The accession of Bulgaria to the European Union has its pros and cons, but there is no doubt that the accession date has sent a positive signal to foreign observers and investors. As for the business sector in the country, there are certain channels through which it can gain from the country’s membership. To be realistic, EU accession does not change the market conditions by magic, and money will not flood into local business. On the contrary, new regulations and requirements imposed on companies will serve, in some cases, as a deterrent to development. But the good thing is that the single market really works, as does competition in making business more innovative, consumer-orientated, dynamic and responsible. That is, however, a long-lasting process that began before EU accession and will continue afterwards. Many of the positive impacts on the economy are due to the inevitable globalisation processes that take place and the integration of Bulgaria into the European Community in terms of trade and freedom of establishment and capital movements.
The benefits for the business from EU accession are generalized through the following channels.
Free trade within the EU
It can be argued that the greatest perceived benefit of Bulgaria’s membership of the EU is access to the internal single market for domestic exporters. After accession, Bulgaria is trading freely with other EU members and custom duties on goods and services of EU origin are abolished. Non-tariff barriers will also be diminished and introduction of uniform standards and administrative procedures for transportation of goods and services will further facilitate trade between member states. This is important to Bulgaria given that exports to the EU represent about 60 per cent of overall export volumes and imports from EU accounts for over 50 per cent of total imports.
On enlargement, the average tariff applied by Bulgaria to import from third countries decreased from 22.4 per cent to 16.1 per cent for agricultural products and from 10.6 per cent to 4.1 per cent for industrial goods.
Although Bulgaria will have to terminate its bilateral agreements with neighbouring non-EU countries and adopt EU Customs Union tariffs, as a whole trade will actually become freer due to the greater trade integration between EU and third countries. This is the case with Turkey, Switzerland, Norway, Liechtenstein and Iceland. The EU also has a variety of preferential, non-tariff trading arrangements with non-members such as Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Mexico, South Africa and Chile. That serves as an opportunity for Bulgarian enterprises to enter new markets and expand their export potential.
The case of Bulgarian dairies is an example of picking benefits from decreased duties. The milk processing companies gain from the cheaper import of milk products with a EU origin such as milk powder and whey. For example, the conventional import duty on whey before accession was as high as 64 per cent.
Besides, non-tariff restrictions on trading within the EU such as import licenses and quotas are set to abolish for Bulgarian agricultural and food processing products. That directly affects goods such as wine, fruit and vegetables, crops, milk and meat products. However, at the end of 2006 a transition period was imposed on the country and the milk and meat processing companies will not be able to export freely to the EU market in 2007 without obtaining an export licence upon approval by the Food and Veterinary Office of the European Commission. This is temporary measure that is set to abolish in 2008 when all Bulgarian companies will be able to sell their products on the single European market without barriers. At present, 30 milk and meat processing companies are ratified for export to the EU member states.
Financial integration
As a result of EU entry, foreign banks, insurance companies and financial intermediaries of EU origin will be able to operate in the country without needing a licence from Bulgarian bodies such as Bulgarian National Bank in the case of banks, and the Financial Supervision Commission in the case of insurance companies, private pension and health insurance funds and intermediaries on the capital market. The opposite is also true, Bulgarian companies that are liable to supervision can freely operate within the EU once they obtain licences to operate in Bulgaria.
Integration in the banking sector has begun in Bulgaria long before EU accession and the foreign-banks penetration rates in terms of ownership are already high (74 per cent of banks’ equity is owned by foreign banks). However, financial markets integration will lead to greater diversification of the financial services provided in the country, lower fees and better conditions for getting credit. Enhanced competition from foreign financial institutions will result in cheaper loans and net interest narrowing to EU-area levels.
The Bulgarian Stock Exchange will gain more liquidity and capitalisation will grow as a result of the financial integration. That means that Bulgarian companies will gain from more opportunities to finance their investments by going public and making IPOs.
Liberalisation
The European Commission has been instrumental in opening up to competition the markets such as transport, energy, postal services and telecommunications. By opening up these sectors of the economy to international competition consumers and businesses will be able to choose from a number of alternative service providers and products and benefit from lower prices and new services which are usually more efficient and consumer-friendly than before. In the two markets which were opened up to competition first in the new member states (air transport and telecommunications), average prices have dropped substantially.
Taxation
In the sphere of taxation, there are negative effects resulting from the EU entry such as the harmonisation of the tax regime in the country with that of the European Community and introduction of minimum excise duties on goods such as petrol, energy, alcohol and tobacco.
However, the positive impact on business is related to tax competition in the member states that strive to attract investors. Also, double taxation will be abolished and a possibility will be introduced to shift corporate income between parent and subsidiaries.
Taxes on dividends, which amount to seven per cent in the country at present, will not be due if companies redistribute dividends to their parent companies with a EU origin. Also, due to the introduction of new VAT regime in the country, VAT accounts have been abolished and the VAT registration has become voluntary for companies with an annual turnover under 50 000 leva.
Gains from implementation of internal market legislation
The stability provided by accession and delivering of common standards will multiply investments between EU and the country and third parties. More confidence in the political scene and harmonisation of requirements, standards and regulations leads to less transaction costs and enable companies to make longer-term decisions. That is likely to enhance the attraction of foreign direct investments in the country which can be Greenfield investments as well as acquisition of existent companies and local brands by foreign firms.
Funding and subsidies
Agricultural producers gain from the direct payments under CAP if they are eligible for receiving subsidies and meet all requirements.
Direct payments will start at 25 per cent of the present system in 2007 and will reach 100 per cent of the EU level in 2016. Also, funds will be available to producers as support for meeting EU standards for food safety, animal welfare and the environment.
Also, manufacturing companies will gain from the opportunities for funding under Structure Funds and Cohesion Funds. Also, Bulgaria will jointly receive money to develop and strengthen its administrative and judicial capacity to implement and enforce Community legislation and to foster exchanges of best practice. The overall budget of the Structure and Cohesion Funds for the period 2007-2013 is over 11 billion euro distributed through seven operational programmes.
The operational programme Competitiveness amounts to 1.566 billion euro, the Human Resource Development programme – to 1.342 billion euro for the period 2007-2013. That sum of money will go to the Bulgarian economy only if there are enough high-quality project ideas that can be realised through these funds and if the proposed business ideas meet the objectives of the EU policies.
However, companies should not create a culture of dependency on these funds but rather gain competitive positions through innovative business ideas and better quality of service.
