In January 2004, the European Commission presented a draft directive aiming at eliminating trade barriers in services within the EU. The directive set off a vast controversy. Its proponents point out that services constitute 70% of the Union’s GDP and jobs and that extending liberalization to this sector will benefit growth and employment. Its opponents claim that this liberalization, coming just after the Eastern Enlargement, will reduce employment and wages in comparatively disadvantaged Western services sectors. They also fear a race to the bottom in regulatory standards. These risks can be put into perspective by a detailed examination of the content of the directive. Then, the directive’s political viability is analyzed by identifying potential efficiency gains and redistributive effects. Various measures that would preserve the former as much as possible while reducing the latter are discussed.
European integration; services; globalization; international trade
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