Last year the European Union witnessed an extremely lively debate on the draft directive on services. The name of the former European Commissioner Fritz Bolkestein was used as a scare tactic in the referendum campaign whereby the Commission's supposed liberal orientation was regularly stigmatised. It is true that the "services directive" aims to complete the measure that encourages the free circulation of people, capital and merchandise.

In effect the services sector seems to be a decisive one for the European Union's economy. In its presentation of the draft directive the Commission recalled that service activities employed nearly 70% of the working population in the Union and represented 56% of its GDP; it also emphasised that it only involved 20% of intra-community trade and concluded that the internal market was still not complete, notably because services, a major part of economic activity was still excluded from it [1].

The Commission also pointed out in its communication that according to a study undertaken by the Dutch presidency the application of the draft directive on services might increase the trade in commercial services to a possible total of 30%. This study also considered that an increase of more than a third in direct investments in the European Union's services sector might also be produced. However these ambitious views were far from being shared by all economists and political leaders.

Beyond the national debates the European Parliament continued to examine the draft directive under the impetus of Ms Evelyne Gebhardt, Social Democrat MEP, elected in Germany and the project's rapporteur. The internal market committee at the European Parliament adopted most of the amendments proposed on 24th November last but was divided on two fundamental points: the maintenance or abolition of the country of origin principle and the perimeter of the directive's field of application [2].

After the plenary vote it will now be up to the Council of Ministers of the European Union, the co-legislator with the European Parliament under the Finnish Presidency to vote on the directive and the modifications brought by MEPs. The text will then return to Parliament for a second reading. It is likely that the divisions that appeared in Parliament will also emerge within the Council. Whilst most of the new Member States, the UK and Ireland are overall in favour of the Commission's proposal, France and the Northern States of Europe whose social norms are of a conventional nature showed that they were extremely more reticent demanding at least the restriction of the field of application and guarantees on the application of the country of origin principle to protect their companies from all unfair competition.

This procedure demonstrates the strength of democratic dynamism that took hold of the European Union's representative bodies. Community directives are no longer simple matters for specialists selected for their technical capabilities. Indeed this directive, in effect is a vitally political one since the polemic it created over the country of origin principle endangers the political logic that has run through community policy for nearly a quarter of a century. Can the principle of the country of origin in an enlarged European Union still enable the construction of a Europe founded on the model of a social market economy? This is the question that MEPs and Heads of State and government will have to decide upon.

In his speech during a conference in March last in Lisbon [3] the President of the European Commission Mr José Manuel Durão Barroso, laid down the conditions of a compromise by declaring that the Commission did not intend to abandon the country of origin principle because "if we are to have a single services market it will essentially have to be based on the country of origin principle with adequate guarantees". The President of the European executive believes that particular attention should be paid to "public services" some of which could be excluded from the directive's field of application and also to the methods adopted to protect against "social dumping" [4]. He also said that he believed it difficult to propose the directive's adoption "as it was proposed by the previous Commission." [5]

The stakes are enormous: if the directive is not adopted in the wake of the failed referenda on the European Constitution this will mean that the community of Europe no longer believes in its future, in the coherence of its project after enlargement.

I- The directive relative to services whose field of application is restricted and the expected effects of which on employment are minimal, does however establish community logic and in this sense it is essentially political in nature.

If we listen to some comments the directive, like the snake that led to the downfall of Adam and Eve would lead to ruin and desolation in France and Europe. But the directive's field of application and economic logic also lead us to relativize this attitude to a great extent.

The draft directive published in January 2004 laid down three main guidelines:

However the services directive's field of application is controlled tightly. Of course the draft directive apparently covers an extremely wide range of activities given article 2 that defines the directive's field of application: "the services provided by providers established in a Member State" and article 4 defining what a "service" is: "any unpaid economic activity targeted by article 50 of the treaty comprising the provision of a service that is subject to economic compensation."

But in reality the most emblematic services in the eyes of the citizens are excluded either because specific directives apply to them or because Member States insist on maintaining their prerogatives in the matter.

The first category includes:

As they are defined by the ECJ services provided by the State in the framework of its public service assignment (education, justice ....) are excluded from the draft directive's field of application. However services of general economic interest (SGEI) are affected. SGEIs are services whose provision to all citizens arises from a social requirement independent of their profitability. SGEIs are open to competition if the application of these rules does not lead to the failure of the specific assignment they have been given. Sanitary and social areas are included in part in SGEI's. In effect the Court of Justice has a wide conception of economic services and notably includes the organisation against payment of higher education schemes, activities that involve homes for the elderly, the provision of emergency transport services as well as services to transport the sick.

During the debate at the European Parliament it appears to have been accepted however that the directive's scope is restricted and that the following are excluded from the directive's field of application – notably games of chance and gambling – although the Commission's proposal had included a delayed timetable for this activity – public and ministerial officers due to the specificity of the professions of notary and legal adviser and finally healthcare and medico-social services. However services of general economic interest whose operators can be private or public agents, such as in the electricity or postal industries will be included in the directive's field of application.

Even for services that are within the directive's field of application however it is highly unlikely that the latter will in the short term have any influence over employment. Indeed services are not really very open to "flexibility in price". The quality of the service and the reputation of the provider appear to be the decisive criteria in the consumers' choice.

However the "services directive" never intended to impose its primacy over sectoral or thematic directives. As a result of this the directives on the posting of workers [11] and above all on professional qualifications [12] govern the activities of service providers.

Even though "as a whole services generate nearly 70% of the GDP and jobs and offer significant potential for growth and creating employment" the Commission stresses that it is highly unlikely that the "services directive", which by nature involves a person to person relationship, will have any effect on consumer choice except in border areas or when waiting time is believed to be too high with regard to the subject of the service. The "Polish plumber" is in fact rather more a subject of imaginary rather than real competition.

The scope of the "services directive" appears therefore limited both in its field of application as well as in its effect on employment although technically it enables the elimination of 15 sectoral directives. It does however establish community logic and in this sense it is fundamentally political.

II- The country of origin principle is one that has been acknowledged for a long time by community law and is a driver of community integration.

The draft directive is based on the application of the "country of origin principle" that represents a powerful vehicle for integration in the sense that it forces States to lift invisible customs barriers embodied by national regulations.

The country of origin principle was established by the "Cassis de Dijon" decision by the ECJ in 1979 [13] for the free movement of merchandise. This decision put an end to Member States' disguised protectionism by deciding that if a product could be sold in one Member State it could also be sold in another Union country. The ECJ obliged the Germans to accept the Dijon liqueur on their national territory even though it did not correspond to any specification determined by the German administration.

This principle also appears in derivative law in certain texts relative to the internal market in specific areas, notably the directive on borderless television (89/552/CEE) or the directive on electronic trade (2000/31/CE), activities that naturally lend themselves to the application of laws of the country where the service provider is established.

Given the lack of harmonisation the country of origin principle is however designed to be applied to all commercial activities within the internal market. Indeed it establishes a general legal framework in order to eliminate the obstacles that impede the free movement principle expressed in article 3 of the EC Treaty [14], in the perspective of ensuring greater growth across the entire Union.

In order to ensure the achievement of this objective the Commission presented a draft directive similar to the "services directive" on 1st December 2005; this is designed to create a "single point of payment in the Union" [15] so that cross-border payments are easier, cheaper and just as safe as national payments guaranteeing the users the same level of protection and legal security, independent of the origin of the instrument of payment employed.

As for the directive relative to the posting of workers for the provision of services [16], this is also based on the country of origin principle. This directive aims to eliminate the impediments and uncertainties that might prevent the establishment of free movement in the provision of services; it increases legal security and enables the identification of working conditions applicable to people undertaking work, temporarily, in a Member State other than the State whose law governs labour relations. When the worker is posted temporarily to another country the stability of the terms of labour relations are opposed to any changes being made to the law applicable to the contract if the worker is sent abroad for a fixed length of time or for specific requirements. It is therefore the law of the usual place of work that governs labour relations in principle.

The finality of the country of origin principle is to ensure the free movement of merchandise, men and capital. But this principle does not hold sway alone. It is based on the principle of mutual confidence between EU Member States. If there is economic transfer within the Union there is no need for the host State to apply its own regulations if there is a similar regulation in the country of origin since this would then comprise an invisible impediment to trade.

The community judge is extremely rigorous in the application of the principle of mutual confidence and penalises administrative measures imposed by the destination State that he believes disproportionate with regard to its subject.

The case of the import of medicines is a revealing example of the strength of this principle.

In the affair C-212/03, the European Commission versus the French Republic whose central theme it was to examine the conformity with Community law of measures that aimed to control the medicines that an individual wanted to import into a Member State, whilst these medicines were allowed to be marketed only in the Member State where they were purchased and therefore did not enjoy a marketing authorisation in France, in his conclusions on 21st October 2004 Counsel for the prosecution, L.A. Geelhoed, said in point 39: "We lend much importance to the principle of mutual recognition – in other words : to reciprocal confidence – that comprises a basis of community legislation relative to medicines. If a medicine is authorised in one Member State after having been analysed the other Member States cannot simply establish even greater restrictions on its import from that Member State." France was condemned by an ECJ decision given on 26th May 2005.

European construction is based either on the procedure of community harmonisation or on the principle of reciprocal confidence that is declined via mutual recognition and the country of origin principle.

The condemnation of the "services directive" surely indicates a lack of confidence in France's partners within the Union and notably in the new members. The spectre of the "Polish plumber" was not chosen anecdotically as an emblem by the supporters of the NO in the referendum. Questioning the country of origin principle implies NO to the enlargement process and in fine NO to an integrated Europe.

III- The strengthening of supervision procedures and the establishment of legislative standards in labour law in traditionally conventional countries is enough to counter the dangers of "social dumping"

The country of origin principle only applies in the context of the cross-border supply of services. If the service provider establishes a fixed structure on the territory of the State of residence of his client he would then have to obey the administrative and legal requirements of the latter. If his presence is but temporary then he is only obliged by the regulations of his country of origin. Consequently given the dangers of the abusive employment of this principle, the country of origin principle was stigmatised as the Trojan Horse for "social dumping". In an open but not integrated market companies would take advantages of the differences between levels of taxation, social charges and the regulatory measures protecting workers to establish disloyal competition, which would be particularly damaging to States that have adopted a high social compromise [17]. The only way to hold out against a Europe where the lowest bidder wins would be to re-establish protection – at least for a short period –time enough for the new Member States to acquire sufficient growth so that the differences in salaries between workers do not lead to strategies to circumvent social legislation. Here emerges a faint condemnation of an enlargement that many believe to have been premature.

However such an approach, the theory of which is based on the idea that EU25 put an end to the dynamism of building the community, ignores both the protection granted to workers by the community texts and by the jurisprudence of the ECJ.

Of course since the free provision of services, a basic principle of the EC Treaty [18], aimed to allow the provider to exercise his activities in the destination State of the service it is impossible for the social legislation of the Member State where the service is being provided to be applied in its entirety. This would amount to depriving the freedom to provide services of any useful effect. However the freedom to provide services can be limited by regulations that are justified by general interest and which are applicable to any person or company exercising in the State where the service is being provided in as much as this interest is not protected by the rules that the service provider is subject to in the Member State where he is established. This balance lies at the very heart of the community judge's jurisprudence [19] that prohibits discriminatory practices against providers established in another Member State due to their nationality; this applies equally to restrictions that might prohibit or impede activities of a provider established in another Member State where he also legally provides similar services.

As justifications of general interest the ECJ accepts the possibility of submitting workers on secondment to the social legislation of the host State. Hence in the decision Seco and Desquenne & Giral of 3rd February 1982 the ECJ maintained – using articles 49 and 50 of the EC Treaty and the Convention of Rome of 19th June 1980 on the law applicable to contractual obligations – that "community law is not against Member States extending their legislation or collective labour agreements made with social partners relative to minimum wages to any person undertaking paid work, even if this is temporary, on their territory, whatever the country of establishment of the employer." This statement of principle was progressively extended to cover all social law as highlighted by Jean-Philippe Lhernould in his brilliant study of the law of 2nd August 2005 and the cross-border posting of workers. [20].

In addition to this the ECJ also accepted quite explicitly in the affairs Arblade and Leloup in 1999 [21], that Member States on the one hand could resort to laws of public interest in accordance with the Rome Convention and the EC Treaty and on the other it believed that the protection of workers was part of the category of public interest law.

All of this jurisprudence inspired directive N° 96/71/CE on the posting of workers which in article 3 presents a "hardcore" of social norms imposed upon services providers: minimum salary, working hours, length of holidays, security, hygiene and safety standards etc... The country of origin principle would not enable the achievement of a comparative advantage at the expense of workers' safety or their dignity. This requirement was recalled by the European Trade Union Confederation in its Union Memorandum addressed to the Austrian Presidency of the European Union on 11th January 2006.

In the decision Wolff & Müller dated 12th October 2004, the ECJ confirmed its previous jurisprudence by applying articles 3 § 1 and 3 § 5 of directive 96/71/CE to this affair. German law says that the company that ordered work from a foreign company is jointly liable, with regard to the employees sent on assignment to German territory, for the payment of salaries. This responsibility considered as a security that guarantees workers a level of payment higher than the one they would receive in their in their home State aims to make the use of foreign sub-contractors employing low paid workers more difficult and thereby protect German SME's. Here the ECJ maintained once again that "there was not necessarily a contradiction between the objective of protecting from disloyal competition on the one hand and that of ensuring the protection of workers on the other." Hence community law is not therefore against the contentious German regulation "if the main aim of these rules is not to protect the payment of the worker or if that protection is just a secondary aim of those rules." The Court believes that the protectionist mechanism drawn up by the German legislator led to the addition of a second debt to the first and hence ensured extra social protection for the posted workers.

Hence the ECJ has established a subtle jurisprudence based on three criteria: the existence or not of comparable obligations in the country of origin and the host country, recognition in the host country of a truly additional protection to the worker's benefit providing him with a certain advantage in terms of social protection and the necessary and proportional feature of the application of the social regulations of the host country for service providers established in another Member State.

In this sense it believes that if the provision of services took place in the briefest amount of time the Member State in which the service has been delivered could not impose its minimal social norms including the minimum salary [22]. Article 3 of the directive on the posting of workers has for its part included a series of derogations to the minimal measures linked to the number of hours worked, periods of paid holiday and even the minimum salary due to the short time period of time that the service covered or even its particularly limited importance. The social regime of a posted worker within the context of a service not lasting longer than eight days or a month is the responsibility in part of the country where the service provider is established.

There is therefore a risk of disloyal competition in border areas. However a company that tries to circumvent its own social legislation by moving its place of establishment beyond a border would not be able to exploit this strategy for a long in that the regime that would then be imposed on it would be that where it usually undertakes most of its activities.

Even then controls would have to take place sufficiently often to dissuade this kind of behaviour.

However it is up to the Member States to ensure the application of these controls. As a result of this there was a definite fear that the controls undertaken by some Member States would not be adequate, either out of interest or indulgence, above all if it involved an SME whose service provision did not exceed one week. The country of origin principle would then be encouraging disloyal competition.

However, according to the ECJ, "Member States must show mutual confidence with regard to controls undertaken on their respective territories. A Member State should not undertake unilateral corrective measures or defensive measures designed to counter the possible ignorance of the rules of community law on the part of another Member State." [23]. This is why Ms Gebhardt and the European Socialist Party defended the idea of distinguishing between access to an activity and the conditions in which the said activity were exercised: mutual recognition would apply in the first case and the labour law of the destination country in the second.

It is now however accepted that although with regard to the terms of establishment it was the responsibility of the instances in the country of origin to launch controls in terms of the provision of services, the administration of the host country might expedite as many controls as it thinks fit. In order not to penalise companies by the number of controls made a system of electronic co-operation will be established as well as single points of contact and payment. The European legislator therefore took into account the ECJ's jurisprudence and the interests of the Member States to put forward an original mechanism of inspection that evidently finds inspiration in the co-operation system established by the Schengen Treaty. The modalities of the inspection of activities are to be the subject of a relative consensus within the Council of Ministers of the Union.

The heart of the debate at the Council of Ministers might then focus on appraising the ECJ's jurisprudence on the country of origin principle with regard to the respect of measures of a social kind. This jurisprudence which prevents the host country from imposing restrictions on the free provision of services except for reasons of public order, security, health, as well as for "imperious reasons of general interest" might appear satisfactory. However it does leave the judge with ample room to manoeuvre. The advantage of this is to offer the answerable person with a tailor-made solution the disadvantage lies in the rare complexity of jurisprudence.

Hence J-P Lhernould [24] stresses, "the hardcore proposed by the community judge is substantially deformed and is unstable. Potentially it is more developed than the directive 96/71 and is therefore more protective of posted workers but the hardcore can also be reduced under pressure from the free provision of services. In any case we may question the powers of the ECJ on questions as fundamental as this with regard to the construction of Europe."

The factor of complexity emanates from the almost total lack of any limits on time in the application of the country of origin principle within the community texts. The provision of services is clearly defined but the length of time the country of origin principle is applicable is left to the opinion of the judge. A clarification of this would undoubtedly be welcome to meet the legal security requirements of the various economic players. It would herald the return of policy to a context of exacerbated sensitivity where the debate over the "Bolkestein directive" revealed an unprecedented crisis of confidence with regard to the new Member States.

Clarification must go hand in hand with an enhancement of Member States' social legislation. As highlighted by Ms E Gebhardt in an interview in the magazine Liaisons sociales [25], the country of origin principle is unacceptable for those countries which do not have strong labour laws. "In Sweden, for example," she points out, "when a call for tender is won by a company it has to sign an agreement with the unions on salaries, on social rights, but this is not written down in the law. Likewise in Germany there is no legal minimum wage. In this country labour law does not protect (workers) from the country of origin principle." She concluded with a total rejection of the country of origin principle in view of the lack of community harmonisation with regard to social norms, whereas legislative strengthening of the labour laws in European countries with conventional cultures would be adequate to counter the danger of a weakening in social law.

IV- The roadmap put forward by the European Social and Economic Committee integrates the "services directive" in a dynamic measure that repositions the country of origin principle as a prerequisite and not as a substitute for the harmonisation of community law.

On 10th February 2005, after welcoming the objective aimed for by the draft directive relative to services in the internal market the European Economic and Social Committee delivered an opinion [26] that deserves particular attention since it suggests a roadmap to integrate the "services directive" in a dynamic measure for the construction of Europe. Some of the proposals have already been adopted. "The Finnish presidency will be inspired when it takes the entire measure on as its own."

The Committee's opinion focuses on the following points:

Hence in an enlarged Europe the country of origin principle must not comprise an alternative but a prerequisite to harmonisation.

Conclusion

The draft directive on services is part of the Lisbon Strategy and comprises, from this point of view, a necessary element for the competitiveness of the European economy. However it has been the source of violent reaction notably in France, drawing to it a spotlight with regard to "social dumping" in the wake of the enlargement of the European Union by ten new members on 1st May 2004. The draft "services directive" has been the subject of a number of discussions at the European Parliament over the last few months – these discussions must now lead to a consensus on a modified text. This is what is at play during the next session of the European Parliament to be held in Strasbourg on 14th February next.