COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels, 4.6.2003
COM(2003) 226 final/2
Corrigendum
Footnote 29Concerne les 11 versions linguistiques
COMMUNICATION FROM THE COMMISSION
Investing in research: an action plan for Europe
{SEC(2003) 489}
2Table of contents
1. Executive summary...................................................................................................... 3
2. A call for action............................................................................................................ 4
3. Progressing jointly ....................................................................................................... 73.1. Fostering the coherent development of national and European policies...................... 8
3.2. Shaping a common vision for the developm ent and deployment of key technologies 9
3.3. Enabling all regions to benefit from increased investment in research ....................... 9
3.4. Designing a coherent mix of policy instruments ....................................................... 10
4. Improving public support to research and innovation ............................................... 11
4.1. Human re sources........................................................................................................ 11
4.2. Public research base and its links to industry............................................................. 124.3. Improving the mix of public financing instruments and their effectiveness.............. 13
4.3.1. Mix of financing instruments..................................................................................... 134.3.2. Direct measures for re search and innovation............................................................. 14
4.3.3. Fiscal measures  for res earch ...................................................................................... 16
4.3.4. Support to guarantee mechanisms for research and innovation in SMEs.................. 164.3.5. Support to risk capital for research-intensive SMEs.................................................. 175. Redirecting public spending to wards research and innovation.................................. 18
5.1. The stability and growth pact and th e broad economic policy guidelines ................. 18
5.2. Balance between national and EU public funding until 2010.................................... 19
5.3. State aid rules ............................................................................................................ .1 9
5.4. Public procurement .................................................................................................... 206. Improving framework conditions for private investment in research........................ 21
6.1. Intellectual property ................................................................................................... 216.2. Regulation of products and standardisation ............................................................... 22
6.3. Competition rules....................................................................................................... 236.4. Financial markets ....................................................................................................... 236.5. Fiscal environment..................................................................................................... 246.6. Corporate research strategy, mana gement and financ ial reporting............................ 25
7. Conclusion ................................................................................................................. 26
31. EXECUTIVE SUMMARY
The present action plan sets out initiatives requi red to give Europe a stronger public research
base and to make it much more  attractive to private investme nt in research and innovation.
Carrrying out these actions will allow the European Union to bridge the growing gap in thelevels of research investment between Europe and its main trading partners, which is puttingat risk our long term innovation, growth and employment potential. The objective is to reach
the objective set by the March 2002 Barcelona European Council, to increase the average
research investment level fro m 1.9% of GDP today to 3% of GDP by 2010, of which 2/3
should be funded by the private sector.
To reach the Barcelona objective, research inve stment in Europe should grow at an average
rate of 8% every year, shared between a 6%  growth rate for public expenditure and a 9%
yearly growth rate for private investment. This is ambitious yet realistic given the strongsupport given to the objective.
The March 2003 European Counc il called for the Commission to present this action plan,
which has been prepared on the basis of a wide consultation of European institutions, MemberStates, acceding and candidate countries, as well as stakeholders from industry; public
research and finance. The consultation showed a very broad support for the 3% objective. It
revealed that most countries ar e already taking measures to boos t investment in research, and
that many have set national targets in line with the European 3% objective.
The action plan aims at building on this momentum, ensuring that the necessary initiatives at
European and national levels ar e sustained, mutually consiste nt and commensurate with the
challenge of bringing radical improvements to the European system of research and
technological innovation. Europe is facing a s ituation where the weakest link in the system
risks discouraging investment – to give but a few examples: the shortcomings and rigidities ofresearch careers, leading excellent human resources  to move out of research or out of Europe;
the dispersion and lack of visibility of Europe’s often excellent research; the difficultiesencountered by technology-intensive SMEs to find financing for their research and innovation
projects; or the lack of awareness of researchers and research managers regarding theprotection and management of intellectual property.
The action plan complements a series of mutually reinforcing European initiatives aimed at
boosting the Union’s competitiveness, notably in  the fields of enterprise and innovation
policy, and of structural reforms in the product,  services, capital and labour markets. Together
they form the Commission’s policy response to the March 2000 Lisbon European Councilobjective to “make Europe the most comp etitive and dynamic know ledge-base economy by
2010”.
The action plan comprises f our main sets of actions.
A first set of actions aims at supporting th e steps taken by European countries and
stakeholders, ensuring that they are mutually consistent and that they form an effective mix ofpolicy measures. This includes a process of co -ordination with and between Member States
and acceding countries. It also entails creatin g a number of “European technology platforms”,
which will bring together the main stakeholders – research organisations, industry, regulators,
user groups, etc. – around key technologies, in  order to devise and implement a common
strategy for the development, the deployment and the use of these technologies in Europe.
4The second set of actions aims at improving considerably public support to research and
technological innovation. In order to invest in research in Europe, enterprises need to find
here abundant and excellent teams of research ers, a strong public research well articulated
with industry, and effective public financial s upport, including through fiscal measures. The
action plan focuses on actions to improve the ca reer of researchers, to bring public research
and industry closer together, and to develop a nd exploit fully the potential of European and
national public financial instruments. For example, the action plan asks public authorities toeliminate by 2005 the current rules and practices , attached to many public funding schemes,
which prevent trans-European cooperation and technology transfer and thus reduce
considerably the research and innovation oppor tunities available to the beneficiaries.
A third set of actions addresses the necessary increase in the levels of public funding for
research. Given the current economic downturn, it is all the more important to ensure thatbudgetary policies favour investments that will lead to higher sustainable growth in the future,
among which research is a strong priority. Ac tions focus on encouraging and monitoring the
redirection of public budgets, a nd on making full use of the possibilities for public support to
industry offered by State aid rules and public pr ocurement rules. For ex ample, the action plan
proposes to clarify and improve awareness of the types of public support that public
authorities can use with no distortion to competition.
Lastly, a fourth set of actions aims at improving the environment of research and
technological innovation in Europe: intellectua l property protection, regulation of product
markets and related standards, competition rules, financial markets, the fiscal environment,and the treatment of research in companies’ management and reporting practices. Forexample, the action plan sets the objective that every student in science, engineering andbusiness should receive at leas t a basic training on intell ectual property and technology
transfer.
The action plan marks the start of a process. Progress will be monitored and the Commission
and Council will give further orie ntations in the future, if appropriate, to keep the Union on
track. However, there is little time to succeed and the gap is still growing rapidly between
Europe and its major trading partners. Implementation must start immediately at all levels,and it must be driven with a clear vision that what is at stake is the success or failure ofEurope’s ambition to become the most vibr ant place for innovation-driven growth and
employment creation.
2. A 
CALL FOR ACTION
The Barcelona European Council launched in  March 2002 a call for action to increase
investment in research a nd technological development1 and close the gap with Europe’s main
competitors. Investment in research, the Eu ropean Council decided, should rise from 1.9% to
3% of GDP in the European Union by 2010, a nd the share funded by business should rise to
two-thirds of the total. Since then all stakeholders have confirmed the relevance of that calland the need to act quickly, on the lines suggested by the Commission communication of
September 2002 “More research for Europe: towards 3% of GDP”
2. The gap in research
investment between the European Union and the United States is already in excess of € 120billion per year and widening fast, with alarming consequences for the long-term potential for
                                                
1"Research and technological development" is hereafter referred to as "research" or “R&D”.
2COM(2002)499, 11 Sept. 2002.
5innovation, growth and employment creation in Europe. As explained in the September 2002
communication, the gap is linked to less attr active conditions for private investment in
research in Europe, due both to lower and possibly less effective public support, and to
various obstacles in the wide r framework conditions of European research and innovation.
From September 2002 onwards the Commission undertook a wide consultation of European
institutions, Member States, acceding and candida te countries, as well as of stakeholders,
notably European industry and the financ ial sector. Responses were overwhelmingly
supportive of the 3% objective and of its empha sis on business investme nt in research. Many
replies contained useful insights  and proposals that have been used in preparing the present
action plan. All Member States, acceding and candidate countries agreed on the importance of
increasing investment in research, and most indicated that they had already put in placepolicies and concrete measures to that effect, or were in the process of doing so. Many have
also set national targets in line with the European 3% objective. For example, both France andGermany have adopted the 3% objective for them selves, and so has a future Member State,
Slovenia. Momentum is thus building up.
Both the European Economic and Social Committee and the Committee of the Regions
supported the 3% objective, as did the Members of the European Parliament who took part in
a public debate on that theme.
The numerous detailed replies received from i ndustry and business associations were also
unanimously supportive. Many, like the European  association of industry (UNICE) and the
European Round Table of Industrialists (ERT),  stressed that reaching the 3% objective is
crucial for Europe’s competitiveness but will require major policy changes to restore Europe’sattractiveness for research investment. ERT made the 3% objective the main focus of itsrecommendations to the European Council of Ma rch 2003 and UNICE one of its major topics.
Associations representing small and medium -size enterprises (SMEs) concurred on the
importance of increased investment in research for their constituencies.
A major lesson from the consultation is that large European companies are planning to
maintain a significant degree of investment in research despite the current economicslowdown and despite, notably, the sharp downtur n in some high-tech sectors. However, as
tougher economic conditions make it even more important for these companies to rationalisetheir global development, they are not planni ng new research investment in the European
Union but rather in other regions that they deem  more attractive, such as the United States and
some Asian countries. European SMEs, meanwhile, find that their ability to invest in research
and innovation is often limited by  both reduced auto-financing capacity and more difficult
access to external financing. The current economic conditions have further restricted theiraccess to finance for research  and technological innovation
3 activities. The economic
downturn makes it thus even mo re important and urgent to focus public action on supporting
research and innovation.
According to an econometric study undertaken for the Commission services4, attaining the
3% of GDP objective for research investment would have a significant impact on long-term
growth and employment in Europe, in the order of 0.5% of supplementary output and 400,000
                                                
3“Technological innovation" is hereafter referred to as "innovation".
4Study undertaken by the ERASME research team (Paris) with an adapted version of the NEMESIS
model (to be published).
6additional jobs every year after 20105. The full impact on growth and employment may be
even higher thanks to the boost that additi onal world-class research will give to the
international competitiveness of European i ndustry and services and to Europe’s global
economic attractiveness. Last but not least, more research in areas of social and environmental
interest will help Europe lead the way towards a more sustainable future. As emphasised bythe Commission in its report to the March 2003 European Council
6, investing in research is
thus at the heart of the strategy set by the Lisbon European Council in March 2000 forEurope’s economic, social and environmental renewal.
The European Council of 21 March 2003 called on the Commission to prepare the present
action plan and asked the Commission, the Counc il and Member States to take action on its
basis.
The action plan is based on a broad and syste mic approach to research and innovation. Both
the consultation and supporting studies showed that  such an approach is the only credible path
to deliver the major increases needed in public and private research investment. Assuming anaverage EU GDP growth rate of 2% per year  until 2010, the targets set in Barcelona (3% and
2/3 from the private sector) require a growth rate of 8% per year for the overall European
research effort, shared between a 9% yearly  increase for business funding and a 6% yearly
increase for public funding.
In order to achieve this, the action plan first addresses the need to develop a common
understanding shared at all policy levels a nd by all stakeholders, and to ensure sustained
and coherent progress throughout Europe . This can notably be achieved by using, where
appropriate, an open co-ordina tion process, European technology platforms and a mutual
learning process for European regions, and by  designing and implementing policy mixes that
combine in a coherent way a broader range of policy instruments. Making the whole of
Europe working together is an important issue (see chapter 3).
The action plan then covers successively aspect s linked to the effectiveness of public support
for research, to the level of public resources  made available, and to the improvement of
framework conditions:
– improving the effectiveness of public  support for research and innovation , both
financial and in the form of human resources and the public research base (see chapter 4);
– redirecting public resources to wards research and innovation , through increased
attention to public spending quality, adap ted state aid rules, better use of public
procurement (see chapter 5);
– improving framework conditions for research and innovation  such as intellectual
property rights, product market regulations, competition rules, fina ncial markets, tax
conditions and the corporate management a nd reporting of research (see chapter 6).
                                                
5This would result notably from major structural changes in the European economy, in particular a shift
towards more research intensive and high-growt h industries and a considerable increase of the
innovation capacity in the European economy.
6Commission report to the Spring European Council "Choosing to grow: knowledge, innovation and jobs
in a cohesive society", COM(2003)5, 14 Jan. 2003.
7The action plan should be seen in the broader context of the various policy initiatives and the
co-ordination process that form part of the Li sbon strategy, notably in the fields of economic
and employment policies, enterprise policy, e ducation and training policy, and the internal
market strategy. In particular, measures to encourage investment in research must go hand inhand with measures to foster enterprises' mo tivation to innovate and their capabilities to draw
concrete benefits from research – measures  that are implemented through industrial,
entrepreneurship and innova tion policies. The recent communication on innovation policy
7
highlights the importance of non-technological forms of innovation8, identifies the various
policy areas having a bearing on enterprises’ propensity to innovate, a nd maps out a route to
strengthen innovation policies through co-ope ration and mutual learning. The pursuit of
structural reforms in product, services, capita l and labour markets is also important for the
creation of a more dynamic and competitive business environment which is conducive to
more investment in research and innovation. The action plan addr esses specific aspects with a
direct bearing on investment in research.
The action plan is supported by a dedicated Website9 which contains supporting documents
and links to other sites devoted to related policies and activities. The site will be enriched andupdated continuously, notably to monitor the imp lementation of the action plan. The annexed
working document of the Commission services pr ovides specific elements of information and
analyses in support of the action plan.
3. P
ROGRESSING JOINTLY
Member States are well aware of the need to  boost investment in re search and they have
started putting in place policies and measures to that end. A European process of co-
ordination  is important to ensure that Member States learn from each others’ experience and
take actions that are mutually consistent. Such a process will also ensure that the EuropeanCouncil can regularly follow the progress achieved towards the objectives it has set.
Sector-specific i ssues should be taken into account, including through setting specific
objectives and milestones in some areas such as information and communicationtechnologies. Increased coherence and co-ordin ation is needed at the level of the various
stakeholders involved in the development and deployment of key technologies in Europe.
This can be promoted by European technology platforms , bringing together the main
stakeholders concerned, in order to set a common strategic agenda addressing research as well
as, where appropriate, regulator y and standardisation issues.
Progressing jointly also means that all regions should be enabled to benefit  from increased
research and innovation. Differences and dispar ities between regions in the enlarged EU are
considerable. While some are in a position to ma intain or develop tec hnological leadership,
others should rather focus on developing the absorption capacities – including applied
research and development activity – that will enable them to benefit from world-class research
                                                
7"Innovation policy : updating the Union's approach in the context of the Lisbon strategy",
COM(2003)112, 11 March 2003. See also the Commission communication "Industrial policy in anenlarged Europe" (COM(2002)714, 11 Dec. 2002) and the Green paper "Entrepreneurship in Europe"(COM(2003)27, 21 Jan. 2003).
8Technological innovation must often be combined with other forms of innovation, such as in design,marketing and business organisation, in order to draw the full commercial benefit.
9http://europa.eu.int/comm/research/era/3pct/
8undertaken elsewhere in Europe. However, all regions would gain from more systematic
mutual learning in defining their research strategies.
Lastly, administrations at all levels should develop a systemic view of the various policy
dimensions  that need to be mobilised in defining and implementing appropriate policy mixes
to foster private investment in research and innovation. These policy mixes involve often
different sectors of the public administrati on, between which co-ordination needs to be
strengthened.
3.1. Fostering the coherent development of  national and European policies
An open co-ordination process, as called fo r by the Spring 2003 European Council, will
facilitate mutual learning between Member States in their efforts to increase and improveresearch investment. It will also help increase the effectiveness of Member States’ actions byensuring, on a voluntary basis, greater consis tency with each other and with related
Community actions. Lastly, it will organise the data gathering and reporting necessary toenable the European Council to take stock of  the progress achieved towards the objective it
has set, and assess its efficiency
10.
Taking into account the orient ations defined by the Lisbon Eu ropean Council, application of
the open method of co-ordination to the 3% initiative will consist in a collective continuous
process of monitoring, a reporting mechanism on national initiatives and progress and anevolving mutual learning, which is:
– geared towards European targets (in this case the 3% and two-thirds objective) translated
by Member States into national targets and actions consistent with the overall EU objectiveand appropriate to their national situations and priorities;
– organised along agreed guidelines (proposed to  Member States in the present action plan);
– supported by a set of selected indicators, a nd by benchmarking exercises on focused topics
where there is a particular need for detailed data-gathering and information-sharing and forthe identification and disse mination of good practices.
Such an approach should also be applied to the initiatives arising from the human resources
implications of the 3% objective, by extending the existing process focusing on theinternational mobility of researchers to issu es involved in the provision of increased and
adequate human resources in science and technology.
Complementarity and consistency will be ensured with the mutual learning process on
innovation policies outlined in th e communication on innovation policy
11.
New actions
/g252 Set up an open process of co-ordination on actions for increasing investment in
research, involving Member States and acceding  countries as well as the candidate
countries wishing to participate, based on the light methodology and the set of existing
indicators proposed in the anne x to the present action plan  (Implementation: Member
States and acceding countries with  support from the Commission; 2003)
                                                
10See annexed Commission staff working paper.
11Op. cit.
9/g252 Set up an open process of co-ordination on  actions for developing human resources in
science and technology , with particular emphasis on the implications of the 3% objective,
as an extension of the existing process focusing on mobility (Implementation: Member
States and acceding countries with  support from the Commission; 2003).
3.2. Shaping a common vision for the development and deployment of key
technologies
In some domains research has a vital role to play in addressing major technological,
economic, or societal challenges. Here, Europ ean technology platforms will provide a means
to foster effective public-private partnershi ps involving as appropriate public research,
industry, financial institutions, users, regulato ry authorities and policy- makers, and this will
deliver the impetus to mobilise the research a nd innovation effort and facilitate the emergence
of “lead markets”12 in Europe.
In essence, technology platforms will be m echanisms to bring together all interested
stakeholders to develop a long- term vision, create a coherent, dy namic strategy to achieve that
vision, and steer its implementati on. A strategic research agenda will form a crucial part of
the strategy to optimise the contribution of re search to the process. Technology platforms
should also address both the technical and non-t echnical barriers to and requirements for the
optimal development, deployment  and use of technologies, such as regulations, standards,
financial aspects, social acceptance, skills and training needs, etc., while taking into account
the relevant Community policies.
Existing initiatives in areas such as aeronautics and rail transport offer elements of good
practice and constitute in effect a first gr oup of European technology platforms. The
Commission is planning to set up with relevant stakeholders  additional European technology
platforms in key areas such as plant genomics, road and maritime transport, hydrogen,photovoltaics, areas of nanotechnologies and information and communication technologies,
and steel technology.
New actions
/g252 Set up European technology platforms on a number of key technologies, following the
criteria and methodology indicated in the Commi ssion staff working paper attached to the
present communication (Implementation: stakeholders, with support from the Commission;
2003).
3.3. Enabling all regions to benefit from increased investment in research
A number of past and current initiatives have encouraged regions to develop their own
innovation strategies, including research as pects. These initiatives are already proving
extremely valuable in raising the awareness of  regions about the importance of research and
innovation13 and to help them put supportive policie s in place. However, the 3% objective is
spurring many new policy developments at Eu ropean and national levels that need to be
reflected in updated and strengthened regiona l strategies. Moreover, acceding and candidate
countries have specific needs, fo r example regarding infrastructur e (already largely in place in
                                                
12See Commission communication "Innovation policy : updating the Union's approach in the context of
the Lisbon strategy", op. cit., for a discussion of "lead markets".
13See annexed working document of the Commission services.
10current Member States), which need to be take n into account in the development of their own
regional strategies.
New actions
/g252 Establish a mutual learning platform  to help regions in the further development of their
research strategies, taking into account thei r specific situation and needs. Building on
existing activities, the platform will be suppor ted notably by the development of a typology
of regions, a methodology for the comparativ e assessment of regional performance, and
specific actions to promote the use of science and technology foresight at regional level
(Implementation: Commission-supporte d process with regions; 2004).
3.4. Designing a coherent mix of policy instruments
Firms will invest more in research only to the extent that they can draw concrete commercial
benefit from the results. They must have acc ess to an adequate supply of quality human
resources and to a stronger and more respons ive public research base. Increased and more
effective public support is nece ssary and it must be accompanied by much more favourable
framework conditions, such as adequate intellectual property right systems, a competitiveenvironment with research and innovation-friendly regula tions and competition rules,
supportive financial markets and a favourable fiscal environment.
The Commission's recent communications on i ndustrial policy, entrepreneurship and
innovation policy
14 complement the present action plan in pointing the way towards a more
competitive business sector willing to invest in and benefit from research.
As remarked in a recent report to the Commission15, “the scale of the structural changes
needed to transform the EU into a research -intensive, high-tech, knowledge-based economy
make it highly unlikely that any single route – in isolation – will be enough.” Clearly, abroader range of policies and instruments will need to be mobilised and co-ordinated moreclosely than has been the case until now to stimulate increased private investment in researchand innovation. The broader policy mixes that are required should optimise the use of various
financial support instruments and combine them with measures to improve framework
conditions. The design and imple mentation of appropriate polic y mixes at EU, national and
regional levels is thus a key challenge for public authorities. The optimal design of thesepolicy mixes depends on the specific strength s and weaknesses of national or regional
research and innovation systems, as well as on ta king into account, wher e appropriate, sector-
specific issues. It requires effective co-ord ination between the va rious departments or
ministries concerned.
The following action is thus essential to the effective development of national policies in
support of research and innovation. The Commission is applying this approach in developing
its own policies and will support Member States applying it through the open method of co-
ordination.
                                                
14Op. cit.
15Report to the Commission of the independent expert group on “Raising EU R&D intensity: Improving
the effectiveness of the mix of public support mechanisms for private sector research and
development", April 2003.
11New actions
/g252 Improve the effectiveness of public acti ons to promote research and innovation by
designing  policy mixes using in a coherent way various policy instruments, and by
developing the interactions with policies put in place by other countries and at
European level , notably on the basis of information shared and lessons learned through
the open process of co-ordination (Implementation: all levels, with Commission support for
the open process of co-ordination).
4. IMPROVING PUBLIC SUPPORT TO RESEARCH AND INNOVATION
Industry reactions to "More research for Europe"16 showed unambiguously that the main
factors considered by firms when deciding whether and where to invest in research, are theavailability of abundant and exce llent researchers and research personnel, a vibrant, world-
class public research base, imp roved public financia l incentives, and a much more favourable
regulatory environment. This chapter focu ses on the need to expand and improve human
resources, to strengthen the public research base and to enhance the effectiveness of thevarious public financing instruments.
4.1. Human resources
More and adequately skilled researchers will be needed in Europe in order to attain the
targeted increase of investment in research by 2010. Increased investment in research will
raise the demand for researchers: about 1.2 million additional research personnel, including
700 000 additional researchers, are deemed  necessary to attain the objective
17, on top of the
expected replacement of the ageing workforce in research. It has also to be considered thatsuch an increase will have to face general demographic pressures
18, the stagnation of student
enrolment in a number of scientific disciplines and international competition to attract highlyqualified workers. Thus, the adjustment of hum an resources to the prospective needs for
research and innovation will imply combined a nd greater efforts from all the stakeholders in
order to: attract a sufficient number of world-class researchers in Europe; make research moreattractive to various categories of  the population, especially women
19; and reduce losses at the
various stages of education and during the research career, including at the most experiencedstage. This implies addressing research-related issues in a number of policies, especiallylabour market, employment, education and training, and immigration-related policies.
Although general measures should be preferred whenever possible, the scale and urgency of
the challenge regarding the need for researchers make it necessary to envisage temporaryspecific measures.
Strengthening the human resources in research  thus involves a combination of initiatives at
national, regional and Community levels aiming at:
– Attracting more students to research, in particular through the increase in financial
incentives, the Science and Society initiatives, and the facilitation of student mobility;
                                                
16Op. cit.
17In head count. These are orders of magnitude, the precise results depending on hypotheses retained.
There were about 1.6 million researchers in Member States and acceding countries in 2000.
18The active population is expected to have fallen by 9 million by 2010.
19The potential for increasing the number of women researchers is considerable since the proportions of
women in researchers in the public and private sectors are respectively 31% and 15%.
12– Attracting international researchers to Europe and fostering mobility between the academic
world and industry;
– Maintaining researchers in the profession and in the European research area by giving
favourable career development prospects and a positive image of the researcher's
profession.
Main ongoing initiatives relevant to the 3% objective
/g252 Implementation of the Mobility strategy for the European research area, especially initiatives
aiming at improving access to the European research labour markets, such as the launching of
information tools for researchers, the full appl ication of the co-ordination of social security
schemes, including the improvement of the take up of complementary pensions, and the
implementation of the European health insurance card;
/g252 Implementation of the Science and Society act ion plan, notably actions to promote the
mainstreaming of gender equality and the launch of an initiative to enhance science teaching and
bridge the gap between science education and working with science.
New actions
/g252 Develop proposals on the career of researchers  aimed at facilitating the opening of
national systems for the recruitment, evaluation and further career development of
researchers at European and international levels, including the need for a specific
regulatory framework (Implementation: Commission communication 2003, Member
States);
/g252 Examine the case for further European or concerted measures to substantially
enhance the conditions for researchers in the EU , in the framework of the open process
of co-ordination  (Implementation: Commission and Me mber States, starting 2003) ;
/g252 Adopt and implement the foreseen proposals for an action plan and a directive on the
conditions of entry and stay of third-country nationals for the purpose of research in
the EU (Implementation: Commission proposals 2003);
4.2. Public research base and its links to industry
The links between industry and public research  (either from university or public research
organisations) are evolving from a dominance of  ‘sponsorship’, in which companies funded
public researchers to solve specific problems, to wards more structured forms of partnership
aiming at sustained, long term interaction. Ther e is a growing awareness that public research
institutions can be valued partners providi ng complementary expertise, knowledge and
resources that are often unavailable within th e industrial community. Such partnership offers
a potentially powerful tool to make investment in research more attractive to business whilealso benefiting public research.
However, in Europe we are still at the beginni ng of the process. Many companies still see
public research merely as a source of basic knowledge and highly-trained students. When it
exists, the partnership process is not always  managed properly. All in all, there is a
widespread perception in Europe of a continui ng gap between the respective performances of
academic research and te chnology-based innovation.
13Main ongoing EU initiatives relevant to the 3% objective
/g252 Initiatives to be derived from the consultation on the Commission communication “The role of
universities in the Europe of knowledge”, partic ularly on how to establish closer co-operation
between universities and enterprises.
New actions
/g252 Pursue or initiate necessary regulatory and administrative reforms, and support
measures, to enable public research institutions to develop more effective links with
industry , in particular SMEs, while safeguardi ng their public mission in education and
fundamental research. Issues to  address include notably the establishment of incubators,
science parks, seed funds and new types of public-private partnerships and the
performance appraisal of researchers (Implementation: Member States);
/g252 Increase the participation of industry and other stakeholders in the determination of
priorities for public research  (Implementation: all levels) ;
/g252 Develop guidelines to help Member States review – and, where appropriate, adapt –
their national regimes  governing the ownership, licensi ng and exploitation of IPR
resulting from publicly-funded research , with the aim of promoting technology transfer
to industry and spin-off creation (Implementation: Commissi on with Member States;
2004);
/g252 Develop European guidelines for the manageme nt and exploitation of intellectual
property rights in public research institutions and public-private partnerships . These
guidelines will help public research institu tions to develop and enforce, on a voluntary
basis, charters setting out the main principles to be applied regarding e.g. the ownership
and licensing of research results, the sharing of revenues, etc. (Implementation:
Commission in co-operation with stakeholders; 2004).
4.3. Improving the mix of public financing instruments and their effectiveness
Increasing public support to research and innovation goes hand in hand with improving its
effectiveness, in particular its leverage effect  on private investment. There is scope for making
a more effective use of the various public financing instruments, individually and in
combination: direct measures, fi scal incentives, guarantee schemes, support of risk capital. A
mix of instrument is needed as no single instrument can address optimally the needs of allsegments of industry. Direct measures and fiscal  incentives can be used for large firms as well
as SMEs, while guarantee and risk cap ital schemes concer ns mainly SMEs.
Public financing instruments must be developed and used with due respect to competition
rules, notably art. 87 of the Treaty (CE), as well as, in the case of fiscal measures, with duerespect for Member States' commitments in the EU  tax arena, notably the Code of conduct for
business taxation.
4.3.1.  Mix of financing instruments
The main challenge at European level is to reinforce the respective roles of the major financial
instruments and their complementarity in s upport of research and innovation: the Sixth
14research framework programme (FP6), the st ructural funds, Eureka, and the financial
instruments of the EIB Group20. The possibility should also be ex plored of gearing part of the
interventions of the European Bank for Recons truction and Development (EBRD) in acceding
and candidate countries to s upport industrial investment in research and innovation. Member
States should also seek to optimise their mix  of instruments taking into account the
characteristics of their rese arch and innovation systems as well as experiences in other
countries and developments at European level.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Further development of complementarity and synergies between European financing instruments :
the Sixth research framework programme, structur al funds, EIB/EIF and Eureka (joint working
groups);
/g252 Effective implementation of the Sixth research framework programme, in particular to foster
excellence and integration of resources, as well as cooperation between national programmes
(ERA-Net scheme);
/g252 Mid-term review of the structural funds instrume nts, highlighting the potential benefits for regions
of actions under the research and innovation priority;
/g252 Launch of the ‘innovation 2010’ initiative of the EIB Group, as the follow-up to its innovation
2000 initiative, with increased means (investment target of € 20 billion for 2003-2006) and
improved instruments to invest in research and innovation activities.
New actions
/g252 Develop the research and inn ovation priority as a major axis of the structural funds
after 2006  (Implementation: Commission 3rd Cohesion report; 2003) ;
/g252 Streamline funding of collaborative projects in the frame of EUREKA  by examining
possible options, in particular wa ys to synchronise national support21 or to create a
common financing scheme (Implementation: Eureka Member States) ;
/g252 Optimise the mix of financing instruments , taking into account the needs for different
industry segments and developments in other countries and at European level
(Implementation: Member States) ;
/g252 Develop co-operation between the Sixth research framework programme and the
European Bank for Reconstruction and Development , on the model of the successful
co-operation set up with the EIB Group (Implementation: Commission and EBRD; starting
in 2003) .
4.3.2.  Direct measures for research and innovation
Direct funding, usually in the form of grants22, remains the preferred type of public support to
business research in most countries. Grants a llow public authorities to finely target specific
                                                
20Includes the European Investment Bank (EIB), which implements loan instruments, and the European
Investment Fund (EIF), which manages equity and guarantee instruments.
21Grants, loans or guarantee schemes.
22Conditional grants or loans, although used less often than grants, are also direct measures;
reimbursement is linked to success or failure of commercial exploitation.
15technologies or scientific area s, overcoming cyclical or sectoral slowdowns. They can also
influence recipients’ behaviours through the conditions attached to them, for example toencourage the development of part nerships and technology transfer.
Important issues are how to promote the constitution of a critical mass for research in key
areas, as national capacities are more and more often proving insufficient to create world-class poles of excellence; how to ensure the pa rticipation of SMEs, wh ich is crucial to boost
the innovative capacity of large segments of th e economy; and how to ensure that the results
of publicly-funded research are fully exploited
23.
A possible European initiative for the acquisition of defence research, as suggested by the
European Council of March 2003 following the Commission communication on the defence
equipment industry, would also increase the e ffectiveness of European defence R&D efforts
and could lead to increased funding of frontier technologies of dual-use interest.
New actions
/g252 Eliminate rules and practices in national  programmes that im pede European co-
operation and technology transfer24, and allow funding of organisations from other
Member States  where appropriate (Implementation: Member States; proposed target:
2005) ;
/g252 Gear more research programmes towards the constitution of poles and networks of
excellence by encouraging clustering or integration of resources  at regional, national and
European levels (Implementation: all levels) ;
/g252 Enhance the innovation impact of R&D programmes by encouraging and supporting
the integration of inn ovation-oriented activiti es in research projects (e.g. knowledge
management and diffusion, training ac tivities, take-up measures for SMEs)
(Implementation: all levels) .
/g252 Consider setting targets for the participation of SMEs  in national programmes, on the
model of the 15% target set in the Community research framework programme
(Implementation: Member States) .
/g252 Develop a European agenda for advanced research relating to global security , and
launch a preparatory action in view  of the possible setting up of a European structure
to procure security-related research of common interest , following the Commission
communication on the defence equipment indus try and the European Council conclusions
on the subject (Implementation: Commission with Member States) .
                                                
23See report to the Commission of the independent expert group on “Raising EU R&D intensity:
improving the effectiveness of public support mechanisms for private sector research and development:
direct measures”, April 2003.
24For example restrictions on the use of the results in other countries and on sub-contracting to non-national organisations. Moreover, even when national programmes have no formal rules excludingprojects involving collaboration with organisations from other countries, the absence of an explicitstatement guaranteeing the eligibility of such projects is often perceived negatively due to past practices
in the attribution of funds.
164.3.3.  Fiscal measures for research
Fiscal incentives are increasingly used to enc ourage business research as they can support a
wide population of firms, including SMEs , while leaving enterprises a maximum of
independence. To be effective, fiscal measures  for research should be designed with care and
co-ordinated with other research support in struments. Although optimal design depends on
the country-specific context, not ably the general national fiscal system, there is scope for
mutual learning. For example, a recent review of tax incentives for business research25
suggests that volume-based schemes, although more costly, may be more effective thanincremental schemes in stimulating increased research expenditure, in particular in periods ofeconomic downturn; that an impor tant feature may be to make the fiscal scheme independent
of profitability, through carry forward / carr y back facilities or cash refunds if companies
make losses; and that a clear definition of elig ible activities is essentia l, and should preferably
include outsourced research as well as in-house activities.
New actions
/g252 Encourage a concerted use of fiscal incentives to address research policy issues of
common interest , notably to:
- Encourage the creation and early growth of research-intensive firms ;
-Facilitate fund raising by new or existing foundations supporting R&D activities
in Europe;
Consider also such a concerted use of fiscal incentives to raise the attractiveness of
research careers.
(Implementation: Commission with Member States in the context  of the open method of co-
ordination; progress report in 2004);
/g252 Improve fiscal measures for research  on the basis of:
- formal evaluations, whose re sults should be disclosed;
- mutual learning;
- the application of principles  of good design such as simplicity, low administrative cost
and stability;
 (Implementation: Member States) ;
/g252 Disclose data on the budgetary cost of fiscal measures  (Implementation: Member
States) .
4.3.4.  Support to guarantee mechanisms for re search and innovation in SMEs
The purpose of guarantee schemes is to share ri sks between different stakeholders. They may
cover either equity investme nt of venture capital funds or loans and are particularly
appropriate for supporting the fi nancing of SMEs, with a high leverage effect on private
finance. Equity guarantees could be used  to support the creation and early growth of
technology-based firms, while loan guarantees would be more appropria te for the financing of
research or innovation projects in esta blished SMEs with a limited risk profile.
Public support for such scheme s is well developed, notably at  the European level by the
European Investment Fund (EIF), whose SME guarantee facility has benefited some 120 000
SMEs since 1998. This support is typically offered through sharing the cost of guarantees (co-
                                                
25See report to the Commission of the independent expert group on “Raising EU R&D intensity:
improving the effectiveness of public support mechanisms for private sector research and development:
fiscal measures”, April 2003.
17guarantee) or counter-guaranteeing them. Howe ver, despite well-identif ied market failures in
the financing of research and innovation, the potential of guarantee schemes for supporting
specifically research and innovation activitie s appears still largely unexploited in most
Member States. Therefore, a better use of su ch schemes should also be considered and
promoted where appropriate, in cluding innovative tools such as the inclusion of guarantees in
a larger integrated package of servi ces and the securitisation of loan pools 26.
New actions
/g252 On the basis of experience in some countries, make better use of guarantee mechanisms
to improve access to debt and equity fina ncing for research and innovation activities
in SMEs  (Implementation: all levels);
/g252 Consider strengthening and extending future guarantee schemes managed by EIF from its
own resources or the community mandate, in order to support the development of
national and regional guarantee program mes to improve access to debt and in
particular equity fi nancing for research and innovation in SMEs (Implementation: EIB
Group and Commission).
4.3.5.  Support to risk capital for research-intensive SMEs
Research-intensive SMEs tend to rely more than  others on risk capital for their start-up and
early growth, as their auto-financing capability is very limited compared to the size of theirresearch investment needs and their access to credit is restricted by the perceived riskassociated with research. The dramatic dec line of risk capital activity since 2000 makes it
particularly difficult for young research-intensive SMEs to grow or even survive in currentconditions. Considering the market failure to ra ise adequate funding for seed and early stage
capital and the cyclical factors that have led to  the current funding gap in subsequent stages,
there is a strong case for public support for seed and early stage capital, as well as for a wider,
time-limited public s upport to venture capital markets.
27 Public measures should also address
awareness issues.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Networking activities for risk capital fund managers and business angels, encouraging the
emergence of trans-European co-ordinated risk capital activities.
New actions
/g252 Strengthen and broaden EIF risk capital activities to better address market failures
and current equity gaps (seed and early stages, including incubators and funds
established jointly by networks of universities, and for a limited period the equity gaps in
subsequent rounds), and to extend to public research organisations its advisory
services on the setting up of new funds  (Implementation: EIF and Commission) ;
                                                
26See report to the Commission of the independent expert group on “Raising EU R&D intensity:
improving the effectiveness of public support mechanisms for private sector research and development:guarantee mechanisms”, April 2003.
27See report to the Commission of the independent expert group on “Raising EU R&D intensity:improving the effectiveness of public support mechanisms for private sector research and development:
risk capital measures”, April 2003.
18/g252 Increase awareness of research-intensive SMEs about appropriate use of risk capital
notably through actions at regional level, in accordance with the Commission guide on risk
capital financing (Implementation: all levels).
5. REDIRECTING PUBLIC SPENDING TOWARDS RESEARCH AND INNOVATION
Increasing the quality of public support for rese arch will contribute to raising the level of
private investment significantly. Its is, however, not sufficient. There is also a need for morepublic investment in support of research. The following sections examine this in the light of
the stability and growth pact and the broad ec onomic policy guidelines, of State aid rules,
public procurement, and the financial perspectives for the European Union.
5.1. The stability and growth pact and the broad economic policy guidelines
The recent Commission proposals for strengtheni ng the co-ordination of budgetary policies
28
confirmed that the quality of pub lic finances, under the angle of  their contribution to growth,
is an integral part of budgetary surveillance within the context of stability and convergence
programmes. In this regard, the Commission ha s repeatedly made the case for refocusing
public spending towards more productive inves tments, notably in support of research and
innovation, since they are conducive to higher growth in the future. In order to ensuremacroeconomic stability and long term sustaina bility of public finances, this must be done
within the framework of the stability and grow th pact. Increased public support for research
and innovation is one of the categories of sp ending in support of the Lisbon objectives, for
which the Commission considers that small and temporary public deficits should be
authorised in countries having otherwise a ttained a positive or close to balance budget
position. The current economic downturn makes it all the more important to ensure that
budgetary policies favour investments that will lead to higher sustainable growth in the future.
Consistent with this approach, the Commi ssion's proposal for the broad economic policy
guidelines 2003-2006 recommends to refocus public spending towards more productive
investment, particularly resear ch and innovation, and translates this priority into a number of
specific recommendations to Member States
29.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Implementation of the Stability and growth pact, particularly the more detailed assessment of the
quality of public spending proposed by the Commission communication of November 2002 on the
co-ordination of budgetary policies;
/g252 Adoption by the Council and follow-up of the Commission recommendations for the Broad
economic policy guidelines 2003-2006, particularly regarding the quality of public spending and its
refocusing towards knowledge, notably research and innovation.
New actions
/g252 Encourage and monitor the refocusing of public spending towards knowledge,
notably research and innovation (Implementation: all levels).
                                                
28COM(2002) 668, 27 November 2002.
29See notably recommendations 13 and 14 of the Commission's proposal for the broad economic policy
guidelines, COM(2003)170, 8 April 2003.
195.2. Balance between national and EU public funding until 2010
The financial means available from the Eur opean Union budget to support research and
innovation should be examined in relation to the efforts undertaken at national level. Clearly,
given the long-term common target of 3% of GDP for research expenditure, the respective
roles of public expenditures at EU and national should be assessed as soon as possible in co-
operation with Member States and acceding countries.
New actions
/g252 Analyse and discuss with Member States and acceding countries the public budget
requirements for attaining the 3% objective and the repartition of roles and efforts
between national and Co mmunity levels until 2010 (Implementation: Commission with
Member States and acceding countries, in the context of the open method of co-
ordination) .
5.3. State aid rules
Many forms of public support to research caus e no distortion to competition and therefore do
not constitute State aid. This type of support s hould be encouraged in priority. However, a
large proportion of public support to business research still falls within the State aid category.
The Community framework for State aid for R&D aims at striking a balance between theneed to ensure on the one hand that distortions of competition are kept to the minimum and onthe other that European industry becomes more competitive. Public suppor t is justified by the
recognised failure of the market to induce business investment in research at an optimal level.The framework was renewed in 2002 until 2005 as  the maximum levels of aid authorised
were not considered an obstacle to the achievement of the 3% target. However, as by the endof 2005 the current framework will have been in force for nearly ten years, it will be
necessary to review the basic definitions and concepts used to take account of subsequent
developments in R&D.
Block exemption regulations alleviate the burden  of notifying certain types of State aid and
hasten the granting of support to industry. The Commission intends to amend the existingblock exemption for State aid to SMEs, widening its scope to both individual R&D aid and
R&D aid programmes, which will considerably reduce the number of notifications. Thepossibility of a further block exemption will be considered within the review of theCommunity framework on State aid for R&D.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Rapid adoption of a revised block exemption for SMEs, encompassing State aid for R&D;
/g252 Collection of data and reporting on the redirection of State aid towards horizontal objectives,
including research.
New actions
/g252 Clarify and improve awareness of the forms of public support to research that cause
no distortion to competition and therefore do not constitute State aid  (Implementation:
Commission);
20/g252 Prepare the revision of the Community framework on State aid for R&D , notably
through in-depth review of the following issues:
- the definition of the cut-off point betw een research activities eligible for public
support and pure commercial i nnovation activities and differe ntiation between eligible
R&D projects according to their proximity to the market;
- changes in the role of public research es tablishments towards stronger co-operation
with industry;
- the various models of public support fo r R&D activities used by the Community's
major trading partners and their implications in terms of a level playing field for
European enterprises acting on global markets
Within the review of the framework, the possibility of block exempting aid will be
considered (Implementation: Commission);
/g252 Redirect State aid towards R&D as part of the more general redirection of State aid
towards horizontal objectives (Implementation: all levels).
5.4. Public procurement
Public procurement is estimated to represent 16% of European GDP. It is a leading or major
component of demand in a number of sectors, such has health care, education, transport,
environmental protection and defence where the public sector can act as a launching
customer30. Procurement rules and practic es should aim at ensuring that public buyers get the
best value for money. Part of this means ensu ring that public buyers are able to get products
and services with the technology that best fits  their needs, including innovative products and
services when this is justified. Various possibilities already exist, and the procurementlegislative package currently in the process of adoption will clarify and expand them in somerespects: for example, with its emphasis on performance and definitions of technical
specifications, and with the “competitive dialogue” procedure, allowing to organise
competition for complex contracts in dialogue w ith suppliers so as to identify one or more
technical solutions before the final award. Other possibilities may lie with e-procurement andthe related dynamic purchase system.
An important objective is to raise public buyers’ awareness of the possibilities offered to them
by the legislative framework, and to support th e development and diffusion of information
enabling them to make full and correct use of these possibilities. This could have a significantimpact on the procurement of more innovativ e products and services, thereby stimulating
further research and innovation.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Rapid adoption of the procurement package by the Parliament and Council;
/g252 Progress of the e-procurement initiative;
                                                
30Through public procurement, in particular in the defence sector, the US government acts as a
“launching customer” for innovative technologies (in particular information and communicationtechnologies) and lowers the risk for subsequent customers. In Europe, the European satellite navigation
system Galileo is a good example of a large European initiative where initial public procurement plays
a major role in the development of the core technologies, followed by a public private partnership for
the deployment and exploitation of the infrastructure .
21/g252 Awareness-raising actions proposed in the recent Commission’s communication on innovation
policy;
/g252 Progress towards the possible creation of a European intergovernmental defence capabilities
development and acquisition agency.
New actions
/g252 Support the development and diffusion of information, for example on the best
available technologies for key categories of products,  enabling public buyers to procure
technologies that best fit their needs, in par ticular in sectors such as health, environment,
transport and education where they are often first customers  (Implementation: all levels) .
6. IMPROVING FRAMEWORK CONDITIONS FOR PRIVATE INVESTMENT IN RESEARCH
While more and better public s upport is necessary to boost rese arch and innovation in Europe,
this needs to be accompanied by considerable improvements in the wider frameworkconditions to make the European Union really attractive for private investment in researchand innovation. A number of recent breakthroughs need to be confirmed and new actions are
needed in areas such as intellectual property, market regulations, competition rules, financialmarkets, fiscal conditions and corporate reporting on research.
6.1. Intellectual property
The protection of intellectual assets is important to the competitiveness of most organisations,
private or public, and to their attractiveness for investors. In particular, there is a need for
properly balanced intellectual property systems, offering suitable incentives to innovate and
invest in research, while at the same time ensuring that the diffusion and further developmentof research results are not stifled. Considerable progress has been achieved in recent years, atinternational and Community levels, such as the adoption of the unitary Community design
right becoming effective in 2003 and the recent  political agreement on the creation of the
Community patent system. However, there is still scope to make European intellectualproperty systems more responsive to the rapi d evolution of both re search processes and
specific technological areas. In addition, acti ons are needed to promote the optimal use of
intellectual property rights systems in Europe, with a special emphasis on academicinstitutions and smaller businesses.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Setting up of the Community patent system;
/g252 Negotiation of a proposal for a directive on the enforcement of intellectual property rights;
/g252 Negotiation of a proposal for a directive on the patentability of computer-related inventions, taking
into account the need to avoid stifling competition and open-source development;
/g252 Rapid implementation of Directive 98/44/CE relati ng to the patentability of biotechnological
inventions and Directive 2001/29/CE relating to copyright and related rights in the information
society;
/g252 Promotion of a common European approach on the grace period issue, in the context of
international harmonisation work;
22/g252 Use of existing instruments in the research fr amework programme to support temporary exchanges
of technology transfer professionals between research organisations.
New actions
/g252 Support EU-wide coordinated IPR awaren ess and training activities  targeting in
particular the European research community (Implementation: Commission and other
relevant institutions) ;
/g252 Assess specific research-related aspects of IP law , including the experimental exception,
prior user rights, legislation applicable to  technological know-how, and IPR co-ownership
provisions, with a view to identifying  necessary actions where appropriate
(Implementation: Commission with sta keholders; progress report in 2004);
/g252 Ensure that before graduating, every student – especially from science, engineering and
business schools – receives basic awareness/training regarding intellectual property
and technology transfer  ((Implementation: Member States and higher education
institutions).
6.2. Regulation of products  and standardisation
The impact on research and innovation of existin g and new regulations of markets should be
checked and optimised where necessary. This s hould be done in a way consistent with the
“better regulation” initiative and notably the Commission’s new impact assessmentframework. From a research and innovation point of view, an important objective is to ensure
that regulations remain technology-neutral. A good example is the so-called "new approach",
which limits itself to the requirements that are essential to protect th e public interest and
leaves the technical expression of these require ments to be drafted in the context of the
European Standards Organisations (CEN, CENE LEC, ETSI) by means of consensus-based
standards. This approach has very positive effects on research and innovation by ensuring
such technology-neutrality as well as the necessary balance of flexibility and legal certainty. Italso means that attention should focus on a timely, effective, open and transparent
standardisation process which, like regulation, should remain technology-neutral by relying
on performance indicators. Aspects regarding the European standards policy will be examinedin details in a Commission communication later this year. The two following aspects areparticularly relevant to resear ch and innovation: first, resource s need to be made available to
fund the research required for completing the development of many European standards;
secondly, adequate awareness of standards is  needed to allow European business, notably
SMEs, to take them better in account in  their research and innovation projects.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Forthcoming Commission comm unication on standardisation;
/g252 Implementation of the General guidelines for co-operation between the European Standards
Organisations and the European Commission31;
/g252 Use of the Sixth research framework programme to fund research necessary for standardisation
purposes, in particular in the context of integrated projects and networks of excellence.
                                                
31To be published in OJEC.
23New actions
/g252 Identify technological areas where existing legislation or the lack of legislation is an
impediment to the development and deployment of new technologies ; define, where
appropriate, measures to address the problem s; this will notably be undertaken in the
context of European technology platforms (Implementation: Commission with
stakeholders) ;
/g252 Strengthen the links between the Sixth research framework programme and
European standardis ation organisations (CEN, CENELEC and ETSI) with the view of
defining and supporting where appropriate resear ch that is required for the development of
European standards (Implementation: Commission and European standardisation bodies).
6.3. Competition rules
In addition to the review of the Community  framework for State aid to R&D, European
competition rules are currently being revised in  ways allowing for research and innovation
aspects to be better taken into account wh en assessing market dynamics and competitive
conditions. Notably, the recent overhaul of  EU anti-trust law gives more emphasis to
economic assessment. In this context, the fo rthcoming revision of the block exemption and
guidelines for technology transfer agreements should lead to a less le galistic process focusing
more on economic assessment. The effects of re search and innovation activities also need to
be more explicitly considered in merger decisions, in line with the Merger regulation whichforesees that "the development of tec hnical progress" should be taken into account
32.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Forthcoming revision of the block exemption and guidelines for technology transfer agreements
(external consultation planned during autumn 2003).
New actions
/g252 Develop guidance on how the potential efficiencies through technological progress will
be assessed in merger decisions  (Implementation: Commission).
6.4. Financial markets
Efficient, supportive and integrated financial markets are a major enabling factor to foster
investment in research, notably by technology-b ased SMEs at the various stages of their
development. Key markets involved are risk ca pital markets at start-up and growth stage,
secondary markets for the financing of initial public offerings and subsequent expansion, and
debt markets. Particularly important issues for resear ch and innovation are the full
implementation of the financial services acti on plan, in particular aspects such as the
integration of capital markets in Europe, and the emergence of rating mechanisms appropriateto technology-based companies, including SMEs.
Equally important is the rapi d completion of the risk-capita l action plan and its possible
follow-up. Notably, the tax and regulatory envir onment of risk-capital should be considered in
this context, as investors, especially institutional investors, are highly sensitive to costs and
                                                
32Article 2(1)(b)
24complexity and likely to divert their investment s to other asset classes unless the conditions of
investment in risk capital are substantially improved. Particular attenti on should be given to
double taxation issues, as well as to the possibl y damaging effects of excessive prudential
obligations imposed on banks and other financial institutions.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Full implementation of the financial services action plan;
/g252 Rapid completion of the risk capital action plan, and elaboration of follow-up actions as
appropriate.
New actions
/g252 Adapt, where appropriate, the fiscal trea tment of risk capital to avoid the double
taxation of inve stors and funds33 (Implementation: Member States); to that effect,
consider also the merits and the possibility of developing an harmonised European fund
legal structure  ensuring tax transparency for risk capital operations throughout the Union
(Implementation: Commission with  relevant stakeholders) ;
/g252 In the light of the recent dramatic decline of risk capital financing world-wide, and of the
particularly important ro le of banks in risk capital financing in Europe, ensure that
Community legislation on capital adequacy, which will be based on the future
Basel II capital agreement, properly takes into account the needs of risk capital
providers (Implementation: Commission; legislative proposal in 2004) ;
/g252 Examine ways to promote the use of rating syst ems that include technology risk
assessment  (technology rating)34 to enable potential investors to appraise the specific risks
and rewards associated to investments in  technology-based SMEs (Implementation: all
levels, including Commission, with rel evant stakeholders; report in 2005) .
6.5. Fiscal environment
Ongoing actions by the Commission to promote a fair and efficient European fiscal
environment is likely to have a significantly favourable effect on the attractiveness of the EU
for research investment and innovation. The Co mmission is following a two-pronged strategy
for tackling the tax obstacles to cross-border activities in the internal market: in the shortterm, enactment of specific legislation targeted at each particular obstacle; in the longer term,development of a systematic, comprehensive solution to all cross-border issues providing
companies with a common consolidated tax base  for their economic activities within the EU.
Actions of particular importance for research investment are listed below.
                                                
33Double taxation (investors and funds) reduces the profitability of investment in risk capital funds
compared to investments made directly in firms, and therefore diminishes the attractiveness of such
funds. This restricts investments by both domestic and international investors.
34Historical financial statements are not a reliable guide  to future performance of technology-based firms,
because these companies frequently enter new markets with new products. Technology rating looks
forward, by helping to assess the value of an innovative technology-based product or service.
25Main ongoing EU initiatives relevant to the 3% objective
/g252 Forthcoming Commission initiative on the cross-border offsetting of losses for tax purposes
(planned in 2004), which will benefit research activities and contribute to their more efficient
allocation within multinational groups, since these activities are almost by definition accounted as
loss-making;
/g252 Work of the EU joint transfer pricing forum, to improve notably the tax treatment of transactions
between various units of multinational companies (e.g. transfer of intangibles);
/g252 Rapid adoption of the draft directive on the taxation of cross-border payments of interest and
royalties, which will abolish withholding taxes on royalties for patents in the EU;
/g252 Progress towards creating a consolidated EU tax base for companies, on the basis of the
forthcoming Commission communication planned for the end of 2003.
6.6. Corporate research strategy, man agement and financial reporting
There is room for progress in increasing awareness of companies, especially SMEs, of the
benefits and ways of integra ting research and innovation into their business strategy and
management. This awareness can be raised by the education system and also by new methods
of financial reporting. Within the curricula of  business schools more a ttention should be paid
to an integrated approach to R&D management within the overall business strategy. Creatingmore transparency in financial reporting about the role of inve stment in research and other
forms of intellectual capital will also lead to  a better understanding of value creation within
companies and provide a better basis for d ecision-making to mana gers and investors.
Regarding external company financial reportin g, more attention should be paid to the
implementation of guidelines, consistent with new International Accounting Standards,concerning reporting of R&D and other forms of intellectual capital. These new types of
reporting will also provide data, which will enable statistical offices to provide betterinformation on the size of investment in intellectual capital.
Main ongoing EU initiatives relevant to the 3% objective
/g252 Actions within the research framework programme to stimulate widespread use and harmonisation
of guidelines on measuring corporate research and other forms of intellectual capital;
/g252 Development and regular publication of statistics on firms’ investment in intellectual capital.
New actions
/g252 Set up an  industrial research  monitoring activity, in cluding a score-board , to analyse
trends and facilitate benchmarking of research investment and research management
practices between firms, building on experience in Member States (Implementation:
Commission support; first report early 2005);
/g252 Encourage corporate measuring and reporting on research and other forms of
intellectual capital , both internally and externally, ma king use of existing international
guidelines.  (Implementation: business sector);
/g252 Encourage the development and inclusion of  state-of-the-art R&D management
modules into science, engineering and business schools curricula (Implementation:
Commission with higher education institutions and industry) .
267. CONCLUSION
The present action plan marks the start of a process which has the potential to boost Europe's
attractiveness for investment in research a nd to put the Union on track for reaching the
objective of 3% of GDP for research by 2010. However, this requires determined and
coherent action by Member States, acceding and candidate countries and all stakeholders. For
its part, the Commission will start immediately taking the necessary steps to advance alongthe lines identified above and to encourage thos e that are willing to improve the conditions to
do more and better research in Europe. It will also report every year ahead of the SpringEuropean Council meeting so that the Europ ean Council may follow progress and set further
orientations or adjust its strategy as appropriate on the basis of progress made.