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Brussels, 31st July 2002

Report on the Internal Market Strategy for Services - frequently asked questions

What is the objective of the report?

The report aims to describe the realities of the Internal Market as seen by providers and users of services by presenting a comprehensive inventory of existing barriers in the Internal Market for services. It does not at this stage seek to assess whether any individual barrier is justifiable or not under Community law. It serves as a basis for further detailed work during the second stage of the Services Strategy as indicated in the Commission's Communication of 29.12.00 (see IP/01/31).

Which services are covered?

Any business activity that constitutes a service. This could include professional services such as: consulting, architecture, engineering or legal advice; business services such as: technical testing, customer base management and data processing; financial services, services of employment agencies and advertising agencies, trade fairs, craftsmen, security services, environmental services such as waste management, health services and support services to households, transport services, retail, travel agencies, hotels, restaurants and catering and many others. It is important to note that many services are provided by manufacturers of goods. For example, some car manufacturers now offer financial, leasing and rental services, consulting, training, fleet management services, or road assistance and recovery services and, in some cases, even operate theme parks. Electronic hardware producers are increasingly offering custom-made software services in conjunction with their products. Many of these services are hidden in the official statistics for manufacturing companies.

The report further covers different modes of service provision including services provided at a distance from the home country of the service provider, (e.g. over the internet, by phone, or through direct marketing), services provided in the country where the customer is located involving the temporary or permanent presence of the service provider in that country or services where the customer travels to the country where the service is to be provided (e.g. in the cases of hotels, theme parks or other tourist attractions or also in the case of health services).

Which barriers are covered?

The concept of a 'barrier' includes any measure which is liable to prohibit, impede, render more costly or onerous or otherwise render less advantageous service provision between Member States. Barriers may thus arise not only due to discriminatory measures, i.e. where the provider of an incoming service faces restrictions on the grounds of nationality or residence but also due to non-discriminatory measures, i.e. those which apply equally to service providers established in the country of the service provision and those established in other Member States. Non-discriminatory measures can equally result in barriers to the freedom to provide services or the freedom of establishment.

Such barriers can arise not only from regulatory or administrative action by Member States but also from self-regulation, or the practices of professional bodies. They may include, for example, complex, lengthy and burdensome authorisation procedures, highly detailed and divergent rules on advertising, different rates and procedures for the payment or reimbursement of VAT, burdensome and complex administrative formalities relating to employment law in the context of posting of workers, or, simply the duplication of requirements such as for deposits and guarantees, professional insurance or quality controls which the service provider has already fulfilled in his Member State of origin.

What are the main findings ?

The report shows that services are much more prone to Internal Market barriers than goods and are harder hit. Because of their complex and intangible nature and the importance of the know-how and the qualifications of a service provider, services are subject to much more detailed and complex rules which are very divergent from Member State to Member State. In addition, the provision of services often requires the physical presence of the service provider in the country where the service is provided. Whereas in the case of goods, only the goods themselves are exported, in the case of service provision it is often the provider himself, his staff, his equipment and material that cross national borders. As a result, he is normally made subject to a whole range of requirements relating to his professional qualifications, the legal form and structure of his company, technical standards for his equipment and material, his professional insurance, financial guarantees and promotional activities. In addition, his staff, which he needs in order to provide services across a border are often subject to local employment law requirements, even in the case of short-time posting which often results in disproportionate administrative burdens.

The report demonstrates that barriers are horizontal, affect a broad range of service activities and have common traits in both their origins and effects. For example, one common feature is that some Member States still attempt to require for certain service activities such as patent agents, temporary employment agencies, laboratories, transport of certain products etc. that the service provider is established on their territory, which necessarily excludes the provision of services by providers from other Member States. Or alternatively, Member States tend to apply a single regime both to service providers who want to establish themselves on their territory and to those who want to provide services only temporarily from their home country. For the latter, which are already subject to legal requirements and control by national authorities in the country where they are established, this may result in duplication of requirements and disproportionate burdens. Another common feature is the legal uncertainty resulting from unclear requirements applied on a case-by-case basis by national authorisation authorities which have discretionary powers or who can require of applicants that they demonstrate an economic need for a particular permission. In both cases the outcome is often unpredictable.

What are the main underlying reasons for these problems?

First of all, there is a lack of mutual trust between Member States. Often Member States do not acknowledge the quality of the legal system and the controls carried out in the Member State of origin of the service provider. In some areas, this may also reflect a lack of harmonisation of national rules and/or a lack of transparency and administrative co-operation between Member States. Secondly, there is, in some Member States, a resistance to adjust national legislation in order to remove barriers to the freedom to provide services or the freedom of establishment.

This also explains the apparent lack of an active and systematic follow-up to important Court judgements by Member States. Indeed, many of the problems still faced by service providers have already been the subject of judgements of the Court of Justice condemning similar measures or practices. Thirdly, in some Member States there is still an obvious tendency to protect national economic interests, which is sometimes openly referred to in parliamentary discussions on national laws.

What are the main barriers to the Internal Market in services?

Barriers affect all stages of the business process. For instance, a company wanting to establish in, or provide services to, another Member State might face obstacles in gaining authorisation, including mutual recognition of qualifications, posting its employees or using its equipment, promoting its services, distributing its services, concluding contracts with customers and providing guarantees or after-sales services.

In addition, barriers to one service will trigger knock-on effects for the provision of other services. For example, an operator of retail stores established in one Member State and wanting to establish in a number of other Member States, might wish to use the services of real estate agents, shop designers, architects, engineers, construction companies, banks and insurance companies with whom he works in his Member State of origin. Often this is not possible, because of legal or administrative problems which hinder these providers in supplying their services in other Member States.

Obstacles at any one stage of the business process may render an entire cross-border activity less attractive. Therefore, barriers to services cannot be ranked or considered in isolation. Any attempt to rank in importance certain categories of barriers or to categorise certain services as being particularly affected will result, at best, in a partial impact analysis.

How and when will the Commission follow up this report?

This report will serve as the basis for initiatives to be launched in 2003 under the second stage of the Services Strategy. It will involve both legislative and non-legislative initiatives as announced in the Strategy. In respect of a legislative proposal, a careful balance has to be found between the need to avoid too detailed and wide-ranging regulation at European Union level and the need to protect the general interest objectives concerned. In line with the Services Strategy, legal barriers will, as far as possible, be addressed by one comprehensive and horizontal framework directive. It is more economic and efficient to deal with barriers in a horizontal way than to launch a broad range of new sectoral initiatives.

In respect of non-regulatory initiatives, the Commission will, in the first instance, consider what measures could be provided to consumers and business in terms of better information and any necessary assistance in order to allow them to benefit fully from the EU's Internal Market.

Why can't most of these problems be dealt with under the infringements procedure?

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. In addition, experience shows that often Member States, which are compelled to change their law, following an infringement procedure and a Court judgement just replace existing barriers by the introduction of new ones which means that service providers face new problems and a new infringement has to be brought. Furthermore, the rapidly evolving nature of markets and regulation, which means that new barriers are constantly being created, other actions are needed to complement infringement actions in order to create greater legal certainty.

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