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The Services Directive Success Story

The Relative Misfortune of Radical Liberalization

The EU Services Directive is undeniably the most contentious piece of European legislation in the 50-year-long history of European integration. It triggered an unprecedented wave of contestation across Europe and it stands out as the first instance where (a) contestation occurred prior to the adoption of a directive by the legislators of the EU, namely the Council of ministers and the EP, and (b) the first instance where the EP amended the proposal put forward by the EU Commission to an extent never experienced before. The Services Directive has also prompted an extraordinary amount of academic literature as it has been studied to illustrate various aspects of the economic and political functioning of the EU.[1] This heated debate cannot be seen as a typical case reflecting the everyday functioning of the legislative process in the EU; yet, it shows that despite the technocratic and bureaucratic trends in EU politics, politicization can occur at the scale of the EU multi-level polity and shape decision making. In fact, it can be argued that precisely because the routine of EU politics is usually more geared towards bureaucratic processes, politicization and conflict are more likely to be effective (Parks 2015).

The draft Service Directive was proposed by EU Commission in January 2004, after years of preparation by the Directorate General (DG) for the Internal Market (known as DG MARKT) then supported by the cabinet of Commissioner Frits Bolkestein, an openly neoliberal and Eurosceptic Dutch politician famous for his controversial statements against a dangerous multicultural and over-regulating European super State. While services liberalization had been on the EU agenda since the proclamation of the Lisbon Strategy in 2000, the eventual proposal had a strong neoliberal flavour: it proposed the horizontal (as opposed to sectoral) far-reaching liberalization and deregulation of all service activities in the EU. The complexity of its legal and practical ramifications left many experts puzzled. The conjunction with the enlargement towards eight (and soon ten) new Member States in Central and Eastern Europe triggered contestation vis-a-vis what was perceived by the proponents of regulated capitalism as a major neoliberal offensive. The liberal coalition supporting the Commission proposal comprised the Conservative Group of the European People’s Party (EPP) in the EP with its shadow rapporteur, the Briton Michael Harbour, the European employers’ association Business Europe and a number of Member States including the UK, the Netherlands, Spain, and all the new recently accessed countries from Central and Eastern Europe with Poland, Hungary and the Czech Republic, and Latvia being particularly vocal about it (Copeland 2014, pp. 62-68). On the other hand, the regulatory coalition included the radical left and the greens, the unions including the ETUC, the alter- globalist movement and virtually all NGOs within the organized civil society, and progressively a majority of social democrats. The latter concentrated their criticism on two bones of contention.

The first was the ‘country of origin’ principle, a radical version of mutual recognition whereby service providers could trade services in any EU country while abiding only by the regulations of the country where the company has its headquarters. Insofar as service provision implies workers’ mobility, this was seen by the regulatory coalition as an incentive for firm relocation to countries with weaker regulation and labour costs, and subsequent social, regulatory and wage dumping.[2] The second key problematic aspect of the Bolkestein proposal was its very large scope of application which encompassed virtually all services (except those explicitly excluded) including most SGI. As explained in Chap. 2, the distinction between economic and non-economic SGI is the key factor which determines the application of competition law but, at the same time, this distinction remains a ‘grey area’ in the jurisprudence of the ECJ (Rodrigues 2006). In this regard, the Services Directive proposal did not provide a clear definition of SGI in order to clearly define the scope of application of the directive. Although the proposal claimed that it did not target SGI, it was unclear to what extent service providers in areas such as healthcare, non-mandatory education, social services and so on were to be submitted to EU competition rules, and to what extent state- funded activities would be viable under the Services Directive regime. Many lawyers therefore considered that this piece of legislation would accentuate rather than alleviate the ‘legal uncertainty’ already surrounding SGI and competition law (Hatzopoulos 2007). Pro-regulation actors suspected the Commission (or, more specifically the DG MARKT and F. Bolkestein) of attempting to foster liberalization and privatization of welfare services through the back door as foreign providers would be allowed to establish themselves even where sectors were not open to competition in the name of the free circulation of services.[3]

After two years of politicization and public contention, the directive proposal was substantially amended in the first reading of the EP in February 2006, and adopted later the same year with the agreement of the Commission and the Council. Thus, the German social-democrat rapporteur Evelyne Gebhardt, who was hostile to the Bolkestein proposal, obtained a compromise on a softened version of the directive. This was widely seen as a main political and symbolic victory for the pro-regulation camp, and a result of public contestation, given that liberal forces backing the proposal initially constituted a majority across EU institutions, including national governments at the outset. As far as SGI are concerned, and from a policy-making point of view, the outcome was more mitigated. A key victory was the explicit exclusion of healthcare from the scope of application of the directive as well as culture and broadcasting. However, the amendment proposed by Gebhardt to exempt all SGI was not adopted. Instead, and at the initiative of the Belgian socialist and co-rapporteur Anne van Lancker,[4] complicated ‘safeguard clauses’ were adopted which stipulate that the directive does not aim to liberalize or privatize SGI (Article 1). The final version of Article 2 creates a new category of SGI, NESGI which includes the police, justice, mandatory schools and security. This provision is, however, redundant as these services are State prerogatives which as such are not covered by EU law. The same article also includes a limitative list of services which are excluded from the Services Directive: ‘social services relating to social housing, childcare and support of families and persons permanently or temporarily in need which are provided by the State, by providers mandated by the State or by charities recognised as such by the State’. A majority of MEPs voted to keep non-mandatory education or cultural services included within the scope of application.

Ultimately, the rule is that all SGI which have potentially an economic nature are submitted to the liberalization regime set out in the Services Directive. The final version of the legislation was criticized by a number of lawyers and experts of SGI. It does not provide any attempt to clarify the status of SGI vis-a-vis competition law, and arguably creates additional interpretation issues (Manin 2007; Pellegrino 2007). When considering the various combinations of different articles and clauses in the directive, SGI can be regulated by seven different legal configurations (Van den Abeele 2007, pp. 27-28). Insofar, contestation and resistance to liberalization only prevented EU legislation from opening the door to the liberalization of healthcare and core social services provided by the State. However, a clear definition of SGI and exemption from the market logic and competition law remains clearly denied.

  • [1] Lindberg (2010), Messerlin (2005), Nicolai'dis (2007), Nicolai'dis and Schmidt (2007), Parks(2015) , Gajewska (2008), Bieler (2009) , Hix and Noury (2009), Miklin (2009), Chang et al.(2010), Magnette and Papadopoulos (2010) and Grossman and Woll (2011).
  • [2] For example, interview with a former Secretary General of Federation generale des travailleurs deBelgique (FGTB), Brussels, March 2008. This was also reinforced by the fact that the articulationwith the Posted Workers Directive, which guaranteed a core of minimum social rights (notably payand holiday time) in the receiving country, was unclear in the original proposal of the ServicesDirective.
  • [3] Interview with representative of EPSU, Brussels, September 2008.
  • [4] Interview with Anne van Lancker.
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