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European Community: A Services Directive at Last
© 2007 William B.
Bierce. All rights reserved.
On December 27, 2006, the European Union’s Parliament and Council of
the European Union adopted Directive 2006/123/EC on “Services in the Internal
Market.” This pivotal directive
represents the culmination of additional year’s negotiations following the
failure to adopt a prior services directive on the same subject.
It represents an important step in cross-border flow of services within
the European Union (EU). More
importantly, it distinguishes between rights of establishment and rights to
provide and receive services across member states. Member States must adopt implementing legislation
before 28 December 2009.
Key Value. Services account for 70% of the GDP and employment
in most EU Member States. The
Services Directive is one of the most important, yet most highly disputed,
European Community directives. Tensions
were high between social protection for the labor force and economic freedoms of
service providers and service recipients.
A prior services directive had failed.
As adopted, this directive will boost cross-border provision of services
in the EU, which comes at an especially important time as the EU has enlarged to
include new “low cost” countries on the periphery. Such low-cost countries will be able to gain access to
local high-value economies in the original EU.
Key Elements. The Services Directive adopts key improvements to
cross-border provision of services in the EU.
- One-Stop
Shopping for Administrative and Regulatory Compliance.
Each member state must now make it easier for service providers to
either establish a subsidiary in the target member state or to sell services
cross-border without a local permanent establishment.
This simplification will reduce administrative costs in the creation
and operation of new cross-border businesses for service providers based in
the EU. All this regulation
must be online on the Internet, a move for e-government.
- Retained
Jurisdiction of National Requirements for Essential Public Policies.
Unlike the failed directive that would have largely excluded national
requirements that might block cross-border services, the 2006 Services
Directive preserves the rights of each member state to invoke certain key
public policies in regulation of cross-border trade in services.
(This issue was worked out in the United States in early Supreme
Court cases on federalism in the 19th and early 20th
centuries.) Based on EU
Court of Justice decisions, local governments retain the right to protect
their local interests in matters of:
- Public
health, security and “public policy”;
- Consumer
protection;
- Animal
health;
- Protection
of the urban environment;
- Employment
conditions (which are governed by the Directive on the Posting of Workers
of the Provision of Services, Directive 96/71/EC of 16 December 1996,
which regulates normal conditions of employment and specifically protects
workers hired out by temporary employment undertakings).
But no such authorization scheme or restriction may,
under the 2006 Services Directive, discriminate on the basis of nationality.
To the extent of any local regulation, the Services Directive retains the
principles of legitimacy of local regulation:
·
Non-discrimination (“the requirement may be neither
directly nor indirectly discriminatory with regard to nationality or, in the
case of legal persons, with regard to the Member State in which they are
established”);
·
Necessity (“the requirement must be justified for reasons
of public policy, public security, public health or the protection of the
environment”); and
·
Proportionality (“the requirement must be suitable for
attaining the objective, and must not go beyond what is necessary to obtain that
objective”). Services Directive,
Art. 16(1).
- Cooperation
and Coordination between Member States. Member States will be obliged to cooperate to
avoid duplication of controls and promote efficiency in supervision of
cross-border service providers.
Implications for Non-EU Service Providers.
- Freedom
of Establishment and Freedom of Movement of Services.
The 2006 Services Directive opens the door for acquisitions
by non-EU service providers to acquire EU service providers to integrate
with a global services delivery platform.
If a service provider is established under the laws of a Member
State, it will enjoy the “freedom of establishment” in its local market
and across the EU. In
contrast, if the service provider (“operator”) is not established in the
Member State where the service is provided, its activities should be covered
by the EU’s rules on freedom of movement of services.
Under Court of Justice rulings, no local establishment is required if
the “temporary” services meet the applicable standards in light of the
duration of the service, the regularity, periodical nature and continuity of
the services.
- Contract
Rights. The Services
Directive does not impose any rules on contractual relations between a
service provider and a service recipient, or between an employer and an
employee. The directive leaves
such matters to private international law (freedom of contract).
- Freedom
for the Consumer. The
Services Directive also directs that consumers be free to buy services from
service providers in another Member State. Consumers can be free of an obligation to obtain
authorization from, or to make a declaration to, their competent local
authorities.
Posted: January 22, 2007
Further Readings:
Economics
Getting
Started (New Service Providers)
International
Compliance
Legislation
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