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Is the European Commission the first obstacle to opening up the EU’s services market?

Thierry Breton, European Commissioner for Internal Market (Copyright: European Parliament from EU, CC BY 2.0 , via Wikimedia Commons )

This year, the EU’s single market celebrated its 30th anniversary, leading the European Commission to state that it “it has helped to make everyday life easier for people and businesses, fueling jobs and growth across the EU. It is one of the EU’s greatest achievement” and that it has boosted gross domestic product for EU countries by about 9 per cent than would otherwise be the case.

Few would deny this, but for years, free traders have been demanding to complete the single market for goods, which is not still not fully open, and most certainly to open up the single market for services, where lots of national protectionism remains. Services account for 70 percent of EU GDP, so this is not some minor issue.

Eurochambres lists the following obstacles as significant for more than two thirds percent of respondents in a survey a few years ago: Complex administrative procedures, different national service rules, inaccessibility to information on rules and requirements, different national product rules and different contractual/legal practices.

To be fair, this is not something the EU can do much about. It’s the responsibility of national government to address. However, almost half of respondents also cites “discrimination of foreign enterprises by legislation or national authorities” as a significant obstacles, more than for example “language barriers”. This really relates to the EU’s core business: take action against national barriers to trade.

Despite this, the European Commission seems less and less interested in doing its job. Last month, the Financial Times reported that EU Commission action against internal market infringements had fallen by 80% between 2020 and 2022, leading business groups and some member states warning that the single market project is “at risk”.

The FT further cites an internal EC document showing that barriers to retail businesses have increased in a number of member states, including Hungary, Germany, Belgium and Poland since 2018. Unsurprisingly, France is listed as the member states with the most restrictive conditions. Again, we are not only talking about the services market. Extra hurdles on sourcing goods from other member states have also been imposed, reportedly.

According to a European Commission communication issued in 2016, the institution planned to take a “more strategic approach to enforcement”, intending to focus on cases with single market relevance and economic importance. The Commission has defended itself claiming that fewer infringement decisions “taken alone are not an appropriate measure of the commission’s enforcement efforts”.

This does not seem to convince business federations. Lasse Hamilton Heidemann of the Denmark’s chamber of commerce has wondered out loud whether the fall in infringements may be due to the fact that “the commission simply did not launch difficult cases.”

Some examples

There are many examples of cases where the EU Commission is simply refusing to do its job. Business requesting action against a Slovak national law that gave manufacturers the power to withhold permission for exports to maintain national supplies were for example told in 2018 that despite these restrictions not being “appropriate and necessary”, the Commission would nevertheless decline to take any further action, mentioning its “discretionary power” to focus on “strategic” cases.

Kasper Ernest, secretary-general of Affordable Medicines Europe, a body representing medicines traders who was pushing for action, commented as follows: “The Commission needs to start recognising that if you continue like this you will have so many disappointed business people”.

A more recent example is the long running saga of two German federal states blocking the opening of large Ikea retail stores. Already in 2008, the Swedish company urged the European Commission to take action, arguing that the protectionism of the German Länder violated both the freedom of establishment and the EU Services Directive. The EU Commission opened an infringement procedure and sent a formal letter, but nothing much changed.

In 2014, also successful French sports retailer Decathlon issued a complaint about this, leading to the European Commissing coming up with … a second letter of formal notice.

The Commission however refused to take Germany to court over the matter, despite this constituting a blatant violation of the EU Treaties.

Perhaps, in 2008, when e-commerce was still in its infancy, one could have made the legitimate case to protect smaller retailers. Now, these smaller companies are facing full on competition from global online e-commerce platforms. Why still prevent Ikea and Decathlon from opening up retail stores then?

In July 2022, the European Commission was officially reprimanded by the European Ombudsman for its lack of action, with the Ombudsman stating that the EC has taken “a disproportionately long amount of time”, urging to speed it all up, writing:

“As Ombudsman, I take the view that such a significant delay is not reasonable. The different arguments put forward by the Commission to explain the delay appear, in part, to be cumulative and the result of the Commission’s own failure to take a decision on whether or not to proceed with the matter. By any objective view, thirteen years is a disproportionately long amount of time for dealing with the administrative stages of an infringement procedure. The delay has had undeniably negative implications for the complainants.

Against this background, I believe it is incumbent on the Commission to take a decision on the next stage in this infringement procedure and I invite the Commission to do so without any further unjustified delay.”

Economic damage

Meanwhile, an assessment of the economic damage of the German protectionism by Europe Economics found that “beyond identifying non-trivial loss for the German economy, the restrictions under discussion (…) result in two to three times as much loss in the rest of the EU. In particular, these provisions in local planning rules, by preventing the establishment of the sort of IKEA store in question, lead to:

  • lost Gross Value Added to the economy of Germany of €25m and €71m to the economies of the rest of the EU;
  • foregone jobs — some 672 jobs in Germany and 1290 in the rest of the EU;
  • lost tax revenues — some €11m in Germany and €32m in the rest of the EU”

For Decathlon, similar great opportunities exist. The company has only opened 50 stores in Germany, but it would like to open an additional 200 ones in the country which is Europe’s biggest market. Its estimate is that only opening 10 stores in Germany would result in 2534 jobs and 115 million euro gross value added accross the EU, with particularly Denmark, France, Italy, Poland and Romania profiting.

Will the Commission give up altogether?

Despite all of this, no legal action followed. In response to the Ombudsman and ongoing complaints, in 2023 the Commission merely reported that it was in contact with German authorities, once again highlighting how it already had bothered to send a “Letter of Formal Notice”, thereby also claiming that Germany would have promised to modify national legislation.

However, the EU Commission continues to refuse to undertake legal action against Germany. Politico even discovered a European Commission letter disclosing that the institution is set to drop this infringement procedure into Ikea’s 15-year-old complaint, which is one of the most long-running ones, altogether.

Just like in the Slovak case, companies are left with a possibility to go national courts to try to push their case, perhaps with new German federal legislation as a straw to cling on.

Again, to justify itself, the Commission has referred to the fact that it “enjoys discretion in deciding whether or not, and when, to start an infringement procedure or to refer a case to the Court of Justice.”

Perhaps it should be checked out whether the EU Treaties do grant such right of discretion to the EU Commission – otherwise always very eager to expand its power and activities – and if not, EU member states should perhaps remind it.

In case Germany is not overly happy to do so, creative options could be explored. Back in 2012, think tank Open Europe suggested to take a “coalition of the willing” approach to open up the EU’s services market. It calculated that if only those EU member states that were supportive to go for this would already start open up their services markets to each other, already half of the gigantic benefits of completing the EU single market for services would be realized. In the age of e-commerce, the benefits of such an approach are only growing by the day.