Simon De Cesare, MBB President
This Opinion Piece featured on The Sunday Times of Malta, on 20th September 2020
The European Commission is currently in the process of renewing its trade policy for a stronger Europe. How is something so academic relevant in practice for our businesses and local economy? Very much so.
First and foremost, being part of a small open economy, Malta depends almost entirely on international trade for both imports and exports. As a country that can never be self-sufficient, we are directly impacted by anything that goes on internationally, many times, without having any control on developments.
The last years have been far from serene for the international trade environment due to several economic and geo-political tensions: the US has gradually become more protectionist; China, with a centrally controlled and heavily-subsidised economy, has become more influential globally; the uncertainty created by Brexit; and, more recently, the COVID-19 crisis.
The complex but ordinary way of governance in international trade has been challenged with unilateralism superseding multilateralism. The world’s trade governing body, the World Trade Organisation (WTO), became partly dysfunctional since its failure to renew the mandate of its Appellate Body last December due to members’ disagreements, rendering its dispute resolution body, an essential function for international trade, effectively void.
International trade breathes life and is intrinsically linked to the real economy, particularly because of supply chains that have evolved with globalisation over the last decades; but not just.
For instance, two dispute cases adjudicated by the WTO last year, by the US against the EU for subsidies to Airbus and by the EU against the US for subsidies to Boeing, both deemed irregular, ultimately will impact companies as a result of counterbalancing measures imposed by both parties on each other through higher tariffs on economic sectors totally unrelated to the aviation sector.
In light of all developments in international trade, Malta has an interest in seeing a strong EU using the leverage of representing a market of 500 million consumers when participating in international fora to shape global rules for trade, as well as when negotiating bilateral free trade agreements with third countries. The EU is in a better position to obtain good trading conditions for Maltese businesses looking to import and export, by bringing tariff and non-tariff barriers down to increase our competitiveness.
There are those who argue that trade agreements work more for the larger multinational companies and less so for SMEs. In Malta’s case, where the fabric of our economy is made almost entirely of SMEs and microenterprises, we require the EU to ensure that opportunities for trade are open for companies of all sizes. The main purpose of trade agreements is to reduce the cost of doing business abroad, but SMEs require special support to make good use of such agreements, particularly because of their often lack of experience trading with third countries and the different rules and culture of doing business.
One must acknowledge the EU’s efforts on this so far. To start with, recent trade agreements have included an SME chapter to improve transparency and increase access to information, which is a positive development, yet experience shows that more monitoring and enforcement is required as SMEs reportedly continue struggling to access procurement opportunities in third markets for instance, where barriers often remain, despite the trade agreements.
More visible information on the applicable legal frameworks and data on FDI flows would be useful to help SMEs make better-informed decisions. Ideally, rules in trade agreements negotiated with different partners are aligned as much as possible, to create a level playing field for SMEs that wish to compete globally. Also, SMEs would be able to make better use of trade agreements if there are less administrative burdens in determining rules of origin, for instance, to benefit from preferential tariff rates. For this, the Commission should ensure that its Market Access Strategy is implemented effectively.
Trade agreements are pointless if they remain on paper and on the implementation side, the responsibility does not only lie with the EU, but also on local public authorities and business representative organisations, to promote opportunities offered by EU trade agreements extensively. More can be done to inform SMEs about opportunities of internationalisation and encourage them to do business outside the EU. By working together, the relevant government departments and the local consortium of the Enterprise Europe Network (EEN) can expand the information and advisory services to reach more companies.
However, together with reducing barriers to trade as well as promoting trade opportunities, both at EU level and on the local front, companies also require continued access to finance to make a step towards international markets. This can be made possible by tailored EU financial instruments made available through local financial intermediaries and also by ensuring an efficient banking system that serves the needs of local businesses looking to internationalise, with an uninterrupted access to international transactions in multiple currencies.
As the international economy goes through a slowdown, we need to ensure that companies are prepared to make best use of tools available to them, including EU trade agreements with third countries, to look for and find new opportunities that will allow them to sustain operations and diversify markets, in order to position themselves strongly beyond the COVID-19 crisis.