14 June 2006

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Services in the internal market

The proposal for a directive on services in the internal market for Malta: what next? Speech delivered at the Business Today GRTU business breakfast

Very few legislative proposals have attracted as much criticism, demonstrations and controversy in the EU as this proposal. In Malta, the sentiments were not exposed so strongly, but nevertheless interest groups diametrically opposed each other at times. This was to be expected, since services are increasingly becoming more important for Malta’s economy with faster growth rates than manufacturing in both GDP terms and employment creation. It is also a sector that offers great potential for a small economy like ours with limited resources, other than its people and their capabilities.
The principles underpinning this directive go back to the origins of the Common Market. While a lot of progress was made on goods, the services side of the internal market is yet to become reality as less than 20% of services are traded across EU borders. It is said that this directive will turn the theory of the free movement of services and the right of establishment into practice. While service providers have rights incorporated in the Treaty, they are often inaccessible in practical terms because of local restrictions and exclusions. This means that enforcing these rights meant going to court and fighting for these rights over several years. So, the most important features and objectives of this directive are that, it does not only cover the right to offer services across borders, but also covers the right to establish a business in any of the member states, by cutting through the red-tape and obstacles that often subsist in national systems to deter access to their markets.
So the directive is, in its majority, a long list of obligations on MS (and their governments) to remove the administrative, and sometimes even legislative, obstacles faced by service providers before they can offer their services in a MS, other than that of their primary establishment.
There was a general consensus that the original proposal, which was published by the Commission in January 2004, (Internal market Commissioner - Fritz Bolkenstein) was too ambitious, and idealistic, so hundreds of amendments were proposed.
The version that was voted through by the European Parliament in February showed little resemblance to the original version and it was the result of a delicate compromise between the main political groups.
The list of services to which the directive does not apply is now longer. All aspects of labour law and workers’ issues were voted out and the internal market mechanism - the original controversial country of origin principle – was made almost residual in scope.
Notwithstanding, last week, the Council of Ministers agreed on the text of a directive that is largely based on these EP amendments, even if there was a balancing majority that would have preferred otherwise.
But all member states agreed in the spirit of compromise, including Malta. Otherwise there was the risk that we would end up with no directive at all. Now, the ministers’ agreement should pave the way for a quick second reading in parliament. This was quite a test for the economic, social and political realities of the enlarged union.
I was asked to talk to you this morning about what was Malta’s position in the course of these discussions that lead to this legislative stage.
I’ll start by assuring you that Government’s position on this Directive was generally and objectively in favour, but it took account of all opinions forwarded to it during consultations and even sought more as these discussions were maturing. The guiding principles remained very clear – Maltese service providers need all the opportunities that the internal market offers. There are obviously some sectors that may be vulnerable, but on balance there are far more benefits that can be reaped than threats that needed to be mitigated.
Malta was one of the MS that requested that health and other public services remain outside the scope of this directive as well as notaries and pharmacies; and therefore Malta is satisfied with these exclusions. [Originally Malta had considered that other services such as education and SGEIs needed to be also excluded but this position was reviewed since the new text offers sufficient safeguard provisions for government to ensure it can continue to implement its national public policies in these areas].
The most significant and potentially effective part of the revised proposal now is that dealing with administrative simplification of procedures and authorisations. Malta is one of the many member states where a person needs to obtain a licence (authorisation) before he commences any type of commercial activity.
While Government is already committed and made some inroads in its efforts to streamline procedures and remove unnecessary bureaucracy in this area; in order to encourage the setting up of businesses, this directive spells out certain obligations that must be implemented by no later than 3 years after it is adopted.
It requires for example the setting up of points of single contact from which applicants can obtain all necessary information and complete procedures; to provide for the possibility to complete formalities and applications through electronic means, to establish time frames by which authorities need to give responses/ grant licenses to applicants and to adjust the licensing regime and its requirements according to the public interest objective it pursues and not more. Obviously these would apply and affect Maltese service providers wanting to obtain authorisation (establish themselves) in other Member States. In this context, e.g. MS may not ask for original documents unless objectively justified or allowed by other legislation.
The most watered down part of the directive relates to the freedom to provide services. The original country of origin principle, which already governs other internal market directives means that a service provider established in one MS (Malta, for example) can provide his services in another MS, on temporary basis, according to the rules of his country of original establishment. While this in theory is still there, it has been swamped with provisions that allow Member states to impose additional requirements on service providers if the MS can justify them by reasons of public policy, public security, public health, or the protection of the environment and as long as they are indiscriminate and proportional. They cannot however require that they obtain licences from that country before they offer their services, or have permanent infrastructure there or have ID documents issued by their competent authorities. There is a list of services to which these provisions do not apply, such as SGEis –electricity, postal services, water where the rules of the hosting state shall continue to apply.
Since a provider could therefore be regulated in part by his country of primary establishment and his host country, supervision is similarly divided and for this reason the directive sets out rules for co-operation and mutual assistance between the competent authorities. While Malta was in favour of the more liberal country of origin mechanism, it accepted this compromise while supporting the screening provisions which should at least create one check point for any unnecessary additional requirements imposed by MS before they are taken to courts.
The rest of the directive deals with rights of recipients and quality of services, which while they can be seen as burdens on service providers, the compulsory elements are to provide certain information and objectively seek to build trust by consumers/ recipients in cross border provision and protect basic consumer rights.

What next?
Assuming that the EP will adopt the text as agreed by council at its second reading, it is expected that the directive is officially adopted later this year. It will need to be brought into force by not later than 3 years from that date; that is by the end of 2009.
MS would need to interpret the provisions and bring their legislative and administrative provisions in line with this directive. While this may be a feat in itself for every MS because of the horizontal nature of this directive, and the number of sectors it affects, the major concern is the uniformity of implementation by MS. The ambiguity of the text does not help and the only clause that was intended to save the day at the last 5 minutes before agreement, came in the form of a commission declaration that it shall provide assistance in implementation and in the reports that Governments have to send to the Commission on how they are implementing it.
In my view, the consultation between the authorities and the business community Malta should continue so that our implementation would help our SMEs. But Malta has an equally important part to play in the EU forum and through the committee that is set up by the same directive, that, to ensure that other MS implement the directive in any way that it achieves its objectives for the benefit of our SMEs who want to exploit the growing internal market in services.

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