The price of staying out

Iceland's Minister of Foreign Affairs and External Trade visited Malta last week. My meeting with the minister, Halldor Asgrimsson, dealt in part with the relations between the European Union and Iceland, a small country that is outside the EU.

As part of the European Economic Area (EEA), Iceland is party to the four freedoms - free movement of goods, labour, services and capital. Therefore, Iceland is part of the European single market.

It also stands to benefit from the EU's expanded internal market following enlargement. As a result, the EU is asking Iceland to foot part of the bill by contributing funds into the EU's structural fund, one of the funds that will soon be tapped also by the new member states, including Malta.

Iceland already contributes about x1.5 million annually into the EU's cohesion fund, and there is now the expectation of a far larger contribution to the structural fund.

This is among the considerations that are prompting questions in Iceland on that country's status inside the EEA but outside the EU. A debate is being kindled on the possibility that Iceland may choose to seek EU membership in the near future.

When Iceland joined the European Free Trade Association (EFTA) in 1970, this bloc included many of today's EU member states like Sweden and Austria. The situation has since changed drastically.

The economic weight of EFTA has diminished and it now has only four members: Iceland, Norway, Liechtenstein and Switzerland. At the same time, membership in the EU has grown with successive enlargements, and will do so again at the next enlargement.

In Iceland, there is a feeling of being left out, and of not having a say in the matters affecting the nation.

This sense of exclusion was exacerbated following the Maastricht and Nice treaties, which give additional powers to the EU Council of Ministers and to European Parliament.

As part of the EEA, Iceland has been able to sit on various technical committees established by the European Commission, and this has given it influence in various matters. For, as the Icelandic Minister put it, influence is not necessarily restricted by a country's small size.

First and foremost, influence depends on a country's ability to have able representatives participating within the appropriate fora. However, as a non-member, Iceland cannot be represented in the EU's Council of Ministers or in the European Parliament. And not being there deprives Iceland of influence, especially in the light of the additional powers of those two EU institutions.

According to the Icelandic minister, this negative experience is paralleled in Switzerland. When it opted to stay out of the EEA and to seek just a special relationship with the EU instead, Switzerland cut itself off from representation even at a technical level on the various committees established by the EU Commission. Nevertheless, even Switzerland has to abide by, and implement decisions taken in Brussels.

This last point about the importance of participating in the EU's decision-making process was echoed in recent remarks by the Swiss ambassador to Malta.

The main obstacle to Iceland's EU membership has been the Union's common fisheries policy. Fishing is especially important to Iceland. It represents about a quarter of its GDP and as much as three-quarters of its export of goods. Iceland, which maintains a unilaterally declared 200-mile exclusion zone, has been very reluctant to share its vast fishing wealth with other countries.

However, with Malta's successful negotiation of a 25-mile fisheries management zone, there is now interest in the possibility that Iceland's overriding pre-occupation with its fisheries resources can be successfully negotiated and accommodated if a fresh approach to the issue is considered.

Out of touch

In his Wednesday contribution to The Times (November 20), Dr Alfred Sant remarked: "If Malta applies all the rules and policies of the EU, she would at best have the same cost and tax structures as other EU countries. Under such conditions there would be little to no incentive to invest in Malta, since the added transport costs would make Maltese output uncompetitive with that from EU countries."

This is odd, coming from Dr Sant. After all, it was his government that promised to sign up for the EU's competition rules. It also shows that Dr Sant must be getting out of touch with the outcome of the current negotiations. Or his visceral opposition to EU membership keeps getting the better of him.

As a matter of fact, in the outcome of the competition negotiations, the EU has recognised the need for Malta to provide state aid, under the Business Promotion Act, that is commensurate with the added transport costs that are incurred by Malta's manufacturers. So much for Dr Sant's argument.

In addition, there is more to competitiveness than transport costs. In this column, I have had the occasion to stress that it is only with membership that our manufacturers will get truly complete access to EU markets along with full sourcing flexibility. Not to mention access to the markets in those countries that have trade agreements with the EU.

In addition, the partnership route can never match membership when it comes to other ingredients of competitiveness - like the facilitation of training and the promotion of research and development.

The killing fields

We were reminded during the week of the emptiness of certain political rhetoric. We have witnessed the Labour Party flaunt its opposition to levy removal, with dire predictions of "killing fields" strewn with the thousands of redundancies resulting from levy removal.

Well, far harsher medicine was in the works under the last Labour government. We have been reminded that the last Labour government was set to implement a draconian "national restructuring plan" that envisaged the firing of 10,000 workers.

We are talking about the same ex-prime minister who had no compunction in tripling household water and electricity rates - the one who did not flinch from the plan to raise industrial utility rates tenfold.

If Labour's restructuring was to be effected with the same finesse and the same gentle touch that were the hallmarks of that government, then the country was in for a rough ride that was averted only by the general election of 1998.

Now the General Workers' Union has developed selective amnesia on the matter, and an MLP spokesman dismissed it as a fairy tale. They must have forgotten about the crucial meeting called by the Labour government, or of the presentation to the MCED. How convenient!

Further investment

Over the past two weeks, I visited two important foreign-owned manufacturers. The two firms, De La Rue and Pharmamed, have chosen Malta over other locations for an expansion of their investments.

De La Rue, a world leader in security printing with operations around the globe, will be investing a further Lm3.5 million in Malta. The company shut down its plant in Singapore, transporting machinery and operations from there to Malta.

Over the last five months, employment at De La Rue has grown by over 100. The workforce has now reached 465, of which 100 have been with the company for 27 years.

The top quality of its employees shows up in the fact that engineering and technical personnel working are Maltese, capable of carrying out all necessary repairs on machinery.

Pharmamed has concluded the first phase of its upgrade programme and plans to start manufacturing for the EU market by early next year. The company is a high-volume maker of generic pharmaceuticals, employing around 250 highly skilled persons.

Delta Ltd, an Icelandic company that purchased Pharmamed last year, has merged with Pharmaco, a multinational company specialising in the development and sale of generic products. It has operations in ten countries and employs over 5,300 persons.

Pharmaco has other production plants in Iceland and Bulgaria, but it is transferring a vast part of its production requirements to Malta. It will invest approximately Lm2.5 million to upgrade Pharmamed's tabletting facility, making it fully compliant with EU regulatory requirements.

The upgrading programme is in three phases, to be completed by next year. There is Lm2 million in planned additional investment next year in a new packaging facility that will be in operation in September.

The Malta Development Corporation helped to finance the upgrading project. Pharmaceuticals are one of the areas promoted in the Business Promotion Act, and targeted by the MDC.

The choice of Malta for the investment by these companies is another indication that Malta offers a good package for such high value-added activities.