Clumsy politics on services

It may be too early to read the last rites for the EU's proposed services directive. But even the strongest supporters of the directive, which seeks to liberalise services ranging from estate agents to employment firms, must now see that the prospects for its introduction are bleak. For those of us who have been critical of the legislation, celebrations are in order.

The opposition of trade unions, and increasingly from some EU member-states, most notably France, has made it impossible for the services directive to survive in the form adopted by the Prodi Commission last year.

But why should unions so fiercely oppose the existing directive? After all, no-one who supports the single European market can oppose measures to develop a single market in services as well as goods.

There are differences between goods and services however. Services are delivered by people. This raises the question of what social standards, such as employment rules, should apply when services are offered across borders. Should the company providing the service be allowed to apply the social standards of its home country, or should it apply those of the member-state where the service is delivered? When there is a wide divergence between the social standards of the home and host country, such as a Latvian firm providing a service in Germany, this is a recipe for conflict.

The EU used a different approach to create a single market in goods. It first produced around 200 supporting directives setting down common standards in key product areas. This so-called harmonisation process preceded the liberalisation of markets.

This time the Prodi Commission, which devised the legislation, wanted a short cut. And that short cut was the country of origin principle. This means that a provider legally established in one member-state can work in any other - provided it respects the laws and standards of its home country. The Commission introduced a few exemptions - for example minimum wages and health and safety rules. But otherwise a service provider from the least regulated member-state would be able to access the whole of the EU. Any complaint about the social practices of that company would have to be dealt with in its country of origin and according to the laws of that country.

The message was clear - the free market for services was to be conducted according to the laws of the least regulated country. That member-state would become the benchmark - and would no doubt attract registrations from companies based elsewhere, triggering a race to the bottom.

This was an act of faith for many in the former Commission. Frits Bolkestein, the former internal market commissioner who drafted the proposal, regarded practical objections as wrecking the principle of a single market in services. His message was "let's do it first and deal with any undesirable problems later". He seemed to feel that if he dealt with problems in advance he would undermine the whole project.

 Yet the European Trade Union Confederation (ETUC) could never go along with such a leap in the dark. We cannot accept that the high social standards of some member-states could be undermined by companies free to work throughout the EU according to the lower standards tolerated elsewhere. Such a measure would have been a dagger at the heart of the best standards in the EU.

At last, we have won a strong measure of support from important member-states - and from some members of the new Commission. This opposition has halted the passage of the directive for the time being: President Chirac, whom I met in January, started the ball rolling, along with Jean-Claude Juncker, Prime Minister of Luxembourg and current President of the European Council of Ministers.

Charlie McCreevy, the internal market Commissioner, has now indicated that he will look again at the issue. So at a time when Europe is being urged generally to liberalise, de-regulate, and weaken its social standards, the ETUC has scored a major victory against that tide.

If the French vote yes to the EU constitution, it is not clear whether the Commission and its member-state allies will renew their support for a liberal services directive. But at the time of writing the original text looks dead in the water. It has not been withdrawn but its momentum has screeched to a halt.

So what next? The ETUC favours developing the single market in services. But we want to see protection for public services and for labour laws. The EU also needs to set some common standards on services across Europe. Anything less would be a recipe for breeding hostility in the country of destination to service providers from poorer countries. The Commission - and Charlie McCreevy - need to go back to the drawing board, learn from the example of how the market for goods was freed up, and apply the same approach. In the meantime, the ETUC will carry a vote of thanks to President Chirac and Prime Minister Juncker - who although not social democrats hail from a social market tradition.

John Monks is the general secretary of the ETUC, and a member of the CER's advisory board.