The EU, regulations and SMEs

Economic Services Minister Josef Bonnici last week addressed the Chamber of Commerce seminar on ‘Better Legislation and Regulation’, which dealt with the implementation of the European Charter for Small Enterprises. Following are extracts from his speech

Malta’s industrial policy is guided by one primary objective: an economic growth rate that will raise our living standards to the levels found in the leading developed economies. We all recognise that the private sector is the engine for that economic growth, and that our small and medium enterprises are a key part, indeed a major part of that private sector. In fact, SMEs are important contributors to exports and domestic sales, as well as to employment incomes and profits. Without growing and healthy SMEs, we’d lose a major contributor to the diversity of the industrial structure as well as an important contributor to social cohesion.

We must speed up the process of catching up with the productivity levels of EU economies, and at the same time EU membership will be the critical tool for the achievement of the same end. It is no coincidence that many of the legislative and regulatory reforms that will be talked about today are coming about as part of our accession process, as part of our preparation for membership. None of these reforms is a burden. Rather they are at once inevitable and beneficial.

A major legislative step was the passage of the Business Promotion Act in the year 2000. This modernised the industrial incentive structure. Productivity growth is rewarded regardless of whether the product’s buyer is here or abroad. Benefits are available no longer exclusively to exporters. Instead the new law rewards individual enterprises as well as entire product sectors for rapid productivity growth and for the investment that makes such growth possible. Small and medium enterprises qualify for added aid intensity. In addition the Act contains various provisions that promote the financial wellbeing of SMEs.

We have also taken step to improve the regulatory infrastructure. First of all, government must ensure a level playing field for all operators, since fair competition is necessary for a well-functioning market economy. In addition, the government has to simplify the business environment in which enterprises operate. The guiding principle is that when regulation is necessary, its application must be reasonable and not overreaching. Unnecessary legal and administrative constraints on business, including our small and medium-sized enterprises, have to be eliminated. This will improve enterprise productivity by reducing compliance costs.

To help achieve these ends, my Ministry, the Ministry for Economic Services, has undergone a substantial restructuring. Within the Ministry, the Consumer and Competition Division was set up with the specific mandate of safeguarding consumer rights and promoting competition. I’ll come back to the subject of competition policy shortly.

Also in my Ministry, the Commerce Division is designed to simplify communications between business and government and to improve the delivery of government services to the business community. The objective is to create a one-stop shop for all or most business interactions with Government.

Competition policy has shifted from one that regulates markets by controlling individual activities and companies to one that seeks to establish a fair level playing field within which competition can exert its beneficial effects on the marketplace.

In a radical change that occurred during the last fifteen years, there has been the phasing out of the old licensing regime, which had its heydays during the early eighties, and its replacement by a nascent competition policy that is now on its way to maturity.

The Competition Act was enacted in 1994 and has recently been updated. It provides legal certainty to undertakings in Malta by defining the parameters within which they may lawfully conduct their business in the Maltese market. The Act creates a modern regulatory system that is consistent with the European Union rules establishing a framework for effective competition in Malta, giving businesses as well as consumers the benefits of competition. The Act is there to promote competition in trade in a manner that best ensures positive economic results.

A competitive environment is a spur to technological progress and a guarantor of high product quality as well as product development. Since competition between undertakings exercises constant downward pressure on prices, it contributes towards price moderation, a key element in our competitiveness.

The Small Business and Crafts Directorate within the Commerce Division helps small businesses and the self-employed get a better service from the public sector. The Directorate seeks a synergy between public-sector service providers. It identifies trends or patterns that hinder the provision of efficient services required by small business. Another task is to contribute to amendments to regulations that affect business practices. The concept is one of making both legislation and procedures simplified and business-friendly. This Small Business and Crafts Directorate is the leading centre of knowledge and expertise on small business, passing on this knowledge to all those involved in making small business prosper.

While I am on the subject of the Small Business and Crafts Directorate, I’d like to mention its role in the European Union’s Business Environment Simplification Task Force (or BEST) initiative for the candidate countries. As you know, BEST seeks an environment where the conduct of business activity is made as simple as possible.

Under this programme, two Maltese institutional mechanisms have been identified for this objective. One is the Small Business and Crafts Directorate and the other is company registration. Company registration works on a one-window basis, where all necessary documents can be filed at the same time that the required fees are paid. In most cases registration can take only 24 hours. The Company Register is available electronically, and information about registered firms can be accessed via the Internet against a fee. Once legislation on digital signature has been adopted, company registration will be possible via the Internet, with filing of electronic documents.

The functions of the Small Business and Crafts Directorate should be viewed in the context of developments and innovations within the broader public sector. In particular e-Government facilitates business and consumer interface with government through electronic services.

Similarly, reforms in the trade licensing system are another step towards the facilitation of small business activity.

Also in this context, I should also mention the announcement in the last Budget that businesses will be able to set off balances they owe to government against balances that the government owes them. Government has also committed itself to give VAT refunds to small businesses within thirty days of the declaration date. Small businesses have been exempted from the need to draw up audited accounts. Income Tax and VAT computation have also been simplified for these companies. This is in the spirit of a policy to relieve small enterprise from certain regulatory obligations.

The Ministry for Economic Services is also responsible for the Malta Standards Authority. By means of this Authority, Malta is in the process of developing and implementing product standards. Such standards are an essential characteristic of a developed economy. Standardisation is actually a cost saving device. The absence of a standards infrastructure makes it more difficult and expensive for economic agents -- manufacturers or traders, exporters or importers, sellers or consumers -- to function. Standardisation cuts the uncertainty that the lack of harmonised standards imposes on everyday economic and business activity.

Internationally, lack of harmonisation slows down the movement of goods across borders and impedes trade. We have to keep in mind also that a considerable part of our export trade is done by our SMEs. In fact, that proportion is likely to increase as the reduced trade protection prods domestically oriented firms diversify into a greater volume of exports.

With Malta in the European Union, harmonisation is necessary not just because of the Acquis Communitaire but by the very reality of the totally unimpeded access of our products to all EU markets.

In this context it is important to note the way that trade policies are developing across the entire world. The focus of trade negotiations has moved beyond the elimination of tariff and quota restrictions towards a greater emphasis on harmonisation of rules governing trade, involving such matters as uniform standards and competition rules. This is why the recent Euro-Mediterranean Conference of Ministers for Industry, held in Malaga, stated that the upgrading to EU levels of product standards and greater uniformity in regulations is an essential ingredient in the quest for trade agreements between the EU and Mediterranean countries.

The elimination of these barriers requires common standards of product quality and uniform technical regulations. Harmonisation of quality standards for goods and services is necessary, and the same is true of certification mechanisms, customs procedures and so on. In concrete terms, the standards and rules of Mediterranean countries will have to be upgraded to EU levels, which are already substantially WTO-compatible.

Our exporters will have easier and broader access to markets in the EU and beyond once our regulations governing such matters as quality standards and product certification are brought more closely in line with international rules.

At Maribor, the candidate countries declared their commitment to help shape and attain the EU enterprise policy, and they endorsed the European Charter for Small Enterprises. As pointed out in the Charter, "Small enterprises are the most sensitive of all to changes in the business environment. They are the first to suffer if weighed down with excessive bureaucracy. And they are the first to flourish from initiatives to cut red tape and reward success". We all look forward to a healthy discussion of Malta’s implementation of its commitment.