Freedom to Provide and Receive Services 1. What is special about services? The significance of the service sector for the member states of the European Union has increased substantially over the last 50 years. Today EU member states’ service sector share of GDP is estimated at approx. 65 per cent, and the share of those employed in the service sector (of all employees) amounts to almost 70 per cent. most service sectors export less than 5 per cent of their production to other Member States, as the obstacles to the free movement of services resulting from specific regulatory norms of the member states were too large.

2. The Community‘s Definition of Services Art. 50 EC states that the basic freedom deals with services ‘where they are normally provided for remuneration, insofar as they are not governed by the provisions relating to the freedom of movement for goods, capital and persons. The freedom to provide and receive services therefore acts as a ‘catch-all element’ which is only invoked when none of the other basic freedoms can be applied. Transport (Art. 51 (1) EC) is explicitly excluded, which is regulated under its own heading under the common transport policy. A further restriction to the freedom to provide and receive services is the wish to liberalise banking and insurance services in step with the free movement of capital (Art. 51 (2) EG).

Since the freedom to provide and receive services acts as a catch-all element, its scope of application is, for the main part, defined by how it distinguishes itself from the other basic freedoms: The closest link obviously exists between the freedom to provide and receive services and the freedom of establishment (temporary vs. permanent basis). As services are not only offered by individuals, but in many cases also by firms with dependent employees, a demarcation problem exists with regards to the free movement of workers. Are the employees to be factually regarded as employees of the provider of the service or as the employee of the client (the recipient of the service)? Lastly, individual cases of demarcation problems remain with respect to services in connection with the delivery of goods (e.g. the assembly, starting and maintenance of a tool machine) or with respect to services provided in close connection with the movement of capital.

Three cases of border-crossing services can be distinguished: 1.In the case of the freedom to provide services the provider (e.g. a lawyer or a management consultant) who has established himself in another member state travels to a client resident in another member state, in order to provide the service there. 2.In the case of the freedom to receive services – recognised since the Luisi and Carbone decision in 1984 – the consumer travels to another member state to receive the service (e.g. services offered by hotels, hospitals or a service garage for tourists).

3.In the case of the freedom of correspondence services – recognised since the Sacchi ruling in 1974 – it is the service itself (not the provider or the recipient of the service) that crosses the border to another member state. Originally, this affected the cross-border broadcasting of radio and television programmes in particular. However, it is increasingly gaining importance due to technological advancements in information and communications technology (internet, call centres etc.).

3. Permissible and non-permissible restrictions on the free movement of services Prohibition of discrimination and obligation of equal treatment of nationals of other member states (Art. 50(3) EC). In addition to this, Art. 49 (1) EC contains a comprehensive prohibition of restrictions which also catches all ‘miscellaneous restrictions’ that impede the free movement of services although they do not discriminate, either distinctly or indistinctly, on the grounds of nationality. An explicit exception to the free movement of services are all activities which are carried out in a member state, either on a permanent or temporary basis, in connection with the exercise of official authority (Art. 55 EC in conjunction with Art. 45 EC). The treaty allows for a distinct discrimination on grounds of nationality in relation to all other services as well, as long as it can be justified for reasons of public order, public security or public health (Art. 55 EC in conjunction with Art. 46 EC.

‘Miscellaneous restrictions’ can, in accordance with the ECJ’s case law, be justified through imperative requirements of general interest, as long as they are non-discriminatory and as long as the principle of proportionality is not violated. So far the ECJ has recognised the following ‘imperative requirements of general interest’ with respect to the freedom to provide and receive services: fairness of commercial transactions and consumer protection, protection of workers, coherence of fiscal systems, reputation of capital markets, matters of cultural policy, matters of social policy and the fight against fraud, financial balance of the social security system, efficiency of the administration of justice.

A series of directives support the liberalisation of the movement of services: As the chapter on the freedom of establishment discussed in detail, since the 1980s there has been a departure from the sector-specific harmonisation of details and an advance towards a sector-spanning mutual recognition of vocational qualifications and diplomas as well as certificates of professional competence.

The 1989 Broadcasting Directive (89/552/EEC) guarantees the freedom to provide television services subject to the control of the transmitting state (the so-called ‘transmitting state’ principle), yet also contains rules that favour ‘European creations’ (particularly through minimum quotas) which have been strongly criticised, as they represent a massive invasion into television broadcasters’ freedom to develop the programme schedule. The Broadcasting Directive was updated in 1997 (Amending Directive 97/36/EC), incorporating as a new aspect the broadcasting of events watched by huge audiences (e.g. the Olympic Games), permitting new forms of advertising, such as tele-shopping, as well as explicitly including the ‘transmitting state’ principle. Lastly, the Posting of Workers Directive (96/71/EC) from 1996 is also of importance. It allows member states to apply certain core elements from worker protection regulations to workers who have temporarily been sent abroad by their company seated in another member state to provide services, and who therefore are in principle subject to the labour law provisions of their home country. A series of directives support the liberalisation of the movement of services (ctd.):

In the following we will systematise some fundamental ECJ rulings and examine their implications with respect to the free movement of services. The overview differentiates between six case scenarios which arise from combining the three ways in which services cross borders with the two possible sources of restrictions. From these six theoretically possible scenarios only five are relevant in practice. At least we are not aware of a case where the home country of the service provider imposes restrictions of any kind upon the latter’s temporary activity in another member state.

Fundamental ECJ rulings on the free movement of services Type of border crossing Source of restriction Freedom to provide services Freedom to receive services Freedom of correspondence services Country of residence of service receiver Van Binsbergen (1974) Tourist guides (1991) Corsten (2000) Rush Portuguesa (1990) Luisi and Carbone (1984) Kohll (1998) Geraets-Smits and Peerbooms (2001) Müller-Fauré and van Riet (2003) Bond van Adverteerders (1988) ARD (1999) Säger (1991) Schindler (1994) Country of residence of service provider Ciola (1999)Alpine Investments (1995)