The proposed European services directive has been dubbed Bolkestein’s Monster. But it’s not that terrifying, if you’ll all just calm down and read the small print

Confusion reigns over the European AN Commission’s proposed services directive. The Council of Ministers seems to have come down against it, while the European parliament is trying to make up its mind. And across EU countries, alarm bells are ringing over a suspected plot to drive down health and safety and employment standards (18 March, page 26). But what is this directive really about, and can it possibly deserve the level of opposition it has attracted?

The proposed services directive started life last year, the brainchild of Dutchman Frits Bolkestein, then the EU’s internal market commissioner. It came out of the EU’s Lisbon Agenda – Europe’s drive to create the world’s most dynamic and competitive economy. The key to fulfilling this plan lies in the services sector, which accounts for almost 70% of GNP and jobs across Europe. The directive will require open competition across Europe in the provision of services, just like in the provision of goods. To prevent countries using rules to protect their own industries from foreign competition, the “country of origin” principle will be part of the directive. Put simply, this means that firms operating abroad, but still within the EU, will be bound by the regulations of their home country rather than by the country in which they’re working. The Thatcher government’s 1987 Single European Act laid down the foundations for this in Britain long before the Lisbon Agenda was conceived.

Critics say the country of origin rule means contractors from EU countries with low wages and low employment protection – Lithuania seems to be the fashionable bête noir – will win contract bids through lower employment costs and weaker health and safety regulations. There are also fears that British companies will be tempted to set up head office “doorplate” operations in these so-called low-standard countries in order to get round the higher regulatory regimes applied at home.

However, the directive contains several safeguards designed to prevent these abuses.

On health and safety, the alleged importation of low standards is based on a misunderstanding of the proposal, which suggests that service providers are subject only to the national provisions of their country of origin. But this is only half the truth. The proposal contains 23 derogations (Eurospeak for exceptions) to make sure that in fields such as health and safety, social security, posting of workers and data protection, contractors and employers will have to continue to comply, as a minimum, with the national laws of the state in which they’re working.

For example, workers posted by a Lithuanian service provider to the UK will enjoy the protection of UK legislation on, among other things, maximum work periods and minimum rest periods, minimum paid annual holidays and rates of pay, conditions of hiring, and health, safety and hygiene. This protection will, in effect, come on top of the protection they are already enjoy under Lithuanian law. And don’t automatically assume that standards are lower elsewhere. Most new EU states, especially the post-socialist countries, have a standard of social protection that the 15 pre-accession members could only dream of. The Estonian parliament, for instance, has just passed a law granting 12 months’ pay at 100% of salary for maternity leave.

A recent study found the UK to be one of four EU countries set to benefit most from an internal market in services, bringing increased wages, falling prices and higher employment. We cannot let this slip through our fingers

Britain has one of the most liberalised and efficient economies in Europe, and is already one of the fittest service providers, especially of the major economies. A recent study by a Danish firm, Copenhagen Economics, found the UK to be among the four EU countries set to benefit most from an internal market in services. This would bring in an era of increased wages, falling prices, enhanced productivity and higher employment. We cannot afford to let these prospects slip through our fingers.

Another economic phenomenon that could be indirectly ushered in by the services directive is the equalisation of wages. Cheap labour from abroad need not necessarily stay cheap, as workers brought in from poorer countries see higher wages and standards and start to demand them for themselves. Given economic growth in their own country, there is no reason why this shouldn’t happen. Ireland, for instance, was until recently a source of cheap labour for Britain, but is now where British workers go for higher pay.

Because of the boosts to employment and welfare standards, the Blair government is in favour of the directive. But don’t expect to hear it come out and say so. There are few brownie points these days for British politicians talking up anything coming out of Brussels, especially in the run-up to an election.

Finally, assuming the services directive sees the light of day, UK firms will still face obstacles – ironically because one of the 23 derogations exempts the rules on recognition of professional qualifications. The RICS in Brussels has been battling this piece of protectionism for some time. It prevents qualified and experienced professionals from effectively practising in another EU country merely because of their title. Chartered surveyors who design buildings in Britain and Ireland, for example, would not be able to do so in France, Belgium or Poland because they have the wrong name. Liberalisation still has a long way to go in this area.

Media coverage of Bolkestein has so far been based on the views of those hostile to the directive. Fear sells better than hope, so it’s not difficult to see why those with protectionist instincts have seized on the Bolkestein/ Frankenstein joke. But do we risk falling into the trap of forming our attitude to a major piece of reform on the basis of one piece of wordplay?

Jill Craig is head of European policy at the RICS’ Brussels office. Email: