude, where appropriate, that other Community-level initiatives are necessary.

5.

d) A dynamic approach


Given the scale of the obstacles identified in the report, the task of establishing a genuine area with no internal borders for services will take time. The modernisation of certain rules applied by the Member States will require fundamental changes (for example, single points of contact and the use of electronic procedures), additional harmonisation specific to certain activities, and take due account of the development of Community integration in other fields. In order to avoid a static approach that tackles a single problem and leaves the others unresolved, the proposal for a Directive adopts a phased approach aimed at achieving a genuine internal market for services by 2010. The proposal therefore provides for:

- phased implementation of certain of its provisions (Articles 6-8)

- additional harmonisation on certain specific questions, i.e. cash-in-transit services, gambling, and recovery of debts by judicial means (Article 40(1)), which are the subject of temporary derogations from the principle of country of origin (Article 18). Moreover, the need for further harmonisation could be identified, in particular in the areas of consumer protection and cross-border contracts (Article 40(2)d);

- extension of the scope of application of the country of origin principle as rules come to be harmonised in certain fields (Articles 17 point 21 and 19(2))

- the possibility for the Commission to take implementing measures on the way that certain provisions will be put in place (Article 42)

- identification of the need for new initiatives, particularly through mutual evaluation (Article 40(2))

The dynamics of the proposal can be summarised as follows:

>TABLE POSITION>

6.

e) A framework facilitating access to services


The report emphasised that the users of services, and in particular consumers, are, together with SMEs, the main victims of the lack of a genuine internal market in services: they generally cannot benefit from a wide variety of competitively priced services and thus the better quality of life that they might expect from an area without internal borders.

By creating the conditions and legal certainty necessary for the development of service activities between Member States, and in so doing extending the range of services available, the Directive will be of direct benefit to the recipients of services. It will also guarantee better quality in the services on offer by enabling at Community level an increase in the efficiency of the supervision of service activities. The proposal also:

- provides for the right of recipients to use the services of providers established in other Member States without being hampered or dissuaded by restrictive measures applied by their country of residence (Article 20) or discriminatory behaviour by public authorities or private operators (Article 21). For the recipients of health services, the proposal clarifies, in accordance with the case-law of the Court of Justice, the circumstances in which a Member State may make assumption of the costs of health care provided in another Member State subject to prior authorisation;

- guarantees specific assistance for a recipient in his own Member State, in the form of information on legislation in the other Member States, the available means of redress, and associations or organisations offering practical assistance (Article 22);

- strengthens considerably the right of recipients to information on services so as to enable them to make fully-informed choices. At present, some service activities are already subject to transparency requirements under Community rules, but many others are not because of the lack of provisions that are applicable to all service activities (Articles 26, 27, 28, 30, 31 and 32);

- strengthens the protection of recipients by providing for requirements regarding the quality of service providers - particularly the obligation to take out professional insurance in the case of services involving a particular health, safety or financial risk for the recipient (Article 27) - the provisions on multidisciplinary activities (Article 30) and the settlement of disputes (Article 32).

7.

4. PREPARATORY WORK


This proposal is the result of numerous analyses, surveys and consultations with the Member States, the European Parliament and other stakeholders that have taken place since the launching of the Internal Market Strategy for Services in December 2000 and which are described in the impact assessment. The Economic and Social Committee and the Committee of the Regions have also made substantial contributions to the Strategy.

8.

5. COHERENCE WITH OTHER COMMUNITY POLICIES


An internal market in services will not be established by means of a legal instrument alone but will require accompanying measures. In legal terms, the proposal is consistent with other Community instruments: where a service activity is already covered by one or more Community instruments, the Directive and these instruments will apply cumulatively, the requirements of the one applying in addition to those of the others. Where there might have been questions of compatibility in connection with a given Article, the latter provides for derogations (in Article 17, for example) or appropriate clauses describing the relationship between the Directive and the other Community instruments, in order to ensure consistency. Moreover, this proposal is without prejudice to any legislative or other Community initiatives in the field of consumer protection.

There is a range of other complementary Community initiatives under way.

- The competitiveness of business-related services. In parallel with this proposal for a Directive on services in the internal market, the Commission has presented a Communication on the competitiveness of business-related services and their contribution to the performance of European enterprises i, in which it emphasises the importance of business services for the competitiveness of the EU and announces a series of supporting measures, including in particular the creation of a European Forum for business-related services. Whereas the Directive deals with the removal of legal and administrative barriers, the competitiveness of the services sector depends also on a number of complementary economic measures set out in the Communication on business-related services.

- Professional qualifications. This proposal for a Directive complements the proposal for a Directive on the recognition of professional qualifications i, given that it deals with questions other than professional qualifications such as professional insurance, commercial communications and multidisciplinary activities. The two proposals are fully compatible since, where freedom of establishment is concerned, they are aimed at facilitating establishment for service providers and, where freedom of movement for services is concerned, they are based on the country of origin principle.

- Posting of workers. The employment and working conditions applicable in the event of posting of workers are set out in Directive 96/71/EC i, which provides for the application of certain rules of the country to whose territory a worker is posted. For the sake of consistency with that directive, Article 17 of this proposal for a Directive contains a derogation from the country of origin principle where these rules are concerned. In order to facilitate the free movement of services and the application of Directive 96/71/EC, the proposal clarifies the allocation of tasks between the country of origin and the Member State of posting, and the administrative supervisory procedures (Article 24).

- Reimbursement of costs of health care. The proposal for a Directive deals with the specific question of the compatibility of prior authorisation systems for assumption of the costs of health care provided in another Member State with the principle of freedom of movement for services. Article 23 of the proposal incorporates the distinction between hospital and non-hospital care that has been clearly established by the consolidated case-law of the Court of Justice i. As regards the circumstances in which such prior authorisation is justified, the proposal clarifies the specific conditions for authorisation, in accordance with the case-law of the Court of Justice. Broader issues have been raised in the high level reflection process on patient mobility and health care developments in the European Union, including patients' rights, entitlements and duties; facilitating cooperation between health systems; providing appropriate information for patients, professionals and policymakers; ensuring access and quality in cross-border care; the impact of enlargement; and in general how to improve legal certainty and reconcile national objectives with European obligations in this area. The Commission will issue a Communication in spring 2004 setting out a comprehensive strategy for addressing patient mobility and health care with proposals responding to the recommendations of the reflection process.

- Safety of services. The Commission has presented a report on the safety of services for consumers i, which emphasises the substantial lack of data and information on the risks and safety of services. It also notes that it is impossible to identify specific gaps in Member State systems or significant differences in the level of protection, and that there is a lack of barriers to trade resulting from different national requirements that could justify harmonisation of national rules on the safety of services. The report concludes that the priority for Community action must be to improve the collection of key data in this area and set up a system for exchange of information on policy and regulatory developments. If it appears that there is a need to do so, measures establishing procedures for the definition of European standards will be adopted. The report foresees the establishment of a suitable Community framework to this effect. These analyses are, therefore, complementary to and consistent with this proposal for a Directive, which, moreover, provides for the possibility of derogations on a case-by-case basis aimed at guaranteeing the safety of services (Article 19). The Council, in its resolution of 1 December 2003 on the safety of services i, has warmly welcomed the Commission's report.

- Services of general interest. The Commission has launched a broad debate on the role of the European Union in promoting the provision of high quality services of general interest on the basis of a Green Paper on services of general interest i. This proposal for a Directive does not go into this question as such or the question of opening up these services to competition. It covers all services that correspond to an economic activity within the meaning of the case-law of the Court relating to Article 49 of the Treaty. It does not, therefore, cover non-economic services of general interest but only services of general economic interest. It should be noted that, in this proposal, certain activities that may be linked to services of general economic interest are subject, in so far as this is justified by their specific nature, to derogations from the country of origin principle. These include, in particular, postal services and electricity, gas and water distribution services. Neither does the proposal cover electronic communications as far as matters covered by the legislative package adopted in 2002 are concerned nor transport services to the extent that they are regulated by other Community instruments based on Article 71 or Article 80 i of the Treaty. Even in the fields covered by the Directive, it does not affect the freedom of the Member States to define what they consider to be services of general interest and how they should function. In particular, the Directive does not affect the freedom of the Member States to organise public service broadcasting in accordance with protocol 32 of the Treaty on public service broadcasting in the Member States.

- GATS negotiations. The proposal for a Directive is an internal market instrument and therefore concerns only service providers established in a Member State, including, as laid down in Article 48 of the Treaty, companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community. It does not cover external aspects and, in particular, does not cover:

- the case of operators from third countries who wish to establish in a Member State (first establishment in the EU);

- the case of operators from third countries who wish to provide services in the EU;

- the case of branches of companies from third countries in a Member State (in the sense of Article 48 of the Treaty) who, not being companies formed in accordance with the legislation of a Member State, may not benefit from this Directive.

International trade in services is covered by international negotiations, particularly in the framework of GATS. In this connection, it should be emphasised that the EU is a very open market compared with many trading partners. The proposal does not affect these negotiations, which are aimed at facilitating trade in services and which reinforce the need for the EU swiftly to establish a genuine internal market in services to ensure the competitiveness of European businesses and strengthen Europe's negotiating position.

- eEurope: the eEurope Initiative and eEurope 2005 Action Plan aim to develop modern public services and a dynamic environment for electronic commerce in the EU. eGovernment is one of the key elements in implementation of eEurope and it also plays an important role in realising the Lisbon strategy. The proposal is thus coherent with the objective of the eGovernment initiative because it aims at simplifying administrative procedures.

- Unfair commercial practices. The proposed Directive on unfair business-to-consumer commercial practices i regulates those commercial practices which cause harm to consumers' economic interests. That proposal does not cover broader regulation of economic activities such as conditions of establishment. It aims to reduce internal market barriers which arise from a fragmented approach to the regulation of traders' behaviour in relation to their consumers, such as misleading or aggressive sales tactics.

- Cooperation between national authorities responsible for the application of consumer law. The proposal of the Commission for a Regulation i on cooperation in the area of consumer protection establishes a network of competent authorities responsible for the protection of consumers in cross-border situations. The proposal ensures that each Member State, on request, effectively protects all EU consumers from rogue traders operating in its territory. In order to ensure effective and efficient enforcement in cross-border cases, the Regulation harmonises certain powers and procedures within the Member States. It also eliminates barriers within Member States to protecting foreign consumers. The provisions on cooperation in this Directive, which do not address the same problems, will be complemented by the Regulation in respect of consumer protection.

- Revision of the acquis in respect of consumer protection. This proposal for a Directive is coherent with the revision of the acquis in respect of consumer protection, including the move towards full harmonisation, notably in the area of contract law.

- The 'notification' Directive 98/34/EC. In the case of a draft national law containing a requirement listed in Article 15 i of this proposal for a Directive, which applies specifically to an information society service and therefore falls within the field of application of Directive 98/34/EC as amended by Directive 98/48/EC, the notification of such a draft in accordance with Directive 98/34/EC as amended by Directive 98/48/EC would also comply with Article 15 i of this Directive. Furthermore, the Commission is currently examining the possibility of extending the field of application of Directive 98/34/EC to services other than information society services. In this case, the notification procedure provided for in that Directive would, for the services concerned, replace the notification laid down in Article 15 i of this Directive.

- Private international law. The Commission has presented two initiatives in the area of rules on conflict of laws:

- the proposal for a Regulation on the law applicable to non-contractual obligations i which aims to establish common rules on conflicts of law in order to determine the applicable law in non-contractual matters (the applicable law could be that of a third country). In order to ensure coherence with instruments, such as, for example, this proposal for a Directive, which are adopted in the framework of internal market policy and which apply the country of origin principle, the proposal for a Regulation provides (in Article 23(2)) for a specific derogation to ensure the application of this principle;

- the Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument i. The Commission states explicitly in this Green Paper 'that it is clear to the Commission that such an instrument must leave intact internal market principles contained in the Treaty or in secondary law'.

These instruments could, however, play an important role not only for the activities which are not covered by this Directive but also for the questions which are the object of derogations to the country of origin principle, notably the derogation in relation to contracts concluded by consumers, as well as the derogation relating to the non-contractual liability of the provider in the case of an accident occurring in the context of his activity which affects a person in a Member State which a provider visits.

Finally, it should be noted that the question of determining the jurisdiction of courts is not dealt with by this Directive, but by Regulation (EC) 44/2001 of the Council of 22 December 2000 concerning jurisdiction and the recognition and enforcement of judgments in civil and commercial matters or other Community instruments such as the Directive 96/71/EC.

9.

6. LEGAL ASPECTS


a) Legal base and choice of instrument

The proposal for a Directive is based on Articles 47 i and 55 of the Treaty i, as well as on Articles 71 and 80 i of the Treaty for matters concerning transport that are not regulated by other Community instruments based on the latter two articles. This legal base is justified by both its objective and its content:

- objective: Directives adopted under Article 47 i must aim 'to make it easier for persons to take up and pursue activities as self-employed persons', which is precisely the aim of this proposal;

- content: the content of the proposal is clearly directed at effectively eliminating obstacles to the freedom of establishment and the free movement of services by means of provisions that prohibit certain requirements and guarantee the free movement of services. Other provisions harmonise certain questions in a targeted manner, or ensure administrative cooperation to the extent necessary for eliminating these obstacles.

As for the choice of instrument, Article 47 i specifies the use of a Directive.

10.

b) Subsidiarity


The proposal for a Directive is aimed at eliminating legal obstacles to the freedom of establishment for service providers and the free movement of services. The obstacles in question have been clearly identified on the basis of complaints, petitions and questions from the European Parliament, consultation of interested parties, and studies or analyses.

This aim cannot be achieved by unilateral action on the part of the Member States. In accordance with the case-law of the Court of Justice, some of these obstacles may be justified in the absence of a Community instrument and therefore, if they are to be eliminated, necessitate prior coordination of national schemes, including through administrative cooperation. Other obstacles are already incompatible with Articles 43 and 49 of the Treaty but have not yet been eliminated by the Member States on their own initiative and would require case-by-case treatment by means of large numbers of infringement procedures, which, as already emphasised, would be as ineffective as it would be unmanageable.

Furthermore, the concern to keep to a minimum interference with the characteristics of national regimes has justified certain legislative choices:

- the proposal does not result in detailed and systematic harmonisation of all the national rules applicable to services; it limits itself to the essential aspects that must be coordinated in order to guarantee freedom of establishment and the free movement of services;

- the application of the country of origin principle will make it possible to achieve the objective of guaranteeing the free movement of services whilst allowing the various national regimes to co-exist with all their distinctive characteristics. These regimes may not be used to restrict the provision of services by an operator established in another Member State;

- the proposal avoids interference with the institutional organisation of the regulation of services in the Member States. For example, it merely specifies the functions of the single points of contact without imposing any institutional characteristics, (type of body - administrative, chamber of commerce, professional body etc.); similarly, in its definition of 'competent authority', the proposal (Article 4(8)) takes account of the fact that the competent authority for a given activity may, depending on the Member State, be a professional body, a government authority or a professional association, but does not impose one or the other.

11.

c) Proportionality


The principle of proportionality referred to in Article 5 of the Treaty is the factor underlying several legislative choices in the proposal for a Directive:

- the choice between types of regulation: harmonisation is proposed only as a last resort for matters for which neither administrative cooperation nor reliance on the adoption of codes of conduct by the interested parties at Community level are sufficient; harmonisation is proposed in areas where it is proved to be necessary, such as consumer protection;

- the content of the harmonisation: the proposal gives as much priority as possible to the service provider's obligations as regards information so that recipients can make an informed choice;

- the balance between the various regulatory methods: the Directive proposes a balance between, on the one hand, the scope of the country of origin principle and, on the other, the extent of harmonisation, administrative cooperation and reliance on codes of conduct, as well as the number and scope of derogations to the country of origin principle. The balance proposed represents a selective and flexible approach that takes full account of all the interests concerned;

- the concern to provide a suitable framework for SMEs: the provisions on single points of contact, electronic procedures, information and assistance for service providers, the country of origin principle, the simplification of procedures for the posting of workers, and the voluntary measures in connection with quality policy etc. all stem directly from a wish to make it easier for SMEs to exercise the freedoms of the internal market.

All these legislative choices make it possible to propose a balanced instrument containing provisions that do not go beyond what is necessary for achieving the aim of establishing a genuine internal market in services.

12.

7. SPECIFIC QUESTIONS


a) What activities are covered by the Directive (Articles 2 and 4)?

Article 2 defines the scope of the Directive ("services supplied by providers established in a Member State") and Article 4(1) defines a 'service' ("any self-employed economic activity, as provided for by Article 50 of the Treaty, consisting of the provision of a service against consideration").

This definition covers a very wide range of activities including, for example, management consultancy, certification and testing, maintenance, facilities management and security, advertising services, recruitment services, including the services of temporary employment agencies, services provided by commercial agents, legal or tax consultancy, property services, such as those provided by estate agencies, construction services, architectural services, distributive trades, organisation of trade fairs and exhibitions, car-hire, security services, tourist services, including travel agencies and tourist guides, audiovisual services, sports centres and amusement parks, leisure services, health services and personal domestic services, such as assistance for old people.

The definition of 'service' provided for in this proposal is based on the case-law of the Court of Justice i, according to which 'services' mean any self-employed economic activity normally performed for remuneration, which need not, however, be paid by those for whom the service is performed. The essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question, irrespective of how this consideration is financed. Consequently, a service is any activity through which a provider participates in the economy, irrespective of his legal status or aims, or the field of action concerned.

Thus the following are covered:

- services provided to consumers, to businesses or to both;

- services provided by an operator who has travelled to the Member State of the recipient, services provided at a distance (via the Internet, for example), services provided in the country of origin following travel by the recipient, or services provided in another Member State to which both the provider and the recipient have travelled (tourist guides, for example);

- services for which a fee is charged or which are free to the final recipient.

However, the definition does not cover non-economic activities, nor activities performed by the State for no consideration as part of its social, cultural, education and judicial functions where there is no element of remuneration.

13.

b) Why should certain services or fields be excluded from the scope of the Directive (Article 2)?


The Directive does not apply to financial services because these activities are already covered by a comprehensive policy - the Financial Services Action Plan i, which is currently being implemented and is aimed, like this proposal for a Directive, at establishing a genuine internal market in services. For the same reasons, the Directive does not apply to electronic communications services and networks as far as the questions governed by the Directives in the 'telecom package' adopted in 2002 are concerned (Directives 2002/19/EC, 2002/20/EC, 2002/21/CE, 2002/22/EC and 2002/58/EC of the European Parliament and of the Council). Given that transport services are already covered by a set of Community instruments dealing with specific issues in this field, it is appropriate to exclude transport services from the scope of application of this Directive to the extent that they are regulated by other Community instruments based on Articles 71 and 80 i of the Treaty.

The Directive does not apply in the field of taxation, which has its own legal base. However, in accordance with the case-law of the Court, certain tax measures that are not covered by a Community instrument may constitute restrictions contrary to Articles 43 i (freedom of establishment) and 49 i of the Treaty (free movement of services), particularly where they have a discriminatory effect. This is why Articles 14 (prohibited requirements in connection with freedom of establishment) and 16 (principle of country of origin in connection with free movement of services) of the proposal for a Directive apply to tax measures that are not covered by a Community instrument.

Finally, it should be noted that the Directive does not apply to activities covered by Article 45 of the Treaty. This provides expressly that the chapter on the freedom of establishment and that on services (by virtue of Article 55 of the Treaty) do not apply to those activities which are directly and specifically connected with the exercise of official authority.

c) What are 'single points of contact' (Article 6)?

The concept of 'single points of contact' does not involve each Member State setting up a single, physical, centralised agency for its entire territory. The point of contact is 'single' only as far as the individual service provider is concerned. It means that a service provider must be able to complete all the formalities and procedures required for the exercise of service activities, particularly those relating to authorisations, through one and the same body. He must not be obliged to visit a number of different bodies, organisations, offices etc. but must be able to complete all the necessary formalities via a single interlocutor.

The number of single points of contact in each Member State, and their institutional nature, will vary depending on the internal organisation of the Member State and in particular the regional or local competencies or the activities concerned. Single points of contact may be the authorities that are directly competent - for issuing authorisation, for example - or bodies that merely function as intermediaries between the service providers and the directly competent authorities.

14.

d) What is the difference between the requirements to be eliminated (Article 14) and the requirements to be evaluated (Article 15)?


The report lists a large number of legal obstacles resulting from requirements in the legal systems of the Member States that prevent, hamper or discourage the establishment of service providers in certain Member States. With a view to making it easier to exercise the freedom of establishment, the proposal provides for two different solutions depending on the type of requirement in question:

- on the one hand, the proposal prohibits certain requirements, listed in Article 14 ("prohibited requirements"), which, particularly in the light of the case-law of the Court of Justice, are manifestly incompatible with the freedom of establishment, particularly where they have a discriminatory effect. The prohibition of these requirements will mean that, during the transposition period, each Member State will have to examine systematically whether they exist in its legal system and, if so, eliminate them;

- on the other hand, the proposal requires the Member States to examine a number of other requirements, listed in Article 15 ("requirements to be evaluated"), that have major restrictive effects on the freedom of establishment and have been reported by interested parties, but may be justified in certain cases depending on the precise content of the rules in question and the circumstances in which they apply. For this category of requirements, therefore, during the transposition period, Member States will have to conduct a 'screening' of their legislation - in other words, they will have to examine whether requirements of this kind exist in their legal systems, evaluate them in the light of the conditions laid down in the Directive (objectively justifiable by an overriding reason relating to the general interest and satisfying the principle of proportionality), and eliminate them if these conditions are not met. A report on the implementation of this Article must be drawn up not later than at the end of the transposition period.

15.

e) What will the mutual evaluation procedure involve (Articles 9, 15, 30 and 41)?


The proposal for a Directive provides for the mutual evaluation of the application of Article 9(1), which sets out the conditions under which a service activity may be subject to an authorisation scheme i, Article 15, which lists a number of requirements to be evaluated, and Article 30, which specifies the conditions under which multidisciplinary activities may be limited.

The procedure consists of several phases:

- during the transposition period, Member States must first conduct a 'screening' of their legislation in order to ascertain whether requirements of the kind referred to in these three Articles exist in their legal systems, evaluate them in the light of the conditions laid down in the Articles in question, and eliminate or modify them if these conditions are not met,

- by the end of the transposition period at the latest, Member States must draw up a report on the implementation of these three Articles. Each report will be submitted to the other Member States and interested parties, including national consumer associations. Member States will then have six months in which to submit their observations on each of the reports by the other Member States and during the same period the Commission will consult interested parties. This 'peer review' procedure will enable exchange between Member States of best practice in the area of the modernising the regulation of services,

- by 31 December 2008 at the latest, the Commission will draw up a synthesis report, accompanied where appropriate by proposals for further initiatives.

A procedure of this kind will make it possible to keep track of the process of modernisation and reform of the regulatory schemes governing services and to identify any need for additional action at Community level.

16.

f) How will the implementation of Articles 14, 15 and 16 of the Directive relate to the Commission's role as guardian of the Treaty, in particular as regards infringement procedures?


The list of prohibited requirements (Article 14), requirements to be evaluated (Article 15) and restrictions prohibited under Article 16 obviously do not prevent the Commission from launching, without waiting until the Directive has been fully transposed, infringement procedures against any measures contrary to the Treaty taken by Member States that it becomes aware of, particularly following a complaint. The obligations provided for in Articles 14, 15 and 16 of the Directive and the procedures provided for in Article 226 of the Treaty have different aims. While the latter concern individual cases resulting from specific circumstances and measures in a particular Member State, the former are on the other hand aimed at ensuring, in a general and systematic fashion, that the legal systems correspond to the requirements of a genuine internal market in services in which the freedom of establishment and free movement of services are facilitated.

17.

g) Are requirements that are listed neither in Article 14 nor in Article 15 considered to be in conformity with the freedom of establishment provided for in Article 43 of the Treaty?


Unlike Article 16 i of the proposal, which lays down the principle of prohibiting restrictions on the free movement of services and gives a few examples purely for illustrative purposes, Article 14 contains a list of requirements concerning freedom of establishment that must be eliminated and Article 15 contains a list of requirements relating to establishment which must be evaluated. The requirements listed are those that have been identified, particularly in the report, as having considerable restrictive effects and which must, therefore, be the subject of a systematic and general modernisation process. Articles 14 and 15 do not, therefore, concern all the types of restriction that are incompatible with Article 43 of the Treaty, and hence the absence of certain requirements from these lists does not mean that the requirements in question are presumed to be in conformity with the Treaty. Consequently, these lists in no way affect the Commission's scope for opening infringement procedures for failure to respect Article 43 of the Treaty, as the Member States are still obliged to ensure that their legislation is compatible with Community law in all respects.

18.

h) Why is there a section specifically devoted to the rights of recipients of services (Chapter III Section 2)?


The Commission receives large numbers of complaints from users, particularly consumers, who, even though they wish to benefit from cross-border services and are prepared to bear the cost of such transactions, come up against various types of obstacles. In particular, consumers are often confronted with the application of higher tariffs or with refusals to offer services simply on the grounds that they are nationals of a particular Member State or are resident in a particular country. Problems of this kind, which result not only from acts by public authorities but also from the behaviour of private operators, have been reported in several areas including, for example, participation in sporting or cultural events, access to monuments, museums and tourist sites, promotional offers, use of leisure facilities, entrance to amusement parks etc.

The persistence of discrimination of this kind restricts or eliminates the possibility of cross-border transactions and makes European citizens more acutely aware of the lack of a genuine internal market in services. This inconsistency with the idea of an area without internal borders is particularly felt by recipients now that technological developments provide the opportunity to overcome geographical distances and natural barriers by making it possible for services that had hitherto been strictly national to be provided across borders.

The principle of non-discrimination in the internal market implies that access by recipients - particularly consumers - to services offered to the public should not be denied or rendered more difficult simply because of the formal criterion of the recipient's nationality or place of residence. Consequently, the Directive lays down, to varying degrees, obligations for Member States and service providers.

For the Member States, the proposal stipulates:

- (Article 20) that Member States may not impose restrictions on recipients on the use of services provided by operators established in a different Member State, and

- (Article 21(1)), that neither the Member State of origin of the service provider nor the Member State of destination may apply discriminatory measures to recipients based on nationality or place of residence as such. This does not apply to cases where tariffs vary on the basis of other objective criteria such as a direct link with contributions paid by certain recipients.

For service providers, the proposal in Article 21 i prohibits them, in their general conditions relating to access to their services, from providing for refusal of access, or subjecting access to less favourable conditions, on grounds of the nationality or place of residence of the recipient. This does not prevent service providers from refusing to provide services or applying different tariffs and conditions if they can demonstrate that this is directly justified by objective reasons, such as actual additional costs resulting from the distances involved or the technical aspects of the service.

19.

i) Why is the question of the posting of third country nationals covered (Article 25)?


The report has shown that service providers who, in the context of providing a service, post a worker who is a third country national from one Member State to another often encounter legal obstacles, including in particular the obligation for the worker in question to have a visa or work permit issued by the authorities of the Member State to which he is posted. The report has also shown that these difficulties affect a whole range of service activities, including those in high-tech sectors that are suffering from a lack of specialised workers.

If these obstacles are to be eliminated, it is vital that the Member State of posting has a number of guarantees regarding the legality of the postings and supervision by the Member State of origin. With a view to giving the Member State of origin this kind of responsibility, it will under Article 25 of the proposal be obliged, on the one hand, to ensure that service providers post workers only if they meet the residence and lawful-employment requirements laid down in their national legislation, and on the other hand to readmit the worker to their territory. In view of these guarantees, Member States of posting may not lay down requirements that conflict with the country of origin principle, such as an obligation to have an entry, exit, residence or work permit, except in the cases provided for in Article 25 i.

20.

j) Why does the country of origin principle not apply to certain matters or activities (Article 17)?


The derogations to the country of origin principle have been determined according to two types of consideration.

The Community acquis. Certain derogations are provided for in order to take into account the fact that existing Community instruments apply the rule according to which cross-border service provision may be subject to the legislation of the country of destination. Concerning a rule contrary to Article 16 of the Directive, derogations are necessary in order to ensure coherence with this acquis. Such derogations concern Directive 96/71/EC (posting of workers), Regulation (EEC) No 1408/71 (social security), Regulation (EEC) No 259/93 (transport of waste) and certain instruments on the free movement of persons and the recognition of qualifications.

In other fields, the free movement of services is already the subject of a framework formed by Community instruments which adopt a specific approach compared with that taken in this Directive and which justify a derogation, in particular those dealing with protection of personal data i.

The level of disparity between national regimes. For certain activities or matters, too wide a divergence in national approaches or an insufficient level of Community integration may exist and prevent the application of the country of origin principle. As far as possible, the Directive harmonises, or provides for strengthened administrative cooperation, in order to establish the mutual confidence necessary for the application of the country of origin principle. However, in certain cases, it is not possible at this stage to achieve such harmonisation in this Directive or to establish such cooperation and it is therefore necessary to allow for a derogation. These cases concern derogations relating to certain activities such as notarial acts, postal services, electricity, gas and water distribution services as well as those relating to certain questions such as intellectual property, total prohibitions justified by reasons of public policy, public security or public health, rules linked to the specific characteristics of the place where the service is provided justified by reasons of public policy, public security or the protection of public health or the environment, authorisations schemes relating to the reimbursement of the costs of hospital care, registration of vehicles leased in another Member State or derogations on contractual matters or extra-contractual liability.(1)


21.

Summary



Chapter I. General provisions

Article 1. Subject-matter

Article 2. Scope

Article 3. Relationship with other provisions of Community law

Article 4. Definitions


Chapter II. Freedom of establishment for service providers


Section 1. Administrative simplification

Article 5. Simplification of procedures

Article 6. Single points of contact

Article 7. Right to information

Article 8. Procedures by electronic means


Section 2. Authorisations

Article 9. Authorisation schemes

Article 10. Conditions for the granting of authorisation

Article 11. Duration of authorisation

Article 12. Selection from among several candidates

Article 13. Authorisation procedures


Section 3. Requirements prohibited or subject to evaluation

Article 14. Prohibited requirements

Article 15. Requirements to be evaluated


Chapter III. Free movement of services


Section 1.Country of origin principle and derogations

Article 16. Country of origin principle

Article 17. General derogations from the country of origin principle

Article 18. Transitional derogations from the country of origin principle

Article 19. Case-by-case derogations from the country of origin principle


Section 2. Rights of recipients of services

Article 20. Prohibited restrictions

Article 21. Non-discrimination

Article 22. Assistance for recipients

Article 23. Assumption of health care costs


Section 3. Posting of workers

Article 24. Specific provisions on the posting of workers

Article 25. Posting of third country nationals


Chapter IV. Quality of services

Article 26. Information on providers and their services

Article 27. Professional insurance and guarantees

Article 28. After-sales guarantees

Article 29. Commercial communications by the regulated professions

Article 30. Multidisciplinary activities

Article 31. Policy on quality of services

Article 32. Settlement of disputes

Article 33. Information on the good repute of providers


Chapter V. Supervision

Article 34. Effectiveness of supervision

Article 35. Mutual assistance

Article 36. Mutual assistance in the event of the temporary movement of the provider

Article 37. Mutual assistance in the event of case-by-case derogations from the country of origin principle

Article 38. Implementing measures


Chapter VI. Convergence programme

Article 39. Codes of conduct at Community level

Article 40. Additional harmonisation

Article 41. Mutual evaluation

Article 42. Committee

Article 43. Report

Article 44. Amendment of Directive 1998/27/EC


Chapter VII. Final provisions