Communication from the Commission - Investing in research: an action plan for Europe {SEC(2003) 489}
Date: 2003-06-04
Institutions: European Commission
Subjects: EU research policy, action programme, industry-research relations, intellectual property, public investment, research and development

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 4.6.2003
COM(2003) 226 final/2

Corrigendum
Footnote 29
Concerne les 11 versions linguistiques

COMMUNICATION FROM THE COMMISSION

Investing in research: an action plan for Europe

{SEC(2003) 489}

Table of contents

1.

2.

3.

3.1.

3.2.

3.3.

3.4.

4.

4.1.

4.2.

4.3.

Executive summary...................................................................................................... 3

A call for action............................................................................................................ 4

Progressing jointly ....................................................................................................... 7

Fostering the coherent development of national and European policies...................... 8

Shaping a common vision for the development and deployment of key technologies 9

Enabling all regions to benefit from increased investment in research ....................... 9

Designing a coherent mix of policy instruments ....................................................... 10

Improving public support to research and innovation ............................................... 11

Human resources........................................................................................................ 11

Public research base and its links to industry............................................................. 12

Improving the mix of public financing instruments and their effectiveness.............. 13

4.3.1. Mix of financing instruments ..................................................................................... 13

4.3.2. Direct measures for research and innovation ............................................................. 14

4.3.3.

Fiscal measures for research ...................................................................................... 16

4.3.4.

Support to guarantee mechanisms for research and innovation in SMEs.................. 16

4.3.5.

Support to risk capital for research-intensive SMEs.................................................. 17

5.

5.1.

5.2.

5.3.

5.4.

6.

6.1.

6.2.

6.3.

6.4.

6.5.

6.6.

7.

Redirecting public spending towards research and innovation.................................. 18

The stability and growth pact and the broad economic policy guidelines ................. 18

Balance between national and EU public funding until 2010.................................... 19

State aid rules ............................................................................................................. 19

Public procurement .................................................................................................... 20

Improving framework conditions for private investment in research........................ 21

Intellectual property ................................................................................................... 21

Regulation of products and standardisation ............................................................... 22

Competition rules....................................................................................................... 23

Financial markets ....................................................................................................... 23

Fiscal environment ..................................................................................................... 24

Corporate research strategy, management and financial reporting............................ 25

Conclusion ................................................................................................................. 26

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1. 

EXECUTIVE SUMMARY

The present action plan sets out initiatives required to give Europe a stronger public research
base  and  to  make  it  much  more  attractive  to  private  investment  in  research  and  innovation.
Carrrying out these actions will allow the European  Union to bridge the  growing gap in the
levels of research investment between Europe and its main trading partners, which is putting
at 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  from  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 investment 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  strong
support given to the objective.

The  March  2003  European  Council  called  for  the  Commission  to  present  this  action  plan,
which has been prepared on the basis of a wide consultation of European institutions, Member
States,  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 are already taking measures to boost 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  are  sustained,  mutually  consistent  and  commensurate  with  the
challenge  of  bringing  radical  improvements  to  the  European  system  of  research  and
technological  innovation.  Europe  is  facing  a  situation  where  the  weakest  link  in  the  system
risks discouraging investment – to give but a few examples: the shortcomings and rigidities of
research 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  difficulties
encountered by technology-intensive SMEs to find financing for their research and innovation
projects;  or  the  lack  of  awareness  of  researchers  and  research  managers  regarding  the
protection 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  Council
objective to  “make Europe the  most  competitive  and  dynamic  knowledge-base  economy  by
2010”.

The action plan comprises four main sets of actions.

A  first  set  of  actions  aims  at  supporting  the  steps  taken  by  European  countries  and
stakeholders, ensuring that they are mutually consistent and that they form an effective mix of
policy measures.  This includes  a process  of  co-ordination with and  between  Member  States
and acceding countries. It also entails creating 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.

3

The  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  researchers,  a  strong  public  research  well  articulated
with industry, and effective public financial support, including through fiscal measures. The
action plan focuses on actions to improve the career of  researchers, to bring public research
and industry  closer together, and to develop  and exploit  fully  the potential of European and
national public financial instruments. For example, the action plan asks public  authorities to
eliminate 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 opportunities 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  that
budgetary policies favour investments that will lead to higher sustainable growth in the future,
among which research is a strong priority. Actions focus on encouraging and monitoring the
redirection of public budgets, and on making full use of the possibilities for public support to
industry offered by State aid rules and public procurement rules. For example, 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:  intellectual  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.  For
example,  the  action  plan  sets  the  objective  that  every  student  in  science,  engineering  and
business  should  receive  at  least  a  basic  training  on  intellectual  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 orientations 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  of
Europe’s  ambition  to  become  the  most  vibrant  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 and technological development1 and close the gap with Europe’s main
competitors. Investment in research, the European Council decided, should rise from 1.9% to
3% of GDP in the European Union by 2010, and the share funded by business should rise to
two-thirds of the total. Since then all stakeholders have  confirmed  the relevance of that call
and  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 € 120
billion per year and widening fast, with alarming consequences for the long-term potential for

1

2

"Research and technological development" is hereafter referred to as "research" or “R&D”.
COM(2002)499, 11 Sept. 2002.

4

                                                
innovation, growth and employment creation in Europe. As explained in the September 2002
communication,  the  gap  is  linked  to  less  attractive  conditions  for  private  investment  in
research  in  Europe,  due  both  to  lower  and  possibly  less  effective  public  support,  and  to
various obstacles in the wider framework conditions of European research and innovation.

From September 2002 onwards the Commission undertook a wide  consultation of European
institutions,  Member  States,  acceding  and  candidate  countries,  as  well  as  of  stakeholders,
notably  European  industry  and  the  financial  sector.  Responses  were  overwhelmingly
supportive of the 3% objective and of its emphasis on business investment 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  place
policies 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 and
Germany have adopted the 3% objective for themselves, 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  industry  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’s
attractiveness  for  research  investment.  ERT  made  the  3%  objective  the  main  focus  of  its
recommendations to the European Council of March 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  economic
slowdown and despite,  notably,  the  sharp  downturn in  some  high-tech  sectors.  However,  as
tougher economic conditions make it even more important for these companies to rationalise
their  global  development,  they  are  not  planning  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  their
access  to  finance  for  research  and  technological  innovation3  activities.  The  economic
downturn makes it thus even more 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

4

“Technological innovation" is hereafter referred to as "innovation".
Study  undertaken  by  the  ERASME  research  team  (Paris)  with  an  adapted  version  of  the  NEMESIS
model (to be published).

5

                                                
additional  jobs  every  year  after  20105.  The  full  impact  on  growth  and  employment  may  be
even  higher  thanks  to  the  boost  that  additional  world-class  research  will  give  to  the
international  competitiveness  of  European  industry  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 by
the Commission in its report to the March 2003 European Council6, investing in research is
thus  at  the  heart  of  the  strategy  set  by  the  Lisbon  European  Council  in  March  2000  for
Europe’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 Council and Member States to take action on its
basis.

The action plan is based on a broad and systemic 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 an
average 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  and  by  all  stakeholders,  and  to  ensure  sustained
and coherent progress throughout Europe. This can notably be achieved by using, where
appropriate,  an  open  co-ordination  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 aspects 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  towards  research  and  innovation,  through  increased
attention  to  public  spending  quality,  adapted  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,  financial  markets,  tax
conditions and the corporate management and reporting of research (see chapter 6).

5

6

This would result notably from major structural changes in the European economy, in particular a shift
towards  more  research  intensive  and  high-growth  industries  and  a  considerable  increase  of  the
innovation capacity in the European economy.
Commission report to the Spring European Council "Choosing to grow: knowledge, innovation and jobs
in a cohesive society", COM(2003)5, 14 Jan. 2003.

6

                                                
The action plan should be seen in the broader context of the various policy initiatives and the
co-ordination process that form part of the Lisbon strategy, notably in the fields of economic
and  employment  policies,  enterprise  policy,  education  and  training  policy,  and  the  internal
market strategy. In particular, measures to encourage investment in research must go hand in
hand with measures to foster enterprises' motivation to innovate and their capabilities to draw
concrete  benefits  from  research  –  measures  that  are  implemented  through  industrial,
entrepreneurship  and  innovation  policies.  The  recent  communication  on  innovation  policy7
highlights  the  importance  of  non-technological  forms  of  innovation8,  identifies  the  various
policy areas having a bearing on enterprises’ propensity to innovate, and maps out a route to
strengthen  innovation  policies  through  co-operation  and  mutual  learning.  The  pursuit  of
structural  reforms  in  product,  services,  capital  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 addresses 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 and
updated continuously, notably to monitor the implementation of the action plan. The annexed
working document of the Commission services provides specific elements of information and
analyses in support of the action plan.

3. 

PROGRESSING JOINTLY

Member  States  are  well  aware  of  the  need  to  boost  investment  in  research  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  European
Council can regularly follow the progress achieved towards the objectives it has set.

Sector-specific  issues  should  be  taken  into  account,  including  through  setting  specific
objectives  and  milestones  in  some  areas  such  as  information  and  communication
technologies.  Increased  coherence  and  co-ordination  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, regulatory and standardisation issues.

Progressing jointly also means that all regions should be enabled to benefit from increased
research and innovation. Differences and disparities between regions in the enlarged EU  are
considerable.  While some  are in a position  to  maintain  or  develop  technological  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

8

9

"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  an
enlarged Europe" (COM(2002)714, 11 Dec. 2002) and the Green paper "Entrepreneurship in Europe"
(COM(2003)27, 21 Jan. 2003).
Technological  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.
http://europa.eu.int/comm/research/era/3pct/

7

                                                
undertaken  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  administration,  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  for  by  the  Spring  2003  European  Council,  will
facilitate  mutual  learning  between  Member  States  in  their  efforts  to  increase  and  improve
research investment. It will also help increase the effectiveness of Member States’ actions by
ensuring,  on  a  voluntary  basis,  greater  consistency  with  each  other  and  with  related
Community  actions.  Lastly,  it  will  organise  the  data  gathering  and  reporting  necessary  to
enable the European Council to take stock of the progress achieved towards  the  objective it
has set, and assess its efficiency10.

Taking into account the orientations defined by the Lisbon European 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  an
evolving 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 objective
and 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, and by benchmarking exercises on focused topics
where there is a particular need for detailed data-gathering and information-sharing and for
the identification and dissemination 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  the
international  mobility  of  researchers  to  issues  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 the communication on innovation policy11.

New actions

(cid:1)  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  annex  to  the  present  action  plan  (Implementation:  Member
States and acceding countries with support from the Commission; 2003)

10

11

See annexed Commission staff working paper.
Op. cit.

8

                                                
(cid:1)  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, European technology platforms will provide a means
to  foster  effective  public-private  partnerships  involving  as  appropriate  public  research,
industry, financial  institutions, users,  regulatory  authorities  and  policy-makers,  and  this  will
deliver the impetus to mobilise the research and innovation effort and facilitate the emergence
of “lead markets”12 in Europe.

In  essence,  technology  platforms  will  be  mechanisms  to  bring  together  all  interested
stakeholders to develop a long-term vision, create a coherent, dynamic strategy to achieve that
vision,  and steer its implementation. A strategic  research  agenda  will  form  a  crucial  part  of
the  strategy  to  optimise  the  contribution  of  research  to  the  process.  Technology  platforms
should also address both the technical and non-technical 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  group  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

(cid:1)  Set up European technology platforms on a number of key technologies, following the
criteria and methodology indicated in the Commission 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  aspects.  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 policies in place. However, the 3% objective is
spurring  many  new  policy  developments  at  European  and  national  levels  that  need  to  be
reflected in updated and strengthened  regional  strategies.  Moreover,  acceding  and candidate
countries have specific needs, for example regarding infrastructure (already largely in place in

12

13

See Commission communication "Innovation policy : updating the Union's approach in the context of
the Lisbon strategy", op. cit., for a discussion of "lead markets".
See annexed working document of the Commission services.

9

                                                
current Member States), which need to be taken into account in the development of their own
regional strategies.

New actions

(cid:1)  Establish a mutual learning platform to help regions in the further development of their
research  strategies,  taking  into  account  their  specific  situation  and  needs.  Building  on
existing activities, the platform will be supported notably by the development of a typology
of  regions,  a  methodology  for  the  comparative  assessment  of  regional  performance,  and
specific  actions  to  promote  the  use  of  science  and  technology  foresight  at  regional  level
(Implementation: Commission-supported 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  access  to  an  adequate  supply  of  quality  human
resources  and  to  a  stronger  and  more  responsive  public  research  base.  Increased  and  more
effective public support  is  necessary  and it must  be accompanied by much more  favourable
framework  conditions,  such  as  adequate  intellectual  property  right  systems,  a  competitive
environment  with  research  and  innovation-friendly  regulations  and  competition  rules,
supportive financial markets and a favourable fiscal environment.

The  Commission's  recent  communications  on  industrial  policy,  entrepreneurship  and
innovation policy14 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,  a
broader  range  of  policies  and  instruments  will  need  to  be  mobilised  and  co-ordinated  more
closely than has been the case until now to stimulate increased private investment in research
and 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 implementation of  appropriate  policy  mixes  at  EU,  national  and
regional  levels  is  thus  a  key  challenge  for  public  authorities.  The  optimal  design  of  these
policy  mixes  depends  on  the  specific  strengths  and  weaknesses  of  national  or  regional
research and innovation systems, as well as on taking into account, where appropriate, sector-
specific  issues.  It  requires  effective  co-ordination  between  the  various  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.

14

15

Op. cit.
Report 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.

10

                                                
New actions

(cid:1)  Improve  the  effectiveness  of  public  actions  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  the
availability  of  abundant  and  excellent  researchers  and  research  personnel,  a  vibrant,  world-
class public research base, improved public financial incentives, and a much more favourable
regulatory  environment.  This  chapter  focuses  on  the  need  to  expand  and  improve  human
resources,  to  strengthen  the  public  research  base  and  to  enhance  the  effectiveness  of  the
various 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 objective17, on top of the
expected  replacement  of  the  ageing  workforce  in  research.  It  has  also  to  be  considered  that
such an increase will have to face general demographic pressures18, the stagnation of student
enrolment in a number of scientific disciplines and international competition to attract highly
qualified  workers.  Thus,  the  adjustment  of  human  resources  to  the  prospective  needs  for
research and innovation will imply combined and greater efforts from all the stakeholders in
order to: attract a sufficient number of world-class researchers in Europe; make research more
attractive to various categories of the population, especially women19; and reduce losses at the
various stages of education and during the research career, including at the most experienced
stage.  This  implies  addressing  research-related  issues  in  a  number  of  policies,  especially
labour  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  temporary
specific 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;

16

17

18

19

Op. cit.
In  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.
The active population is expected to have fallen by 9 million by 2010.
The 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%.

11

                                                
–  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

(cid:1)  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  application  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;

(cid:1)  Implementation  of  the  Science  and  Society  action  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

(cid:1)  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);

(cid:1)  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 Member States, starting 2003);

(cid:1)  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,  towards  more  structured  forms  of  partnership
aiming at sustained, long term interaction. There is a growing awareness that public research
institutions  can  be  valued  partners  providing  complementary  expertise,  knowledge  and
resources that are often unavailable within the industrial community. Such partnership offers
a potentially powerful tool to make investment in research more attractive to business while
also benefiting public research.

However,  in  Europe  we  are  still  at  the  beginning  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 continuing gap between the respective performances of
academic research and technology-based innovation.

12

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Initiatives  to  be  derived  from  the  consultation  on  the  Commission  communication  “The  role  of
universities  in  the  Europe  of  knowledge”,  particularly  on  how  to  establish  closer  co-operation
between universities and enterprises.

New actions

(cid:1)  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  safeguarding  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);

(cid:1)  Increase the participation of industry and other stakeholders in the determination of

priorities for public research (Implementation: all levels);

(cid:1)  Develop guidelines to help Member States review – and, where appropriate, adapt –
their  national  regimes  governing  the  ownership,  licensing  and  exploitation  of  IPR
resulting from publicly-funded research, with the aim of promoting technology transfer
to  industry  and  spin-off  creation  (Implementation:  Commission  with  Member  States;
2004);

(cid:1)  Develop  European  guidelines  for  the  management  and  exploitation  of  intellectual
property rights in public research institutions and public-private partnerships. These
guidelines  will  help  public  research  institutions  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, fiscal incentives, guarantee schemes, support of risk capital. A
mix  of  instrument  is  needed  as  no  single  instrument  can  address  optimally  the  needs  of  all
segments of industry. Direct measures and fiscal incentives can be used for large firms as well
as SMEs, while guarantee and risk capital schemes concerns 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 due
respect 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  support  of  research  and  innovation:  the  Sixth

13

research  framework  programme  (FP6),  the  structural  funds,  Eureka,  and  the  financial
instruments of the EIB Group20. The possibility should also be explored of gearing part of the
interventions of the European Bank for Reconstruction and Development (EBRD) in acceding
and candidate countries to support industrial investment in research and innovation. Member
States  should  also  seek  to  optimise  their  mix  of  instruments  taking  into  account  the
characteristics  of  their  research  and  innovation  systems  as  well  as  experiences  in  other
countries and developments at European level.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Further development of complementarity and synergies between European financing instruments :
the  Sixth  research  framework  programme,  structural  funds,  EIB/EIF  and  Eureka  (joint  working
groups);

(cid:1)  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);

(cid:1)  Mid-term review of the structural funds instruments, highlighting the potential benefits for regions

of actions under the research and innovation priority;

(cid:1)  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

(cid:1)  Develop the research and innovation priority as a major axis of the structural funds

after 2006 (Implementation: Commission 3rd Cohesion report; 2003);

(cid:1)  Streamline funding of collaborative projects in the frame of EUREKA by examining
possible  options,  in  particular  ways  to  synchronise  national  support21  or  to  create  a
common financing scheme (Implementation: Eureka Member States);

(cid:1)  Optimise  the  mix  of  financing  instruments,  taking  into  account  the  needs  for  different
level

in  other  countries  and  at  European 

industry  segments  and  developments 
(Implementation: Member States);

(cid:1)  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  allow  public  authorities  to  finely  target  specific

20

21

22

Includes the European Investment Bank (EIB), which implements loan instruments, and the European
Investment Fund (EIF), which manages equity and guarantee instruments.
Grants, loans or guarantee schemes.
Conditional  grants  or  loans,  although  used  less  often  than  grants,  are  also  direct  measures;
reimbursement is linked to success or failure of commercial exploitation.

14

                                                
technologies  or  scientific  areas,  overcoming  cyclical  or  sectoral  slowdowns.  They  can  also
influence  recipients’  behaviours  through  the  conditions  attached  to  them,  for  example  to
encourage the development of partnerships 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 participation of SMEs, which is crucial to boost
the innovative capacity of large segments of the economy; and how to ensure that the results
of publicly-funded research are fully exploited23.

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 effectiveness of European defence R&D efforts
and could lead to increased funding of frontier technologies of dual-use interest.

New actions

(cid:1)  Eliminate  rules  and  practices  in  national  programmes  that  impede  European  co-
operation  and  technology  transfer24,  and  allow  funding  of  organisations  from  other
Member  States  where  appropriate  (Implementation:  Member  States;  proposed  target:
2005);

(cid:1)  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);

(cid:1)  Enhance the innovation impact of R&D programmes by encouraging and supporting
the  integration  of  innovation-oriented  activities  in  research  projects  (e.g.  knowledge
management  and  diffusion, 
for  SMEs)
(Implementation: all levels).

training  activities, 

take-up  measures 

(cid:1)  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).

(cid:1)  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 industry and the European Council conclusions
on the subject (Implementation: Commission with Member States).

23

24

See  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.
For  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  excluding
projects  involving  collaboration  with  organisations  from  other  countries,  the  absence  of  an  explicit
statement guaranteeing the eligibility of such projects is often perceived negatively due to past practices
in the attribution of funds.

15

                                                
4.3.3.  Fiscal measures for research

Fiscal incentives are increasingly used to encourage 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  instruments.  Although  optimal  design  depends  on
the  country-specific  context,  notably  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  than
incremental schemes in stimulating increased research expenditure, in particular in periods of
economic downturn; that an important feature may be to make the fiscal scheme independent
of  profitability,  through  carry  forward  /  carry  back  facilities  or  cash  refunds  if  companies
make losses; and that a clear definition of eligible activities is essential, and should preferably
include outsourced research as well as in-house activities.

New actions
(cid:1)  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);

(cid:1)  Improve fiscal measures for research on the basis of:

formal evaluations, whose results should be disclosed;

the application of principles of good design such as simplicity, low administrative cost
and stability;

 (Implementation: Member States);

(cid:1)  Disclose  data  on  the  budgetary  cost  of  fiscal  measures  (Implementation:  Member

States).

4.3.4. 

Support to guarantee mechanisms for research and innovation in SMEs

The purpose of guarantee schemes is to share risks between different stakeholders. They may
cover  either  equity  investment  of  venture  capital  funds  or  loans  and  are  particularly
appropriate  for  supporting  the  financing  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 appropriate for the financing of
research or innovation projects in established SMEs with a limited risk profile.

Public  support  for  such  schemes  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-

25

See  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.

16

-
- mutual learning;
-

                                                
guarantee) or counter-guaranteeing them. However, despite well-identified market failures in
the  financing  of  research  and  innovation,  the  potential  of  guarantee  schemes  for  supporting
specifically  research  and  innovation  activities  appears  still  largely  unexploited  in  most
Member  States.  Therefore,  a  better  use  of  such  schemes  should  also  be  considered  and
promoted where appropriate, including innovative tools such as the inclusion of guarantees in
a larger integrated package of services and the securitisation of loan pools 26.

New actions

(cid:1)  On the basis of experience in some countries, make better use of guarantee mechanisms
to improve access to debt and equity financing for research and innovation activities
in SMEs (Implementation: all levels);

(cid:1)  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  programmes  to  improve  access  to  debt  and  in
particular equity financing 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  their
research  investment  needs  and  their  access  to  credit  is  restricted  by  the  perceived  risk
associated  with  research.  The  dramatic  decline  of  risk  capital  activity  since  2000  makes  it
particularly  difficult  for  young  research-intensive  SMEs  to  grow  or  even  survive  in  current
conditions. Considering the market failure to raise 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 support to venture capital markets.27 Public measures should also address
awareness issues.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Networking  activities  for  risk  capital  fund  managers  and  business  angels,  encouraging  the

emergence of trans-European co-ordinated risk capital activities.

New actions

(cid:1)  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);

26

27

See  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.
See  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.

17

                                                
(cid:1)  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  research  will  contribute  to  raising  the  level  of
private investment significantly. Its is, however, not sufficient. There is also a need for more
public investment in support of research. The following sections examine this in the light of
the  stability  and  growth  pact  and  the  broad  economic  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 strengthening the co-ordination of budgetary policies28
confirmed that the quality of public 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  has  repeatedly  made  the  case  for  refocusing
public  spending  towards  more  productive  investments,  notably  in  support  of  research  and
innovation,  since  they  are  conducive  to  higher  growth  in  the  future.  In  order  to  ensure
macroeconomic  stability  and  long  term  sustainability  of  public  finances,  this  must  be  done
within the framework of the stability and growth pact. Increased public support for research
and innovation is  one  of  the categories of  spending  in  support  of  the  Lisbon  objectives,  for
which  the  Commission  considers  that  small  and  temporary  public  deficits  should  be
authorised  in  countries  having  otherwise  attained  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  Commission's  proposal  for  the  broad  economic  policy
guidelines  2003-2006  recommends  to  refocus  public  spending  towards  more  productive
investment, particularly research and innovation, and translates this priority into a number of
specific recommendations to Member States29.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  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;

(cid:1)  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

(cid:1)  Encourage  and  monitor  the  refocusing  of  public  spending  towards  knowledge,

notably research and innovation (Implementation: all levels).

28

29

COM(2002) 668, 27 November 2002.
See notably recommendations 13 and 14 of the Commission's proposal for the broad economic policy
guidelines, COM(2003)170, 8 April 2003.

18

                                                
5.2. 

Balance between national and EU public funding until 2010

The  financial  means  available  from  the  European  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

(cid:1)  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  Community  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 cause no distortion to competition and therefore do
not  constitute  State  aid.  This  type  of  support  should  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  the
need to ensure on the one hand that distortions of competition are kept to the minimum and on
the other that European industry becomes more competitive. Public support 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 end
of  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  existing
block 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.  The
possibility  of  a  further  block  exemption  will  be  considered  within  the  review  of  the
Community framework on State aid for R&D.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Rapid adoption of a revised block exemption for SMEs, encompassing State aid for R&D;

(cid:1)  Collection  of  data  and  reporting  on  the  redirection  of  State  aid  towards  horizontal  objectives,

including research.

New actions

(cid:1)  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);

19

(cid:1)  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 between research activities eligible for public
support and pure commercial innovation activities and differentiation between eligible
R&D projects according to their proximity to the market;
changes in the role of public research establishments towards stronger co-operation
with industry;
the various models of public support for 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);

(cid:1)  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 practices should aim at ensuring that public buyers get the
best value for money. Part of this means ensuring 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  procurement
legislative package currently in the process of adoption will clarify and expand them in some
respects:  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  with  suppliers  so  as  to  identify  one  or  more
technical solutions before the final award. Other possibilities may lie with e-procurement and
the 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  the  development  and  diffusion  of  information
enabling them to make full and correct use of these possibilities. This could have a significant
impact  on  the  procurement  of  more  innovative  products  and  services,  thereby  stimulating
further research and innovation.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Rapid adoption of the procurement package by the Parliament and Council;

(cid:1)  Progress of the e-procurement initiative;

30

Through  public  procurement,  in  particular  in  the  defence  sector,  the  US  government  acts  as  a
“launching  customer”  for  innovative  technologies  (in  particular  information  and  communication
technologies) 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.

20

                                                
(cid:1)  Awareness-raising  actions  proposed  in  the  recent  Commission’s  communication  on  innovation

policy;

(cid:1)  Progress  towards  the  possible  creation  of  a  European  intergovernmental  defence  capabilities

development and acquisition agency.

New actions

(cid:1)  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 particular 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 support is necessary to boost research and innovation in Europe,
this  needs  to  be  accompanied  by  considerable  improvements  in  the  wider  framework
conditions  to  make  the  European  Union  really  attractive  for  private  investment  in  research
and 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, financial
markets, 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 development
of research results are not stifled. Considerable progress has been achieved in recent years, at
international  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  intellectual
property  systems  more  responsive  to  the  rapid  evolution  of  both  research  processes  and
specific  technological  areas.  In  addition,  actions  are  needed  to  promote  the  optimal  use  of
intellectual  property  rights  systems  in  Europe,  with  a  special  emphasis  on  academic
institutions and smaller businesses.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Setting up of the Community patent system;

(cid:1)  Negotiation of a proposal for a directive on the enforcement of intellectual property rights;

(cid:1)  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;

(cid:1)  Rapid  implementation  of  Directive  98/44/CE  relating  to  the  patentability  of  biotechnological
inventions  and  Directive  2001/29/CE  relating  to  copyright  and  related  rights  in  the  information
society;

(cid:1)  Promotion  of  a  common  European  approach  on  the  grace  period  issue,  in  the  context  of

international harmonisation work;

21

(cid:1)  Use of existing instruments in the research framework programme to support temporary exchanges

of technology transfer professionals between research organisations.

New actions

(cid:1)  Support  EU-wide  coordinated  IPR  awareness  and  training  activities  targeting  in
particular  the  European  research  community  (Implementation:  Commission  and  other
relevant institutions);

(cid:1)  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 
identifying  necessary  actions  where  appropriate
(Implementation: Commission with stakeholders; progress report in 2004);

to 

(cid:1)  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 existing and new regulations of markets should be
checked  and  optimised  where  necessary.  This  should  be  done  in  a  way  consistent  with  the
“better  regulation”  initiative  and  notably  the  Commission’s  new  impact  assessment
framework. 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  the  public  interest  and
leaves  the  technical  expression  of  these  requirements  to  be  drafted  in  the  context  of  the
European  Standards  Organisations  (CEN,  CENELEC,  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. It
also  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 examined
in  details  in  a  Commission  communication  later  this  year.  The  two  following  aspects  are
particularly relevant to research and innovation: first, resources 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

(cid:1)  Forthcoming Commission communication on standardisation;

(cid:1)  Implementation  of  the  General  guidelines  for  co-operation  between  the  European  Standards

Organisations and the European Commission31;

(cid:1)  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.

31

To be published in OJEC.

22

                                                
New actions

(cid:1)  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  problems;  this  will  notably  be  undertaken  in  the
context  of  European 
(Implementation:  Commission  with
stakeholders);

technology  platforms 

(cid:1)  Strengthen  the  links  between  the  Sixth  research  framework  programme  and
European standardisation organisations (CEN, CENELEC and ETSI) with the view of
defining and supporting where appropriate research 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  when  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  forthcoming  revision  of  the  block  exemption  and
guidelines for technology transfer agreements should lead to a less legalistic process focusing
more on economic assessment. The effects of research and innovation activities also need to
be more explicitly considered in merger decisions, in line with the Merger regulation which
foresees that "the development of technical progress" should be taken into account32.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Forthcoming  revision  of  the  block  exemption  and  guidelines  for  technology  transfer  agreements

(external consultation planned during autumn 2003).

New actions

(cid:1)  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-based  SMEs  at  the  various  stages  of  their
development.  Key  markets  involved  are  risk  capital  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  research  and  innovation  are  the  full
implementation  of  the  financial  services  action  plan,  in  particular  aspects  such  as  the
integration of capital markets in Europe, and the emergence of rating mechanisms appropriate
to technology-based companies, including SMEs.

Equally  important  is  the  rapid  completion  of  the  risk-capital  action  plan  and  its  possible
follow-up. Notably, the tax and regulatory environment of risk-capital should be considered in
this  context,  as  investors,  especially  institutional  investors,  are  highly  sensitive  to  costs  and

32

Article 2(1)(b)

23

                                                
complexity and likely to divert their investments to other asset classes unless the conditions of
investment in risk capital are substantially improved. Particular attention should be  given to
double  taxation  issues,  as  well  as  to  the  possibly  damaging  effects  of  excessive  prudential
obligations imposed on banks and other financial institutions.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Full implementation of the financial services action plan;

(cid:1)  Rapid  completion  of  the  risk  capital  action  plan,  and  elaboration  of  follow-up  actions  as

appropriate.

New actions

(cid:1)  Adapt, where appropriate, the fiscal treatment of risk capital to avoid the double
taxation of investors 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);

(cid:1)  In the light of the recent dramatic decline of risk capital financing world-wide, and of the
particularly  important  role  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);

(cid:1)  Examine  ways  to  promote  the  use  of  rating  systems  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 relevant 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 Commission is following a two-pronged strategy
for  tackling  the  tax  obstacles  to  cross-border  activities  in  the  internal  market:  in  the  short
term, 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.

33

34

Double  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.
Historical 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.

24

                                                
Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  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;

(cid:1)  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);

(cid:1)  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;

(cid:1)  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, management and financial reporting

There  is  room  for  progress  in  increasing  awareness  of  companies,  especially  SMEs,  of  the
benefits  and  ways  of  integrating  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 attention should be paid
to an integrated approach to R&D management within the overall business strategy. Creating
more  transparency  in  financial  reporting  about  the  role  of  investment  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  decision-making  to  managers  and  investors.
Regarding  external  company  financial  reporting,  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  better
information on the size of investment in intellectual capital.

Main ongoing EU initiatives relevant to the 3% objective

(cid:1)  Actions within the research framework programme to stimulate widespread use and harmonisation

of guidelines on measuring corporate research and other forms of intellectual capital;

(cid:1)  Development and regular publication of statistics on firms’ investment in intellectual capital.

New actions

(cid:1)  Set up an industrial research monitoring activity, including 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);

(cid:1)  Encourage  corporate  measuring  and  reporting  on  research  and  other  forms  of
intellectual  capital,  both  internally  and  externally,  making  use  of  existing  international
guidelines. (Implementation: business sector);

(cid:1)  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).

25

7. 

CONCLUSION

The present action plan marks the start of a process which has the potential to boost Europe's
attractiveness  for  investment  in  research  and  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  along
the lines identified above and to encourage those that are willing to improve the conditions to
do  more  and  better  research  in  Europe.  It  will  also  report  every  year  ahead  of  the  Spring
European Council meeting so that the European Council may follow progress and set further
orientations or adjust its strategy as appropriate on the basis of progress made.

26