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Baroness Shriti Vadera, Minister for Economic Competitiveness, Small Business and Enterprise (jointly with Cabinet Office)
Business for New Europe Event, 07 May 2008
I would like to thank Business for New Europe and especially Roland for tirelessly championing a positive vision of Europe. A cause I want to support by setting out the economic and business case for enlargement.
I could give you the short answer which is that enlargement is an overwhelming force for good. Not least because the new member states have earned their spurs on economic liberalisation and reform.
So an enlarged Europe is a reforming Europe. And that is essential for britain, for Europe, and something we constantly worry about, a stand against the rising forces of protectionism, especially in the current financial environment. A reforming Europe can define the terms of globalisation as being successful, inclusive and a source of prosperity rather than insecurity.
As Roland said, for this vision to succeed we must press ahead with key reforms within Europe to make it an outward facing global Europe not an inward looking parochial Europe. And the new member states are allies in this mission.
The single market has helped drive the EU economy - since 1992 it has created 225 billion euros per year of wealth and 2.75 million jobs have been created. And the EU has made great progress over the last few years in opening up economic opportunities for its businesses. The last two phases of enlargement have bought more than 100 million new consumers into the EU single market.
Since 1999 trade between UK and other members states has risen by nearly 50 per cent to over half of total UK trade. Over 40 per cent of our total outward investment is in the EU and around 50% of inward foreign investment is from the EU.
The most visible signs we see has been for consumers - :
The single market has meant higher GDP – in 2006 2.2 per cent higher than it would otherwise have been - an average increase of £360 per head.
Each successive wave of enlargement has created new jobs, new markets and new opportunities for investment.
When Spain joined the EU, UK trade with the country rose by 30%.
The 2004 enlargement made the EU the world’s largest single market.
While new accession countries’ economies are relatively small, they are a part of the high growth of the global economy.
Romanian and Bulgarian economic growth has recently averaged 5% a year and our trade with Romania has more than trebled in a decade.
And there is every reason to suppose that this phenomenon will continue with new and future EU candidates. The prospect of membership remains the best incentive for encouraging political and economic reforms in candidate and neighbouring countries, and that is an important part of the globalisation.
We are therefore a strong supporter of further EU enlargement to Turkey, Croatia and the Western Balkans.
Turkey is one of Europe’s fastest growing economies and a predominantly young population.
Turkey’s membership would lead to serious trade integration, beyond that covered in the customs union, e.g. agriculture and services.
And as energy security of supply becomes an increasing challenge for everyone, Turkey is already a key transit country for gas into the EU as it borders some of the richest hydrocarbon territories in the world. We believe its accession could help improve access even further through market liberalisation and effective regulations.
But we cannot underestimate the challenge we face in making and winning the case on the economic advantages of EU enlargement. In particular fears around migration and what is sometimes seen to be unfair competition.
It would be naïve to believe that a further round of enlargement will not be met with a heated debate around the impact of further immigration on the EU economy. So we have to win the case for the benefits of migration, whilst acknowledging and addressing the challenges that migration can create for local communities.
The commission’s 2006 study into the economic impact of enlargement, showed that the three countries that opened their labour markets properly and fully – the UK, Ireland and Sweden – were among the best for employment rate growth, relative to those who did not.
The UK has benefited substantially from workers from the A8 countries, plugging gaps in the domestic labour market and so contributing to our strong growth. Many would say we would struggle to deliver projects such as Crossrail without this labour.
We also need to face general fears that these countries will not be ready to join, and not be competing fairly with our businesses.
The key lessons from past enlargements have been the importance of ensuring that countries are fully ready when they join and distortions are not created in the single market.
So the requirements around market access and liberalisation are more rigorous and more carefully monitored than ever before. And the EU no longer endorses target dates for entry until accession negotiations are almost complete and the EU is fully satisfied that the country is ready.
We need to face up to myths about the ease of doing business in some of these countries.
The reality is new member states have some of the lowest rates of infringement of internal market rules. And importantly, they also tend to be more free marketeering which is crucial.
Barriers to market entry and risk are significantly lower than in many other fast-growing overseas markets.
There are specific fears around new countries, in particular Turkey where there are current market access disputes. It is crucial that we continue to press for reform and removal of barriers.
UK trade and investment has designated Turkey as a high growth market reflecting its importance as a trading partner.
But we know that a single European market even if enlarged is not an end but a means. Competition no longer stops at the doors of Europe. Europe needs to compete in the global economy.
We need a global Europe, one that through the reform and competitiveness created by its internal single market able to be outward looking and flexible. Able to harnesses its skills, innovation and creativity to compete globally.
And this necessity is highlighted even more as we face the threat of arguably the first economic crisis of globalisation which is showing signs of drift towards protectionism.
And so while I have made the more traditional arguments for enlargement, for me the key is the role the new member states play in supporting reform and the growth agenda within Europe. I will mention just two specific areas of reform.
First it is essential to focus on continuing reform, modernisation and implementation of the single market.
We want full implementation of the EU serivces directive to make the free movement of services a reality not just an idea. Full implementation could be worth between £4 and £6 billion per year to the UK, and some 80,000 new jobs and up to 600,000 new jobs across the EU.
This is why we are also pushing for the full liberalisation of the EU’s key network industries – energy, post, transport and telecoms.
Full market opening in energy, for example, could increase cross-border trade in electricity, and reduce EU prices by up to 13 per cent. At a time of increasing fuel prices this could be an invaluable global competitive advantage for European businesses.
I believe we also need to take a look at the issue of patents. It can take almost four years to register for a European patent. For a small business, that makes the exercise somewhat academic. Yet innovation and protecting its benefits is essential for any European company to be globally competitive.
Second, we need a European governance structure that understands the need to reduce the regulatory burdens placed upon business.
We have 23 million small businesses, but no one used to talk about them. Now we know that approximately half of regulation impacting british business is agreed at an EU level. We also know that the burden of regulation is felt disproportionately by small businesses who are a source of productivity, growth and global competitiveness in our economy.
The European commission is looking at their impact assessments of their proposals on business. As an indication of the quantity, if not always yet the quality of the work, the commission has carried out around 300 impact assessments since 2003 – and has actively sought our help of countries to improve its systems.
And we have already seen some proposals dropped as a result of assessment. For example a proposed EU witness protection law and a new law on voting rights for share holders.
But we have some way to go. Only about 10% of the commission’s impact analysis contain global figures on the overall costs and benefits of a proposal. But we know we need to get this to a 100%.
And also we need to look at the stock of existing EU rules. There are grounds for optimism – with our strong encouragement and like-minded member states, the commission has committed to reducing the administrative burden of regulation on business by 25 per cent by 2012.
The commission is looking to simplify about 40 directives and regulations – saving UK business some £500 million. We don’t think that is ambitious enough – for example our models suggest that simplifying EU company law directives alone could save UK businesses £180 million per annum.
This is why John Hutton has asked the EU to look at exempting wherever possible or simplifying new regulations for small businesses with fewer than 20 full time employees.
When I last attended the competitiveness council in slovenia, a consensus emerged about the need to tackle regulatory burdens for small businesses. But what was notable was this coalition was led by the new accession countries.
For other member states I also sense the mood had shifted. Not just in the new accession countries but also in france, germany and italy as well, a greater focus on the competitiveness of European businesses.
This consensus is a real opportunity for European reform.
You need to use this opportunity – they now want to hear what business has to say and I believe that the voice of business is crucial in this debate. I urge you to use it and make the case for reform.
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