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