What the EU Services Directive means

(This is an edited version of a paper read to a SIPTU seminar on the Services Directive on 13 January 2006.)

Article 1 of the draft Services Directive describes its subject matter as "general provisions facilitating exercise of the freedom of establishment for service providers and the free movement of services."

It is not a charter for privatisation. Indeed, it expressly states that Member States are not required to abolish existing monopolies, even those in private hands.

The Country of Origin Principle is not entirely new and already applies in a number of areas governed by European Community law, including banking and insurance services. Also, the European Court of Justice interprets the EC Treaty as prohibiting Member States from maintaining in force provisions that constitute an obstacle to the provision of services. To that extent the draft Services Directive simply re-states existing law.

However, as matters stand at present, Member States may impose requirements upon undertakings seeking to provide services on their territory provided that they are non-discriminatory, applied in a proportional manner, and can be justified by reference to concepts such as public morality, public policy and preventing unfair competition.

The Services Directive as proposed will severely limit the scope for Member States to adopt such provisions.

Article 19 of the draft Services Directive provides that, only in exceptional circumstances, a Member State may take measures relating to the safety of services, including aspects relating to public health. It is thus proposed that Member States will no longer normally be able to apply national rules to service providers based in other Member States. In particular, Member States will be unable to impose domestic labour law for the benefit of employees of service providers established in other Member States operating on their territory.

A number of services are excluded from the scope of the proposed Services Directive. These include financial services, electronic communications services, some transport services, certain postal services, electricity, gas and water distribution services.

Also, the provision of services by the State falls outside the scope of the concept of services as defined by Article 50 of the EC Treaty, since it is not provided "for remuneration".

However, it should be pointed out that the provision of social, cultural, educational and legal services to the State is covered by the concept of services, since the State remunerates the service provider.

The excluded services tend to be in sectors where employees are well represented in their relationships with their employers. The services governed by the proposed Services Directive include sectors where employees are often more vulnerable to poor pay and conditions and are not well organised.

An undertaking that wishes to provide services on a continuous basis in a Member State will usually be established on its territory. Articles 43 to 48 of the EC Treaty regulate freedom of establishment. They essentially provide that Member State nationals that establish themselves in the territory of another Member State must be treated in the same manner as domestic undertakings.

On the other hand, Articles 49 and 50 of the EC Treaty govern the provision of 'services'. The essential difference between establishment and the provision of services is that "establishment" connotes a degree of permanence whilst "services" are provided on a temporary basis.

But the draft Services Directive appears to blur this distinction between "establishment" and "services" and if this is so then it increases the scope of the concept of services. It seems from the draft Services Directive that a service is defined as any activity whereby providers participate in the economy, irrespective of its legal status or aims or the field of action concerned.

By apparently extending the definition of services and simultaneously providing that service providers are subject only to supervision by the Member State of origin, one creates the real risk of creating an entirely unregulated space where anything goes.

This possibility is increased when one examines the supervision mechanisms in the draft Services Directive.

It provides that Member States shall ensure that powers of monitoring and supervision provided for in national law in respect of service providers and their activities are also exercised where services are provided in another Member State. A scheme of mutual assistance is proposed. How this will operate in practice is unexplained.

In theory, such a system could provide adequate guarantees for employees of service providers and consumers of services, provided that adequate resources were directed towards policing and monitoring. At a time when certain Member States' economies are not growing and others have some way to go before reaching the Community average (which has been reduced as a consequence of enlargement), one fears that it is unlikely that adequate resources will be provided for that purpose.

Host State authorities may carry out checks, inspections and investigations for the purpose of ensuring effective supervision by the Member State of origin and at its request. They are also permitted to conduct on the spot checks, inspections and investigations on their own initiative. Even when carrying out those checks, it appears that service providers are not required to hold and keep employment documents in the host state.

It follows that, even if carrying out an inspection at the request of a Member State of origin, an Irish Labour inspector would be unable to demand sight of documents demonstrating the terms of contract, working conditions, hours worked and wages paid on the spot.

Anthony Collins SC