The In-House Lawyer

Free movement of services, as well as people and goods, is enshrined in the EC Treaty. However, in practice, member states impose a large number of barriers to providing services across borders, which can hinder productivity and growth, reduce consumer choice and value for money, and block export and growth opportunities for the service sector. Services currently account for only 20% of cross-border trade in the EU, despite accounting for 70% of GDP.

To address these issues, the European Parliament and Council passed Directive 2006/123/EC on services in the internal market (the Services Directive), which entered into force on 12 December 2006. Its objective is to achieve a genuine internal market in services by removing legal and administrative barriers to the development of service activities between member states. The Services Directive aims to achieve this by:

• abolishing restrictive legislation and practices that unjustly hinder service providers from setting up or providing services within the EU, eg by preventing ‘authorisation schemes’ from discriminating between service providers on grounds of nationality;
• facilitating greater co-operation between regulatory and authorisation bodies across the EU, thereby reducing burdens on business;
• engendering consumer confidence in cross-border service provision through access to information and the promotion of quality; and
• simplification of administrative procedures, eg providing a ‘one-stop-shop’ for foreign companies, which will deal with all the formalities involved with providing services in a member state, instead of obliging them to deal with different authorities at national, regional and local level.

Scope of the Services Directive

Due to the complexity of the services sector, and the persistence of time-honoured restrictions on the provision of services in many member states, liberalisation of services lagged some way behind that of the trade in goods. Resistance to liberalisation also resulted in significant resistance to the Directive when it was being passed. As a result, the Services Directive applies only to services supplied by providers established in a member state that are not explicitly excluded from it. Excluded services include: services of general economic interest; financial services; electronic communications services and networks; transport services; services of temporary work agencies; healthcare; audiovisual services; gambling activities; activities connected with the exercise of official authority; certain social services; private security services; services provided by notaries and bailiffs; and services relating to taxation. The Services Directive also includes a list of legitimate reasons a member state could cite for restricting the activities of foreign service providers. These include national security, public health and environment protection. Despite these exclusions, a wide variety of activities remain within the scope of the Directive.

In one particularly notable development, Article 20 of the Services Directive provides that:

1) Member states shall ensure that the recipient [of a service] is not made subject to discriminatory requirements based on his nationality or place of residence; and

2) Member states shall ensure that the general conditions of access to a service, which are made available to the public at large by the provider, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient, but without precluding the possibility of providing for differences in the conditions of access where those differences are directly justified by objective criteria.

The preamble to the Directive makes it clear that this provision anticipates a broad non-discrimination obligation on service providers not to discriminate against customers based on their nationality or place or residence, albeit subject to broad exceptions. (Recital 95 lists ‘additional costs incurred because of the distance involved or the technical characteristics of the provision of the service, or different market conditions, such as higher or lower demand influenced by seasonality, different vacation periods in the member states and pricing by different competitors, or extra risks linked to rules differing from those of the member state of establishment’.)

UK implementation

Individual member states must implement the Services Directive into national legislation before 28 December 2009.

On 12 May 2009, the Department for Business, Enterprise and Regulatory Reform (now the Department for Business Innovation and Skills or BIS), published draft regulations for implementing the Services Directive into UK law.1 Given that, on the whole, the UK services sector is not subject to the extensive authorisation systems seen in some other member states, the proposed implementation is relatively modest in scope.

There are four parts to implementing the Services Directive in the UK:

• ensuring the UK can participate in administrative co-operation procedures;
• ensuring all UK legislation, licensing regimes and administrative procedures comply with the Directive;
• implementing proposals to ensure high-quality services and rights for service recipients; and
• establishing ‘single points of contact’ for service providers wishing to offer their services in the UK.

Under the draft Regulations, the protection and procedures provided are to be available to anyone who wishes to provide a service in the UK, regardless of whether they are established in a member state.

Article 20 of the Directive is to be implemented by Regulation 30, which simply provides that:

‘The provider of a service may not, in the general conditions of access to a service which the provider makes available to the public at large, include discriminatory provisions relating to the place of residence of recipients who are individuals.’

The Regulation goes on to provide that this obligation ‘does not apply to differences in conditions of access which are directly justified by objective criteria’. The impact of this provision remains to be seen and will depend to a large extent on the nature of any enforcement action that may be taken and the standard of proof that will be applied to those arguing that any differences in terms are due to objective criteria.

The draft Regulations include only one material amendment to primary legislation that is required as a result of the Directive. Specifically, they provide for the amendment of the Pedlars Act 1871, which prohibits anyone from working as a pedlar (defined as ‘a hawker, pedlar, petty chapman, tinker, caster of metals, mender of chairs, or other person who, without any horse or other beast bearing or drawing burden, travels and trades on foot and goes from town to town or to other men’s houses, carrying to sell or exposing for sale any goods, wares, or merchandise, or procuring orders for goods, wares, or merchandise immediately to be delivered, or selling or offering for sale his skill in handicraft’) without a licence, to remove ‘mender of chairs’ and persons ‘selling or offering for sale his skill in handicraft’ from its scope. While this will no doubt be a boon for those offering cross-border chair repair services, one wonders how many pedlars licences are still issued in the UK, given that it applies only to those travelling on foot.

The BIS consultation has now closed and a final text of the Regulations is awaited. There is already a considerable body of Community law on service activities, leading some to question whether the Services Directive will add any value. The simplification of member states’ bureaucratic procedures on the provision of services and the exercise of the right of establishment may ultimately deliver some improvements in cross-border competition, particularly for UK businesses wishing to offer services elsewhere in the EU. Whether this will be enough to counteract the increasingly protectionist impulses of many member states, faced as they are with widespread economic contraction, remains to be seen.

By Becket McGrath, partner, and Rebecca Riss, associate, Berwin Leighton Paisner LLP.E-mail: becket.mcgrath@blplaw.com;rebecca.riss@blplaw.com.