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18/02/2006 | European Union: Breakthrough for Services Liberalisation as EU Deputies Approve Contentious Directive

WMRC Staff

The European Parliament yesterday voted to approve the embattled services directive by a large majority, following a compromise text agreed last week between the two major political groupings.

 

Global Insight Perspective

Significance

The services directive, also known as the 'Bolkestein directive', which aims to open up cross-border competition in the EU, was finally approved yesterday in the European Parliament, two years after first being drafted. It has been a highly contentious text, and the final version is very different from what was originally envisaged.

Implications

Despite its aim of liberalising all services in the EU, the final draft contains a long list of exemptions. The controversial 'country of origin' principle has also been scrapped.

Outlook

The approved text will now be sent back to the European Commission, which has already said that it will incorporate the European Parliament's amendments before presenting the revised draft to EU leaders for final approval. However, opposition from some national delegations threatens to derail the process.

An Explosive Draft

After two years of deliberations and heated debates, and hundreds of proposed amendments, members of the European Parliament (MEPs) yesterday finally voted in favour of adopting the EU services directive by 391 votes in favour, 213 against and 34 abstentions. The MEPs in favour of the revised text, containing over 400 amendments, came principally from the two biggest political groupings in the Parliament, the centre-right European People's Party-European Democrats (EPP-ED) and the Party of European Socialists (PSE). The Greens, the Eurosceptics and the far-left deputies all voted against the draft, as did many liberals, who had been unsuccessful in pushing through any of their amendments. Clearly, the bill had been directed by the EPP-ED and PSE, which had reached a compromise agreement last week in order to ensure the directive's approval in the plenary session yesterday.

The revised draft is rather different to what had originally been envisaged by the Dutch internal market commissioner who had drawn it up in 2004, Frits Bolkestein, who has become synonymous with the proposed directive. The initial proposals were intended to open up the European Union (EU) services market to cross-border competition, in the hope of making the economy more competitive. The services sector accounts for nearly 70% of economic activity in the 25-member bloc. The main points of contention which had dominated parliamentary debate were: the 'country of origin' principle, according to which a firm could provide a service in a member state other than its own on the basis of the rules applicable in its country of origin; the distinction between the general right for a firm legally established in its country of origin to provide a service in a member state other than its own; and the actual provision of such a service, and whether services of general economic interest should be excluded from the scope of the directive. These issues resulted in over 1,500 amendments being submitted for inspection.

Fervent critics of the proposals had also accused the text of facilitating 'social dumping', and indeed the social dimension to the directive is one that has been crucially entrenched in the draft approved yesterday. MEPs were likely to have been swayed by the mass protests organised by trade unions across Europe throughout the parliamentary debate, as well as in the days leading up to the vote. Pressure from the older member states, particularly France and Germany, would also have done much to ensure the watering-down of the draft and the inclusion of significant protection measures and worker safeguards.

Watered-Down Draft Irks Businesses, Pleases 'Old Europe'

Under the approved version, the contentious 'country of origin' principle has been scrapped completely. It is believed that this principle would have allowed lower standards to seep into countries whose rules ensure much higher standards of safety and consumer protection. The scope of the services bill has also been slimmed down, by excluding social, private healthcare, security and transport services, as well as temporary work agencies. However, commercial service providers in the area of education or culture, as well as companies providing water or gas, will be governed by the new law. The proposals also include a list of legitimate grounds for restricting foreign companies, namely national security, public health and environmental protection. However, the directive falls short of including consumer protection or social policy.

The draft approved yesterday is being hailed as a success for the European Parliament, and for 'old Europe'. France and Germany are very pleased with the result, with French Minister for European Affairs Catherine Colonna admitting that it is 'very close' to the French position, which was influenced by pressure from social actors to save jobs. With France's critical unemployment situation, the pressure was on for the government to lobby for increased job protection safeguards. As a result, the 'country of destination' will govern labour law. European Internal Market Commissioner Charlie McCreevy also stated yesterday that the Commission will take on board the Parliament's amendments before presenting a final draft to EU leaders.

However, some national delegations, namely from Scandinavia and the new member states which joined in 2004, were critical of the vote yesterday, and of the 'convenient' partnership forged between the opposition groupings. Some new member states, including Poland, expressed concern that their national service providers will be extremely limited in cross-border provision because of the suppression of the 'country of origin' principle. Others still voiced concerns that the number of amendments to the original text has further complicated an already difficult proposal.

Finally, businesses are sceptical that the new social leanings of the draft proposals will enable the EU to create as many jobs as is hoped. The European Employers' Federation, UNICE, claims that cross-border services will not be facilitated by the draft approved yesterday, and says that too many sectors are excluded. However, small and medium-sized businesses did welcome the new directive, claiming that there is broad consensus in the text that still enshrines the principles to minimise red tape and break down barriers to cross-border service provision.

Outlook and Implications

Yesterday's vote means that a significant hurdle has been cleared by the services directive, which will now be reviewed by the European Commission before being submitted to member states for the final decision, planned for March. The breakdown of the voting will be an important aspect for the Commission to consider in its new proposal, as well as some of the most important amendments approved yesterday, before presenting it to EU leaders. It is unlikely that EU leaders will re-insert the more contentious parts of the directive, such as the 'country of origin' principle, which have now been scrapped. However, opposition from the newer member states, which will feel hard done by, could yet pose a final barrier before implementation of the directive.

Despite the criticism levelled at the revised draft, it is promising to see a broad consensus emerging on such a crucial issue between the two main parliamentary groupings. Yesterday's result has been hailed as a balance between liberal marketeers and social guardians. However, this is in no way the final step, nor a huge milestone for the directive, as is being declared. Should EU member states reject the revised proposal from the Commission in March, it will need to be re-drafted. After yesterday's vote, coupled with Austria's determination to achieve agreement before the end of its EU presidency in June, this scenario appears unlikely, however. For now, the Parliament-approved document bodes well for the eventual liberalisation of the EU's services market.

Contact: Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com

WMRC (Reino Unido)

 



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