1. Introduction 2. Theoretical Framework & Key Concepts

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1 Analyse the salient points of the Services (Bolkenstein) Directive (2006) and the reactions to the original Commission proposal by the main political and social actors. Is there a theory that can explain this legislative initiative and the reactions it triggered? 1. Introduction This paper seeks to analyse the nature of the initial Services Directive draft, why it became controversial, and which EU integration theory the political process lends support to. In order to hypothesise on the salient points of and the reactions to the initial Services Directive draft, it is necessary to first define the scope of this paper and establish a theoretical background for understanding the EU, its institutions and the key actors. This is done by 1) reviewing the relevant theoretical framework and key concepts related to the research question, 2) establishing an overall perception of European actors and how organised interests can affect them, 3) establishing how different integration theories would predict the reactions to the Services Directive. These points lead to the creation of two hypotheses which are tested against evidence. This is done by 1) establishing the salient points which framed the possibilities of organised interest, 2) establishing how this influence was exerted, 3) establishing the degree with which this influence manifested itself in the positions of The Council and Parliament, and 4) establishing which theory of EU integration this process lends support to. 2. Theoretical Framework & Key Concepts It is necessary to define which part of the procedure is essential to the research questions. This paper will consider the reactions of The Council of The European Union (The Council), The European Parliament (EP) and key organised interests. It will focus on establishing the existence of a bottom-up relationship, where organised interests affect institutions and thus the Directive. The focus will be on the policy negotiation process in the period after the disclosure of the initial Commission draft of the Services Directive in January 2004 to the adoption of The Directive in December 2006 (Bache, George & Bulmer, 2011: 392). Thus this paper knowingly disregards the lobbying possibilities before the initial Commission draft, the existing case-law created by the European Court of Justice, and the European integration momentum of the Lisbon Strategy. The perception of EU institutions and key actors is vital when creating a theoretical framework for an analysis of a policy process within the EU. This paper applies an overall perception of the EU as 1

2 a multi-tiered policy (Hix, 2008). Focus, however, will be on the vertical dimension. As Scharpf wrote: Each institution can be seen as a decision-making arena in which different actors interact in order to define their positions. (Scharpf, 1997, cited in Jensen & Nedergaard, 2012: 846). This opens for the possibility of organised interests affecting national or EU-level actors which then affect the rest of the institution in question. It implies the concept of uploading through the vertical tiers of the EU (Bache et al. 2011: 61). This leads to a definition of the institutions in question The EP & Council. The EP is considered a supranational institution, functioning at the EU-level. The national coherence of the EP delegations is thus disregarded. This is a narrow definition based on the transnational nature of the EP parties (Bache et al. 2011). In a paper with a wider scope, this definition would need to be elaborated upon. The Council is defined as an institutional entity comprising representatives of all member states. These representatives are authorized to commit the government of the member state (Bache et al. 2011: 274). This paper operates with the assumption of the council being multitude of the different national opinions not an entity with a separate agenda, as Miklin (2009) seems to hint. Furthermore, the institutions in question are both The EP and The Council, because the legislative relationship between the two was equalised after the introduction of Co-Decision (Bache et al. 2011: 310). Elaborating on the concept of uploading, it is necessary to establish, how organised interests can affect the policy negotiation process. Jachtenfuchs argued: [...] the fragmented and fluid institutional structure of the EU and the lack of a strong power centre leads to an increase of channels of access and a larger variation of participants in the policy- making process as compared to governance systems in territorial states. (Jachtenfuchs, 2001, cited in Bache et al. 2011: 30) On this basis it is possible to assume an easy access for organised interests into the decision-making process. Furthermore [e]asy access to the European institutions [...] have allowed certain interests to have a substantial say in the European policy process... (Bache et al. 2011: 331). They have the possibility of doing so, by either directing attention to EU-level actors or national level actors (Bache et al. 2011). A specific strategy of influencing key actors is described by the concept of politicisation; [...] if the profile of the issue is raised above the political threshold, then the nature of the process changes. The strategy of excluded groups with interests in the field is therefore to 2

3 seek access by politicizing issues (Bache et al. 2011: 343). With this in mind it is possible to assume actors outside the institutions influencing policy outcomes to a significant degree, by politicising issues. The policy negotiation process and the actors involved can be perceived from a theoretical perspective based on Rational Choice Institutionalism (RCI). It is described by: trying to understand the behaviour of political actors, it is important to identify the parameters that are set by the fact that they are acting within a specific framework of rules (Bache et al. 2011: 23). Furthermore Rational Choice Institutionalism applies the principal-agent theory to national and supranational level actors which allows for a degree of autonomy of supranational actors. This would create an expectation of actors following the formal vertical channels between actors and institutions, where each institution is somewhat autonomous. Furthermore it creates the expectation of institutions acting in accordance with rational preferences based on their specific situation. Another theory applied in order to create testable hypotheses is Liberal Intergovernmentalism (LI). The key element is the perception of national governments as the main driver in the EU. Furthermore this paper will apply the inherent concept of two-level games, assuming national preferences can be shaped by a number of domestic actors (Bache et al. 2011). This is further elaborated in that [...] national preferences reflected the balance of economic interests, rather than the political biases of politicians or national strategic security concerns. (Moravcsik, in Bache et al. 2011: 13). The concept of national economic interests is clarified by: Governments position as determined by more or less objectively definable national interest which are basically a result of either economic cost-benefit calculations and/or a member state s institutional setup. (Miklin, 2009: 945). This provides an expectation of how the national governments are the primary drivers in the EU and the position of these are based on domestic political activity and economic preferences. The above paragraphs provided this paper with the theoretical background for assuming two relevant points of entry to the policy negotiation process. Since only the period from January 2004 to December 2006 is considered, the Commission as a point of entry for lobbyists is disregarded. Consequently this paper considers the points of entry as the EP and national governments, illustrated by the simple model below. 3

4 Using the simple model above and the theoretical framework described, it can be said: LI [...] contend that the member states remain in control of European governance and integration, furthermore about RCI it can be said [...] that the influence of supranational institutions cannot be explained solely in terms of member state preferences. (Kassim & Menon 2003: 126). On this basis it is possible to connect the national pillar with LI, and if both pillars are in play, a connection to RCI is established. On this basis the following two hypotheses are formulated: The national governments and national level organised interests were the key actors in the negotiation process regarding the Services Directive. National & EU-level institutions and organised interests were influencing the Services Directive negotiation process. In terms of variables, this paper seeks to establish whether organised interests (X), are affecting The Council (Y) and/or The EP (Z), both of whom can affect the proposal. This is compared to other contextual variables (C) affecting both Z & Y. Thus the relationship between X & Y and X & Z are compared to each other and to the affect of C on both Y & Z. 3. Evidence In January 2004 The Prodi Commission published the initial draft of the Services Directive. At the outset this spurred little controversy and was initially well received in the Council and the EP [...] (Dølvik & Ødegård, 2012: 70). This did not last long, however. Loder wrote: The Service Directive became arguably the most controversial and contested regulatory initiative to emerge out of the Lisbon Agenda. (Loder, 2011: 466) 4

5 This shift from a well-received to a highly contested directive encourages a discussion of which actors were capable of politicization on such a scale. Since both The EP and The Council were initially in favour, this paper seeks to analyse the extent to which organised interests were part of the process. The following sections will endeavour to analyse 1) which salient points of the Services Directive in its original form made it possible for organised interests to influence the policy making process, 2) How said influence was exerted, 3) To what degree, alterations in the political context during the critical phases of the negotiations, were of importance, and 4) Which theory of European integration this process lends support to. 3.1 The Salient Points of The Services Directive This paper considers two salient points of the initial Commission draft. Firstly, the Country of Origin Principle (CoOP) which has become intricately connected to the initial draft. The different national labour unions and ETUC on a European scale expressed fears, summarised below: Their main opposition is, however, targeted at [...] the 'country of origin' principle [...]. The consequence, it is feared, will be enormous pressure on countries with social, fiscal and environmental standards that protect the general interest. (EIROnline, 2004) The proposal struck at the heart of the function of the social movements, and the liberalising nature of the proposal invigorated the debate of the social consequences of the EU. The CoOP is thus considered a salient point in the initial Commission Draft, and a catalyst for opposition. The second salient point considered is the horizontal nature of the directive. Quite unprecedentedly it attempted to encompass almost all service related economic activity within the EU. This was a doctrinal change from previous industry-specific proposals (Loder, 2011: 573). The initial draft would have affected every single worker and employer providing economic services. This is estimated to involve 60 % of employment in the EU (EIROnline, 2004) and would establish a legal framework, applicable to virtually all economic activities involving services (Dølvik & Ødegård, 2012: 73). The proposal thus had an enormous amount of stakeholders. 3.2 Manifestations & effects of external pressure on national governments and EU-institutions The specific manifestation of organised interests pressure on the national level was initially limited to attempts in Belgium and Finland (EIROnline, 2004). It did, however, spread rapidly. Sweden had the Laval case [...] In Germany there were the protests against Kolonnearbeitskraft [...] there 5

6 was the famous story in France about the Polish plumber (Jensen & Nedergaard, 2012: 850). The European trade unions fed the media with stories of the severe impact of the proposed directive, effectively transforming it from an economic to a social matter. This is particularly important considering the expected economic benefits of the proposal, through a more competitive and open business environment (Copenhagen Economics, 2005). The labour unions thus managed to instigate external pressure by fostering broad public and political mobilisation in key Member States (Dølvik & Ødegaard, 2012: 69) and successfully set the public agenda by organizing demonstrations and criticising the Proposal in the media (Arnholtz, 2012: 20). This type of pressure through demonstrations was also manifested on a European level. On the day of the decisive vote in the EP, the streets in Strasbourg were filled with 30,000-50,000 trade unionists [...] (Dølvik & Ødegaard, 2012: 69). This pressure was exerted while simultaneously employing a lobbying strategy towards The EP. Arnholtz found: This group promoted the ETUC s perspective and suggestions to MEP s [...] through the EP Trade Union Intergroup. This was done in an effort to get them revised in the Parliamentarian process. (Arnholtz, 2012: 20). The European Trade Union Confederation (ETUC) actively sought to influence the process by politicising the issue through mass mobilisation and through a dialogue with MEPs. In order to consider the effect of the pressure created on a national level, the positions expressed in the Council are considered. When considering the 2624 th Council Meeting in November 2004 and the 2694 th Council Meeting in November 2005, the change in the position is clear. In the first meeting, only little concern was shown in the discussion (Council of the European Union, 2004). In late 2005, however, the governments voiced concerns over the scope of the directive and the Country of Origin Principle (Council of the European Union, 2005). Furthermore, at another occasion, French President Chirac declared the Proposal unacceptable (Arnholtz, 2012: 22). Several scholars have pointed to a direct link between the national level demonstration and media attention and the change of heart of key member states (Arnholtz, 2012; Loder, 2011; Dølvik & Ødegård, 2012; Miklin, 2009). This provides an indication of a relationship between national level pressure and the position of the member state governments, and thus The Council. The activities of ETUC on a European level seemed to have an effect on the position of the EP. The EP initially voiced very limited opposition to the proposal. This changed, however, and Arnholtz 6

7 (2012) attributed the public displays of dissatisfaction, organised by ETUC, as the primary catalyst for The Employment Committee s amendments in July Furthermore Arnholtz (2012) and Dølvik & Ødegård (2012) assign at least some of the credit, for reaching a compromise between the PES on one side and EPP-ED on the other, to the mediating role of ETUC. These findings seem to indicate a relationship between the European level politicisation and mediation at the hands of ETUC and the position of the Parliament towards the proposal. Certain sources do not credit ETUC s lobbying in the EP with finding a compromise, though. Instead they suggest how Germany was able to assert pressure on its parliamentary delegation (Parker, 2005; Dølvik & Ødegård, 2012: 78). If this was the case, the pressure from organised interests directed at the national governments would seem to have carried the most weight, supporting LI. The validity of these sources can be questioned, since it stems from a very opinionated source. Until more in depth research is carried out, this evidence is disregarded. This paper has so far attempted to show how organised interests were able to influence key players on both a national and European level through politicisation. This implies two direct relationships. 1) National level organised interests were able to influence national governments which affected the overall position of The Council thus affecting draft proposal. 2) European level organised interests were able to affect the position of the Parliament which affected the draft proposal. This implies both European institutions and national governments as the key players. Furthermore it suggests they were able to effectively voice opposition because of the sheer amount of stakeholders and the sensitivity of Western Europe to the CoOP. Thus ETUC and national organised interest were able to alter the rational responses of both MEP s and the national governments, by changing the political context through a politicisation of the proposal. The presented evidence provides an argument against LI and for RCI as an overall perception of the EU integration process. 3.3 The Process Surrounding The Services Directive: An Indicator of a general trend? The effect of the politicisation carried out by ETUC and national level organised interest, and the interpretation of how it supports RCI, might indicate a general trend regarding the policy negotiation process in the EU. The implication, through the lens of RCI, is a very autonomous agent, able to negotiate on equal terms with the principal in all but the most exceptional instances. Extrapolating from this trend, it is possible to use the policy negotiating process in question to 7

8 indicate The EP as an almost fully autonomous and truly European institution. This, of course, stretches the principal-agent assumption inherent in RCI to the limit. This may be a manifestation of Where the [...] interests of the principals conflict, a decision may be taken to insulate the agent from interference. [...] political overseers are empowered to pursue independent courses of action (Kassim & Menon, 2003: 125). Consequently, the presented findings, shows a relationship between the national level and supranational institutions stretched to the limit of the principal agent relationship, indicating an almost equal footing in the policy negotiating process where supranational institutions can pursue independent courses of action. 3.4 The Political Context indicating a spurious relationship The effect of the pressures created by organised interest must be considered in a context in order to assess the possibility of other factors influencing the EP and Council positions. A number of factors influenced the negotiation process of the Services Directive, aside from organised interests. In France the public discourse coincided with the 2005 Constitutional referendum (EurActiv, 2005). Germany, too, was nearing national parliamentary elections which made the governing political parties extremely sensitive to voters reactions (Jensen & Nedergaard, 2012: 851). This elevated the Services Directive to the forefront of public discourse. The context of the eastern expansion in 2004 further sharpened the saliency of the social issues related to the CoOP (Dølvik & Ødegård, 2012: 72).On a European level, the Barrosso Commission replaced The Prodi Commission in This saw a change in stubbornness of the Commission s defence of the proposal. The new Commissioner for the Internal Market showed openness to the critique voiced by organised interests (Dølvik & Ødegaard, 2012: 76). He announced It is crystal clear to me that there are real problems with the Services Directive [...] as drafted it is not going to fly (Billings, 2005). This shows four factors influencing the political context of the Services Directive by 1) Associating the proposal with highly politicised areas and 2) by relenting the Commission s stubborn defence of the proposal. Thus the political context moved the dependent variables, the positions of the Council & EP, in the same direction as the pressure from European and national level organised interest, and the relationships found in the above sections, must be considered in this light. 4. Conclusion This paper has sought to analyse the salient points of the initial Services Directive, the reactions to the original Commission proposal by the main political and social actors, and which theories this lend support to. This has been done by establishing a theoretical framework where 1) the scope of 8

9 the paper is defined as the negotiating process from initial draft in 2004 to adoption in 2006, 2) the focus is on the vertical relationship between actors and how pressures are uploaded, 3) how RCI would expect rational responses through formal channels and autonomous supranational institutions, and LI would expect the national governments to be the main drivers in the policy negotiation process, and 4) creating the following two hypotheses: The national governments and national level organised interests were the key actors in the negotiation process regarding the Services Directive. National & EU-level institutions and organised interests were influencing the Services Directive negotiation process. These hypotheses were tested against relevant evidence. This was done by 1) establishing the salient points of the initial proposal as the CoOP and its horizontal nature, and how these issues created many stakeholders sensitive to the outcome, 2) establishing how ETUC and national level actors organised demonstrations in order to politicise the process, putting pressure on the EP and the national governments, 3) establishing how both members of the Council and MEPs started to show concerns after this politicisation, 4) establishing how this approach affected both the EP and the Council, a process lending support to RCI rather than LI. On this basis, the first hypothesis is strengthened, and the second seems falsified. Furthermore, the presence of contradicting evidence, albeit its vague nature, indicating how more intensive research is necessary to shed light on the actual role of Berlin as a European power broker. Additionally this paper reflects on a number of contextual factors that may render the findings of this paper spurious. Last but not least this paper acknowledges the limitations posed by the theoretical assumptions, such as only considering two integration theories, and the narrow definitions applied. With these limitations in mind, it can be concluded that both CoOP and the horizontal nature of the initial directive created the possibility to politicise the process. This put pressure on both national government and the EP, who could influence the policy outcome. This process lends support to the theory of RCI. Based on this it is possible to establish an almost equal relationship between Council and EP in the policy negotiating process, indicating a very loose principal-agent relationship, where the EP can pursue an almost independent course of action. 9

10 References Arnholtz J. (2012) Slowing down Social Europe? The role of coalitions and decision-making arenas, Employment Relations Research Center, Deparment of Sociology, Copenhagen University, pp: Bache I., George S. & Bulmer S. (2011) Politics in the European Union, Oxford University Press, pp: 1-78, & Copenhagen Economics (2005) Economic Assessment of the Barriers to the Internal Market for Services Final report, pp. 7-8 Council of the European Union (2004) 2624th Council Meeting Competitiveness, Brussels, 25 and 26 November 2004, available online at: Council of the European Union (2004) 2694th Council Meeting Competitiveness, Brussels, November 2005, available online at: Dølvik J. E. & Ødegård A. M. (2012) The struggle over the services directive: the role of the European Parliament and the ETUC, in Labor History Vol. 53, Taylor & Francis, pp: EIROnline (2004) Draft Directive on services receives mixed response, Publication , available online at: (accessed May 2013) EIROnline (2004) Unions protest against draft EU services Directive, Publication , available online at: (accessed May 2013). EIROnline (2005) French social partners respond to EU draft services Directive, Publication , available online at: (accessed June 2013). 10

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