Services Directive : reversing the process

Pierre Bauby, 2005

Since 2004, the European institutions have been debating a draft directive aimed at completing the internal market for services so that their provision is as « easy in the Union as in a Member State », since these activities offer the most potential for growth and employment (they generate 70% of GDP and employment in Europe and are the subject of only 20% of trade between Member States). The project, drawn up by former European Commissioner Frits Bolkestein, aims first of all to facilitate the establishment of service companies throughout the Union (one-stop shops, simplification of authorisation schemes, mutual recognition, etc.).

The proposal for a Directive follows on from the report on the « State of the Internal Market in Services » presented by the Commission in July 2002. This report drew up an inventory of the remaining obstacles to the creation of a genuine internal market in services. The directive would not apply to financial services, electronic communications services and networks, or transport services, as these are already the subject of a specific Community initiative. In the field of taxation, the directive applies to tax measures that are not already covered by a Community instrument.

Country of origin principle

It then intends to remove obstacles to the free movement of services, in particular through the implementation of the so-called country of origin principle. Article 16 of the proposed Directive is very important. It allows «  providers [of services to be] subject only to the national provisions of their Member State of origin ", regardless of the Member State in which the service is offered. This principle runs counter to Community economic and social integration « from the top down » and deprives the States of a right of control over the quality of the service provider, encouraging social and fiscal dumping. Some see this project as a threat to French public services provided by the employer-producer State, as private companies would have unrestricted access to French territory. Finally, it reinforces the debate on the respect of the principle of subsidiarity.

In article 17, derogations to the country of origin principle are listed. Thus, postal services and electricity, gas and water distribution services are excluded (consequently, the Directive is applicable to other parts of services in these sectors).

The protection of workers in question ?

Employees posted for more than one year or those recruited locally by a foreign company would be subject to the labor law of the country of origin, which would introduce discrimination prohibited by the Charter of Fundamental Rights between workers of different nationalities.

Moreover, the country of origin principle does not apply to matters covered by Directive 96/71/EC on the posting of workers, but the recitals of this Directive nevertheless refer to the need to clarify the distribution of roles and tasks between the Member State of origin and the Member State of posting, This will make it possible « to facilitate the exercise of the free movement of services, in particular by removing certain disproportionate administrative procedures, while improving the monitoring of compliance with employment and working conditions in accordance with Directive 96/71/EC ». However, monitoring the working conditions of posted persons may prove difficult when certain authorizations, declarations and social documents are no longer required to be presented by service providers and their employees.

Transitional derogations are also put in place until the creation of harmonization instruments for gambling activities, as well as for cash in transit and access to judicial debt collection activities (for these last two points, the derogations will no longer be valid, in any case, after 1 January 2010).

This project therefore ignores the profound differences in situations that exist today in the Europe of 25 without proposing to develop a progressive harmonization. Under these conditions, it risks leading to a generalization of different forms of dumping (fiscal, social, consumer rights, etc.) to the detriment of both consumers and employees.

It is therefore essential to reverse the approach and begin with a gradual harmonization, in particular towards the new member states.

The country of origin principle also raises a series of specific issues in the field of public services. The Member States have the power to define the objectives and organizational methods of the public services within their competence. What would happen if such a service were provided by a company from a country where this activity would not be subject to the same obligations?

To resolve these difficulties, the directive provides for a series of partial derogations (transport, telecommunications, postal services, distribution of electricity, gas, water, etc.), which the Commission would be prepared to extend. However, most public social and health services would be covered by the directive.

What linkage with services of general interest?

The question of SGI appears only in the general explanatory introduction (which has no legal value): no reference is made to them in the recitals or in the Directive itself. All services that are provided free of charge by the public authority in the exercise of its mission are explicitly excluded. All SGI, education, health (to which Article 23 is specifically dedicated), culture, social services, etc. are, in fact, concerned.

This proposal for a Directive raises questions when we know that debates concerning SGI are underway (Green Paper and then White Paper of the Commission, possible community legal framework for SGI…). The coherence of this directive with the existing legislation or in the course of elaboration at the Community level is an essential prerequisite to any entry into force.

The Directive does not pretend to deal with the questions relating to SGI and labour law « as such », but finally, it will have, indirectly, an impact on these fundamental fields.

In fact, public services (services of general interest in Community language) should be excluded from the scope of the directive as long as a general legal framework for them (which has been talked about for years without any real progress) has not defined the specific rules necessary for their existence: the prevalence of general interest objectives over competition law, the rights of public authorities to define the public services under their jurisdiction, the freedom to choose management methods, the guarantee of long-term financing of investments and compensation for public service obligations, pluralistic evaluation of performance, consumer rights, etc.

Currently - November 2005

The directive is currently under discussion in the Parliament. Evelyne Gebhardt (PES, Germany) is in charge of presenting a complete report to the Parliament. She presented the second part of her report on the proposed Services Directive to the European Parliament’s Internal Market and Consumer Protection Committee on May 24. The European Parliament’s Internal Market Committee adopted its report on the proposal for a Services Directive on 22 November by a vote of 25 in favor, 10 against and 5 abstentions.

The first part of the report proposes the exclusion of services of general interest, the replacement of the country of origin principle by mutual recognition for cross-border services, and the introduction of the country of destination principle for certain services. The proposals contained in the second part are along the same lines. They provide for the strengthening of the role of the one-stop shop designed to facilitate administrative procedures, which would be extended to companies wishing to offer their services temporarily in a given Member State. It should be fully operational, at the latest, four years after the entry into force of the directive. They would no longer have to justify their authorization schemes, they could revoke an authorization and companies should have obtained an answer to start their activities. Replacing the « blacklist » principle of requirements that member states would be required to abolish immediately with allowing member states to require companies to prove that their services meet an economic need.

The shortening of the « grey list » of national requirements to be evaluated and possibly abolished if they are deemed discriminatory, not justified on public interest grounds or not proportionate, and a minimum transitional period of four years. Member States would also be allowed to limit the number of authorized sales outlets in a region, to set maximum or minimum prices, to prohibit sales at a loss, and to respect sectoral directives. The amendments are accompanied by a recital justifying the proposed changes.

Furthermore, Evelyne Gebhardt, argues that the country of origin principle is in contradiction with article 50 of the EC Treaty, according to which the foreign service provider must be subject to the same treatment as the nationals of the country where the service is provided, and that the list of services covered by the directive is indicative and not exhaustive.

However, despite the efforts of E. Gebhardt, rapporteur for the draft, MEPs refused to exclude services of general economic interest (SGEI) from the scope of the directive. The principle of inclusion of SGEIs includes, however, several derogations, gambling, audiovisual services, professions and activities related to the exercise of authority, and health services. In general, SGEIs are exempt from the country of origin principle (Article 16) and from the evaluation procedure (Articles 14 and 15). The country-of-origin principle (COOP), defended by the right, has been maintained, but particular conditions of public order, safety, environmental or health protection may be required by the country of destination for the exercise of a service activity.

The inclusion of SGEIs passed by two votes, which gives some hope that the vote in plenary (January 2006) may be different. For her part, E. Gebhardt abstained from voting because she believes that the definition of the country of origin principle chosen creates legal uncertainty, and in the hope of keeping the door open for future negotiations between now and the Parliament’s plenary session scheduled for January 2006.

While the directive is going through the EU regulatory process, civil society organizations are mobilizing as they see it as a real threat to public services and labour law. In Brussels last spring, a working session on the directive preceded a protest march. Currently, French trade unions and citizens’ organizations are gathering to participate in this dynamic and to make the voice of citizens heard by European deputies.