Opinion of the Economic and Social Committee on "Malta on the road to accession"

(2001/C 260/17)

On 13 July 2000 the Economic and Social Committee decided to draw up an own-initiative opinion on "Malta on the road to Accession".

The Section for External Relations, which was responsible for preparing the Committee's work on this subject, adopted its opinion on 28 June 2001. The rapporteur was Mr Kenneth Walker.

At its 383rd plenary session on 11 and 12 July 2001 (meeting of 11 July) the Economic and Social Committee adopted the following opinion by 66 votes to 28 with 22 abstentions.

N.B.:

The situation with regard to Malta's progress towards accession is very fast-moving, both in relation to the process of closing chapters and the introduction of legislative measures in Malta; the information given below has been corrected to 28 June 2001, the date of the Section meeting. Subsequent developments may not be reflected in this document.

1. Introduction

1.1. The Republic of Malta is a parliamentary democracy with a long and chequered history, during which its strategic position in the Mediterranean has resulted in the Maltese people playing a pivotal role in the development of European civilisation. Since pre-historic times, Malta has proved popular with visitors, not all of whom have been unequivocally welcome. It has been ruled in turn by the Phoenicians, the Romans, the Knights of the Order of St. John, the French and the British. Twice over the centuries it has stood at the cross-roads of history; in the sixteenth century, when the Knights of Malta repulsed the Turkish invaders, and again in the Second World War, when Malta stood firm against the might of the Axis powers, it was instrumental in determining the course of Western European history; for the second of these exploits, Malta was awarded the George Cross, the highest British civilian award for gallantry.

1.2. The Helsinki European Council of 10-11 December 1999 gave its approval to the opening of accession negotiations with Malta and five other applicant countries. These states have subsequently been known as "The Helsinki Group".

1.3. Malta is well-placed economically and politically to be amongst the leading candidates for membership of the Union; it fulfils the Copenhagen criteria, it has a functioning market economy and should be capable of withstanding the competitive pressures within the Union, provided that it creates the necessary conditions for the further industrial restructuring which will have to take place regardless of EU membership.

1.3.1. However, there is one major obstacle which will have to be overcome. Uniquely among the candidate countries, Malta does not at present have a clear political consensus on Union membership. Unless and until such a consensus is seen to be in place, and to have credible prospects of being sustainable, there must always be a question mark over the country's readiness for membership.

1.4. This report will focus on the present state of preparation of the Maltese economy and the Maltese people for meeting the acquis communautaire and fulfilling the other obligations which attach to membership. It will seek to evaluate what has already been achieved and assess what remains to be done. Inevitably, it will also deal with the political issues which will ultimately determine whether Malta wishes to proceed with its application.

1.5. The rapporteur was assisted in his work by Dr Leonard Mizzi of the Malta Business Bureau, to whom he is greatly indebted. A delegation of the study group visited Malta on 21-23 March 2001(1).

2. Assessment of Malta's progress towards accession

2.1. The history of Malta's relations with the EU, the political, economic and social background, the negotiating process, the progress of negotiations, an assessment of areas of potential difficulty, the state of the social and civil dialogues in Malta, the impact of accession on selected sectors, the attitudes in Malta towards accession and the issue of funding are all dealt with in a separate document.

3. Executive Summary

3.1. Malta does not have at present a clear political consensus on Union membership. The ruling Nationalist Party is in favour of immediate entry, believing that this is not only desirable from a historical and political perspective but is necessary to provide the incentive and the financial support to tackle Malta's acknowledged structural problems.

3.2. The Labour Party, on the other hand, would prefer to defer entry until the worst of these problems have been resolved, in the meantime, maintaining friendly relations with the EU and negotiating some form of free trade association, "Switzerland in the Mediterranean".

3.3. The Nationalist Party plans to hold a referendum on membership when the accession negotiations have been completed and, in any case, prior to the next parliamentary elections, which are due in January 2004 at the latest. The Labour Party has declared that, if it is returned to power at these elections it will withdraw Malta's application for membership, regardless of the outcome of the referendum.

3.3.1. The latest opinion polls show that the numbers in favour of immediate EU entry and those opposing it are almost equally balanced, with a substantial proportion undecided.

3.4. Currently, Malta fulfils all the Maastricht criteria except that of annual budget deficit. However, the accumulated government debt is around 59 % of GDP; while this is within the Maastricht criterion of 60 %, and below that of several Member States, it is on a rising trend which, if sustained, would take it above the reference level prior to the target accession date.

3.4.1. Malta's GDP in Purchasing Power Parities is 52 % of the EU average.

3.4.2. The economy is very export-orientated, with exports of goods and services amounting to 89 % of GDP in 1999. The EU is Malta's largest trading partner, accounting for 65 % of Maltese imports, and has a large trade surplus.

3.4.3. The principal economic activities are electronics, shipping, shipyards and tourism. Agriculture accounts for only 2,5 % of GDP; the agricultural industry is highly fragmented.

3.4.4. Malta is very densely populated, with some 1200 inhabitants per square kilometre; 21 % of the total land mass is urbanised.

3.4.5. The Maltese economy is dominated by micro-businesses, with 95 % of enterprises employing less than ten people.

3.5. The Malta-EU Steering and Action Committee (MEUSAC) has been formed with the objective of improving the transparency of the negotiation process by including all interested sectors.

3.5.1. Some of the bodies consulted by MEUSAC complain that there is not always sufficient time allowed for discussion to enable them to consult their members.

3.6. Malta's first National Programme for the Adoption of the Acquis (NPAA) was published on 18 September 2000.

3.6.1. Malta has received a four-year transition period under the Energy Chapter to enable it to build up strategic reserve stocks of oil.

3.6.1.1. The EU has indicated that Malta is most likely to qualify for a post-accession derogation in respect of the classification of its electricity supply system as a "small isolated system".

3.6.1.2. Malta has been granted a four-year transition period under the Chapter on Free Movement of Goods for the renewal of marketing authorisations for pharmaceutical products.

3.6.1.3. Under the Chapter on Free Movement of Workers, Malta has been granted a seven-year transitional period during which it may apply safeguards on the right of workers from other EU Member States to seek work in Malta. Malta differs from other candidate countries in that the post accession flow of workers is expected to be inward, whereas in the other applicant states it is expected to be from those states to the EU.

3.6.2. To date, Malta has opened 28 chapters of the acquis and provisionally closed 17. It hopes to open the chapter on Agriculture during the Belgian presidency.

3.7. There are some areas of potential difficulty which will have to be resolved during the negotiating process.

3.7.1. There are still some restrictions on the purchase of real estate in Malta by foreign nationals.

3.7.2. There is a need to strengthen the administrative capacity to enforce intellectual property rights (i.e. the police, customs and out-of-court settlement problems).

3.7.3. In order to comply with EU competition policy, Malta faces an intense two years of further legislative approximation, rigorous re-structuring and increased liberalisation and privatisation. The existing subsidies to the shipyards will have to be phased out.

3.7.4. In the Fisheries area, the NPAA identified problems with the 15 % customs tariff applied to exported fish and the need to continue to maintain the fisheries conservation zone within 25 nautical miles to conserve stocks.

3.7.5. There are some concerns in the EU with the detention rate in EU ports of ships flying the Maltese flag and the rate of flag-state inspections in Malta. Malta has the fourth largest fleet in the world, many of them oil tankers. The Malta maritime authority is far from being able to keep tabs on the ships registered in Malta, the overwhelming majority of which are the property of ship-owners from non-Member States.

3.7.6. The cost of meeting the environmental acquis is around 5 % of Malta's GDP. Problem areas include waste management and the availability, quality and cost of water supply.

3.7.7. The Agricultural acquis is expected to create problems. The question of Malta's protective tariffs for agricultural products will be one issue; another will be competition from the EU for Malta's fragmented and relatively inefficient agricultural industry.

3.7.8. Malta has requested transitional periods under the Working Time, Noise at Work, Temporary/Mobile Construction Sites and Use of Work-Equipment Directives. Some Maltese industrialists do not consider the transition periods requested to be sufficient.

3.7.9. Draft legislation to align Malta's consumer-protection policy with the EU Product-Liability Directive will be introduced this year but it is not clear how the Travel Package Directive will be enforced in the short term, since the relevant enforcement agencies will only be established in 2002.

3.7.10. Maltese businesses would like to see a high threshold of exemption from VAT and would favour the adoption of the zero-rating provisions current in the UK and Ireland. Fears are also expressed that pressure for the harmonisation of taxes in the EU would lead to an increase in the overall burden of taxation for Maltese businesses.

3.8. Consultation procedures between the Maltese Government and the social partners are formalised through the Malta Council for Economic and Social Development, a self-regulating, tripartite body consisting of representatives of employers' associations, trade unions and the Government.

3.8.1. At present, the involvement of the other elements of civil society is peripheral to this process rather than forming an integral part of it but it is generally accepted that this is the first step in an evolutionary process.

3.8.2. The Maltese Government is proposing the creation of a Malta-EU Joint Consultative Committee with six representatives from each side.

3.9. Certain sectors of the Maltese economy will be heavily impacted by EU membership.

3.9.1. Tourism is one of the major industries in Malta but its development will be hampered by lack of space, facilities and resources. The industry is also concerned about some aspects of Community employment legislation.

3.9.2. Shipyards and ship-building are an important, but loss-making, part of the Maltese economy. There is need both for a re-structuring programme and sensitive negotiation on how subsidies are to be phased out.

3.9.3. The manufacturing sector is concerned about the impact of several Directives in the field of EU Labour, Employment and Health and Safety Legislation. A very high proportion of businesses in Malta are micro-businesses which are not unionised and cannot therefore negotiate special customised agreements.

3.9.4. Bird hunting is a popular sport in Malta, with some 15000 adherents. They are concerned that EU legislation will curtail or even abolish their sport and are unlikely to vote in favour of accession unless a satisfactory compromise can be achieved.

3.9.5. The island of Gozo suffers from the problem of "double insularity" and its inhabitants perceive a need for assistance from the EU on the most favourable terms possible.

3.9.6. Compliance with the EMU acquis is conditional on the completion of the process of liberalisation in capital movements.

3.9.7. The back-log of cases in Malta's Civil Court is a cause for concern. Although the Maltese authorities have taken steps to address the problem, entry to the EU is likely to create an increase in litigation which would exacerbate the situation.

3.10. Unlike the CEEC candidate countries, Malta is not a position to benefit from ISPA or SAPARD funding. The Committee believes that the ISPA programme should be extended to cover Malta.

4. Conclusions

4.1. It is generally accepted in Malta that, regardless of the question of EU membership, significant structural reforms need to be implemented to enable Maltese society to adapt itself to a changing world in order to be able to compete in an increasingly globalised economy. There are those who feel that the present pace of change, driven by the need to meet the requirements of the acquis communautaire within the government's pre-set timetable for accession, is too frenetic and that it would be preferable to proceed at a more measured rate but there can be no doubt that the prospect of EU membership is acting as a catalyst for change and it is questionable whether, without this stimulus, the necessary reforms would, in fact, be implemented.

4.1.1. Certainly, the government is succeeding at present in transposing considerable portions of the acquis at a remarkable rate. They are also clearly determined to complete the process of adopting the acquis within their deadline.

4.2. There is a need for capacity building within the public-sector infrastructure. It will take time to create the organisation needed to give effect to the mass of new legislation required for adoption of the acquis and to ensure an adequate level of enforcement. There is also a need to enhance the ability of the Judiciary to handle the volume of resulting litigation.

4.3. There is a tendency for those who are opposed to EU entry to castigate information programmes initiated by the government with EU assistance as "propaganda". However, many respondents have indicated that there is a general lack of understanding amongst the Maltese people of the issues involved. Given the far-reaching consequences of the decision which has to be taken, it is obviously desirable that, when they come to exercise their vote in the referendum, people should be fully informed of the issues involved.

4.4. To date, Malta has requested some derogations and has asked for a number of transitional periods. Some industrialists feel that the transition periods requested are not sufficiently numerous or lengthy. On the other hand, the number of transition periods requested is amongst the highest of all the candidate countries to date. This in part reflects the problems posed by Malta's island status and the need to present an attractive package to the Maltese people.

4.5. Malta has a well-developed social dialogue, which is in the process of being further enhanced. At present, NGOs and other civil society organisations are peripheral to this process rather than forming an integral part of it.

4.6. The Maltese government has established a wide-ranging consultation process on the subject of EU membership through the medium of MEUSAC. There are some complaints that the volume of information and the truncated time-scale for responses is impairing the ability of organisations, and particularly voluntary organisations, to give a measured response. Concerns were also voiced to the delegation that the government declined to make public the results of its impact assessments or that the results were only divulged when the negotiated position had already been submitted to Brussels.

4.6.1. Following the delegation's visit to Malta, the government announced that the results of impact assessments would be published from April 2001.

4.7. Malta has a comprehensive social security system, which compares favourably with those found in the majority of Member States.

4.8. The Committee welcomes the proposal to set up an EU-Malta JCC but would point out that JCC delegations on both sides are customarily drawn from representatives of the social partners and other elements of civil society. Given the fact that JCCs act in an advisory role to governments, it would seem incongruous to have direct government representation on the delegations.

4.9. The Committee considers that consideration should be given to extending eligibility for ISPA funding, both on a pre-accession and post-accession basis, to Malta.

In order to present an acceptable package to the Maltese people, the negotiating process will have to result, as a minimum, in a satisfactory outcome to a series of issues which are discussed in a separate document. Malta's negotiators will have to identify, preferably at an early stage, what the fall-back position will be if their negotiating stance on key elements is not acceptable to the EU.

4.10. While it is generally accepted in Malta that an application to join the European Union implies a commitment to adopt the acquis communautaire and that there can be no question of an "à la carte Europe", there is a belief that it is unreasonable to refuse to extend to the applicant countries derogations and transition periods which are currently being enjoyed by existing Member States or to expect that the standard of enforcement in the accession countries should be higher than in the present Union.

4.11. In terms of economic, political and social development and in relation to the progress made with the adoption of the acquis, Malta is well-placed to be in the forefront of states entering the Union. The question remains of whether the political will exists to achieve this.

Brussels, 11 July 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) Report on a fact-finding visit to Malta conducted as part of the preparation of an opinion on "Malta on the road to accession" R/CES 460/2001.