ECCE BRUSSELS BRIEF

The Services Directive, put forward in 2004, has proved to be very controversial. Following opposition from Germany, and in particular, France, together with criticisms from a number of Members of the European Parliament, it was decided in late March that the controversial aspects of the Directive would be reviewed. It will next be discussed in a plenary session of the European Parliament in September of this year.

In 2004 the European Commission published a proposal for a Services Directive. The proposals are part of the Lisbon economic reform agenda agreed by European leaders in 2000. The then Commissioner for the Internal Market, Frits Bolkestein declared this was “potentially the biggest boost to the Internal Market since its launch in 1993”. The proposals for a Services Directive have since come to be known as “the Bolkestein Directive”.

It was estimated that within the 15 EU Member States that the public and private sectors account for almost 70% of employment, just over 70% of gross value added, but only 20% of intra-EU trade.

Articles 43 and 49 of the European Treaty guarantee the EU Internal Market for Services. In 2002 a survey was published as a consequence of the Commission’s 1999 ‘internal market strategy for services’ which recommended investigating obstacles to a Single Market in services and creating a ‘horizontal instrument’ to provide a solution. In this survey the European Commission identified 91 barriers affecting a wide range of service sectors. These included complex administrative procedures when operating in another Member State, restrictions on posting workers abroad and using equipment abroad; differences between Member States’ rules on sales promotion.

Between 1995 and 2001, 58% of total job creation (6.7 million new jobs) resulted from four service sectors: “other business activities”, health and social work; computer activities; education.

The proposed Directive covers any business activity that constitutes a service provided to consumers or businesses.

Not included are services provided free of charge by public authorities or those services already covered by specific EU law (e.g. financial services, tele-/electronic communications, transport).

Commission estimates evaluate services covered by the Directive as 50% of EU GDP and some 60% of employment in the Union.

Some traditional services included are employment agencies, advertising agencies, craftsmen, security services, waste management, retail, hotels, business-related services, regulated professions etc.

Also included are manufacturers that provide service (.e.g. car makers which offer leasing, fleet management and repair services).

The Commission has noted that obstacles to the development of service activities between Member States occur particularly in two types of situation:

(1) Service provider from one Member States wishes to establish himself in another Member State and may face excessive bureaucracy and red-tape etc.

(2) A service provider wishes to provide a service from his Member State of origin into another Member State, particularly by moving there on a temporary basis. He/she may be subject to a legal requirement to establish him/herself there, may need to obtain an authorisation or may be subject to disproportionate procedures in connection with the posting of workers.

UNICE, the Employer’s Federation, has stated that the “Country of Origin” principle in the Services Directive appears to undermine another accepted EU directive – the Posting Directive – by which workers from one Member State must adhere to the social standards and regulations of the country they are posted in.

The Draft Services Directive states that the “Country of Origin” principle will apply to companies providing temporary services elsewhere in the EU, but not to firms providing a permanent service.

Germany’s Chancellor Gerhardt Schröder has stated that he is opposed to any initiative that might lead to ‘social dumping’ in Europe’s services sector. His concern is that firms from countries with lower taxes and fewer social regulations, notably in Eastern Europe, will be able to operate in higher-cost economies, but without having to pay their workers at local rates. The Commission countered this criticism by stating that in the case of seconded workers, the Services Directive defers to an existing EU Directive, the Posted Workers Directive[1], under whose terms companies who send workers to another EU Member State are obliged to comply with minim wage and other standards on health and safety and hygiene.

Speaking to the Bundestag (the lower house of the German Parliament) earlier this year, Chancellor Schröder expressed his support for President Chirac of France and stated that they could not disregard safety standards in Germany. Unemployment in Germany is currently at a high of 5.2 million (12-6% of the workforce).

An underlying fear in Western Europe is that many businesses may opt to base themselves in Central and Easter Europe where a number of the new and accession states have adopted very low company tax rates.

As late as mid-March of this year, EU Commission President José Manuel Barroso expressed strong support for the Directive when he gave the 2005 Robert Schumann Lecture in Brussels, entitled “Creating a Europe of Opportunities”. He named three actions that were prioritised by the Commission: (i) better implementation of existing directives and better regulation (notably in favour of SMEs), (ii) stricter application of competition policy and of public procurement rules and (iii) completion of the internal market in services through the Services Directive.

However, some 10 days later, French President Jacques Chirac won backing from fellow EU leaders for a substantial revision of the directive. The subject was not, in fact, on the Summit Agenda. Nonetheless, fears that the issue would have a knock-on effect on the French referendum on the EU Constitution, scheduled for late May 2005, led to support to this initiative.

The result of these discussions has not pleased everyone. From Central and Eastern Europe, Hungary’s socialist Minister of European Affairs, Etele Baráth, was interviewed by web magazine ‘euractiv’ in March. In his opinion, the debate had become too politicised. In France, he noted, there is an approximate total of 20 million jobs, 200,000 have been lost in the last five years. However, a similar situation exists in Hungary: big international companies such as IBM leave to find cheaper labour elsewhere in countries such as Romania and Croatia. The western economy, he considered, had made greater earnings by market openings in Easter Europe over the last 10 years than the cost of job losses. A feeling was arising in business circles that big banks and industry had been able to settle freely in Central and Eastern Europe for a decade, yet benefits to the region of being able to provide services freely across all of Europe were to be blocked. The situation appeared to be one of great injustice and also a big setback for EU competitiveness.

The European Parliament position: In the Parliament, the draftsman for the Report on the Proposal is a German socialist MEP, Evelyne Gebhardt. She is due to present her report on the Directive in April. She has recently been interviewed by the French press and stated that amendments to the directive should include replacing the country of origin principle with rules regarding mutual recognition.

The Parliament’ Committee on the Internal Market and Consumer Protection held a public hearing on the draft Directive on 11^th November 2004 which included a debate on the Directive. Some 700 organisations attended, indicating the high degree of interest and controversy surrounding the Directive.

The European Economic and Social Committee (EESC) Position: This opinion was adopted in a plenary session on 11^th January 2005. In particular, it states that introducing the Country of Origin principle is pre-mature. This will remain the case until there is further significant harmonisation of legislation and systems across the EU. The text appears on: http://eescopinions.esc.eu.int/viewdoc.aspx?doc=\\esppub1\esp_public\ces\int\int228\en\ces137-2005_ac_en.doc

The call to review the Directive was raised at the 22^nd-23^rd March summit of European leaders by President Chirac of France. According to France’s prestigious ‘Le Monde’ newspaper, this issue has become the ‘war horse’ for those in favour of a ‘No’ vote on the European Constitution. In the European tradition of holding national referenda in order of those most likely to agree (Spain has already voted in favour of the Constitution in February) the vote in France is scheduled for 29^thMay 2005. There was clear concern amongst Europe’s leaders that if the Constitution fell at such an early hurdle, then the whole European project would face a major set-back.

On 23^rd March, Jean-Claude Juncker, the Prime Minister of Luxembourg, who is currently President of the European Council, commented on the decision to review the directive that what was wished for was a fully operational internal market for services, be able to promote growth and employment and strengthen European competitiveness – but this market must preserve the European social model.

Only the European Commission could withdraw the draft directive. This is unlikely to happen as to do so would imply that opening a market in services was deleted from the European Agenda.

The issue of the services directive is considered to have weakened José Manuel Barroso’s leadership of the Commission Presidency. The U.K. ‘Economist’ magazine point out that Mr Barroso has failed to make a good impression on some key European leaders: both Jacques Chirac of France and Gerhard Schröder of Germany, opposed his nomination, and still regard him as too economically liberal and Atlanticist. France’s President Chirac has been quoted as stating “Ultra-liberalism is as great a menace as Communism in its day”.

It is not just the services directive that is affected by their opinions but also the stability and growth pact, designed to force governments to exercise fiscal control. According to an Economist writer this “has been rendered more or less toothless” after Europe’s finance ministers agreed on revisions following heavy lobbying by France and Germany, which had repeatedly breached the previous rules. Regrettably for Mr. Barroso, these are both long-running disputes which he inherited from the Prodi Commission.

Parliament is due to report on the Services Directive in April, the rapporteur being, as mentioned above, a German socialist MEP, Mrs. Evelyne Gebhardt. A number of industry sectors, as well as political groups, will be watching discussions with interest. Mrs. Gebhardt has already been quoted in ‘Parliament Magazine’ as viewing the proposal for a Directive as a "threat to consumer protection, the European social model and public services”.

Socialist group demands in relation to the Directive cover social cohesion, protecting public services, limiting the directive’s scope to avoid ambiguities regarding economic and non-economic and social interest, country of origin, social Europe, quality guarantees for more effective control of services.

Construction Sector Position papers on the Services Directive have been produced by:

(2) The U.K. based Royal Institute of Chartered Surveyors has presented a policy on the proposed Directive:

From a construction perspective, it should be noted that the Services Directive has been criticised for its possible effect on health and safety in Europe.

Senior Labour Inspectors’ Committee position: A recent report from the Senior Labour Inspectors’ Committee (SLIC) suggests that a general derogation should be made to the Services directive (under Article 17) regarding directives on health and safety at work and stating that the Service directive is not an obstacle for national regulation concerning safety and health of all workers, including self-employed workers, and also the safety and health of members of the public who may be at risk from work activities.

The concerns of SLIC mainly relate to application of the ‘country of origin’ principle. Whilst DG MARKT (i.e. D.G. Internal Market) representatives had informed SLIC that safety and health of workers at work is not included in the Services directive, SLIC thinks that there is a need to clarify the issue of locally hired workers and the protection of third party in the proposal. SLIC did not agree with DG MARKT’s suggestion that the procedures for cooperation between authorities was fully sufficient to ensure the safety and health of the self-employed.

SLIC also believe that there many practical problems if health and safety of the self-employed is included in the Services directive – particularly in the field of construction because of the temporary and cross-border character to be found in this sector and the many different companies and organisations and self-employed who may be involved in one construction site. Some Member States have regulations for the self-employed, but not all of them. SLIC is concerned that the Commission’s proposals in the Services Directive may prevent the Member States from implementing the recommendation (Council of Ministers recommendation of 18^th February 2003) regarding improving protection of health and safety at work of self-employed workers. As the report states, this could create many problems because it would mean that the Community cannot regulation health and safety at work of self-employed workers.

[1] http://europa.eu.int/infonet/library/n/9849ce/en.htm for Directive text from Official Journal and http://www.dti.gov.uk/er/directive.htm for first four paragraphs of page. These provide a brief synopsis of the directive’s contents.