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Background
 

Services directive approaches first hurdle at Parliament

Free movement of services - 13-02-2006 - 09:58
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The directive on the provision of services in the single market is widely regarded as one the European Union's most important projects of the last ten years. On Thursday 16 February MEPs will vote at first reading on the draft legislation. Parliament's largest political groups have reached a compromise on the key points of the directive. They propose far-reaching changes to the original text, although some details of the agreement have still to be spelt out.

 
The European Commission sent the draft directive on services in the internal market to Parliament and the Council on 13 January 2004.  This legislation was flagged up as one of the key reforms of the Lisbon strategy.  The European treaties of 1957 envisaged the free movement of services as one of the four basic freedoms of the European Community (alongside the free movement of persons, goods and capital).  However, this goal has not yet been achieved.  The new directive thus aims to remove barriers to the right of service providers to set up shop wherever they wish in the EU and to the free movement of services between the Member States.  A report by the Commission published in 2002 lists hundreds of administrative obstacles and disguised or discriminatory protectionist measures.
 
However, the draft directive has aroused great controversy, even to the point of influencing the results of the French and Dutch referendums on the EU constitution.  According to its supporters, the free movement of services within the EU would benefit not only consumers (by giving greater access to a wider range of services) but also service providers (who would have easier access to markets, making small and medium-sized firms in particular more competitive).  And there would be a boost to the European economy as the services market is a source of growth and jobs.  But others, including some MEPs, Member States and trade union and business representatives, believe these goals could have contradictory effects. They fear, for example, that access to a wider range of services would come at the price of lower standards.  They wonder how to protect workers' rights - which differ from one country to another - in an open market in services.   Ultimately, they fear the result will be the creation of insecure jobs and "social dumping".
 
Ten European Parliament committees have had their say on the directive but the lead committee is the Committee on the Internal Market and Consumer Protection (IMCO).  The rapporteur, German social democrat MEP Evelyne Gebhardt, had the task of drafting the report which forms the basis of Parliament's position.  More than 1600 amendments were tabled to her report which, following intensive discussion, was adopted by IMCO on 22 November 2005. The report in its amended version was backed by a clear majority (25 in favour and 10 against, with 5 abstentions including Ms Gebhardt herself).
 
REF.: 20060209BKG05098

Labour legislation not affected by the directive

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At the vote in November, Members of the Internal Market Committee accepted several proposals made by Mrs Gebhardt.  They backed the principle of a framework directive rather than a series of sectoral directives.  They agreed on several proposals concerning the purpose of the directive, its relations with other Community legislation (including the directive on the posting of workers), administrative cooperation between Member States and measures to make it easier for a services company to set up in another Member State.  The directive would not have an impact on labour legislation in general nor, for example, on work or employment conditions or contractual relations between employer and employee, whether based on legislation or on collective bargaining agreements.
 
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"Country of origin" principle dropped

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One of the most hotly debated points was the "country of origin" principle.  The Commission had proposed that a service provider wishing to operate in a Member State other than the one in which it was based should be broadly subject to the law of the country in which the service was provided.  In addition, it would be up to the country of origin to supervise and control whether the service provided by the company complied with the rules.  This approach was criticised by many MEPs.  The IMCO committee decided not to use the sensitive term "country of origin" and to rename the relevant section of the draft directive "freedom to provide services". 
 
Thus, two major changes have been made to the draft text.  Firstly, the situations in which the host country may limit or restrict the crossborder provision of services have been expanded. The provisions which, in the Commission's text (Arts. 14 and 15), sought to restrict the requirements a host country could impose on a provider have been relaxed.  In addition, the list of derogations to the application of the country of origin rules has been expanded (Arts. 17 and 19).  This is an important matter as it ends confusion which has often arisen in discussion of the directive: the fact that a given type of service is covered by the legislation does not mean that it is also automatically subject to the country of origin rules (Art. 17);  and existing legislation on trades or services does not cease to apply (for example, the recognition of qualifications, see Art. 17).  As regards supervision and controls, following the IMCO vote these are no longer the responsibility of the country of origin but of the country in which the service is provided, although cooperation and mutual assistance between the two states is provided for in the text. 
 
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Introduction of the principle of "freedom to provide services"

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Ahead of the coming week's debate and vote in Strasbourg which winds up Parliament's first reading, MEPs from the two largest political groups, the PES (socialists) and the EPP-ED (christian-democrats and European democrats), have reached an agreement which apparently eliminates once and for all the "country of origin" principle.  "We have found a third path", said rapporteur Evelyne Gebhardt at a press conference called to explain the compromise.   The deal relates to 23 amendments concerning the goal and aims of the directive (Art. 1), its scope (Art. 2) and above all the rule of the "freedom to provide services" (Art. 16). 
 
The compromise amendment modifying the old Article 16 contains four points.  Firstly, the Member State into which the service is provided must ensure free access to and free exercise of a service activity within its territory.  However, the Member State may restrict the provision of services, subject to certain principles: non-discrimination (e.g. as regards nationality), necessity (reasons of public policy or public security, protection of health or the environment) and proportionality (i.e. what is needed to secure the objective pursued, but no more).
 
Secondly, the amendment sets out a list of requirements that the Member State may not impose on a service provider established in another Member State.  For example, it may not require a provider to open an office in the country where it plans to provide services temporarily, nor require it to register with a professional body or association in that country, nor ban it from using its own equipment or material.
 
Thirdly,  the new text lists grounds on which the Member State is allowed to restrict the free provision of services on its territory (public policy, public security, social policy, consumer protection, environment and public health).  This is the part of the text which would appear to require clarification if the compromise is to achieve a clear majority at the plenary vote.
 
Lastly, the new text requires the Commission, five years after the directive enters into force, to assess how well the principle of free movement of services is working and to consider any need for harmonising legislation on the services covered by this directive.  The new text no longer mentions at all the terms "country of origin" and "host country".
 
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Services excluded from the directive

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The other major issue is the scope of the directive (Art.1 and Art. 2).  The distinction between services of general interest or SGI (which were not included in the Commission proposal) and services of general economic interest or SGEI (which were covered by the Commission proposal) has been the main bone of contention. 
 
At the committee vote, Members of the EPP-ED and ALDE groups opposed any global exclusion of services of general economic interest such as postal services, the distribution of electricity, gas and water and waste collection but also social services where these are of  an economic or commercial nature.  Discussion has now come to focus on social services, which could finally be excluded from the scope of the directive following the plenary vote if the EPP-ED and PES groups can agree on a definition.  The compromise provides for domestic social services (e.g. for elderly people) to be excluded.  Another compromise amendment proposes excluding temporary employment agencies.
 
Industries covered by legislation specific to their sector are also excluded, e.g. financial services, electronic communications services and networks, and transport. Other areas excluded are legal services, health care, audiovisual services, gambling and lotteries, and professions and activities linked to the exercise of public authority (e.g. notaries) and tax services.
 
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Services covered by the directive

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Which services, then, are affected by this legislation?  No list is attached to the text of the directive but some services are mentioned, including business services (such as management consultancy, certification and testing, maintenance, advertising, recruitment services and commercial agencies) and services provided to both businesses and consumers, such as real estate services (including estate agents), construction (e.g. architects), distribution, the organisation of fairs, car rental (but not vehicle registration), tourism (including travel agencies and tourist guides) and leisure services, sports centres and theme parks.
 
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Simplification of procedures

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The report calls for closer cooperation between national administrations (Art. 34-38). Among key measures to facilitate relations between service providers and the authorities, the idea of a one-stop shop or single point of contact remains in the text and its scope is broadened. The provisions on administrative simplification initially concerned only the establishment of providers but now the movement of services is also covered. This is because the IMCO committee decided to authorise requirements (which were not in the original text) which the host country can impose on a company coming from another Member State to provide services temporarily on its territory.  These new procedures which providers would face need to be simplified as much as possible.
 
The debate on this directive is not over yet.  Negotiations between the political groups will continue up to the last minute even though the deadline for tabling amendments was the evening of 8 February.  MEPs will debate the issue on 14 February in Strasbourg, with the vote two days later.  After the plenary vote, it will be up to the Council of Ministers, as joint legislator with Parliament, to decide its position on the directive and the amendments adopted by MEPs.  If all Parliament's amendments are acceptable to the Council, the legislation will be adopted in its modified form. If the Council rejects any of Parliament's amendments or adds any of its own, the text will return to Parliament for a second reading.
 
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