Think tank says proposed EU services e-card is ‘unlawful and problematic’

SUMMARY:

The Centre for European Policy has criticised many aspects of the European Commission’s proposed e-card to create a closer knit EU services market.

EU flagEarlier this year the European Commission claimed that the single market for services in the EU “does not function properly” and that a new model was needed to promote cross-border trade for those working in fields, such as engineering and IT.

The idea put forward was the creation of an e-card for services, which would allow any member state to liaise with whichever other member state that they wanted to provide services in, via an online portal, and in their own language, to get issued an e-card for the indefinite provision of services in that host country.

For example, a company in Germany could apply for an e-card for service provision in Spain and would apply for the e-card online, submit all its documentation in German, which would be translated into Spanish for approval. Providing the company in German fulfils all the requirements of a service provider in Spain, an e-card for indefinite service provision would be provided to the German company in a matter of weeks.

The idea is that this would reduce red tap and make it easier for companies to trade in services across member states – something that hasn’t worked as effectively as the trade in goods across the EU.

At the time of the announcement, Vice-President Jyrki Katainen, responsible for Jobs, Growth Investment and Competitiveness, said:

Barriers to trade in services are also barriers to competitiveness. Making better use of the Single Market for Services will help European businesses create jobs and grow across borders, offering a wider choice of services at better prices, while maintaining high standards for consumers and workers.

Today we are proposing to simplify procedures for cross-border service providers as well as a new and more modern way for Member States to work together to regulate their services sectors.

And Commissioner Elżbieta Bieńkowska, responsible for Internal Market, Industry, Entrepreneurship and SMEs added:

Services represent two thirds of the EU economy and generate 90% of new jobs. But the Single Market – this jewel that is all too often taken for granted – does not function properly for services. As a result, we miss out on important potential for jobs and growth. Today we are giving a fresh boost to the services sector to make Europe a global hub for providing, buying and developing new services.

However, influential German think tank Centre for European Policy has this week come out criticising the proposals, claiming that an e-card for services would “hardly” strengthen the internal market and raised a number concerns about the proposed implementation.

Unlawful

The Centre for European policy’s examination of the e-card proposal raises a number of concerns. Whilst it states that the Commission’s attempt to facilitate the cross-border provision of services is “basically welcome”, it is quick to add that it will hardly strengthen the internal market and believes that it will give rise to a “large amount of red tape for authorities in the member states”.

This is down to the fact that the proposed regulation requires that member states will have to implement a Point of Single Contact (an online portal for applications from other member states) and will have to create a second organisational structure for the registration and approval process.

And although the online portal will translate documents into the native language of the proposed host country, it is inevitable that companies will have to communicate with the country it wishes to provide services in outside of this. The think tank states:

Foreign service providers will nevertheless have to communicate directly with the authorities in the host Member State when providing cross-border services because a foreign service provider will have to carry out reporting obligations, arising under tax, employment and social insurance law, in relation to the authorities in the host Member State.

These reporting obligations must generally be carried out in the language of the host Member State. The advantage of the E-Card for foreign service providers will be limited by this.

Further to this, the proposed e-card, if approved by the host member state based on current requirements and regulation, grants the foreign company an indefinite right to do business in their country. However, the Centre for European Policy is concerned that this indefinite validity isn’t subject to future checks upon changing requirements, which could give foreign companies an advantage over service providers at home. It states:

Nevertheless, indefinite validity can lead to problems if a Member State issues new requirements for service providers. These will always apply to domestic service providers but it is unclear whether, due to the indefinite validity of the E-Card, foreign service providers will also be affected by such new requirements. If not, it will give rise to discrimination against the country’s own nationals. Clarification in the wording of the legislation is required.

The think tank argues that the timeframes proposed for host countries to approve an e-card are too strict, with processing times of between one and six weeks being proposed. It states that this is “too short” given the “complexity and length” that could be involved.

Finally, the report also questions how effective it would be for the host country to be relied upon to check the validity of the documents submitted by the company applying – arguing that this could give rise to companies simply ‘ticking boxes’ to get an e-card. It states:

It is also problematic that the host country has to rely on details provided by the service provider in order to determine whether the latter is lawfully established in the home Member State. This gives rise to a risk that letterbox companies will be set up, in Member States where the authorities do not carry out careful checks, simply in order to obtain an E-Card.

The incentive to carry out careful checks is reduced by the fact that, in the home Member State, an E-Card does not necessarily amount to proof that a service provider has been lawfully established there. The consequences of failing to make a careful check are, in this case, only felt in other countries.

The rule that the Member States are not permitted to require service providers to submit formal proof of the authenticity of the documents or certified translations, on the one hand, reduces the administrative burden on the service providers. On the other hand, Member States have, as a result, less chance of discovering fraud.

Brexit

Although the Centre for European Policy is raising concerns about the current proposals, the idea of a services e-card does raise interesting questions for the UK’s future relationship with the EU post-Brexit – if it was implemented in the future.

As I have highlighted previously, digital falls under the services side of any future FTA that takes place. And whilst the UK has a deficit on trade in goods with the EU27 (£89 billion in 2015), it has a surplus on trade in services (£28 billion in 2015). And FTA’s aren’t historically very good at incorporating the requirements for services.

Simply put, the UK has a greater interest in securing a good FTA for services after Brexit, whilst the EU has a greater interest in securing one for goods (which has typically been the case if you look at other FTAs).

If in the future the European Union, with the UK outside of that relationship, does implement a successful e-card for services scheme – and the UK isn’t able to take advantage of that – then we could find that the UK is at an even greater disadvantage when it comes to trading in services with its closest trading ally.

Whilst the EU seeks closer integration of services across member states, the UK could find that it increasingly falls behind in its ability to compete with other companies in the EU that have a simpler process for expanding their reach. Something to consider.

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