Unions force EU to water down its 'Polish plumber' legislation

A controversial draft law that provoked fears in France of an invasion of Polish plumbers is to be watered down, in a blow to advocates of free-market reform in the EU.

The two biggest groups in the European Parliament have agreed to take the most controversial element - the so-called "country of origin principle" - out of the proposed legislation which is designed to free up Europe's multibillion-euro industry in services.

The deal came as unions threatened to bring 25,000 demonstrators onto the streets of Strasbourg next week ahead of a key vote on the issue in the European Parliament.

News of the agreement to dilute the directive was welcomed by the European Trades Unions Confederation, whose general secretary, John Monks, argued: "We certainly think the agreement arrived at takes into account the vast majority of our points."

However six countries including the UK, the Netherlands, Poland and Hungary last night wrote to the European Commission, stressing the need for an effective services directive in a bid to bolster commitment to the measure.

And the compromise caused anger among some MEPs from the new member states, who are threatening to defy the deal struck by their political groups and vote against the compromise next week.

Companies from the new member countries stand to benefit most from being able to operate in richer neighbouring states. Meanwhile French socialists are likely to join other left-wingers in trying to get the whole measure scrapped.

The emerging deal with the European Parliament has also prompted alarm among employers and free-marketeers in the European Commission. Peter Mandelson, European Commissioner for Trade, who recently warned against relaxing the pressure for economic reform, was said to be "concerned" about the changes.

The so-called services directive was seen by many French voters as a symbol of the European Commission's desire to impose liberal market economics on the EU, helping fuel the "no" vote in last year's referendum on the EU constitution.

Since then, the legislation has been in limbo, but the outcome of the vote in the European Parliament next week is expected to form the basis of the final text.

At the heart of the latest controversy is the decision by negotiators for the Parliament's two biggest blocs to remove the country of origin principle, which was enshrined in the original version of the directive put forward by the former EU Commissioner, Frits Bolkestein. The principle would mean that a firm could operate in any of the EU's 25 member states - so long as it abided by its home country rules. Unions feared that companies from countries with laxer labour laws and consumer protection measures - in particular the eight former Communist states that joined the EU in May 2004 - would trigger "social dumping" by undercutting rivals in states with more regulation. Mr Monks described the principle as "a gun to start the race to the bottom" in terms of social standards.

* Belgium has become the 14th country to clear the EU's constitution, eight months after voters in France and the Netherlands rejected it. The regional Flemish parliament ratified the EU Constitution with all major political parties voting in favour.