European Union: "Are EU Being Served?": The EU Services Directive

The draft EU Services Directive promises to deliver a genuine EU single market for service providers, from management consultants to plumbers to hairdressers.

Services account for around 70% of European GDP and employment, but only 20% of intra-EU trade, and so the European Commission has identified a large potential for growth, competitiveness and job creation in this area. The idea of a single market for services is not new but, in practice, numerous obstacles prevent service providers from reaching potential recipients in countries other than the country in which they are established.

The Commission identifies the main obstacles to the genuine free movement of services as over-burdensome authorisation schemes, excessive red tape, rules preventing the posting of workers and requirements which discriminate on the basis of nationality.

The Services Directive, as originally drafted by the Commission, proposes that EU member states should simplify the administrative procedures and formalities which service providers are subject to. It is proposed that service providers should be able to register electronically through single points of contact for each service sector. It is also proposed that member states should evaluate and progressively eliminate from their laws any requirements which hamper access to, and the exercise of, service activities.

At the heart of the Commission’s proposal is the "country of origin principle". Under this principle a service provider would be subject only to the law of the country in which they are established and subject only to the supervision of the authorities of that country - even when the service provider establishes themselves or provides temporary services in other countries.

In February 2006, the European Parliament voted to remove altogether the country of origin principle from the draft Directive. The scope of the Directive has also been restricted by carving out healthcare, social housing and other "services of general interest", broadly as EU Countries may choose to define them.

The Directive will now be redrafted by the Commission and further considered by the European Council. The UK is highly supportive of the Commission’s approach, including the country of origin principle, as are the former Eastern bloc countries which stand to benefit the most from the opening up of protected service markets.

Notwithstanding the Parliament’s recent vote, the Services Directive promises in the near future to open up access to many service markets by restricting burdensome and discriminatory red tape, by providing information and single points of contact for service providers, and by more clearly setting out the situations in which an EU Country may restrict the freedom to provide services.

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Readers should not act on the basis of the information in this article without taking appropriate professional advice upon their own particular circumstances.