Proposed changes to labour laws within the European Union that reduce flexibility for firms will not benefit the Republic, the head of Hewlett-Packard's (HP's) European operations has warned.

But Mr Kasper Rorsted, managing director of HP's European, Middle East and African region, said the State remained a competitive location for certain businesses despite increasing costs.

"Ireland is not a low-cost country anymore for many businesses but it is still a very good location which offers a skilled and flexible workforce," said Mr Rorsted, who visited some of HP's Irish offices, which employ almost 4,000 staff.

He said that, in the past three months, HP had moved its international banking functions to the Republic. It could also benefit from increased business in the area of shared services and business process outsourcing.

But Mr Rorsted was critical of a raft of proposed new European Union employment legislation, which will increase workers' rights but reduce firms' flexibility in managing their workforces.

"If there is a change in the labour laws in Ireland to make them them less flexible, it will not benefit the country," said Mr Rorsted, who has lobbied the EU on behalf of HP on the issue.

He said HP's operation in the Republic had retained most of its employees following the merger with Compaq , in part because of the flexible labour laws here.

Just 50 jobs were lost at HP's Irish sites, some 1.2 per cent of the total workforce. In comparison, HP's European operations experienced a 12 per cent reduction in the workforce, he said.

European Union employment ministers are debating proposed laws that would give temporary workers employed by agencies the same rights and the same pay as permanent employees.

Most member-states want to extend equal pay and full rights, such as paid holidays, to agency workers after six weeks in a job. But Ireland, Britain, Germany and Denmark have expressed reservations about the proposals.

Mr Rorsted said strict labour laws were an old-fashioned way to protect jobs, and flexibility was a key factor in attracting firms to a state. But he rejected the idea that this meant Europe had to adopt US labour laws.

"I don't think it is in anyone's interest to have American labour laws in Europe, but it is in the interests of every country to be flexible," he said.

Mr Rorsted, who manages HP's $27 billion (€22.9 billion) sales operations in Europe, refused to comment on the specifics of its controversial $550 million outsourcing deal with Bank of Ireland. But he defended the US firm's record as a stable employer in the sector.

"A lot of people are happy to come and work at HP, which has a long tradition as stable firm and not a 'hire and fire' company," said Mr Rorsted. "People get the same terms and conditions when they join us [through outsourcing deals with HP\]."

Under the proposed deal, 350 bank staff will transfer to the US computer giant, which has won the contract to manage Bank of Ireland's technology infrastructure. But the Irish Bank Officials' Association has already threatened strike action over the deal.

Mr Rorsted said HP would continue to sign big services deals with other companies this year following a string of successful deals with Bank of Ireland, Ericsson and several other firms.

He said the $19 billion merger with Compaq completed in May 2002 had enabled HP to become a strong competitor to IBM almost overnight. HP had also benefited from its decision to seek partnerships with other firms, such as Accenture and Microsoft, in big services deals.

Mr Rorsted said that HP predicted IT spending would continue to be flat in 2003. But it would recover to growth levels of 4-6 per cent in 2004, he said.