Just when you thought it was safe to use Continental contractors … A hideous European directive has begun a bloodthirsty rampage that could have a devastating effect on the UK construction industry.

Bolkestein’s monster
Bolkestein’s monster

On the continent, its critics call it “The Frankenstein Directive”. So angry are they, that tomorrow more than 50,000 members of the European Trade Union Confederation will descend on Brussels to demonstrate against European commission plans to introduce what is more commonly known as either the Bolkestein or services directive.

The directive is a huge threat to the UK construction industry. It is currently in draft form and will go for its first reading in the European parliament in June. If it is adopted, it could, at the very least, undermine health and safety initiatives and rip up the collective bargaining agreements established between unions and contractors. Yet there has been no uproar in this country; only recently has it been deemed worthy of a few column inches in the broadsheets. This is despite the directive being introduced by European Union’s single market commissioner Frits Bolkestein nearly 15 months ago.

Here, Building explains what the directive will demand of EU countries and the consequences for the construction sector, why the UK has kicked up so little fuss and why recent hints from the commission that it is willing to water down its proposals may be less than sincere.

What is Bolkestein?

Blame the French and Germans: they had a squabble over a blackcurrant cordial more than a quarter of a century ago. This became probably the most famous legal case in EU history, and created the precedent for Bolkestein’s proposal.

The French producer of a liqueur called Cassis de Dijon wanted to export its product to Germany. The German authorities didn’t want it because its alcohol content was 15% by volume, and German law demanded that a liqueur have a minimum of 25%. The French took the case to the European Court of Justice and won. German law was superseded because it was a barrier to trade, and the judgment became the legal keystone of the single market.

There is also the possibility of poor site conditions in the UK as domestic companies drive down costs to compete

Graham Copp, head of research, The Centre for a Social Europe

This was 1978. Fast forward 26 years to 2004 and Bolkestein’s suggestion that this ruling should also apply to services, including construction. It is based largely on the “country of origin” principle. For example, if a contractor from the Czech Republic wanted to bid for work in the UK it would traditionally have to abide by British regulations. Bolkestein argued that this is a barrier to trade, as UK contractors, with their knowledge of domestic regulations, would have a competitive advantage. So under the Bolkestein directive, the Czech contractor would have to abide only by the regulations of its own country – which may be less rigorous than the UK’s.

An example of what this could mean occurred in Sweden last month. The municipality of Vaxholm, near Stockholm, entered into an agreement with Laval un Partneri, a Latvian contractor, to renovate a school. The company signed its collective agreement with Latvian workers, not Swedes, who would have been more expensive. As a result, the Latvian bid won, and the Swedish trade union movement blockaded the school site. Following an unsuccessful court challenge to lift the blockade, the deal was terminated. Under Bolkestein, the unions would probably have lost that case.

Graham Copp, head of research at the Centre for a Social Europe, a left-leaning think tank, says that Bolkestein would have a far greater impact than simply overturning collective bargaining and the national minimum wage – it could also wreck recent health and safety advances.

In a letter responding to concerns raised last year by John Bowis, the Conservative MEP for London, Bolkestein said that EU states would be free to apply their own health and safety standards. But Copp says: “If you use foreign labour, that is generally on lower wages there are obvious safety implications with the quality of their training and ability to read signs. There is also the possibility of poor site conditions as UK companies try to drive down costs to compete.” In effect, this would force countries to take a minimalist approach to health and safety and other key regulations to ensure they remain competitive.

Copp is also worried that British firms could establish “letterbox” headquarters in eastern European countries. One concerned UCATT spokesperson – who put the point in a submission on the directive to the DTI last year – argues: “One of the problems is that it would encourage service companies to set up operations in countries with lower standards. It’s an absolute recipe for disaster. You wouldn’t know which standards would apply on what project.”

It is likely that Bolkestein would supersede the Posted Workers Directive, which states that people temporarily working abroad in the EU are entitled to the conditions and terms of the host. For example, this is of benefit to the 60,000 British operatives working in Germany. Although that directive came into force in late 1999, Bolkestein could reverse it. The Major Contractors Group says: “In the case of the Posted Workers Directive, workers sent to work in another member state are subject to the host’s health and safety regulations. This approach is logical and should be adopted for the services directive.”

It would encourage companies to set up operations in countries with lower standards. It’s an absolute recipe for disaster

UCATT spokesperson

Why the UK has barely responded

Despite the concerns of the MCG and UCATT, both admit that they have little to say on Bolkestein at the moment. An MCG spokesman says that it will return to the matter in later rounds of consultation. The UCATT spokesperson says: “The reason why the UK has done so little on the matter is probably because standards are already pretty low in this country at the moment. It’s been much bigger in Belgium and Holland where they have a lot more to lose. The concerns here have been greater in the public sector – for example health – than in construction.”

Perhaps. But one man who has been debating the issue is Bob Blackman, the T&G union’s construction officer. He has been in touch with politicians such as Peter Skinner, Labour’s MEP for the South-east, to argue that the UK’s standards are higher than many of the countries that have joined the EU in recent times. He says: “I’m concerned about exploitation – people brought over in really poor conditions. We know that in the UK we have a real skills problem, but having said that, we don’t want this to be used to undermine what we have achieved in welfare.”

Blackman has also spoken to Werner Buelen, who is political secretary for the European Federation of Building and Woodworkers, and has effectively led its “The Bolkestein Directive: No!” campaign. Buelen is adamant that the UK’s response has been inadequate: “I’ve tried to arrange meetings with construction unions, but there has been little response,” he says.

Buelen concedes that UK interest in the directive has started to increase in the past few weeks. Last week, the Construction Industry Council submitted evidence opposing it to the House of Lords’ EU committee. However, he argues that the British market is highly liberalised, and so Bolkestein looks like a continuation of that process. In France, by contrast, there are concerns that Bolkestein’s proposal would ultimately take away every French worker’s legal right to a 35-hour week.

Yet it is understood that, privately, even Buelen has been frustrated in his attempts at getting MEPs to hear his case.

It’s difficult for the commission to make many changes after the first reading, as the momentum is with the parliament then

Political lobbyist

Can the directive be changed?

It probably should not come as a surprise that MEPs have little interest in Buelen’s argument. The centre of gravity of the parliament is liberal and centre-right, and although they don’t have the party discipline of the House of Commons, it seems that the 383 MEPS who comprise the right and liberal majority are in favour of Bolkestein.

Where the directive may run into opposition is from within the commission itself. Charlie McCreevy, Bolkestein’s successor as internal market commissioner, this month publicly criticised the way the directive had been drafted and said the country of origin principle would be reviewed.

Socialist MEPs hailed this as a major victory; others are less certain. Although McCreevy has said the directive would “not fly” politically, many members of the current administration are still backing it. José Manuel Barroso, the commission president, this week ruled out dropping the country of origin principle, albeit with “appropriate safeguards”, and trade commissioner Peter Mandelson is behind it.

More importantly, most of the amendments McCreevy is considering will not be made until after the bill’s first reading in the European parliament in June. One political lobbyist points out that the rightwing MEPs could push the directive through in broadly its current format: “It’s difficult for the commission to make many changes after the first reading, because the momentum is with the parliament then. If the parliament does not want many amendments, then they won’t be made.”

Ian Davidson MP, who is vice chairman of the House of Commons’ construction group, goes further. He notes that there are referendums on the European constitution in France and Holland, both of which are opposed to Bolkestein’s ideas. To secure a yes vote, it may well be that the commission is aiming to ease these countries’ fears. “McCreevy is deliberately trying to dampen things down while the referendums are active,” says Davidson. This theory is made more plausible by McCreevy’s record as Ireland’s finance minister in the 1990s, when he was an ultra-liberal.

It seems that “Frankenstein” might well be the right analogy for this directive: much of the constituent parts of Bolkestein’s bill might seem to be dead, but the monster is very much alive.

The Bolkestein directive at a glance

  • The directive aims to improve the flow of services around the European Union’s single market

  • Under the “country of origin” principle, bidders for projects in foreign member states have to comply only with the regulations set in their own country, rather than the requirements of the country they are hoping to work in

  • European construction unions fear that this could lead to a lowering of standards in areas such as health and safety and terms of employment, as states weaken regulations to remain competitive

  • The UK government supports the proposals because of its aim to open up the internal market

  • The directive was introduced last year by 71-year-old Dutchman Frits Bolkestein, who was EU commissioner for the internal market

The case for the defence

  • According to a recent independent report it would create 600,000 jobs.

  • A second study concluded that the directive would increase cross-border trade by up to 35% and boost GDP between 1% and 3%.

  • Some host countries are thought to use excessive bureaucracy as a form of covert protectionism. This would put an end to that.

  • The directive would promote greater choice by encouraging entrepreneurs to offer their services outside of their home state.

  • The UK is thought to be one of the three countries that will receive the greatest boost in terms of improved levels of choice. The other two are Italy and the Netherlands.

  • It would be impossible to legislate or harmonise standards for every service offered in Europe. The country of origin principle is therefore the only practical way to create a genuine single market in services.