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Internal Market: barriers to the free movement of services mean businesses and consumers still get a raw deal

Commission Européenne - IP/02/1180   31/07/2002

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IP/02/1180

Brussels, 31st July 2002

Internal Market: barriers to the free movement of services mean businesses and consumers still get a raw deal

A decade after the Internal Market was supposed to be completed, European businesses and consumers feel that they are still losing out because of the huge gap between the vision of an integrated European economy and the day to day reality they experience. This is the conclusion of a European Commission report on the state of the Internal Market in services. The report contains a comprehensive inventory of barriers which businesses and consumers find still prevent the proper functioning of the Internal Market and hold back the European economy. The Commission report is submitted as part of the Internal Market Strategy for Services adopted by the Commission in December 2000 (see IP/01/31) in response to a request from the Lisbon European Council in March 2000.

Internal Market Commissioner Frits Bolkestein said "Economic growth is essentially driven by services. They account for 70% of GDP and of employment. So everybody in Europe pays the price for the restrictions that stop the Internal Market from working properly. Business and consumers lose the chance to benefit from a wider choice of better and cheaper services. And much of the job creation potential of service industries is lost. I am determined to break down those barriers and urge the Member States to join with the Commission to do so: we need to win that fight if we are to make the European economy the most competitive in the world."

On the basis of the inventory in the report and after further consultations with the European Parliament, Member States, businesses and consumers, the Commission will draw up measures to tackle the relevant legal and other barriers identified in the report. Legal barriers will as far as possible be tackled by a framework Directive covering all sectors.

Barriers affect every stage of the business process

The report covers barriers which affect a wide variety of different service sectors such as consultancies, employment agencies, estate agents, engineering, construction, distribution, tourism, leisure and transport. Services are intricately intertwined. They are often provided and used in combination. As a result, barriers to one service will trigger knock-on effects for others. The report identifies barriers throughout the business process, starting from the initial establishment of the business and the use of inputs such as labour, technical assistance supplied by other service providers and equipment - through to promotion, distribution, sales and after-sales activities.

Services are harder hit than goods

Services are much more prone to being hindered by Internal Market barriers than goods and are harder hit. Because of the complex and intangible nature of many services and the importance of the know-how and the qualifications of the service provider, the provision of services is often subject to much more complex rules than is the case for goods. Furthermore, while some services can be provided at a distance, many still require the permanent or temporary presence of the service provider in the Member State where the service is delivered. Whereas, with goods, only the goods themselves are exported, service providers themselves, their staff, equipment and material must often cross national borders.

Barriers to cross-border activities can include, for example, the number of authorisations required, the length and complexity of administrative formalities, discretionary powers of local authorities and the fact that businesses are often asked to comply again in the countries where they want to operate with the same formalities they have already fulfilled in their Member State of origin.

A variety of restrictions also affect the posting of workers to another Member State, the use of equipment or material by service providers outside their own Member State and the use of cross-border business services (such as accountancy, insurance, advertising etc). Furthermore, cross-border promotional activities are for many services impeded by wide differences between Member States in legislation on commercial communications, ranging from content restrictions to out-right bans on advertising professional services. Fixed or recommended prices for certain services and rules on the payment and reimbursement of VAT or on professional liability and insurance create additional barriers.

What is more, it can often be difficult to get precise information on the regulatory framework, the competent authorities and the procedures which need to be complied with in other Member States. That can make things even harder. The Commission has recently launched its SOLVIT network, with the aim of making it easier for businesses to make full use of their Internal Market rights (see IP/02/1110).

Barriers hit the whole economy, especially SMEs and consumers

Barriers result in considerable costs for companies doing business between Member States. A service provider seeking to enter a market will have to bear the significant costs associated with complex legal assistance and possibly further costs resulting from the need to modify its business model. The impossibility of using the same business model throughout the Internal Market prevents companies from taking advantage of economies of scale. This leads to a waste of companies' resources, limiting investment in innovation and differentiation of services. Given the key role of services, this damages the performance of the entire economy. In particular, the prospects for small and medium-sized enterprises (SMEs) - prominent in service industries to grow across borders are severely hampered. That limits competition and consumer choice and keeps prices higher than they need to be.

The full text of the Commission's report is available at:

http://ec.europa.eu/internal_market/en/services/services/index.htm


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