10.04.2005

Brussels, April 10 2005

Attac Deutschland

Dear Mr. Reinhard,

In response of your letter of the 10th of March 2005, concerning the directive on services on the domestic market, I send you the working document of Anne Van Lancker. If you have any further questions, please do not hesitate to contact me.

Sincerely yours,

Wiske Just

Assistant of Anne Van Lancker

EUROPEAN PARLIAMENT

2004 2009

Committee on Employment and Social Affairs

11.1.2005

WORKING DOCUMENT

on the Draft Services Directive 1)

Legal basis and scope of the draft Right of Establishment

Committee on Employment and Social Affairs

Rapporteur: Anne Van Lancker

INTRODUCTION

This working document is based on the outcome of the public hearing, 2) on the impactassessment study 3) and on other contributions by various organizations. Its aim is to outline possible orientations for the report in first reading on the Draft.

At the hearing, speakers and MEPs did not question the need for a directive on services, but there was a broad consensus that the Draft needs a lot of work before it will be acceptable. The vast majority of speakers had strong reservations about the potential effects of the country of origin principle (COOP) which could create regulatory competition between Member States and cause a lowering of standards. Most of them stated that the COOP can only be applied on the basis of a high degree of harmonisation and that it should be possible to derogate from the COOP on the basis of the 'rule of reason' exceptions authorised by the European Court of Justice (ECJ).

Many speakers criticized the horizontal character of the proposal and the fact that there is no distinction between what is purely commercial and what serves the public interest. Many argued that services of general interest such as health care, social services, education, cultural activities, but also regulated professions and labour market services should be excluded from the scope. They expressed the need to clarify and ensure that labour law is excluded from the scope (or at least from the coordinated field), and that guarantees are built in to respect national industrial relations systems and practices.

Conflicts with Rome I and Rome II or with (pending) directives on mutual recognition of qualifications, posting of workers, temporary agencies or Regulation 1408/71 were also pointed out. Moreover, the proposal should not pre-empt a future framework directive on services of general interest; on the contrary, such a framework directive should precede a services directive. Finally, shortfalls of the proposed mutual assistance between Member States were addressed.

The Commission has suggested modifications 4) to clarify intentions that are not adequately worded in the proposal. The Commission admits e.g. that occupational pensions, taxation (except fiscal discrimination) and all transport services (except cash-in-transit and transport of deceased persons) should be excluded from the scope. It also clarifies the possibilities of control by the host state in case of posting of workers and specifies the relation with Regulation 1408/71 in case of reimbursement of health care costs. On the basis of these notes the Council has produced a working document 5).

All this leads me to suggesting that the Commission should withdraw the proposal and present a new proposal, taking into account the critical assessments and the clarifications. If the Commission were not prepared to do so, the Parliament will have to amend this proposal very substantially in order to make it acceptable.

I will try to outline the most controversial aspects of the proposal and suggest options for amending them.

CONTROVERSIAL ISSUES & OPTIONS FOR AMENDMENTS

First, all activities of the EU have to serve the aims listed in Art 2 EC, in particular a high level of employment and social protection. Furthermore, the specific role of services of general economic interest is mentioned amongst the principles of the EC (Art 16 EC). The concept as well as the specific provisions of the Draft should be examined against this background.

In principle, the aim described in Article I of the Draft should also refer to the (social) aims included in Art 2 EC.

LEGAL BASIS AND SCOPE

The Draft is based on Art 47(2) and 55 EC which relate to coordination of provisions concerning the taking-up and pursuit of activities as self-employed persons. The proposal aims at reducing barriers to the internal market of services; however, its horizontal nature implies that its provisions will have repercussions for other policy areas for which the EC Treaty provides a specific legal basis for Community action, e.g. culture (Art 151), public health (Art 152), protection of consumers (Art 153), transport (Art 70-80(2)) 6) Furthermore, the provisions on establishment and temporary service activities interfere with policy areas - such as public health, culture, education - for which Community action is only complementary to the national regulatory competences and for which the principle of subsidiarity applies. In addition, the far-reaching nature of the Draft raises the question as to whether the proposal respects the principle of proportionality.

The Draft has a broad scope; it covers purely commercial services as well as social services such as health, health care and household support services. By acting this way, the Draft fails to take into account that the services covered have heterogeneous features and raise a wide variety of public policy considerations.

For that reason, it would be preferable to continue with a sectoral approach. The Commission's concept may nonetheless work if additional activities or sectors are excluded and if important changes are made to the provisions on the establishment and the temporary provision of services. The Directive could function as a framework for a gradual harmonisation process coupled with mutual recognition of conditions governing access to and exercise of service activities across the EU.

In any event it should be seriously considered to exclude services of general (economic) interest (SG(E)I) entirely from the scope of the Draft. Even though this notion is not clearly defined at EU level, there is consensus that it covers activities such as network industry services, health services and social services such as welfare, employment services and social housing. The Draft includes all of those services of general interest 7). The discussion about the role of the EU in defining these services and the way they are organised and financed is however the object of a separate process launched by a Green Paper and followed by a White Paper on Services of General Interest. 8) In order not to affect this process and not to anticipate a framework directive on SGI, the Draft should not apply to services that are guaranteed or financed by the State to fulfil its duties in the social, educational, cultural, judicial fields as well as its duties in the areas of health care and welfare. This is particularly the case for educational, cultural, audiovisual services, health care and social services (including placement of workers, vocational/professional training), water distribution and purification services, electricity distribution services, management of waste services, services of protection of the environment. The fact that several of those activities feature among the derogations from the COOP (Art 17) is not enough: they should be totally excluded from the scope. Furthermore, some of the activities the Commission already proposed to exclude (Art 2 (2)) need to be better defined.

Finally, labour law issues are directly affected in different ways. Collective agreements, and extended collective agreements (erga omnes) in particular, might be scrutinised under the draft provisions. Therefore, all labour law issues, including rules of international private law with regard to the law applicable to employment relationships, should be excluded from the scope and the coordinated field. An additional argument for excluding these issues from the Draft is that social policy matters are covered by a separate legal basis in the Treaty (Art 137 EC). Moreover, the Draft should not affect trade union rights, the freedom of association and collective bargaining, including the right to take industrial action, and the protection of collective bargaining systems.

ESTABLISHMENT

Given that most cross border services are likely to be pursued through a fixed establishment in the host state, it will narrow down the Member States' margin to translate their duties in the social sphere into national/regional authorisation requirements. The Draft needs to provide that Member States are entitled to make the access to and exercise of a service activity subject to an authorisation scheme and requirements pursuing 'an overriding reason relating to the public interest' in a non-discriminatory and proportional manner, to the extent that these schemes have not been harmonised.

The draft provisions on establishment include the notion of 'an overriding reason relating to the public interest' (see Art 5(2), Article 9(1), b) and Article 10(4)). This is derived from the case-law of the ECJ and does not only cover the protection of workers, consumers, recipients of services or urban environment 9), but also a non-exhaustive range of grounds in the areas of public policy, public security, social policy, public health, cultural policy and intellectual property. 10)

As to the conditions for granting an authorisation, Art 10(4) provides that an authorisation should give the service provider access to the service activity throughout the national territory. This clashes with the constitutional order of Member States in which regional authorities are entitled to grant authorisations which give access to a specific region. As regards the duration of authorisation, Art 11 does not allow the withdrawal of an authorisation if inspections show that the service provider does not comply with the conditions for granting it. According to Art 13(4), an authorisation is deemed to have been granted when the authorities fail to respond within a reasonable time period. This could raise problems of (lack of) proof and, therefore, reduce legal certainty. These articles should thus be amended.

Regarding the prohibited requirements and requirements to be evaluated (Arts 14-15), the Draft is not clear as to the impact for authorisation schemes that are essential for specific services presently included, such as health care, welfare and labour market services (f.i. requirements to be evaluated such as quantitative and territorial restrictions, requirements fixing a minimum number of employees, fixed minimum or maximum tariffs and prohibited requirements such as the case-by-case application of an economic test and the obligation to participate in financial guarantee or to take insurance).

Furthermore, Member States will have to screen their national authorisation schemes (also regarding requirements to be evaluated) in accordance with the mutual evaluation procedure in Art 47. Again, this procedure is likely to reduce the margin of Member States to fulfil their duties in the social field. Firstly, the screening operation covers both cross-border situations and internal situations. Secondly, as regards the requirements to be evaluated, the procedure also applies to new national legal acts that can only be introduced if new circumstances arise.

This would give the Commission a de facto right to veto new national regulation falling within the wide scope of the screening provision.

1) Proposal for a Directive of the European Parliament and of the Council on services in the internal market, COM (2004) 2. Hereinafter refer to as "the draft"

2) Public hearing on the proposal for a directive on services in the internal market, organized by IMCO and EMPL, I I November 2004. Directorate-general for internal policies, Notice to members IV/2004-PE 350.059v01-00.

3) Towards a European directive on services in the internal market: analysing the legal repercussions of the draft services directive and its impact on national services regulations, Wouter Gekiere, Institute for European Law, Catholic University Leuven, 24 September 2004.

4) Explanatory note on the activities covered by the proposal, 10865/04, 25 June 2004; Explanatory note on the provisions related to the posting of workers with a particular emphasis on art.24, 11153/04, 5 July 2004; Explanatory note on the provisions relating to the assumption of health care costs incurred in another Member State with a particular emphasis on the relationship with Regulation 1408/71, 11570/04, 16 July 2004.

5) General Secretariat of the Council, DG C1, Working document n°1, Working Party on Competitiveness and Growth (services), 15 November 2004 (57pp).

6) As regards transport services, the Commission refers to Article 71 and 80 (2) EC (Draft Services Directive, Article 2 (c)).

7) The fact that they would be excluded cannot be derived from consideration 16 of the draft which just states:

".. activities performed, for no consideration, by the State in fulfilment of its social, cultural, educational and legal obligations. These activities are not covered by the definition in Article 50 of the Treaty and do not therefore fall within the scope of this Directive."

8) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - White Paper on Services of General Interest, COM 2004 (374).

9) See for instance Draft Services Directive, consideration 24 and 29.

10) Towards a European directive on services in the internal market: analysing the legal repercussions of the draft services directive and its impact on national services regulations, Wouter Gekiere, Institute for European Law, Catholic University Leuven, 24 September 2004, 11.

EUROPEAN PARLIAMENT

2004 2009

Committee on Employment and Social Affairs

11.1.2005

WORKING DOCUMENT

on the Draft Services Directive 1)

Freedom to provide services

Relationship with other Community instruments

Committee on Employment and Social Affairs

Rapporteur: Anne Van Lancker

FREEDOM TO PROVIDE SERVICES

As regards the provision of services on a temporary basis, Art 16 of the Draft provides that service providers will only have to comply with the provisions of the country in which the service provider is established. The Draft does not give a clear definition of what is meant by the temporary nature of a service activity, which gives room for abuses. The definition of 'establishment' included in Art 4(5) refers to the pursuit of an economic activity through a fixed establishment of the provider for an indefinite period. On the basis of these criteria, the dividing line between activities constituting an establishment and activities constituting a temporary service activity is not clear. Nor does the current definition prevents service providers from setting up special constructions (e.g. letter box companies) in a Member State with lower taxation, environmental, consumer and/or social requirements. Under the Treaty this would qualify as a form of establishment. Consequently, the Member State under whose laws the letter box company is incorporated, will for the purposes of the Draft be the country of origin. In order to avoid abuse, the definition of establishment needs to be sharpened.

The coordinated field to which the scope of the COOP is linked covers any requirement applicable to access to and the exercise of a service activity, in particular requirements governing the behaviour of the provider, the quality of content, advertising, contracts and the provider's liability. However, regarding this 'coordinated field', the Draft only contains a series of information duties which service providers have to comply with and provisions on professional insurance and guarantees and information of recipients on the existence of aftersale guarantees. 2) This lack of balance is an open invitation to perform services while complying with the regulations of the Member State with the lowest standards.

The COOP can only work if there is a minimum level of harmonisation at EU level or if there are at least comparable rules within the Member States: minimum harmonisation should relate to quality norms, the protection of public order, minimum vocational training, professional qualification requirements and supervisory mechanisms. Standards relating to quality of services, protection of consumers, employees and environment should also be safeguarded. Such a harmonisation process is only realistic if criteria and conditions are designed for each specific category of services. In order to restore the balance important changes need to be made.

The scope of the COOP must correspond to the areas that are actually coordinated in the Directive (see Art 26-28), with a possible extension to areas harmonized by other existing Community instruments. This would require a modification of the definition of the coordinated field.

In the absence of any harmonisation, Member States should continue to justify exceptions to the COOP in accordance with the case law relating to Art 49 of the Treaty. 3) This means that the Directive should not go further than the Treaty itself and that it should not affect the rule of reason exceptions recognised by the European Court of Justice (ECJ). This approach would allow to limit the various sets of derogations mentioned in Art 17-19, thus improving clarity and transparency. It does not prevent further harmonisation (coupled with mutual recognition) in respect of certain service activities.

Finally, the set of derogations provided for in the Draft calls for a number of specific suggestions. The general derogations to the COOP in Art 17 should mainly focus on the

existing Community instruments, requirements and acts that currently provide mechanisms that are clearly inconsistent with the COOP. Art 18 on the temporary derogations lacks any specific guarantee that harmonisation measures will be taken at Community level. In the absence of such guarantee, it is recommendable to exclude these services permanently from the COOP. The suggestion of a general statement of conformity with the Treaty and the Court's jurisprudence would also replace Art 19 on the case-by-case derogations which restricts the list of rule of reason grounds (recognised by the ECJ) on the basis of which a Member State can take derogatory measures relating to a service provider established in another Member State.

RELATIONSHIP WITH OTHER COMMUNITY INSTRUMENTS

There is a lack of coordination between the Draft and other Community instruments. Many experts have raised concerns on the conflict between the COOP and existing labour law provisions included in the Posting Directive and Rome I 4) and Rome II.

As regards the posting of workers, Art 17(5) provides that the COOP does not apply to 'matters covered by the Posting Directive'. This exclusion does not provide for legal clarity. It is not enough to prevent disruptive interference with important aspects of individual and collective labour law. The term 'matters covered by the Posting Directive' would need further clarification and probably adaptation to exempt all matters related to cross border posting of workers that are dealt with in the Posting Directive. Hence my suggestion to exclude this topic from the scope. The exemption should not only refer to the set of minimum requirements, and the minimum regulations provided for in the Posting Directive, but to all forms of extension and implementation that are allowed by the Posting Directive (f.i. possibility for Member States to impose compliance with other matters than listed in Article 1, possibility to base the implementation of the Posting Directive on generally binding collective agreements or specific collective bargaining systems, reference to all regulations dealing with temporary agency work etc).

The Posting Directive only deals with situations where the worker performs work on a temporary basis in another Member State than the Member State in which he habitually works (for the service provider). It needs to be situated in the broader context of Rome I. According to Rome I, the law applicable to his employment contract is the law of the country where he normally works (Art 6) but in these circumstances certain mandatory rules of the country where the work is performed apply (Art 7). The Posting Directive contains minimum rules on employment and working conditions of the country where the work is performed. Excluding the matters covered by the Posting Directive does not eliminate the conflict between the Draft and Rome I in the situation in which the worker is not a temporary posted worker within the meaning of the Posting Directive. 5) Under the Draft, the COOP (or the free choice of law) would apply and set aside the Rome I rules, which in these cases would lead to the application of the law and/or at least the mandatory rules of the host country. Similarly, the COOP would set aside Rome II according to which the mandatory rule of the host state could be applied.

At the same time, Art 24 of the Draft reduces the effectiveness of labour inspection conducted by the host Member State on the basis of the Posting Directive because it prohibits that State from making service providers subject to obligations that are essential for the inspection services of the State in which services are provided such as to obtain an authorisation or a registration, to make a declaration, etc. This is particularly important for those countries where implementation and enforcement depends on collective bargaining and the role of social partners. Under the current circumstances, labour law provisions can only be effectively enforced in the Member State where the work is performed; the system of administrative cooperation proposed by the Commission to facilitate enforcement between Member States lacks the necessary safeguards in order to be an efficient tool of labour law enforcement.

For these reasons, Art 24 should be deleted and Arts 17(5) and 17(20) replaced by a clear statement that the law applicable to workers employed for the provision of services is the Posting Directive, Rome I and other relevant Community and national labour law. 6)

As regards contractual and non-contractual obligations in fields other than labour law, the Draft contains general derogations to the COOP that are inspired by the rules of conflict of law included in Rome I and Rome II: freedom of choice of contract law, consumer contracts to the extent that they are not completely harmonised at EU level, non-contractual liability of service provider in case of an accident. However, the Rome I and II rules have a much wider scope. Experts demonstrated that these rules are more appropriate to safeguard a proper balance between interests involved. They also explained that the unrestricted introduction of the COOP would increase legal uncertainty, amongst others because service providers will be offering competing services under a different legal regime.

In conclusion, the law applicable to contractual and non-contractual obligations should be dealt with Rome I & II 7) based on the specific and appropriate legal basis provided for in Art 61(c) and 65 EC.

As regards the assumption of health care costs, provisions that aim at converting the principles of patient mobility established by the ECJ into Community rules logically belong under Regulation 1408/71 and not under an internal market directive. Incorporating principles of patient mobility in Art 23 of the Draft implies that two distinct Community instruments and procedures will govern the access to health care costs outside the patient's home State.

While the Commission repeatedly stated that it intends to raise legal certainty and transparency for patients and Member States, 8) the proposal is unclear as to what conditions and formalities can be imposed on non-hospital care provided abroad. Furthermore, it seems to go further than the Court's case-law: it extends the rule that assumption of programmed hospital care costs provided abroad may be not less than for similar care in the home state to all types of health care. 9) It does not maintain the possibility for Member States to apply differential reimbursement rates for contracted care and non-contracted care (applied in the same way abroad and in the own country). Finally, the definition of hospital care included in Art 4 (10) does not reduce legal uncertainty: notions such as 'medical care' and 'provided within a medical structure' can be interpreted differently in the various Member States. 10) If Member States do not comply with the case law on patient mobility, as was suggested by the Commission, that should not be a reason to include this topic in the scope of a legislative text as the Draft. The proper course of action would be to start infringement proceedings (Art 226 EC) or to deal with this issue under Regulation 1408/71.

1) Proposal for a Directive of the European Parliament and of the Council on services in the internal market, COM (2004) 2. Hereinafter refer to as "the draft"

2) Draft Services Directive, Articles 26-28.

3) European Parliament, Public Hearing on the proposal for a Directive on services in the internal market, Thursday, 11 November 2004, Brussels: The Country of Origin Principle by Berend Jan Drijber, 5-6.

4) See European Parliament, Public Hearing on the proposal for a Directive on services in the internal market, Thursday, 11 November 2004, Brussels: Professor Niklas Bruun, Employment issues, Memorandum; Catelene Passchier, Contribution on behalf of the ETUC.

5) This may be the case for instance: 1) if he is only hired to be posted to another Member State, and before that moment has not been employed in the country of origin by the service provider, 2) if he is a citizen from the host country, employed in the host country by a service provider which is established elsewhere, 3) if he is posted for a longer period to the host country, and therefore not anymore to be considered 'temporary' posted.

6) European Parliament, Public Hearing on the proposal for a Directive on services in the internal market, Thursday, 11 November 2004, Brussels: Professor Niklas Bruun, Employment issues, Memorandum, 22.

7) European Parliament, Public Hearing on the proposal for a Directive on services in the internal market, Thursday, 11 November 2004, Brussels: Position Paper by Paul Beaumont, Professor of European Union and Private International Law, University of Aberdeen.

8) Explanatory note on the provisions relating to the assumption of health care costs incurred in another Member State with a particular emphasis on the relationship with Regulation 1408/71, 11570/04, 16 July 2004, 2.

9 This means also for urgent care during a temporary stay and for ambulatory care.

10) See also explanatory note on the provisions relating to the assumption of health care costs incurred in another Member State with a particular emphasis on the relationship with Regulation 1408/71, 11570/04, 16 July 2004, 9.

Anne van Lancker