Cost of Labour's alternative

2003 will be a decisive year. Now that the conditions of membership are fully known, voters will seriously compare them with Labour's alternative. As nebulous and indeterminate as the alternative is, no wonder it has gone through several name changes! Yet voters know enough of its inevitable consequences to engage in careful deliberation.

Its fuzziness stands in contrast to the clarity of the terms of accession. Malta's voters will decide whether the accession package allows our nation to pursue and prosper in its European vocation, occupying its rightful place as a member of the European Union.

The economic considerations are momentous for all the candidate countries. A recent study of the Commission estimates that enlargement will boost GDP growth in the acceding countries by between 1.3 and 2.1 percentage points annually. In existing members, it is likely to increase the level of GDP by 0.7 percentage points on a cumulative basis.

The accession of current members set the stage for their sharp economic progress. Just look at the performance of Luxembourg, Ireland, Portugal and Spain. When the latter three joined and we didn't, their economies swept ahead of ours.

Once again, Labour would deprive the country of the opportunity to catch up. The economic reasons are as nebulous as their partnership game.

Malta less attractive

First of all, rejecting membership will have serious implications for our trade relations not just with the EU but also with most of our other actual and potential trading partners. All that we'd be left with is an Association Agreement with the EU that dates back to 1970. On the other hand, the other candidate countries, like Cyprus, would gain full and immediate access not just to the EU market but also to other countries with which the EU has established trade agreements.

The list includes over 100 countries. In addition the EU is also negotiating special trade agreements with the Mercosur members (Argentina, Brazil, Paraguay and Uruguay), along with Algeria, Croatia, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. The business opportunities available in these developing markets are enormous.

Over the past 30 years, Malta has not managed to reach any significant trade agreement other than the 1970 Association Agreement with the EU. Looking forward, it is quite unrealistic for Labour to anticipate that Malta will reach individual agreements with even a small number of countries. The reason is obvious: the Maltese home market is very small, offering limited prospects for exporters in other countries. In any negotiations, the other side knows that the opportunities that a trade agreement with Malta would open for its exporters are not symmetrical.

Not that long ago, the importance of access to the EU's trade agreements inspired one Opposition member to entertain the remarkable idea of Malta remaining outside the EU, but riding piggyback on the EU's agreements with countries around the world. That such an arrangement is impossible outside membership is shown by the fact that this outlandish proposal was never brought up again.

Rejecting membership would not alleviate today's constraints on where our industries source their industrial supplies. A number of investments have turned to alternative locations because of limits on market access and sourcing flexibility.

In addition, businesses have located themselves in Malta on the assumption Malta would joins the EU, and may decide to close shop if we reject membership. After all, most of our exports are directed to the EU and it is only logical that exporters want the conditions that will best allow them to penetrate the EU market.

With Malta outside the EU, companies engaging in research would have to self-finance their limited participation in EU research programmes, while EU member states would benefit from free and unlimited participation in the same programmes. The benefits accruing to the Maltese businesses from students and workers taking advantage of the EU educational programmes will diminish as non-membership implies that access to these programmes will also be limited. Will such companies still find Malta as a good location to nurture their investment in?

Incentives uncertainty

After long and hard negotiations, the EU accepted the industrial incentives offered by Malta. Investors have peace of mind that the present successful system of incentives will be maintained until 2008, by which time a new incentives programme will be devised.

Unless, that is, Alfred Sant has his way. The transition period for developing countries to take on board the WTO agreement on Subsidies and Countervailing Measures comes to an end in 2003. Investment incentives offered by developing countries will be in the limelight.

If we spurn EU membership, our incentives structure would have to be negotiated again. However, this would be at the WTO level and without the benefit of belonging to a massive economic union, the EU. It will be much harder for Malta to have its particular handicaps recognised and its specific characteristics respected in such a large forum with so many different countries protecting their own turf.

Agriculture

At the WTO, there is a commitment to the liberalisation of agriculture. The issue is not whether, but only of when agriculture will be liberalised. Labour's posturing on this issue will not block the inevitable.

The process of EU membership has made us try to find the best way for this sector to stand on its own feet. In addition, Malta negotiated a longer transition period, during which time safeguard measures will be taken in the event that liberalisation generates a significant negative impact.

Since liberalisation is inevitable, the faster our agricultural and agro-business sector catch up with their foreign competitors the better it will be for them and for consumers. Further postponing the needed change will only make it harder when the inevitable catches up. This is the right way to approach the challenges faced by the agricultural sector. In contrast, Labour's grandstanding is a recipe for stagnation of our farms.

There is also the issue of agricultural products that are not produced in Malta. The EU is proposing in the WTO agriculture negotiations to slash its export refunds. The EU is also proposing to reduce its import tariffs. Developments at the WTO and in the EU itself are showing the emptiness of Labour's grandstanding. Labour's objections are already outdated.

Lower credit rating

Malta's credit rating is likely to be downgraded if we do not join the EU. Two major credit rating institutions have indicated this categorically. In Moody's words, "the country's status as a front-runner to join the European Union in the next enlargement round is an important rating support". Fitch IBCA has stated: "Staying out would damage Malta's creditworthiness unless a new government were clearly determined to retain and develop the parts of the EU acquis that are starting to enhance the efficiency and competitiveness of the Maltese economy".

Policies inconsistent with what is necessary for the adoption of the acquis and for membership would diminish Malta's credit rating, making it even more expensive for Malta to borrow. The greater risk implied by non-membership will have to be compensated with a higher return to Malta's lenders.

Costly alternative

The Labour Party's bean counters are illogically struggling to diminish the extent to which Malta would be a net beneficiary from membership. However, they should answer the other question: how much would their alternative cost?

You have to hope that a budget-cutting Alfred Sant has enough sense not to dismantle the capacity building brought in by the adoption of the acquis, such as at the Malta Standards Authority. In or out of the EU, harmonisation is essential, whether in product standards, intellectual property rights, customs procedures and so on. The adoption of common trade rules is just as crucial for a free trade area as for an economic union.

Outside the EU, our limited access to the Union's educational and research programmes would have to be financed from Maltese sources. The agricultural sector will still have to be helped to restructure. However, no funds will come from the EU.

The Labour Party tried to muddle this issue by referring to the funds available under the Euro-Med process. Only that Malta has been benefiting from this programme since its inception, in 1995. Being one of the richest countries in the Euro-Med group Malta does not qualify for the most generous part of the Euro-Med aid programme.

Another chance for EU membership is unlikely, and even if it ever became possible it would be on very stiff terms. Malta's package would have to satisfy not only the current 15 countries, but also at least another nine. Is Malta ready to take this risk? For an alternative that the EU has consistently brushed off, and whose particulars are at best fuzzy, and likely to remain so!