Setback for the Single Market for services

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In its work program for 2021, the European Commission announced that it will withdraw its 2017 proposal for a Directive on ex-ante notification of service-related measures. This step is a reaction to the fierce opposition of some Member States to the proposal. For the deepening of the Single Market for services this means another severe setback.

In 2017, the Commission presented a proposal for an EU Directive establishing a notification procedure for service-related measures. A key objective of this proposal was to improve the enforcement of the EU Services Directive of 2006 by clarifying the notification procedure and the Commission's right of decision. Due to uncertainties regarding the procedure, the Commission has to date not made use of this right of decision, which is designed to ensure the proper implementation of the Directive in the Member States.

A central element of the proposal was Art. 5 on ex-ante notification. Accordingly, the Commission could have decided ex-ante on the incompatibility of a Member State's draft service-related measure with the EU Services Directive. The Commission could then have instructed the Member State to refrain from adopting such measure or, if it had already been adopted, to repeal it.

BDI: Proposal for ex-ante notification was right and necessary

BDI has expressly welcomed this Commission proposal. A strengthening of the Commission's powers is necessary to ensure that national measures comply with EU law and do not fragment the Single Market for companies and citizens. After all, the greatest barriers to entrepreneurial activity in the EU Single Market, especially in the area of cross-border service provision, are created at national level. The ex-ante notification procedure would have enhanced transparency in the national implementation of the Services Directive and would have made the introduction of protectionist measures and so-called "gold plating" considerably more difficult.

The effectiveness of this instrument is demonstrated by the example of the 2015/1535 notification procedure (TRIS) in the area of goods: technical regulations that Member States wish to introduce at national level for goods (e.g. industrially manufactured products) are examined by the Commission before they are adopted. The Commission thus ensures that national measures are in line with the principles of the Single Market.

The agony of choice: national interests or "more Europe"?

An extension of this mechanism to the services sector was therefore logical and overdue. However, the Commission faced considerable resistance in the Council. Contrary to the legal opinions of the Commission and the European Parliament, a group of member states led by Germany and France argued that only the European Court of Justice (ECJ) was authorised to decide on the compatibility of national regulations with EU law.

Furthermore, the proposal was also used as an opportunity to question the Commission's existing decision-making powers altogether, which are anchored in the Services Directive. Instead of (binding) decisions to prevent Member States from taking measures that are contrary to the principles of the Single Market, the Commission should, so these Member States, only be empowered to make (non-binding) recommendations. This would have meant a serious weakening of the Services Directive. It would also have set a dangerous precedent for questioning the Commission's powers in other areas as well.

In the end, the Commission had no choice but to withdraw its proposal in order to prevent a watering down of the Services Directive and a weakening of its powers. In the view of BDI, this step is regrettable, but understandable.

Deepening the Single Market for services: between commitment and political reality

Services are the largest and fastest growing sector in Europe. They generate over 70 per cent of EU GDP, create jobs for more than 150 million people and are the most important source of foreign direct investment. Germany itself is the largest importer and exporter of services in Europe. Manufacturing companies generate 25-50 per cent of their total turnover with services, which are often closely linked to the goods supplied. A deepening of the Single Market for services could provide the EU with an additional 330 billion euros a year in economic activity.

In recent years, the Council has adopted numerous conclusions in which Member States made strong commitments to further develop and deepen the Single Market for services. The German Council Presidency has also made this an explicit objective in its programme. However, the case of the Commission proposal on the notification of service-related measures shows once again that a large gap remains between political commitments and political reality.