WP11, Chapter 4 Cost of institutional harmonization

1. WP11, Chapter 4Cost of institutional harmonization Veliko Dimitrov Institute for Market Economics Sofia, Bulgaria ENEPO 2nd workshop Warsaw, April 12

2. Some notes • ENP countries = neighboring countries = CIS countries: Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine + Russia • Standards or regulations = technical requirements but not “EU regulations” as an autonomous part of EU law ENEPO 2nd workshop Warsaw, April 12

3. Coverage of Chapter 4 • Areas and degree of harmonization ↓ • Ways of measurement ↓ • Estimation of costs ENEPO 2nd workshop Warsaw, April 12

4. If all put in a single equation, … • State of institutional development at the starting point; • Areas to be harmonized over time; • Desired or required final state of harmonization by areas, institutions or units, disaggregated to a level at which transformation can be assessed and measured; ENEPO 2nd workshop Warsaw, April 12

5. If all put in a single equation, … (2) • Cost of “one unit harmonization” representing transformation at a such disaggregated level; • Velocity or years of implementation ENEPO 2nd workshop Warsaw, April 12

6. What costs are we looking for ? ENEPO 2nd workshop Warsaw, April 12

7. Main harmonization areas in the ENP countries 1. Internal market – free movement of people, single market for goods, services and capital; 2. Food safety 3. Competition rules 4. Customs rules 5. Employment and social policy ENEPO 2nd workshop Warsaw, April 12

8. Main harmonization areas in the ENP countries (2) 6. Enterprise policy 7. Environment 8. External trade 9. Public procurement 10. Transport sector 11. Energy sector 12. Agriculture ENEPO 2nd workshop Warsaw, April 12

9. Free movement of people • H:abolishment of all discriminatory measures based on nationality of migrant workers in regard of working conditions, remuneration and dismissal • NH:free movement of EU citizens within the Union, Schengen information system, penetration of external borders, visas, asylum, immigration, rights of non-EU nationals, relations with non-EU member countries, recognizing qualifications, skills and mobility and social protection of workers ENEPO 2nd workshop Warsaw, April 12

10. Single market for goods • H:gradual removal of all export and import restrictions according to the PCAs, gradual liberalization of trade in steel products and gradual removal of export duties on ferrous scrap and voluntary harmonization with EU technical requirements • NH: consumer health, genetically modified organisms, community patents, biotechnological inventions, etc. ENEPO 2nd workshop Warsaw, April 12

11. Single market for services • H: removal of obstacles according to WTO services commitments, effective implementation of legislation setting out basic principles of non-discrimination, compliance with the IMF recommendations, etc. • NH:recognition of qualifications, competitiveness of services related to businesses, liberal professions, inland navigation, intra-Community air routes, postal services, etc. ENEPO 2nd workshop Warsaw, April 12

12. Free movement of capital • H: protection of foreign investments as well as to liquidation or repatriation of these investments and of any profits resulting from them • NH:consumer credit, actions for injunctions, common taxation of parent comoanies and their subsidiaries, indirect taxes on the raising of capital, Statute for a European Company, Investor compensation schemes, late payments, etc. ENEPO 2nd workshop Warsaw, April 12

13. Food safety • H:approximation in the sphere of food hygiene, including food processing, convergence with EU food traceability legislation, general food safety principles and requirements (Regulation (EC) No 178/2002), implementation of the Hazard Analysis Critical Control Point system at enterprises and controlling bodies, including the fish industry • NH:labelling, presentation and advertising of foodstuffs, deregulation of pack sizes, prices of products offered to consumers, frozen food, genetically modified organisms, novel foods and novel food ingredients, nutrition and allergens, etc. ENEPO 2nd workshop Warsaw, April 12

14. Competition rules • H: state aid policy, anti-trust legislation, control regimes • NH: calculation of fines, immunity from and reduction of fines, information on infringements and complaints, exemptions of agreements of minor importance as well as the competition rules applicable to specific sectors: agriculture (state aid in the agricultural sector, state aid to small businesses) and postal services ENEPO 2nd workshop Warsaw, April 12

15. Customs • H:general legislation aligned with the international practice, adoption of the harmonized system in use, risk based customs control, well-trained customs officials • NH: Community customs code, the Common Customs Tariff and the Integrated Tariff, customs check and exemptions at internal and external borders, the specific schemes and the agreements with third countries ENEPO 2nd workshop Warsaw, April 12

16. Employment and social policy • H: non-discriminatory treatment of migrant workers, trade unions’ rights and core labour standards based on European standards • NH: Partnership for growth and employment, the legal instrument for Community employment policies, incl. the quality of employment as well as reporting and the statistics, job creation measures, social protection, etc. ENEPO 2nd workshop Warsaw, April 12

17. Enterprise policy • H:national registration system for companies, adoption and implementation of a system of impact assessment of regulatory measures, consultation of stakeholders, etc. • NH: small and medium-sized enterprises, multiannual programme for enterprises and entrepreneurship, financing, corporate social responsibility, etc. ENEPO 2nd workshop Warsaw, April 12

18. Environment • H: strategic planning of environment issues and co-ordination between relevant actors, establishment of procedures regarding access to environmental information and public participation, structures and procedures to carry out environmental impact assessments • NH: biodiversity, genetically modified organisms, management of specific soil types, discharge of substances, civil protection measure, noice management and the cooperation with third countries ENEPO 2nd workshop Warsaw, April 12

19. External trade • H: gradual removal of restrictions and non-tariff barriers, harmonization of the remaining import licensing and registration requirements with those of the EU, etc. • NH: export credit insurance rules, dual-use items and technology, exports of cultural goods, rules for imports from certain non-EU member countries, anti-dumping measures, anti-subsidy measures, defence against trade barriers, etc. ENEPO 2nd workshop Warsaw, April 12

20. Transport • H:co-operation in satellite navigation (including joint research actions and applications), improved efficiency of freight transport services (including issues of border crossing procedures), incl. multi-modal services and address issues of interoperability • NH:carriage of passengers, employment and working conditions, technical harmonization of motor vehicles, inland waterways navigation, the Single Sky and air traffic management, bio fuels, passenger rights, intelligent transport systems, European space policy ENEPO 2nd workshop Warsaw, April 12

21. Energy • H: gradual convergence towards the regulatory principles of the EU internal electricity and gas markets, including price formation, reduction of network losses, nuclear safety standards • NH:climate change, greenhouse gas emission allowance trading scheme, energy taxation, European Strategic Energy Technology Plan, sustainable power generation from fosil fules, “Intelligent Energy – Europe” programme for innovation and competitiveness, etc. ENEPO 2nd workshop Warsaw, April 12

22. Limited scope of harmonization ENEPO 2nd workshop Warsaw, April 12

23. How it is done? • Based on the relation between the respective activity area containing all measures (full harmonization) and those that the ENP countries are supposed to harmonize • Main weakness: arbitrary judgment ENEPO 2nd workshop Warsaw, April 12

24. Example – public procurement • H:establishment of open and competitive award of contracts in all areas – goods, services and construction works, possibility of independent review in the event disputes and effective dissemination of tendering opportunities and time-limits • NH:public awarding in the water, energy, transport and postal services sectors, defence procurement, eGovernment measures, public procurement partnerships and concessions under the Community law ENEPO 2nd workshop Warsaw, April 12

25. Example – public procurement (2) • The number of areas to be harmonized and not to be harmonized is generally the same • The first category encompasses more general and wide-ranging measures (presumably more resource-intensive) • The second one consists of specific and some sector-oriented measures, i.e. presumably the weighted share of all harmonization-related costs, will be less than 50% (assigned coefficient 0,75) ENEPO 2nd workshop Warsaw, April 12

26. Existing studies ENEPO 2nd workshop Warsaw, April 12

27. Existing studies (2) ENEPO 2nd workshop Warsaw, April 12

28. Theoretical ways of estimation • Survey-based approaches • Impact assessment • Linking similar harmonization costs in the past to observable economic indicators ENEPO 2nd workshop Warsaw, April 12

29. Survey-based approaches • Can give insights into cost expectations of different categories of agents, time horizon of implementation of different requirements in the public and the private sector, etc. • Some credibility problems • Don’t have any appropriate ENEPO 2nd workshop Warsaw, April 12

30. Survey-based approaches (2) ENEPO 2nd workshop Warsaw, April 12

31. Survey-based approaches (3) • The higher the GDP per capita, the higher the share of the compliance costs • Somewhat confusing results: intuitively one could think of the need of more investments in comparatively backward countries since the level of harmonization with EU standards that has to be achieved is relatively the same across the Union. ENEPO 2nd workshop Warsaw, April 12

32. Impact assessment • Bottom-up calculations • Summing all retrieved results at the end (costs and benefits) • Highly realistic results due to disaggregation • Demanding upon the information • Many different methodologies ENEPO 2nd workshop Warsaw, April 12

33. EC Impact Assessment Guidelines • Impact on operating cost and conduct of business: • Will it impose additional adjustment, compliance or transaction cost on business? • Does the option affect the cost or availability of essential inputs (raw materials, machinery, labour, energy)? • Will it entail the withdrawal of certain products from the market? • Public authorities • Does the option have budgetary consequences for public authorities at different levels of government, both immediately and in the long run? • Does the option require a significant establishing of new or restructuring of existing public authorities? ENEPO 2nd workshop Warsaw, April 12

34. EC Impact Assessment Guidelines (2) ENEPO 2nd workshop Warsaw, April 12

35. EC Impact Assessment Guidelines (3) • Appropriate for the estimation and valuation of legislative measures’ impacts on GDP, unemployment, international trade, households income, etc. • We need costs borne by private entities and the public sector given a variety of options and measures to be undertaken ENEPO 2nd workshop Warsaw, April 12

36. Linking harmonization costs to observable indicators ENEPO 2nd workshop Warsaw, April 12

37. Proposed estimation of harmonization costs • Determination of major areas of harmonization; • Calculation of how much was spent in the CEEC in each of the areas (PHARE, ISPA, SAPARD) as a % of total or sector value added where appropriate • Correction coefficients based on the relation of the EU assistance and the average value of total harmonization costs by areas • Adjustment for the degree of limited harmonization ENEPO 2nd workshop Warsaw, April 12

38. Some preliminary results – USD, millions ENEPO 2nd workshop Warsaw, April 12

39. Some preliminary results – USD, millions (2) ENEPO 2nd workshop Warsaw, April 12

40. Thank you for your attention! Veliko Dimitrov IME veliko@ime.bg ENEPO 2nd workshop Warsaw, April 12