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EU & Democracy

Democratic Impact of EU Measures

How does differentiated integration affect or is affected by policy responses to the disruptive innovations of the ‘collaborative’ or ‘sharing’ economy in the EU’s single market?

Might we see a renewal of the Community method which has retreated somewhat since the banking and euro crisis? If this is not achievable, does this mean there are limitations to free movement of services in the single market that cannot be avoided and will this confirm a turn towards differentiated integration?

Start-ups (formerly unicorns and now decacorns) of the so-called ‘sharing’ economy like Uber and Airbnb have become enormously popular and vehicles for high-value venture capital. Uber, for example, is reported as having received a $3.5 billion investment from the Saudi Sovereign Wealth Fund making its potential capitalisation at $70 billion equal to that of Daimler and more than BMW, GM and Honda.

‘Sharing’ in these cases is a misnomer. There is little or no element of ‘sharing’ (as in lending/borrowing, or ‘what’s mine is yours’). On the contrary, these are new forms of profit-seeking by mass exploitation of consumer needs or preferences made possible by Information and Communications Technology (ICT) platforms, that would have been familiar to the robber barons of the nineteenth century. Hence their attractiveness for venture capital. While this may be so, some see the new services as a welcome and overdue response to ‘regulatory capture’ by private monopolies in which the state has an interest in preserving.

Why does it matter – now? Two concerns are becoming apparent and are demanding the attention of public policy. The first is the negative environmental and societal externalities caused and which go unpaid by them (e.g. C. Crouch, R. Mejia, European Parliament).

The second, is the incoherent response to them by national jurisdictions. In some EU Member States (MS), such as the UK, Ireland and some Baltic members, these services are permitted or lightly regulated, whereas in others (the majority) they are either completely banned (in the case of Uber) or heavily restricted, although they operate widely ‘under the radar’. This matters because free movement of services and the right of establishment is one of the four pillars of the single market, itself the engine and most tangible expression of EU integration since the Treaty of Maastricht. While this inconsistency has latterly become of concern to the EU institutions, namely the European Commission (EC), the European Parliament (EP; 2015 and 2016), the Committee of the Regions and the European Economic and Social Committee, it has attracted little if any scholarly attention.

It was precisely in order to establish the ‘rules of the game’, that the Services Directive was approved by the co-legislators and transposed into national law throughout the EU by 2009. Its gestation was, however, highly contested politically (recall the storm over the Polish plumbers at the time of the original, ill-fated Bolkestein directive and the final version was the result of an intense compromise, with more areas of economic activity categorised as services being excluded than included). There is also lack of clarity over what is a single market competence and what is reserved for MS authority. Is Uber a taxi service, hence excluded under ‘Transportation’ (although the Treaty is not specific) or is it, as Uber claims, ‘merely’ an IP-enabled information service and therefore should not be excluded. A preliminary ruling sought by the government of Spain is awaited from the European Court of Justice (ECJ). Treatment under national regulations must in any case respect the principles of non-discrimination, proportionality and necessity when exclusion is justified for ‘overriding reasons of public interest’ (ORPI).

A briefing by the EP’s Transport and Tourism Committee acknowledged a ‘European’ dimension to regulating Uber and similar ‘transportation network companies’ rather than leaving it to individual MS, proposing that:

The first novelty brought by TNCs into the legal landscape is that they have a clear European dimension in an area where Member States were traditionally strongly opposed to European legislation. TNCs, as providers of information and communication technology services, are covered by European provisions on free movement of services and freedom of establishment, and their services are a part of the Digital Single Market’  . . .  Therefore, European institutions have the competence to bring together the fragmented response to TNCs which is happening at the national level. This could be done through legislation, regulatory actions or the judiciary.

In June 2016, the EC published an ‘Agenda for the collaborative economy’, setting out guidelines for MS to follow. These guidelines are described as ‘non-binding’ and under them, MS are invited to review their legislation to ensure that it is in conformity with EU law, which, as suggested, is by no means clear. Only ‘in the last resort’ should these services be banned.

The EC has little power of implementation or enforcement. It has suggested that the aforementioned response of the MS will be monitored, that it will defend its stance as guardian of the Treaty at the ECJ and that it will bring forward amendments, if required, to the Services Directive and to the Mutual Recognition Regulation.

Two fertile areas of research are raised by these developments. First, looking backward, why are there such differences in the regulatory position of MS towards the sharing or collaborative economy in general and, specifically, the P2P for-profit model? For these, interesting approaches of socio-economic ideologies and institutional path dependencies which overlap with the Varieties of Capitalism  typology could be employed (e.g. Hall and Soskice, Hanké et al.). Issues of autonomy, sovereignty, legitimacy and trust are also important and there are rich literatures through which to view all of these.

Looking forward from now, how might a regulatory approach emerge which is consistent with the free movement of services pillar? Will the EC’s ‘framework’ guidance, the promptings of the EP and the rulings of the ECJ be sufficient? Wallace (Chapter 4) identified a number of policy modes in the classic Community method, among them a Regulatory mode and Policy Coordination, with which she associated the EU’s flexibility and resilience in dealing with policy diversity among member states. Might we see a renewal of the Community method which has, it is argued, retreated somewhat since the banking and euro crisis of recent years? If this is not achievable, at least in the near term, does this mean there are limitations to free movement of services in the single market that cannot be avoided and will this confirm a turn towards differentiated integration, a hypothesis that has long been proposed (e.g. Howarth and Sadeh, Leruth and Lord) and might also be increasingly observable in other areas of what have been considered to be of common interest?

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