The EU Single Market Important legal notice
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A Single Market for Services

The internal market for servicesServices are crucial to the European Internal Market. They are everywhere, accounting for between 60 and 70% of economic activity in the European Union of 25 Member States, and a similar (and rising) proportion of overall employment. This underlines the economic importance of services in the European Union.

The central principles governing the internal market for services are set out in the EC Treaty. This guarantees to EU companies the freedom to establish themselves in other Member States, and the freedom to provide services on the territory of another EU Member State other than the one in which they are established. The principles of freedom of establishment and free movement of services are two of the so-called "fundamental freedoms" which are central to the EU internal market.

Overall, the Internal Market has resulted in real benefits. For instance, in the 10 years since the completion of the first Single Market programme in 1993, at least 2.5 million extra jobs have been created as a result of the removal of barriers. The increase in wealth attributable to the Internal Market in those 10 years is nearly € 900 billion; on average about € 6000 per family in the EU. Competition has increased as companies find new markets abroad. Prices have converged (in many cased downwards) and the range and quality of products available to consumers have increased.

The principles of freedom of establishment and free movement of services have been clarified and developed over the years through the case law of the European Court of Justice. In addition, important developments and progress in the field of services have been brought about through specific legislation in fields such as financial services, telecommunications, broadcasting and the recognition of professional qualifications

However, despite progress in some specific service sectors, the overall Internal Market for services is not yet working as well as it should. Most of the benefits seen so far from the Internal Market have occurred in goods markets, and the need to make a serious effort to improve the functioning of the Internal Market in services has been clear for some time. Most notably, the Lisbon summit of EU leaders in March 2000 asked for a strategy to remove cross-border barriers to services.

As the reasons why services are not frequently traded between Member States were complex and not well documented, the Commission spent some time on the legal and economic analysis of the issues including a consultation with Member States, other European institutions and stakeholders. This resulted in the publication of a Report on the State of the Internal Market for Services in July 2002. This report set out, in detail, the legal, administrative and practical obstacles to the free movement of services across borders in the EU. It concluded that there was still a huge gap between the vision of an integrated EU economy and the reality as experienced by European citizens and European service providers.

It is clear from the work done by the Commission that these barriers have a serious negative effect on the cost and quality of the final service to users of services whether they are other service providers, manufacturers or consumers. Barriers to trade in services penalise in particular small and medium sized enterprises (SMEs), which are disproportionately affected by complex administrative and legal requirements and therefore more likely than larger firms to turn down cross-border opportunities because of them. Given the predominance of SMEs in service operations, this has clearly acted as a considerable hindrance the development of the Internal Market for Services.

Following the report, the reactions of stakeholders to it and further legal analysis, in January 2004 the Commission made a proposal for a Directive on services in the Internal Market. The Services Directive was finally adopted by the European Parliament and the Council in December 2006 and will have to be transposed by the Member States by the end of 2009. This directive  is aimed at eliminating obstacles to trade in services, thus allowing the development of cross-border operations. It is intended to improve the competitiveness not just of service enterprises, but also of European industry as a whole. It will remove discriminatory barriers, cut red tape, modernise and simplify the legal and administrative framework - also by use of information technology – and make Member State administrations co-operate much more systematically. It will also strengthen the rights of users of services.

Last update: 18-04-2007