Controversy over draft Directive on services

During 2004, there has been widespread criticism among trade unions of a draft EU Directive aimed at encouraging the free movement of services, issued by the European Commission in January. For example, some European-level union organisations expressed opposition to the proposal in June, while unions in Belgium staged protest demonstrations. Trade union concerns centre on the so-called 'country of origin' principle, according to which service providers would be subject only to the law of the country in which they are established (rather than those in which they operate). Unions fear that this would lead to cost undercutting and might also damage collectively-agreed regulation of employment terms in some countries.

On 13 January 2004, the European Commission issued a draft Directive on services in the internal market. This proposal is aimed at providing a legal framework that will eliminate the obstacles to the freedom of establishment for service providers and the free movement of services between the EU Member States. It covers services provided both to consumers and to businesses.

The draft Directive covers any business activity that constitutes a service except for those services where there are already specific initiatives to complete the EU internal market (notably financial services, telecommunications and transport). It covers a wide range of activities, including: management consultancy; certification and testing; maintenance; facilities management and security; advertising services; recruitment services (including the services of temporary employment agencies); services provided by commercial agents; legal or tax consultancy; property services, such as those provided by estate agencies; construction services; architectural services; distributive trades; organisation of trade fairs and exhibitions; car hire; security services; tourist services, including travel agencies and tourist guides; audiovisual services; sports centres and amusement parks; leisure services; health services; and personal domestic services, such as assistance for old people.

According to the Commission, the proposal covers all services that correspond to an economic activity within the meaning of the case law of the European Court of Justice. The draft does not, therefore, cover 'non-economic' services of 'general interest', such as state schools and welfare provision. It does, however, cover services of general interest if they are of an economic nature, such as postal services, energy and telecommunications, but only in so far as they are not covered by other specific EU legislation.

In total, the services covered by the proposal account for around 50% of all economic activity in the EU.

The Commission states that the establishment of a genuine internal market in services is indispensable to the achievement of the economic and social objectives set out by the Lisbon European Council summit in 2000 (EU0004241F). Therefore, in order to eliminate the obstacles to the freedom of establishment, the proposed Directive provides for a range of administrative simplification measures and the lifting of restrictive legal requirements that may still be in force in some Member States.

Most controversially, however, the proposal provides for a number of measures aimed at eliminating obstacles to the free movement of services, including:

• the application of the 'country of origin' principle, according to which a service provider is subject only to the law of the country in which it is established and Member States may not restrict services from a provider established in another Member State. This principle is accompanied by derogations which are either general, or temporary or which may be applied on a case-by-case basis;

• the right of recipients to use services from other Member States without being hindered by restrictive measures imposed by the recipient's country or by discriminatory behaviour on the part of public authorities or private operators;

• a mechanism to provide assistance to recipients that use a service provided by an operator established in another Member State; and

• in the case of the posting of workers in the context of the provision of services, the allocation of tasks between the Member State of origin and the Member State of destination and specification of the supervision procedures applicable.

The text, which is subject to the EU's co-decision procedure, is awaiting a first reading in the European Parliament (EP) in summer 2004. It is intended that the Directive, if adopted, will be in full force by 2010.

Employers' view

The Union of Industrial and Employers' Confederations of Europe (UNICE), which represents private sector employers at European level, issued its position on the draft services Directive in April 2004, stating its belief 'that an efficient internal market for services is of crucial importance for Europe’s competitiveness'. UNICE's view is that 'the proposal is an appropriate basis for tackling a number of diverse obstacles in the heterogeneous services sectors' and would contribute to simplifying administrative burdens. It notes that small and medium-sized enterprises (SMEs) in particular would benefit from increased comparability between service providers.

However, UNICE also states that tackling a number of problems within a single instrument is an ambitious goal and that there is a need for clarification on many issues.

Trade union opposition

The draft Directive is proving to be extremely controversial among trade unions throughout Europe, some of which have been staging protests. They fear that it will result in service employers locating themselves in countries with the lowest fiscal, social and environmental requirements and subsequently extending from this base their activities throughout the whole of the EU.

ETUC statement

In a statement issued in May 2004, the European Trade Union Confederation (ETUC) said that it is gravely concerned about some of the provisions in the Commission’s draft Directive on services in the internal market. It warns that they could speed up deregulation, seriously erode workers’ rights and protection, and damage the supply of essential services to European citizens.

ETUC states that it 'acknowledges the important potential for job creation in many service sectors across Europe. It recognises efforts in the Commission’s draft Directive to improve the efficiency of the internal market through reducing administrative costs and setting up single contact points for service providers. However, the draft as it stands is seriously flawed, and threatens to undermine existing collective agreements, national labour codes, and the success of the whole European social model. For these reasons, ETUC cannot support it, and has called for an urgent meeting with the European Council working group on competitiveness and growth to discuss its concerns.'

In particular, ETUC states that the proposal fails to distinguish between services of different kinds and with different objectives, and fails to make clear exactly which services it would cover. It stresses that 'European trade unions have long been calling for a framework Directive on services of general interest (SGI), covering healthcare and other essential services where a simple supplier-consumer relationship does not apply. In ETUC’s view, these cannot be subject to the same rules as commercial services like retailing and property development, as proposed in the current draft.'

According to ETUC, the proposal for providers to be subject only to regulations in their 'country of origin' would allow organisations to shift their operational base to Member States with the lowest social and environmental standards, potentially leading to a downward spiral of deregulation with Member States competing against one another. ETUC believes that this principle could seriously damage the social cohesion of the EU.

ETUC is therefore demanding that before the proposal goes any further, the Commission should make an in-depth study of the impact on workers, employers and service-recipients, and carry out a proper process of consultation, which takes account of the views of European trade unions.

EPSU resolution

At its congress on 14-17 June 2004 in Stockholm, the European Federation of Public Service Unions (EPSU) adopted an emergency resolution on the Directive. It criticises the proposal as being 'fatally flawed' and 'the latest, and one of the most blatant, examples of competition taking precedence over social and environmental concerns', by forcing Member States to remove barriers that prevent companies operating across borders. EPSU fears that the Directive will undermine services of general interest (SGI) and that, in the absence of an EU-wide legal framework on SGI, 'these services will become market commodities to be bought and sold purely for profit. This will counter the objective of achieving quality SGI for all.'

The EPSU resolution also states that it has serious doubts about the feasibility of monitoring and overseeing the providers of cross-border services from their country of origin and believes that the proposal might also have a negative impact on posted workers. EPSU is particularly concerned that collective agreements applied through legal mechanisms may be seen as barriers to trade and therefore subject to challenge. It concludes by stating that the proposal in its current form is not acceptable and calls on the Commission, the EP and Member States to reject it, advocating the establishment of a positive legal framework for SGI instead.

EMCEF resolution

Similarly, at its congress on 8-10 June in Stockholm, the European Mine, Chemical and Energy Workers’ Federation (EMCEF) adopted a resolution rejecting the proposed Directive. EMCEF states that the proposal would result in 'a Europe of social competition in which 'creative' employers delocalise to the country with the lowest fiscal, social and environmental requirements where they create 'letter-box' companies which, on the basis of the country of origin principle, are then able to extend their activities to the entire territory of the European Union with unbeatable conditions.'

Protests in Belgium

In Belgium, trade unions staged a demonstration against the proposal on 4 June 2004 (BE0406302F). The demonstration was supported by a broad coalition of left-wing political parties and non-governmental organisations (NGOs), with the lead taken by the two largest trade union confederations - the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) and the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV). The demonstration, attended by about 5,000 people, called on the country’s national and regional governments to make an assessment of the impact of the proposed Directive.

Another example of a country where unions have expressed concerns about the draft Directive is Finland (FI0406201N).

Clarification from the Commission

The Commission has declared itself to be surprised by the vehemence of the opposition to the proposal. In order to clarify the position and explain the likely impact of the Directive, it has produced a checklist in which it sets out its view on what the proposal will and will not do. It states that the proposal will:

• help boost economic growth and sustainable jobs by laying the foundations for a real European internal market for services;

• make it easier for business, and particularly SMEs, to provide services throughout the EU, thus improving quality and choice for customers;

• improve cooperation between national authorities and thus help combat illegal working and rogue operators;

• ensure that a service company posting workers to another Member State fully complies with that Member State’s employment laws, including minimum wages, in order to avoid 'social dumping';

• remove 'pointless red tape';

• help stop discrimination against companies and customers on grounds of nationality; and

• clarify under which conditions patients are reimbursed for medical care obtained in another Member State.

The Commission states emphatically that the proposal will not:

• force Member States to liberalise or privatise public services or open them to competition;

• affect the freedom of Member States to define what they consider to be public services or how they should be organised and financed;

• change the way that Member States organise health and social security services;

• impose extra costs on Member States’ social security systems;

• allow social dumping by bringing in 'cheap' workers;

• prevent Member States from checking and controlling companies and workers operating on their territory; and

• endanger national laws that genuinely protect health, safety and consumer rights.

Commentary

It is clear that the aim of the draft Directive is to create a proper EU internal market for services, which the Commission believes will boost the European economy and lead to job creation. It aims to help companies, and in particular small businesses, by removing administrative burdens and bureaucracy when providing their services throughout Europe. Nevertheless, as reported above, trade unions are very wary of the proposal, believing that it will essentially allow companies to register in a Member State with low costs, by whose rules it will be bound, and offer their services throughout the EU, thus undercutting many other service providers. They fear that this will lead to social dumping and have vowed to put pressure on national governments, the Commission and the EP to withdraw the proposal or amend it substantially.

Given this vehement and vocal opposition on the part of trade unions, the future of the draft Directive appears to be rather unclear. It is currently awaiting a first reading in the EP - the proposal is subject to the co-decision procedure, requiring agreement between the Council of Ministers and the EP on the final content of the text and therefore has a long way to go before adoption. At the competitiveness Council meeting that was held on 18 May 2004, ministers were briefed by the Council Presidency on the state of play of the proposal. Their attention was drawn to the complexity and sensitivity of some of the issues involved and informed that the examination of this dossier in the relevant working party was still 'at an early stage' and therefore no debate in Council was foreseen at this time.

The Commission is reported to be willing to consider amendments to the text, although internal market Commissioner Frits Bolkestein has stated that the Directive would have no value without the 'country of origin' principle, which is the principle to which the unions object most strongly. Some commentators believe that it is not beyond the realms of possibility that the Commission will withdraw the proposal if the national delegations within the Council of Ministers bow to pressure from national lobby groups. (Andrea Broughton, IRS)