Europa Institute

Mitchell Working Paper Series

Promoting the Consumer Interest

in an Integrated Services Market
Stephen Weatherill
1/2007
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Promoting the Consumer Interest in an Integrated Services Market

Stephen Weatherill

The story of this initiative is one of radical change rejected. When first presented by the Commission in 2004, it was
heralded as a means to re-distribute regulatory competence in favour of home States to the exclusion of host States, thereby
to intensify cross-border competition in the notoriously fragmented and inefficient services sector. It has finished up, in its
2006 version, as little more than consolidation of the existing law and exhortation to make it work better in practice.
This has been an exercise in making a molehill out of a mountain.

1. Consumers and Market Integration

The fragmentation of services markets in Europe is notorious and persistent. Further, it is not in the
consumer interest. In principle the integration of national markets within a wider European market
should generate a more competitive and efficiently functioning service economy within which
consumers can benefit from wider choice, higher quality and lower prices. This is basic common
market theory.
The law follows the economic model. Article 49 EC promotes service market integration. It
prohibits restrictions on the freedom to provide services across borders in the Community. Article 43
performs a similar function for service providers who intend a longer-term presence in the target state.
These Treaty provisions challenge national measures that impede cross-border trade in services.
However, the deregulatory impetus of Articles 43 and 49 is not absolute. The Treaty recognises scope
for the justification of national measures which impede free movement. Restrictions on grounds of
‘public policy, public security or public health’ may be justified according to Articles 46 and 55,
although the Court has always insisted that these provisions, as derogations from the basic policy of
market integration, shall be interpreted narrowly. More generally, the Court has accepted that national
measures that exert a protectionist effect in favour of domestic suppliers of services shall be put to the
test, and it has accepted the possibility that a State may show a justification which is in the general
public interest for maintaining measures of service market regulation which impede inter-State trade.
Among the possible justifications for trade-restrictive measures which the Court has in principle
accepted is the protection of the economic interests of consumers.
This means that two different routes to promote the interests of consumers may come into collision.
Setting aside obstructive national trade rules benefits the consumer by opening up an integrated service
market – but at a cost measured in loss of local regulatory protection. Finding the national rule to be
justified serves the consumer by sustaining the pattern of regulatory protection in the national market –
but at the cost of loss of opportunity to participate in a more efficiently functioning EU market. So


Jacques Delors Professor of European Community Law at the University of Oxford and Fellow of Somerville College,
Oxford.
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there is a cost/ benefit analysis of sorts involved in the case law applying the Treaty provisions on free
movement to particular challenged national rules.1 It is for the regulator to show the rules to be
justified, and the Court will accept only cogent and carefully explained reasons. Commission v France2
provides a simple illustration of the Court's approach. French rules obliged tourist guides to obtain a
licence. This rule exerted a restrictive effect on the ability of tourist guides from outside France to
accompany groups who wished to tour France. The Court did not deny the legitimacy of the objective
of ensuring proper cultural and artistic appreciation of the host country, but found the rules in question
disproportionately restrictive. As the Court observed, the French rules would be likely to have the
effect that visiting groups would be denied the opportunity to be guided by someone `who is familiar
with their language, their interests and their specific expectations'.3 In short, the Court saw no good
reason to allow the suppression of consumer choice in the (integrated) market in favour of public
intervention.
There is a strong deregulatory impetus in this case law, and in the main the Court has not been
impressed by State attempts to justify trade-restrictive rules.4 But the Court has insisted that ‘the fact
that one Member State imposes less strict rules than another Member State does not mean that the
latter's rules are disproportionate and hence incompatible with Community law’.5 This conforms to the
structure of the Treaty itself, which allows for the possibility that a State may be able to justify its
regulatory choices even where they impede inter-State trade. The Treaty’s provisions on free movement
do not generate automatic deregulation of national markets; justification of trade-restrictive rules
remains possible. This acknowledges regulatory diversity among the Member States (pending possible
legislative intervention by the EC). There are limits to the deregulatory impulse.6
The orthodox assumption underpinning the harmonisation of laws is that it picks up the pace of
market integration where the contribution of the judicially applied Treaty prohibitions comes to an end.
That is to say, the non-absolute nature of Article 49 (and Article 28, etc) means that some – justified –
national measures will continue to frustrate the quest to provide a level regulatory playing field for
commercial operators. The solution is for the Community legislature to harmonise the areas in which
diverse national measures persist. This is to agree ‘common rules for a common market’, which (in
whole or in part) replace diverse national rules. Free trade is facilitated because protection is achieved

1
See generally, S. Weatherill, EU Consumer Law and Policy (Cheltenham: Edward Elgar, 2005), Chapter 2.
2
Case C-154/89 [1991] ECR I-659.
3
Ibid, at para. 19.
4
Cf eg Case C-76/90 Sager v Dennemeyer [1991] ECR I-4221. For a survey of case law see V. Hatzopoulos, ‘The Case
Law of the ECJ concerning the Free Provison of Services: 2000-2005’ (2006) 43 CMLRev 923.
5
Case C-3/95 Reisebüro Broede v Gerd Sanker [1996] ECR I-6511 at para. 42.
6
Cf eg Case C-384/93 Alpine Investments BV [1995] ECR I 1141; Case C-6/01 Anomar [2003] ECR I-8621; Case C-
262/02 Commission v France, Case C-429/02 Bacardi v TF1 [2004] ECR I-6569, 6613 (Loi Evin).
 3

according to a common EC standard which irons out trade-restrictive differences between national
systems.
In so far as economic integration improves the consumer’s position by stimulating a more
competitive market, then harmonisation is in general to be viewed positively from the consumer
perspective. But there is an extra dimension to harmonisation as a project that serves the consumer
interest. In so far as the national laws which are swept within the harmonisation net affect consumer
protection, the EC assumes the function of setting its own – common – rules of consumer protection.
Community laws come into existence in order to integrate the market, but their incidental effect is
additionally to regulate it – or more pertinently to ‘re-regulate’ it, in the sense that the Community is
not acting as a de novo regulator but rather is responding to the pre-existing diverse regulatory choices
among the Member States. Advocate General Fennelly made the point crisply in his Opinion in Tobacco
Advertising: ‘the Community is not acting in a policy vacuum’.7 Harmonisation of laws affecting services
therefore has a dual function: it sets common rules for the European services market but, against a
background of diverse national sources of regulatory inspiration, it also involves a choice of the
appropriate standard of re-regulatory protection that will apply in common to service provision
throughout the EC.
So harmonisation involves a re-allocation of regulatory competence (in whole or in part) from
Member State level to Community level. In consequence the Community advances market integration –
which should benefit the consumer – while also becoming (in whole or in part) the site of regulation
designed to protect the consumer from any perceived market failure or inequity.
Integrating consumer markets is at least supposed to be in the interest of consumers. In the best of
all possible common markets (in which we may or may not be living) there should be no tension
between deregulated markets that generate intensified competition and wider choice, on the one hand,
and the accompanying body of (common) market regulation designed to cure market failures and
inequities on the other. That is, both negative and positive EC law make up the body of EC consumer
policy properly understood: it is not a question of the latter being designed simply to compensate in
whole or in part for the deficiencies inherent within or even the damage done by the former. Of course,
there is plenty of room for debate about whether particular choices made in the application of Articles
28, 49 etc are the best choices to promote the consumer interest – plenty of room too for debate about
the details of the re-regulatory bargain struck in measures of harmonisation relevant to the consumer,
and the balance between EC competence and residual Member State competence (if any: I refer to the
minimum/maximum debate which is a current hot if ambiguous topic in both descriptive and

7
Paras. 64-66 of AG Fennelly’s Opinion in Tobacco Advertising, Case C-376/98 Germany v Council and Parliament
[2000] ECR I-8419.
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normative contexts)8. My current point is simply that EC consumer policy is not helpfully seen as a set
of harmonisation Directives establishing common rules juxtaposed to an evil set of free movement
provisions which destroy cherished national initiatives of consumer protection (though they may do
that). EC consumer policy is driven by the law of free(d) trade and by the law of (re-)regulated trade.

2. The Services Directive and the Consumer Interest

Is that pattern of re-allocation of regulatory competence what is going on here, in the Services
Directive? In short: yes.
The assumption driving this legislative initiative is that Article 49 goes only so far in achieving an
integrated market for services and that persisting but justified barriers to inter-State trade in services are
(inter alia) responsible for denying consumers the benefits of a single services market. So harmonisation
takes the strain. The adoption of common rules governing the regulation of the sector will set aside (in
whole or in part, depending on the model chosen) the competence of Member States to choose diverse
approaches, opening up an integrated trading space, while the content of those common rules will
dictate the standards of (inter alia) consumer protection. That is – roughly – the policy agenda
underpinning the Services Directive. And impetus has been eagerly generated by economic analysis of
the advantages to be gained through the adoption of market-making harmonised rules.9 Further
momentum is provided by embedding the initiative in the broader ‘Lisbon Strategy’ promoting
economic reform. However, the detail of the proposed legal rules is complicated and contested.
How vigorous should the re-allocation of regulatory competence from State to Community level be?
The alterations made in 2006 to the original 2004 Commission proposal are largely concerned with this
vital issue. The so-called country-of-origin principle was initially favoured by the Commission as the

8
Cf e.g. M. Dougan, ‘Minimum Harmonisation and the Internal Market’ (2000) 37 CMLRev 853; P. Rott, ‘Minimum
Harmonization for the Completion of the Internal Market? The Example of Consumer Sales Law’ (2003) 40 CMLRev
1107; B. Kurcz, ‘Harmonisation by means of Directives – never-ending story?’ (2001) 12 Euro Bus L Rev 287; M.
Dougan, ‘Vive La Différence? Exploring the Legal Framework for Reflexive Harmonisation within the Single
European Market’ (2002) 1 Annual of German and European Law 113; S. Weatherill, ‘Minimum Harmonisation as
Oxymoron? The Case of Consumer Law’, pp.15-36 in H.-W. Micklitz (ed.), Verbraucherrecht in Deutschland – Stand
und Perspektiven (Tagungsband der 1. Bamberger Verbraucherrechtstage), Baden-Baden: Nomos Verlagsgesellschaft,
2005; S. Weatherill, ‘Supply of and demand for internal market regulation: strategies, preferences and interpretation’,
Ch. 2 in N. Nic Shuibhne, Regulating the Internal Market (Cheltenham: Edward Elgar, 2006); R. Schütze, ‘Supremacy
without Pre-Emption? The very slowly emergent doctrine of Community pre-emption’ (2006) 43 CMLRev 1023; R.
Schütze, ‘Co-operative federalism constitutionalised: the emergence of complementary competences in the EC legal
order’ (2006) 31 ELRev 167; F. de Cecco, ‘Room to Move? Minimum Harmonisation and Fundamental Rights’(2006)
43 CMLRev 9.
9
The Commission’s impact assessment, published in connection with the 2004 draft, is available via
http://ec.europa.eu/internal_market/services/services-dir/impact_en.htm. Other economic studies are available via
http://ec.europa.eu/internal_market/services/services-dir/studies_en.htm. For a collection of relevant analyses on the
impact at UK as well as EU level see http://www.dti.gov.uk/europeandtrade/europe/services-
directive/economics_evidence/page22898.html.
 5

model for the freedom to provide services when it presented its proposed Directive in January 2004.10
This would have meant that the Directive would have established certain agreed standards of
protection, but that there would have been no scope for host states – states where services were being
provided – to demand compliance with stricter rules. This is in fact misleadingly described as a country-
of-origin principle: a truly pure country-of-origin principle would permit the supplier based in State X
to do no more than comply with the rules of State X (if there are any) in order to gain access to the
market of State Y. The Commission’s original 2004 draft did not envisage anything so extreme – it
established certain common standards of protection which all Member States would have been required
to implement and enforce, meaning that State X as country-of-origin would not have been free to select
its own type of regulatory regime – if any – but rather would have been tied in to the agreed
Community regime.11 But this would have been a type of country-of-origin principle – compliance with
the rules of the country-of-origin, albeit that these were ultimately sourced in the Directive, would have
been enough to entitle a trader to access to all other markets in the EU. There would – crucially,
controversially – have been no scope for stricter ‘host state’ rules.
Adoption of such a model would have constituted a radical departure from past legislative choices in
the field of harmonisation of measures protecting consumers’ economic interests where minimum rules
have long been the normal core political bargain.12 That means that harmonisation sets a floor level of
regulatory protection but that Member States may set stricter standards, up to the ceiling set by the
Treaty itself, most conspicuously under the requirements of the rules on free movement. By contrast,
the Services Directive, in its original proposed form, would have excluded the possibility for a host
state to choose to set stricter rules. However, the rejection of the minimum model would not have been
entirely novel. It would have readily aligned with the Commission’s preference for the renovation of
the consumer protection acquis in the direction of maximum harmonisation13 and it has already found
legislative favour in the Unfair Commercial Practices Directive14 (which introduces a regime of
maximum harmonisation supported by re-regulatory common standards requiring the suppression of
unfair practices as defined). The conventional policy argument favouring maximum harmonisation is
that its aptitude to cure regulatory fragmentation serves to promote trade integration in the interests of

10
Proposal for a Directive of the European Parliament and of the Council on services in the internal market, COM
(2004) 2.
11
Chapter IV of the 2004 draft.
12
See Weatherill note 1 above Chapter 3.
13
See Commission’s Consumer Policy Strategy 2002-2006, Communication to the Parliament, Council, ECOSOC and
CoR, OJ 2002 C137/2; also the Commission’s European Contract Law and the revision of the acquis: the way forward,
COM (2004) 651.
14
Directive 2005/29 OJ 2005 L149/22. For criticism of this aspect of the Directive see G. Howells, ‘Unfair Commercial
Practices Directive – a missed opportunity?’ Ch. 6 in S. Weatherill and U. Bernitz, The Regulation of Unfair
Commercial Practices under EC Directive 2005/29; more positively, G. Abbamonte, ‘The Unfair Commercial Practices
Directive and its General Prohibition’, Ch. 1 ibid.
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commercial operators and also consumers. The ‘Television without Frontiers’ legislative regime offers
another example of elimination of scope for the ‘host state’ to set stricter rules against services
complying with the chosen standard (going even further in the direction of home state control even in
matters of enforcement where the agreed common rules are broken).15
Had the original 2004 shape of the country-of-origin principle been retained in the 2006 draft
Services Directive, the provisions establishing the common standards of consumer protection in what
is now Chapter V would have been of vital significance to the pattern of market integration founded on
re-regulatory common standards of protection. There would have been no scope for a host state to
impose stricter rules. The harmonised rules provide the exclusive source of regulatory protection in
matters falling within the material scope of the Directive. That model would have given rise to a range
of (not unfamiliar) questions: how can the rules be applied evenly and effectively in order to meet the
objectives of market integration and a high standard of consumer protection? What about the
(improbable!) willingness of home states to enforce the rules with rigour against ‘their’ service providers
targeting other states’ consumers? And does the fixing of a common rule at EC level tend to chill
innovation? The debate would have been about, in short, whether the benefits of intensified market
integration really exceeded the costs of reduced scope for regulatory innovation and choice at national
level.
A tide of popular and political dissatisfaction washed away the Commission’s initial plan. By 2006
the country-of-origin principle had been stripped out. Under the Commission’s proposal released in
April 2006,16 converted into a common position agreed by the Council in July 2006,17 and agreed with
minor procedural amendments by the Parliament in November 2006,18 host state rules shown to be
justified may still be applied to restrict trade in services. So, under the latest version of the proposed
Services Directive, is anything useful left? Not according to an Editorial in the Common Market Law
Review – the alteration ‘reduces its impact on the development of the internal market to practically
zero, if not even to a negative effect’.19

15
Directive 89/552 on television broadcasting OJ 1989 L298/23, amended by Directive 97/36 OJ 1997 L202/60. Cf. on
the state of EC law from this perspective S. Weatherill, ‘Pre-emption, harmonisation and the distribution of competence
to regulate the internal market’, Ch.2 in C. Barnard and J. Scott (eds), The Law of the Single European Market (Oxford:
Hart Publishing, 2002).
16
Amended proposal for a Directive of the European Parliament and of the Council on services in the internal market,
COM (2006) 160.
17
Common position 16/2006, OJ 2006 C270E/1.
18
Documentation is available via http://ec.europa.eu/internal_market/services/services-dir/proposal_en.htm (last visited
19 November 2006).
19
(2006) 43 CMLRev 307, 308.
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3. The Services Directive and the (re-)allocation of regulatory competence

The 2006 draft of the Services Directive is a modified version which is by no means as radical in its
impact on residual host state regulatory competence as the original 2004 version. It seeks to promote
cross-border trade in services but it envisages circumstances in which Member States may show that
impediments to cross-border trade are justified and therefore lawful.20 Nonetheless this would not
involve mere preservation of the existing position under the Treaty. The 2006 text is not barren of
impact on competence distribution. It would limit the scope of justification of trade barriers available
to a host state.
Article 15, in Chapter III dealing with the establishment of service providers, amounts to a simple
recitation of existing Article 49 case law. There is no adjustment in the scope of host state regulatory
competence. So justification of trade barriers remains possible.
However, Article 16 in Chapter IV on the freedom to provide services is different. It stipulates that
Member States shall respect the right of providers to provide services in a Member State other than
that in which they are established.21 Any limitations must respect stated principles – non-discrimination,
necessity and proportionality. ‘Necessity’22 covers justification ‘for reasons of public policy, public
security, public health or the protection of the environment’ – a narrower formulation than that found in
Article 15(3)(b) where necessity is justification ‘by an overriding reason relating to the public interest’
(defined in Article 4(8) by reference to the Court’s case law, and including ‘the protection of
consumers’) and narrower than Article 49 EC itself. So, where consumer safety issues are at stake, host
state intervention is envisaged by Article 16 (see also Article 18), but where the protection of the
economic interests of consumers is the aim of the host state, it seems that the intervention would be
precluded by the Directive, if adopted – unless ‘public policy’ in Article 16 is stretched to embrace
concern for the economic interests of consumers (which the Court has emphatically not been prepared
to sanction in the interpretation of the Treaty provisions on free movement 23).
This, then, seems to mean that the application of some measures of national consumer protection
would be excluded were the Directive to be adopted, in so far as they constituted barriers to the cross-
border provision of services – i.e. there would be no scope for the host state to seek to justify its
measures as ‘necessary’ to protect the economic interests of consumers (whereas, crucially, there is such
scope under the Treaty’s principle of non-absolute mutual recognition, vigorously elaborated by the

20
I do not here explore whether the fact that services that comply with the Directive would still not be entitled to access
to the markets of all the Member States would rob the measure of validity as a measure of harmonisation – an argument
drawn from the approach taken by the Court in Case C-376/98 Germany v Parliament and Council (‘Tobacco
Advertising’) [2000] ECR I-8419 at paras 101-104 of the judgment. I think and hope the argument is wrong: see more
fully Weatherill ‘Minimum Harmonisation as Oxymoron?’ note 8 above.
21
Article 16(1).
22
Article 16(1)(b).
23
Case 113/80 Commission v Ireland [1981] ECR 1625. [See L376/46 OJ 27.12.2006 para.78]
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Court). In these areas, then, the standards of consumer protection fixed by the Directive become the
unalterable rules of national consumer law. The adjustment of regulatory competence is by no means as
extensive or radical as that originally proposed – but it would still alter, and limit, the scope for host
states to maintain measures of consumer protection.
There is a cost to national consumer protection in that it is no longer possible to develop protective
rules for particular service sectors that go beyond those set by the Directive: nor is there scope to act to
protect particular groups of vulnerable consumers. Consider Ministére Public v. Buet.24 The Court held
that a French law which prohibited ‘doorstep selling’ of educational material was not incompatible with
Article 28 in view of its contribution to the protection of consumers from pressure selling tactics. It
was of significance that the national law was designed to protect vulnerable consumers behind with
their education and wishing to improve it. There was a Directive in the field – the ‘Doorstep Selling’
Directive, 85/37425 – but that Directive is explicitly ‘minimum’ in character and so although it merely
regulates the practice of ‘Doorstep Selling’ (by providing for a ‘cooling-off period’ for consumers) it did
not preclude France choosing to ban the practice altogether. By contrast, Article 16 of the 2006 version
of the Services Directive would not permit national measures designed to protect the economic
interests of vulnerable consumers who go beyond those foreseen by the Directive itself – unless,
improbably, a very broad view of the scope of public policy in Article 16(1)(b) were taken.
Are the costs in the form of reduced scope for choices about consumer protection at national level
too high? At least three points need to be considered. It is first pertinent to remember that the
intensified integration of service markets is itself in the interest of consumers because it generates
competition and choice. Perhaps some will gain more than others, and perhaps vulnerable ones will not
gain at all. But as a starting-point there are benefits to the consumer in adjusting the pattern of allocation
of regulatory competence via legislative harmonisation in order to promote cross-border trade which
should be weighed against the costs in loss of regulatory autonomy at national level.
A second point is that the Directive has been loaded with a large number of exceptions. Sector-
specific fears about diminished consumer protection may be allayed by the location of many sensitive
areas of service provision outwith the scope of the Directive (see in particular Articles 1, 2, 3 and 17).
In these cases the Treaty orthodoxy governing free movement applies. Justification is generally available
for trade-restrictive measures, certainly covering the protection of the economic interests of consumers.
That could mean some vital definitional issues will loom – one could imagine a measure of national
consumer protection being properly applied to a service provider only if the service in question is
found to fall outside the Directive, which is likely to be confusing and poor quality regulation for a

24
Case 382/87 Ministére Public v. Buet [1989] ECR 1235.
25
OJ 1985 L372/31.
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viable internal market, as considered further below – but the point here is that under Article 49, but not
the Directive, it remains open to host states to justify trade-restrictive rules by appeal to their
contribution to the protection of the economic interests of consumers of services.
A third point to bear in mind is that the Directive does set its own rules of consumer protection.
That is, this is a regulated system of country-of-origin. So host states may lose competence to set stricter
rules of consumer protection in defined circumstances – but there are rules of consumer protection.
Chapter V is entitled Quality of Services. Article 22 provides that ‘Member States shall ensure that
providers make the following information available to the recipient… ’. This covers name, registration,
authorisation, after-sales guarantees, price, and so on.
This emphasis on information disclosure conforms to general policy preferences in the pattern of re-
regulatory EC consumer protection law.26 For example, Directive 97/7 on the protection of consumers
in respect of distance contracts has as its background the increasing technological feasibility of
establishing means of distribution other than through face-to-face contact between trader and
consumer. Article 4 provides that ‘in good time prior to the conclusion of any distance contract [as
defined]’ the consumer shall be provided with stipulated information about matters including the
identity of the supplier, the main characteristics of the goods or services, and the price of the goods or
services including all taxes. It is stipulated that due regard is to be paid to the principles of good faith in
commercial transactions. Further requirements of written confirmation are set out in Article 5 of the
Directive. The aim is a more informed bargaining environment and a more efficient, competitive
market. The Directives listed above also typically provide that an opportunity must be allowed to the
consumer to withdraw from the contract for a defined period after its conclusion. Article 6 of Directive
97/7 makes provision for the consumer's right of withdrawal, which is to extend for at least seven
working days after agreement but which may be extended where the trader has failed to abide by the
obligations to supply information. The assumption appears to be that the consumer requires protection
and a possibility to draw on further information, albeit in the post-contractual rather than the pre-
contractual phase. A comparable pattern is found in the other consumer-related harmonisation
Directives, although there are regrettable differences of detail between the different measures.
As a technique, information disclosure is open to a familiar balanced positive and negative
assessment.27 Information provision – as distinct from prohibiting particular practices – can be
considered as an intervention which keeps to a minimum the interference with private autonomy.
Viewed in its most favourable light, it yields a more efficient market by promoting negotiation and

26
See Weatherill note 1 above, Chapter 4.
27
E.g. G. Howells, ‘The potential and limits of consumer empowerment by information’ (2005) 32 Jnl Law & Society
349. See also G. Howells, A. Janssen and R. Schulze (eds), Information Rights and Obligations: a Challenge for Party
Autonomy and Transactional Fairness (Ashgate, Aldershot, 2005); W. Kerber, S. Grundmann and S. Weatherill (eds),
Party Autonomy and the Role of Information in the Internal Market (Walter De Gruyter, Berlin, 2002).
 10

informed consumer choice, without substituting public decision-making about the contents of
contracts for private choice. More intrusive controls may unduly diminish consumer choice – as well as
impinging on deeper political preferences for the virtues of autonomy/freedom. On the other hand this
type of intervention depends on the capacity of the consumer to process the information that is
supplied and to act rationally in response to it. In so far as consumers fail to behave in an alert and
rational manner, regulatory intervention based on information disclosure may not yield the intended
benefits. The more complex the product or service and/or the more complex the nature of the
information, the less likely that the consumer (or at least some consumers) will be able to respond
intelligently to information that is provided. This criticism is especially pertinent if it is shown that a
particular group of vulnerable consumers is ill-equipped to meet the regulator’s model of an attentive
consumer. More fundamentally, regulatory adherence to the technique of mandatory information
disclosure may be attacked for a failure to address substantive unfairness. Tinkering with the process of
negotiation will be regarded as of peripheral importance if one holds the view that the consumer,
however well supported by mandatory information disclosure, is unable to wrest a fair deal from the
economically powerful supplier. Indeed, if a bargaining environment is fundamentally flawed by the
imbalance between the parties, then to introduce disclosure requirements may even legitimate a
pernicious practice.
Legal regulation accordingly needs to be shaped in a way that is sensitive to these concerns about the
limits of consumers’ rational behaviour. Also, particular techniques need to be assessed in their own
particular context – e.g. a blanket `cooling-off' period may make little sense: its duration should take
into account the consumer’s genuine opportunity to re-assess a purchasing decision, which will not be
the same in all transactions.28 It is, however, a good deal easier to apply this analytical framework to
sector-specific Directives than to the (draft) Services Directive. One can plausibly consider whether
deficiencies in information provision to consumers represent a real market failure in (say) the
Timeshare Sector or in matters of ‘Distant Selling’ – and one can plausibly consider whether the
techniques chosen by the EC help to cure those market failures. But the services sector (even allowing
for the many exclusions contained in the draft Directive) seems too broad in its scope to attract useful
detailed informed analysis in this vein. There is surely a wide range of different problems/ market
failures arising in different segments of the services sector. Is a general set of provisions governing
information provision helpful? Or is it likely to constitute insensitive over-regulation? One may
contrast Directive 2005/29 on Unfair Commercial Practices, where careful account is taken of
vulnerable consumers within an overall formula based on the ‘average consumer’.29

28
Cf P. Rekaiti and R. Van den Bergh, ‘Cooling-off periods in the Consumer Laws of the EC Member States: a
Comparative Law and Economics Approach’ (2001) 23 JCP 371.
29
Directive 2005/29, note 14 above, Article 5(3).
 11

So: there are economic benefits to the consumer in promoting market integration in services
markets and this measure, while curtailing scope for national-level consumer protection, takes some
account of the need for common rules of consumer protection at EC level while also including
limitations of the intrusion into some particularly sensitive services sectors. Are the costs in the form of
reduced scope for choices about consumer protection at national level too high? That is a personal
choice. Ultimately this inquiry is familiar in EC consumer policy – how to calculate the relative costs
and benefits of loss of national-level consumer protection and the promotion of a more integrated
market in the EU, underpinned by common standards of consumer protection. The chosen model,
now found in the 2006 draft, having abandoned the earlier model, would exert a real but small effect by
confining in part host state regulatory competence to set stricter trade-restrictive rules in order thereby
to advance service market integration.
But even if one accepts that consumer policy is promoted by effective market integration, a further
set of questions ask how far this Directive would really go in making the market function more
effectively than its current agreed poor state.

4. Clarification and Codification

Aside from the particular question of re-allocation of regulatory responsibility to adopt consumer
protection measures addressed above, there are two elements in particular which might make the
Directive successful in advancing the integration of services markets beyond its current disappointingly
inefficient state. One concerns the need for clarification/ codification of the Court’s case law; the other
concerns the quest for better market management. In general improved clarity in the application of the
law of the internal market is in the interest of consumers in so far as one is prepared to accept (as I am)
that the project of economic integration promises delivery of benefits to the consumer.
Several key parts of this (proposed) Directive seem to be a codification (of sorts) of the Court’s case
law on free movement. For example, Article 5(3) of the 2006 version approximates to the Court’s case
law on conditional mutual recognition. Similarly Article 9 concerns authorisation schemes which affect
freedom of establishment for providers: this seems to be in essence no more than merely codification.
The provisions that follow, e.g. Article 10 on conditions for granting authorisation, add some detail.
Similar comments could be directed at Article 14 on prohibited requirements, and Article 15 on
requirements to be evaluated – that is, this is all in principle already covered by Articles 10, 39, 49, 52
EC etc. Much the same comment could be directed at Chapter IV on Free Movement of Services. So
too Article 4(8)’s definition of the public interest – which covers consumer protection – makes explicit
cross-reference to the Court’s case law.
 12

Is this codification welcome? There are three concerns. First, is this a codification or is there scope
for awkward arguments that the Directive means something different from Article 49? The Directive
cannot be interpreted inconsistently with Article 49 but it could plausibly be interpreted differently
from Article 49. There may be costs measured in legal uncertainty until and unless the Court makes its
view plain. Second, even if there is here largely a codification, there is also in some respects clearly an
adjustment of the Court’s interpretation of the allocation of regulatory responsibility between Member
States and the EC under the Treaty – as explained above. Because of that, it will sometimes matter
whether a particular set of circumstances falls under the Directive or under the Treaty provisions on
free movement. So how reliable are the points of demarcation? There are some especially awkward
demarcations to be made in dealing with matters of material scope, where derogations are painstakingly
pieced together, e.g. Articles 1, 2 and 17 (amplified in the Preamble), which limit the scope of the
Directive but are not apt to alter the reach of the Treaty provisions on free movement. Whether a
matter falls within the Directive or the regime established by Article 49 may matter a lot, typically
because the latter is more generous than the former in permitting residual scope for national action that
restricts cross-border trade in services.30 This is a further evident point of friction in the future shaping
of the law on services – and it is friction that will be magnified once extra levels of complexity are
added by diverse national choices about how to implement the Directive into domestic law. One may
anticipate litigation to clarify the outer limits of the scope of the Directive and, again, the result is costly
uncertainty.
Third, even if a ‘perfect’ codification, does this really help? Perhaps some matters are usefully laid out
in hard-edged terms. Consider the list of prohibited practices contained in Article 16(2): This may
plausibly act as a valuable lever to prise open lingering ‘administrative overkill’ in states with a tradition
of heavy administrative formalities (not the United Kingdom!). But generally I would question whether
there is much value added here. Consider Article 9 concerning authorisation schemes which affect
freedom of establishment for providers: This is (probably, subject to interpretation) likely to be treated
as, in effect, codification. The provisions that follow, e.g. Article 10 on conditions for granting
authorisation, add some detail but at a level of generality that seems unlikely to help in concrete cases.
Similar comments could be directed at Article 14 on prohibited requirements, and Article 15 on
requirements to be evaluated. Is the fact that these provisions are now located in binding legislation
rather than merely case law (amplified by the Commission in its periodic communications) an adequate
justification for adoption of the Directive? This question may be asked about a great deal of the body
of the Directive. An answer of sorts is that legal certainty is improved by the adoption of a binding

30
Although any assumption that the service sectors which are excluded from the scope of the Directive can expect a
quiet life would be misguided: see e.g. Case C-372/04 ex parte Watts judgment of 16 May 2006.
 13

piece of legislation, and that this is particularly helpful to small and medium enterprises (SMEs). Indeed
Recital 43 to the 2006 draft makes precisely this argument. This is popular logic elsewhere, especially in
the Commission’s work in the field of contract law.31 The claim is relevant to establishing competence,
while also, beyond that specific constitutional point, it is relevant to establishing a case in favour of
taking legislative action. But it is a claim that is pitched at a troublingly breezy level of generalisation. It
is clearly correct that non-absolute mutual recognition under the case law is not enough to instil
confidence in the market, and perfectly plausible that SMEs, relatively poorly equipped with resources
for discovering detail of relevant legal diversity, are especially inhibited. But it is far less obvious that a
regime of this type does anything useful to promote such confidence. True, a concrete set of
prohibitions such as those contained in Articles 14 and 16(2) may help to weed out lingering pernicious
obstacles even if it is hard to imagine that any of the listed practices could possibly be treated as lawful
today if attacked under the Treaty as obstacles to free movement. But, these relatively clear-cut cases
aside, it is hard to see that provisions such as Articles 10(2) and 16(1) are apt to make life easier for
SMEs. They are too abstract. In particular they seem unlikely to do much, if anything, to solve the real
problem faced by SMEs (and not only SMEs) which is that the rules of EC law in the abstract can be
paid lip service by local public officials who can say that in this case the conditions for mutual
recognition are absent.
On clarification and codification my argument summarised is that (i) the gains are likely to be less
than is claimed because the Directive is largely as abstract as the case law and will not, despite the
promises made, actually make life any easier or predictable for (in particular) SMEs in planning their
commercial activities; and (ii) the costs are higher than admitted (in fact costs are ignored altogether)
because of the fragmentation of the regime for services which now involves new and slippery margins
established between different types of service.

5. Administrative Cooperation and Market Management

Several elements in the Directive are aimed at better market management. What is at stake is a desire to
make the rules of the internal market work as well in practice as they work in the pages of the
textbooks. That is of course ultimately impossible but in so far as this initiative helps to produce a more
efficiently functioning internal market, it ought to serve the consumer interest. Chapter 2 on
Administrative Simplification (Articles 5-8 of the 2006 text) is firmly in this vein. Article 5(1) provides
that ‘Member States shall examine the procedures and formalities applicable to access to a service
activity and to the exercise thereof. Where procedures and formalities examined under this paragraph

31
See S. Vogenauer and S. Weatherill (eds), The Harmonisation of European Contract Law: Implications for European
Private Laws, Business and Legal Practice (Oxford: Hart Publishing, 2006).
 14

are not sufficiently simple, Member States shall simplify them’. This seems risible. Risible it may be, but
this largely reflects the limits of top-down market-making through law.
The suspicion that there are problems to be confronted in the quest for effective market-
management, but that adopting a Directive is no remotely adequate way to solve them, already emerges
clearly from the first few Recitals in the Preamble. Market fragmentation, we learn, persists because of
(inter alia) legal uncertainty and the lack of mutual trust between Member States. This may well be so,
but a strategy of considerable subtlety and depth is required to smooth away such disturbances to the
functioning of the internal market.
It would be churlish to dismiss the aspirations of the Directive out of hand. Admittedly improved
market management could be facilitated by some of the provisions in the latest draft of the Directive.
Chapter II on Administrative Simplification, for example, contains the perfectly sensible Article 6 on points
of single contact and Article 7 on right to information. Chapter III, dedicated to Freedom of Establishment
for Providers, includes Article 15 on evaluation requirements applicable to impediments to freedom of
establishment. Such evaluation could be potentially useful as a device of market management. So too
Article 15(7), setting an obligation on Member States to notify the Commission of new measures for
their inspection, could help the oversight of the regulatory development of the internal market,
although this procedure is not as sophisticated as that governing technical standards affecting goods
under Directive 98/3432, to which there is cross-reference in the text, because there is no standstill
requirement. It is therefore less likely though not impossible that the Court’s case law in the field of
goods would apply by analogy to the effect that failure to notify technical regulations renders such
regulations inapplicable inasmuch as they hinder the use or marketing of a service which is not in
conformity therewith.33 More generally the exhortations to create single contact points, etc, Article 21
on assistance for recipients, horizontal mutual assistance between responsible bodies in the Member
States are all doubtless rather sensible initiatives.
Chapter VI on Administrative Cooperation concerns ‘external’ co-operation rather than the ‘internal’
concern with screening, evaluation and simplification considered above. Chapter VI does not invite any
opposition in principle, but the Commission has been encouraging such constructive vertical and
horizontal administrative cooperation at least since the Sutherland Report which was published in
1992.34 Regulation 2006/2004 (co-operation between consumer protection authorities) is mentioned in

32
Directive 98/34 OJ 1998 L204/37, amended by Directive 98/48 L217/18.
33
Case C-194/94 CIA Security International SA v Signalson SA and Securitel Sprl [1996] ECR I-2201; Case C-226/97
Johannes Martinus Lemmens [1998] ECR I-3711.
34
The Internal Market after 1992: Meeting the Challenge: Report to the EEC Commission by the High Level Group on
the Operation of the Internal Market. See in similar vein the Commission Communication on management of the mutual
recognition of national rules after 1992, OJ 1993 C353/4.
 15

Recital 104 to the 2006 draft but that measure itself is untested, and its adoption reflects past largely
fruitless attempts to sharpen up cross-border enforcement (e.g. via Directive 98/27 on injunctions).35
Does repetition of exhortations to pursue effective administrative cooperation do anything useful?
What really matters here is (inter alia) infrastructural heterogeneity within the Member States which
impedes effective cross-border collaboration (e.g. it is hard to cooperate when even if officials can work
out who their administrative counterpart in another Member State is, in any event they possess no
common modus operandi – never mind no common language); and lack of resources, which will typically
mean that infractions that cause costs felt out-of-state will be the last and typically unaddressed priority.
In fact much of this part of the Directive reads like the Commission’s aspirational communications
on Mutual Recognition and its more general Internal Market Strategies. The text resembles that of the
Commission’s attempts to provide soft law guidance designed to encourage the putting of the principle
of (non-absolute) mutual recognition into better practical effect, combined with concern to achieve
better cooperation between responsible enforcement agencies.
Consider, for example, the Commission Communication of May 2003 on its Internal Market
Strategy, Priorities 2003 – 2006:36

‘… Mutual recognition is a corner stone of the Internal Market. It enables products to circulate freely on the basis of
conformity with the national laws in the Member State where the product is first marketed. The principle is that there
are no specific procedural rules and no extra paperwork. This is its strength, but at the same time its weakness. When
problems occur, there is little or no transparency, there is no commonly agreed approach to evaluating whether levels of
protection are equivalent and there is no clear procedure for a company to challenge a negative decision. As a result,
many companies decide to abandon certain markets or are forced to modify their products to comply with local
requirements.’

This is a convincing diagnosis. The Commission’s Second Implementation Report of the Internal
Market Strategy 2003 – 2006, published in January 2005, states that:

‘In sectors where there is no specific EU-legislation and thus where the principle of mutual recognition could apply,
neither producers nor market surveillance authorities are sure to what extent products from one Member State can enter
another Member State’s market without modification: according to the European Business Test Panel, 53% of
37
businesses are not even familiar with the principle.’

35
H.-W. Micklitz, ‘Transborder Law Enforcement – Does it Exist?’ in S. Weatherill and U. Bernitz (eds), The
Regulation of Unfair Commercial Practices under EC Directive 2005/29: new rules and new techniques (Oxford: Hart
Publishing, 2007).
36
COM(2003) 238 final (Part B: Priorities (1)(b)(1) Actions).
37
COM(2005) 11 final at p.8
 16

In fact, in some respects the Directive is even less ambitious than the Commission’s documents, which
at least on occasion try to make concrete some of the principles drawn from the case law on free
movement. For example the Commission’s 2003 interpretative communication on ‘facilitating the
access of products to the markets of other Member States: the practical application of mutual
recognition’ declares that in the case of an authorisation procedure that must be undergone prior to
marketing, the Commission considers a waiting period of 90 days is disproportionate.38 Ultimately, a
programme built on mutual recognition requires a high degree of trust between participating
authorities. Such an environment is not capable of being legislated into existence. It requires the sort of
detailed management and support that can come only from lengthy and laborious encouragement to
the building of networks of governance and allowing space for their development. The Commission
plans to issue important statements on the Future of the Single Market in 2007, having concluded a
public consultation in 2006,39 but it is far from clear that specifically legal innovations can have much
role to play, at least in generating short-term change.
Understanding the management of the (non-absolute) mutual recognition principle is fascinating – a
classic ‘European market, no European state’ conundrum, which also has resonance in international
economic law and governance more generally – but I cannot find this (proposed) measure’s
contribution to it noticeably fascinating or helpful.
This Directive has the feel of soft law but, if it were adopted, it would not be soft law (obviously).
But would it really do anything more useful than soft law? An answer would be that it strengthens the
obligations of Member States to pursue the path of administrative co-operation. True, litigation may be
helpful in sharpening the pressure placed on States to take seriously their obligations to cooperate in
securing effective market integration and effective market re-regulation. But if the really significant
obstacles to this are deep-rooted infrastructural heterogeneity within the Member States and lack of
resources, litigation will be a blunt instrument, inapt to promote the required iterative process of
sensitive reform. And, worse, the creation of these legal obligations to cooperate may lead to the
assumption that the law is in place, when in fact the practical absence of administrative cooperation is
allowed to lie hidden.
Recital 105 declares that ‘Administrative cooperation is essential to make the internal market in
services function properly… It is, therefore, essential to provide for clear, legally binding obligations
for Member States to cooperate effectively.’ The first part of this is compelling, but the ‘therefore’ is
less obviously so.

38
OJ 2003 C265/2, November 2003, fn 59.
39
Summary of Responses, SEC (2006) 1215, 20 September 2006.
 17

6. Conclusion
The economics are compelling. Fragmentation of services markets is enduring and inefficient and
contrary to the consumer interest.40 But would this Directive, in its 2006 version, change much? It
would admittedly cause some adjustments. A small group of national measures that impede service
market integration would now be in principle impermissible – via Article 16 certain justifications for
trade barriers, including protection of the economic interests of consumers, are no longer available for
national regulators. Some restrictions on establishment are expressly prohibited - Articles 14, 16(2). The
measure promotes, and in some circumstances makes legally enforceable, screening and evaluation of
the national regulatory environment and an impetus towards cross-border networks of administrative
cooperation.
But many barriers to service market integration remain lawful under the distribution of regulatory
competence planned by this draft, whereas under the 2004 proposal scope to apply them would have
been eliminated. The ‘country-of-origin’ principle has been lost. Furthermore many sectors – including
some of the currently most fragmented – are excluded from the Directive’s material scope. And the
legal requirements to simplify and to pursue the path of administrative cooperation do not address the
deeper problems of bureaucratic heterogeneity and poor resourcing, and so may be of limited impact in
practice. The 2006 draft is a vastly less ambitious measure than the original version proposed by the
Commission in 2004. It will not yield the full package of economic benefits originally advertised.41 Is it
worthwhile at all to adopt this measure?
Concern for ‘better’ regulation and lawmaking, exemplified by the Commission’s impact assessment
guidelines and the Inter-Institutional Common Approach to Impact Assessment agreed by the EU’s
three main political institutions in 2005, is driven by key themes such as transparency, consultation,
clarification, simplification and impact assessment.42 The debate is in part driven by claims that failure
to ‘deregulate’ or at least failure to regulate ‘better’ will generate corporate flight to jurisdictions with
more hospitable regimes. Whether or not this migration is plausible or backed by empirical evidence, it
is likely that such perceptions are of themselves enough to generate significant deregulatory pressures.43
More generally the expectation is that ‘better regulation’ promises economic growth. The 2000 Lisbon
European Council hitched the EU’s concern to promote better regulation to the ambitious, not to say
vainglorious, mission to project the EU to the top of the world’s economies judged by competitive and
dynamic knowledge-based qualities. Given that the EU itself is a creature with a relatively small budget

40
Cf note 9 above.
41
Cf note 9 above. Clearly the prognosis contained in the documents which examine the impact of the earlier and more
ambitious text requires revision.
42
For a collection of relevant papers see S. Weatherill (ed), Better Regulation (Oxford: Hart Publishing, 2007).
43
See e.g. C. Hay and B. Rosamond, ‘Globalization, European integration and the discursive construction of economic
imperatives’ (2002) 9 JEPP 147.
 18

but a very broad rule-making power,44 the way in which it regulates is crucial to assessment of its
performance. The ‘Better Regulation’ agenda has become a thematic priority for the Barroso
Commission as a key element in its drive to improve the quality of EU governance. The thirst for
‘Better Regulation’ connects with the strategy for the future development of the internal market45 but it
is part of a much wider quest to enhance the EU’s legitimacy.46
I am aware that there is a case to be made in favour of this Directive as a modest step forward, albeit
one shorn of the radical – and politically unfeasible and plausibly socially undesirable – features which
marked its first incarnation. ‘It’s not perfect or even very significant – but it’s better than nothing’, a
pragmatist might conclude. And politically a deal is in the short-term better than no deal. However, a
sincere commitment to ‘Better Regulation’ demands more long-term thinking. I do not here make any
case that the original proposal, based on radical re-allocation of regulatory competences in favour of
home States underpinned by common EC rules on quality of services, was substantively the correct
choice for Europe, but it was at least a clear and comprehensible plan for the development of the
market for services. Once the coherent core had been stripped out, what remains is a peculiar mix of
minor adjustment to regulatory competences, a great deal of what may or may not be codification of
the Court’s case law, new and awkward demarcations between the terrain occupied by the Directive and
the application of the general rules of free movement of the Treaty, supported by exhortations to
simplify and to cooperate. And this will need to be implemented according to local taste, which will add
further complexity. Is that good regulation? Or would it have been better to abandon this legislative
project once it became clear that it had been fractured by compromise and was being driven not by
perceived needs of suppliers or consumers but rather by institutional anxieties to save face by pounding
out an agreed text – any text.
Legislative woolliness is not cost-free. It denies the internal market a reliable basis. More than that,
poor quality lawmaking damages the EU’s legitimacy. This measure scores badly on many counts. In
Recital 116 mere lip-service is paid to subsidiarity and proportionality. There is no ‘reverse dynamism’
in the EU’s lawmaking institutional culture. The lawmaking infection needs an antidote capable of
injecting the realisation that a measure no longer fulfils the basic demand for clear and manageable
aims.

44
Cf. A. Moravcsik, ‘The European Constitutional Compromise and the neofunctionalist legacy’ (2005) 12 JEPP 349.
45
See e.g. Commission Staff Working Document, Public Consultation on a Future Single Market Policy: Summary of
Responses (SEC (2006) 1215, 20 September 2006), promising further initiatives in 2007.
46
White Paper on Governance, COM (2001) 428. See H. Hofmann and A. Türk, EU Administrative Governance
(Cheltenham: Edward Elgar, 2006); C. Harlow, Accountability in the European Union (Oxford: OUP, 2002); A. Arnull
and D. Wincott (eds), Accountability and Legitimacy in the European Union (Oxford: OUP, 2002).