A vote in the European Parliament on liberalising the EU's services market is "a missed opportunity" in the development of a competitive IT services industry, Mark McGann, a representative of leading European IT companies said Friday.

On Thursday, Members of the European Parliament (MEPs) voted by an overwhelming majority to open up national markets for services to companies from other member states by approving a revised version of the services directive, dubbed the "Bolkestein directive" by its opponents. MEPs rejected a key element of the directive, the so-called "country of origin" principle, which would have meant that companies offering their services in another EU country would be subject to the laws and regulations of the country in which they were based. This would have enabled them to bypass a series of legal and bureaucratic hurdles to doing business in another EU country.

"There is sheer disappointment in our sector", said Mark MacGann, director-general of EICTA, the European Information & Communications Technology Industry Association. "Without the country-of-origin principle it isn't very attractive for companies to set up in other countries," he said.

MacGann said that watering down the directive would prevent the EU developing a competitive IT services industry. Referring to the former Communist countries which joined the EU in 2004, he said that the new member states had a "very dynamic IT services sector," especially in countries like Poland, Hungary and the Czech Republic. But the percentage of companies which were able to set up shop in the 15 longer-standing EU countries was "minute" because of internal barriers to trade in national legislation, according to MacGann.

The version of the directive MEPs approved this week includes a reference to the "freedom to provide services," which in theory should require countries to remove obstacles to companies wishing to provide services. But EICTA's MacGann said that this paragraph would have little effect. "The freedom to provide services is one of the four basic freedoms of the EU. This directive was intended to turn that freedom into a reality," he said.

However, the outcome of the vote has been welcomed by IT professionals. A representative of the French IT consultants association MUNCI said it would help protect consultants from being undercut by IT workers from non-EU countries. "The [version of the] directive will give more possibility of controls," said RĂ©gis Granarolo, MUNCI's founder and president. "We were very worried by the aspect of social dumping under the country-of-origin principle but that seems to be part of the past now," Granarolo said.

The UK's Federation of Small Businesses (FSB) also saw a positive side to the directive, which still needs to be approved by the EU's Council of Ministers. The proposed changes would make it easier for small IT services companies to set up shop in other European countries, boosting competition, it said.

"It will be helpful for small technology services companies that want to put their toe in the E.U. market on a temporary basis to see whether it will be viable for them," said Simon Briault, a spokesman for the FSB.

That's because the directive would create a single point of contact in each country through which foreign firms can register to do business. Today they must deal with a hotchpotch of organisations, including professional associations and chambers of commerce, that is different in each country and creates too much administrative overhead for a small business, Briault said.

Still, like the EICTA, the FSB would like to have seen the country of origin principle left in the declaration, which it viewed overall as "a bit of a disappointment."

"It would have allowed a small UK services company to set up in France, for example, and operate on a temporary basis following the laws that applied in the UK," Briault said. "Without the country of origin principle, it means dealing with a whole new system that a small business doesn't have the resources to understand."

The IT services industry already crosses national boundaries more than many other service industries, because a lot of IT management and software development work is done over the web, noted Roger Fulton, a vice president with research company Gartner.

Still, IT services companies can benefit from having a physical presence in other markets, to negotiate new business and deepen ties to customers, he said. The directive is therefore "generally a good thing," he said. "They watered it down, but it's still going in the right direction," Fulton said.