Page last updated at 14:36 GMT, Wednesday, 15 November 2006

Q&A: Services Directive

The European Parliament has approved at second reading an EU directive aimed at opening up Europe's services sector to cross-border competition.

Hairdresser Stuart Philips and client
Services from hairdressing to IT would all be covered
The directive has been hailed by its supporters as a key development of the EU's single market.

Goods are already freely traded in the EU, but services have lagged behind, despite generating two-thirds of the EU's economic activity and employing nearly 70% of its workforce.

Opponents say the directive will push down wages, lower standards of social and environmental protection, and lead to an influx of foreign workers.

What is the Services Directive?

The Services Directive aims to create a free market for the services sector. Its purpose is to remove the legal and administrative barriers that can hinder businesses from offering their services in another country, and to encourage cross-border competition.

What is the point of it?

It is hoped that the measure will create jobs, boost economic growth and increase quality and choice for consumers.

The consultants Copenhagen Economics have predicted a 0.3% rise in GDP and a 0.7% increase in employment. The European Commission's estimates point to a 1.8% increase in GDP and 2.5 million new jobs.

Why do some people dislike it?

The main fear in countries with high standards of social protection is that domestic companies could be priced out of the market by cheaper, foreign competitors.

What has been the main point of controversy?

Dubbed Bolkestein directive, after ex-internal market commissioner Frits Bolkestein
Opponents have also called it the "Frankenstein" directive
Helped fuel French opposition to EU constitution
Adopted at first reading in February
Member states agreed common position in May
Second reading in parliament in November
Unlikely to become law before 2009 or 2010
Most disagreements centred on the Commission's "country of origin principle". This said that a company offering its services in another country would operate according to the rules and regulations of its home country. So, for example, an advertising agency based in the UK could offer its services in France and Spain, but would operate under UK rules.

Some countries and trade unions feared this would lead to a "race to the bottom", with firms relocating to countries with lower wages and the weakest consumer, environmental protection, employment and health and safety rules.

However, the parliament removed this principle in its first reading. The directive now says it does not affect labour law. So the relevant rules on working time, minimum wages, holidays and the right to strike, will be those in force in the country where the service is being provided.

What kinds of services are covered?

The draft directive covers a vast range of businesses such as hotels and restaurants, car hire, construction, advertising services and estate agencies. It also covers advice provided by professionals such as architects, and certain public services, such as social care and environmental services.

The parliament excluded a number of areas, including broadcasting, postal services, audiovisual services, temporary employment agencies, social services, public transport and gambling - and also healthcare.

Legal services, excluded by the parliament, were later put back into the directive by member states.

What other changes did the European Parliament make?

The parliament agreed a list of legitimate reasons a country could cite for restricting the activities of foreign service providers.

These include national security, public health and environment protection. A proposal to include consumer protection or social policy - which some MEPs said would have neutralised the directive - was voted down.

Do companies currently have difficulties providing services in other countries?

German Chancellor Angela Merkel
Angela Merkel's government is now in favour of the directive
Freedom of movement for services, as well as people and goods, is enshrined in the 1957 Treaty of Rome. But many discriminatory barriers exist in practice.

Some identified by the Commission include: long and complicated procedures to obtain licences and permits, lack of information on legal requirements, requirements to establish a permanent base in a country and discrimination on nationality grounds.

Supporters of the directive have drawn attention to rules in some countries that say the distance between opticians has to be fixed at 350 metres, or that there can be no more than one driving school per every 1,500 people. Greece is reported to demand that diving instructors speak Greek even if their clients do not.

UK Trade Minister Ian McCartney told British MPs in May 2006: "In one member state, a chiropodist is required to have non-transportable equipment such as measuring devices, drills and other electrical instruments. In another, the law requires estate agents to have a physical presence in that country. Some member states insist that tourist guides from other EU countries have a local licence issued only after passing a local examination.

"Those are just some of the more than 90 barriers that we have identified. Their cumulative effect is to restrict competition, with the result that recipients get less choice and worse service, at increased prices."

The law also says that governments will not be able to stop a service provider bringing equipment across the border.

Does the directive make it easier to start doing business in another country?

Yes. Each country must provide a "one-stop-shop" for foreign companies, which will deal with all the formalities - instead of obliging them to deal with different authorities at national, regional and local level.

Also, companies are meant to be able to provide all information by electronic means.

Which countries were least keen on the directive?

France and Germany led opposition to the directive in March 2005.

Since then, the German government has changed. The new government pressed for early agreement on the new text of the directive.

The UK, the Netherlands, Spain, Poland, the Czech Republic and Hungary signed a letter in the run-up to the parliamentary vote in February, calling on the European Commission to support an ambitious version of the services directive that would lead to a "truly functioning internal market".

What is the time scale for the directive to become law?

The directive must receive final approval from the member states, probably before the end of 2006.

It is possible that the directive could be finally passed this year, but it would still take three years for member states to transpose it into national law.

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