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The European Services Directive

It is a truism that if you try to please everyone, you end up pleasing no-one. Europe’s controversial Services Directive has arguably fallen into this trap. When it was passed on February 16, 2006 by the European Parliament, angry trade unionists gathered at the doors of the Parliament, protesting that the parliament had gone too far. Frustrated supporters of liberalization, for their part, dismissed it as a watered-down version of the original proposal that would do little to advance the goal of a single market for services in Europe.

The Services Directive aims to increase competition by eliminating restrictions on market access for service providers and by removing obstacles to the cross-border provision of services. Since the presentation of the first draft at the beginning of 2004, the directive has been the center of vigorous debate throughout Europe. The directive was perceived as putting at risk the “European social model” by allowing service providers to cross borders without abiding by local labor and social regulations. Many of the wealthier member states saw in the document an open door to service providers from new member states where wages are lower and social protection systems less developed. Moreover, the state plays an important role in the provision of many services in Europe (e.g. local transport, utilities, education, and health services) and many perceived the Services Directive as an attempt to privatize such services while ignoring their social component and in the process reducing quality standards.

The Services Directive has been depicted by its opponents as a symbol of the free market bias and the lack of social content of the European Constitution. In particular, a strong antipathy to the directive in France played an important role in the May 2005 “no” vote on the European Constitutional Treaty.

In fact, the Services Directive is a fairly modest attempt to improve the implementation of the principle of free trade in services that has been a part of the European Union since its inception. Service industries represent more than two-thirds of all economic activity in Europe, but growth and productivity in the service sector has lagged behind that of the United States. Liberalization of cross-border trade in services has the potential to increase European growth, but the various controversies over the Services Directive have already considerably narrowed its ambitions. Even in its the current form, though, the directive would still represent a small, but important step in liberalizing trade in services and in countering the recent revival of protectionist rhetoric in Europe.

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