European Union Services Directive approved for free movement

Just in time for the New Year, the European Parliament last week signed into law a fiercely debated piece of European Union legislation aimed at rejuvenating Europe's massive services sector.

A ceremony took place in Strasbourg, with Parliament's President Josep Borrell and Finnish Minister of Trade Mauri Pekkarinen signing the text. They represent the two "arms" of the EU law-making process: elected MEPs and the Council of EU Ministers representing the EU-25 governments.

After more than two years of debate and revision of the original draft - presented in 2004 - between the EU Parliament, the Council of Ministers and the European Commission, the Services directive was approved as law in mid-November.

Paving the way for such diverse industries as advertising, estate agency, hairdressing, caterers, travel agents and a host of other professionals to set up shop in other European countries, it has been portrayed as crucial for revitalizing job-creation in the EU. Small businesses in particular have been frozen out of providing such services on a cross-border basis - until now.

In some views, the services directive was watered down over nearly three years of negotiation, during which time it provoked fierce opposition, particularly in France and the United Kingdom, where it prompted fears of an "invasion" of 'Polish plumbers.'

Labor and trade unions have fought to ensure local job markets don't suffer unfair competition to lower wages, and other issues such as benefits, pensions and certification standards. The Parliament agreed that ensuring the opening up of the services market should not affect basic social standards in the EU, nor should it reduce legal protection for consumers and firms in case of possible disputes.

The aim is to finally give form to one of the fundamental European freedoms laid out in the Treaties - free movement between countries and, of particular interest with this legislation, free movement and flow of services. To make it possible, many administrative, legal, bureaucratic and protectionist impediments have to be streamlined or removed.

One key concession late in negotiations ensures that service providers operating abroad are required to obey the labor laws of the host country, not their country of origin. This should avoid a so-called "race to the bottom," under which firms from countries with weaker social protection, particularly in Eastern Europe, could drastically undercut competition.

Graham Watson, leader of the Liberal Democrats in the European Parliament, said: "The directive is perhaps liberalizing half the market. But half the loaf is better than no bread."


Economic and jobs impact

Generally, freedom of establishment and freedom to provide services are the keystones of the European Commission Treaty, and most reactions to the new law concede that it moves significantly in this direction.

Services dominate the European economy, accounting for around two-thirds of the bloc's economic output and employing around 116 million people. Approximately 60% to 70% of EU businesses operate primarily in the services sector, as opposed to providing physical, packaged goods.

Some other key provisions:

• service providers will not be forced to open a separate office in every country in which they wish to conduct trade, nor will they be required to install local representatives

• freedom for service sector businesses to establish in another Member State

• freedom to provide services on the territory of another EU Member State other than the one in which they are established

• each EU Member State must create a simple 'one-stop shop' for service providers from another country to complete all necessary registration and paperwork

• strengthens the rights of users of services by ensuring the right to non-discrimination

• 42 new measures are aimed at removing various legal and administrative barriers

• 65 measures are aimed at simplifying many procedures

It is estimated that at least 600,000 extra jobs for workers will be created, and a much greater choice for consumers will result as competition drives a higher quality of services throughout Europe. It should now become easier for businesses to both provide and to use cross-border services throughout the EU, theoretically increasing cross-border competition and resulting in more diversity.

Based upon data from the 10 years since the completion of the first Single Market programmed in 1993, at least 2.5 million extra jobs have been created. The increase in wealth attributable to the Internal Market in those 10 years is estimated at nearly €900 billion.

The new Services directive is expected to perform at least to this scale, perhaps even exceeding it, depending upon many favorable conditions anticipated in the coming years as the European Union expands with new Member States and solidifies its currency and cooperation agreements.


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