## wpiea2019269-print-pdf

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---

### The 2006 Services Directive and Complementary Legislation
- Directive 2006/123/EC on Services in the Internal Market (“the Services Directive”) is a horizontal directive covering a wide range of services; excluded services include financial services, network industries and transport services.
- Main objective: eliminate remaining regulatory barriers to cross-border supply of services (trade or FDI), simplify administrative procedures, and foster administrative cooperation between EU Member States.
- The Directive introduced prohibitions and principles that Member States must respect when regulating services nationally; it did not replace national regimes.
- The Directive contains an explicit catalogue of forbidden regulatory restrictions (generally discriminatory), e.g., requirement that the firm’s headquarters be located in the country, and involvement of domestic competitors in authorization processes.
- Justification of regulatory measures by public interests must be: transparent, undergo necessity and proportionality tests, and not directly or indirectly discriminate against non-nationals. Public interests include consumer protection, safeguarding the sound administration of justice, and preservation of national historical and artistic heritage.
- Complementary legislation: Professional Qualifications Directive (2005/36/EC later amended by Directive 2013/55) covers mutual recognition of professional qualifications and related national requirements restricting access to a profession.
  - About 22 percent of the EU work force (or 50 million people) need some kind of prior authorization to access and exercise their profession.
  - In 2018 the Directive was strengthened with a complementary ‘proportionality directive’ to improve the analytical framework for regulatory impact analysis.

### Remaining implementation gaps and empirical indicators
- Due to incomplete implementation, the Directive has only been partially effective, according to the European Commission; service providers still face significant administrative burden and costs when going cross border.
- The system of administrative cooperation between EU countries is “currently not working in practice”.
- While the Professional Qualifications Directive improved recognition processes, remaining issues persist and the general recognition process remains cumbersome and lengthy.
- OECD Services Trade Restrictiveness Indicator (STRI) findings:
  - STRI confirms previous restrictiveness indicators by the European Commission and shows barriers have been lowered but remain high in key sectors such as professional services (accounting, legal services, architecture) and air transport.
  - On average, the most significant barriers are related to foreign entry, regulatory opacity, and lack of competition; barriers to movement of people and other discriminations appear largely resorbed within the EU.
  - Countries with highest regulation levels include Austria, Italy, Luxembourg, Belgium, and Spain; lower regulations include the U.K. and Ireland, and some Eastern and Nordic countries (Lithuania, Latvia, Estonia, Sweden, Denmark, Netherlands).
- Data counts and measurement notes:
  - Out of 478 observations: 194 occurrences of reduction in the STRI, 255 of stability, and 29 of increase in restrictiveness (the latter counted as 0 in the reform dummy).
  - Partially abolished measures count for 0.5 in the Services Directive remaining restrictions measure.

### Literature survey: factors holding back services sector reforms
- Political-economy factors:
  - Proximity of national elections or absence of a strong parliamentary majority can limit appetite for service reforms (empirical evidence mixed).
  - Vested interests and “fear” of social dumping tend to limit cross-border liberalization.
  - EU member states with higher taxation rates may fear tax-base erosion from increased mobility of service providers.
- Quality-of-service concerns:
  - Some countries believe cross-border liberalization is detrimental to service quality and use public interest justifications to retain or introduce barriers.
  - Empirical evidence from case studies on quality impacts is mixed and not definitive.
- Institutional complexity:
  - Large number of decision-makers (national, regional, local), professional bodies, regulators, and supervisors complicate reform.
  - Professional associations sometimes combine regulatory and representational roles, complicating reform.
- Implementation issues:
  - The principle-based nature of the Directive, scope and complexity contribute to low implementation.
  - Some countries removed barriers legislatively but not operationally (implementation in letter not spirit).

### Econometric investigations: modeling drivers of within-EU services trade liberalization
- Dependent variable: dummy equal to one if OECD’s within-EU STRI at the sector-country level decreased over 2014–18.
- Explanatory controls include: initial level of restrictions, macroeconomic variables (output gap), EFSF/ESM program dummy (financial assistance program between 2009 and 2013), World Bank’s Government effectiveness (WGI), political capital variables (years left into office; government support in parliament), and sector fixed effects.
- Panel: country-sector observations (countries with EFSF/ESM programs in panel include Cyprus, Greece, Hungary, Ireland, Latvia, Portugal, Spain).
- Model notes:
  - Linear probability model.
  - Smaller R-squared values are usual in panel data models.
  - Results robust to alternative dependent variable definitions (continuous or thresholds).

### Key econometric findings (Equation 2 estimation results)
- Coefficients and significance (t statistics in parentheses):
  - Government support in parliament in 2014: 0.00829* (1.92)
  - Years left into office in 2014: 0.0427** (2.32)
  - Government efficiency in 2014: 0.383*** (6.78)
  - Financial assistance program between 2009 and 2013: 0.148* (1.82)
  - Output gap in 2014: -0.0251** (-2.48)
  - Initial level of regulation: -1.065 (-0.99)
  - Constant: -0.682** (-2.46)
  - Sector fixed effect: Yes
  - N: 436
  - R^2: 0.158
  - Significance legend: * p < 0.10, ** p < 0.05, *** p < 0.01
- Interpretation:
  - Political factors and good governance increase the likelihood of reform.
  - Government effectiveness, stronger parliamentary support, and being early in mandate correlate with higher reform probability.
  - Countries subject to financial assistance programs were more likely to implement liberalizing reforms.
  - Initial level of regulation coefficient was insignificant, suggesting absence of convergence in restrictiveness over the period.

### Targeting reforms in protected sectors: markups and governance (Equation 3 estimation results)
- Model includes sectoral markups approximated by gross operating surplus to sales (Lerner index) and interaction with government efficiency; initial STRI excluded due to correlation with markups.
- Coefficients and significance (t statistics in parentheses):
  - Lerner index (in 2014): -0.0227** (-2.13)
  - Lerner index * Government efficiency (in 2014): 0.0147** (2.16)
  - Government efficiency (in 2014): -0.215 (-1.64)
  - Financial assistance program between 2009 and 2013: 0.324** (2.19)
  - Output gap (in 2014): 0.0778*** (3.92)
  - Constant: 0.742*** (2.86)
  - Sector fixed effect: Yes
  - N: 195
  - R^2: 0.247
  - Significance legend: * p < 0.10, ** p < 0.05, *** p < 0.01
- Interpretation:
  - Higher sectoral markups reduce the likelihood of reform.
  - Government efficiency increases the probability of reform particularly in sectors with higher markups (positive and significant interaction).
  - Financial assistance programs positively associated with reforms; output gap positive and significant in this specification.

### Services sector reforms and perceived quality
- Policy justification often invokes preservation of service quality (Article 15 of the Services Directive allows restrictions when necessary to protect public interest).
- European Commission (2019a) case study found no clear link between services sector reform and service quality across multiple quality dimensions.
- Empirical test using OECD STRI and European Commission Market Performance Index (MPI) for consumer satisfaction (sample of euro area countries between 2015 and 2017):
  - MPI synthesizes consumer perceptions on comparability, trust, problems, expectations, and choice in markets for services (and goods).
  - Sectors included in analysis: broadcasting, courier, distribution, and air transport.
  - Analysis robust to exclusion of air transport.

### Box 2. Reform of the Polish Legal Profession
- Background and key legislative changes:
  - The law profession in Poland was very restricted and admission was largely arbitrary prior to reforms.
  - 2013: Access to the profession of advocate and legal advisor by other legal professionals was facilitated by extending the exemptions from the bar training and professional examination to professionals with experience in other legal professions.
  - 2009: The exams were standardized and put under the supervision of the Ministry of Justice; previously the exams were entirely in the hands of self-governed professional organizations and the decisions of the examination boards were non-contestable.
  - Since 2015: Legal advisors are authorized to defend a party in criminal and fiscal crime cases, making their scope of rights equal to advocates.
- Changes to reserved activities and professional rights:
  - Reforms substantially reduced the scope of exclusive reserved activities of advocates and legal advisors and opened them up to other legal professions, thus increasing supply and competition.
  - The scope of rights of legal advisors was widened (see 2015 change above).
- Institutional and procedural reforms:
  - The role of professional organizations in admission to the profession of legal advisor and advocate was drastically revamped.
  - Recruitment had been highly selective and subject to diverse and unclear rules (European Commission 2019a); standardization and Ministry supervision aimed to increase transparency and contestability.
- Outcomes and implications:
  - The reforms enabled a two-fold increase in the number of legal professionals, while no decrease in quality occurred.
  - The increase in supply of lawyers was needed to avoid a significant increase in prices as demand surged on the back of rapidly increasing income of Polish households.
  - This successful reform episode is presented as encouragement for further reforms, noting that the Polish legal sector exhibits one of the highest STRI scores, particularly with respects to barriers to foreign entry.

*Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019269-print-pdf.pdf*

### 2006. However, subsequently, progress has

### 2006. However, subsequently, progress has been limited

### The 2006 Services Directive and Complementary Legislation
- Directive 2006/123/EC on Services in the Internal Market (“the Services Directive”) is a horizontal directive covering a wide range of services; excluded services include financial services, network industries and transport services.
- Main objective: eliminate remaining regulatory barriers to cross-border supply of services (trade or FDI), simplify administrative procedures, and foster administrative cooperation between EU Member States.
- The Directive introduced prohibitions and principles that Member States must respect when regulating services nationally; it did not replace national regimes.
- The Directive contains an explicit catalogue of forbidden regulatory restrictions (generally discriminatory), e.g., requirement that the firm’s headquarters be located in the country, and involvement of domestic competitors in authorization processes.
- Justification of regulatory measures by public interests must be: transparent, undergo necessity and proportionality tests, and not directly or indirectly discriminate against non-nationals. Public interests include consumer protection, safeguarding the sound administration of justice, and preservation of national historical and artistic heritage.
- Complementary legislation: Professional Qualifications Directive (2005/36/EC later amended by Directive 2013/55) covers mutual recognition of professional qualifications and related national requirements restricting access to a profession.
  - About 22 percent of the EU work force (or 50 million people) need some kind of prior authorization to access and exercise their profession.
  - In 2018 the Directive was strengthened with a complementary ‘proportionality directive’ to improve the analytical framework for regulatory impact analysis.

### Remaining implementation gaps and empirical indicators
- Due to incomplete implementation, the Directive has only been partially effective, according to the European Commission; service providers still face significant administrative burden and costs when going cross border.
- The system of administrative cooperation between EU countries is “currently not working in practice”.
- While the Professional Qualifications Directive improved recognition processes, remaining issues persist and the general recognition process remains cumbersome and lengthy.
- OECD Services Trade Restrictiveness Indicator (STRI) findings:
  - STRI confirms previous restrictiveness indicators by the European Commission and shows barriers have been lowered but remain high in key sectors such as professional services (accounting, legal services, architecture) and air transport.
  - On average, the most significant barriers are related to foreign entry, regulatory opacity, and lack of competition; barriers to movement of people and other discriminations appear largely resorbed within the EU.
  - Countries with highest regulation levels include Austria, Italy, Luxembourg, Belgium, and Spain; lower regulations include the U.K. and Ireland, and some Eastern and Nordic countries (Lithuania, Latvia, Estonia, Sweden, Denmark, Netherlands).
- Data counts and measurement notes:
  - Out of 478 observations: 194 occurrences of reduction in the STRI, 255 of stability, and 29 of increase in restrictiveness (the latter counted as 0 in the reform dummy).
  - Partially abolished measures count for 0.5 in the Services Directive remaining restrictions measure.

### Literature survey: factors holding back services sector reforms
- Political-economy factors:
  - Proximity of national elections or absence of a strong parliamentary majority can limit appetite for service reforms (empirical evidence mixed).
  - Vested interests and “fear” of social dumping tend to limit cross-border liberalization.
  - EU member states with higher taxation rates may fear tax-base erosion from increased mobility of service providers.
- Quality-of-service concerns:
  - Some countries believe cross-border liberalization is detrimental to service quality and use public interest justifications to retain or introduce barriers.
  - Empirical evidence from case studies on quality impacts is mixed and not definitive.
- Institutional complexity:
  - Large number of decision-makers (national, regional, local), professional bodies, regulators, and supervisors complicate reform.
  - Professional associations sometimes combine regulatory and representational roles, complicating reform.
- Implementation issues:
  - The principle-based nature of the Directive, scope and complexity contribute to low implementation.
  - Some countries removed barriers legislatively but not operationally (implementation in letter not spirit).

### Econometric investigations: modeling drivers of within-EU services trade liberalization
- Dependent variable: dummy equal to one if OECD’s within-EU STRI at the sector-country level decreased over 2014–18.
- Explanatory controls include: initial level of restrictions, macroeconomic variables (output gap), EFSF/ESM program dummy (financial assistance program between 2009 and 2013), World Bank’s Government effectiveness (WGI), political capital variables (years left into office; government support in parliament), and sector fixed effects.
- Panel: country-sector observations (countries with EFSF/ESM programs in panel include Cyprus, Greece, Hungary, Ireland, Latvia, Portugal, Spain).
- Model notes:
  - Linear probability model.
  - Smaller R-squared values are usual in panel data models.
  - Results robust to alternative dependent variable definitions (continuous or thresholds).

### Key econometric findings (Equation 2 estimation results)
- Coefficients and significance (t statistics in parentheses):
  - Government support in parliament in 2014: 0.00829* (1.92)
  - Years left into office in 2014: 0.0427** (2.32)
  - Government efficiency in 2014: 0.383*** (6.78)
  - Financial assistance program between 2009 and 2013: 0.148* (1.82)
  - Output gap in 2014: -0.0251** (-2.48)
  - Initial level of regulation: -1.065 (-0.99)
  - Constant: -0.682** (-2.46)
  - Sector fixed effect: Yes
  - N: 436
  - R^2: 0.158
  - Significance legend: * p < 0.10, ** p < 0.05, *** p < 0.01
- Interpretation:
  - Political factors and good governance increase the likelihood of reform.
  - Government effectiveness, stronger parliamentary support, and being early in mandate correlate with higher reform probability.
  - Countries subject to financial assistance programs were more likely to implement liberalizing reforms.
  - Initial level of regulation coefficient was insignificant, suggesting absence of convergence in restrictiveness over the period.

### Targeting reforms in protected sectors: markups and governance (Equation 3 estimation results)
- Model includes sectoral markups approximated by gross operating surplus to sales (Lerner index) and interaction with government efficiency; initial STRI excluded due to correlation with markups.
- Coefficients and significance (t statistics in parentheses):
  - Lerner index (in 2014): -0.0227** (-2.13)
  - Lerner index * Government efficiency (in 2014): 0.0147** (2.16)
  - Government efficiency (in 2014): -0.215 (-1.64)
  - Financial assistance program between 2009 and 2013: 0.324** (2.19)
  - Output gap (in 2014): 0.0778*** (3.92)
  - Constant: 0.742*** (2.86)
  - Sector fixed effect: Yes
  - N: 195
  - R^2: 0.247
  - Significance legend: * p < 0.10, ** p < 0.05, *** p < 0.01
- Interpretation:
  - Higher sectoral markups reduce the likelihood of reform.
  - Government efficiency increases the probability of reform particularly in sectors with higher markups (positive and significant interaction).
  - Financial assistance programs positively associated with reforms; output gap positive and significant in this specification.

### Services sector reforms and perceived quality
- Policy justification often invokes preservation of service quality (Article 15 of the Services Directive allows restrictions when necessary to protect public interest).
- European Commission (2019a) case study found no clear link between services sector reform and service quality across multiple quality dimensions.
- Empirical test using OECD STRI and European Commission Market Performance Index (MPI) for consumer satisfaction (sample of euro area countries between 2015 and 2017):
  - MPI synthesizes consumer perceptions on comparability, trust, problems, expectations, and choice in markets for services (and goods).
  - Sectors included in analysis: broadcasting, courier, distribution, and air transport.
  - Analysis robust to exclusion of air transport.

*Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019269-print-pdf.pdf*

### Box 2. Reform of the Polish Legal Profession

### Box 2. Reform of the Polish Legal Profession

### Background and key legislative changes
- The law profession in Poland was very restricted and admission was largely arbitrary prior to reforms.
- 2013: Access to the profession of advocate and legal advisor by other legal professionals was facilitated by extending the exemptions from the bar training and professional examination to professionals with experience in other legal professions.
- 2009: The exams were standardized and put under the supervision of the Ministry of Justice; previously the exams were entirely in the hands of self-governed professional organizations and the decisions of the examination boards were non-contestable.
- Since 2015: Legal advisors are authorized to defend a party in criminal and fiscal crime cases, making their scope of rights equal to advocates.

### Changes to reserved activities and professional rights
- Reforms substantially reduced the scope of exclusive reserved activities of advocates and legal advisors and opened them up to other legal professions, thus increasing supply and competition.
- The scope of rights of legal advisors was widened (see 2015 change above).

### Institutional and procedural reforms
- The role of professional organizations in admission to the profession of legal advisor and advocate was drastically revamped.
- Recruitment had been highly selective and subject to diverse and unclear rules (European Commission 2019a); standardization and Ministry supervision aimed to increase transparency and contestability.

### Outcomes and implications
- The reforms enabled a two-fold increase in the number of legal professionals, while no decrease in quality occurred.
- The increase in supply of lawyers was needed to avoid a significant increase in prices as demand surged on the back of rapidly increasing income of Polish households.
- This successful reform episode is presented as encouragement for further reforms, noting that the Polish legal sector exhibits one of the highest STRI scores, particularly with respects to barriers to foreign entry.

*Box 2. Reform of the Polish Legal Profession, from the provided source content.*

---


_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019269-print-pdf.pdf_