Bolkestein returns: EU Commission power grab for services

The EU institutions are currently negotiating new single market rules that could have a severe and distinctly negative impact on decision-making in parliaments, regional assemblies and city councils across Europe. The Commission is proposing to enforce the Services Directive – aka the Bolkestein Directive – in a new and extremely intrusive manner. In short, the Commission wants the right to approve or negate new laws as well as other measures covered by the directive. And the directive covers quite a wide range of issues: zoning laws (city planning), housing supply measures, energy supply, water supply, waste management and more.

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Organisations are warmly invited to sign the statement
"Stop the EU’s Services Notification Procedure - municipalities need democratic space to protect the interests of citizens!"

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Opposition to the Commission’s proposal is growing quickly, particularly from city councils, whose capacity to act could be severely restricted in many areas if the proposal is passed. As they were not properly informed about the implications, many of them are discovering at a late stage that even municipalities will have to ask the Commission’s permission before adopting a measure that relates to services.  In Amsterdam the city council unanimously adopted a resolution which states that the proposal “affects the autonomy of local authorities and thus poses a threat to local democracy.” This strong message in support of local decision-making is starting to resonate in cities across Europe. A public statement against the proposal has quickly gathered the signature of 75 European organisations, including NGOs, social movements and political parties– with more signatures coming in by the day.
What is all the fuss about? Corporate Europe Observatory has put together a list of questions we are being asked frequently at the moment, to try to explain key concerns and issues with this proposal.

How does the Commission plan to stop or change decisions made in Member States?

The proposal is about ‘notification’, i.e. ‘informing’ the Commission, which sounds pretty harmless. But it is not so simple.
Currently, when a new policy measure which would be covered by the Services Directive is adopted in Member State, the Commission has to be informed. The Member State can inform the Commission after the measure has been adopted and come into force. The Commission will then check if its rules have been followed. If it deems them not to have been, it will initiate discussions with the Member State in question to find a solution.

This procedure has been in place since the Services Directive was adopted in 2006. However, a plethora of business lobby groups, and the Commission itself, have complained that this approach is inefficient and slow.

Mimicking a proposal tabled by BusinessEurope, and prompted by substantial lobbying by various other industry groups, the Commission has proposed a new and significantly more intrusive procedure. Under the new proposal, authorities – be they municipalities or ministries - would be required to inform the Commission about relevant upcoming decisions three months before the vote that would pass them. This would give the Commission the chance to scrutinise the text in advance, and in the event that it found something it believed to contradict the Services Directive it would issue an ‘alert’. In the ‘alert’ the Commission would identify what would need to be changed to get its approval.
If the Commission’s suggestions – which can range from full rejection to minor tweaks – are not taken on board, and the city council or parliament in question proceeds with the adoption of the measure, the Commission will make a decision requiring the “Member State concerned…to repeal it” (Article 7).

This essentially, and alarmingly, empowers the Commission to overrule elected assemblies in a vast number of policy areas, which are crucial not only to the economy, but to most aspects of society. Moreover, it would fundamentally change decision-making, especially at the level of municipalities and regional authorities, undermining the principle and practice of local democracy across the EU.

What does that mean in practice? Is it really so serious?

Before continuing to look at the legal basis of all this – the Services Directive - it may be useful to get a sense of what is at stake here, and to do it through a couple of concrete examples.

- When the city council of Amsterdam spoke out against the Commission’s proposal, city councilor Tiers Bakker, who drafted the resolution, referred to attempts to regulate AirBnB in the city. For a long time AirBnB enjoyed very flexible rules in Amsterdam, but over time the service became so widely used that it created problems regarding access to affordable housing and changed the atmosphere and environment in key parts of the city. The city council stepped in, responding to the demands of their electorate, the residents of the city,, and strengthened the rules, only to discover that limiting the use of AirBnB could be a breach of the Services Directive. Under the new proposal the city of Amsterdam would have to ask the Commission for permission to bring in such regulations.

- Zoning laws and or city planning are covered by the Services Directive, according to a recent judgment from the European Court of Justice. City planning can involve policy decisions about where in a city the authorities would prefer to see shops and where not, as well as the size of shops. Some cities may prefer not to have a few giant supermarkets (hypermarkets),  to safeguard the existence of small shops. However, this area of planning is covered by the Services Directive. Thus, here too a decision would have to be notified to the Commission, giving the EU body the last word, perhaps not on every individual planning decision, but enabling them to block or reject comprehensive and long term plans for city development.

- The directive also notably affects labour rights. When the Services Directive was first proposed there was an outcry over the fact that it would allow service companies to operate across the EU following only the rules and regulations in their country of origin. The trade union movement argued that this would inevitably lead to social dumping, as companies based in a low wage country would be able to send workers to high wage countries and pay them a fraction of the local wages. After massive protests across the EU, labour law was ultimately exempted from the directive. But that does not mean that measures intended to monitor service companies’ respect for local collective agreements or laws are allowed. Recently the Commission has complained about rules in Denmark which enable authorities and trade unions to spot potential violations of collective agreements and labour law.  

- The Services Directive even affects the use of natural resources. In 2015 the European Free Trade Association Surveillance Authority (EFTA), which oversees the adherence to single market rules in EEA countries (Iceland, Norway and Liechtenstein), decided that Iceland’s  law on the use of geothermic energy and ground water violates the Services Directive by making it too difficult for foreign private operators to obtain access to the resource. The law was the response to a concern in Iceland that private companies tends to have a short-term approach to the use of geothermal resources that does not take the long-term public interest into account. Still, so far it is considered in breach of European law.

What areas are covered by this procedure, and hence also by the Services Directive?

Decisions on areas and measures covered by the Services Directive from 2006 can be turned down by the Commission under the new proposal. And the Services Directive covers a huge range of policy areas, including most service sectors.

When the Services Directive was originally planned in 2004, it was about services full stop. The Bolkestein Directive – named after the Commissioner who drafted it, Frits Bolkestein – was an extremely far-reaching plan to liberalise services, and covered just about everything you can sell but not drop on your foot! But as the Directive was met with stiff opposition, with more than 100.000 people coming onto the streets of several Member States in protest, some sectors and areas were removed from the Directive, and in other areas its impact was reduced, in response to the public outcry.

But even in its reduced form, the directive covers a vast area of issues and policy areas. Sectors covered include: education, accounting, legal services, consultancy, architectural services, water supply, waste management, advertising, postal services, electricity, gas supply, retail and many other sectors.

In fact, it may be easier to understand by looking at the services sectors not covered by the directive: non-economic services of general interest (i.e.  publicly owned services that citizens do not pay for), financial services, health services, gambling, electronic communication, audiovisual services (TV and radio), private security services, transport, temporary work agencies and notaries and bailiffs. There is also an exemption for social services, but complementary social security schemes are covered.

What is prohibited by the Services Directive?

The Services Directive is essentially a list of measures, types of demands and frameworks which Member States are prohibited from taking, or imposing when it comes to rulemaking on services.

The Directive is made up of three lists. The first two cover all sectors not exempted from the directive, while the last, and most far reaching list, covers all sectors minus a few explicitly mentioned in the text.

The first list restricts the introduction of authorisation schemes, prohibits residency requirements for owners, and limits restrictions on the number of companies and the amount of activity in a sector. It also prohibits demands to contribute to insurance schemes or financial guarantee schemes (with a few exceptions), and rejects requirements of services companies to be listed in a register (as in the Danish example above), except under certain conditions.

The second list bans – in principle – requirements of service companies regarding minimum numbers of employees, maximum or minimum prices, limits to company activities based on the population in a given area, and rules that require a company to have a specific ‘legal form’.  
A special procedure is also attached to this second list. If a Member State adopts regulation in the areas listed above, until now it has had to notify the Commission. The Commission could then request (not require) the Member State not to adopt, or to abolish the measures, if it found them to be too restrictive and hence in breach of the Services Directive. But crucially, so far there has been no requirement for Member States to notify the Commission before the measure was adopted.

The third list, in Article 16 of the Directive, is the most far-reaching. According to that article, service companies must be free to deliver services, and no restrictions are allowed unless they do not discriminate based on nationality, and are proportional and ‘necessary’. What makes this article particularly harsh and restrictive is that ‘necessity’ can only be “justified for reasons of public policy, public security, public health or the protection of the environment”. This legal phrasing excludes dozens of other legitimate concerns which might motivate regulation, such as concerns over access to affordable housing, a decent living, protection of city environments and many more.

This last list was the most politically contentious when the Services Directive was adopted in 2006. For that reason, some public services were explicitly exempted from this particular section: electricity, gas, postal services, water supply and waste management.

While the above outlines the broad set of areas governed by the Services Directive, however it may still not be entirely clear what consequences the directive has had or will have in a given sector. This is in fact very often the case with EU Directives, where the implementation has to be watched carefully to fully understand the impact and implications for policy.

Is notification required for all of the directive, including that (in)famous article 16?

Decisions related to the questions dealt with by article 16 are covered by the duty to notify the Commission.

During the previous struggle and protests over the Bolkestein Directive, people were most concerned about Article 16, because of the so-called ‘country-of-origin principle’. This principle essentially means that a service provider only has to follow the rules in its country of origin, not those in other Member States where it is operating. After a lengthy battle, the article was changed to address some of the concerns raised, but it is still very far-reaching. Essentially, it prohibits restrictions on services of all sorts, unless they can be proven to be necessary in order to obtain a very limited number of objectives.

How intrusive this is, or will be, ultimately comes down to interpretation of the rules. And with its new proposal, the Commission is clearly trying to give itself the right to interpret the text once and for all in an attempt to ‘deepen the single market’.

But is the Commission not just upholding EU law?

No, it’s not that simple. As must be obvious from the information above, the Services Directive is an extremely complicated act. It is riddled with articles that require some sort of assessment of any given case before deciding whether the Directive has been adhered to. For example: is the measure ‘proportionate’ or not? Is it adopted due to “overriding reasons relating to the public interest”? These are partly subjective questions that require a comprehensive assessment and clearly laid-out rationale for any decision made in this regard.

The proposal to change the ‘notification procedure’ makes it the prerogative of the Commission to give definite answers to questions such as these, and to act on its own decision forcefully: whereas in the old version of the Services Directive the Commission could decide ‘when appropriate’ to ‘request’ that a measure is not adopted or repealed, in the new proposal the Commission can ‘require’ the end of a measure.

What the Commission is proposing to do is not exactly upholding and enforcing EU law. It is in fact proposing to uphold and enforce its own understanding and interpretation of the law. And because many of the most crucial political struggles in the EU are about how to interpret EU laws, this is a bold move – and a distinct power grab by the Commission.
Furthermore, it could be argued that if the proposal is adopted, the Commission would be allowed to overstep its mandate in two ways:

- The Services Directive is just that: a directive. A directive is supposed to leave member states leeway to reach certain objectives in whichever way they choose, as opposed to ‘regulations’ which clearly outline how things should be done. According to the Commission’s own website, directives “require EU countries to achieve a certain result, but leave them free to choose how to do so.”  The new notification procedure however completely undermines member states’ freedom to choose in this regard.

- Ultimately, it is not for the Commission to decide whether the directive has been respected or not -that is the role of the European Court of Justice. The Commission can certainly form an opinion, and it can warn a member state that it may be violating the Services Directive – but to claim that it possesses the ultimate wisdom on the interpretation of the directive, to the point of overruling elected assemblies’ policies, is to exceed the Commission’s own mandate and role.

But hey, will the European Parliament not react strongly to this attack on democracy?

Sadly, no, not as it stands. In fact, quite to the contrary, the European Parliament’s Committee on the Single Market has already adopted a position, which seems completely unconcerned about the impacts this will have on decision-making in parliaments, regional assemblies or city councils. The main contribution of the European Parliament so far has been to suggest that while the Commission is analysing the notifications from ministries and municipalities, private companies should be allowed to provide input into the assessment. This would allow companies with a vested interest in a new law or another measure being proposed to put pressure on the Commission to stop initiatives which would go against their commercial interests.  In other words, the European Parliament wants to open another platform for industry lobbying.

Can municipalities and national parliaments not claim that this is an illegitimate power grab and invoke the subsidiarity principle?

Yes and no. National parliaments do have the option to object, using a so-called ‘yellow card’. In doing so, they assert that the Commission is encroaching on an area that should be handled at a lower level of government, be that national or city level. And indeed, The Austrian Bundesrat,  the Italian Senate, the two chambers of the French and German parliaments have all raised the yellow card. They have stated that the proposal breaches the EU’s ‘subsidiarity principle,’ according to which an issue that is better handled nationally or locally should not be covered by EU-wide rules. The resolutions from these bodies send a strong message to the Commission. The Austrian statement asserts that the proposal “intrudes deeply on the legislative sovereignty of Member States”, whereas the German Bundestag took the argument a step further and said that the proposal in fact violates the EU Treaty.

But, under the present rules, strong objections from various parliaments and councils in Austria, Italy, France, Germany and The Netherlands are not enough to hold up the proposal or to have the Commission change it. It would take objections from at least 5 more countries to even force the Commission to take another look at its proposal.

When will the decision on the proposal be concluded?

It could be very soon. The proposal was tabled in 2016, and it has come very far. At the time or writing, delegations from Member States (the Council) are negotiating with the European Parliament to see if they can find common ground. The chair of the negotiations – the Austrian government – is aiming to conclude the negotiations before it hands over the presidency of the Council to the Romanian government. After that, the only two small steps that would remain are a vote in the European Parliament and in the Council.
There is very little time to act, and the issue is extremely alarming, as the proposal may fundamentally undermine and alter local democracy and citizen participation across the EU, as well as the capacity of authorities to respond to demands from their electorate for regulation in public interest. Better today than tomorrow.