Enterprise adaptation to enlargement

Overview

The adoption of the acquis is costly Comply with standards:

Environmental, Safety at work, Competition policy

Stronger competition in the market Conclusion: Early investment

reduces costs of adjustment

Background

Enterprises will have to implement the full acquis

Over-regulation in the short term may be detrimental

Implementing the acquis pays off over time

Governments need to bear part of the costs of adaptation

Adaptation is easier if

Early restructuring had been undertaken

Enterprise was exposed to international competition

Private management Previous lower protectionism Financial markets work well Local legislation adapts quickly to

the acquis

Factors reducing the burden of accession Part of the adaptation takes place

before accession Transition periods Economic growth higher than EU

average Sectors that benefited from FDI

recently are already prepared

EU Regulation and investment requirements Three categories of regulation: product-related regulation, market-economy regulation, and process-related regulation.

Product-related regulation Characteristics of products hat can

be put into trade within the internal market

Example: minimum safety conditions

Market economy regulation Competition and state-aid policy Company and accountancy law Free movements of goods, capital

and persons – right to purchase land

Process-related regulation Social and environmental regulation Expensive or difficult to implement Could have negative impacts on the

financial stability of enterprises Could put considerable strain on the

state budget For many smaller and medium-sized

companies new investment will be required to meet EU regulation

Competitive pressure Investment needed to improve

competitiveness The current level of tariff protection is a

first indicator of where problems may arise at accession

Subsidies, such as unpaid taxes and favorable treatment from state financial institutions become illegal

Domestic cost pressures the importance of flexible and efficient labor markets

The Social Policy acquis Equal conditions for men and

women in the workplace – no transition periods required

Labor law: representation of workers in the

place of work, the length of the working week conditions of contract

(ctd.)

Social Policy II

Social policy is largely national, the acquis is rather limited

Some accession countries have already stronger labor codes

Example: In Poland 42-hour week, while in the EU it is 48-hour

Health and safety at work Examples: Standards for protective equipment manual handling of loads, work with display screens, exposure to

carcinogens and biological agents Existing national norms lack measurable

standards Implementation requires developing

stronger institutions

Costs

Poland, 1995: More than 1 million (7% of the work force) exposed to dangerous conditions

UK, ’83-’92: costs of ‘all sets of regulations = £8 billion

Costs accrue to enterprises, benefits to the society and individuals

Benefits

Appear in the long term Less injuries and illness Better worker physical and mental

morale Higher productivity at work Lower absentee rates Benefits exceed costs

Poland

Changes in competitiveness due to: Costs of adopting the single

market standards Costs of adjustment to the

enhanced competition Changes in the cost of labor Effects of currency appreciation Elimination of remaining tariffs

Enterprise adaptation

Initial increase in productivity was based on reducing employment

Most flexible sectors: computers, cars, paper (privatized)

Least flexible: electricity, gas, etc. (not privatized, protected)

Graph 3: cost pressure for different sectors

Conclusions

productivity growth may compensate for the cost pressure in some sectors

Some exporters of today may lose on EU membership (e.g. mining)

Today’s monopolies may face serious difficulties

Food sector may not encounter problems due to the CAP

Public sector enterprises are less prepared

Firms owned by foreigners seem better prepared to face accession