Cost of living

If Malta joins the EU, will prices go up or down?

Prices are affected by several factors - so there is no clear cut answer to this one.

Take competition, for instance, which is at the root of EU membership and to which we will certainly be increasingly exposed if we join the EU. There is no doubt that open competition puts pressure on prices to come down.

For example, when the decision was taken in 2000 to liberalise the telecommunications sector, as a result of accession negotiations in this area, a new mobile telephony company was set up. Competition was introduced. And prices came down both with respect to the telephone units themselves as well as with respect to the costs of the calls.

Of course, the market also grew. Mobile phone users soared from a few tens of thousands to more than half the population.

Or take levies. If we join the EU we join a single market and therefore we can no longer charge levies - taxes - on goods that we import from the EU. Clearly, if you remove levies, the price of imported products goes down. But not only. Increased competition should also put pressure on the price of locally-produced to go down.

A case in point is furniture. The removal of levies on imported furniture should lead to a very visible reduction in the price of furniture, both imported but also local.

There are also other products, such as food and agricultural products where we still charge hefty levies on imports. Here again, prices will go down once you remove the levies. Price competition will exist even among imported products themselves and not just between imported products and local products.

Food items where prices will go down range from pork to chicken and from fruit to vegetables.

But there are also areas where prices may go up.

Take the new EU standards that are being introduced as part of our preparations to join the Union. Whether hygiene standards, environmental standards, health and safety standards.

Clearly high standards do not come for free. They come at a cost - often at the cost of the local business community. Although EU reports often argue that adopting these standards would, in the medium-to-longer-term prove financially beneficial for the businesses themselves, it is clear that in the short term, these added costs may lead to higher prices being charged by these businesses.

Where significant investment is required and where the burden lies flatly on the private sector, Malta has sought, during negotiations, to obtain a longer time frame to enable local industry to adapt to these higher standards in a more gradual manner.

This is the case with environmental standards and also with some aspects of health and safety, for instance, with safety standards of equipment and machinery where we have been given until 2006 to adapt.

There are also two specific areas where EU rules can directly affect food prices upwards.

Firstly, EU rules provide that VAT of at least five per cent should be charged on food items. In Malta, we do not charge VAT on food and clearly if we did, food prices would have to go up. For this reason, during negotiations, Malta requested an exemption from this rule in order to continue to exempt food from VAT. Negotiations on this issue are still in course.

Secondly, some agricultural food products which we currently buy at international market prices would become dearer if we join the EU. This is because owing to the expensive EU subsidy system in place in agriculture, certain agricultural products are more expensive in the EU than outside it. This affects products such as wheat - and therefore our bread - as well as sugar - and therefore our confectionery and sugar products. Equally, the price of certain agro-food products, such as meat, imported from outside the EU would also go up.

Again, in the face of the prospect of prices going up on these essential food items, during negotiations Malta is making the case that even as an EU member, it should continue to buy these items at cheaper international market prices. Moreover, the EU itself is unhappy with this situation and is embarking on a revision of its agricultural policy.

If both these requests are accepted then the price of food should not be affected or would only be minimally affected. However, both these two issues are still being negotiated and the outcome is not yet known.

Malta-EU Information Centre: Tel: 25909192; Fax: 21227580; E-mail address: euinfo.mic@magnet.mt; Website: www.mic.org.mt

Readers wishing to put questions to Dr Busuttil may do so directly with the centre or through The Times.