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