Legal chaos or the best solution for a common market?

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Series Details Vol.11, No.4, 3.2.05
Publication Date 03/02/2005
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Date: 03/02/05

Two MEPs discuss the pros and cons of the European Commission's country of origin principle proposal

Only if high quality standards are guaranteed and social entitlements protected can the services directive be applid, says Evelyne Gebhardt

The European Commission's proposal for a directive on services in the internal market has raised a controversial debate both in the European Parliament and at a national level over the so-called country of origin principle. The principle plays a fundamental part in the Commission's proposal. But, although the Commission never clearly states as much, the country of origin principle is actually not autonomous. It is not something that supersedes the treaties and must be observed in all community legislation.

Given that the aim of the Commission proposal is non-discrimination in service provision in the EU, the introduction of the country of origin principle seems to be counter-productive. According to the proposal, if a service provider offers his services in another member state, his own national provisions will apply. If these provisions are less strict than those of the host member state, the country of origin principle leads to stronger internal discrimination. The principle might even give an incentive to service providers to establish themselves only in member states with lower standards of social protection - a development that jeopardises existing minimum standards of consumer protection and which is therefore highly undesirable.

Furthermore, the proposal shifts the responsibility for the supervision of services from the host country to the country of origin. The practical control is thus removed from the place where the service is actually provided. But does the country where a service provider is established have any interest at all in supervising services provided outside its own territory? In case several service providers from different member states participate in one project - which law would apply in case of damage or an accident, which are the competent authorities to address?

In fact, the country of origin principle leads to legal uncertainty. Which legislation should apply if the same professional activity is strongly regulated in one member state and not at all in another country?

A mason is subject to greater regulation in Germany than in Britain. If the country of origin principle applies, the British mason providing his services in Germany may be subject to the services directive and thus to the provisions of his country of origin, whereas his German colleague may be subject to the provisions for the mutual recognition of professional qualifications and thus to the provisions of the country of destination.

Another issue raised by the introduction of the country of origin principle is the aspect of legislative coherence. The Commission's determination to enshrine the country of origin principle in the services directive seems questionable since it has been rejected by the European Parliament and the European Council in other proposed legislation (e.g. the draft directive on recognition of professional qualifications and the draft directive on unfair commercial practices). Introducing the country of origin principle on such a large scale as proposed in the services directive even endangers the progress towards the harmonisation of European legislation - service providers would only have to comply with the law of their own country and no efforts would be made with regard to common minimum standards. But in the interest of fair competition, common rules, i.e. a combination of harmonisation and mutual recognition, are essential.

To sum up, the introduction of the country of origin principle does not necessarily improve the situation with regard to non-discrimination of service providers.

On the contrary, it leads to more legal uncertainty which could prevent providers from offering services abroad and consumers from benefiting from them. Therefore, the services directive can only be applied if high quality standards are guaranteed and social entitlements as well as the rights of consumers and patients are protected.

  • German Social Democrat Evelyne Gebhardt is a member of the committee on internal market and consumer protection and rapporteur for the services directive.

The country of origin principle is the best politically possible way towards a genuine common market for services, says Alexander Stubb

No one can deny the benefits of the internal market for the European economy. Since 1992 the opening up of national borders has created more than 2.5 million new jobs in the member states. The long overdue project of building an internal market is still far from complete, though. Goods, people and money move relatively freely in the EU. Services do not.

Some 60 to 70% of the European economy is now based on services. The service sector has created the jobs that industry has lost in the last 20 years. If Europe really wants to become the most competitive area in the world, services need to move more freely.

The services directive is arguably the most important piece of legislation of this Parliament. The aim of the directive is simple: to remove legal and administrative barriers to the free movement of services between member states.

The European Commission and the European Council have been doing their job. The original proposal has been clarified and the pieces are falling into place.

But the game in the European Parliament is still wide open. Rapporteur Evelyn Gebhardt provided the internal market committee with a working document in January. The reception was lukewarm.

One of the most contentious issues of the directive relates to the country of origin principle. The idea of the principle is simple: a service provider is subject to the laws of the country in which the company has been established.

Sounds familiar from previous decades? It seems that some opponents of the directive want to turn the clock back 20 years.

There are three common fears about the country of origin principle. Opponents are forecasting the dumping of work conditions, the flooding of domestic service markets by foreign non-professionals and a mass movement of service providers to countries with low social obligations. I do not agree with any of these.

First, the dumping of work conditions. The proposed services directive could not be clearer on this point: service providers have to comply with terms and conditions of employment applicable in the member state where the service is provided.

These obligations include maximum work periods and minimum rest periods, minimum paid annual holidays, the minimum rates of pay, including overtime rates, conditions of hiring-out of workers, health, safety etc.

Second, low-paid "foreign cowboys" are not going to oust high-paid "domestic professionals".

A professional has to have his or her qualifications recognised in the country where the service is provided. The conditions for the recognition are governed by the directive on professional qualifications, not by the one we are dealing with now.

Finally, the idea of service providers changing their place of establishment to some letter-box in a country with low social obligations is being made almost impossible by the proposed directive. According to the proposal, "establishment" involves the actual pursuit of an economic activity for an indefinite period. It is irrelevant where the registered office of the company is.

If it ain't broke, don't fix it. But the services market is broken, badly. The costs of operating in different legislative environments are a severe blow to the competitiveness of European service providers and can cause some services simply not to exist.

The past 20 years have shown the country of origin principle to be the best politically possible way towards a genuine common market for goods. It is not a shortcut to a functioning internal market for services, though.

I smell a rat, as James Bond once said, when I hear labour movement activists speaking against the country of origin principle. Are they perhaps doing the dirty work for some companies, especially in big states, which are not ready to compete in an open environment? Who knows? But one thing is for sure: protectionism has a tendency to create odd bedfellows.

  • Alexander Stubb is a Finnish member of the centre-right European People's Party (EPP-ED) group.

Two MEPs discuss the pros and cons of the European Commission's country of origin principle proposal.

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Related Links
European Commission: DG Internal Market: Services and Establishment: The Internal Market for Services
European Commission: PreLex: COM(2004)2: Proposal for a Directive of the European Parliament and of the Council on Services in the Internal Market

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