IMPLEMENTING THE NORMS OF THE SMALL BUSINESS ACT FOR EU IN UKRAINE

In Ukraine, the main provisions of the policy analysis to assess the provisions of the state regulations were introduced in 2003 by the Law of Ukraine “On the Principles of the Regulatory Policy in the Field of Economic Activity” dated 11.09.2003 No. 1160-IV. The Law No.1160-IV focuses on the necessity of a regulation’s developer (public authority) to substantiate the need for introduction of a state regulation and addressing the problems identified in the area of economic relations through the regulatory act. The main instruments of the regulatory policy under the Law No. 1160-IV shall be: a) publication of draft regulations that enable business associations to respond to government proposals, and b) logical economic assessment of the appropriateness and adequacy of the regulatory act, which should reduce the administrative burden on entrepreneurship in the country, including the use of cost-benefit analysis. Implementation of the provision of the Law No.1160-IV is relatively smooth, but the authorities focus primarily on fulfilling the formal requirements related to promulgation of the draft laws and formal preparation of the document entitled “regulatory impact analysis”. However, the authorities rarely come to the objective analysis and feasibility study of a draft law.

Ukraine’s WTO accession and the signing of the EU-Ukraine Association Agreement envisage the need for Ukraine to significantly reduce the administrative burden on business entities. This could be addressed through assessment of the cost of a government regulation and approval of only those regulations that ensure costs reduction for economic entities to meet the requirements of the government regulations.

This above spurred the Cabinet of Ministers of Ukraine to develop and approve a new regulatory policy tool that adapts the requirements of the European SME-Test to the national specifics of Ukraine, and complements the requirements for regulatory impact analysis with a special section which estimates the cost of a regulation for small businesses, called “Small Business Test (M-test).”

The Small Business Test (M-Test) was developed and implemented in Ukraine to meet the requirements of the EU-Ukraine Association Agreement (Article 378) and the EU-Ukraine Association Agenda in order to prepare and facilitate the implementation of the Association Agreement (para. 7.7) and in accordance with the norms of the European legislation on SMEs, in particular the Small Business Act «Think Small First». M-test was launched in Ukraine in line with the new wording of the Resolution of the Cabinet of Ministers of Ukraine “On Approval of Methodologies for Impact Analysis and Monitoring of the Regulatory Act” dated 11.03.2004 No. 308 (amended by the Resolution of the Cabinet of Ministers of Ukraine “On Introducing Amendments to the Resolution of the Cabinet of Ministers of Ukraine dated March 11, 2004 No.308” dated December 16, 2015 No. 1151).

M-Test is an adaptation of the fundamental principles of the European policy on small businesses. M-test structure corresponds with that of SME-Test. The main purpose of M-Test in Ukraine is to reduce the cost of the government regulation for small business entities. The joint contribution of SMEs to Ukraine’s national economy significantly exceeds that of large businesses, and therefore the state policy should be refocused and concentrated on SMEs.

M-test is an integral part of the regulatory impact analysis. The standard costs methodology is used in M-test to calculate the cost of a regulation for small businesses.

The focus on the analysis of the cost of a state regulation for small business entities is determined by the following provisions of the state policy of Ukraine:  1) key macroeconomic indicators of small and medium-sized enterprises (SMEs) development in Ukraine in general correspond to the EU average indicators (the total number of SMEs makes 99.8%, the share of SMEs in sales exceeds that of large businesses, the share of employment by SMEs is significantly higher than that by large business, tax revenues of SMEs to the state budget of Ukraine far exceed the contribution of large business to the state budget); and 2) the cost of a mandatory government regulation for small businesses is much higher compared to large or medium-sized businesses, and grows significantly for small business entities.

M-Test structure:

 (1) Consultations with the representatives of small businesses regarding the idea and norms of a regulation;

(2) Measuring the impact of a regulation on small-sized business entities (standard costs method);

(3) Deciding on introducing of corrective (mitigating) actions for small businesses under a regulation.

The standard costs method for M-Test includes the following three components:

• Calculation of direct costs incurred by small businesses to fulfill the regulation requirements;
• Calculation of administrative (information) costs incurred by small businesses to meet the regulation requirements;
• Calculation of administrative costs incurred by a regulatory body to ensure fulfillment of the regulation requirements by the relevant small business entities.

New M-Test tool is based on the primacy of public consultations with the business community (for the preliminary assessment of the regulatory impact on small businesses, and to properly determine the business processes in small businesses, caused by mandatory regulations, and determining the amount of time and resources needed by SMEs to meet the requirements of a regulation).

These M-Test provisions provide the ground for business associations to strengthen the voice of the business environment in the dialogue with the government, and protect the interests of entrepreneurship.

The requirements on the mandatory use of M-Test when developing draft regulations by the public authorities shall enter into force in Ukraine on March 15, 2016.