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Brussels, 11 January 2001

The Internal Market Strategy for Services Frequently Asked Questions

Why are services important?

The last decades have seen a profound change in the composition of the EU economy. In all EU Member States, the commercial service sector is now at least double the size of the manufacturing sector in terms of GDP, three times the size if you include social and public services (eg. health, education) in that figure. That trend is set to continue. For the Internal Market to function efficiently it is essential that the regulatory framework develops in tandem with these changes.

Contribution of economic sectors to GDP (1999 at basic prices, as a percentage of GDP)


ManufacturingCommercial service sector

(inc construction)

Social and public services

Source: Eurostat

Given that there is already EU legislation on mutual recognition of professional diplomas, financial services, E-commerce, telecommunications, why do we need a new Services strategy?

The existing approach to the free movement of services no longer adequately reflects the way the world does business. Given the shift from manufacturing to services it is vital that the Union enhances the quality and competitiveness of its service industries.

Increasingly, companies are developing business models that encompass a range of activities. For example, different retailers will try to establish market niches by developing own-brand produce, their own marketing campaigns, distribution systems and customer care policies.

Currently, barriers prevent them from exporting a model that has worked in one national market to another. An integrated policy in the services sector is vital if an enlarged EU is to benefit fully from all the opportunities offered by new technology and ways of doing business. This is of particular concern to SMEs and especially micro-enterprises, so that the Internal Market is not just open to multi-nationals, which can pay extensive legal and administration bills. This was recognised at the Lisbon European Council of 1999, where EU Heads of State and government pledged that the EU would become "the most competitive and dynamic knowledge-based economy in the world, based in part on a new strategy for removing barriers to the provision of services.

What is new about this strategy?

This strategy supplements the classic sectoral approach to services policy with a more comprehensive, across the board approach that more closely reflects the way the real economy now works. Traditional divisions between economic sectors are increasingly blurred, meaning that more than ever market inefficiencies due to lack of competition and inappropriate regulation have knock-on effects further along the economic chain. The services strategy recognises these inter-linkages. It will therefore develop a new framework for services policy that, while setting common rules where necessary, is sufficiently flexible to allow new and innovative services to develop to the full benefit of the internal market.

Do we need more surveys and studies to identify the barriers to cross-border provision of services?

The Commission has conducted several surveys and studies which has clearly identified the fact that the internal market in services is lagging behind the progress made in other areas. Companies are, often rightly, reluctant to look for opportunities in other EU markets and consumers of services mostly do not even think there could overseas providers to supply their needs. The analytical work to be undertaken as part of this strategy will build on the evidence gathered in the past, but with a eye to identifying the legal detail which is needed to proceed with targeted and proportionate harmonisation.

How can mutual recognition be made to work, should we rely on more harmonisation instead?

Going back to the out-dated system of proposing blanket harmonisation wastes time, is unnecessarily bureaucracy and dissipates political goodwill and attention away from the key issues Member States should agree on. It also contravenes the Treaty principle of subsidiarity.

There is an important distinction to be made between Member States mutually recognising the level of protection offered by their national rules and practices with on the EU Treaty as their guide, and alternatively, having secondary Community legislation implemented in national law, which clearly identifies the areas in which mutual recognition must be accepted.

The services strategy proposes this new supplemental approach as a lighter and more effective means to afford companies and consumers the legal certainty they require to make best use of the free movement of services in the Internal Market.

How do you define services?

The strategy will cover any business activity that constitutes a service. E.g. a car company may also offer easy-financing services, insurance services, after-care services, distribution services product advertising services. The services strategy is organised along six broad themes covering business processes as a chain of related services. These themes are: the lifting of all barriers to establishing a service company; facilitating cross-border purchase of services; distribution; promotional activities; sales (eg contracting, rules on pricing) and after-sales service. For example: if a company offers a particular after-sales service in one Member State, it should be able to offer the same package on the same terms in any other. This approach implies a step change in the Commission's approach to services policy. Instead of looking at specific sectors in isolation, which in the past has often meant a duplication of rules and sometimes their inconsistent application, the policy now concentrates on the provision of services from start to finish with the needs of the end user be it a business or a consumer - paramount.

What kind of barriers to the cross-border provision of services need to be tackled?

The barriers arise for a variety of reasons: requirements which impose on operators established in one Member State the need to be established in another Member State if they wish to provide their services there (for example, radio stations); outmoded rules of unfair competition (e.g. restrictions on innovative promotions); restrictions on advertising and sales promotion; rules that discriminate against particular sorts of distribution channels (e.g. direct marketing); obligations for operators that offer services across borders which duplicate requirements already fulfilled in their home Member State (e.g. the recognition of certain qualifications); rules which preclude a company from taking all its staff across borders to provide services (for, instance in the area of tourism); less favourable treatment in tax matters for recipients of services, when the service provider is established in another Member State.

Surely most of these problems can be dealt with under the infringements procedure?

Yes, where a Member State has clearly misapplied or misinterpreted existing law the Commission does and will continue to pursue infringement procedures. However, the Commission is aware that infringements, especially for private citizens and SMEs, can be very slow, heavy-handed mechanisms. For example, it is not unknown that companies can go bankrupt before an infringement case even gets to the European Court of Justice. Given the rapidly evolving nature of market developments, some new structures will be needed to create legal certainty, establish clear guidelines as to where mutual recognition applies, and improve administrative co-operation across frontiers.

How long will it take to implement the new Strategy

The strategy is in two stages and should be fully implemented by the end of 2002:

    Stage One 2001

    Rapid agreement by Parliament and Council on the major legislative proposals before them, which impact on service activities in the Internal Market. The Commission will also initiate the following actions:

    Action 1 Launch new initiatives to remove Internal Market barriers and increase the competitiveness of EU service markets.

    Action 2 Present a report reviewing individual directives, to enhance their contribution to the functioning of the Internal Market in services.

    Action 3 Launch flanking measures to support the competitiveness of the EU service industry.

    Action 4 Launch a systematic survey of barriers to services in the Internal Market to identify specific problem areas.

    Stage Two 2002

    On the basis of the analysis conducted in 2001, which will have identified barriers to the free movement of services, the following actions will be taken:

    Action 1 Draw up a list of obstacles which can be removed by Treaty principles The Commission will compile a systematic and comprehensive list of all barriers, which could be removed by the direct application of the Treaty, but where infringement cases are not already underway. This list, together with a request to remove all of these barriers within tight deadlines, will be presented to the Member States. In those cases where infringement proceeding have already been opened in 2001 or before, these will continue to be pursued.

    Action 2 Launch a package of non-legislative measures For non-legislative barriers that can be tackled by the use of alternative non-legislative instruments, the Commission will present specific initiatives, including Community codes of conduct, alternative dispute settlement mechanisms, and awareness actions designed to improve the flow of information.

    Action 3 Bring forward harmonisation measures For barriers which are horizontal in nature, an instrument will be proposed containing the following elements:

    • Targeted harmonisation of requirements affecting several sectors or with knock-on effects across sectors, on the basis of a high level of protection for general interest objectives.

    • A mechanism to ensure that the Internal Market can be used by all European service providers as their domestic market, notably through the efficient application of the principle of mutual recognition.

    • Procedures to cope with new market developments and the evolution of the law, so as to avoid the risk of re-fragmentation of the Internal Market and to identify at an early stage the need for new Community legislation.

    Where regulatory barriers which cannot be addressed by such a horizontal instrument, they will be tackled through additional harmonisation measures. In the light of past experience, these additional harmonisation measures are likely to be appropriate in areas with significant health and consumer protection considerations.

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