Programme to deepen the Single Market for Services

While services currently represent two-thirds of the EU's GDP and employment, they only make up for around one-fifth of total intra-EU trade. Today, only about 8% of European SMEs do business in other Member States. This lack of dynamism not only hampers choice for consumers, but also prevents small and innovative businesses to grow, develop their activities and become more competitive. To unlock this potential of the Single Market for services by 2012, the European Commission has adopted a set of targeted actions to tackle remaining problems. The Services Directive aims precisely at removing unnecessary and burdensome obstacles to trade in services in the Single Market. One year after the implementation deadline, the Commission and the Member States have completed an assessment of how the Directive has been implemented on the ground. The results of this so-called "mutual evaluation" exercise conclude that, while much has been achieved so far, the Single Market for services is not yet delivering its full potential.

Targeted actions to strengthen EU services markets

The Services Directive was a major step forward, but work remains to be done to make EU services markets work better. The Communication "Towards a Single Market Act – (IP/10/1390) for a highly competitive social market economy", adopted on 27 October 2010 stated that the gains from a better functioning Single Market for services are estimated at annual profits of €60 to €140 billion, a growth of GDP of between 0.6 and 1.5%. While services currently represent two-thirds of the EU's GDP and employment, they only account for around one-fifth of total intra-EU trade. Today, only about 8% of European SMEs do business in other Member States. This lack of dynamism not only hampers choice for consumers, but also prevents small and innovative businesses from developing their activities and growing further. In response, the Commission has outlined the following actions:

Making sure the Single Market works on the ground: in 2011 and 2012, the Commission will carry out a "performance check" of the Single Market for services from the user's perspective, e.g. a Swedish architect who wants to design a house in Italy or a Finnish resident who uses the services of a Czech accountant. The "performance check" will take account of all other EU rules applying to services beyond the Services Directive and will assess how these different EU rules interact. The objective is to identify specific practical problems that hamper the internal market for services and how the interaction between different rules may have unintended effects. The Commission has already indentified a need to consider further action vis-à-vis the limitations imposed on certain providers in some countries, e.g. in terms of the legal form they can take (for instance prohibiting providers of craft services such as carpenters from taking the form of a limited liability company), or of the persons that can hold capital in their companies (for instance the obligation to be a qualified tax advisor in order to hold capital in a company offering tax advice services).

Removing obstacles to cross-border services: The "mutual evaluation" provided particular evidence of difficulties in the cross-border provision of services without permanent establishment (where the service provider is not permanently based in the country he/she is offering the service). The Commission will now closely monitor the effects of the Services Directive in this respect. A first progress report will be published by the end of 2011 and from then on annually. The emergence of new regulatory barriers to services in Member States' legislation must also be avoided. Such barriers can stem from Member States revising their establishment requirements and the Commission will closely monitor relevant developments.

Ensuring an ambitious implementation and thorough application of the Services Directive: The Commission will engage in bilateral dialogue with a number of Member States where there is evidence of problems with implementation of the Directive. Furthermore, the Commission will in 2011 carry out a first economic assessment of the effects of the implementation of the Directive and its impact on the functioning of the services markets.

Background

The Services Directive is an EU law that came into force with the aim of removing unnecessary and burdensome obstacles to the provision of services across the EU. Services represent +/- 66% of EU GDP. The Services Directive is a horizontal law covering a large variety of services representing around 40% of EU GDP and employment. The Directive required Member States, by the end of 2009, to simplify their administrative procedures and establish "Points of Single Contact" to allow businesses to more easily process paperwork electronically. In order to take stock of the progress made and identify remaining gaps, the Directive foresaw a "mutual evaluation" process that was carried out in 2010. This was an innovative and evidence-based exercise of "peer review" in which the Member States and the Commission examined together the main results of the implementation of the Services Directive.

A dynamic EU services sector is a key priority for the Commission. Services are the driving force of the EU economy and around nine out of ten jobs are created in this sector. As identified in the Commission's Annual Growth Survey (see IP/11/22), the EU will only meet its ambitious Europe 2020 targets for sustainable and inclusive growth if urgent structural reforms are prioritised in services and product markets to improve the business environment.