“Offshoring” of BPO Services within the European Union: A Transatlantic View of the Proposed Services Directive

October 16, 2009 by

The European Common Market (and its successor the European Union, “EU”) were founded on the principles of four freedoms of movement: capital, people, goods and information. According to the European Commission, the service sector accounts for more than 70% of economic activity in the EU, much of which involves Europe’s small and medium sized companies. A Services Directive, proposed in January 2004, would liberalize freedom of establishment of EU enterprises and trade in services among EU Member States. The ensuing political debate evokes classic issues in trade policy in international services. Will this Directive have any impact on how outsourcing is conducted in Europe? Will anything change? Who cares?

The proposal, entitled “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on services in the internal market (presented by the Commission).” Its provisions would be phased in over several years, with full effectiveness due in 2010. As a framework for minimum standards applicable to general services without regard to individual industries, it would not mandate specific rules but rather provide for minimum principles to reduce the administrative and regulatory burdens of cross-border trade in services within the European Union.

According to the European Commission, the service sector accounts for more than 70% of economic activity in the EU, much of which involves Europe’s small and medium sized companies.

I. The Proposed Services Directive.

The proposed Services Directive would allow the free flow of IT-enabled business processes across national borders of members states. Many sensitive sectors, such as public utilities (e.g., postal services and electricity, gas and water distribution services), public service broadcasting, transport and general financial services, would not be affected. Non-economic services (e.g., charitable and governmental services) would not be affected.

  • Freedom of Establishment.
    The proposal would eliminate certain obstacles to the freedom of establishment of enterprises in one EU country to set up operations in another EU country. This would involve several key mandates that would transform the processes of government regulation by enforcing simplification, ease of compliance and minimum standard principles for regulation across the entire EU.
  • “Simplification” including Single Points of Contact in the Country of the Service Recipient.
    The basic principle of simplification would apply: “Member States shall simplify the procedures and formalities applicable to access to a service activity and to the exercise thereof.” Proposed Services Directive, Art. 5(1). Administrative (bureaucratic) measures would be simplified by requiring that Member States establish “single points of contact”, at which service providers could complete the administrative procedures relevant to their activities. Covered procedures would include “all procedures and formalities needed for access to his service activities, in particular, all necessary declarations, notifications or applications for authorization from the competent authorities, including applications for inclusion in a register, a roll or a database, or for registration with a professional body or association and any applications for authorization needed to exercise his service activities.” Proposed Services Directive, Art. 6.
  • Electronic Government in the Country of the Service Recipient.
    To expedite and facilitate compliance with local administrative procedures within the context of this “single point of contact” mandate, Member States would be required to enable enterprises to complete these procedures by electronic means. The laws, forms, rights and administrative law remedies would have to be posted on the Internet. Proposed Services Directive, Art. 7. “Member States shall ensure that the [relevant] information and assistance … are provided in a clear and unambiguous manner, that they are easily accessible at a distance and by electronic means, and that they are kept up-to-date.” Art. 7(3). In effect, compliance with local regulations would need to be Internet-enabled. The Member States would have to operate as an “application services provider” to web-enable the compliance mechanisms.

    Governments could circumvent this principle by adopting rules requiring inspection of premises. The draft proposal does not apply the E-Government principle to “the inspection of premises on which the service is provided or of equipment used by the provider, or to physical examination of the capability of the provider.” Art. 8(2).

  • Minimum Standards for Administrative Procedures on “Authorization Schemes.”
  • By definition, an “authorization scheme” would mean “any procedure under which a provider or recipient is in effect required to take steps in order to obtain from a competent authority a formal decision, or an implied decision, concerning access to a service activity or to the exercise thereof.” Proposed Services Directive, Art. 4(6). Member States would be required to comply with uniform minimum standards of administrative procedures relating to establishment of foreign enterprises from other Member States. Such minimum standards would apply to”authorization schemes” applicable to service activities (in particular relating to the conditions and procedures for the granting of an authorization).Under Articles 9 and 10, authorization schemes would have to be based on criteria that hich preclude the competent authorities from exercising their power of assessment in an arbitrary or discretionary manner. Principles of such administrative procedure would thus require that the criteria for decisionmaking be non-discriminatory; objectively justified by an overriding reason relating to the public interest; proportionate to that public interest objective; precise and unambiguous; objective; and made public in advance. (These rules of administrative decisionmaking are common and would conform to the U.S. Administrative Procedures Act, 5 U.S.C. 551 et seq.) This principle would effectively change the way in which some EU governments conduct business by exposing all decisionmaking to a standard of reasonableness and transparency.Local governments could not discriminate against foreign EU service providers, even where the number of authorizations available for a given activity is limited because of the scarcity of available natural resources or technical capacity. The proposed Directive would mandate the use of a selection procedure to potential candidates that provides “full guarantees of impartiality and transparency, including, in particular, adequate publicity about the launch of the procedure.” Art. 12(1).In addition, Member States would be prohibited from imposing “certain particularly restrictive legal requirements” existing, or adopted in the future, in certain Member States. Under Article 14, Member States could not make access to or the exercise of a service activity in their territory subject to compliance with any of the following:(1) discriminatory requirements based directly or indirectly on nationality or, in the case of companies, the location of the registered office, including in particular:

    (a) nationality requirements for the provider, his staff, persons holding the share capital or members of the provider’s management or supervisory bodies;

    (b) a requirement that the provider, his staff, persons holding the share capital or members of the provider’s management or supervisory bodies be resident within the territory.

    (2) a prohibition on having an establishment in more than one Member State or on being entered in the registers or enrolled with professional bodies or associations of more than one Member State;

    (3) restrictions on the freedom of a provider to choose between a principal or a secondary establishment, in particular an obligation on the provider to have his principal establishment in their territory, or restrictions on the freedom to choose between establishment in the form of an agency, branch or subsidiary;

    (4) conditions of reciprocity with the Member State in which the provider already has an establishment, save in the case of conditions of reciprocity provided for in Community instruments concerning energy;

    (5) the case-by-case application of an economic test making the granting of authorization subject to proof of the existence of an economic need or market demand, or an assessment of the potential or current economic effects of the activity, or an assessment of the appropriateness of the activity in relation to the economic planning objectives set by the competent authority;

    (6) the direct or indirect involvement of competing operators, including within consultative bodies, in the granting of authorizations or in the adoption of other decisions of the competent authorities, with the exception of professional bodies and associations or other organizations acting as the competent authority;

    (7) an obligation to provide or participate in a financial guarantee or to take out insurance from a service-provider or body established in their territory;

    (8) an obligation to have been entered, for a given period, in the registers held in their territory or to have exercised the activity for a given period in their territory.”

Surprisingly, these prohibited administrative procedures suggest that, within the EU internal market, the EU has not been complying with the non-discrimination principles that the EU has agreed to under the General Agreement on Trade in Services.

Certain restrictions would be classified as subject to evaluation. In general, such restrictions, such as territorial limitations, compulsory provisioning of service and other terms traditionally found in franchise agreements, reflect considerations of competition policy (antitrust).

  • Proportionality and Other EU Principles for Validity of Local Legislation within a Member State.
    Other legal requirements applicable to the right of establishment of foreign EU enterprises would be subject to the higher governing principle of “proportionality.” Under this principle, local legislation would be valid only if compatible with the conditions laid down in the Directive, particularly as to proportionality. The process of determining the validity of a national law would require an evaluation of “the justification and proportionality of a number of requirements listed in the Directive which, where they exist in their regulations, may significantly restrict the development of service activities (Articles 9, 15 and 30).” For example under Article 15(3)(c), “proportionality: requirements must be suitable for securing the attainment of the objective pursued; they must not go beyond what is necessary to attain that objective; and it must not be possible to replace those requirements with other, less restrictive measures which attain the same result.”

    National governments would therefore be required to eliminate unjustified requirements and would be the subject of mutual evaluation. Where appropriate, additional Community-level initiatives might be necessary to ensure the application of the principle of proportionality. Proposed Services Directive, Chapter 3(c).

  • Freedom of Movement of Services.
    In order to eliminate the obstacles to the free movement of services, the proposal would mandate:

    • Regulation of Enterprises only by the Country of Origin. Under the principle of “country of origin” regulation, a service provider established within one EU Member State would be subject only to the law of the country in which it is established. Member States could not restrict services from a provider established in another Member State. Service providers could provide services in one or more other Member States without being subject to those Member States’ rules.

Member states would be able to apply “national” regulatory schemes. These include “national provisions relating to access to and the exercise of a service activity, in particular those requirements governing the behavior of the provider, the quality or content of the service, advertising, contracts and the provider’s liability.” Art. 16(1).

As a corollary, the Member State of origin would be responsible for the effective supervision of service providers established on its territory even if they provide services into other Member States.

Certain exceptions (“derogations”) would apply. The exceptions would either be general in nature, temporary in duration, or applicable on a case-by-case basis based on the facts and circumstances.

  • Consumer Protections for Businesses and Individuals who are Service Recipients.
    Anyone seeking to receive services from a foreign service provider in another EU Member State would be entitled to certain minimum consumer protections. The proposal considers the possibility of a situation where the service provider would be lawfully entitled to provide a service but the service recipient might not be lawfully permitted to receive the services. To eliminate such procedural possibilities, the proposed Directive would define the right of recipients to use services from other Member States without being hindered by restrictive measures imposed by their country or by discriminatory behavior on the part of public authorities or private service providers. Transborder health care reimbursements would have a special rule.

  • Customer Service.
    Each Member State would be required to offer a mechanism to provide assistance to recipients who use a service provided by an operator established in another Member State.
  • Allocation of Work Assignments.
    The proposal would require Member States to allocate tasks between the Member State of origin and the Member State of destination and the supervision procedures applicable that relate to the posting of workers in the context of the provision of transborder services within the EU. This situation would be an exception to the general rule of “country of origin” regulation of business operations.
  • International Cooperation between Member States.
    The proposal would seek to improve the quality of information available to service recipients so that the background, reputation, quality experience and other bases for service recipients to trust foreign service providers as well as local service providers. This cooperation would adopt minimum standards at the governmental level (national legislation and national cooperation between national authorities of other Member States) and at the level of compliance with quality certifications and codes of conduct.

    • Harmonization of Consumer Protections including Minimum Disclosures about the Foreign Services Providers.
      The proposal would require the harmonization of national legislation to guarantee “equivalent protection of the general interest on vital questions, such as consumer protection, particularly as regards the service provider’s obligations concerning information, professional insurance, multidisciplinary activities, settlement of disputes, and exchange of information on the quality of the service provider.” Proposed Services Directive, Section 5.
  • Mutual Assistance.
    The concept of mutual assistance has been long established in the context of protection of citizens abroad and to avoid double income taxation under income tax treaties. The proposed Services Directive would require stronger mutual assistance between national authorities “with a view to effective supervision of service activities on the basis of a clear distribution of roles between the Member States and obligations to cooperate.” This would delineate what outsourcing parties understand as the “statement of work” or “statement of services.” In this case national governments would be required to act as a service provider to its counterparts in other national governments.
  • Quality Control.
    The proposal would facilitate the establishment of brands of quality for foreign services providers. For example, current norms such as the International Standards Organization (“ISO”) 9000 series of standards cover the quality of services. The proposed Directive would require the governments of Members States to adopt “measures for promoting the quality of services, such as voluntary certification of activities, quality charters or cooperation between the chambers of commerce and of crafts.” Proposed Services Directive, Section 5.

  • New Codes of Conduct.
    The proposal lays down a framework to encourage the adoption of codes of conduct to be drawn up by interested parties at the Community level on certain questions, including in particular commercial communications by the regulated professions.

II. Impact of the Proposed Services Does not Affect External Services Providers Outside EU.

Under the WTO’s General Agreement on Trade in Services, the proposal for a Directive is an “internal market instrument” and therefore concerns only service providers established in a Member State. This ncludes foreign-owned companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community. The proposal does not cover “external” trade in services such as

  • Right of Establishment of Non-EU Service Providers: the case of service providers from third countries who wish to establish in a Member State (first establishment in the EU);
  • Sale of Services from Non-EU Sources: the case of operators from third countries who wish to provide services in the EU; or
  • Branches of Foreign Service Providers: the case of branches of companies from third countries in a Member State that are not companies formed in accordance with the legislation of a Member State and therefore are not eligible to not benefit from the proposed Directive.

A. Right of Establishment. Since the advent of the modern nation state, nations have entered into treaties of friendship, commerce and navigation (“FCN Treaties”). The principles of non-discrmination and national treatment, enshrined in the WTO trade agreements since World War II, owe their broad acceptance to FCN Treaties.

In general, FCN Treaties authorize the nationals of one nation state to establish a commercial business within the territory of the ohter nation state. The issue whether a foreign-owned enterprise is subject to the local labor laws was not really resolved in the United States until a sex discrimination claim was filed by a female employee against a U.S. subsidiary of a Japanese corporation. In Avagliano v. Sumitomo Shoji America Inc., __ U.S. __ (1979), the Court ruled that the protections of the U.S.-Japanese FCN Treaty did not exempt a U.S. subsidiary from U.S. labor laws. The ruling concluded that a U.S.-incporated subsidiary was not a “company of Japan” that would have been protected from such regulations under that FCN Treaty.

In the European context, local lawyers may inquire whether the adhesion of the new EU Member States to the EU would abrogate any protections for local business enterprises under historical FCN Treaties. If such protections (as in the U.S.-Japan FCN Treaty) cover branches, then, under the Avagliano principle (as interpreted by a U.S. court), branches from one country might have certain rights to be free of some of the governmnetal restraints on establishment that the proposed Services Directive would eliminate.

III. Legal Structuring of Offshore BPO within the EU – Before and After the Services Directive.

The Services Directive appears to only state the obvious in a direct fashion: trade in services will flow across borders according to economic forces.

Current Law – Consumer Protection.
The principles of national legislation for consumer protection would not be affected. Technically, a xenophobic Member State might adopt strict rules on quality of services, for example. Practically, such rules would likely not be too severe since they would have to apply uniformly and without discrimination against foreign service providers from other EU Member States.

Proposed Directive on Unfair Commercial Practices (Consumer Protection).
The proposed Services Directive is not intended to displace the proposed Directive on unfair business-to-consumer commercial practices, which would regulate those commercial practices that cause harm to consumers’ economic interests. See Proposal for a Directive of the European Parliament and of the Council concerning unfair business-to-consumer commercial practices in the Internal Market and amending directives 84/450/EEC, 97/7/EC and 98/27/EC (the “Unfair Commercial Practices Directive”), COM(2003) 356 final of 18.6.2003.

However, by adopting rights for service recipients, it would create a new layer of consumer protection applicable to both individuals and enterprises who, as service recipients, would become a specially protected class.

Current Law – Acquired Rights Directive.
Without the proposal, offshore BPO can occur by a local EU company hiring a foreign company to provide services from abroad. Under the Acquired Rights Directive and implementing legislation, it becomes a question of fact whether an offshore outsourcing contract between an EU enterprise and a non-EU services provider results in a transfer of a EU-based job. Under that directive, such covered transfers can occur in a merger or acquisition or an outsourcing. That directive targets any covered transfer of a job, without considering the ultimate destination.

The Acquired Rights Directive is not water-tight. By careful planning and structuring the transaction, the parties can satisfy the Acquired Rights Directive. Consultations with EU legal counsel can help avoid this trap for the unwary.

Communication on Business-Related Services.
The EU Commission had already issued a Communication on business-related services. The proposed Services Directive deals with the removal of legal and administrative barriers and does not specifically address the competitiveness of the services sector that might be improved by complementary economic measures set out in the Communication on business-related services.

Proposed Services Directive.
The Services Directive would not necessarily contradict the Acquired Rights Directive. The Commission did not even mention that the two might be related.

IV. Legal Value of EU “Directive.”

A “directive” is not a law that citizens and enterprises must comply with directly. Instead, a directive commands Member States to adopt implementing local legislation. Thus, a directive acquires its “force of law” by forcing member states to adopt enabling legislation that conforms to the minimum requirements of the directive. As a result, there can be multiple adaptations of a directive, but all must comply with the directive. Directives are drafted and adopted by the European Commission, an administrative body in Brussels.

V. “Social Dumping”: The Consequences of an Enlarged EU with Political Challenges to Centralized Legislative Authority.

This proposed Services Directive evokes fundamental issues of public policy involving the mobility of employment and services within the EU. By allowing free BPO across borders within Member States, the proposed directive would enable enterprises (called “undertakings” in the EU) to choose between local labor and foreign labor within the EU. The purposes of such freedom include increasing productivity of labor and reducing prices for consumers in all countries of the EU.

The debate resembles the political debate in the 2004 U.S. Presidential election. Freedom for businesses to hire labor in any location, without governmental rules limiting transfers of data or protecting classes of local workers, involves important economic policy decisions.

The Advantages of the Proposed Services Directive.
The advocates argue that such freedom promotes competition, reduces consumer prices, makes markets more efficient and creates new jobs involved in project management, new types of services and goods that rely upon lower cost services from the “offshore” labor market, and increases gross domestic product in all affected countries in the aggregate and even in individually. By allowing work, not just people or goods, to cross borders freely,

The Disadvantages of the Proposed Services Directive.
This freedom of choice is opposed by France and Germany. French Prime Minister Pierre Raffarin has stated that the draft proposal is “unacceptable” and that France would “take every measure to oppose this directive. German Chancellor Gerhard Schroeder also criticized the proposal.

  • Social Dumping.
    Critics argue that this freedom will be a “race to the bottom” and result in “social dumping” of low-wage jobs to foreign service providers. In markets such as France and Germany, where labor markets are highly regulated and make hiring and firing both costly and difficult for employers, social dumping means that work protected by such regulations will be done in countries without such regulations. The lack of such regulations is seen as an incentive for exporting the work, and thereby reducing local market jobs.
  • A “Social Protection Directive.”
    The debate over “social dumping” within the EU ignores the larger picture of whether employers within the EU should be freer to improve efficiency by moving certain job functions to locations globally. “Social dumping” connotes transfers of low-wage jobs to underdeveloped countries with no rights of unionization, no minimum wage, no rights against abusive termination of employment and other measures for job security. One solution to “social dumping” would be the adoption of a directive on uniform European “social [labor] protections.:” The proposal of a companion “Social Protections Directive” would highlight the tension between labor policy and innovation and global competitiveness.
  • Legal Protections for Employees under National Law in the EU.
    Member States have adopted a variety of labor laws and regulations that hinder the mobility of labor and protect incumbent employees.

    • Workers councils are entitled to participate in decisions on work rules.
    • Employers satisfy statutory notification and consultation procedures before major changes including layoffs.
    • In Germany, workers in certain large enterprises are entitled to appoint a representative to the board of directors under the principle of “co-determination.”
    • In France, the government is a full legal party and signatory to “collective conventions” (“conventions collectives”) that embody the agreements between organized labor and the patronat (organized employers). Changes require governmental consent.
    • In France, the government has adopted a prohibition on an employee working more than 35 hours per week, with complex time management accounting rules for carryovers and lookbacks to provide limited flexiblity for a rigid rule.
  • Legal Protections for Employees under Federal Law in the United States.
    Under the federal Fair Labor Standards Act (“FLSA”) and the federal minimum wage law, workers throughout the United States are entitled to certain rights. The FLSA requires payment of 150% of the normal hourly wage for work by non-exempt employees working more than 40 hours per week. Because of the federal system, there is no risk of “social dumping,” where employees in Mississippi could be entitled to only 100% instead of the 150% for work perofrmed in excess of 40 hours per week.
  • Legal Structures Impeding the Proposed Services Directive.
    The proposed Services Directive proposes a legal framework for mutual recognition of internal labor laws, without forcing any specific minimum standard such as a principle of co-determination, a 35-hour week or a minimum overtime rate of 150% for time in excess of 40 hours per week. As a framework, the proposed Services Directive justifiably has been criticized for “social dumping” since it mandate mutual recognition without a floor on worker protections in the Member State where the services are performed.
  • How the EU Promotes Importation of Services from Providers Outside the EU without Promoting Importation of Services from Providers within the EU.
    Enterprises with European operations understand that the it might be an easier solution to outsource to India or China than to outsource to Poland or Slovenia. The newly admitted Member States are subject to all the constraints of EU regulation including the Acquired Rights Directive.

VI. Projected Economic Impact of the Proposed Services Directive.

In defense of its position, the EU Commission hired a consultant to identify the impact of the proposal. The report, issued in February 2005, concluded that the Services Directive would have several benefits:

  • Job Creation.
    The liberalization of the services industry would create up to 600,000 new jobs.
  • Distribution of Job Creation.
    Every Member State would enjoy its share of the newly created jobs. This contradicts the notion that “social dumping” would result in a net loss of jobs in the Member States that have the tightest employment regulation.
  • Lower Prices.
    Not surprisingly, the study showed that consumers would pay lower prices for services obtained from other Member States.
  • Higher Productivity.
    The consultants’ report concluded that higher productivity would result from “offshore” BPO within the EU. Productivity improvements flow from streamlining the work that is required to complete a business process from start to finish. Such streamlining comes from elimination of processes that add little comparative value. And where low-value processes must be performed, they can be “offshored” within the EU to lower-wage countries without depriving the workers in higher-wage countries from exercising managerial roles in process design, evaluation, distribution and customer relations.

VII. Offshore BPO in Action: NAFTA and the World Trade Organization.

This European political debate can be contrasted with the liberalization of trade in services under the North American Free Trade Agreement and the World Trade Organization.

NAFTA.
Under the general principle of non-discrimination and most-favored-nation (“MFN”) treatment, NAFTA encourages trade in services across borders, allowing foreign firms to compete with local firms. Certain licensed professions are granted special TN-visa status for commuting to and from the United States.

WTO.
Under the general principle of non-discrimination and MFN, the WTO Agreement on Trade in Services adopts the general principle of freedom of competition between domestic and foreign service providers. It does protect certain regulated industries such as the licensed professions.

VIII. Internal Market: Analogy to U.S. Constitution.

The proposed Directive would adopt certain principles of free trade in an internal market that are part of the United States Constitution.

  • Full Faith and Credit Clause.
    This clause requires one state to honor the administrative decisions and judicial decisions taken within another state. It corresponds to the “country of origin” concept in the proposed Services Directive.
  • Interstate Commerce Clause.
    The Interstate Commerce Clause reserves to the federal Congress the right to regulate trade between the respective states. This provision creates a strong central government. The proposed Services Directive does not mandate any centrally determined rules, but rather sets up a framework for fairness, transparency, reasonableness (and thus proportionality).

IX. Long-Term Issues.

The EU Commission’s effort to liberalize labor laws challenges many fundamental premises of the labor movement in many key EU countries.

Euro-Sclerosis.
The book entitled “Euro-sclerosis” has highlighted the complex labor protections. According to some EU lawyers, labor laws that insulate existing jobs from outsourcing, and prevent “rationalization” (and layoffs) following mergers, only deprive the EU of the opportunity to add new work to existing jobs. Such lawyers advise us that European employers have no choice but to comply with the protections. As an ineluctable consequence, European employers remain free to establish foreign captive services companies and to outsource their “new” and “innovative” job tasks to such captives or outsourcers.

Export of Innovation.
A local company can still benefit from the “export” of “new and innovative” tasks by establishing a captive or controlling the intellectual property that is created or used when foreigners perform the new tasks. As a result, the company can retain control. But the home country for that company can lose its innovative engine unless economic strategies are in place for innovation at home.

Innovation at Home.
Understanding all this, the U.S. presidential nomination campaigns of Senator Joseph Lieberman and John Edwards, as well as President George W. Bush, called for greater support for local innovation. Such support includes improved quality of education, regulatory incentives and tax advantages for entrepreneurship and investment and the use of government contracting to finance risky new technologies.

X. The Proposed EU Services Directive – “Rest in Peace”?

The impending death of the Services Directive has already been pronounced by the French Prime Minister. But it remains alive to promote a public policy debate that will play out in European elections. For a large segment of an economy that is protected by “social legislation,” the Services Directive augurs risk of job loss. For their children, continuation of such protections may stifle the economy and hinder global competitiveness. Like Social Security reform, debate on the Services Directive underscores the choices between present benefits and future harms of continuing the status quo.

XI. Would the Proposed Services Directive Change Outsourcing in Europe?

In some quarters, any liberalization of trade in services, even within the context of the privileged and trusted long-term alliance of EU Member States, would lead ineluctably down the “slippery slope” towards unlimited outsourcing. The debate over the Services Directive is ironic.

  • Intra-EU Trade.
    The proposal would promote intra-EU trade and could help limit the growth of offshore outsourcing, at least while the wage levels in newly admitted Member States remains significantly lower than in the founding Member States.
  • External Trade in Services.
    Neither existing EU law nor the enactment of the Services Directive will prevent the growth of outsourcing to non-EU service providers in a broad spectrum of business processes. In protected sectors, the outsourcing will continue subject to special contractual risk allocations that reflect the ongoing protection of local labor in the EU. In non-protected sectors, compliance with existing laws does not require a ban on offshore outsourcing. In short, the proposed Services Directive is not needed to benefit non-EU service providers.

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