Few European directives have brought about as much interest as the proposed Services Directive. This directive affects a fundamental element of European market integration. It has provoked a considerable amount of debate from various EU member states and social partners, and Malta is by no means an exception.

The services sector in Malta is growing steadily and some areas, such as telecommunications and financial services, are producing higher growth rates than the average for the whole economy. During the nine months up to September 2005, the services sector’s contribution to GDP increased by almost three per cent over the previous year and is nearing the 50 per cent mark. One has to take into account the fact that Malta has a relatively small open economy. Consequently, we depend to a large extent, on the external environment in our effort to achieve increased growth and jobs. That is why we (Malta) have considerable interest in the further integration that is being sought by simplifying cross-border transactions in services. This has to be accompanied by the appropriate policy integration in the context of the European Union.

The proposal for a directive on services in the internal market was presented by the Prodi Commission in January 2004 as one of the key elements of the reform related to the Lisbon agenda. Those who proposed the directives and various other studies argue that the coming into force of this directive will boost European competitiveness, as the services sector accounts for over 70 per cent of jobs in the EU. Some critics, however, have expressed the fear that it may lead to “social dumping”.

The proposal is based on the horizontal approach and rationale and on the premise that there is a large number of horizontal barriers to the correct working of the internal market in services.

This means that all services, except those service activities that are already harmonised by sectoral legislation, will be affected in some way. We have to make sure that our position is representative of our aims and objectives for the services industry in Malta.

The extent of the impact may not be easily quantified, but the nature and potential benefits that can be reaped cannot and should not be overlooked. For this reason, the government is conscious of the more vulnerable sectors or even activities that may need to be safeguarded, such as health and education, but it is also seeking to not lose sight of the fact that by the adoption of this directive, it will eventually be more possible for Maltese service providers to exploit the opportunities of the enlarged internal market with less obstacles than they face today. With this in mind, Malta has taken, and is still taking, an active part in the various discussions that are happening both at Council and Parliament level.

Various reports in recent years have concluded that the main obstacles to the cross-border provision of services relate to the unnecessary legal and administrative requirements faced by service providers wishing to provide services in member states other than their country of origin. This usually entails unnecessary costs and delays for the service providers. It is envisaged that the experience of Maltese service providers in this regard may be limited, but should nevertheless be given its due importance in order to achieve our growth and employment objectives.

The free movement of services is part of the fundamental freedoms under the EU Treaty which Malta signed before accession. Although it is a principle that was previously laid down in the Treaty of Rome, the free movement of services is

currently not achieved fully, due to various obstacles.

In the absence of a regulatory framework for the liberalisation of service transactions – except transport, financial services and telecommunications – most obstacles to the free movement of services identified by the Commission’s report of 2002 on the state of the internal market in services have so far been removed by decisions of the European Court of Justice. In total, the European Court of Justice has, over the years, issued more than 100 decisions regarding the freedom to provide services (relating to article 49 of the Treaty). However, these have not resulted in the desired openness and hence the need was felt for a specific regulatory instrument. Nevertheless, the real aim of the proposed services directive, which will be discussed today, is not the codification of existing case law, nor the harmonisation of an unharmonised field, but in the opening of the market to stimulate the economy.

It is within this context that Malta has to discuss the best possible way to achieve these objectives, while ensuring better local economic performance.

The scope of the directive covers all services as defined by Article 50 of the Treaty. In this respect we, as well as most other member states, have expressed our deepest concerns about services, where markets are imperfect and therefore not competitive. Examples are education and health services.

The directive aims to eliminate both the obstacles that impede freedom of establishment, as well as those that impede the free movement of services. In order to eliminate the obstacles that impede freedom of establishment, the proposal provides for simplification, streamlining, screening of authorisation schemes and the establishment of single points of contact in every member state. Conditions imposed on establishment must be non-discriminatory and proportional and it must be possible for the member state to objectively justify them. Because in Malta the government, and in particular the Trade Licensing unit under the Ministry for Competitiveness, has embarked on similar simplification procedures, we have not expressed any substantive reservations on these provisions.

In order to eliminate obstacles in respect of the free movement of services, the Country of Origin Principle was proposed. Pursuant to this principle, member states are obliged to accept incoming services from a service provider who is established in another member state and who is providing similar services in a legitimate manner. The proposal, however, allows for a number of general, temporary and specific derogations to the country of origin principle.

With regard to the governing principle, the overall tendency is to favour the country of origin principle.

Nonetheless, even though Malta has expressed the opinion that restriction of the free movement of services should be limited, the application of the country of origin principle may require progressive implementation in order to build on mutual trust and cooperation between member states.

The final chapters provide for consumer protection, quality of services and mutual assistance between national governments. In this area, the government is insisting that an appropriate balance between administrative burdens and consumer information should be struck. On the other hand, we are aware that without mandatory obligations, the country of origin principle will not work. These obligations have to apply both to competent authorities in the field of mutual assistance in monitoring and supervision and service providers that move to other member states on a temporary basis.

When the Ministry for Competitiveness launched the consultation process on the Commission’s proposal in July of last year, both private and public stakeholders aired their different concerns and submitted their respective positions, even if they may have been preliminary. I hope that all the stakeholders understand better and in more detail the various possible implications of the proposed directive by the Commission. This would be most useful in finalising Malta’s position at a later stage.

Censu Galea is Competitiveness and Communications Minister