The next item is a discussion on improving the EU regulatory environment. I welcome Mr. Brendan Butler, IBEC's director of EU and international affairs, Mr. Arthur Forbes, the assistant director of European affairs at IBEC's Brussels Office, and Mr. Terry Landers, head of corporate affairs at Microsoft Ireland. I invite Mr. Butler to make his presentation, after which I will open the discussion to the members.
EU Regulatory Environment: Discussion with IBEC.
Mr. Brendan Butler
I thank the Chairman for inviting me. IBEC very much appreciates the work of this committee and the Sub-Committee on EU Scrutiny. We very much support their work and their evolving role in the EU governance system. It goes without saying that complaints about red tape is one of the most common complaints by the business community and it is certainly made frequently to IBEC, which represents 7,000 organisations. It is clear that the need to comply with an increasing volume of legislation, the vast majority of which stems from Europe, is placing a significant burden on the business community. The link between enforcement and costs is such that companies spend a large amount of time meeting their obligations as set out in the legislation.
IBEC does not have a problem with legislation that meets good public policy objectives. I would not like to believe that anybody feels IBEC is against legislation but it is very concerned about the developments that have taken place in the past five or ten years. I refer not so much to individual Acts but to their cumulative effect in this period. Their impact has been to slow down business responsiveness, divert resources away from productive investment and stifle innovation and job creation. We very much support the new efforts of the EU to improve the legislative environment. IBEC and many other bodies pushed for this during the Irish Presidency in 2004. We are very pleased to see some of this work being developed under the initiatives at EU level.
Let me discuss impact assessment, the potential for reducing administrative costs and simplification. I am conscious that the committee's role in EU legislation is expanding. Perhaps we might be able to make some proposals in that respect. The Commission has in place an extensive framework for carrying out impact assessment on proposed legislation. The purpose is to ensure that new legislative proposals are assessed for their impact on competitiveness and the Lisbon strategy generally. Until quite recently, our sense of the impact assessment was that it was extremely patchy. We very much welcome the efforts of President Barroso and his announcement on an initiative, made on 14 November, and particularly the creation of an impact assessment board consisting of senior Commission members, assisted by outside experts.
The key message is that the new impact assessment board will examine new legislation from individual sponsoring Departments. If the assessment board is of the view that draft legislation does not meet the requirements in terms of competitiveness and its impact on the Lisbon strategy, it will be set back. The creation of the board answers a long-standing call by organisations such as IBEC and the European organisation Business Europe, formerly UNICE. It is a unique and very important development. This new board, in assessing draft legislation, should take into account its effect on international partnerships. When we look at new legislation in Europe, we must consider its impact on other parts of the world, particularly from a competitiveness point of view. The issue cannot be looked at purely in a European context; we must take the broader international implications into account.
While the Commission is taking a major step forward with this initiative in November, we must recognise the increasing role of the European Parliament and Council. The European Parliament has played a greater role in recent years in determining the shape and format of legislation from Brussels. The same discipline or standard on impact assessment does not apply to the measures introduced by the Parliament or Council and we must consider this. The recent REACH directive with the services directive went through the Commission process in a particular format but the Parliament, for its own good reasons, changed both substantially. The changes certainly did not support a competitive Europe. The Commission carried out a Community impact assessment and on 24 January launched a new action programme.
As well as focusing on this issue from a European level, I would like to talk about the national situation. The Government produced a White Paper on better regulation three years ago which contained a number of significant proposals, particularly in the area of impact assessment. IBEC's view is that there has been little progress on the contents of the White Paper. One of the most dramatic points made was that the estimate of the cost to business of unnecessary regulation in the system was €562 million per year. Such a cost burden in a difficult competitive environment, particularly for smaller companies, is an indictment of the system. The White Paper set out to address this by introducing regulatory impact assessments across the system but they have not been introduced in the way envisaged.
I mentioned administrative costs, at which the Commission is looking closely, particularly their impact on SMEs. The cost of the administration of regulation is considerable. The Small Firms Association conducted a survey recently and determined that in any company which employs eight people, half of the time of one of them is spent dealing with administrative requirements. The costs are much greater for smaller companies and Ireland is a nation of small and medium enterprises. Therefore, we should offer them the greatest support possible. Forfás, the Government policy organisation, estimates that the cost of implementing REACH for Irish business will be €500 million. With the €562 million mentioned for unnecessary regulation, this amounts to over €1 billion. Much of the cost is borne by the small business community.
We welcome the Commission's plan to reduce bureaucratic costs in the European Union by 25% by 2012 as against 2004. That is a considerable undertaking and an important target. The Commission estimates that if the target is achieved, the saving across Europe would be €150 billion. That is the scale of administrative costs on business in meeting European legislation. It is a worthwhile initiative and we call on the Government to support it at the spring European Council meeting on 8 and 9 March. This is a target and, as President Barroso said, what gets measured gets done. If we have an achievable target, people know what they are aiming for. It is a long time, however, until 2012 and we are of the view that this issue needs to be dealt with today. While a five year perspective is fine, an intermediate target should be introduced, perhaps a 10% reduction by 2009 or 2010.
We support the action programme announced by the Commission last week that highlighted ten areas for immediate action to reduce administrative costs in certain areas such as abolishing outdated information obligations for transport companies involved in cross-border activities; statistical obligations on businesses in the information society, and certain information requirements relating to mergers. The ten areas were costed by the Commission which stated that if they were successfully addressed, there would be a reduction in administrative costs of €1.3 billion across Europe. These proposals have far-reaching implications and are welcome.
In 2005 the Commission adopted an ambitious three year programme to cut red tape and over-regulation. A total of 78 proposals have been withdrawn as a result, a positive indication, while over 100 simplification initiatives in respect of existing legislation are planned to be finalised by the end of next year. It is great to have this on paper but the real issue is that of delivery. A number of proposals were earmarked in 2006 but only a small number were completed. This is not just the fault of the Commission but the European Union as whole. The European Parliament and the Council, as co-legislators, do not give enough priority to simplification proposals. Sometimes in trying to simplify legislative proposals we create new burdens, making a bad situation worse.
We welcome the initiative that the Oireachtas and the other 26 parliaments will now receive all new Commission legislative proposals. In receiving these proposals it would be helpful to member states if the impact assessments were also provided. That would allow the joint committee to properly express its views on draft European legislation and determine if it was in accordance with the principles of subsidiarity and proportionality. We would like to assist the committee in any way we can with its work. When the committee contacted us it asked had we any specific proposals to help its work as the guardian of new EU legislation. I will outline a couple of specific recommendations.
The impact assessment model must be strengthened at EU and national levels. A discipline must be imposed on the Parliament and Council as co-legislators that matches the discipline introduced within the Commission. Work needs to be intensified to reduce the administrative cost to business of existing legislation and to simplify Community legislation generally.
When new legislation is drawn up, most businesses in Ireland and in the European Union are compliant. They do not want to spend their time trying to avoid the legislation. In drawing up the legislation, however, it is important to consider making it easy for companies which want to comply and help them meet their obligations. We should examine new legislation not only in terms of its impact on Ireland or Europe but also on international relationships and our international partners and competitors.
I understand Mr. Butler's point of view. I have been a Deputy for five years and sometimes wonder about the purpose of the legislative process and whether it is an exercise in passing something. That pertains more to social policy than to the commercial area. We have been involved in this area for a couple of years. We focused on the nitrates directive and the veterinary medicines legislation and their effect on Irish farming and had some impact on Ireland's role in the final form of both regulations.
Mr. Butler's points have been expressed several times in this committee since I have been Chairman. Senator Quinn has consistently brought this issue to the committee and questioned EU directives and their effect on Irish business. Will Mr. Butler give me an example of the problem? He stated initially that he is more concerned about the cumulative effect on business and mentioned numbers such as the €500 million plus indicated in the White Paper. Although these are significant, can he give me some more concrete idea of the direct harm caused to the Irish business sector?
Mr. Butler
One example is the REACH directive. The Government policy agency says that the cost to Irish business will be €500 million a year but that cost did not apply before the REACH directive. That is the direct financial cost to Irish business of complying with one directive and that is only the part that could be quantified. There are several other examples in the employment and social policy areas with which my colleagues will deal.
Mr. Arthur Forbes
The legislation that prompts most complaints from our members is the working time directive of 1993. The extent of the obligations imposed on individual companies regarding the working records of individual employees imposes a significant time burden, especially for small and medium-sized enterprises, SMEs. This has been one of the major demands in the process leading to the revision of this directive which is ongoing and will be for some time.
The Taoiseach's office has been before the committee to explain the regulatory impact assessment procedure but IBEC wants the model changed. How much input does it have and what specific measures would it introduce from a business standpoint?
Mr. Butler
Before any new legislation is introduced, it should be subject to a vigorous impact assessment, the results of which should be published. This does not happen. We are led to believe that, increasingly, impact assessment is being carried out but there are no facts and figures available for the extent to which it is applied or what the results show. If the EU is introducing an independent assessment board to examine draft legislation and has the power to send legislation that does not meet the requirements set out in the impact assessment back to the sponsoring DG, I am not aware of our having ever done that. We do not have the information.
The Department of the Taoiseach has responsibility for this and has indicated that it will proceed on a stronger basis in dealing with new legislation, but we have not seen evidence of this approach. We raised it in the social partnership talks and asked for the statistics to be provided and for each Department to put forward details of the impact assessment it had carried out on draft legislation annually. That is not happening. It is not too much to ask for. If the legislation is being introduced for good policy reasons, the business community generally will understand the reason for it and support it. The impact of some of this legislation, however, is quite serious. It would be better if business and other sectors of society worked with legislators to ensure a proper balance in what emerges. That is not happening enough.
I thank the Chairman and the committee for the opportunity to be here today. I support Mr. Butler's points. It is helpful if legislation is framed in a manner such that the compliance-minded company can comply easily. This is particularly necessary for small companies which may have an undue burden of compliance. We are a large organisation with almost 1,200 employees.
Where possible, we should seek to have a converging international approach, whether through the ITU, trade policy, directives or legislation that arises from international agreements, so that a compliance-minded company is not required to address multiple criteria in different places. Most companies want to comply but many people in business are unaware of the regulations coming down the line, some from the European Union.
A greater level of awareness is required which creates awareness of compliance and incentivises it by encouraging companies to become more involved in directives, policies, and legislation that will have a direct impact, more of which companies could do. This could perhaps be achieved through business schools.
I welcome the three speakers. I am close to the business regulation forum and know some of what is going on there. The lovely word "subsidiarity" means regulations should be made closer to the level of citizens rather than in Brussels. One case that comes to mind is that concerning opening hours, on which some large European states would like to see legislation at European level. The majority of European citizens believe such a decision would be better made at local level, whether it be city, county or state. That is one example among many.
One matter not taken into account in Europe is how this affects European competitiveness. It may well be that the Lisbon Agenda is not being achieved in terms of job and wealth creation because the European Union passes legislation without completing impact analyses. The case must be made that all proposed EU legislation should be tested in terms of its impact.
Despite strong opposition, the Oireachtas put in place legislation concerning company directors which was much stiffer than that in other countries. If that means Ireland is less competitive than other EU member states, it puts us at a disadvantage. If the European Union introduced such legislation, it would put it at a disadvantage in competing with Asia and the United States.
There have been outcries about obesity and demands for more detailed food labelling. Since several languages must be included in food labelling, it has been suggested some labels will have to be almost like an envelope. Another suggestion that scared the wits out of me was that any large size clothing should carry a warning to the purchaser that he or she was obese. These are the types of proposals that emerge. The case that the delegation has made is that Europe is in danger of making itself uncompetitive. I am concerned about this.
Some member states have a standard cost model that has led to substantial reductions in administrative costs. Will the delegation explain this in more detail? I agree with it that it is essential to convince the legislators that not everything can be solved by legislation. The best solution in some cases is a voluntary code of practice. With such a system, when a company does not follow the code of practice, public opinion will embarrass it to obey. I accept it is less difficult for large companies to operate in the glare of that spotlight than it is for small companies. However, the voluntary code of practice is a much better way of achieving success than passing legislation which inevitably leads to reams of stiff administrative burdens.
Mr. Butler
Ireland is more exposed to European legislation than some of the larger member states. Up to 86% of what is manufactured and produced in Ireland is exported, a large proportion of which is exported to countries outside the European Union. Take the example of where new EU legislation is transposed by, say, France, Germany and Ireland. For the larger countries much of their business is done within the eurozone. Ireland, however, is an island economy, exporting to countries outside the eurozone. Therefore, a European decision could have a disproportionate impact on it.
I am sorry we did not make the point in our submission that Senator Quinn made on the best way of dealing with a problem. One approach is to ask the parties that will be impacted upon by the decision to come up with a regulatory model that would work. The best example Ireland has of such an approach, now being considered by other EU member states, is the WEEE directive. The parties that were to be affected by it asked the Government if they could design a regulatory model to meet the requirements of the directive. It was introduced last August and every EU member state is inquiring how it worked. It was a case of industry working with the Government rather than a directive being imposed from the centre.
Mr. Forbes
As Senator Quinn mentioned, several member states are going down the standard cost model route, most notably the Netherlands. The Commission is requesting that all member states make a commitment between the March European Council and the following year and a half to use the model to calculate the administrative burden at national level. There are concerns with the model as to whether it takes account of all costs associated with legislation, in particular, the costs of enforcement. As Senator Quinn knows, the model examines the cost of information obligations on those who must implement legislation. The missing link is whether it considers all aspects of the cost of enforcement. The case remains to be proven that this model is the only route that can be used to calculate the administrative burden.
I agree with Senator Quinn's comments on subsidiarity. As we know, the principle of subsidiarity states that action should be taken at a European level only if, by reason of its scale and effect, the same cannot be better achieved at a national, and in some cases regional or local, level. As we know, there are many areas where, owing to scale and effect, action might be much better taken at a European level. One could cite areas such as climate change, global pandemics, migration and the evolving European energy policy. However, there are also many other areas, as the Senator mentioned, where the scale and effect do not necessarily require action at a European level, since results can be adequately achieved through national action.
I thoroughly agree with Senator Quinn on his remarks on what is sometimes called "gold-plating" in the transposition of Community legislation to a national level. It is a burden when legislation is gold-plated, and much of it is unnecessary, which is a pity. A very positive element in the Commission's paper of last week was effectively to request member states to make a voluntary commitment not to gold-plate unnecessarily in future. Sometimes the gold-plating can be blamed on Brussels along with certain other things, and that is not right.
Regarding the examination that is about to be carried out by the Commission under approximately 13 main headings, was there any consultation with IBEC or similar organisations in other European countries on its main areas of concern? In the 13 areas being examined, are there any obvious gaps in the process?
Mr. Butler
Specific consultation did not take place, although we fed into the system. There was no formal communication or consultation process, but we were in touch with the Commission during its deliberations. What were the specific areas included?
Mr. Forbes
There have been several directives regarding which, through our European-level association, Business Europe — formerly UNICE — IBEC has been actively involved. There is a long list of directives, of which I can list one or two, regarding which business has ongoing concerns to do with the administrative burden and lack of simplification. I am thinking of equal treatment directives, transparency directives on fair commercial practices, and a range of directives in the financial services and company law fields. Waste, energy efficiency and environmental liability are also relevant. One could go on, and we are more than happy to share with committee members the paperwork regarding specific concerns raised by Business Europe so that they get a sense of some of the areas raised.
Is Mr. Forbes saying that there are regulations for which regulatory impact assessments are not being conducted?
Mr. Forbes
Yes.
But they should be done. I asked the Department of the Taoiseach about primary legislation, significant regulation and proposed directives. Is Mr. Forbes saying that in some cases they are not being conducted but should be? We certainly found that to be the case with the nitrates directive. When I asked why an impact assessment was not carried out on that incredibly significant directive, which affected farming, there was no real response. Is that not occurring, although it should be happening?
Mr. Forbes
Yes.
For my sins, I chair the Sub-Committee on European Scrutiny, and I marvel at its staff's attention to detail, something also true of other sectoral committees. Should there be more communication between the Sub-Committee on European Scrutiny and other sectoral committees where proposals are forwarded to them? Should there be more definite communication between the Sub-Committee on European Scrutiny and other sectoral committees regarding the implications and impact of specific issues?
Mr. Butler
Most definitely. We would certainly support it, whether it occurred at EU or national level. The Deputy is quite right to say that the level of detail in some of the legislation is absolutely extraordinary, and for an organisation such as IBEC to work through draft legislation can be a considerable burden.
However, if one has people with particular expertise or concerns, who will ultimately be at the coalface and have to implement the legislation when it is passed, it is a scandal that they are not fully involved. Let us consider the examples of those on whom it will have an impact. I spoke of the waste electrical directive last year. If that had been operated in the same way as other legislation, being imposed from on high without consulting the parties involved, we would certainly not have had the outcome that we did. It is much better to involve and engage those who will be affected and can bring knowledge to the deliberations. We would certainly support the consultation process being extended.
We are currently considering our modus operandi, and we should take that into consideration when we examine the future role of the Sub-Committee on European Scrutiny.
I used to be a lobbyist in a previous life in America, working on Capitol Hill.
There is no need to apologise for being a lobbyist.
I might have to do so if the Senator knew my employer. I probably did what Mr. Landers does now, being head of corporate affairs. I used to handle trade in the United States with the Government there. The current Government is seen as very business-friendly, and the message that I get from IBEC today is that it is not listening. The witnesses said that they brought these issues up at the social partnership talks. They have consistently done so with the Department of the Taoiseach, which has not been acting on them. It introduced its own White Paper but has not acted on the recommendations. I am getting to the nub; IBEC makes the case that business has been consistently ignored regarding such issues and their cost to Irish business.
I must figure out a productive and progressive response to this hearing. Is that the case?
Mr. Butler
There is no doubt about the frustration of the Irish business community regarding "regulation creep". The business community has a good relationship with the Government, but that relationship is being tested on several fronts, one being the increased cost to business of trying to comply with legislation. The Government introduced a White Paper three years ago containing certain commitments on determining whether proposed new legislation would pass certain tests. The impact assessment was to be conducted to see if that was the case. Major Bills are passing through the system that have not been subject to such a process, and we do not feel that is satisfactory. If the commitment to do so was in the White Paper, it should be done. Business will work with the Government on proposed new legislation, but we have a problem when it is imposed without our being given the full details.
Does Senator Quinn wish to add anything?
No, we have covered everything.
Perhaps IBEC might put that in writing and send it to the committee, after which we will forward it to the Department of the Taoiseach and ask the relevant person to respond. I would not rule out bringing the Department of the Taoiseach back in to deal with those points, once we have its response in writing. That might be productive or progressive regarding IBEC and business generally.
I thank the witnesses once more for attending.
The joint committee adjourned at 3.49 p.m. until noon on Wednesday, 7 February 2007.