This WEEK in the European Union

The compromise removes a controversial "country of origin" principle which would have allowed companies to offer services across borders according to their home country rules.

But the centre-right EPP-ED which clinched the deal with the Socialists faces dissent among MEPs from Sweden, Germany and the new member states who favour a more liberal version of the blueprint.

Meanwhile, concerns have been raised that MEPs might bow to pressure by trade union activists expected to demonstrate in Strasbourg against the directive.

CIA activities in Europe

EU justice commissioner Franco Frattini will on Monday (13 February) in Strasbourg address a new, temporary parliamentary committee assigned to investigate allegations of CIA illegal "extraordinary rendition" and European governments' complicity.

The temporary committee was set up following accusations from a Council of Europe (CoE) special investigator, Swiss lawyer Dick Marty, saying it was "highly credible" that European governments condoned CIA abduction of suspected terrorists for transportation from European airports to countries in which torture is used.

The Marty report also stated that governments in Eastern European countries may have let the CIA use camps in to interrogate terrorist suspects.

Justice commissioner Frattini has earlier indicated that EU member states as well as candidate countries such as Romania could face sanctions if the allegations are found to be true.

Iran nuclear dossier

MEPs will also vote on a resolution on how to deal with Iran's nuclear programme, with Iran having resumed full nuclear research activities despite criticism from the international community which suspects suspecting the country is aiming at building up a nuclear arm arsenal.

The European Council and Commission this week will also make joint statement on the ongoing dispute between Iran and the international community.

Danish caricatures of Mohammed

In response to incidents in several Muslim countries following the publication of caricatures of Muhammad, MEPs will hold a debate on freedom of expression and respect for religious faith.

The presidents of the parliament’s political groups have, however, decided to only allow one person from each group to speak on the sensitive issue, as MEPs do not want to take a firm stance on the matter before next month’s Euro-Mediterranean summit, including several Muslim states.

MEPs will also discuss the past weeks’ burning issue of whether there any limits to freedom of expression and if a European code of conduct regarding the freedom of expression could be applied to sensitive matters such as personal faith.

Barroso and Rehn on Balkan tour

Not expected in Strasbourg this week are European Commission president Jose Manuel Barroso and enlargement commissioner Olli Rehn who will instead kick off a tour around the Balkans.

The two top commission officials will visit Croatia, Serbia and Montenegro, Kosovo, Bosnia and Herzegovina, Macedonia and Albania, in a bid to promote European integration of the region.

Another goal of the tour is to promote last week's proposal by the European Commission for forming a free trade zone in the West Balkans, which has been opposed by Croatia.

VAT deal and Lisbon agenda

Meanwhile, in Brussels, European finance ministers are set to adopt a compromise directive ending with an earlier EU scheme on reduced rates of value-added tax on so called "labour intensive" services, like house renovations, bike repairs or hair dressing.

The deal was struck at the end of last month, after intense diplomatic work by the Austrian presidency.

Finance ministers will also debate a progress report by the commission regarding the economic reform strategy aimed at strengthening the contribution to growth and employment in the union, which was laid down by the European Council at Lisbon in 2000.

Finally, ministers will hold an exchange of views on public expenditure on age-related measures in the member states, such as health care, pension schemes, education and unemployment.