TCS Daily

The Real Threat to "Social Europe"

By Jonatan Henriksson - March 3, 2005 12:00 AM

The European Commission, under pressure from certain member states, trade unions and socialists in the European Parliament, is now prepared to water down its crucial Services Directive, which it proposed in the beginning of 2004. The Directive's opponents have continuously reiterated their argument that the legislation would lead to "social dumping" -- an allegation which the Commission always denied. Until now.

Does this mean that, after an intense campaign, all the self-proclaimed defenders of workers' interests can finally draw a sigh of relief and go back to business as usual? Did the Commission proposal ever put "social Europe" under threat?

It was never self-evident why the Services Directive stirred up so much controversy. Yes, it is (used to be) a bold proposal envisaging an across-the-board liberalization of a hugely important sector of the European economy (around 70 percent of GDP). Yes, it insists (used to insist) on cutting a lot of the red tape currently preventing the free flow of services among member states. And yes, indeed, it does (did) suggest that, in general, service providers operating on a temporary basis across a border should be subject to the rules of their country of origin, rather than those of the country in which the service is actually offered.

Somehow these elements gave rise to the notion that wage competition and a lowering of social rights would ensue. "The European social model is in danger," was the message echoing across France, Germany, Sweden, and other countries. By equating the free movement of services with "social dumping", the Directive's detractors have engaged in effective propaganda -- as is now becoming evident. Does it mean they also have a point?

Certainly not. As a matter of fact, it is difficult to imagine how the Directive in its present form could "speed up deregulation and erode workers' rights", as the European Trade Union Confederation (ETUC) claimed in a hearing in the European Parliament last November. Although the country of origin principle certainly has a liberalizing potential -- and that is the whole point -- it is not meant to apply to every aspect of the business of a company providing cross-border services. While covering the content and quality of a service, advertising, contracts, and liability, it comes with a crucial exception: employment conditions. A company which has posted workers in another member state must respect the minimum standards of the host country as regards employment contract and working conditions. These include minimum wages, vacation, working time regulations, health and safety, and the protection of temporary workers.

The purpose is straightforward: by imposing the minimum standards of the host country, the risk of cheap foreign labor undercutting the salaries of domestic workers in the service sector is minimized. It also reduces the incentive of companies to delocalize in low-wage countries. The fact is, by providing for an exception to the country of origin principle on employment issues, the Services Directive is not half as neo-liberal as the trade unions and socialists pretend it is.

The Directive has been criticized for undermining workers' rights on two specific points. The legislation prohibits a number of bureaucratic requirements for service companies which tend to discourage services providers from entering the domestic market. According to the Directive's opponents, this would make the host country's task of controlling employment conditions impossible, and would thus open the way for fraud. They are wrong. The Directive would only ban systematic burdens on service companies that, in fact, amount to nothing less than protectionism.

Second, it has been argued that the Services Directive would allow member states to impose only their minimum standards for employment and working conditions on posted workers. One certainly hopes the opponents have read the Commission proposal correctly this time. Do they suggest that member states -- or trade unions for that matter -- should be allowed to impose a higher salary, for instance, on employees of foreign companies than for domestic workers? Again, to claim this right seems suspiciously close to protectionism.

Overall, the arguments of the Directive's enemies are strikingly unconcerned with the free movement of services and the boost it promises to give to the European economy!

In addition, they certainly overstate the risks of social dumping and competitive deregulation as a result of alleged loopholes in the Services Directive. It may be useful to remind them of the existing "social Europe" which provides safeguards against such phenomena: the Working Time Directive, which limits average work weeks to 48 hours; the Directives on health and safety in the workplace; and the Directives on the protection of pregnant women at work, on parental leave, on equality of treatment between women and men, on part-time work, on fixed-term work, etc.

However, as we know, the overstatement of risks often proves to be a successful strategy -- and so also this time. There are telling similarities with the debate preceding the latest EU enlargement, in which 12 of 15 member states decided to restrict the freedom of movement for workers from the accession countries. Their justification for setting aside a fundamental Treaty principle: the fear of domestic markets being flooded with cheap labor from central Europe. But what has actually happened in the three countries -- Ireland, UK, and Sweden -- which accepted free movement of workers from day one of the enlargement? In fact, there is little evidence of extensive migration towards these countries having taken place -- and even less evidence of "social dumping".

The talk of "Lisbon" and "competitiveness" rings as hollow as ever. Once again, the EU institutions demonstrate their lack of commitment in reaching the targets they have set, leaving in place an embarrassing gap between vision and reality. What is worse, the likely dilution of the Services Directive is based on unfounded and irrational claims that social rights were in danger. The Commission must blame itself for not having succeeded in piercing the myths surrounding the Directive.

As it prepares a revised proposal, the Commission may also need to look again at the estimates that the Services Directive could create up to 600,000 jobs and release almost €40 billion of additional consumer spending. Isn't it a paradox of European politics that a measure which will provide for fewer jobs and less growth should be seen as a lesser threat to "social Europe"?

Jonatan Henriksson is from Sweden and works as a lobbyist and writer in Brussels.


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