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Free pass for services in Europe

A cross-border service sector could ease the woes of recession-stricken Europe but in practice hardly does it. Regulations allowing businesses to expand abroad already exist but lack of information and pesky hurdles make it difficult for service providers to enjoy the benefits of a borderless Europe.

Róża Maria Gräfin von Thun und Hohenstein may well be the embodiment of European federalism. A Polish girl from Krakow, who married an Austrian count (hence the name and title ‘Gräfin’ meaning countess) and works in Brussels and Strasbourg as a member of the European Parliament, is in fact a keen supporter of unity in diversity. It is the end of June in Brussels, and Thun is sitting among European journalists summoned on the occasion of the 20th anniversary of the single market, showcasing why the system is not working. “Not long ago, I participated in a dinner where a French businessman sat next to me. He moved to Brussels to work for a petrol company. His wife wanted to have the same curtains as she had at home. So she ordered them from the French webshop but they refused to ship it due to insurance issues. Then, she tried to get them in Belgium, but the company’s local outlet offered it at much higher prices. Eventually, she drove back to France, bought the curtains and brought them with her to Belgium.” Her stories do not end here. She has abundant examples, from a French shoe shop unable to deliver oversize shoes to Austria because of regulations to an online fashion store whose customers are afraid of ordering in a confusing legal environment – all illustrating the deficiencies of the cross-border service market.  

Top 5 – what businesses really want from PSCs

Doing it online. Is it too much to ask in the 21st century?

Doing it in their own languages (or in English, at least). After all, the idea is to do business in multiple locations, not speak multiple languages.

Rapid response to requests, plus a helpdesk or phone service to backup the electronic portal. Considering the speed with which government offices respond to media enquiries, we can see the challenge in that one.

Information on practical issues such as tax and labor laws. On a webpage that is designed for that? No comment.

Possibility and security of electronic signatures, since data phishers are always on alert.

20 years ago, when the idea of a single European market became tangible for 12 countries – Belgium, Denmark, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal, and the United Kingdom – the aims were clear: to allow people and businesses to move and trade freely across the borders. The benefits clearly showed in figures: from 1998 to 2008, Europe’s service sector grew by an annual average of 2.8% while EU growth averaged 2.1%. Employment in the sector increased 2% a year, compared to 1% for the economy as a whole.

Since 2004, however, trade in services has been growing faster between the EU and the rest of the world than inside Europe. Only 20% of services are provided cross-border, which account for 5% of EU GDP, as opposed to 17% for goods. And it is not fear of new challenges that makes businesses stay at home.

Bureaucracy: the lesser of two the many evils?

“A Hungarian citizen will be able to establish and run a café in Vienna,” was rhetoric commonly used by pro-EU politicians to urge people to vote for enlargement prior to the referendum in 2004. Though not a frequenter of the Vienna café scenery, I cannot recall a multitude of coffee shops owned by Hungarians springing up. There may also be financial reasons behind this, but the difficulties of setting up businesses cross-border play a part. At the homepage of the Austrian Point of Single Contact, a place to give information and support to companies, the rules on starting a business in Austria are only provided in German.

Obviously, speaking German will not hurt someone wishing to serve coffee in Vienna, but is not mandatory. Likewise, France did not bother to have its single reference point for businesses translated into anything but French. Neither did Poland, Liechtenstein, Romania, or Hungary, come to that. Of the 27 PSCs across Europe, 21 provide information in English. Often, though, the English page is the shortened version of the original and offers information too general to be useful. (Interestingly, some countries, such as Cyprus or Denmark, do not have a version in their own native language.)

The Services Directive

The Services Directive was adopted in 2006 in the European Union. Its aim is to facilitate cross-border service provision and establishment by simplifying existing procedures and removing legal and administrative barriers to trade in Europe’s service sector.

Point of Single Contact

The directive also required member states and European Economic Area countries to set up so-called points of single contact by 2009, through which companies could obtain relevant information and complete administrative formalities entirely online, without having to contact several authorities.

Where the language barrier does not apply, there are other problems. “A Dutch company dealing with office cleaning wants to expand to, say, Luxembourg. To do this, just like other service providers, it needs a business permit. It is also required to pay €25 as a procedural fee. However, after applying for the licenses, it may have to wait up to six months to get the permission,” said Jeroen Hardenbol, adviser of Business Europe, an organization that represents small-, medium- and large-sized companies across Europe. Needless to say, bureaucracy progresses more swiftly for Luxembourgers. Many EU officials claim that protectionism is killing the unified Europe, while others just shrug it off as a natural consequence of diversity.

Although the overall idea of PSCs is to give information, many companies are not even aware of their existence or the benefits they offer. Budgets for their promotion have been severely cut in the past few years, and some governments have not yet put in place a PSC at all. No matter how tight things are, countries would be well advised to spend on promotion, Hardenbol suggests. Most consumers may settle for curtains from local shops, but companies, especially after the crisis, have fewer choices. After all, the whole point of providing services abroad is to grow further or to fend off the effects of a sluggish business at home.

Facts and figures:

Services represent nearly 75% of the EU GDP and two-thirds of employment.

Cross-border services account for 5% of EU GDP vs. 17% coming from goods.

9 out of 10 new jobs are created in the services industry.

Only 8% of European SMEs provide cross-border services.

The use of single points of contact could bring savings of up to €60 million per year in the Netherlands, a study shows.

The economic gains of full implementation of the Services Directive range between €60 billion and €140 billion, a growth potential of 0.6-1.5% of EU GDP.

Source: Business Europe