The directive was harshly criticised by left-wing European politicians, trade unions and citizens, who stated that it would lead to competition between workers in different parts of Europe – hence the expression "Polish plumber" – resulting in social dumping.

Assuming every piece of regulation to be burdensome by default, the Directive required member states to justify all existing legislation on the grounds that it was non-discriminatory, necessary and proportional.

The "country of origin" principle had been gradually introduced into EU law on the freedom of movement of goods in the Cassis de Dijon case (1979) and into other areas, notably services and establishment, soon after.

The first version of the Bolkestein Directive provoked intense debate and mass protests in various EU countries, including France, Belgium, Sweden and Denmark.

Critics argued that the Directive would erode many of the Member States' regulations governing industry and the environment, and would lead to competition between workers in different parts of Europe, resulting in a decline in income levels.

Jean-Claude Juncker of Luxembourg declared: "If France wishes to eliminate the risk of social dumping, this will be addressed in the framework of the legislative procedure and of co-decision, which has been initiated."

In Tony Blair's speech to the European Parliament on 23 June he committed the UK Presidency to try to "resolve some of the hard dossiers," of which the Services Directive was one.

The European Commission estimated that this proposed version of the Directive would have created an additional 600,000 jobs in the EU, would have boosted economic growth, and would have increased product quality and choice for consumers.

In particular, it was pointed out that member states would be prohibited from applying any kind of restricted authorisation to businesses in the fields covered by the Directive, which would, they claimed, make administration of labour laws close to impossible.

On 5 April 2006 the European Commission presented a new version of the Directive to the Council of Ministers, including most of the modifications voted by the MEPs, in accordance with the codecision procedure.

The UK's Department for Business, Innovation and Skills (Services Directive implementation team), working with marketing consultants, created the EUGO brand for use on point-of-single-contact portals across Europe.