Will the ‘Bolkestein directive’ really kill Europe’s social model?

Date: 17/02/05

Enemies of a blueprint to open up the EU's services sector - about 70% of the Union's economy - say it will kill quality services and lead to an influx of cheap labour from countries with the worst social rights. Anna McLauchlin asks if a fear of fair competition lurks beneath the surface

So how real is this threat? For trade unionists, it is obvious that the application of the country of origin principle to services will see companies flocking to establish themselves in member states with the lowest levels of social protection. At the same time, the workers that those companies export might have poorer health and safety standards, which will lead to a further decline in consumer protection and social welfare.

One of the most serious criticisms levelled at the EU services directive - dubbed 'the [Frits] Bolkestein directive' after the internal market commissioner under whose mandate it was penned - is that it will lead to 'social dumping', or the gradual attrition of Europe's widely envied social model. Fingers point from all sides to the country of origin principle - whereby a person providing a service in another member state only has to comply with his national law - as the main threat to our well-being.

Trade unionists argue that, if adopted in its present form, the directive could water down existing EU legislation on posted workers and temporary workers.

"It is not watertight in the legislation that the directive will exclude anything related to posted workers," says Peter Coldrick, head of the Brussels office of the UK's Trade Union Congress and a member of the European Economic and Social Affairs Committee.

He highlights a case in Sweden where trade unions are battling against a Latvian company that is building a school in Sweden using Latvian workers paid Latvian wages, effectively undercutting the market.

One of the problems, Coldrick says, is that the directive will shift the ultimate responsibility for the supervision of services to the country of origin. The country of origin, it can be argued, will have neither the resources nor the inclination to ensure that its service providers are adhering to local law. "It will be impossible to check up on what is happening," Coldrick argues.

Unions are supported on this point by German Socialist Evelyne Gebhardt, who is in charge of drafting the European Parliament's view on the directive, and many in the European Socialist Party.

Even French and German leaders Jacques Chirac and Gerhard Schröder have recently voiced their concern.

But how much of this is a real fear of eroded standards? Under the services directive, any company which sends workers to provide a service in another member state is obliged, under the EU directive on the posting of workers of 1996, to adhere to that country's employment rules. These include health and safety, minimum wages, minimum rest periods, minimum paid leave and the protection of temporary workers.

According to Thérèse de Liedekerke from European employers' association UNICE, the threat of social dumping is merely a smokescreen for a bigger issue. "This is simply an innate fear of competition from foreign companies," she says. "Any risk of social dumping is tackled by the posting of workers directive."

The Swedish problem, she argues, is down to the fact that there is no statutory minimum wage and nothing that the services directive would either change or make worse.

The country of origin principle in the directive does tighten up the practical application of the posting of workers directive by preventing authorities from demanding extra paperwork. Excessive bureaucracy, supporters of the directive argue, is often used as a subtle form of protectionism in some member states, most notably in Germany and Belgium.

Where many observers do agree is that the directive is not clear enough and should entirely exclude labour law, including any matters falling under laws on posted workers, 'temping agencies' that find workers for temporary vacancies or professional qualifications. The European Commission has already admitted that it will exclude temping agencies from the directive.

Less clear-cut is the argument that the country of origin principle, by fully opening up competition in the services sector, might lead to an overall drop in the quality of social services and healthcare, sectors that are both included in the directive's scope.

Social non-governmental organisations are worried that cash-strapped authorities or companies looking to cut costs could be tempted to overlook national standards when presented with cheap offers for social service provisions from other member states with lower standards of social care.

Such a problem would be difficult to regulate at that level as there are no EU-wide social service standards. This outcome is extremely difficult to predict, but the uncertainty itself does not inspire confidence in the social impact of a law which is already tarred with the über-liberal brush.

Added to this is the fact that the Commission has not yet pronounced itself on how it will define services of general interest. This is important because there are two strains of such services: those that are economic in character and those that are not. The latter cannot be governed by any rules on the internal market and as such would be excluded from the services directive. At the moment, for example, the Commission considers healthcare to be an economic service, but in some cases, such as in the UK, most healthcare is deemed to be a public service.

With both these problems, the issue is how to regulate them. Unions are demanding that the country of origin principle be scrapped in favour of 'sufficient harmonisation'. But with such a broad scope it would be a tough task harmonising the different sectors involved. "And how can you harmonise social security?" asks De Liedekerke.

Others are demanding that various sectors be taken out entirely. But as Internal Market Commissioner Charlie McCreevy has admitted, if one begins taking sectors out, the directive risks covering nothing at all.

Despite fierce opposition from her political counterparts, rapporteur Gebhardt has decided to take the directive sector by sector to see whether the coun try of origin principle can apply to each.

The battle has only started.

Major analysis feature on the proposed Directive on services in the Internal Market.