This followed lobbying from the Local Government International Bureau on the proposed services directive.
MEPs also struck out a provision that would have allowed contractors working in another member state to adhere to the standards that prevailed in their own country.
There were fears this would have undermined employment and environmental standards.
LGIB policy officer Dominic Rowles said: 'This version is better because it has shifted priority to standards of public services rather than opening them to competition.'
The directive needs approval from member states and is unlikely to take effect before 2010.