Spain's changing business rules

07.02.2013 By: Transfer Consultancy based on

The Spanish government recently presented an ambitious proposal to change the fragmentation of the Spanish internal market by altering the current construction of both national and regional business rules and regulations. The objective of the proposal is to stimulate the country’s economy, the business climate and Spain’s bad reputation as a business destination.

The draft legislation – known as the law to guarantee the unity of the market – addresses a significant issue faced by companies operating in the Spanish market: the patchwork of rules and regulations created by the country’s 17 autonomous regions. Senior officials emphasize that the law is created as an apolitical solution to help businesses everywhere in Spain. However, it comes at a time of high tension between the national and regional governments, especially Catalonia, and may result in yet another power struggle.

According to the Spanish constitution, all goods and services should able and allowed to circulate freely within Spain. However, experts indicated that the allocation of legislative powers to the various regions has led to distortions in certain sectors of the economy. Different regions impose different rules on companies and their products, thereby creating a strong disincentive for businesses to expand outside their home market. Road haulers, for example, have to deal with differing regulations regarding transport safety. Many smaller construction companies, meanwhile, are simply banned from competing in public tenders in areas outside their operating region, since they have to prove their physical presence in the region where the tender is issued.

Under the proposed framework, any company that meets the rules and regulations in one region would automatically have the right to provide goods and services in another region. This approach – based on the principle of mutual recognition – reflects the line followed by the EU when it created one unified European market two decades ago. “This is not a centralizing 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. In addition, the official expressed hope that the draft legislation would not be caught up in the political fight between Madrid and Catalonia, claiming there was no reason for any other region to reject the reform.

The creation of a single European market for goods and services is considered as one of the EU’s main achievements, which makes the unraveling of Spain’s internal market even more interesting. “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 changes could be of significant importance: according to government estimates, eliminating the need to comply with different regional laws could increase Spain’s growth rate with about 0.15 percentage points over the next 10 years. These market law changes are part of a campaign by the center-right Spanish government to liberalize the economy and remove the administrative burden for businesses.

Among the laws that are being prepared is a proposal to reduce the administrative proof needed by start-up companies. This implies entrepreneurs would still have to comply with all rules and regulations, but would no longer have to wait for every single official permit before opening their business. Instead, it would the job of the local authorities to prove that an operating business was not in compliance with the law at the time of start-up.

One aim of legislative plan is to improve Spain’s poor ranking as a business country and an even poorer status as a location to start a business. Spain ranked 44th in a list of countries created by the World Bank regarding the ease of doing businesses, even below Peru and just ahead of Colombia. When it comes to launching a company, Spain dropped to 136th, below Brunei and just ahead of the Dominican Republic.