Financial Times

January 24, 2013 6:48 pm

Spain tries to peel back business rules

By Tobias Buck in Madrid

The Spanish government will on Friday present an ambitious plan to reverse the fragmentation of the country’s internal market by taking aim at the web of business rules and regulations imposed by Spain’s autonomous regions.

Madrid hopes the proposal will give a much-needed boost to the country’s economy, and improve Spain’s lacklustre reputation as a business destination.

The draft legislation – known as the law to guarantee the unity of the market – attacks a big obstacle faced by companies operating in the Spanish market: the patchwork of laws and regulations created by the country’s 17 autonomous regions.

Senior officials are at pains to stress that the law is intended as an apolitical fix to help businesses everywhere in Spain. But it comes at a time of high tension between the government of Mariano Rajoy andregional governments, especially Catalonia, and may yet open another front in the power struggle.

According to Spain’s constitution, all goods and services should be allowed to circulate freely within the country. However, officials say the transfer of legislative powers to the regions has led to “distortions” in sectors of the economy, because different regions impose different rules on companies and products, creating a disincentive for businesses to expand outside their home market.

Road hauliers, for example, are confronted with differing regulations on transport safety. Many smaller construction companies, meanwhile, are in effect barred from competing for public tenders in areas outside their autonomous region, because they typically have to prove they have a physical presence in the region where the tender is issued.

“This is an obstacle, especially for small and medium-sized companies that don’t have the capacity to deal with different administrative levels,” said Federico Steinberg, senior economist at the Real Instituto Elcano, a think-tank based in Madrid. “Anything you can do to reduce transaction costs should help get us out of the crisis.”

Under the proposed regime, any company that meets the rules and regulations in one region would automatically have the right to provide goods and services to any other region. This approach – based on the principle of mutual recognition – mirrors that taken by the EU when it created the internal European market two decades ago.

“This is not a centralising law. The state does not take away any competencies. It simply means that as a regional government you have to respect what other regional governments have done,” said one senior Spanish official. The official expressed hope that the draft legislation would not be caught up in the political stand-off between Madrid and Catalonia, insisting there was no reason for any region to object to the reform.

The creation of a pan-European market for goods and services is seen as one of the bloc’s main achievements, which makes the gradual unravelling of Spain’s internal market all the more remarkable.

“It is certainly paradoxical that, while the EU has over the last 20 years moved towards a single market, in Spain our own internal market has increasingly been on the retreat,” the Spanish employers’ federation said in a special report last year.

The benefits of the changes could be significant: according to government estimates, removing the need to comply with different regional laws could add about 0.15 percentage points a year to Spain’s growth rate over the next decade.

The market law changes are part of a campaign by the centre-right Spanish government to liberalise the economy and lift the administrative burden for businesses.

Among the laws under preparation is a potentially far-reaching proposal to reduce the administrative proof needed by start-up companies. Entrepreneurs would still have to meet all the rules and regulations, but would no longer have to wait for every single official permit before opening a business. Instead, it would be up to the authorities to prove that an up-and-running business was not in compliance with the law.

Another crucial, but potentially controversial, proposal seeks to prize open some of Spain’s regulated professions, which according to a EU study range from engineers and lawyers to interior designers and fishermen.

One aim of the legislative push is to improve Spain’s poor record as a country in which to do business – and even poorer record as a location to start a business. Spain comes 44th in a list of countries ranked by the World Bank according to the ease of doing businesses, below Peru and just ahead of Colombia. When it comes to launching a company, Spain drops to 136th, below Brunei and just ahead of the Dominican Republic.