European Union Law: The Free Movement of Services

EU solidarity

The broad concept of EU solidarity is said to be the underlying aspiration of the integration of the people of Europe and is guaranteed by the following freedoms:

Central to the European Union is the concept of unification of nations with the emphasis representing recognition of the autonomy of individual states.

Free Movement of Services & the Internal Market

Article 56 of the EC Treaty guarantees companies from any European Union Member State to be able to establish themselves in another European Union Member State and provide services on the territory of another European Union Member State or on that one which they are thus established in.

Companies established in one EU Member State are therefore able to provide services in any of the other EU Member States.

The internal market is the market within the European Union, a market not based simply on the individual Member States but across all Member States and is achieved through the free movement of services and the free movement of goods throughout the European Union.

Benefits of the Internal Market

Since the creation of the internal market and in the ten years following the first completion of the first Single Market programme in 1993 the following tangible benefits were recorded:

  • 2.5 million extra jobs created due to the removal of national barriers
  • Increase of wealth in the single market up to EUR 9 billion – EUR 6,000 per family
  • Increased competition – better prices and better products available for consumers

Barriers to trade between Member States

Central to the creation of the internal market is the removal of barriers affecting trade between European Union Member States. For example certain Member States imposing conditions on the provision of services or goods meaning that it is difficult for provides of services or goods from other Member States to enter the market in that Member State would be seen as a significant barrier to trade.

Following the creation of the internal market there have been significant improvements in relation to the free movement of goods but there has been less development in relation to the free movement of services.

The following are reasons why it is still difficult for service providers to establish themselves in other Member States and provide services in those Member States:

  • Requirements relating to authorisation or professional qualifications,
  • Restrictions on the use of a certain legal form for the service provider or on the partnerships between different professions.
  • The number of authorisations required,
  • The length and complexity of the procedures,
  • Discretionary powers of local authorities and duplication of conditions already fulfilled in the Member State of origin
  • Problems which are both directly or indirectly linked to the selling of services across borders between Member States also arise as a result from differences in contract law, fixed or recommended prices for certain services, requirements relating to payment and reimbursement of VAT subject in different Member States to different rates, classification systems and procedures.
  • Consequently it is much more simple to sell goods in the territory of another European Union Member State than it is to establish yourself and provide services there.

Effect on Consumers

Lack of transparency in relation to services provided and lack of confidence in service providers from other Member States often prevent consumers, who account for a large part of the demand for services, from enjoying the full benefits of the Internal Market.

There is often a lack of information available to consumers fully detailing the requisite workings of the internal market and the services made available to them from other European Union Member States.

A key component of the Internal Market is enabling consumers to get the full benefit of all the services available to them at the best price which is something which is not always realised.

Effect on SME’s

SME’s or Small or Medium Sized Enterprises are companies which are very prominent in the service industry but are also the companies which struggle the most when faced with barriers to trade between European Union Member States.

They are often hit much harder than their larger rivals, in relation to such matters as legal assistance costs in relocating to another Member State which are often fixed and not proportionate to the size of the company. As a result, SMEs will either be persuaded against cross-border activities altogether or will be put at a clear competitive disadvantage compared to domestic service operators.

SMEs may also become an attractive target for acquisition by larger companies because of their significant local knowledge, experience and innovation potential.

The above are just some of the problems that are often associated with trying to create the European Union internal market.

Directorate General for Enterprise and Industry

The Directorate General for Enterprise and Industry is put in place by the European Union in order to contribute to the design, implementation and improvement of regulatory policy in order to make the Single Market work better by removing existing barriers to trade and avoiding the creation of new ones.

Making the single market work for the services industry is a key requirement.