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Europe

EU Strikes Deal on Services Sector Reform

In a move that marks a significant step forward in forging common market policy, the EU on Monday reached agreement on a highly controversial reform of Europe's vast services sector.

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The new directive sparked protests in many EU countries

The landmark deal agreed late Monday evening is aimed at boosting growth in the 25-nation bloc by opening the services market to cross-border competition. It essentially allows companies in one member state to compete in others without conforming to local bureaucracy. For some, the legislation was cause for celebration.

"It's a real breakthrough," said Martin Bartenstein, Austria's finance minister, adding that the deal would create "hundreds of thousands" of jobs.

"The door is open for more growth and competition in the services sector," German junior minister Joachim Wuermeling told reporters. "The EU has shown its ability to act in the most difficult dossier in recent years."

The accord on the new services sector legislation followed nearly nine hours of negotiations on a compromise text drawn up by the EU's Austrian presidency.

In the end, all the EU countries finally approved the text, except for Lithuania which abstained. Its finance minister said Vilnius was looking for "a more profound European integration."

Compromise is everything

The compromise agreement is a heavily revised version of the so-called Bolkestein directive, named after the former competition commissioner, Frits Bolkestein of the Netherlands.

In its original form the directive proposed that companies offering services as diverse as catering, software and plumbing in the EU be allowed to operate under the laws and regulations of their country of origin.

Plakat Polnischer Klempner

The beefy Polish plumber featured on a tourism ad became a symbol for unwanted cheap labor

But many western European countries and trade unions feared that companies from countries with fewer taxes and regulations -- in particular in eastern Europe -- would be able to operate in higher-cost economies without paying their employees the local rate.

Opponents warned the directive would lead to "social dumping" -- companies and jobs relocating to eastern Europe or using low-cost labor in jobs like construction throughout the rest of the European Union.

Anti-globalization and left-wing demonstrators took to the streets in France, Germany and Greece to oppose the reform.

In February, the European Parliament threw out the original version and presented its own text, which saw the controversial "country of origin" principle replaced with a general rule stating that member states cannot discriminate against foreign service providers who are free to trade their business across Europe. In April the European Commission, the EU's executive arm, produced a draft that largely echoed the parliament's version.

It was this draft, in slightly modified form, which was agreed by the bloc on Monday.

Bartenstein said the bloc had avoided the pitfalls of the Bolkestein debate.

"We were able to avoid a split between the old and new member states," he said.

France, which was one of the most vocal critics of the original proposal, agreed to the modified legislation after it was decided the new rules would be introduced over three years instead of the usual two for EU measures.

Health care, social services, port services, television and radio, temporary employment agencies and casinos are excluded from the deal.

Final approval in December

EU Parlament Wolfgang Schüssel in Straßburg

The EU parliament is expected to pass the new legislation

The bill goes back to the European Parliament for a final reading in December. Wuermeling said he expected the assembly to endorse the package.

"I would like to see it energize small businesses to relaunch the whole single market, and I see no reason why we won't accept it," said Malcolm Harbour, a center-right MEP who brokered the deal in the assembly earlier this year.

The services sector accounts for roughly 70 percent of Europe's economy.

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