Cookies on Pinsent Masons website

Our website uses cookies and similar technologies to allow us to promote our services and enhance your browsing experience. If you continue to use our website you agree to our use of cookies.

To understand more about how we use cookies, or for information on how to change your cookie settings, please see our Cookie Policy.

Country of origin rule cut from Services Directive

MEPs yesterday adopted a watered-down draft Services Directive, removing the ‘country of origin’ principle that would have entitled European traders to work in any of the 25 Member States while complying only with the relevant laws of their home state.17 Feb 2006

"We are dealing with the most important piece of EU legislation apart from the Constitution," said Rapporteur Evelyne Gebhardt in the debate preceding the vote. "Services in Europe must be as free and open as goods and capital.”

The draft Directive on Services in the Internal Market, put forward by the Commission in January 2004, is designed to cut the red tape that currently prevents businesses from offering their services across borders, or from opening premises in other Member States.

But plans to cover the majority of all services provided to consumers and businesses were dashed after MEPs reached a compromise on the wording of the draft. Instead the scope of the Directive will be limited to:

  • Services of general economic interest such as postal services, water supply, electricity, waste treatment.
  • Business services such as management consultancy, certification and testing, facilities management (including office maintenance and security), advertising, recruitment services and the services of commercial agents.
  • Services provided both to businesses and to consumers, including real estate services such as estate agencies, construction (including the services of architects), distributive trades, the organisation of trade fairs, car rental, and travel agencies.
  • Consumer services such as tourism, leisure services, sports centres and amusement parks.

The draft Directive will not cover public or private healthcare, services that are already covered by specific EU law – such as financial services, telecommunications and transport – services of economic interest and legal services, health care, audiovisual services, gambling and lotteries, and professions and activities linked to the exercise of public authority (e.g. notaries) and tax services.

Country of origin principle

This requirement was too much for some Member States, who feared that service providers from the newer Member States would be able to undermine those established in older States, where requirements can be much more rigorous. French, German and Austrian fears of the ‘Polish plumber’ undercutting the rates of his home-grown rivals led to protests and, reportedly, contributed to the French ‘No’ vote on the EU Constitution.

Instead, MEPs have adopted a "freedom to provide services" provision.

This, according to the European Parliament, requires that Member States respect the right of the service provider to supply services and guarantee the provider "free access to and free exercise of a service activity within its territory". This guarantee is underpinned by a ban on a number of obstacles to the free movement of services, such as a requirement to register with a professional body, or to open an office.

The amended text then stipulates grounds that would allow Member States to limit this freedom through national rules. These grounds are public policy, public security, environmental protection and public health.

Member States will also continue to apply their own rules on conditions of employment, including those laid down through collective bargaining agreements.

Nevertheless, the requirements imposed on cross-border service providers by the Member States using the above justifications must still comply with the principles of the Treaty: non-discrimination (for example on grounds of nationality), necessity (public policy, public security or protection of health or the environment) and proportionality (the requirements must be appropriate for achieving the objective).

Other amendments made by MEPs include an expansion of the list of reasons allowing Member States to restrict the freedom of a service provider from another Member State to provide services on their territory. The text also clearly says that the Directive does not affect employment law in the Member States.

Finally, the text opens up the prospect of harmonisation of national legislation on the provision of services five years after the Directive enters into force.

It was adopted by 391 votes in favour to 213 against, with 34 abstentions.

The revised Directive will now go forward for approval by the Council of Ministers. If the Council rejects any of Parliament's amendments or adds any of its own, the text will return to Parliament for a second reading.

The reactions

Business leaders have expressed disappointment at the outcome.

“The compromise voted through today delivers only an emasculated version of a Directive that had promised a single, open European market for services,” said CBI Deputy Director-General John Cridland, yesterday. “The likelihood of the European Union achieving free movement of services – one of its founding principles – in the near future has now seriously diminished, but the EU will have to do the best it can.”

Trade union leaders were more sanguine. TUC General Secretary Brendan Barber said: “While we still have some points to press, the Parliament's main left wing and right wing groups have voted to continue the key principle that makes Europe more socially progressive than the US – that we should balance the economic benefits of liberalising trade with the protection of people at work, consumers and the environment.”

The European Commission was simply pleased that the draft Directive had been approved at all.

“This represents a real advance, a step that no one would have believed possible just 12 months ago," said Internal Market and Services Commissioner Charlie McCreevy. "I believe that today’s vote demonstrates that there is a willingness in Europe to pursue measures to deliver more jobs and growth.”