Directive deconstructed: what the new European Services Directive means for employers

Last week the European Parliament voted to accept the Services Directive, a piece of legislation that aims to create a single EU market in services, much as already exists for goods.

The directive was a major factor in the French vote against the EU constitution last year and has caused demonstrations in Poland and other member states. It will affect every service provider in the EU, a sector which makes up about 70% of the EU’s GDP.

The supporters

The 1957 Treaty of Rome provides for freedom of movement for services, as well as people and goods within the EU. But in practice there are many barriers to the free movement of services.

There are often long, complicated procedures to obtain licences and permits. There is little information available on legal requirements. Often companies have to establish a permanent base in the country where they wish to operate, and there is still widespread discrimination on nationality grounds.

The purpose of the Services Directive is to remove these barriers. It has been broadly welcomed by employers’ groups, such as the Federation of Small Businesses. Its European affairs chairman, Tina Sommer, said: “It is impossible to overstate how important this directive is to sweep away the barriers to growth for small firms in Europe. It is estimated that it could create over 600,000 jobs.”

James Walsh, head of European and regulatory affairs at the Institute of Directors, said: “Currently companies have to register in several locations, put up forms in several others and go to yet more places for the information they need. If all of this could be done in one place it would encourage more companies to establish overseas operations.”

The critics

Until last Thursday (16 February 2006), the main criticism of the directive concerned the country of origin principle. This meant that a company offering its services in another would operate according to the rules and regulations of its home country.

Janet Williamson, policy officer at the TUC, said: “It would have meant that in one country there would have been up to 25 rules for how companies operated. It could also have led to firms relocating to countries with lower wages and fewest regulations.”

However, the Parliament vetoed this principle, and service providers will be governed by the rules and regulations of the country in which the service is being provided. A list of reasons a country could cite for restricting the activities of foreign service providers was also agreed. These include national security, public health and environmental protection.

Not everyone was happy with the changes made. John Cridland, CBI deputy director-general, said the compromise delivers only an emasculated version of a directive that had promised a single, open European market for services. “The likelihood of the EU achieving free movement of services, one of its founding principles, in the near future has now seriously diminished,” he said.

Parliament also excluded a number of areas from the directive, one of which is recruitment services. Anne Fairweather, external relations manager at the Recruitment & Employment Confederation, said this was a missed opportunity. “There are still 20 million unemployed in the EU and temporary work agencies – which place 4 million people in jobs every day – can help reduce this,” she said.

The exclusion was based on “prejudice” against the recruitment industry, Fairweather said.

The future

There is a long way to go before the Services Directive becomes enshrined in UK law. It will be discussed at the EU summit in March and in April the Commission will issue a new version, taking into account the Parliament’s position.

If political agreement can then be reached it will return to the Parliament for a second reading. It is possible that the directive could be passed this year, but it is unlikely to make it onto the UK statute book until 2009. However, last week’s events have taken us a significant step closer to a single EU market in services.

Comments are closed.