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Services Directive is key to Lisbon process

Article by Dick Leonard

September 15, 2006

Arguably, however, even more important than any decisions taken at the summit will be the debates held in the European Parliament in the coming months over the long delayed Directive on Services in the Internal Market, hitherto widely known as ‘the Bolkestein directive’.

For it is the substantial failure to extend the internal market in goods to the provision of services which has been the main inhibitor of economic growth within the EU. The services sector is by far the dominant element in the European economy. In 2002 it accounted for 116 million jobs, representing 68.1 per cent of the active workforce, with wholesale and retail distribution accounting for 25 million jobs. This compared to 33 million jobs for the whole of the manufacturing sector.

Services represent an ever growing proportion of Europe’s GDP, but the growth has been far slower than it might otherwise have been because of the myriad barriers and obstacles preventing service employers and workers from offering their skills in countries other than their own.

Instead of trying to remove these barriers by a series of sectional interventions, the European Commission took the bull by the horns and proposed a general directive covering all services apart from transport, e-communications and financial services.

Its aim is to promote the free movement across borders of all other services by removing or reducing obstacles and by applying a universal ‘country of origin’ principle, with some limited exceptions (including consumer contracts), and by laying down rules for the provision of information.

The ‘country of origin’ principle derives from the famous Cassis de Dijon ruling by the European Court of Justice, in 1979, that any product legally manufactured and marketed in one member state may be sold in another. It formed the basis of the EU’s 1992 programme, which successfully removed most national barriers to trade in goods.

Since then, the Court of Justice has only sparingly allowed exceptions to be made. One example was the Quietlynn case, where the UK was allowed to prohibit the sale by mail order of pornography freely available in the Netherlands.

The Commission published its draft directive over a year ago. It got off to a poor start, largely because of the aggressively free market advocacy of the former Internal Market commissioner, Frits Bolkestein,. He rapidly alarmed trade unions and left-of-centre parties in the European Parliament by giving the impression that the Directive would be a channel for a frontal attack on social rights sorely won by the unions’ efforts and would give a green light for widespread privatisation.

The more the unions criticised the directive, the more fervently was it supported by business interests, and the way seemed open for a bitter left-right division in the Parliament, which has the right of co-decision on the issue. There was a serious risk that the directive would become bogged down in an increasingly sterile struggle.

The election of a new European Parliament last June, followed by the appointment of a new Commission, enabled a fresh start to be made, and the prospects for the adoption of the Directive, now look distinctly more rosy, though substantial amendments are likely to be made, both by the Parliament and the Council of Ministers.

A key event was the extraordinarily well attended public hearing held by the Parliament in November. This went a long way to clear the air, and effectively forced critics of the measure to spell out their reasoned objections rather than just sounding off in a negative fashion.

One of the more impressive contributions was made by John Monks, the General Secretary of the European Trade Union Confederation. He made it clear that, despite the unions’ strong reservations on various points, they were not out to wreck the measure, but would work constructively for its adoption provided their legitimate concerns were met.

The Internal Market and Consumer Protection Committee has the task of drafting the Parliament’s opinion on the Directive. It is a lucky chance that its newly elected chairman is the veteran British Labour MEP, Phillip Whitehead, who cut his legislative teeth as rapporteur on the European Food Safety Agency a few years ago. He then showed himself a master of parliamentary tactics, persuading an initially very divided committee to produce a positive report, with a minimum of damaging compromises being made along the way.

Whitehead regards the Directive as the over-riding priority for the Parliament during 2005, and is showing his customary energy in pushing ahead with the draft opinion, which the rapporteur, German Social Democrat Evelyne Gebhardt, hopes to present to the Plenary Session in March, with a view to its final adoption before the summer recess.

Another positive factor is the replacement of Bolkestein by former Irish Finance Minister Charlie McCreevy. He has shown himself to be far more sensitive than his predecessor, and went a long way to disarm critics when he answered questions in the Parliament earlier this month.

So the prospects for the Directive emerging from the Parliament in a healthy state now look reasonably good, though success is far from certain. Then its fate will be in the hands of the Council of Ministers, with the British Government, which is broadly in favour of the measure, having the responsibility for shepherding it through during its presidency in the second half of this year.

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