With the beginning of the year 2006 the controversial services proposal faces the final spurt. For some it’s the visionary instrument they sought for a long time – others consider it to be the beginning of the end of “welfare state” and “solidarity”. The two most contentious issues are the country of origin principle and the scope of the directive regarding social and health services.

As one of the most hotly debated issues of the past year the Services Directive dodged the first bullet on its way to free up commercial services from Malta to Estonia, with the vote of the Internal Market Committee of the European Parliament (IMCO) held on 22nd of November of last year.

This vote, with no fewer than 1600 amendments being tabled, highlighted once more the changed – and changing – history of European integration: A previous demonstration of this had been the EU-enlargement of 2004 on the one hand and the recent failed French and Dutch referenda on the Constitution on the other.

But what’s at the heart of the matter with all the protest against this services proposal – well known as the Bolkestein directive after its author Frits Bolkestein the former Internal Market Commissioner? Why does the plan to enable business without having to face 25 different sets of European Union Member State rules and thus create jobs, strengthen economic growth and social cohesion, arouses so much controversy that everyone seems to be up in arms against it? How did it all go wrong?

It did not. Appearances are deceptive. A big part of the resistance is blown out of all proportion. Remember slogans like “Frankenstein-Directive”…..

So, let’s face the facts: The service industry currently accounts for over 50 per cent of EU GDP and 60 per cent of its employees. To that effect - as Bolkestein said at the time - the proposal will provide “potentially the biggest boost to the internal market since its launch in 1993.” The draft directive covers all sectors where services can be offered in other countries apart from those for which there is already EU legislation and/or an exemption provided in the directive itself. To only mention some services consultants just as well as carpenters, engineers, IT companies, security providers, restaurateurs, construction companies, plumbers and liberal professionals such as doctors or lawyers would all be included in the proposal’s scope.

And there we are in the thick of it: The two most contentious issues are the scope of the directive and the country of origin principle.

The scope gives voice to a horizontal and not a sector-by-sector approach of the directive. This is found out to be indispensable to removing barriers efficiently to meet the objective of economic reform of the ambitious Lisbon Strategy with its aim of making the EU “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. In particular smaller firms which are often dissuaded from trying to operate elsewhere in the EU are considered to benefit from the directive.

The country of origin principle in turn provides that a service provider is broadly subject to the legislation of his country of establishment and not the country where the service is provided (Art. 16-19). This raised the question in the past if this principle lowers the level of protection guaranteed by Member States’ legislation?

“Race to the bottom” and “weaker employment standards” are only some of the current buzzwords in the ongoing debate. And don’t we all remember the picture of this Polish plumber and his smiled promise to work in Poland?

In casting our eyes over the text of the directive it becomes clear that there is no risk of lowering levels of protection.

The draft directive clearly sets out the supervisory responsibilities of the Member State of establishment (so-called State of origin) and the Member State where the service is temporarily provided. The latter has to request information about the service supplier from the Member State of origin which will undertake the necessary checks and investigations (Art. 33a, 34). Only the Member State of origin is able to enforce them successfully because only there the service supplier is established and not only temporarily present. But if factual controls on the territory of the Member State where the service is provided are necessary because only they can provide the required information, these controls have to be carried out by the Member State where the service is provided at request of the Member State of origin (Art. 35). Furthermore current social standards are protected by different exemptions from the country of origin principle provided in the draft and in particular by the Posting of Workers Directive (Art. 24). It stipulates, among other things, that health and safety regulations and minimum wage rates in the host country must be respected, thus preventing “social dumping”. Within the scope of the latter directive the country of origin principle is not applicable (Art. 17, para. 5).

Another very important point that caused a big fuss is the question of exemptions from the scope of the directive (Art. 1, 2), in particular health and social services. A lot of Member States fear the worst and claim that sector to be excluded not only from the country of origin principle but from the field of application of the directive in general. The same did the majority of the members of IMCO the 22nd.

To make it clear: health and social services which are provided by an establishment (such as a medical practice, a laboratory or a hospital) are not covered by the country of origin principle anyway. This principle applies only to services provided temporarily in another Member State. And “temporary provision” has to be determined – to prevent offshore companies - not only on the basis of the duration of the service but also according to its regularity, periodicity and continuity in conformity with the well-established case law of the European Court Justice.

Moreover, to exclude health services – in particular Art. 23 of the draft, codifying the reimbursement of costs of healthcare – would send the wrong political message. These rights are already part of the acquis communautaire given the jurisprudence on patient mobility by the European Court of Justice. The exclusion would mean to scupper one’s chances to achieve more legal security for patients by clarifying the state of play of their rights.

In any case, the Austrian Presidency, the Commission and the Parliament agreed recently that the Services Directive will be one of the most important issues of the New Year. The Commission and the Austrian Presidency even consider it possible to reach an agreement before the end of June 2006.

While the hot-tempered debates are going on, unfortunately many still consider the Services Directive “the occasion for the EU to choose between a social or neo-liberal orientation”. Hence the plenary vote of the European Parliament on 16th of February will be another hurdle to clear for the directive on its way to create a “healthy and wealthy” European internal market.