14 June 2006

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Business Today

Dismantling protectionist attitudes

Speech delivered at the business breakfast organised jointly between Business Today and the GRTU on the occasion of European SME day last week

I am particularly honoured to be invited to address this business breakfast on the occasion of my first visit to Malta. This initiative very much reflects the high level of activity of GRTU in Malta.
First of all, I am amazed with the high level of adoption of EU legislation in Malta. The efforts were tremendous and very much reflects the dynamism in Malta. I also would like to congratulate you to have chosen the services directive as a topic for discussion on the occasion of the SME day. Indeed SMEs are extremely important in Malta and their dynamism is an example for business and retail development.
Let me briefly introduce Eurocommerce and the commerce sector in Europe in general.
EuroCommerce is the representation of the retail, wholesale and international trade sectors. Our membership spans over 29 European countries. Some company representatives are present tonight. Commerce in Europe accounts today over 5 million companies and employs over 27 million people work. Commerce is one of the few sectors driving employment creation in Europe. While employment declines in agriculture and industry, new jobs are still being created in services and especially in commerce. More jobs could be created by unlocking Europe’s potential and creating a more favourable business environment. In this context, SMEs are a key driver of innovation, wealth production and job creation in Europe.
Our first question was: what is the Importance of Europe for companies, large and small Today?
The main benefit for businesses established in the European Union is the access to a market of over 450 million consumers without borders and based on common standards and regulations. This is particularly important for businesses established in small countries such as Malta. Further, the internal market for services will be of particular benefit for SMEs lacking the resources to face the high number of obstacles when wishing to establish abroad.
Before tackling the main issues for discussion, I would like to emphasise the need for political action geared towards competitiveness and job creation in Europe.
Adopted in 2000 the Lisbon strategy which aimed to make Europe the most competitive and knowledge based area in the world by 2010, has so far failed to deliver tangible results. Quite on the contrary,
- the EU growth level has since then been much below the 3% target,
- the GDP per capita gap with the US has not narrowed and
- the labour productivity growth gap compared to the US has widened by 10% since 2000 and much more vis a vis competitors such as China or India,.

However, sustained economic growth based on environmental and social progress can only be achieved if businesses can benefit from a stable and predictable environment.
In this context, we fully welcome the initiative of the European Commission towards better regulation. Indeed, businesses in Europe are most affected by unnecessary administrative burdens and compliance costs. EuroCommerce is very active encouraging European initiatives to simplify and improve the quality of legislation and to reduce unnecessary administrative burdens. To flourish, businesses need legal certainty and predictability. Further and perhaps the most important, consistent implementation by the national and local authorities across Europe is the only way to enable businesses to truly reap the benefits of the single market. Protectionist attitudes such as gold plating must be resisted. Reducing the administrative burden, especially for SMEs, should be a key priority in Malta.

Services strategy
Services account for over 70% of the EU’s GDP, yet they do not benefit from a single market 50 years after signature of the Treaty. Today, service companies wishing to develop their activities abroad are still facing many barriers, most often administrative and depriving them from access to this 450 million consumers market. Offering a true level playing field while reducing the administrative burden is what the famous “services directive” intends to tackle.

The impact on the commerce sector is the following:
Negative aspects:
• The scope of the Directive has been reduced: ex. Health care services, temporary work agencies etc. are now excluded.
• The controversial provisions concerning the procedures applicable when companies are posting workers in other Member States have been deleted
• The Country of origin principle as contained is the article 16 is less clear than before in that it does not contain any reference to the law applicable to the service provider.

Positive aspects for the retail sector:
The commerce sector was particularly concerned by this Directive in that it represents the most important sector within the services sector. Insofar as the cross border activities in mainly carried out through the setting up of a permanent establishment, EuroCommerce has been particularly active on:

Chapter II “Administrative simplification”
EuroCommerce is very satisfied with the provisions providing for:
• the simplification of national procedures applicable when establishing in another Member State,
• the creation of single point of contact where to obtain all the necessary information and through which it would be possible to carry out all the necessary formalities

Chapter III “ Freedom of establishment”
EuroCommerce is very satisfied with the provisions contained in the Directive whose main objective were to put clarity, legal certainty and less discretionary power in the process to grant authorisation.
• authorisation schemes, when they exist, should be non discriminatory, justified and proportionate to the objective,
• procedures must be transparent and accessible and based on criteria known in advance and justified by overriding reasons of general interest.
• Decision to refuse of withdraw authorisations must be motivated and can be challenged in Court
• Member States cannot subject the access and exercise of a service activity to a series of requirements one of which concern the case by case application of an economic test making the granting of authorisation subject to proof of the existence of an economic need. (article 14.5)

The lively debates over the adoption of the services directive very much reflect a growing trend towards more protectionism in Europe. Even if the final text is not as ambitious as the original proposal, it is the best deal that could have been obtained for commerce.

Sustainable development is gradually becoming a reality. However, environmental legislation should neither hamper the internal market nor unnecessarily complicate commerce’s commitment to serving customers. This is particularly true for SMEs.

In this context, we are aware that the Maltese authorities are considering imposing a deposit scheme for one way packaging. Although this is a national issue, EuroCommerce encourages appropriate consultation of retailers to ensure that the system that will eventually be put in place is efficient, workable, especially by SMEs and will lead to sound environmental benefits whilst ensuring consumer satisfaction.
Experience in other countries and studies conducted by the European Commission warn against the imposition of ill conceived mandatory deposit schemes. Indeed:
- Efficient recovery systems now exist for all packaging so mandatory systems for non refillable beverage containers are not necessary (collection systems based on packaging material streams are those who perform best environmentally and economically)
- Mandatory deposits on beverage containers do not solve the litter problem. In our view, litter is a behavioural problem which can only be efficiently addressed through a comprehensive programme involving education & communication, frequent street cleaning and properly enforced penalties.
- Mandatory deposits create extra costs for consumers and companies: the extra handling, sorting and space requirements for the take back of empty beverage containers reduce the profitability of beverages in relation to other products, leading to higher prices for consumers. Retailers tend to respond by reducing shelf space and the variety of drinks to the detriment of consumer choice.
- Mandatory deposits lead to additional resource consumption as they lead to the running of 2 parallel collection systems. Kerbside collection vehicles cover the same routes, whilst picking up less material from households. At the same time, other vehicles collect beverage containers from stores.
- Mandatory deposits distort competition by unfairly discriminating against the beverage sector and are incompatible with cross border movement of goods and services. In this context, EuroCommerce has supported action against the German system leading to infringements proceedings against Germany.

During this week and the next, a series of events are taking place all over Europe to raise awareness of the importance of SMEs. These SME days are an initiative that we can only welcome. Today, SMEs represent 23 million companies and 75 million jobs in Europe.
In spite of their economic and social importance, entrepreneurship is still lagging behind in Europe: 60% of European citizens say that setting up their own business has never occurred to them. Setting up a business is still difficult and costly in several member states. It takes no more than five days to start a business in some Member States compared with 60 days in others. The administrative cost of starting a business can range from nothing in some Member States to many hundreds of euros. It is not accidental that Denmark where you create a Company and employ someone in one day is also the country where unemployment is lowest.
Education is key to entrepreneurship. In a fast moving economy, people have to adapt to an ever changing world. Attracting new businesses requires the presence of adequate infrastructures and a skilled workforce.
Reducing the administrative burden, encouraging entrepreneurship spirit from school level, achieving a better balance between risk and reward and better access to finance are some of the priority areas for action to unlock Europe’s potential.

Enhance trade liberalisation
Europe’s competitiveness also depends on its ability to compete on world markets. The benefits from an open and ambitious trade policy agenda are: cheaper and better products and services, access to larger markets, more opportunities, hence more growth and jobs. Reducing trade barriers, achieving simpler and better rules, better access to foreign services markets are essential.
Trends towards more protectionism in the EU and the US in particular must be resisted. The use of anti-dumping, of safeguard measures and non tariff barriers only result in more uncertainty and more red tape for businesses and higher costs to consumers. They do not reinforce the competitiveness of industrial sectors –whose competitiveness should be reinforced through research & innovation, improving skills and restructuring. Through an ambitious trade policy in the WTO, Europe can ensure a level playing field on world markets.

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