Positive response to proposed Services Directive

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The proposed Services Directive has caused a stir in several European countries. European trade unions, especially in France, have made sure that the European Parliament drastically amends the Services Directive by the end of 2005. The main argument against the Services Directive is that it will lead to social dumping. In the Netherlands, however, the response to the proposed Services Directive has been generally positive. The unions and Dutch government alike are committed to the recommendation put forward by the Social and Economic Council (Sociaal Economische Raad, SER).

Background to the directive

Articles 49 and 50 of the EU Treaty establish the principles of freedom and service provision. Article 50 states that: 'Services shall be considered to be 'services' within the meaning of this treaty where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons.'

While it may therefore seem that the free movement of services has been considered a supplementary freedom for some time, this is no longer the case. European economic growth is driven largely by services. A recent survey conducted by the Dutch Central Planning Office (Centraal Planbureau, CPB) shows that trade in intra-European services could rise by as much as between 30% and 60% if the countries made more use of mutually recognising regulation standards as proposed in the Services Directive. The freedom of service provision is also among the main points on the European agenda with a view to achieving the Lisbon targets.

The proposed Services Directive envisages drastically limiting national differences in market regulation that hinder intra-European trade in services. Ultimately, it is an elaboration of Articles 49 and 50 of the EU Treaty. The most important instruments in the directive are freedom of establishment and freedom of service provision. Establishment will become easier by imposing strict conditions on permit systems and by expressly prohibiting the imposition of certain establishment criteria. Introducing the country of origin principle will facilitate the freedom of service provision. This principle departs from the assumption that the service provider only needs to satisfy the applicable legislation in force in the country of origin and that the Member States may not hinder service providers established in another Member State. It therefore offers service providers the option of providing services in one or more Member States, without having to comply with the provisions in force in that country. The country of origin principle serves as a counterpart to the country of employment principle. This principle assumes that the laws in the country where the service is provided apply. The country of employment principle applies in numerous European countries.

The commercial impact of the Services Directive will be greatest in countries already enjoying a high level of trade in services with countries characterised by diverse market regulations (high degree of policy heterogeneity). As the Netherlands is not among these countries, the directive will only have a modest commercial impact in this country. The reason for this is that legislative differences are relatively small in comparison with the country’s most important trading partners (including Belgium, the UK, Germany and France). Nonetheless, the Dutch services economy will become more open as a result of the Services Directive. A positive effect of around EUR 7 billion is expected in terms of the export of services, while it is anticipated that the import of services will rise by EUR 5.5 billion. As a result, the Dutch balance of trade will improve by EUR 1.5 billion. The export effect represents 2% of GDP, with a 0.5% net commercial effect after deduction of imports.

Opinions of key players

The response to the proposed Services Directive was mildly positive in the Netherlands. The Dutch unions and cabinet are committed to the recommendation issued by the Social and Economic Council (Sociaal Economische Raad, SER). The SER is a tripartite body representing the business sector, employees and crown-appointed members. Together, they mirror the socio-economic makeup of Dutch society. Employees and employers (the business sector) are represented by their respective centralised organisations. The third party, comprising the crown-appointed members, represents the general interest.

In relation to the Services Directive, the SER is positive about introducing a European directive to shape an internal market for services. The SER recommendation even goes so far as to state that the current proposal put forward by the European Commission falls short in a number of areas. It outlines that there should be far more guarantees with respect to the proper functioning of the country of origin principle and the free movement of services established on this basis.

The concept of establishment urgently requires more precise specification to prevent 'PO Box companies' from springing up and wrongly seeking recourse to the workings of the country of origin principle. In order to prevent this, the SER asserts that it is necessary to create a binding platform of administrative cooperation between the various Member States. In identifying a PO Box company or establishing whether the company concerned does generally provide services of bearing in the country of origin, the appropriate authorities in the country of origin will in each case have to assess all the activities characteristic of the company concerned.

The neutrality of the Services Directive in relation to applicable European labour law in cross-border situations will have to be better guaranteed: mandatory labour law may not be undermined. During the transition phase, the option limiting the free movement of services must remain under compelling circumstances.

Since the SER’s standpoint is mildly positive and because the unions are backing the recommendation, the Netherlands appears to be an exception compared with other European countries where the unions are decidedly negative about the proposed Services Directive.

Risk of social dumping

In contrast to the situation in a number of other European countries, the fear of social dumping is far less pronounced in the Netherlands. The term 'social dumping' is used to describe competition in relation to employment conditions, where the competitive employment conditions fall below a socially and economically accepted minimum level based on the standards of the country of employment.

It is feared that the Services Directive will promote this practice. Indeed, the unrestricted application of the country of origin principle could actually make this possible. The country of origin principle assumes that the service provider only has to satisfy the legislation applicable in the country of establishment and that the Member States may not impose restrictions on the services of service providers established in another Member State.

This also offers service providers an opportunity to supply services in one or more other Member States, without having to comply with the provisions in force in the Member State in question. In theory, a situation could arise in which legislation in a particular Member State falls below the social and economic minimum level upheld in another Member State. This could lead to social dumping. However, if such a scenario were to emerge it would fall under the 'exceptional circumstances provisions' of the Services Directive, in the form of the Secondment Directive 96/71/EC. The Secondment Directive applies if the situation relates to cross-border service provision involving the temporary deployment of employees engaged by the service provider. It stipulates that some of the provisions of the country within the territory where the employee is posted are applicable. Employees who fall within the scope of the Secondment Directive’s field of operation can seek recourse to the primary employment conditions of that Member State. The Secondment Directive departs from the premise of a limited country of employment principle, which implies that in a number of areas, at least those employment conditions declared mandatory and extended on the basis of collective agreements in the country of employment apply. The parties can exercise freedom of choice with respect to the remaining employment conditions.

Measures to prevent social dumping

The Member States have the option of adopting extended collective agreements with respect to posted employees, in order to largely cancel out the effects of competition concerning employment conditions in such cases. The Secondment Directive has been implemented into Dutch law in the form of the Terms of Employment (Cross-border Work) Act (Wet arbeidsvoorwaarden grensoverschrijdende arbeid, WAGA). Furthermore, the current WAGA ensures that employees from other EU countries seconded to work in the Dutch construction sector are paid on the basis of the collective agreements extended for the construction sector (i.e. for construction, painting, finishing and UTA).

Employment conditions such as work and rest times, holidays and health, and safety and hygiene at the workplace must comply with the requirements agreed in the collective agreements. Extension of the WAGA to other sectors is permitted on the basis of the Secondment Directive. On the 29 November 2005, the Dutch government passed an act which extends the WAGA to all other sectors. The main reason for this extension is the fear of low wage employees coming from the new Member States. A noticeable element in the extension of the WAGA is that it coincides with the abolishment of working permits for service providers. The Dutch government was forced to abolish this system of working permits after the European Commission formally requested that the government put an end to unjustified restrictions in the area of posted workers. It is therefore understandable that the abolishment of the working permit obligations for posted workers goes hand in hand with the extension of the WAGA. Another important point is that the temporary employment sector is not excluded from the working permit obligations. Considering all these developments, social dumping in the Netherlands seems unlikely.

Commentary

Introducing the proposed Services Directive would be the next logical step in creating a unified internal market. The directive is largely a codification of the extensive collection of rulings issued by the European Court of Justice starting with the 1974-79 Dassonville and Cassis de Dijon cases.

As the leader of the European Parliament’s socialist group, Martin Schulz, stated in 2005: 'We are in favour of the free movement of services, not the free movement of social dumping'. However, social dumping will only occur if the Member States themselves fail to maintain the employment conditions. The fact that an effective form of authority in this respect is lacking in many of the Members States cannot be used as the decisive argument to call a halt to European unity; it is sooner an argument in favour of installing such authority. (Jotte Mulder, HSI)