Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (hereinafter: the ‘Services Directive’)1 was one of the landmark legislation initiatives of the European Commission under the presidency of Romano Prodi. The Directive was proposed in 2004, was adopted after turbulent negotiations and a considerable number of amendments made throughout the legislative process in 2006, and was finally implemented by the Member States after a long transposition period by the end of 2009.2 It was originally meant to be a broad-reaching and horizontally encompassing legal act that would regulate the variety of fields and sectors of services.3 However, it received acclamation neither from representatives of Member States4 nor from academia5 at the moment of its adoption. The ‘legal design’ and main legislation techniques of the Services Directive have been subjected to criticism since 20066 –the perplexing system of derogations and exclusions provided by the provisions of the Services Directive, the large number and illogicality of those derogations and exclusions were the most criticized features of this legal act,7 leading some scholars to label the Services Directive ‘anti-legislation’.8
The main objective of the Services Directive was expressed in its Preamble and Article 1 – the completion of the Single Market for services in the EU.9 In a wider context, removing barriers to trade within the Single Market of the European Union has been one of the foundations of the common borderless area for trade in goods and services among the Member States of the European Union since the establishing of the Single Market in 1992. Nevertheless, almost three decades later, in 2020, the European Commission still regarded this objective as one of the most pressing issues under economic policy. Two out of five parts of the Commission’s so-called ‘March Package’, aimed at stimulating a long-term economic growth in the European Union, were devoted to the barriers in the Single Market and the improvement of enforcement of their eradication.10 Removing the barriers in the Single Market also seems to be an on-going concept for the recovery of the economy of the EU after the crisis caused by the Coronavirus pandemic – both in the plans of the Commission11 and in views expressed by the Member States.12
The Services Directive has been also the subject of interpretation by the Court of Justice of the European Union (the CJEU) – the total number of cases related to the Services Directive issued since the lapse of the transposition period (28 December 2009) amounts to 5013 – 43 in response to the preliminary questions of the national courts and 7 as a result of the Commission’s complaints. Nevertheless, an encompassing assessment of the CJEU’s case law on the Services Directive is absent in the literature. Therefore, my ambition is to fill this vacuum and present a coherent analysis of the judicial reception of the Services Directive in the context of the main objective of this legal act – removing barriers for cross-border trade in services in the EU. This paper has been divided into five sections: Section 2 briefly presents the liberalization model implemented by the Services Directive, its reception in the literature and a quantitative assessment of the effectiveness of the Services Directive in reaching its objectives. As the Services Directive, in order to establish a Single Market for services, covers the freedom of establishment and the freedom of services, Section 3 is devoted to the delimitation between them conducted by the CJEU. Section 4 comments on the approach of the CJEU towards the various models of liberalization provided by the Services Directive. The next two sections set out the approach of the CJEU to the restrictions introduced by Member States (Section 5) and the justification grounds acknowledged by the CJEU under the framework of the Services Directive (Section 6). The conculsions are presented in Section 7.
2. Preliminary observations – the added value of Services Directive for removing barriers in trade with services within the EU?
The objectives of the Services Directive are complementary to the wider policy and political objectives of the EU enshrined in the Treaties. This should lead to mutual reinforcement and legislation that truly aims at removing internal barriers to establishing a Single Market for services. However, due to the numerous compromises in the legislative process of drafting, preceding the adoption in 2006, the width and depth of the legislative impact on the current landscape of barriers have been also compromised – this conclusion can be drawn from the list of 2019 and 2020 initiatives presented in the Section 114 and also from the critical assessment of the Services Directive presented in the literature.15 It is frequently raised that the provisions of the Services Directive codify the case law of the CJEU in matters related to the freedom of establishment and the freedom of services issued on the grounds of the Treaty provisions – Articles 49–55 and Articles 56–62 of the Treaty on the Functioning of the European Union (the TFEU).16
For these reasons, it could have been assumed that, once put into hard legislation and implemented in the Member States’ legal orders, the long-established principles governing the exercise of freedom of services in the EU would be granted a stable and foreseeable framework. In this way the level of regulatory uncertainty for service providers in the EU would be reduced (according to recital 5 of the Preamble)17 and the Services Directive would contribute to the effective removal of the most burdensome barriers. Thus, the objectives of the Services Directive would be fulfilled. Unfortunately, the opposite is true. The reasons for which the impact of the Services Directive on the level of legal certainty should be assessed negatively derive from the complex system of exclusions and derogations from scope of application of the Services Directive and its judicial reception. Fragmented implementation by Member States has also negatively affected certainty as to the applicable legal regime. Their hesitance and reluctance concerning the implementation of the provisions of the Services Directive makes it far from complete. The problem of an unfinished eradication of barriers to cross-border trade and free flow of services in the Single Market persists. In this respect, the actions of the European Commission have also not been sufficiently effective. The Commission issued the jointly reasoned opinion on infringements of 12 Member States which failed to implement all provisions of the Services Directive in June 2010. The total number of judgements of the Court, initiated by the Commission, referring to the Services Directive, delivered after the lapse of its transposition period, amounts to 12, and in half of them the Commission made the complaint before the end of December 2009. The Commission also undertook various actions with the use of soft law measures to encourage and facilitate the transposition of the Services Directive for the Member States.18 The attitude of Member States and lack of effects of Commission’s enforcement efforts results in a significant disadvantage to the development of the internal market for services and economic growth in the EU.19 The conclusions resulting from the data presented in Figure 1 below are twofold.
It shows that the volume of trade in services between the Member States was growing in the period between 2011 and 2019. However, this process has been not translated into the relative intensification of the intra-EU trade in services. The share of trade in services between the Member States has declined in comparison with the extra-EU countries and this tendency is relatively stable and clearly negative. This further reinforces observations that the significance of intra-EU trade in services for the EU economy has been gradually decreasing. This is contrary to the objectives set out in recitals 2–4 of the Preamble to the Services Directive. Hence, the Services Directive has so far failed to deliver the economic effects that have been aimed at.
In these circumstances, it might be useful to take a closer look at how the Services Directive has been interpreted at the EU level and what impact it might have on this economic sector. All the numerous instruments targeted at removal of barriers are admittedly less complex and confusing than the derogations and exclusions included in the Services Directive, yet still extensive. The instruments designed in the Services Directive are in part aimed at the legislative barriers in the Member States’ legal orders that directly impede the freedom of establishment (such as authorisation schemes20 or mandatory requirements related to the legal form, the shareholding structure, or providing services in accordance with the prescribed minimum/maximum tariffs21). Another group of provisions targets the freedom of services (these are bans on certain forms of commercial communication, excluding from certain forms of activity or limiting to the one precisely determined activity or imposing an obligation of maintaining the registered office in their territory22). Finally, some provisions address administrative burdens, such as fragmented procedures and forms of communication of the Member States’ authorities with businesses in Europe23 Additionally, the Services Directive directly addresses the rights of service recipients24 and the harmonization of private regulations through the convergence programme.25
In general, the logic behind such a legal design received differing opinions from the commentators around the time when the Services Directive appeared. On the one hand, many authors raised the main flaw of the negotiations phase that had significantly impacted the final logic. According to them, it was the failure of the Commission to protect the ‘country of origin principle’ that had been originally provided by the proposal and that was replaced with the ‘mutual recognition mechanism’.26 This replacement was, in itself, a less ambitious approach than was both possible and needed. On the other hand, some authors argued that the main innovation and the biggest positive impact would not have resulted from the part directly related to removing the barriers (as the provisions of the Services Directive merely codified the case law that the Court had issued in that respect so far), but rather from harmonizing administrative procedures, modernizing and unifying ways of communication of administration with service providers throughout the EU, increasing cooperation of administration in the Member States and more user-friendly alternative disputes resolution instruments (such as the positively recognized system of administration cooperation, SOLVIT).27 My own assessment of and elaboration on the judicial reception of the provisions of the Services Directive in respect of removing barriers and the CJEU’s contribution to achieving its objective, are presented further in the paper.
3. Relation of freedom of services and freedom of establishment
Along with the reasoning presented in recital 5 of the Preamble to the Services Directive, its provisions cover the freedom of establishment and free movement of services. It results from the lawmakers’ belief that ‘providers should be able to choose between those two freedoms, depending on their strategy for growth in each Member State’. This ability to choose would be distorted if the barriers established in the Member States’ legislation related only to the one kind of Single Market freedoms. Therefore, the freedom of establishment is covered by Chapter III of the Services Directive entitled ‘Freedom of establishment for providers’, whilst the free movement of services is covered by Chapter IV under the title ‘Freedom to provide services and related derogations’. Both freedoms are regarded among scholars as interrelated, complementary, and converging.28 The TFEU itself provides clearly in Article 57 that the freedom of services is the secondary-choice freedom to the freedom of establishment and all other freedoms of the Single Market.29 It is thus understandable why the delimitation between the freedom of establishment and the free movement of services has not featured predominantly in the CJEU’s activities.30
As is observed further in this Section, this matter had a limited impact on the possibility of completing the Single Market for services and thus contributing to the main objective of the Services Directive. However, due to the nature of the cases presented to the CJEU, it had to adopt a case-by-case approach. The CJEU did not go beyond the established understanding of the definitions included in the Treaty provisions and developed in the CJEU’s case law. This understanding has been repeated for the interpretation of the provisions of the Services Directive – thus the added value of this legal act in this respect has been related to other features.31
One of the most recent examples of the CJEU’s approach towards delimitations between the freedom of establishment and the free movement of services, in PI, was related to providing prostitution services under the cover of a massage parlour by a Bulgarian national in Austria.32 The Court reiterated in this ruling that prostitution, if provided for remuneration, might be deemed a ‘service’ within the meaning of the Services Directive, as was previously stated in Trijber.33 However, if this activity is pursued ‘for an indefinite period and through a stable infrastructure’, it falls within the scope of freedom of establishment, thus under the provisions of Chapter III of the Services Directive, rather than under Chapter IV.34 Exceptionally, it was of practical importance for the final outcome of the case since, under the provisions of Chapter III, Member States may introduce authorisation procedures such as exist in Austria, which are not provided for by Chapter IV.35
However, the CJEU held, in its ruling in X and Visser, that the main purpose of covering the freedom of establishment with Chapter III of the Services Directive was to increase the level of legal certainty.36 Protecting the freedom of establishment was necessary to achieve the objectives of the Services Directive – eradicating obstacles to trade in services in the internal market. The CJEU added, in Rina Services, that ‘barriers to freedom of establishment may not be removed solely by relying on direct application of Article 49 TFEU, owing, inter alia, to the extreme complexity of addressing barriers to that freedom on a case-by-case basis’. Therefore, the system established by Chapter III of the Services Directive should deliver an ad hoc exhaustive legislative harmonisation of the requirements imposed by the Member States.37 As was stated in the Section 2 above, the aim of the Services Directive has not been fulfilled successfully through the legislation, and the practical removal of barriers on a case-by-case basis remains relevant. Nevertheless, the CJEU used cited observations to ground its theleological interpretation and to signal the intention of applying the provisions of the Services Directive to maximize the realisation of the objectives of the Services Directive. Hence, it can be observed that including both freedoms in the Services Directive reinforces the fulfilment of the objective of completing the Single Market for services.
The CJEU has also interpreted the objective of the Services Directive in the context of both freedoms in the following way:
in that regard, it is clear from Recitals 2 and 5 in its preamble that [the Services Directive] is intended to remove restrictions on the freedom of establishment for providers in the Member States and on the free movement of services between the Member States, in order to contribute to the completion of a free and competitive internal market.38
Hence, both freedoms reinforce each other and mutually contribute to the achievement of the Single Market for services. Service providers should have the possibility to choose freely between two regimes, as the CJEU put it in one of the cases, citing recital 5 extensively.39
Therefore the details of determining the applicable regime have been dependent on the circumstances of a particular case and were established by the CJEU on an ad hoc basis. These details were frequently determined by the choice of the national court addressing a particular provision in its reference for a preliminary ruling. The CJEU has generally not undermined the choice of national courts regarding the legal benchmark against which the national provisions were examined. Thus, besides an obvious circumstance of carrying out any given activity for remuneration ‘for an indefinite period and through permanent infrastructure’ clearly indicating the freedom of establishment,40 the CJEU has not provided to date any general interpretation of the principles, which clearly shows the inherent overall limitations of the regime of Single Market freedoms. These limitations also persist in the more specific context of delimitation between the application of the provisions of Chapter III and Chapter IV of the Services Directive. Therefore, it should be observed that the Services Directive might contribute to the establishment of the Single Market for services and present added value in comparison with the provisions of the TFEU through harmonisation of national legal orders (according to recital 6 of the Preamble). However, this harmonisation has not removed the need to determine the applicable regime on a case-by-case basis and nor has the CJEU’s interpretation of the Services Directive’s provisions.
The reason why this situation might not be effective in removing barriers to the establishment of the Single Market for services is the risk of fragmentation in the adopted approach of the Member States. The delimitation between the freedoms is important from the perspective of permissible restrictions, and, as has been shown in the PI case, might be of relevance for the practical solution of a case. Therefore, the less room there is for manoeuvre for the Member States in determining the applicable regime, the more harmonised are the conditions for conducting activities by service providers in the EU. Assessing the applicable regime on a case-by-case basis is thus less effective in providing clarity, predictability and stability as to how different forms of activities should be regulated throughout the whole EU and decreases the incentives for services providers for cross-border expansion of their activities (especially for small and medium enterprises according to recital 4 of the Preamble). This observation applies not only to the freedom of establishment and free movement of services but also to other Single Market freedoms.
In of the more recent cases the CJEU declared that even if the overlap between two possibly applicable regimes (freedom of services and freedom of capital) existed, it should be resolved to base the ruling on the grounds of only one of the regimes. Since the national provisions at issue had limited the access to acquire agricultural land for the purposes related to pursuing farming activities, it was not possible to delimit between the free movement of establishment and the free movement of capital solely based on the wording of the national provisions. Consequently, the Court took a subjective perspective and examined the intention of the party whose freedom was limited. As it seemed clear that the individual, in this case, was seeking to acquire the land with the intention of pursuing farming activities by himself, and not only to hold the asset for investment purposes, the CJEU declared that the national provisions fell within the scope of freedom of establishment and thus were covered by the Services Directive.41
This example illustrates how much depends on the individual assessment of the national courts and the CJEU and what problems that might cause for potential cross-border providers of services. The assessment of personal motivations is always less precise and subject to diverse interpretation than a harmonized framework provided by legislation at EU level. As part of such a framework, one could determine both time thresholds and the binding definitions of ‘permanent infrastructure’ that would provide legal certainty and allow for the making of an informed decision on cross-border expansion without the need to check the conditions set out in the legislation of all 27 Member States. This fundamental principle is more addressed to the lawmakers than the CJEU, but the evidence on the current insignificant effect of the Services Directive on the market for services in the EU, as presented in the Section 2, suggests that there exists significant room for improvement, both through legislation and case law. In these circumstances, in my view, the current situation has not contributed positively to the achievement of the objectives laid out in the Services Directive and has not been resolved by the CJEU in the interpretation of the Directive’s provisions.
4. Judicial reception of the liberalisation models of the Services Directive
The delimitation between the applicable regimes of the freedom of establishment and the free movement of services is relevant in the context of the adopted liberalisation model for each freedom. The liberalisation model also determined the effectiveness of the Services Directive in eradicating barriers for the trade in services in the EU. Therefore, assessment of the contribution of the Services Directive to the completion of the Single Market for services is only possible on the analysis of the case law related to the relevant provisions of the Services Directive. The CJEU, in its interpretation, focused mainly on the following groups of instruments: authorisation schemes covered by Article 9, Article 10, Article 11, Article 12, and Article 13 of the Services Directive which were the subject of scrutiny in 9 rulings,42 and the mandatory ‘prohibited’ national requirements for establishing providers’ services in the Member States, listed in Article 14, and requirements ‘to be evaluated’ covered by Article 15 of the Services Directive, which were jointly referred to by the CJEU in 12 rulings.43 Further, the CJEU analysed the conditions for restrictions on the freedom of services covered by Article 16 and Article 17 mentioned in 3 rulings,44 the conditions for commercial communication by the regulated professions covered by Article 24 of the Services Directive analysed in 1 ruling45 and the requirements which oblige providers of services to exercise a specific activity exclusively or which restrict the exercise jointly or in partnership with different activities covered by Article 25 of the Services Directive mentioned in 2 rulings of the CJEU.46
This brief quantitative presentation gives an insight into what problems constitute the core of the judicial activity of the Court and simultaneously allows one to draw initial conclusions. Firstly, the CJEU’s rulings are (almost) exclusively related to the provisions constituting the codification of its jurisprudence. It is not all the fault of the CJEU, as it is bound by the scope of preliminary questions and the infringement proceedings initiated by the Commission. Nevertheless, these circumstances translate into a limited impact for adding a new dimension to the established legal regime of providing services in the EU. The need for such innovation is justified to overcome the negative (or at least neutral) impact of the Services Directive for the services market in the EU. As stated in the Section 2, such a situation is in strong contrast to the high hopes of establishing a new legal framework and principles for conducting services in the EU, originally related to the proposal of the Services Directive and is also contrary to the Services Directive’s objectives. However, as will be observed further in this Section it could still present an added value concerning the legal certainty, clarity and consistency on the provisions of the Services Directive.
Secondly, the quantitative analysis of cases dealing with certain parts of the Services Directive indicates important characteristics of its judicial reception and practical application. At the level of national courts, questions on the freedom of establishment arise more frequently than questions regarding the interpretation of the provisions aimed at removing the restrictions on the free movement of services. The enforcement activity of the Commission is also focused on the requirements, which have been maintained or newly introduced by the Member States, for establishing service providers, rather than on any other issue. This shows that effective and comprehensive implementation of the main objective of the Services Directive rests on the Commission, the CJEU and the national courts. Simultaneously the focus of these actors has shifted towards national regulations affecting freedom of establishment and, to a lesser extent, towards free movement of services. It might result from the fact that national courts are more accustomed to the national provisions and interpretation traditions on access to various professions and services (in particular, the long-established ones). However, in the context of a declining share of trade in services within the EU, as presented in the Section 2, such an approach could further decrease the incentives for cross-border activities, especially from the perspective of small and medium enterprises (SMEs).47 The current focus on the freedom of establishment may be effective for removing barriers for permanent and durable presence in another Member State, but not for the occasional providing of services in the cross-border context. As the evidence suggests, the lack of cases related to the free movement of services is not a signal that this regime is perfectly suited for its purpose and does not generate any litigation and disputes. It might result from the fact that these barriers are less evident and thus more difficult to be addressed by the national courts or the Commission.
Thirdly, the focus of the Court has been on the core of the Services Directive – the provisions which regulate removing the restrictions in access to foreign markets for service providers in the EU. It proves that the CJEU’s role in achieving the objective of establishing the Single Market for services has not diminished with the adoption of the Services Directive. In the context of the above, the CJEU is still relevant and indispensable for realising its aims. The CJEU, thanks to its unique institutional position and an unquestionable authority, is usually perceived as the most ‘pro-Union acting’ institution of the EU and is also best suited for this role.48 It remains the sole politically neutral and independent guarantor of the common interests of the EU within the institutional matrix of implementing the Services Directive. As opposed to the self-oriented particularities and a certain degree of hesitance of Member States in implementing the Services Directive, as well as politically determined and oriented priorities of the Commission, it may act in a fully objective-oriented way and further reinforce the harmonisation of regulations on the market for services in the EU. The next two Sections contain the analysis of the CJEU’s activity related to two areas that determine the extent of the services market liberalisation – national legislation which constitutes restrictions on the freedom of establishment and the free movement of services, and the justified exceptions under the regime provided by the Services Directive.
5. Forms of restrictions
The CJEU delivered, in its rulings, an extensive overview of the forms of restrictions. As such have been interpreted any legislative requirements of the Member States, which hinder providers or recipients of services in the Single Market from making use of their freedoms enshrined in the Services Directive. Among such requirements, there are different kinds of instruments and measures, some of which may seem very far removed from regulating the services themselves. The Court, as explained above, had to take a case-by-case approach towards determining which kinds are covered by particular provisions of the Services Directive. This is quite understandable, considering the variety of cases that were presented to it by national courts or by the Commission. The analysis also covers the issue of the horizontal direct effect of the provisions of the Services Directive and to what extent the Member States are accountable for the actions of entities other than public authorities. What also follows from the analysis of the rulings, is that the Court consistently sought a connection with the Services Directive, sometimes arguably extending the scope of its application further than prescribed by the Services Directive’s provisions. The analysis contained in this Section has been structured around the subject of the restrictions at issue.
5.1. Restrictions related to the quality of services
As a restriction related to the quality of services, the ban on undertaking multidisciplinary activities imposed on financial accountants by a national professional association that in effect precludes combining the exercise of this profession with others (such as a real estate agent, an insurance broker or providing certain financial services), has been recognised by the CJEU. This ban was introduced by the professional association in its Code of Ethics which was later endorsed by Royal Decree.49 Additionally, this Code prohibited financial accountants from undertaking ancillary activities such as artisanal, agricultural, or commercial activities.50 Both of these limitations, stemming from the internal regulations adopted by the private bodies and endorsed by the state authorities, were acknowledged by the CJEU as ‘requirements for the regulated profession’ in the meaning of Article 25(1) of the Services Directive, and thus subject to further scrutiny of their compatibility with justification principles. A similar interpretation was applied in the case of national provisions that set limitations on civil engineers on establishing companies with persons who ‘carried out trade’.51 However, the situation in which a ban on canvassing imposed by a professional national association of qualified accountants was interpreted by the CJEU as a prohibition of commercial activity imposed on the regulated profession within the meaning of Article 24 of the Services Directive52 may be regarded as another example of making a Member State accountable for the actions of the professional association.
These situations presented examples of indirect horizontal effectiveness of the Services Directive – the actions were undertaken at the level of professional associations but were endorsed and authorized by the state authorities. Such an effect has been not immediately evident from the wording of the provisions of the Services Directive, even though the Preamble and Article 22 explicitly refer to codes of conduct at the national level (it should not be confused with the encouragement given in recitals 100–113 and Article 37 to create codes of conduct at the European level for professional associations for certain professions). The analysis of the case law also provides an argument for the conclusion that, under the requirements of Articles 24 and 25 of the Services Directive, private bodies may become accountable for their restrictions if they have power conferred by the state to regulate access to certain professions. The CJEU thus showed a consistent and coherent approach and strengthened the objective of the Services Directive in the form of removing barriers for the trade in services within the EU.
5.2. Restrictions presenting requirements ‘prohibited and to become evaluated’
Another group of rulings constituted the cases in which the CJEU acknowledged certain obligations imposed by national provisions of Member States as mandatory ‘requirements’ within the meaning of Article 14 or Article 15 of the Services Directive. The CJEU declared that ‘any obligation, prohibition, condition or limit provided for in the laws, regulations or administrative provisions of the Member States’53 should be interpreted as a ‘requirement’.
One such issue, most frequently presented in the rulings of the CJEU, was an obligation imposed by the Member States on the providers to establish the registered office in that Member State where the service is provided.54 Since such requirement is explicitly covered by the prohibition included in Article 14 of the Services Directive, the CJEU on numerous occasions interpreted this requirement as irreconcilable with the freedom of establishment and the objectives of the Services Directive. The CJEU treated in the same way the imposition of maximum tariffs for certain occupations, such as architects and engineers for planning services,55 introducing a state monopoly for providing services of mobile payments56 and imposing certain requirements regarding the ownership of shares in retail companies concerned with veterinary medicines,57 imposing a territorial restriction on licences for carrying out the services of a chimney sweep58 or pursuing the retail sale of clothes and shoes.59 The conditions of domicile and language proficiency in a national language imposed on private persons wishing to acquire agricultural land in Latvia to pursue farming activities60 were also interpreted as discriminating and falling within the scope of the freedom of establishment. As being incompatible with Article 14(6), the CJEU also acknowledged the presence of potential competitors in the collegiate body appointing the operation permit to applicants.61
The approach of the CJEU has been uniform in all the cases presented above – if the CJEU found any possibility to regard national legislation in the light of the requirements of Article 14, such legislation was interpreted as constituting unconditionally prohibited action. The unequivocal wording of Article 14, in the clear and coherent interpretation of the CJEU, constitutes an added value of the Services Directive in achieving its objectives of establishing a Single Market for services.
The following were in contrast interpreted as ‘other’ requirements, ‘to be evaluated’: the conditions referring to the legal form and/or shareholding structure,62 limiting access to certain activities due to their specific nature,63 provisions imposing minimum or maximum tariffs for services of architects and planning engineers or delivery of gas bottles,64 obliging the provider of the service to exercise an ancillary service to the main one,65 preserving the issue of voucher cards for banking and financial establishments,66 as well as laying out limitations on trade in certain goods in prescribed areas in a local zoning plan.67 Classification under Article 15 was declined in the case of legislation which makes the installation of a wind turbine subject to compliance with the condition of a minimum distance between that wind turbine and buildings with a residential function, under the reasoning that producing a product (electricity) cannot be regarded as a service in itself.68
Out of all the forms of restrictions described above, the acknowledgment of the local zoning plan as a requirement relating to the location of the establishment of the provider of services within the meaning of Article 15 of the Services Directive, declared by the CJEU in its ruling X and Visser, is particularly surprising. A few years earlier, the CJEU declared in its ruling in Libert, that Recital 9 of the Services Directive pointing at ‘requirements, such as (…) rules concerning the development or use of land, town and country planning, building standards’ jointly with Article 2(2)(j) of the Services Directive related to social housing, resulted in the inapplicability of the Services Directive to examining the prohibition of certain local zoning plans.69
In contrast, in X and Visser, the CJEU explicitly dismissed the observation from Libert. Instead, it declared that, while the prohibition on certain activities laid out in the local zoning plan was equally influencing the legal position of individuals acting in their private capacity and pursuing an economic activity, it set conditions that were necessary to be fulfilled by the service providers and might weaken their chances of establishing a business in a certain area. Hence, the local zoning plan, by excluding a certain area of the town from the possibility of providing services of trade in certain goods there, had solely an effect on conditions of performing such services, even though the local zoning plan itself did not formally address the providers of services specifically, but all citizens generally.70 Recital 9 alone, as consistent with the objective of the Services Directive, did not lead to the general exclusion of local zoning plans from the scope of its application. Therefore, the local zoning plan might be interpreted as imposing ‘requirements’ within the meaning of the Services Directive.71 The main consequence of such an outcome was that the Court could apply the proportionality test to the provisions (prohibitions) of the local zoning plan (when Article 15, and not Article 14 applied) and assess their conformity with the overriding reasons related to public interest and thus with the provisions of the Services Directive and consequently becoming subject to the notification procedure.
It is quite a far-reaching interference with the local planning competence of municipalities and not particularly aligned to the subsidiarity principle of EU law. An argument for approving such an approach of the CJEU would imply that the local authorities of Member States should not be able to circumvent the provisions of the Services Directive through banning certain activities in certain areas and by exploiting the zoning planning competencies to protect certain markets, local providers, etc. from the competition of foreign or external providers. On the other hand, it is highly dubious whether the CJEU, even by knowing the facts presented by the national court in the preliminary procedure, is in a better position to evaluate properly the local circumstances leading to the issuing of a local zoning plan at municipality level. Even though the CJEU did not expressly control the legality of the discussed prohibition in the local zoning plan, but limited itself to examining the justification for prohibiting the retail of certain goods in a certain area, it is still a competence that the legislators seemingly did not wish to confer on the CJEU.
Recital 9 is unequivocal in its wording that local plans should be excluded from the scope of application of the Services Directive. This is not repeated in the text of the Services Directive itself, but the CJEU did not provide sufficient reasoning for interpreting recital 9 contrary to its explicit wording. The CJEU indicated that a prohibition on locating certain shops in certain areas enshrined in the local zoning plan was addressed only to individuals contemplating the pursuit of retail in certain goods, and not to the individuals acting in their private capacity.72 However, by stating this, the CJEU neglected the perspective of potential recipients of the services, as well as the owners of neighbouring premises who would act in their private capacity by, for example, shopping in the area if it was allowed by the local zoning plan. For those reasons, the reasoning of the CJEU, related to acknowledging the local zoning plans as a form of restriction within the scope of the Services Directive, should be evaluated critically.
5.3. Freedom to provide services
On the margin of observations related to Article 14 and Article 15, it should be noted that, to a limited extent, the CJEU also interpreted Article 16 of the Services Directive. According to the CJEU’s interpretation, setting the conditions for maintaining an office in every municipality above a certain threshold of the population is equal to ‘imposing an obligation’ within the meaning of this provision.73 The same consequence was attributed to the mandatory condition of offering higher education in the state in which the institution concerned had its seat.74 The limited case law in this area does not allow a formulation of more detailed conclusions.
5.4. Restrictions imposed by authorisation schemes
As mentioned above, the CJEU put under scrutiny national provisions introducing authorisation schemes. The zoning plans discussed under 5.2 were declared not to have such a character, as the CJEU regarded them as falling outside the scope of the definition provided in Article 4(6) of the Services Directive.75 The nature of an authorisation scheme was most recently confirmed by the obligation to register as residents in one of the Member States and to demonstrate that their knowledge of the official language of that Member State corresponds to at least level B.2, which requires them to be able to converse on everyday subjects and on professional matters in the official language of that Member State, in order to be able to acquire agricultural land with the intention of pursuing the activity of farming thereon.76 The CJEU also declared that such a category could be fulfilled by schemes of legislation at municipal level for regulating services in the field of accommodation77 and intermediary services between taxi drivers and passengers.78 Simultaneously, the CJEU provided a distinction between authorisation schemes and requirements within the meaning of the Services Directive, observing that the distinction is to be drawn ‘inasmuch as [authorisation] involves steps being taken by the service provider and a formal decision whereby the competent authorities authorise that service provider’s activity’ whilst ‘requirements’ do not demand that the provider must undergo the specified procedure.79
The character of authorisation schemes has been also attributed by the CJEU to concession schemes80 and the automatic renewal of them was declared by the CJEU to constitute an explicit infringement of Article 12(2) of the Services Directive.81 By contrast, the CJEU allowed the maintaining of double (federal and local) authorisation schemes for the same activity (storage of fireworks) if it leads to the protection of different values and the pursuit of different objectives (public order/security and environmental protection).82 The CJEU also interpreted as an authorisation scheme national provisions making mandatory the soliciting of the competent authorities in order to obtain a formal document authorizing a service provider to confer master’s degrees.83 Another example of an authorisation scheme was referred to in the ruling in Hiebler in which the Court held that any limiting of licences for chimney sweeping to a particular geographical area might constitute a restriction on the freedom of services.84 Imposing an obligation to pay a fee for renewal of authorisation is also covered by the Services Directive, specifically Article 13(2) and the conditions for charges allowed for granting authorisation provided therein.85
The CJEU exhaustively referred to some of the conditions set out for authorisation schemes by the Services Directive in its ruling in Trijber. First, limiting the number of authorisations available is possible only if the overriding reason relates to public interest.86 If such a situation occurs, then the authorisations should not be for an unlimited period, following Article 11 of the Services Directive.87 Under Article 10(3) of the Services Directive, Member States are not allowed, in principle, to introduce requirements to obtain an authorisation conditional on possessing a certain level of language attainment if this is not justified by overriding reasons related to the public interest,88 so any such requirement would also constitute a restriction.
5.5. Interim conclusions
It follows from the rulings analysed in paragraphs 5.1 to 5.4 that the CJEU was rather flexible in its decisions to include various legislative measures of the Member States as ‘obligations’, ‘authorisations’, or ‘requirements’ within the meaning of the Services Directive. However, the sole existence of such authorisation schemes, requirements, or obligations was not sufficient to enable a declaration to be made of contradiction with the objectives of the Services Directive (except for the unconditionally prohibited requirements covered by Article 14). In all the circumstances in which the character of restriction was attributed to national legislation, this classification has been followed by an examination of the justification grounds pursuant to the provisions of the Services Directive.
6. Justification grounds
The need for including certain justification grounds for restrictions on the freedom of services imposed by Member States follows from the obvious reflection that there exist contrasting interests and public policy objectives, which need counterbalancing with the objective of completing the Single Market for services. These interests and objectives, framed as ‘overriding reasons related to the public interest’, have been the common object of analysis of the CJEU in its rulings related to the elimination of barriers. Balancing of contrasting interests and objectives has been also the final stage of examination, which determined whether the legislation imposed by the Member State could be interpreted as remaining in conformity with the Services Directive.
To begin with, it should be observed that the CJEU laid out the general system of justification grounds provided by the Services Directive and the difference between the regimes set out in Article 14 and Article 15. Not every category of actions by the Member States constitutes equally grave forms of misconduct. Therefore, the Services Directive distinguishes between the requirements that are unconditionally prohibited and the requirements that are to be evaluated. For instance, the CJEU declared that the requirements listed in Article 14 of the Services Directive were prohibited and could not be justified in any way and provided a thorough analysis of the reasons for distinguishing between two groups of requirements.89 The CJEU stated that the aim of an absolute prohibition of restrictions listed in Article 14 is ‘to ensure the systematic and swift removal of certain restrictions on the freedom of establishment’ that adversely affect the proper functioning of the internal market.90
The CJEU also stated that the possibility of justifying these restrictions would undermine the general scheme enshrined in the Services Directive, which clearly distinguishes the requirements listed in Article 14 and in Article 15, as well as the possibility that justifying these restrictions on the justification grounds enshrined in the Treaty would undermine the ad hoc harmonisation intended by the Services Directive.91 Such an interpretation of the requirements listed in the unequivocal Article 14 of the Services Directive was the only possible approach of the CJEU.92 Thus, the dedication to the objectives of the Services Directive and the coherent reasoning of the Court stressing the nature of Article 14 deserves a positive assessment.
For comparison, one should look at Article 15 and another scheme enshrined in the Services Directive. This provision explicitly enables justifying the maintaining or introducing of certain requirements on the grounds listed in Article 15(3) of the Services Directive. According to the wording of Article 15 and the interpretation of the CJEU, such justification is only possible if three conditions are fulfilled cumulatively.93 Firstly, the requirement listed in Article 15(2) and maintained in the legal order of Member States, should be non-discriminatory and not distinguish the situation of providers with residence or nationality other than that of the Member State in question. Secondly, the requirements should be necessary to achieve the objectives constituting overriding reasons related to the public interest. Thirdly, the requirements have to remain proportionate – ‘suitable for securing the attainment of the objective pursued and must not go beyond what is necessary to attain that objective, and it must not be possible to replace those requirements with other, less restrictive measures which attain the same result’.94
Furthermore, the objectives should be pursued in a systemic and consistent manner.95 Additionally, the CJEU added that such an assessment ‘may vary over time, depending on the relevant market and its evolution’ and can be subject to periodic reexamination and dependent on the ratione personae of the recipients of the services.96 The Court also held that different assessments should be conducted for services of general economic interest on the grounds of Article 15(4) of the Services Directive. Pursuant to this provision the test presented above applies to the services of general economic interest only inasmuch as it ‘does not obstruct the performance, in law or in fact, of the particular task assigned to [the providers of these services]’, which should nevertheless guarantee the providers economic equilibrium.97
The CJEU consequently assessed the justification of requirements introduced or maintained in all cases related to the application of Article 15 and the main focus of the analysis, in virtually all of them, was on the proportionality test.98 The CJEU reinforced the effectiveness of this Article by explicitly endorsing its direct effect.99 It is not my aim to present in detail all the cases, as such presentation would be rather unproductive, especially as the reasoning of the CJEU followed a very similar pattern of analysing whether less restrictive measures were possible or proposed by either of the parties to the dispute. However, it is worth mentioning which interests, protected by the national legal orders, were acknowledged by the CJEU as overriding reasons related to the public interest.
The ‘overriding reasons related to the public interest’ were defined in Article 4(8) of the Services Directive, which listed a catalogue of such reasons as ‘recognized as such in the case-law of the Court’.100 However, since its adoption, this list has been supplemented or specified with the following examples. In the rulings related to the justification of restrictions on the grounds of Article 15(3) of the Services Directive, the CJEU held that such an overriding reason related to the public interest might constitute the need to ensure objectivity, integrity, impartiality and independence of the professions of civil engineers, patent agents and veterinary surgeons101 and financial accountants,102 protection of health (also of animals),103 providing high quality services for training professional mediators and facilitating the establishment of training institutions in the outermost regions,104 ensuring proper quality planning services, consumer protection, building safety, preservation of the ‘Baukultur’ and ecological construction via establishing minimum tariffs, and consumer protection to avoid distortions to competition resulting from the asymmetry of information via guaranteeing transparency of maximum tariffs,105 protecting the urban environment and good town and country planning106 and the effective operation of fire safety measures and the improvement of measures for the prevention of fires, explosions and gas poisoning.107
The overriding reasons related to the public interest were also of central importance for the possibility of justifying the restrictions introduced on the grounds of authorisation schemes covered by Articles 9–13 of the Services Directive. To this end, the CJEU acknowledged, as such overriding reasons, ensuring a sufficient supply of affordable long-term rental housing,108 the need to ensure a high level of higher education and to protect the recipients of services,109 protection of public safety and health, and the protection of the environment,110 safeguarding the principle of legal certainty,111 safeguarding legitimate expectations of holders of authorisations that enable them to recoup costs of investments112 and preventing criminal offences being committed against prostitutes, in particular human trafficking, forced prostitution, and child prostitution.113
Pursuing the overriding reasons related to the public interest is, however, not the only condition for justifying the restrictions imposed by authorisation schemes. The mandatory condition for all authorisation schemes is that they include only the easily understood conditions, that are laid out in advance and are therefore transparent and accessible.114 The CJEU added elements of justification by an overriding reason relating to the public interest and proportionality to this list of conditions.115 The CJEU also endorsed the straightforward interpretation of the wording of provisions of the Services Directive by stressing that if the number of authorisations available is limited by an overriding reason relating to the public interest, they have to be valid for a defined period (Article 11(1) of the Services Directive)116 and that if the number of authorisations is limited because of the scarcity of natural resources, granting the authorisation must be subject to a selection procedure which ensures impartiality and transparency which, in effect, precludes an automatic renewal of the authorisations granted (Article 12(1) of the Services Directive).117 As was mentioned before, it is also possible to establish double authorisation schemes (federal and regional), if they enable the protection of separate legal objectives.118
In general, the analysis by the CJEU of the justification of authorisation schemes on the grounds of Articles 9–13 of the Services Directive was based on a similar pattern as the requirements on the grounds of Article 15 of the Services Directive. Article 10(2) was most frequently referred to by the CJEU,119 since this provision contains a justification ground pursuant to which the schemes should be of ‘non-discriminatory character, justified by imperative reasons in the general interest’ and proportionate to that objective, which means that they are ‘suitable for securing the attainment of that objective and do not go beyond what is necessary in order to attain it’.120 This provides a uniform approach between various types of barriers to the freedom of establishment. It is further reinforced by the fact that the CJEU pointed to the same catalogue of justification grounds in Article 24(2) of the Services Directive.121 The scarcity of case law related to the conditions laid out in Article 16 and related to the limits to the free movement of services makes it impossible to formulate any general conclusions concerning this provision.
What follows from the broad list of justifications presented above, which have been recognized by the CJEU as overriding reasons related to the public interest, is that the Member States could invoke a very wide catalogue of public policy objectives to counterbalance the openness to free movement of services. The proportionality test, as it is known from the previous case law of the CJEU, has not been revisited and, as presented, the CJEU has been quite generous in acknowledging certain legal objectives as overriding reasons related to the public interest. The Services Directive, as indicated in its recital 7, aims to ensure respect for the balance between an objective of eliminating obstacles to the Single Market and safeguarding specific characteristics of certain activities.122 The Court has not shifted this balance in its application of the Services Directive in any direction.
The analysis presented in this contribution indicates one, perhaps surprising, tendency in the application of the Services Directive. The number of rulings related to the provisions covered by Chapter III relating to the freedom of establishment greatly outnumber the rulings on the grounds of the provisions covered by Chapter IV concerning the freedom of services. Therefore, the conditions for the establishment of business activities and conducting services in another Member State (or within a domestic one, as Chapter III of the Services Directive is directly applicable to purely domestic situations123), in a more organised and permanent manner, are currently a more explored method of the liberalisation of trade in services in the Single Market than the possibility of making use of the free movement of services on a temporary basis. The fact that the Court has been not delimiting both regimes very sharply, as was stated in Section 3, allows one to conclude that both regimes of the Services Directive should be jointly regarded as one complementary system of liberalisation of trade in services instead of two separate methods. Permanent exceptions (authorisation schemes, various legal requirements to conduct certain professions or activities) are seemingly more obvious. Therefore, it is easier to get ‘under the radar’ of the preliminary questions and enforcement procedures of the Commission.
However, as outlined in Section 2, the current status of the implementation of the Single Market for services does not allow the achievement of the objectives of the Services Directive in economic terms. The activity of the CJEU has, hitherto, not been particularly meaningful in this respect. No new elements, that could make the removal of barriers for services more advanced, have been added. Such an effect of innovation would be possible if the CJEU decided to attribute direct effectiveness to the provisions of the Services Directive on notification obligations. The obligation of Member States concerning the notification of technical provisions that could result in limiting the freedom of movement proved to be one of the most effective tools and measures in the field of trade in goods. The Court, in its case law, had also added a very significant dimension to this method of removing the barriers for trade in goods via a limited ‘triangular’ direct effect of the provisions of the Directive in relations between equal parties (of horizontal nature).124 Taking all of the differences between characteristics of trade in goods and trade in services into account, an analogous approach of the Court would have a very serious impact and present a significant new development.125 Simultaneously, the Commission should take a closer look into the restrictions imposed by national legislation concerning the free movement of services. As has been shown, the current disproportion between the freedom of establishment cases and the free movement of services cases may have significant negative effects for the completion of the Single Market for services, and for fulfilling the objectives of the Services Directive. As these objectives are aligned to broader policy objectives of the EU, the Commission, as the guardian of the Treaties, has a clear mandate to step up the enforcement of the provisions of the Services Directive in this respect.
In my opinion, the approach of the CJEU adds another layer to the existing effect of disappointment that the Services Directive remains a sort of unfinished business, a poor compromise, and an unfulfilled promise. Thus, the practical interpretation of the Services Directive provided by the CJEU does not contribute to the achievement of its objective of removing barriers to the Single Market for trade in services in a way that is satisfactory and matches its potential. Obviously, the CJEU should neither act ultra vires nor replace the Commission, Member States, and the European Parliament in the process of lawmaking. Nevertheless, it had proved many times that, solely by the application and interpretation of legislation together with a little addition of respectable judicial activism, it can influence substantially and improve the effectiveness of the implementation of the fully-functioning Single Market for services without barriers in accordance with the Treaty provisions.126 It should be encouraged to try harder in the course of further functioning of this legal act and to unblock the potential of the Single Market for services so as to contribute to the process of economic recovery after the Covid-19 pandemic within the EU.