It was exactly three weeks ago today, on Monday 29 May, that the European Council of Ministers for Competitiveness agreed on a compromise text of a directive on services in the internal market. It has been a long, tough and eventful road to that momentous meeting for this proposal. Even if the version we agreed upon is very different from the original proposal published by the commission more than two years ago, it was essential that an agreement was secured for this important initiative.

More than 99 per cent of Europe’s businesses are SMEs, of which 89 per cent operate in the services sector. Malta’s small enterprise profile is similarly shifting its focus to services and their contribution to our domestic product continues to increase year on year.

This growth is not incidental. Our focus on SMEs is built in our political and administrative structure, and is evidenced in our daily efforts to assist their entrepreneurial endeavours. This focus on SMEs featured strongly in our support for the objectives of the Services Directive, and our active participation in the process of negotiations from its initial stages.

SMEs, especially Maltese ones, do need this directive since currently they are not in a position to benefit from all of the advantages of the internal market because of various administrative and discriminatory procedures as well as costs incurred when internal borders are crossed. This directive will be an important piece of legislation for them, because it is specifically designed to reduce red tape and facilitate cross border trade in services.

Firstly, it deals with simplification of administrative procedures. SMEs usually have to deal with different levels of bureaucracy when setting up their business. When they try to establish themselves in another EU country, small businesses are often faced with lengthy, duplicated and discriminatory authorisation procedures. This directive requires governments to provide for clear and transparent procedures, as well as for non-discriminatory, objectively justified and proportionate criteria when granting authorisations.

There will be strict screening by the European Commission of member states’ authorisation schemes in order to ensure that the principle of freedom of establishment and to provide services is practiced in real terms. The inclusion of these mandatory requirements in this directive will also fit in perfectly with the better regulation initiatives that are currently being taken by the European Commission as well as at national level.

This directive also aims to facilitate the provision of services across borders even when this is done on a temporary basis, that is without the need to set up shop in that particular member state. Up to now, in these circumstances, service providers have to cope with considerable legal research and compliance costs which are often prohibitive and render temporary cross border activities too expensive and unattractive for small enterprises. It must be said that the country of origin principle would have gone much further towards reducing such compliance costs since a service provider would have only been subject to the rules and regulations of the country of establishment.

The internal market mechanism has however, survived in spite of the opposition it met by various groups in both the council as well as in parliament. In its present form it provides plenty of opportunities for a member state to impose additional requirements on a service provider which is not established within its borders. In general terms, this is close to Malta’s position that member states should preserve their legitimate right to protect and implement public policies.

However, we would have been happier if the criteria on which these are based were borne out more clearly in the present text. As it stands, there is the possibility that certain member states will interpret these provisions too loosely and use them to maintain obstacles and legal uncertainty which will hamper the efforts of SMEs to enter new markets. It was therefore logical for Malta to support the approval of the provision which ensures that this part of the directive will also be subject to screening.

So, whichever way we look at it, the services directive is a typical example of the extensive consultation processes through which member states individually, and various EU institutions collectively, listen to the concerns of their citizens and enterprises because it addresses the various complaints about restrictive and costly compliance that still persist across the borders of the internal market for services. Up to now these could only be challenged in the European courts.

The proposed directive is also in keeping with the European Union’s new and more pragmatic comprehensive and inclusive policy for Europe’s SMEs, particularly the planned action to improve their access to markets. The commission is also taking action to promote entrepreneurial skills, to integrate the “Think Small First” in all EU policies thus improving SMEs’ growth potential and most importantly, to strengthening dialogue and consultation with SME stakeholders.

This directive applies to a wide cross section of service sectors, and therefore it will affect the whole spectrum of SMEs from the most specialised to the less skilled. One of the most valid reasons for Malta to become a member of the EU was so that the business community, which is dominated by micro and small enterprises, could take advantage of the opportunities that the internal market offers in order to flourish and prosper. The realisation of this opportunity was the principal motivation for our active support of this directive.

In the local context, the work undertaken on this directive by my ministry sought to represent the diverse needs and interests of the whole Maltese business community. It required a comprehensive consultation process which we officially launched in July 2004, and continued with constant coordination with other ministries, competent authorities, representative bodies, notably the Malta Council for Economic and Social Development, trade unions and the public at large.

Such wide-ranging consultation processes today have become an integral part of the government’s policy-making procedures.

It is not simply about more open-government, although that too is important, but it is about making policies more effective by listening to and taking on board the views of stakeholders and interested groups. The feedback we received which naturally included diverging opinions, was very encouraging and interesting, although I must say, it was not always enough and we would have liked to hear more from consumer associations for example, and also the public at large.

The consultation showed that some still feared the invasion of workers that would come to take up our jobs and requested government to protect our borders at all costs. Others, who may have already had a taste of the benefits of the internal market or are convinced of its promises, pledged their complete support for the government’s position. The ministry also received some sector-specific concerns, and as our assessment matured with further work, it was evident that certain provisions, such as those related to workers, should not be included in this directive and were to be opposed. And so we did. The same can be said for the inclusion of notaries, and pharmacies within the scope of the directive, and these are now excluded; while other sectors needed only a provision that can be invoked in special circumstances.

At this stage of the process, I am pleased to say that the consultation process has been largely successful in more ways than one. It has shown us that our business and worker communities are learning and maturing and adapting in the way they participate in the legislative process. We also note that social partners today have more than a voice in our country, they also have a collective voice at EU level and it is being effectively used.

It is true that this directive may be looked at by some observers as a diluted version of the original proposal, but achieving consensus on such a complicated issue is no mean feat. There will certainly be further refinements after the various provisions are tried and tested in the coming years, but the main trust of the directive was maintained, and it was important to make this first step.

If progress is achieved in opening up the internal market in services – which amounts to 70 per cent of the GDP of the EU – and growth in this sector begins to match that of other sectors such as the free movement of goods, today’s sceptics may become tomorrow’s converts. Possibly next time round we may be in a position to venture even further. We certainly hope that this will also be true for the local economy as we are convinced that Maltese business can thrive and prosper in an open internal services market. However, for this to materialise, I do believe that we should continue to foster more informed opinions that are specific to our national realities. While feedback in Malta may have not been specific at times, it has been constructive in general and this augurs well for all parties. After all, as much as the present version of the directive is a compromise reached between the parties, Malta’s position was reached through a similar compromise which balanced the need to protect our vulnerable sectors and our workers with the desire to maintain the opportunities that this directive will bring to local SMEs and the economy in general.

This directive should pass through its second reading in the European parliament and will probably be officially adopted by the end of this year. It is then up to us to maintain this joint effort to work together again to make it work for us through an informed implementation process. It is a challenge that I look forward to.

Censu Galea is Competitiveness and Communications Minister