6 - 12 January 2000

Removing protection

1 January 2000 saw the second phase of the government's removal of levies come into effect. The first group of levies to be removed was in October 1999, but this only affected a very small amount of products and the level of levies involved was minimal. The removal of such levies therefore had very little impact on both the consumer and the industries concerned. The new year, however, saw the country entering into a real phase of industrial liberalisation with levies being removed on a wide range of imported products such as sunflower oil, soap, liquid soap, paper napkins, tissues, liquid detergents, washing powder, shirts and shoes. This is good news for the consumer as prices are bound to go down and local products will have to improve in quality as a result of true competition.

There are unfortunately still many people in this country who are opposed to the removal of industrial protection. Some feel this way because they have no long-term vision of Malta forming part of the globalised economy; others because they are comfortable with the status quo and rely only on unfair protection for their survival; some because they are very short-sighted in their outlook while others oppose liberalisation from an outdated ideological point of view. All are wrong. Liberalisation creates a level playing ground and true competition and the consumer always ends up better off.

There will no doubt be those who claim that the removal of levies will lead to massive job losses. This is nonsense. Did the opening up of the economy in 1987 and the introduction of VAT, first in 1995 and then in 1999, lead to any job losses? No. While there can be no guarantee that every job in the country is safe forever, increased competition should lead to more economic activity and therefore the creation of more jobs. In the long run, the removal of industrial protection will greatly benefit the economy, just as the elimination of import substitution, the bulk buying system and customs duties proved to be a success.

The system of protective levies introduced by the Nationalist government in the late 1980s was always meant to be a temporary measure. The idea was to give local industry enough time to restructure itself so that it would be able to compete once protection has been removed. Over a decade has passed since the protective barriers went up; surely it is now time to gradually begin to remove such levies? After all, way back in 1970 when the Association Agreement between Malta and the then European Community was signed, the idea was to establish a customs union between the two sides within a reasonable period of time. This never happened under any Labour or Nationalist government, although the introduction of VAT removed all customs duties on products originating from the EU. Malta not only has obligations towards the EU, which it wants to join, but also towards the World Trade Organisation (WTO), which means that the removal of industrial levies should be accepted by all. Furthermore, one cannot overlook the fact that except for agricultural and agro-industrial products, Malta has complete access to EU markets, and this one-way situation surely cannot last forever.

There is, more or less, a sort of consensus among the two political parties over the removal of levies. The previous Labour government was negotiating the elimination of levies over a five to seven year period as part of the free trade zone agreement it had wanted to establish with the European Union. So protective levies would also have been removed under a Labour government, the only difference being that the process would have been slightly more gradual, taking two or three more years to be completed. In reality, therefore, both parties acknowledge that levies have to go and that there is no place for such outdated protectionism in today's global economy. The two main political parties can argue over the technical details regarding the removal of such levies, and try and score as many political points as possible, but in principle there is no difference between them.

It is very important, on the other hand, that the consumer is made aware of the fact that as a result of the removal of levies, prices of certain imported goods will go down. The press has a duty to point this out and the government or the department of consumer affairs must make it clear that it expects prices to go down. When VAT was introduced, the prices of some items did decrease, but others which should have, did not. That was shameful and we must not have a repeat performance this time with the removal of levies. Consumers must be told which products are expected to decrease in price. If no reductions come about, we will be making a mockery of liberalisation.