FT briefing: EU services directive

Why should I care about the EU services directive?

Services account for more than two-thirds of economic activity and jobs in the European Union, yet service providers do not fully benefit from the Union’s internal market. In theory, consultants, hair-dressers, plumbers and thousands of other professions should be able to operate across borders.

In practice, they face many obstacles, for example the requirement to open an office in the country they wish to operate in. The services directive was originally proposed by the European Commission in 2004 to address this problem. Subsequent studies have found that the removal of barriers to services trade would provide a massive boost to the European economy. One even suggested that the directive could create up to 600,000 new jobs.

Sounds great. Why is everyone so upset about it?

There are wide-spread fears that the directive would lead to a an erosion of social and labour standards, job losses in rich western European member states and an influx of cheap labourers from eastern Europe.

Such fears have found their most potent symbol in the apparent ubiquity of the “Polish plumber” in the bathrooms of Paris, Berlin and London. While it is easy to ridicule such concerns, the sloppiness of the original Commission proposal meant it was harder to counter them. Perhaps the most confusing element was the draft law’s now notorious Article 16 - the country-of-origin principle.

Which means what exactly?

The Commission proposed that service providers offering a service in another member state should only be subject to the rules of their home country, and that it was up to the home country authorities to supervise them.

This would go significantly beyond the rights granted by the European courts, and - according to some critics - throw up as many problems as it solves. How, for example, should a Polish supervisor check whether the Polish plumber working in Portugal is abiding by health and safety rules? And what would happen in cases where the home country actually enforces stricter rules than the country in which the service is provided?

So what is the European Parliament likely to do with the country-of-origin principle?

Parliament looks certain to vote through a heavily-amended version of the original Commission draft text. The country-of-origin principle will disappear, and will most likely be replaced with a clause that guarantees the “freedom to provide services” while setting out in clearer terms what law applies to the service provider and who will be responsible for enforcing it.

Member states must ensure the “free access” and “free exercise” of services from abroad, but at the same time they retain fairly broad rights to clamp down on foreign providers for reasons of public policy or public security.

What other changes should we expect?

The scope of the directive looks certain to be narrowed substantially. Gambling, audiovisual services and healthcare jobs will probably be excluded. The same applies to temporary agency workers and private security jobs. The Socialists are also keen to take out so-called services of general economic interest, such as electricity, gas, water, utilities, public transport and waste disposal.

Will the services directive affect companies’ rights to post workers in another member state?

That now looks unlikely. The original Commission draft included provisions that would have made it easier for companies to send workers abroad. But a majority of lawmakers favour scrapping those clauses, arguing that the services directive should not meddle in a subject matter already exhaustively regulated in another EU law, the Posting of Workers Directive. However, such a move is certain to be unpopular with the new member states in eastern Europe, who already complain that rich member states such as Germany and France are freezing out their workers.

Sounds like another messy EU compromise that will do little to boost jobs and growth?

Not quite. Many experts on the services directive have long pointed out that the furious debate over the country-of-origin principle and other contentious issues have obscured the wider benefits of the directive. It would, for example, introduce an outright ban on many of the most widely-used national barriers currently faced by service providers.

Countries will also be forced to set up a “one-stop-shop” for authorising and registering foreign services providers, thereby removing the need to scurry from one authority to the next. Also, getting the directive out of the way will clear the decks for more targeted Commission initiatives in individual sectors later on.

Which leaves the EU member states…

…to approve the directive, probably later this year. There remain big differences between, for example, the position of France and the UK, while Germany’s coalition government has not even managed to craft an official position yet. But the hope in Brussels is that parliament will come up with a new version of the services directive that will lay the foundations for a compromise between the EU capitals as well.