Celebrating 20 Years of the European Single Market: What it means for Maltese Business

CELEBRATING 20 YEARS OF THE EUROPEAN SINGLE MARKET What it means for Maltese Business

The European Single Market, which is about to turn 20, has transformed the way Europeans live, work, travel, do business and study. It has opened up opportunities for businesses to expand and learn how to become successful globally.

As President Barroso put it in a recent speech, most of us as young men and women could not have dreamt of what is now possible thanks to the Single Market.

As we celebrate the 20th anniversary of the Single Market, we aim to take stock of the main achievements of the past 20 years and reflect on how the Single Market has changed the daily lives of 500 million European citizens and around 23 million European businesses.

But this is no time for complacency. Twenty years after 1992, European citizens and companies are still suffering the consequences of an unprecedented series of crises. Unemployment is high, businesses face difficulties accessing funding and populism is on the rise across Europe.

There is a risk that the Single Market will be the first victim of these sombre developments, whereas it should on the contrary be regarded as our main asset to help get us out of the crisis.

This anniversary should also be an opportunity to look forward, and reflect on what could be the future achievements of our Single Market.

In particular, how could the Single Market contribute to the European growth initiative, which is in preparation, and which must accompany the on-going fiscal consolidation?

Recent initiatives under the Single Market Act, such as European passports for venture-capital funds and funds investing in social entrepreneurship, a better recognition of professional qualifications, the creation of an EU unitary patent and an easier access to public procurement for SMEs have already paved the way.

But we need to go further, and I count on your participation during Single Market Week, which will take place across Europe from 15 to 19 October 2012, to join forces and open a new chapter for the Single Market in 2012.

Michel Barnier, European Commissioner in charge of Internal Market and Services

1951

Creation of the European Coal and Steel Community

1957

Moving to a European Economic Community

01 Foreword Anniversaries provide a unique opportunity to look back to where we started and focus on the future. This year marks an important and special anniversary for Europe and business; 20 years of the European Single Market. The single market was launched in 1992, and to date it has developed into the biggest trading bloc in the world catering for 500 million consumers.

The Malta Business Bureau is launching this publication to commemorate the 20th of the European Single Market. This publication aims to inform readers about the single market from the perspective of Maltese business. It seeks to reflect the outlook of local enterprise, and to put forward recommendations for the better functioning of the single market.

The main feature of this publication is the qualitative research on the performance of Maltese enterprise in the single market in various sectors. This enabled us to conduct an unbiased and constructively critical analysis, leading to a number of recommendations that are also presented in this publication.

The European Single Market was one of the main reasons why Maltese business was so strongly in favour of EU accession. The MBB believes that the EU internal market still offers considerable, yet untapped opportunities that could make a real difference to local businesses.

This publication is one of a series of measures by the Malta Business Bureau to continue supporting the efforts of Maltese business in the European Single Market.

Joe Tanti Chief Executive Officer Malta Business Bureau

1968

Creation of a Customs Union

1979

Establishment of European Monetary System

02 The Four Freedoms Free Movement of Goods The EU is a customs union (created in 1968), whereby no customs barriers between member states exist whilst a common customs policy towards third countries is in place, in order to facilitate the movement of goods throughout the Union while reducing the risk of trade diversion.

This allows for the creation of fair competition while removing fiscal restrictions which can hinder the free movement of goods. Andorra, Monaco, San Marino and Turkey are also granted access into the EU Customs Union.

The placement of duties or any equivalent charges on goods crossing internal borders is prohibited, including those produced by third countries.

Quantitative restrictions, quotas and any equivalent measures are also prohibited. However, goods may be subject to harmonised standards within the customs union. The abolition of customs tariffs and other protectionist measures promotes intra-Community trade, which accounts for a large part of the total imports and exports of the Member States. Once a good has been imported into the EU with the appropriate external border customs duties paid, that good can be considered to be in free circulation between the member states.

Free Movement of Services The freedom of movement of services facilitates the establishment of companies and the provision of business services beyond the national border of the state of establishment of the given company.

Services account for between 60 and 70% of EUwide GDP, however legislation in services is not as developed as in other areas. The Directive on Services in the internal market aims to liberalise the cross border provision of services. This directive has markedly reduced national licensing

restrictions on free circulation of services within and across the Member States.

Freedom of services includes the freedom of establishment and the two go in tandem, since services need to be delivered to a specific market from a particular location. Also, the principle of the free movement of workers is based on the premise that this freedom affects enterprises and individuals who lie outside a formal employment relationship. The freedom of establishment includes the right to pursue activities as selfemployed persons and to set up and manage business undertakings. Any restriction on the freedom of establishment is prohibited by EU internal market legislation. Nationals of a member state may take up an economic activity in any member state and cannot be discriminated against.

Member states must take all necessary measures to ensure that their national laws are not in conflict with the provisions of the free movement of services, making the freedom directly effective.

Free Movement of Capital This principle is intended to streamline movement of investments, for example the buying of shares, stocks, property, among others. The freedom of capital movement is another important element for the functioning of the single market, as the liberalisation of payment transactions goes hand in hand with the other three freedoms; the movement of goods, persons and services.

Borrowers such as small businesses must be able to obtain cheap and tailor-made capital, while suppliers of capital must be able to offer their resources on the market where there is the greatest interest. This ensures that capital goes where it is needed the most and in the most efficient way possible.

03 expanded on a cross-border basis across memberstates. This allows businesses and individuals to have access to the full range of options available with regard to banking services, mortgage loans, securities and insurance. This allows economic operators to choose what is best suited to their specific needs or requirement for their professional activities in the single market.

Free Movement of People

Michel Barnier presents the European Commission Communication on a Single Market Act

Capital transferred within the EU is not limited to any amount, and it is considered as a domestic payment, thus bearing domestic transfer costs.

Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as domestic.

Other monetary operations such as financial loans and credits, operations in current and deposit accounts were also liberalised.

All restrictions on the movement of capital and payments between member states and third countries are also prohibited. Exceptions arise where temporary safeguard measures are allowed to be taken where movements of capital to or from third countries may cause difficulties for the operation of the European Monetary Union.

On the basis of the free movement of capital, financial market products and services have

This principles means that citizens of the EU can move freely between member states for any legitimate reason, including living, studying, working and even retiring anywhere in the EU. This gave rise to a significant reduction in administrative procedures, whilst EU action has been undertaken to ensure the mutual recognition of professional qualifications obtained in the different member states. The principles underpinning legislation in this area is that EU citizens are treated indiscriminately and therefore afforded the same treatment as national citizens.

The main provision of this freedom is in fact the prohibition of restrictions based on grounds of nationality.

Workers have every right to move to other member states to work and enjoy the same conditions as the nationals of that state. Family members of that worker have the right to accompany the worker, even if they are from non-EU states, subject to some conditions.

The development of the Schengen acquis significantly reinforced the freedom of movement of persons with most EU member states (with the exclusion of Bulgaria, Cyprus, Ireland, Romania and the United Kingdom) as well as Iceland, Liechtenstein, Norway, and Switzerland having abolished physical barriers through the elimination of passenger border controls.

Methodology This study is intended to provide valuable insights that will assist the Malta Business Bureau in assessing and possibly fine tuning its own activities, which in turn will benefit the business community. In addition, the project should help to diagnose any gaps in the existing levels and type of information pertaining to the European Single Market amongst the business community.

Four focus-group discussions were carried out amongst a number of companies from the following sectors: - Tourism - Manufacturing and Exportation - Services - Importation and Distribution.

This approach would allow for a qualitative analysis to be made into Maltese businesses’ experience in operating in the single market.

Qualitative analysis tends to provide in-depth information and details about specific aspects, in this case business operations. Qualitative research, due to its very nature, also tends to be inter-subjective.

Since qualitative case study analysis involves close

observation, most of the conclusions drawn were naturally biased towards businesses. For example, standards and measures aimed at increasing the level of consumer protection are often seen as extra costs.

Respondents were recruited by the Malta Business Bureau and the moderation of the Focus Groups was done by MISCO International. The discussion guide was created by MISCO International based on a detailed brief.

The main topics that were covered during the Focus Group discussions were as follows: • Identifying significant issues that are key to business operations; • General attitudes towards the Single Market and the impact on business; • Opinion relating to information about the Single Market; • 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 Single Market .

05 The Single Currency: Streamlining the functioning of the Single Market The euro is the official currency of the Eurozone, including 17 of the 27 member states of the EU. The aim of the single currency was to facilitate the upkeep of the ideals of the single market.

These include the removal of barriers to facilitate the four freedoms of cross-border movement (people, goods, services, capital) within the EU. The Single Market offers many advantages to businesses and consumers, including a greater choice of goods and services. This also offered more economies of scale.

Capital within the EU can be transferred in

any amount across borders, and is treated as a domestic transaction. This includes credit and debit card charging as well as ATM withdrawals within the Eurozone. A single currency in a single market makes sense. Trade within the Eurozone operates more effectively and efficiently, and in fact, an European Central Bank study in 2009 on the introduction of the euro concludes that trade within the Eurozone has increased by 5% to 10%.

The single currency in the single market is the way forward. It is a critical tool complementing the future success of the single market in the EU.

06 The European Single Market and Malta By joining the EU in 2004, Malta became part of the European Single Market. Accessing an enlarged internal market of 500 million consumers was the reason underpinning the Maltese business community’s support for EU membership. The opening up of new trade and investment opportunities beyond the insular confines of the domestic market was however just one of the several business-related incentives associated with unhindered access to the world’s largest customs union. In fact, trade has increased considerably. The year 2001 saw exports of over €2billion and €2.8billion imported into the Maltese Islands. This pales when considering a decade later, in 2011, exports increased to €3.8billion, with imports increasing to €5.3billion.

Eight years down the line, it can be undoubtedly argued that the Maltese business experience within the European Single Market has been an overall positive one. This is attributable to several factors, the most important being the ability demonstrated by several Maltese enterprises to adapt to the greater competition characteristic of the EU internal market. The capacity of entire economic sectors to reap the competitive benefits emanating in particular from free trade in goods and to a lesser extent, thanks to trade liberalisation in services, has allowed Maltese business to thrive in the European Single Market.

The initial challenges of adaptability and the inevitable restructuring that some industries had to undergo have paved the way for a bright future for Maltese industry and commerce within the EU internal market.

Looking back, the experience to-date shows that the Single Market has been crucial for the further growth, consolidation and general improvement in the everyday business operations of Maltese enterprises. From a practical perspective, Maltese business made the best possible out of the market

and structural challenges that posed themselves at pre-accession stage. Certainly, Malta’s unprecedented but imminent immersion into the EU’s single market constructed on a customs union where free trade in goods and services is complemented by market competition, in turn sustained by the freedom of movement of both workers and capital was no mean challenge.

Becoming part of the EU’s internal market, ushered in a novel way of conducting business.

In short, it meant the elimination of import levies put in place over the years to protection local industries as well as the complete elimination of other trade barriers in the form of import licenses and quotas. These developments exposed Maltese business to unprecedented levels of competition through trade liberalisation which inevitably induced a wide cross-section of businesses to undertake significant restructuring not least to adapt to a long list of EU standards.

In the run-up to EU membership, Maltese enterprises had to adjust to new sets of demanding EU standards notably in the fields of product safety, quality control and assurance amongst others such as HACCP procedures affecting in particular the food processing and food-handling sectors, including restaurants.

Undertaking such restructuring in order to adhere to new standards inevitably implied significant investments, notably in those industry sectors that were protected by import levies against foreign competition. The enforcement of these new standards introduced market surveillance – a system of regulatory market checks on the products and business services being delivered in Malta. The process kicked off with the entry into force of the Product Safety Act as of 1st March, 2001, entrusting the Malta Standards Authority with the coordinating function for standardisation and monitoring.

07 The switchover to such internationally-recognised standards implied investments and upgrading of operational infrastructures at firm-level, training of personnel and updating of marketing materials.

The direct consequence of such investments created a spill-over effect across the entire Maltese entrepreneurial fabric enticing significant qualitative improvements across the whole spectrum of the local product market. Indirectly, but of equal importance, is the impact on consumers, with the improvements in the quality assurance processes

in both goods production and businesses services leading to increased competition in all those areas where the protective levies were removed, resulting in overall better product quality, wider consumer choice and lowered prices.

The challenge of restructuring and adaptation to new EU standards certainly helped Maltese business garner an unprecedented level of product credibility and market trust, consequently enabling local operators to look overseas for growth. The benefits of accessing the EU internal market have not only strengthened the position of Maltese business within the Single Market but also beyond.

The credentials of being an active partner within

the European Single Market consolidated the perception of the product quality of Maltese enterprise outside the EU. Subsequently, the adoption of the Euro proved useful in supporting export activities to the EU internal market and to non-EU countries alike.

Undoubtedly, the overriding benefit of the European Single Market for Maltese enterprise is the market access benefits linked to free trade within the EU. From a firm-level perspective, the participation within the European Single Market is providing the added value of a mindset change in the business structuring of local enterprises. The mindset change amounts to the clear realisation that internationalisation is the only successful approach to withstand cost-based competition and build the necessary critical mass for even the smallest of firms to become more competitive on both the local and international markets.

The future of the EU internal market depends to a considerable extent on the ability of small businesses to thrive whilst exploiting the potential of electronic commerce via the facilitation of a digital single market. The European Commission’s Digital Agenda seeks to trigger a new dynamism for the European economy by unleashing the vast opportunities linked to the improvement of internet connection speeds consequently allowing greater and more secure use of online purchasing and payment systems, reducing business operation costs through paperfree office work and facilitating e-Government services for enterprises.

The digital single market will ensure that Maltese firms will continue benefitting from the best possible framework conditions in a predictable business environment sustained by the world’s largest free trade bloc.

08 Key Comments from Importers and Distributors

Manufacturers and Exporters

“When negotiating, you are always negotiating on volumes and amounts which are considered to be minimal when compared to foreign trade.”

“The local market gets saturated very easily. With accession into the single market it has been much easier to tap other markets.”

“Each harbour has its own conditions, requirements and paper-work - even though these are all parts of EU countries”

“Now that the local market is open to fully-blown competition, margins for profit have become smaller”

“Countries are still protecting their own national interests, rather than that of the EU as a whole” “If you look at other larger countries, they are imposing their own trade barriers in order to protect their trade” “If products coming in are not up to standard, these should be reported. It depends on the recipients of these products whether to do something about it; whether or not to report. We still have the mentality that if it’s cheaper, you don’t need to worry about reporting. This obviously affects competition between EU countries” “Importation in general has certainly been facilitated” “The digital agenda offers great possibilities for the Maltese trader, when dealing business to business rather than with consumers”

“There are no natural resources, so companies must import the materials and then export their products” “We’re not big enough and not competitive; we have a lot of extra costs” “Since the local market is very small, Malta does not have the power to influence the price of raw materials, putting Maltese traders at a disadvantage”

09 Focus Group Sessions Services

Tourism and Hospitality

“Because of free riders and lack of enforcement of regulations, one cannot compete on a level playing field”

“As a framework for business, it was already mostly set up since pre 2006. 75% of our income was dependent on tour operating systems with tourists coming from EU countries. We operated with a regulatory framework which conformed to that of the EU, even though we were not yet members”

“Even though you might be aware of the processes and what needs to be done, other third parties who are not directly involved might not be aware - this is a stumbling block for us” “The EU tries to sell the picture of equality in the single market, however this is not the case, the bureaucratic processes makes it difficult to compete” “The digital agenda offers the possibility of e-commerce, partnering, and it does not pose geographical problems”

“There is lots of information on websites, regarding the EU, however the state must be able to transmit this information in an effective and efficient manner to local operators” “This certifies that Malta is a country you can do business with...there is security. This has a larger impact when compared to other countries outside of the EU” “It has improved development as there has been an increase in choice, for example if a hotel owner wants to refurbish the hotel, they can look at the furniture on offer in other countries”

10 The experience of Maltese businesses operating in the Single Market: Interpretation of findings All economic sectors agree that Malta’s natural peripheral geographical location, as well as its insularity, are factors that limit Maltese business’ operations within the single market. While the Single Market has intensified foreign competition from larger companies in Malta, the same cannot be said about local operators wishing to conduct cross-border business in Europe, who find it harder to compete due to limited capacity and resources.

Also, Maltese businesses have to factor in the costs of importing raw materials and those of exporting their manufactured products, resulting in added costs of freight, which harms business competitiveness.

The single market has certainly increased opportunities for product diversification into niche area, such as pharmaceuticals, i-gaming, and the financial services. Also, the added-value ease of transferring factors of production has been a huge boost; although transportation costs remain a problem. In order to be more competitive, some Maltese companies opt to outsource activities to companies abroad, something which has proved to be viable, thanks to opportunities offered by the single market. The Single Market has also led to improvement in procurement practices and infrastructural development, as well as support to businesses to upgrade their operations.

Business strategies had to be adapted. Due to the increase in competition, businesses seem to be following two paths, each entailing particular challenges and benefits: they either focus on price reduction in order to keep up with larger foreign companies, or to focus on quality, through better marketing, branding, and niche market exploitation.

The former involves lower profit margins, whereas the second option could prove to be very profitable.

All of the sectoral representatives consulted during the study agreed that some form of market access was already available pre-accession, although limited by quotas. In fact, participants noted that imports and exports have not increased in quantity, but there has been a shift towards new products and services. Yet, the single market increased the reputation of Maltese businesses within the international sphere, adding trust and credibility whilst also putting them on the map. Furthermore, the use of a single currency was generally perceived as a positive development, described as a means to facilitate trade, particularly within the confines of the EU internal market.

Though the single market provides opportunities for economies of scale, to date, most of the local SMEs and micro-enterprises still manage to only garner enough capacity and resources to operate in the local market. For example, it is difficult for them to achieve the bargaining strength and negotiating power needed when ordering in bulk.

The volumes imported by local businesses remain minimal in comparison to those handled by their competitors elswhere in Europe.

Manufacturers have also listed their concerns, accepting that since the local market gets saturated very easily, export becomes a necessity.

Yet, due to fierce competition in the Single Market, margins for profit have decreased. Importers and exporters showed concern that at times there is still an element of national protectionism that takes precedence over EU interests. Despite the Single

11

Market moving for the elimination of barriers to trade, there are cases whereby countries impose trade barriers in an attempt to protect their own markets.

For the hospitality industry, the Single Market has offered a positive boost with regards to the credibility of Malta as a tourism destination. Steady increase of tourist arrivals have been registered since 2004, with tourist arrivals increasing from 1.1 million to 1.4 million in 2011. Despite this, access to the Single Market has only accounted for a marginal change in operations since pre-accession days.

Prior to Malta’s accession in 2004, tour operators were already able to bring tourists to Malta, given that the relevant local regulatory framework was already in-line with EU regulations; however this has been facilitated further when Malta became part of the Schengen area.

Business Awareness With regards to European Commission initiatives to raise awareness on the Single Market, participants generally concurred that a lot of information

is available. Keeping up-to-date has become imperative to be able to compete successfully within the bloc. However, more needs to be done by national governments and constituted bodies to be fully aware of changes in EU legislation and procedures as this often proves to be a stumbling block for the business community.

The Digital Agenda All participants claimed to have a website, some even in multiple languages. This has increased opportunities not only within business-toconsumer relations, but also business-tobusiness relations. It is interesting to note that manufacturers and distributors looked at the internet as nothing more than a networking and marketing tool. However, the services and tourism sectors believed that there is yet a high untapped potential to be reaped from the digital market, due to the numerous possibilities it offers in e-commerce and networking, which all could contribute towards offsetting, at least to some extent, the natural geographical accessibility challenges faced by Maltese economic operators.

12 MBB Recommendations for a Better Single Market for Business The Malta Business Bureau reiterates its firm support of the fundamental principles behind the Single Market, and will remain committed to contribute in rendering it more functional. In particular, accessibility for Maltese businesses’ exports, cross-border trade and services provision is to be improved. This would lead 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 in this publication. These concerns were the basis on which MBB based the following recommendations.

Correct implementation of European Legislation • Practical difficulties are often created through poor and sometimes belated implementation of European legislation, leading to operational burdens on businesses with minimal resources to adapt to untimely and inefficient implementation. It is recommended that the European Commission pushes for further transparent and constructive debates on the choice of regulatory instruments. Situation-specific circumstances are to be taken into consideration by policy makers whilst also ensuring better and more thorough monitoring of implementation at member state level.

• Efficient governance to streamline business operations is crucial at a European level for the functioning of the single market. Timely transposition, which incorporates common commencement dates, as suggested in the Small Business Act, is a good step forward to providing businesses with a clear timeframe to plan ahead any changes required in their operations.

Business Awareness and Information • It is agreed that more needs to be done by national governments and constituted bodies to be fully aware

of prospective changes in EU legislation and procedures.

This often proves to be a stumbling block for businesses who would need to adapt their practices accordingly.

The setting up of a national single point of contact helps 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 and even access to finance, including 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.

National Discrimination • Despite one of the fundamental principles of the Single Market being that there should be no barriers to trade, there are still cases where countries manage to impose trade barriers, perhaps indirectly, in an attempt to protect their own markets. Non-tariff barriers to trade, particularly in the provision of cross-border services, remain a major problem to the effective functioning of the single market. Although this is not a new phenomenon, any remaining discriminatory and unjustified requirements at national level (e.g. residence requirements in certain contexts) must be removed to boost competition. Furthermore, increased market surveillance for businesses could help eliminate unfair practices at both the micro and macro levels (e.g. insufficient labeling and production which fails to comply with European standards).

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

13 of consumer goods safety in the EU. However, locally there seems to be a lack of inter-departmental coordination on enforcement of various obligations, such as VAT, eco-tax and food safety legislation. Such coordination is conspicuously missing at point of entry of goods shipped particularly from Sicily. The fact that there is a single market does not mean that it is a free for all. In the case of Malta, where importation is mainly by maritime transport, there needs to be stricter controls on import activities. Only in this way can business sustainability as well as consumer safety be aptly protected. The enactment of guidelines as part of the Single Market Act is a commendable initiative. However, it needs to be backed up by concrete action. The European Commission must take steps to ensure national compliance in the area of market surveillance. This could be spearheaded through an EU-wide monitoring system in more sectors; 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 could further spur enterprises to disregard consumer safety rules in order to gain an unfair competitive advantage.

Adequate penalties ward off those who deliberately breach the rules..

• A pan-European single market surveillance system would be completely supported by the Malta Business Bureau. This ought to be complemented by solid monitoring of implementation at national level.

• Cooperation towards a surveillance system along the supply, production and distribution chains, in order to address problems at an early stage would be extremely beneficial.

Services Directive • With regards to the services sector, it is crucial that a well-functioning single market is established for all niches within the sector. The full implementation, application, and enforcement of the Services Directive can bring about gains of close to 1.2% of the EU GDP, according to a Commission Communication on the Implementation of the Services Directive.

The modernization, simplification, and ultimate harmonization of administrative procedures would go a long way to achieving this aim.

Transport

• In the 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 being most common. However, different ports of call still maintain country-specific regulations with different surveillance procedures. The harmonization of such procedures would alleviate burdens Maltese businesses experience when importing and exporting.

Defining the size of enterprises • Most participants in the focus-groups claimed that the current definition of the size of enterprises puts them in categories which do not allow them to compete sustainably against their European counterparts. The definition should take into account sales and turnover rather than number of employees, in order to better categorise competitors within the same group. At the moment, Maltese businesses who employ over 250 employees (and so considered to be large enterprises) due to the nature of their operations cannot reach the amount of sales and turnover within such an insular market so as to compete against large foreign enterprises.

Europe Enterprise Network • The Europe Enterprise Network is crucial in addressing queries on administrative procedures, posting of workers, access to public procurement, and inter-business facilitation of the four freedoms.

However, this must be facilitated further so as to alleviate frustrations in network establishment between enterprises. Businesses require guided introductions in order to further facilitate new business relations.

Access to finance • The MBB welcomes the European Commission’s Action Plan for improved access to finance. The Commission’s intent, as found in the Single Market Act, to formulate legislation 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 is certainly a welcome initiative.

14 Towards a digital Single Market The future of the European Single Market lies online. Business is being increasingly carried out over the web and the faster we move into the digital era, the greater the shift towards webbased commercial transactions. Consumers are increasingly buying products and goods over the internet. Inevitably, this means a reduction in over-the-counter purchases especially by the younger generations who are more acquainted with the digital environment.

The European Single Market is based on the fundamental principle that cross-border trade should be carried out with ease, thereby guaranteeing a larger market for producers and traders whilst consumers benefit from a wider choice and lower retail prices. A European Digital Single Market would undoubtedly reinforce the purpose and logic of an internal market driven by high-speed internet access.

The “Digital Agenda for Europe” is an action programme specifically designed to over-see the creation of a digital single market. Launched by the European Commission in 2010, it heralds the way forward on how best to exploit the benefits of the internet and the digital economy. To a large extent, the growth of e-commerce depends on the existence of a genuine European digital single market, which in turn rests on the development of faster broadband connections, consumer trust in online transactions, and easier online access to commercial services, including the use of a wide range of European languages.

There are ample benefits in exploiting online markets for Maltese business. The development of e-commerce allows local companies to ‘internationalise’ their sales, expertise and supply networks without the need of establishing a physical presence abroad. In turn, this facilitates reductions in costs and better access to larger markets beyond the domestic reach. For SMEs, the quest for access to a larger consumer pool can often constitute the make or break in their efforts to expand their business and the quantum leap for a small business to develop into a mid-cap concern.

One of the European Commission’s Digital Agenda’s overall goals is that 33% of SMEs should conduct online purchases or sales by 2015. Malta is fairly advanced in ICT deployment and compares well with most other EU countries, in particular in eBusiness and eGovernment services. Maltese businesses make good use of eGovernment services, though more can be achieved on electronic procurement. The improvement of eGovernment services by all EU Member States is of critical importance for enhancing digital competitiveness and improving e-commerce within the internal market.

Small businesses are the ones who stand most to gain from better and wider deployment of eGovernment services. New EU initiatives in the areas of e-procurement, e-identification and e-authentication should serve to help SMEs develop their online profile and expand the webbased markets for both purchasing and selling of goods and services. The digital market is, by its very nature, an open cross-border market place; and the greater availability of cross-border public services, the greater the possibility for new business opportunities to develop across the European Single Market. Electronic certification, for instance demonstrating the necessary qualifications to qualify as a contractor in public procurement bids, would enable Maltese entrepreneurs to expand their business activities with relative ease, beyond the local shores onto the European markets.

15 Why the Single Market is the way forward to combat the economic and financial crisis

The single market is currently in a critical phase, and is currently facing many challenges. One such challenge being that support for the single market is eroding. One of the reasons behind this is that much of Europe’s competitiveness woes are blamed on inefficient markets and incompatible business cycles which are forced to integrate due to the single currency and the single market, resulting in reduced confidence in both. The ongoing economic and financial crisis has also served to further deplete confidence in the Euro and the single market, despite the fact that it has the potential to be the key to the drive to boost Europe back to economy stability. As Professor Mario Monti said in a 2010 report, “The Single Market today is less popular than ever, while Europe needs it more than ever”.

Achieving a deeper and more efficient single market is one of the most important factors in determining overall macroeconomic performance in the EU, which will bring about the promised economic benefits. The European Commission adopted the Single Market Act, a series of measures to boost the European economy and stimulate employment, something which was done in all urgency in the wake of the crisis.

It cannot be denied that in its 20 years of existence, the Single Market has brought about many benefits and innumerable opportunities.

However, operating within the four freedoms is still not as smooth as it can be, and some fields still do not have an integrated European market.

The Single Market has so much more potential, but this is still unexploited due to administrative and enforcement obstacles.

It is important that confidence in the single market is maintained so as to be able to act with more conviction in the boosting of social progress, while reaching out to consumers, workers and SMEs, thus stimulating economic growth. Several initiatives have been earmarked in the Single Market Act, to rebuild it into a stronger, more integrated market, with the aim of removing bottlenecks while filling in the remaining gaps that are currently acting as barriers to innovation and growth. Such initiatives include the creation of a digital single market; exploiting the comparative advantage the EU has in green and knowledge based markets; fully exploiting the potential of the single market for services; ensuring streamlined geographical labour mobility in the single market, and establishing the proper ‘physical’ infrastructure to complement the single market.

We must also consider that integrated and efficient financial markets are crucial to functioning economies. A single market in the financial services is a crucial part of the European Commission’s objective of achieving economic recovery. It is imperative that all member states back such initiatives, as without bold governance of the single market, the entire foundation of the European project would disappear.

16 The European Single Market brought about a change in the way business is conducted in the EU member states. Trade barriers were replaced with business opportunities. Twenty years on, the European Single Market has developed into the largest economic bloc in the world. Nevertheless, it is facing stiff competition from traditional and emerging economic powers, including the United States, Japan and the BRIC countries. The EU’s internal market requires constant re-invigoration, deepening and spread to novel economic sectors such as e-commerce and the creative industries. In this way, the European Single Market will continue to be relevant and up to date with the evolving times whilst remaining competitive in the generation of growth and employment.

The Malta Business Bureau has been active in advising on the developments related to the European Single Market and promoting the opportunities this brings with it for Maltese business. This publication marks another collaboration with the European Commission Representation on this very important matter for Maltese enterprises. We hope that you find this publication useful and informative whilst we invite you to contact the Malta Business Bureau if you feel we can be of any assistance to you on issues related to the European Single Market and EU legislation affecting your business.

George Vella, President, Malta Business Bureau This year marks the 20th anniversary since the European single market was established. Europe has achieved a lot in these 20 years, and yet the potential of a better-functioning single market remains huge, especially as a key factor to emerge from the current economic situation.

The Representation’s core duty is to inform citizens and businesses about EU initiatives and policies. There is no better way to do this than by joining efforts with relevant bodies that are fluent with the main issues of concern to a particular set of stakeholders. This is why we partnered with MBB to undertake this study. It should enable the business community and policy makers alike to have a snapshot of what is working and what is not for Maltese businesses when it comes to the European single market, whether it is regulatory obligations or ancillary benefits of a market of 500 million citizens. I hope that through this exercise we will understand better how Maltese businesses are faring in the existing framework.

Martin Bugelli, Head, European Commission Representation in Malta

1986

The Single European Act

1992

Creating a European Single Market

Editorial Team: Omar Cutajar, Daniel Debono, Mark Seychell Malta Business Bureau Acknowledgements: The Malta Business Bureau would like to thank MISCO International for their support in the study, as well as all participating enterprises for their valuable feedback.

We would also like to show our sincere gratitude to the helpful staff at the European Commission Representation in Malta, without whom this publication would not have been possible.

2002

The Euro officially enters into circulation

2011

Single Market Act: Boosting growth and confidence

Malta Business Bureau Casa Leone Pjazza Robert Samut Floriana FRN1200 Tel: +356 2125 1719 Email: info@mbb.org.mt Web: www.mbb.org.mt European Commission Representation in Malta Dar l-Ewropa, 254 St Paul’s Street Valletta VLT 1215 Tel: +356 2342 5000 Email: comm-rep-mt@ec.europa.eu Web: ec.europa.eu/malta/

This publication was financed by the European Commission Representation in Malta