Promoting efficiency

The recent press release by the Federation of Industry (FOI) and its position papers published in The Times this week, on the subject of the removal of levies on agro-food products, unfortunately provide an incomplete analysis.

Quite misleading is the reference to alleged 'concessions' to the EU as far as the removal of tariff barriers is concerned. It is necessary to remember that Malta is only now completing the dismantling of levies on various industrial products (such as furniture) that have enjoyed duty free access into the EU ever since Malta's Association agreement with the then European Economic Community in 1970.

Furthermore, on those food products on which the EU currently imposes tariffs, the protection thus afforded is largely much lower than the levies applied by Malta. One must also note that EU tariffs do not even cover all of the products on which Malta is still applying levies.

What was also not mentioned is that levies on agro-food products will only be reduced by a maximum of 30% over a 16-month period, with the remaining levy only to be removed following EU membership.

During a meeting at the Ministry for Economic Services, representatives from most of the producers involved specifically confirmed that this 30% reduction in levies is something that they can absorb without undue problems given their commitment to restructure and their endeavour to increase productivity, thereby enhancing their competitiveness. Both Government and the FOI agree that this is the only viable way forward.

In the meantime, a number of FOI members have specifically requested the Government to seek duty free access (into the EU single market) for their agro-food products, even before EU membership. This request has been endorsed by the FOI and is being supported by Government. The message being conveyed is that the earlier we gain access into the EU's single market, the better it will be for industry in Malta.

Another issue being raised by some industrialists operating in the agro-industry is that the poor quality of water that is increasing the costs on industry. In order to meet water quality criteria, investment in groundwater polishing plants is required. This is an investment project which is being planned, also as part of our accession process, in order to conform to the more stringent requirements on water quality that the EU requires.

A common theme mentioned in the position papers was the need of financial assistance for the necessary restructuring. Such assistance exists under IPSE and there are already a number of companies in the food and beverages sector which are benefiting from this assistance. In fact IPSE committed Lm728,316 between 2000 and 2002 for this sector.

Shipyards

Thefourth meeting of the Joint Mixed Economic Commission between Malta and China was held last week. The Chinese government has put at the disposal of the Maltese Government four grants of about Lm150,000 each to assist identified areas of economic cooperation between the two countries.

The first two of these grants, amounting to Lm300,000, have been allocated for the purchase of plant and equipment form China to be used in Malta Drydocks (MDD). The bulk of the equipment has already arrived at the MDD now and the necessary testing and installation has already taken place.

Most of the grant was spent on the purchase of switchgear, cables, frequency changers and other electrical equipment that will be used to upgrade the electrical infrastructure at the Malta shipyards.

Other items of equipment purchased include engineering equipment for use in the MDD workshops such as a balancing machine that has been already installed and is fully operational. Thus this grant will help to enhance the productivity of shipyards.

The shipbuilding and ship repair sector in Malta is going through a very needed process of restructuring. The retirement scheme was another step in increasing its competitiveness. Plans are currently being devised to enable the training of a number of shipyard employees in the United States so as to be able to focus on the large or super yachts sector, which is a very highly profitable sector.

Some elements within the Labour Party continue to state that EU membership will imply the closure of Malta's shipyards. This is not so and in fact the local shipyard lost a lucrative cruise ship conversion contract due to Malta not being part of the EU with the result that the UK provided a state subsidy that Malta could not match. Had Malta been in the EU such aid would not have been allowed, as it would have discriminated against an EU member state.

In the case of shipbuilding and ship repair, the EU allows aid for the rescue and restructuring of undertakings in difficulties, including capital injections, debt write-offs, subsidised loans, loss compensation and guarantees, provided that these are a one-off operation and there is a genuine and irreversible reduction in operational capacity.

The EU also allows state aid granted for innovation in existing shipbuilding, ship repair or ship conversion capacity subject to maximum aid intensities. The aid intensity allowable increases for regions that have lower economic prosperity as Malta. Aid granted for the expenditure on research and development projects and for environmental protection is also allowed.

The EU is constantly publishing approvals for state aid. For example in June the EU allowed state aid to ship yards amounting to €29.5 million to Greece for early retirement. In this same month Netherlands was allowed to give state aid to its shipyards of €51.1 million for restructuring.

Spain was allowed to provide state aid of €171 million per annum for closure, restructuring, innovation, regional aid, research and development and environmental protection from 1999 through 2003.

In March Italy was allowed stated aid for efficiency improvement investment in shipyards to the tune of €7.2 million to Castellamare, €4.1 million to Marghera, €3.8 million to Monfalcone, €4.4 million to Palermo, €0.2 million to Pellestrina, €6.5 million to Genoa, €0.7 million to Marittima di Carrara, €0.9 million to Ravenna and €0.6 million to Messina. This amounts to a total of €28.4 million.

One must note that Norway, which is part of the European Economic Area, aligns its state aid rules with EU legislation. In addition also WTO rules, specifically the multilateral agreement on Subsidies and Countervailing Measures, which Malta as a developing country will have to fully abide with by 2003, has very stringent criteria on allowable state aid. Thus the Labour Party is not correct in stating that with a non-membership relationship with the EU Malta would be able to decide for itself on state aid to shipyards.

Thus the EU intends state aid for the improvement in the competitiveness of shipyards rather than as a constant aid for its operation that also implies a continuous drain on the government's finances. Of course, if such rules did not apply, Maltese shipyards would never be able to compete with those of other countries that are much richer and therefore can afford more generous handouts to this sector.

The government is working so as to improve the efficiency of the local shipyards. It is convinced that this sector has a great potential and can become competitive and thus increase its contribution to GDP rather than act as a dampener as at present.