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Cablegate: French Outcry Against the Services Directive Fuels

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PARIS 001856

SIPDIS

SENSITIVE

STATE FOR EB/TPP, EUR/ERA, and EUR/WE
COMMERCE FOR NAAS

STATE FOR USTR

E.O. 12958: N/A
TAGS: ECON ETRD PGOV PREL FR EUN
SUBJECT: FRENCH OUTCRY AGAINST THE SERVICES DIRECTIVE FUELS
THE "NO" VOTE AGAINST THE EUROPEAN CONSTITUTION

REF: A) PARIS 1833 B) BRUSSELS 732

NOT FOR INTERNET DISTRIBUTION

1. SUMMARY. (U) Recent polls showing the anti-European
Constitution vote taking the lead in France are forcing the
Chirac government to take an even harder line against the
European Commission's proposed Services Directive. French
President Jacques Chirac strongly restated France's position
on the so-called "Bolkestein directive" regulating services
to EU Commission President Barroso over the March 12-13
weekend, calling the current text "unacceptable" and that it
must be "completely re-examined". The GOF had previously
been fairly supportive of the concept of liberalizing the
services market. But in the past weeks, the public and
politicians, left and right, have become seized with the
impression that the Services Directive represents just the
kind of unbridled free market concept of Europe that France
and the French have generally opposed. Critics charge the
directive will create "social dumping", with hordes of new
Europeans working in France at low wages and under different
rules. The GOF is redoubling its efforts in Brussels to
drastically modify the present text and politicians are
trying to limit the broader political fallout and impact on
the more important May 29th referendum. END SUMMARY


CHANGING COURSE
---------------
2. (U) Chirac's reaffirmation of French opposition to the
services directive in the face of a strong public outcry
comes as something of a change of course. But with new
polls showing the "No" vote overtaking the "Yes" vote on the
Constitution, the need to salvage the government's position
has become paramount. Somewhat taken aback by the vehement
public opposition to the Services Directive, French
officials in the Foreign Ministry admit that they had been
strongly supportive of the concept of liberalization of
services for the last several years as part of building the
EU Single Market. France is a leading supplier of services,
and officials told us they always saw liberalization of this
pillar of the EU Single Market as in their national
interest. As part of the EU's Lisbon Strategy of 2000, the
idea of a services directive received strong French support
through 2004 in a series of annual Council meetings.
Government officials admit that they had previously been
fully supportive of the concept of liberalizing services

THE "FRANKENSTEIN" DIRECTIVE . . .
----------------------------------

3. (SBU) Chirac and Prime Minister Raffarin's earlier
opposition to the directive, called the Bolkestein directive
by some, and now dubbed the "Frankenstein" directive by
local critics, came in February 2005. Motivated by what is
seen here as an excessively "liberal" approach - and
reflecting a growing suspicion in France of the Barroso
Commission, Chirac had called the text "unacceptable" and
recommended it be "completely re-examined" (remise a plat,
in French). Upon being circulated, the directive raised
legal and technical questions among French government
officials. GOF and private sector contacts told us that
they had always seen some serious problems with the poor
quality of drafting of the directive, a point confirmed by
analysts in Paris and Brussels. Some claimed the member
states consultation process had been rushed.

POLLS: THE TREND SHOWS THE NO VOTE STRENGTHENING
--------------------------------------------- ----

4. (U) The latest polls IPSOS Le Figaro poll, issued on
Monday March 21 shows the No vote in the lead, by 52 percent
versus 49 percent for the government side. Worrying the
government is that while the May 29th referendum is 10 weeks
off, the trend shows a steady decline of the Yes vote over
the last three months. Other polls, such as the Sofres and
the BVA polls in Le Monde and news magazine L'Express show
the No vote increasing by nine percent since December 2004,
and the Yes vote declining by the same amount. Those polls,
conducted a week earlier, show the Yes vote still winning by
56 percent to 44 percent.

LITTLE CHOICE BUT TO DEAL WITH IT
---------------------------------

5. (SBU) The Services Directive involves the final piece of
the most central EU legislation, the Single Market. For
many observers, such an important piece of legislation would
eventually have to be dealt with - if only after the May 29
referendum on the Constitution. During a March 16 lunch
hosted by the Ambassador, former Finance Minister Francis
Mer argued that the EU has little choice but to deal with
the services issue. A proponent of strong EU ties, Mer said
that one couldn't speak of real European economic
integration without dealing with the service sector, which
represents 70 percent of economic activity. As for the
current EU proposed directive, Mer characterized it as "a
bit blunt" and unfortunately timed, given the upcoming May
constitutional referendum. He left little doubt, however,
that he believes that the issue must be meaningfully
addressed, sooner rather than later.

6. (SBU) Former Minister Mer lamented the fact that while
"France's future goes through Europe", only the Finance
Ministry ("Bercy") among GOF entities deals with Brussels on
a daily basis. For other Ministries, Brussels is considered
a constraint. (COMMENT: In our view, the difficult debate on
the Stability Pact actually demonstrates just the opposite.
END COMMENT.) Jean-Marie Paugam, former government official
and trade analyst at IFRI, a semi-independent think tank,
said that French demands to effectively neutralize large
portions of the services directive would only result in
those sectors being taken up in the WTO's Doha Development
Round - to France's detriment.

PUBLIC OUTCRY: "SOCIAL DUMPING" AND "FRANKENSTEIN"
--------------------------------------------- ------

7. (SBU) The press and public reaction to the services
directive has indeed been harsh and unforgiving. "There is
no rational debate left on the "Bolkestein directive" said
Paugam, the IFRI analyst. The public view has been blown up
by negative press stereotypes about "liberalism" and "social
dumping". With the French already in a questioning mood
about their role in the new and different European Union,
the press seized on an unrelated story about Latvian
construction workers working in Sweden and their activities
falling under the jurisdiction of the Latvian building and
labor codes. Within days, this anecdote had become a symbol
of what the services directive portended, i.e. unbridled
access by low-wage workers from new member states to high-
paying jobs and social infrastructure in wealthier member
states. Politicians have also picked up the cudgel, on
both sides of the aisle.

8. (SBU) The use of the sobriquet "Frankenstein directive"
has touched an emotional nerve locally and provoked positive
and negative reactions. The name Frankenstein raises
emotional parallels for many with the French fight against
biotechnology and GMOs (dubbed "Frankenstein foods").
Moreover, the use of the "Germanic" quality of the name
brought out an angry response from former Commissioner Frits
Bolkenstein, who denounced what he called "French myopia"
and "xenophobia among some" in a press interview (Le Figaro,
March 21, 2005).

ON PAPER, THE GOF OBJECTIONS
----------------------------
89. (U) For the moment, French officials are working
directly in Strasbourg and Brussels with the European
Parliament and a Council Working Group (i.e. member states)
to make the kind of amendments that will make the directive
politically palatable in France. The main GOF objection is
the scope of the directive, and with the principle and
impact of the country of origin principle (COO).

910. (U) THE TEXT'S SCOPE: the French have already
communicated their desire to see a broad number of areas
excluded from the directive, including financial services;
telecom services, transportation services (except for
funeral and cash/money transportation, e.g. Brinks),
audiovisual services; professional services (including
press, heath, medical and social services, and lottery and
gaming services). French officials say they have
considerable support among selected member-states for
excluding various sectors.

1011. (U) CLARITY ON PUBLIC SERVICES: The French feel that
the text further blurs the line between "services of general
interest" (SGI) and "services of general economic interest"
(SGEI). In the EU's Lisbon strategy, Paris regularly pushed
hard to include a chapter on improved public services. The
European Commission uses SGEIs and SGIs to refer to a
service of an economic nature that public authorities
provide for the benefit of their citizens via an operator,
where the market will not provide it without State
intervention. However, no formal definition exists in EU
law, and historically it has been largely at the discretion
of individual member states to determine what constitutes an
SGEI or SGI. The principal French concern is that the
directive is so nebulous on the subject as to invite a
definitive (and thereby limiting) European Court of Justice
ruling.

1112. (SBU) COUNTRY OF ORIGIN PRINCIPLE: Finally, the
French also have both political and legal difficulties with
the country-of-origin principle (COO) so lambasted in the
local press. Quite apart from many of the misrepresented
applications of COO, French officials in the Foreign
Ministry point to a conflict with the 1997 labor and
employment directives. However, they point to a possible
compromise being discussed off-line in the Council Working
Group that would impose the COO principle only in a vastly
reduced number of areas where the regulatory structure is
close to being harmonized.

COMMENT
--------
1213. (SBU) With an eye on the upcoming constitutional
referendum, and the polls showing the "No" vote steadily
growing - if not overtaking the "Yes" vote, France's
politicians smell blood and have moved into damage control
mode. In an effort to save the day for the government on
the Constitution, the Services Directive, despite good
intentions, runs the risk of being rendered toothless, which
would be a setback for the EU Single Market and the
prospects for U.S. companies operating here.
LEACH

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