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europe’s freedom of services directive

Tuesday 10 May, 2011

The John Marshall Law School hosted another lunch & learn entitled CHANGES IN EU BUSINESS REGULATIONS: WHAT U.S. LAWYERS NEED TO KNOW which featured Fulbright Scholar Prof. Giovanni Coinu, Faculty of Law @ University of Cagliari in Italy.  The deeper topic was actually the EU’s “Freedom of Services” directive & it’s enforcement in Italy.

Article 26.2 of the Treaty of the EU (TEU) guarantees freedom of movement of services & article 61 ensures there is no discrimination based on nationality or residence, but the European Court of Justice’s (ECJ) jurisprudence on services has been inconsistent.  As the EU is becoming more market-oriented, the ECJ & EU laws now tend to put economic freedoms above social rights.  In 2008, the ECJ examined Poles who were working in Germany & earning less than 1/2 of what Germans earned there.   Rüffert v. Lower Saxony cited a local law which provided for public works to pay employees at least the minimum wage where the services are performed, but the ECJ ruled it was a violation of article 56 of the TEU.  Since services account for 2/3 of the EU’s GDP & employment, the pro’s of this are:

  • extends EU fundamental freedoms
  • benefits SME’s
  • better functioning services markets should enhance EU economic competitiveness

The cons are:

  • threat to worker’s rights & fair working conditions
  • unfair competition from countries with lower labor costs
  • no protection for local employers & workers

With enlargement of the EU, it’s population increased 27%, but GDP by only 4%, so the equilibrium changed & the wealthy became worried.  The “Polish Plumber” became a dangerous man to the west, as it was a sign the “Anglo-Saxon” economics were running rampant over the EU & competition between workers in different countries was resulting in a downward spiral in income levels & the west being overrun by immigrants from the east.  This contributed to the European constitution being voted down in 2005, so the EU adopted directives instead to bring national laws into line with each other, especially those pertaining to the single market.  The Services Directive defined a service & service provider:

Service:

self-employed activity

  • self-employed activity
  • of an economic nature
  • included regulated professions
  • with explicit exclusions

Service Provider:

  • individual who a a national of a member state (MS)
  • legal person established in a MS

A MS can grant authorization for freedom of establishment only if it’s non-discriminatory, justified by reason relating to the public interest, does not go beyond what’s necessary, unambiguous, objective, transparent, accessible, & made public in advance. Prohibitions from freedom of establishment include:

  • discrimination based on nationality
  • limiting establishment of SP to 1 MS
  • limiting the choice of SP between principal & 2nd-ary establishment
  • condition or reciprocity
  • economic tests
  • competing operators involvement in decisions of authorities
  • guarantees legal form for operators established in the same MS
  • registered or exercised activity for a period in the same MS

Regarding the freedom of movement of services, the ECJ concluded in 2003 (Schnitzer) that even temporary activities carried out over several years in another MS can be considered to be service provision.  Firms have the freedom to provide cross-border service without unjustified restrictions.  The SP will know that they will not be subject to the legislation of the receiving MS & may continue to use home-state law.

The EU has embarked upon a simplification program (similar to the US’ Paperwork Reduction Act) to reduce administrative costs & burdens on companies from existing regulations by 25% by 2012 which would increase the EU’s GDP by 1.4%/€150B.  This creates Points of Single Contact (PSC) as information points as a 1-stop shop for business that have been established in each MS across the EU that allow SP’s to complete their administrative formalities electronically or in-person.

Enforcement of the service directive is the most interesting part.  In Italy, enforcement of the PSC, which work in the back-office,  will be available April, 2011.  1 office will coordinate & subsistute all competent authorities for each procedure.  SP’s can immediately start their business & self-certify.  Within 30 days, the PSC will check all paperwork, ask for more info, ban the continuation of activity only if necessary.  PSC’s have been available in Sardinia since 2008 where they are more powerful than in the rest of Italy.  No permits are needed.  SP can apply online through certified e-mail.

The directive cannot find direct application for American citizens or 3rd country citizens, but could be a gateway to the EU internal services market.  It applies to enterprises legally established/registered in the EU irrespective of whether or not the owners are EU nationals or not.

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