The services market accounts for nearly 70 per cent of the European Union’s Gross Domestic Product (GDP) and jobs and yet cross-border trade only accounts for 20 per cent, less than it was a decade ago. Improving this figure is the aim of the proposed Services Directive currently being debated in the European Parliament.

This directive, proposed by former EU Commissioner Frits Bolkenstein, seeks to improve the legal framework for enhancing the freedom of business establishment and the free movement of services in the Europe. The directive aims to achieve this through a two-fold effort at administrative simplification coupled with the extension of the country of origin principle into the realm of services trade.

The directive is important in many respects and of particular interest to Malta. The Maltese economy over the past decade or so has seen a marked shift from low-end, high-volume industry to high-end, low- volume services. As Competitiveness and Communications Minister Censu Galea said last week, during the nine months up to September, the services sector’s contribution to GDP increased by almost three per cent over the previous year and is nearing the 50 per cent market. Hence, any effort to boost the service industry’s contribution to GDP is not only welcome but must be encouraged.

Although Malta has not as yet taken a position on the proposed directive, there is consensus on many fronts that the implementation of this directive could be of great benefit to Malta, in particular, and to cross-border business in Europe, in general. This is because the directive would remove many obstacles that are hindering businesses from expanding their operations. For example, a company in one member state is faced with numerous costs just gathering information on how to set up shop in another member state.

Companies are also obliged to open an office in Malta, for example, an issue that may not make business sense for companies that use the internet to do business. The proposed directive would do away with these obstacles, as well as ensuring greater cooperation between member states. This is exactly what businesses need. The more streamlined the process to set up shop in another country is, the more willing businesses will be to invest and expand.

This is one of the directive’s strong points. The idea to have one-stop shops in member states is also a good idea – and something that the government in Malta has already started doing quite effectively.

On the other hand it is not surprising that there are many issues to be resolved. For example, a number of member states, Malta included, believe that certain sectors such as health, education, taxation should be excluded from the directive. The EU will also have to work hard to dispel the belief that the directive will lead to “social dumping” in cheaper countries. There are also calls for changes to the Posted Workers Directive to be ignored.

Resolving the many issues at stake will not be an easy task. The European Parliament has put forward 1,500 amendments to the directive and it is highly unlikely that it will be adopted any time soon, even if the European Council wants to adopt the directive by the end of the year.

For Malta, the directive could prove to be an enormous boost for the services sector. At the same time, we must be aware that certain elements of the directive could open up local business to unnecessary risks. As Mr Galea said, Malta has to be careful that any changes to existing regulations in Malta will not have a negative impact on the local services industry and expose it to unfair levels of competition.

No doubt that there is a lot more to be done with regards to cross-border trade and the government is doing well to assess the implications of this directive and how beneficial it would be to local industry. If Malta can improve its trade flows thanks the proposed services directive – after thorny issues have been resolved – then the government should receive the support of all business stakeholders.