The Malta Business Bureau is the EU business advisory office of the Malta Chamber of Commerce, Enterprise and Industry, and the Malta Hotels and Restaurants Association.
Tel: +356 21 251 719 Email: info@mbb.org.mt Web: www.mbb.org.mt
MBB Recommendations on EU Single Market Policy The MBB considers that there is significant margin of improvement regarding the operation of the European Single Market to benefit enterprises operating from island regions (such as Malta), and takes into account the following reports, resolutions and EU legislation in its economic recommendations: -
-
-
-
-
Anabela Correira de Brito and Jacques Pelkmans’ “Pre-empting Technical Barriers in the Single Market”, CEPS Policy Brief No. 277, 11 July 2012 Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998, laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society Services Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market The European Commission’s Communication to the European Parliament, the Council, the Economic and Social Committee, and the Committee of the Regions, “Towards a Single Market Act: For a highly competitive social market economy – 50 proposals for improving our work, business and exchanges with one another” COM (2010) 608 final/2, 11 November 2010 The European Commission’s Communication to the European Parliament, the Council, the Economic and Social Committee, and the Committee of the Regions, “A Small Business Act for Europe” COM (2008) 394 final, 25 June 2008 The European Commission’s Communication to the European Parliament, the Council, the Economic and Social Committee, and the Committee of the Regions, “Single Market Act II – Together for New Growth” COM (2012) 573 final, 3 October 2010 The European Commission’s Staff Working Paper, “The Single Market through the lens of the people: A snapshot of citizens’ and business’ 20 main concerns” SEC(2011) 1003 final, 16 August 2011 The European Commission’s Staff Working Paper, “Action plan on an integrated approach for providing Single Market Assistance Services to citizens and business” SEC(2008) 1882, 8 May 2008 Jacques Pelkmans’ “The Case for ‘more Single Market’”, CEPS Policy Brief No. 234, February 2011 Jacques Pelkmans’ “Single Market Revival”, CEPS Commentary, 17 March 2010 The Malta Business Bureau’s “Position on a priority shortlist of draft SMA proposals pertinent to Maltese business”, February 2011 MEP Louis Grech’s “Report on Delivering a Single Market to Consumers and Citizens” (2010/2011 (INI)), 2 May 2010 Professor Mario Monti’s report to the Commission, “A New Strategy for the Single Market: At the Service of Europe’s Economy and Society”, 9 May 2010 Regulation (EC) No 765/2008 of the European parliament and of the Council of 9 June 2008 setting out the requirements for the accreditation and market surveillance relating to the marketing of products
2
Introduction The Malta Business Bureau (MBB) is presenting these recommendations in light of the 20th anniversary of the establishment of the European Single Market. These recommendations were drafted on the basis of the results obtained from a qualitative research study on the experience of Maltese enterprises operating in the single market. This enabled the MBB to conduct a constructive critical analysis, leading to a number of recommendations that are presented here. This study is intended to provide valuable insights that will assist the MBB in assessing and possibly fine tuning its own activities, which in turn will benefit the business community. In addition, the project is helping to diagnose any gaps in the existing levels and type of information pertaining to the European Single Market amongst the Maltese business community.
Four focus-group discussions were carried out amongst a number of companies from the following sectors: -
Manufacturing and Exportation
-
Services
-
Importation and Distribution
-
Hospitality and Tourism services
Participants were recruited by the Malta Business Bureau to discuss the following issues: •
General attitudes towards the Single Market and the impact on business;
•
Perceived differences in business pre and post accession;
•
Perceived obstacles to reap benefits from the Single Market;
•
The digital market;
•
Recommendations to facilitate business opportunities within the European Single Market
3
An MBB study into business’ experience in operating in the European Single Market •
The MBB carried out a research study with the local business community in order to gather information on the experience of Maltese SMEs and micro-enterprises operating in the European Single Market. The general business attitude towards the adaptations, challenges and opportunities emanating from operating within the EU’s internal market were examined.
•
The study focused on identifying key issues that are central to business operations as well as general attitudes and opinions toward the impact the single market has on Maltese businesses. Participants gave their views on the differences in their modus operandi both pre- and post- accession, and thus the Single Market. Insight was also sought into the perceived obstacles to tapping the single market and its benefits, and suggestions were also given for the facilitation of market accessibility.
Business Concerns and other General Considerations •
Malta’s natural peripheral geographical locations, as well as its inherent insularity, are factors that limit our business operations within the single market. o A key factor in this respect is the fact that Maltese businesses have to factor in costs of importing raw materials and exporting their manufactured products, resulting in added double costs of sea and air transportation freight, thus negatively affecting business competitiveness.
•
Single market has certainly increased opportunities for product diversification into niche areas and networking.
•
Ease of transferring factors of production, such as workers, capital and goods has been a huge boost; although as discussed above, transportation costs remain a problem.
•
In order to be more competitive, some companies considered the option of outsourcing activities to other companies abroad.
4
•
The Single Market has also provided greater investment in Malta which catered for improvement in procurement practices and infrastructural development, as well as supporting business to upgrade their operations.
•
Business strategy has altered with accession to the European Single Market. Due to the increase in competition, businesses can focus on price reduction, to keep up with larger foreign companies, but this would come at strict expense on profitability margins. Alternatively, businesses can focus on quality, better marketing and branding, and niche market exploitation, the latter of which can be very profitable.
•
All of the sectors agreed that some form of market access was well available preaccession, although it was limited by quotas. In fact, participants noted that imports and exports have not increased in quantity, but they have been diversified further into other products and services.
•
The single market increased the reputation of Maltese businesses within the international sphere, adding trust and credibility whilst also decidedly putting them on the map.
•
Most of the local SMEs and micro-enterprises still, to date, can only leverage enough capacity and resources to operate in the local market. o This makes it difficult for them to have bargaining strength and negotiating power when ordering in bulk, as local businesses face a situation whereby the volumes imported are considered to be minimal in comparison to foreign trade.
•
Manufacturers have also listed their specific concerns. They accept that since the local market gets saturated very easily, export is a necessity. However, due to fierce competition in the Single Market, margins for profit have decreased proportionally. o Importers and exporters expressed concern that at times an element of national protectionism still takes precedence over EU interests. Despite the Single Market envisaging that there should be no barriers to trade, there are cases whereby countries impose trade barriers in an attempt to protect their own markets.
5
o In this respect, increased market surveillance for businesses could help eliminate unfair practices at both the micro and macro levels, such as insufficient labeling and production not tying up with European standards.
Recommendations to streamline and best harness Single Market Opportunities for Maltese Businesses The Malta Business Bureau reiterates its firm support for the European Single Market, and is committed to making it work better, in particular by improving accessibility for Maltese businesses’ exports, cross-border trade development and services provision. This should contribute to an increased level of competitiveness within the local economic environment. The study conducted among the four main sectors of Malta’s economy brought forth various grievances which have been highlighted earlier in this publication. These concerns have led the MBB to table the following policy recommendations.
Accessibility in light of natural insularity
•
In light of Malta’s insularity, air and sea transportation remain the only options available to Maltese businesses to reach out to the continental markets, with sea transportation proving to be the more realistic solution. However, different ports of call still maintain country-specific regulations with different surveillance procedures and import/VAT revenue collection practices. The harmonization of such fragmented procedures would be a considerable boost to alleviate burdens Maltese businesses experience when importing and exporting commodities.
•
This would also serve to incentivize private operators in the introduction of new and more frequent air and maritime routes to Malta. This is a crucial element, as providing time/cost effective routes would be of great benefit to Maltese business.
6
•
The MBB welcomes the Commission’s initiative, as stipulated in the recent Single Market Act II (COM(2012)573 final), where it proposes a ‘Blue Belt’ initiative to reduce the bottle necks of administrative burdens for the shipping of goods, while encouraging the quality of port services and access to ports.
•
With regards to the Tourism Industry, in 2010, the European Commission issued a Communication (COM(2010)352 final) entitled “Europe, the world’s No. 1 destination – a new political framework for tourism in Europe”. A peripheral island destination like Malta will always be at a disadvantage with mainland Europe, in the process of improved visibility of 'destination Europe'. Whilst it makes sense to promote Europe as a single destination, the ease of intra-EU connections and air-transport accessibility issues need to be addressed to ensure an even attraction of non-European arrivals across all EU tourist destinations. If this is not done, such common EU external promotion policies would only benefit continental destinations where the ease of travel, for instance, between France and Italy, is a critical factor in determining the travel itinerary of longhaul tourists.
Access to Finance
•
Access to finance is challenging for SMEs, particularly those based in Malta. Access to venture capital funding is intrinsically related to the issue of scale, in particular the average entry-threshold levels of private equity investments which very often do not tally with the capital-leverage capacity of Maltese business.
•
The MBB welcomes the European Commission’s Action Plan for improved access to finance. The Commission's intent, as announced in the Single Market Act (COM(2010)608 final), to formulate legislation, in the shape of a regulation, designed to make it easier for venture capital funds established in a Member State to invest freely in any other Member State, without obstacles or additional requirements, circumventing
7
the current impossibility for a venture capital fund set up in a member state to operate and invest freely across the internal market, is certainly a welcome initiative. •
Any such initiatives for the creation of an EU-wide market for venture capital funds should take into account the onerous commitments for the smaller categories of business operators in overcoming the inherently high-risk threshold associated with accessing such funds.
•
The Maltese credit market is characterized by traditional retail loan banking activities and the lack of adequate seed capital funds along with business angel-like credit support prevents prospective entrepreneurs from being able to tap into a variety of credit instruments designed to be responsive to the different and distinct lifecycle credit needs of an enterprise. In this regard, the MBB is proactively identifying via an assessment study, the right credit instruments available in the EU27 member states, mainly in the area of loan guarantee funds and securitized mezzanine finance. The MBB would like to see a similar study done on an EU level involving the European Investment Bank and the European Investment Fund, to the establish the viability of incepting EU-wide financial instruments.
•
In the meantime, the MBB commends the Commission’s efforts in reviewing the impact of the new bank capital requirements and awaits with anticipation the Commission’s examination and proposals on long-term investment funding and potential tax obstacles to cross-border venture capital funds.
Market Surveillance
•
The European Commission has included European Market Surveillance within its Single Market Act, which also includes guidelines for customs controls in the area of product safety. A revision of the General Product Safety Directive has tightened up the level of consumer goods safety in the EU. However we note, that in Malta, market surveillance is relatively weak and inter-departmental coordination on enforcement of VAT, eco-tax
8
and food safety legislation is conspicuously missing at point of entry of goods shipped from the nearest ports of entry. The fact that there is a single market does not mean that it is free for all. In the case of Malta, whereby importation is mostly carried out by maritime transport, there needs to be stricter control on import activities but also on service providers too. Only in this way is business sustainability as well as consumer safety aptly protected. The enactment of such guidelines within the Single Market Act is a commendable initiative; however it needs to be backed by concrete action in member states. The European Commission must take steps to ensure national compliance in market surveillance. This could be spearheaded through an EU-wide monitoring system reporting on the action taken by national administrations in addressing market surveillance gaps. •
Lack of enforcement of important consumer safety rules sets dangerous precedents, as it allows incentive for enterprises to disobey consumer safety rules in order to gain an unfair competitive advantage. The use of penalties to ward off deliberate flouting of the rules is a good initiative, as opposed to general burdens for all market participants.
•
It is also important to have close cooperation with important non-EU trade partners to organise surveillance along the supply, production and distribution chains in order to address problems at an early a stage as possible.
Standardization
•
Maltese business calls on the European Commission to formulate EU-mandated standardization processes in accordance to approved and well-grounded market-led demand for such initiatives.
•
Flexibility is extremely pertinent in order for standards to support structural and cultural differences. Standards must be tailor-made and flexible to the minimum level possible to accommodate location-specific structural characteristics. For instance, in the hospitality industry; a Mediterranean Hotel marketing the good climate and water 9
sports facilities and a hotel in a ski-resort conforming to the same standards. It is untenable. •
The EU standardization framework should strike a balance between the programming ambitions of standardization bodies and the ensuing implementation costs for businesses, particularly Small and Micro Enterprises. Standards have to be ideally mandated by business organizations on the basis of legitimate calls for harmonizing technical specificities whilst initiatives spurred exclusively on government initiatives should be avoided as much as possible.
•
Implementation should be supported over staggered and sensible timeframes in order to allow enterprises to have the necessary advance budgetary planning needed to implement the infrastructural and service-related upgrades.
Implementation of European Legislation
•
The European Commission should acknowledge the practical difficulties generated by poor and sometimes belated implementation of European legislation, leading to operational burdens on businesses with minimal resources to adapt to untimely and inefficient implementation. Inconsistent implementation by member states’ public authorities creates an unfair level playing field between and amongst economic operators in their respective lines of business as some operators would be less hindered by regulation than those in countries and markets where EU rules are not immediately or adequately put in place.
•
It is recommended that the European Commission pushes for transparent and constructive debates on the choice of regulatory instruments which will allow for bestpractice application to situation-specific circumstances whilst also ensuring better and more thorough monitoring of member-state’s implementation practices.
•
The request by the European Commission, as elaborated in the Commission Communication on the governance of the Single Market, to receive from Member-
10
States’ administrations correlation tables clearly outlining the clauses transposing EU directives into the national statute-book is a measure that needs to be pursued with utmost urgency in particular with regards to internal market legislation where the margins for national “interpretation” should be kept to a minimum. •
Efficient governance to streamline business operations is crucial at a European level for the functioning of the single market. Timely transposition, which incorporates commoncommencement dates, as suggested in the Small Business Act is a good step forward to providing businesses common commencement dates enabling them to adequately prepare for changes to legislation affecting their daily operations. This will allow for a greater degree of predictability allowing enterprises to stagger the costs in such a manner that would best suit their own standard operating procedures.
•
It is crucial that the European Commission ensures that gold-plating at a national level is kept to an absolute minimum in order to minimize excess burdens to businesses and national administrations. o In Malta this has already been experienced in a number of directives, including environmental legislation on the Integrated Pollution Prevention and Control (IPPC) Directive (2008/1/EC) and the Energy Tax Directive (2003/96/EC). o The provision of guidelines to national authorities on transposition and implementation, coupled with proper Commission enforcement on the timely and adequate transfer of correlation tables detailing which article transposes which clause of the given directive.
•
The MBB notes that Malta is at the forefront in the transposition of EU directives and would like to stress that the European Commission push for quality transposition over timely transposition.
11
Application and Misapplication of EU Law in Member States
•
The MBB reiterates MEP Louis Grech’s views in his Report on delivering a single market to consumers and citizens (2010/2011(INI)), in emphasizing that the implementation of single market rules remains uneven, and businesses are burdened with the daily reality of enduring difficulties in cross-border transactions involving differing legal systems.
•
Effective enforcement and compliance with EU law is extremely pertinent to allow the Single Market to be fully exploited. Barriers generate unjustified costs and hindrances, as well as uncertainty for cross-border business.
•
While EU policy focuses on the removal of existing technical barriers through the use of case-law, mutual recognition and harmonization, as well as standardization, it does not often take into account newly implemented legislation that may potentially give rise to new barriers in the single market.
•
At times this can be purely coincidental and/or unintentional. It has been found1 that a national technical draft regulation pays no attention to the single market, and fails to incorporate the mutual recognition clause, while not even referencing European national technical standards. The absence of such a clause would surely create a barrier to free movement, and this is surprising due to the fact that the Regulation on Mutual Recognition (264/2008) has been in force since May 2009. It is imperative that this regulation is upheld due to how it protects enterprises desiring market access by strict procedural obligations. o The MBB understands that it is difficult for national civil servants to understand EU law, and it notes that cooperation of national ministries with national enquiry points set up to coordinate the procedure under Directive 98/34/EC, laying down a procedure for the provision of information in the field of technical standards and regulations, has improved awareness, yet more needs to be done.
1
Correiro de Brito and Pelkmans (2012), ‘Pre-Empting Technical Barriers in the Single Market’, CEPS policy Brief No. 277, 11 July 2012
12
•
Business in Malta reiterates that despite the Single Market envisaging that there should be no barriers to trade, there are several instances whereby countries impose trade barriers in an attempt to protect their own markets. Non-tariff barriers to trade particularly in cross-border services business provision remains a scourge to the effective operation of the EU’s internal market. The urgent removal of any remaining discriminatory and unjustified national requirements such as residence requirements or economic needs testing must be forthwith to boost performance of services in the single market. Holistically, increased market surveillance for businesses could help eliminate unfair practices at both the micro and macro levels, such as insufficient labeling and production not tying up with European standards.
Services Directive
•
The Services sector is extremely pertinent to the European economy, accounting for 70% of the EU GDP, and constituting the most important source of Foreign Direct Investment. In line with the European trend, in Malta too, the services sector is increasingly becoming a critical contributor to GDP growth and job creation.
•
The proper functioning of the single market needs a closer inspection of the functioning of the specific markets in goods and services. The services market has been neglected for too long at EU level, despite it being of crucial importance for EU policy to push for higher rates of productivity in the long-term. The regulatory framework put in place by the transposition of the Services Directive (2006/123/EC) is vital for the future development of the business services industries in the EU.
•
It is crucial that a well-functioning Single Market exists for all niches within the services sector. It is estimated that the full implementation, application, and enforcement of the Services Directive can bring about gains of close to 2% of the EU GDP. The modernization, simplification, and ultimate harmonization of administrative procedures would go a long way to achieving such a feat. 13
Enhance small business accessibility to Public Procurement including better e-procurement services
•
The upkeep and improvement of cross-border public procurement can potentially play a crucial role in maintaining the ideals of the single market. Ensuring that suppliers and service providers from other Member States are included in the public procurement market and reduces the effect of national discrimination.
•
However, many enterprises find it difficult to participate in public tenders opened by foreign public authorities. Participation often requires country-specific documentation, deterring potential applicants from other Member States.
•
It would be beneficial if the Commission looks into the means and ways to facilitate SME’s participation in cross-border public procurement, making public administrations more responsive to SMEs’ needs, thereby considerably facilitating enterprises’ access to finance through the better accessibility of public tendering opportunities.
•
The Commission should promote greater use of e-procurement services in order to save administrative costs for businesses who regularly tap the procurement market. Work needs to be undertaken on the development of a trustworthy and interoperable esignature system, facilitating enterprises’ endeavours in successfully carrying out online commercial transactions. The push for e-invoicing as stipulated in the Single Market Act II (COM(2012)537 final) is a welcome initiative.
•
In the lapse of binding legislative EU initiatives reinforcing e-procurement across the EU internal market, the MBB recommends greater coordination between member states’ procurement authorities in ensuring legal certainty, interopability of systems and data security when tenders are submitted via online means. Sufficient funding needs to be channeled to back such capacity-enhancing efforts on the e-procurement front.
•
The Commission should push for EU-wide clauses within procurement contracts which include consideration for unexpected and fluctuating (more often than not, rising) costs of production, especially in the case where such contracts take an excessive amount of time to be completed.
14
Business Clusters to Combat Economies of Scale
•
The Malta Business Bureau welcomes the Commission’s efforts in pushing for an EU Clusters Policy in the Innovation sector, through its Communication (COM(2008) 652 final/2) entitled “Towards world-class clusters in the European Union: Implementing the broad-based innovation strategy. Following on from this, the MBB would like to see the Commission push for a similar policy in the manufacturing industry, something which would go a long way in pushing for growth in enterprises based in small and insular or semi-insular member states.
A clear issue that is affecting our businesses’
competitiveness is that due to limited local market size, they cannot operate efficiently due to economies of scale lowering their negotiating capacity when ordering resources in bulk from international markets. •
Maltese Business recommends the expansion of the EU Clusters Policy to include other business sectors, particularly the Manufacturing industry. Clusters provide quick access to specialized suppliers, information and training, to increase the productivity threshold and allowing for increased complexity in operations and strategies of businesses. o This is extremely pertinent as firms all share similar operational strategic values in branding, marketing, access to finance, and innovation; all of which contribute to modern business practices. Some proposals worth considering are the following:
Holistic clustering models should apply for the particular economic sectors, particularly the Manufacturing industry for instance, in order to boost productivity in this area, and contribute towards the Maltese economy.
Structures for knowledge sharing in terms of sectoral market studies, business restructuring practices, online marketing, use of social media for business promotion purposes, access to direct EU funding programmes etc. 15
Market access / Identification of new markets.
Incentives for clusters development.
Support in marketing / branding of small scale hotels including assistance in the development of promotional web portals to better promote and penetrate new markets
Incentives for incepting common purchasing systems for business including pooling infrastructure resources for establishing automated systems for example for hotel booking reservations, common management of on-site maintenance and engineering services, etc. Often, Maltese businesses find difficulty in negotiating prices when importing in bulk; for the simple reason that bulk importation for the local market is done on a far smaller stage then in normal business operations in foreign markets. Should Maltese business competitors pool their resources to import on a larger scale, price negotiation will decrease in a proportional manner.
Definition of size of enterprises (EU SME definition)
•
Maltese businesses conveyed their reservations that the current EU SME definition puts them in categories which do not allow them to compete sustainably against foreign companies. Some Maltese economic operators consider the current EU SME definition to be too restrictive in so that the current terms of the definition inevitably place businesses, which are very often in a state of fluctuating evolution (of growth, stabilization in sales turnover, or downsizing) within very-clearly defined categories, as a result of an assessment undertaken at a given moment during the business lifecycle. The categorizing of enterprises in accordance with the EU SME definition takes into account sales and turnover as well as the number of employees on the company’s payroll
•
At the moment, Maltese businesses who employ over 250 employees are for their most part (and so considered to be large enterprises) foreign-owned subsidiaries of 16
multinationals with important exceptions in the food processing and beverage/bottling industries. This leaves the vast majority of Maltese enterprises into a single though multi-tiered grouping of SMEs with huge disparities in payroll size, business turnover and asset management – an incongruent picture which is not adequately captured by the structural stratification inherent within the EU SME definition’s three generic categories of ‘micro’, ‘small’ and ‘medium-sized enterprises’. The true portrait of the Maltese entrepreneurial landscape shows the disadvantages of size and the lack of economies of scale at the very worst. For many Maltese businesses, the current criteria (turnover and number of employees) utilized in the EU SME definition do not help to capture a more realistic snapshot of the typical local business. The prevailing viewpoint amongst the Maltese business community is that due to the nature and structural constraints, such as size and insularity of the domestic market, characterizing local entrepreneurial activities, a significant number of Malta-based economic operators cannot reach the amount of sales and turnover requisite to graduate out of the EU SME definition, despite having the payroll numbers matching the lower echelons of their equivalent large foreign competitors. •
The Maltese business reality is such that our so-called “large companies” very often operate with the internal structures, capital endowment and market outreach typically associated with the medium-sized companies employing between 100 and 250 employees. Conversely, the high proportion of micro-enterprises within the Maltese entrepreneurial fabric inevitably skews the distinction between the smallest category of business and what according to the EU SME definition would constitute small businesses (10-50 employees). Consequently, it is evident that the employment criteria for distinguishing between micro, small, medium and large companies within the ambit of the current EU SME definition is an insufficient method for discerning the distinct needs and requirements of the respective business categories covered by the definition. In this regard, the MBB advocates that the EU SME definition should depart from its exclusive conception on a quantitative twin track of business turnover and payroll numbers, to 17
also include important qualitative considerations, covering issues such as the internal business processes, quality assurance practices and the enterprise’s management structures.
Enterprise Europe Network
•
The Enterprise Europe Network plays an important role in addressing queries on administrative procedures, posting of workers, access to public procurement, and interbusiness facilitation of the four freedoms. However, this must be facilitated further so as to alleviate frustrations in business networking opportunities between and amongst enterprises established in different member-states. Moreover, the provision of relevant contacts is all well and good; however businesses require guided introductions to be made so as to set the ball of business-relations rolling.
Business Awareness and Information • It is argued that more needs to be done by national governments and constituted
bodies to be fully aware of prospective changes in EU legislation and procedures as this often proves to be a stumbling block for the business community. The setting up of a national Single Market Office – as a one-stop shop to cover all business enquires relating to the single market – could help to overcome overlapping of competences within Government departments. Such an office could help identify best practice market access solutions and also opportunities with regards to product identification, public grants, and direct EU funds. The filtering of information relevant to particular business sectors could also be provided through training as well as information seminars and workshops. This would also help to overcome burdensome irregularities in the bureaucracy of national administrations.
18