The central principles governing the internal market for services are set out in the EC Treaty. This guarantees to EU companies the freedom to establish themselves in other Member States, and the freedom to provide services on the territory of another EU Member State other than the one in which they are established.
Overall, the Internal Market has resulted in real benefits. For instance, in the 10 years since the completion of the first Single Market programme in 1993, at least 2.5 million extra jobs have been created as a result of the removal of barriers. The increase in wealth attributable to the Internal Market in those 10 years is nearly € 900 billion; on average about € 6000 per family in the EU. Competition has increased as companies find new markets abroad. Prices have converged (in many cased downwards) and the range and quality of products available to consumers have increased.
The principles of freedom of establishment and free movement of services have been clarified and developed over the years through the case law of the European Court of Justice. In addition, important developments and progress in the field of services have been brought about through specific legislation in fields such as financial services, transport, telecommunications, broadcasting and the recognition of professional qualifications
However, despite progress in some specific service sectors, the overall Internal Market for services is not yet working as well as it should. Most notably, the Lisbon summit of EU leaders in March 2000 asked for a strategy to remove cross-border barriers to services. Following an in-depth legal and economic analysis and a consultation with Member States, other European institutions and stakeholders, the Commission published a Report on the State of the Internal Market for Services in July 2002. This report identified the most common obstacles to the free movement of services in the EU. It concluded that there was still a huge gap between the vision of an integrated EU economy and the reality as experienced by European citizens and service providers.
The work done by the Commission shows clearly that these barriers have a serious negative effect on the cost and quality of services. Small and medium sized enterprises (SMEs) in particular, are disproportionately affected by complex administrative and legal requirements and therefore more likely than larger firms to turn down cross-border opportunities because of them. Given the predominance of SMEs in service operations, this has clearly acted as a considerable hindrance the development of the Internal Market for Services. A recent Eurobarometer survey has shown that currently only 8% of SMEs engage in cross-border activities because of such difficulties.
Following the report and further legal analysis, in January 2004 the Commission made a proposal for a Directive on services in the Internal Market. The Services Directive was finally adopted by the European Parliament and the Council in December 2006 and needed to be transposed by the Member States by the end of 2009. This directive is aimed at eliminating obstacles to trade in services. Its full implementation should remove red tape and significantly facilitate the establishment of service providers at home or abroad. It should also significantly facilitate the cross-border provision of services into other EU countries. The Directive also strengthens the rights of service recipients, in particular consumers, and should ensure easier access to a wider range of services.