Communication from the Commission - Fostering structural change: an industrial policy for an enlarged Europe
Date: 2004-04-20
Institutions: European Commission
Subjects: competitiveness, enlargement of the Union, industrial policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.4.2004 
COM(2004) 274 final 

COMMUNICATION FROM THE COMMISSION 

Fostering structural change: an industrial policy  
for an enlarged Europe 

EN 

   EN 

 
 
 
  
EXECUTIVE SUMMARY 

Communication on ‘Fostering structural change: an industrial policy  
for an enlarged Europe’ 

Manufacturing  industry  still  plays  a  key  role  in  Europe’s  prosperity.  It  is,  however,  facing 
challenges  and  there  is  a  real  concern  about  the  risk  that  the  Union  is  facing  a  process  of 
deindustrialisation. 

This Communication follows a previous document of December 2002 on ‘Industrial Policy in 
an  Enlarged  Europe’,  which  laid  out  some  of  the  foundations  that  should  underpin  the 
Union’s  industrial  policy,  as  well  as  the  Communication  of  November  2003  ‘Some  Key 
Issues  in  Europe’s  Competitiveness  –  Towards  an  Integrated  Approach’,  which  also  carried 
out a first analysis of the problem of  deindustrialisation. This had followed a request of  the 
European Council, which had echoed these concerns. 

The analysis carried out by the Commission indicates that there is no proof of a generalised 
process of deindustrialisation. That said, European industry is having to face up to a process 
of structural change which is beneficial overall and which should be encouraged, in particular 
by policies that facilitate the development and the use of knowledge. From this point of view, 
Europe’s  disappointing  performances,  notably  in  terms  of  productivity,  research  and 
innovation, are worrying. This is corroborated by the fact that the delocalisation of industrial 
activities appears no longer to be limited only to traditional sectors with a high labour density, 
but are beginning to be observed in intermediate sectors – which constituted the established 
strengths  of  European  industry  –  or  even  in  some  high-technology  sectors,  where  there  are 
indications of a delocalisation of some research activities, or in the services sector. India and 
China  are  the  main  beneficiaries  of  these  movements.  Economic  internationalisation  offers 
opportunities,  however,  to  Europe’s  industry  as  long  as  industrial  policy  supports  the 
necessary evolutions. 

From  this  point  of  view,  the  forthcoming  enlargement  of  the  EU  offers  important 
opportunities to European business, not only as a result of the extension of the internal market 
but  also  because  it  offers  the  possibility  of  reorganising  value  chains  across  the  continent, 
making the most of the competitive advantages of the New Member States. Nevertheless, the 
benefits  for  these  countries  of  their  relatively  low  labour  costs  will  be  temporary.  The 
transition  to  a  knowledge  economy  will  be  vital  and  a  certain  regulatory  prudence  will  be 
necessary to avoid putting a strain on the industrial competitiveness of these countries.  

Faced with this diagnosis, the Commission intends to mobilise industrial policy to accompany 
the process of industrial change. This implies three types of actions. 

Firstly,  the  European  Union  must  continue  its  efforts  in  regulating  better,  and  to  create  a 
regulatory  framework  that  is  favourable  to  industry.  Therefore,  in  the  framework  of  the 
integrated impact assessment of Commission proposals and initiatives, which covers the three 
pillars  of  sustainable  development,  the  evaluation  of  competitiveness  aspects  needs  to  be 
deepened.  Also  efforts  need  to  be  made  to  evaluate  regulation’s  cumulative  impact,  for 
example,  on  certain  sectors.  These  efforts  should  not  be  limited  to  the  Commission  alone: 
they should commit also the other Community institutions and the Member States. 

2 

 
 
  
 
Secondly, the synergies between different Community policies having an impact on industry’s 
competitiveness  need  to  be  better  exploited.  The  Commission  has  identified  a  number  of 
specific  initiatives,  in  5  different  domains,  which  could  improve  these  synergies,  and 
particularly the capacity of European industry to confront the problems of structural change. 
In the domain of knowledge, it is, in particular, innovation, research, training and competition 
policies  which  have  a  key  role  to  play.  Similarly,  the  functioning  of  markets  can  still  be 
improved,  whether  it  is  in  addressing  the  shortfalls  of  the  internal  market  or  in  eliminating 
some  tax  obstacles  to  its  full  use  by  business.  Cohesion  policy,  and  in  particular  regional 
policy and employment policy can also contribute actively to the process of structural change, 
specifically by promoting the development and the spread of knowledge. As for sustainable 
development,  this  has  a  positive  contribution  to  make  to  industrial  competitiveness,  notably 
through  the  development  of  a  policy  of  sustainable  production.  Finally,  the  international 
dimension of industrial policy must be further advanced, in particular to improve the access of 
Community  companies  to  the  markets  of  third  countries,  and  to  export  the  regulatory 
approaches that have been successfully implemented by the Union inside the single market. 

Thirdly, the Union must continue to develop the sectoral dimension of industrial policy. This 
implies  analysing  the  effectiveness  at  a  sectoral  level  of  policy  instruments  which  are  of  a 
horizontal nature, with a view to evaluating their relevance and to propose, if necessary, the 
appropriate  adjustments.  The  Communication  presents  the  sectoral  initiatives  that  have 
already begun over the last few months and announces several new initiatives in sectors such 
as the car industry or mechanical engineering.  

The competitiveness of Europe depends, to a large extent, on its industry. But the Community 
institutions and the Member States must contribute to creating a favourable environment for 
business.  The  combination  of  the  activities  announced  should  help  Europe’s  industry,  in 
particular in the new Member States, to meet successfully the challenges of structural change 
and to contribute, therefore, to meeting the objectives that the European Union set itself four 
years ago at the Lisbon European Council. 

3 

 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

2.1. 

INTRODUCTION .......................................................................................................... 5 

EUROPEAN INDUSTRY AND DEINDUSTRIALISATION: A DIAGNOSIS........... 6 

The process of reallocation of resources to services must not be confused  
with deindustrialisation ... ............................................................................................... 6 

2.2. 

... but some worrying signs have nevertheless appeared recently................................... 7 

2.2.1.  The decline of productivity growth and its causes.......................................................... 8 

2.2.2.  Weakened international competitiveness...................................................................... 12 

2.3. 

The European Union in the face of change................................................................... 15 

3. 

3.1. 

3.2. 

4. 

THE OPPORTUNITIES PRESENTED BY ENLARGEMENT.................................. 16 

The lure of the new Member States .............................................................................. 17 

Exploiting these opportunities requires regulatory protection and stability ................. 18 

INSTRUMENTS TO SUPPORT THE PROCESS OF STRUCTURAL CHANGE.... 19 

4.1. 

A regulatory framework favourable to industry............................................................ 20 

4.1.1.  Better law-making......................................................................................................... 20 

4.1.2.  The responsibilities of each party ................................................................................. 23 

4.2. 

Optimising synergy between different policies ............................................................ 24 

4.2.1.  Using knowledge for the benefit of businesses............................................................. 25 

4.2.2. 

Improving the operation of the markets ........................................................................ 30 

4.2.3.  Using cohesion policies to promote industrial and structural change........................... 32 

4.2.4.  Reconciling better sustainable development with competitiveness .............................. 33 

4.2.5.  Allowing European businesses to develop internationally ........................................... 34 

4.3. 

Application of industrial policy tailored to the needs of each sector............................ 37 

5. 

CONCLUSION: BOOSTING THE COMPETITIVENESS OF EUROPEAN 
INDUSTRY .................................................................................................................. 38 

ANNEX….................................................................................................................................... 40 

4 

 
 
  
 
COMMUNICATION FROM THE COMMISSION 

Fostering structural change: an industrial policy  
for an enlarged Europe 

1. 

INTRODUCTION 

Industry  makes  an  essential  contribution  to  Europe’s  prosperity.  The  European  economy 
continues  to  depend  on  the  dynamism  of  its  industry.  Industry  is,  moreover,  increasingly 
enmeshed  with  services  and  contributes  to  their  development.  European  industry  is  clearly 
making  encouraging  achievements,  and  its  progress  in  the  environmental  field  and  in  some 
technological  sectors  are  widely  acknowledged.  Nevertheless,  it  is  now  facing  major 
challenges, some of which come from within (increasingly rapid technological development, 
skills  gaps),  while  others  are  external  (society’s  expectations  regarding  consumer, 
environmental  and  health  protection)  and  yet  others  international  (the  emergence  of  new 
global competitors).  

More  and  more  quarters  are  voicing  concerns  that  these  challenges  are  leading  to  the 
relocation of  large portions  of  industrial  production to countries with lower  costs and fewer 
regulatory constraints. The concept of ‘deindustrialisation’1 reflects concern at EU industry’s 
increasing  difficulties  in  the  face  of  competition  which  is  perceived  as  unbeatable,  and 
sometimes unfair. Moreover, several governments are focusing on the possible contribution of 
over-regulation to this phenomenon. The European Union must be aware of these concerns, 
consider whether they are well-founded and, if so, propose appropriate political responses.  

The  main  purpose  of  this  Communication  is  to  examine  the  competitiveness  of  European 
industry and assess the existence and scale of the risk of deindustrialisation. The concept of 
deindustrialisation itself covers numerous phenomena, some of which are more alarming than 
others;  it  therefore  requires  a  nuanced  analysis.  This  Communication  goes  on  to  propose 
specific solutions in order that EU industry can find, in Europe, an attractive environment for 
its activities and future development. Within this optimal framework, industry will be able to 
assume both its role as wealth creator and its responsibilities toward society. It will then be 
able to make a major contribution to meeting the competitiveness and growth targets which 
the European Union set itself at the European Council of Lisbon.  

Deindustrialisation is not inevitable, and mobilising the efforts of all concerned can generate a 
virtuous circle. This Communication sets out the Commission’s response to the challenge.  

1 

This  concern  was  expressed,  in  particular,  by  Germany,  France  and  the  United  Kingdom  in 
correspondence addressed jointly by Chancellor Schröder, President Chirac and Prime Minister Blair to 
President  Prodi  in  February  and  September  2003,  and  the  European  Council  of  Brussels  in  October 
2003 asked the Commission to propose solutions aimed at preventing deindustrialisation. 

5 

 
 
  
 
                                                 
2. 

EUROPEAN INDUSTRY AND DEINDUSTRIALISATION: A DIAGNOSIS  

2.1. 

The  process  of  reallocation  of  resources  to  services  must  not  be  confused  with 
deindustrialisation ...  

The  decline  in  the  share  of  the  economy  accounted  for  by  industry  has  to  be  seen  in  the 
context  of  long-term  structural  change.  It  reflects  a  process  of  reallocation  of  resources  to 
services  in  developed  countries  (Europe,  the  United  States,  Japan)  which  has  been  taking 
place  since  the  end  of  the  1950s  (Table  1;  see  Annex).  The  relative  share  of  manufacturing 
industry in total employment and total value added has decreased, while that of services has 
increased steadily (Figure 1).  

rvices: 57.5%

2001

1979

Industry*: 
11.8%

Agriculture: 
3.3%

Agriculture: 
1.7%

Manufacturing: 
27.4%

the  main 

forces  behind 

Figure 1: Breakdown of value added by sector in the EU-15

this 
One  of 
development  has  been  industry’s  higher 
productivity growth compared with services 
(Table 2; see Annex). The result has been a 
continuous transfer of jobs from industry to 
services.  Although  most  industrial  sectors 
have  recorded  job  losses,  they  have  also 
experienced an increase in both value added 
and  labour  productivity  This  is  the  case, 
in  sectors  such  as  chemicals, 
notably, 
aeronautical 
industries, 
aerospace 
telecommunications  materials,  but  also  a 
large  number  of  other  industrial  sectors 
(Table  3;  see  annex).  This  development  is 
likely to cause difficulties of adjustment, but 
does not have to be seen as a threat. Rather, 
it  is  a  natural  consequence  of  economic 
progress,  and 
therefore  a  development 
which  must  be  facilitated  and  encouraged. 
The  reallocation  of  productive  resources  in  response  to  change  is  essential  to  maintaining 
competitiveness  and  sustainable  growth.  Such  change  has  numerous  causes,  including 
international  trade2,  changes  in  the  availability  of  natural  resources,  and  technological 
development.  

* Industry: Mining and extractive industries, electricity, gas, water, construction 
Source: M. O’Mahony, B. Van Ark (2003).

Manufacturing: 
19.0%

and 

Industry*: 8.8%

ervices: 70.4%

Such  a  process  of  industrial  change3  is,  generally,  beneficial  if  it  is  properly  anticipated, 
identified and fostered. It should not be confused with absolute deindustrialisation. The latter, 
a  much  more  alarming  prospect,  would  imply  industrial  decline  in  absolute  terms, 
characterised by consecutive reductions in employment, output and productivity growth, and 
exacerbated by a trade deficit. By definition, such a development can only be identified with 
certainty  over  the  long  term.  The  available  data  do  not  allow  us  to  conclude  that  such  a 
phenomenon  exists  in  the  EU.  Admittedly,  some  sectors  (five,  out  of  a  total  of  234)  have 
recorded  a  simultaneous  and  sustained  reduction  in  employment  and  output  over  a  fairly 

2 

3 
4 

The  process  of  structural  change  is  also  linked  to  the  phenomenon  of  globalisation,  as  should  be 
demonstrated  in  a  study  of  Europe’s  insertion  into  the  international  division  of  labour,  the  results  of 
which should be available in the Summer of 2004. 
Sometimes known as relative deindustrialisation. 
Based  on  ISIC  classification  rev3  (two-digit)  excluding  mining,  transport,  electricity  and  water  and 
covering the following sectors: textile; clothing; leather and shoes; shipbuilding and repair; oil refining, 
coal and nuclear fuel.  

6 

 
 
  
 
                                                 
250,0

200,0

150,0

100,0

Figure 2: Changes in industrial production
in the European Union, 1995 to 2000
(Index of industrial production; 1995=100)

advantages 

comparative 

extended period (Table 4; see Annex). Their 
development mainly reflects changes in the 
EU’s 
at 
international  level,  and  changes  within  the 
manufacturing sector itself. Moreover, these 
sectors saw their share in the value added of 
industry  decline  from  12.3%  in  1979  to 
7.3% in 2001. The loss of low-productivity 
jobs to less developed countries with lower 
labour  costs  and  changes  resulting  from 
trends  in  the  energy  market  or  shifts  in 
comparative  advantage  are  regrettable,  as 
they  are  concentrated  on  particular  regions  or  sectors.  The  task  of  reconversion  is  often 
difficult, which implies a similar challenge to adapt the human capital. At the same time, the 
benefits  resulting  from  these  structural  changes  are  diffused  in  nature.  These  developments 
have  taken  place  in  a  situation  in  which  industrial  production  has  increased,  reflected  in 
increased wealth of the European Union and of its Member States. The trend of recent years 
demonstrates this (Figure 2 and Diagram 5 in annex).  

Germany
Luxembourg
Austria
Sweden
Spain

Netherlands
Portugal
EU-15
Greece

United Kingdom

Denmark
Belgium

Source: Eurostat/NewCronos

Finland

Ireland

France

Italy

50,0

0,0

In addition, the increasing overlap between services and industry is changing the contours of 
industrial  activity  as  such,  and  accentuating  the  apparent  reduction  in  the  importance  of 
manufacturing industry. The latter has experienced marked outsourcing, in which operations 
which were previously done in-house are awarded to outside contractors (transport, logistics, 
information technology, etc.). This transfer has enabled industry to focus on its core activities. 
This is confirmed by business surveys; more than two-thirds of companies surveyed in France 
now make use of outsourcing5. At the same time, industrial products contain a larger service 
component, such as after-sales and maintenance services, which accentuates interpenetration 
between industry and services. The sale of a computer or portable telephone is accompanied 
by a significant intangible component (intense marketing, sales operations, etc.). The same is 
also  true  of  more  traditional  products,  such  as  those  of  the iron  and  steel  industry.  Services 
which  European  manufacturers  can  incorporate  in  their  products  give  those  products  a 
qualitative  edge  which  can  be  a  crucial  advantage  in  the  face  of  growing  competition,  and 
thereby  improve  competitiveness.  The  conclusions  which  one  might  draw  from  a  purely 
statistical examination therefore need to be qualified. 

The  competitiveness  of  manufacturing  industry  therefore  remains  crucial  for  the  rest  of  the 
economy,  given  the  knock-on  effects  which  industry  has  on  other  activities,  particularly  on 
business services. 

2.2. 

... but some worrying signs have nevertheless appeared recently  

If the long-term trends do not confirm, for the moment, that deindustrialisation is taking place, 
what  is  the  source  of  the  frequent  expressions  of  concern?  There  are  undeniably  some 
worrying trends.  

5 

Outsourcing  Barometer  2002,  carried  out  by  Ernst  &  Young  among  220  Directors-General  and 
administrative directors and financiers of companies.  

7 

 
 
  
 
                                                 
2.2.1.  The decline of productivity growth and its causes  

Since  1995,  there  has  been  a  clear  dip  in  labour  productivity  growth  in  the  EU’s 
manufacturing  sector  (Table  2;  see  Annex).  Productivity  growth  was  once  the  motor  of 
economic  growth  and  structural  change,  and  it  remains  an  essential  factor  in  ensuring 
industrial competitiveness and guaranteeing the best possible allocation of resources and job 
creation throughout the economy.  

The slowdown in labour productivity growth is not witnessed in all industrialised countries, 
either  in  the  European  Union  or  elsewhere.  For  example,  productivity  growth  in  the 
manufacturing  sector  is  higher  in  the  United  States  and  some  EU  Member  States  (Finland, 
Ireland and Sweden) than the EU average (Diagram 6; see Annex). This phenomenon is not, 
therefore, inescapable and cannot be interpreted as a normal part of the long-term structural 
change taking place throughout the industrialised world.  

ICT producer sectors

Figure 3: Sectors which have contributed to the
productivity gap with the United States between 1994-96 and 1999-01
(labour productivity: EU as % of USA, gap in % points)

Growth  in  Europe’s  labour  productivity  in 
sectors  with  a  strong  technological  content 
has  been  robust  in  comparison  with  the 
overall  economy.  But  it  has,  on  the  whole, 
been  significantly  lower  than  in  the  United 
States in these sectors. As a consequence, the 
productivity  gap  between  Europe  and  the 
USA  has  widened.  The  biggest  differences 
between  the  two  can  be  seen  in  their 
respective 
ICT 
manufacturing  sector  (Figure  3),  but  also  in 
the  ICT6  user  sector,  especially  services 
(Table  7;  see  Annex)7.  Such  differences  in 
performance  are  also  apparent  in  sectors 
which  employ  a  highly  qualified  workforce  (Table  7;  see  Annex).  This  classification  partly 
overlaps with that for ICT use.  

performances 

Source: M. O'Mahony, B. Van Ark (2003).

Radio and television receivers

Scientific instruments

Telecoms equipment

Office equipment

decrease in gap

increase in gap

Insulated wire

the 

in 

10

14

16

12

-2

0

2

4

6

8

18

To  summarise,  the  European  Union 
is  experiencing  both  a  slowdown  in 
the growth of industrial productivity 
and 
performance, 
especially in high-tech sectors8.  

disappointing 

It  is  not  surprising  that  in  response, 
the  Commission,  acting  with  the 
broad support of the Council and the 
for 
Member  States,  has  called 
increased  research  expenditure  and 
the 
for  a  better  climate 

for 

3,5

3

2,5

2

1,5

1

0,5

0

Figure 4a: Evolution of enterprise R&D intensity

R&D expenditure as 
% of VA in industry

Japan

United States

OECD

EU

1981

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

2000 2001

Source: OECD, MSTI (May 2003)

6 
7 

8 

Information and Communication Technogy. 
The EU’s performance is better in only one sector, that of communication services. ‘EU Productivity 
and competitiveness: an industrial perspective’. M. O'Mahony, B. Van Ark (2003), The EU Economy: 
2003 Review, COM(2003) 729.  
These  phenomena  were  studied  in  detail  in  the  various  annual  editions  of  the  ‘European 
Competitiveness Report’ and in M. O’Mahony, B. Van Ark (2003).  

8 

 
 
  
 
                                                 
development  and  application  of  those 
technologies which can help to remedy 
the EU’s weaknesses in this field.  

Figure 4b: R&D expenditure by leading European and American
enterprises in selected sectors, 2002*.

368

1853

2787

3805

3984

6477

2920

24950

27184

12887

11381

39334

6016
6468

2131
1838

17984
18323
17744

Hardware
Pharma & Biotech
Computer services and software
Automobiles & equipment
Aerospace and defence
Chemicals
Electronics and electrical equipment
Engineering and machinery
Oil and gas
Telecoms equipment

the  data  do  not  make 
Again, 
comforting  reading.  The  goal  set  by 
the  European  Council  at  Barcelona  is 
to  increase  the  EU’s  R&D  investment 
to 3% of GDP in 2010, with two-thirds 
of  the  total  coming  from  the  private 
sector.  The  first  results  of  the  action 
plan  launched  by  the  Commission  in 
20039  are  positive,  but  still  below  the 
levels 
the  3% 
objective10. In particular, private-sector research spending remains well below the necessary 
level, with the EU far behind Japan and the United States (Figure 4a)11. By way of example, 
overall European investment in R&D in 2002 was 38% lower than in the USA (slightly better 
than in 2000, when it was 40% lower). Most of this gap is in the private sector; United States 
enterprises  spent  €87  billion  more  than  their  European  counterparts  in  200212  (but  this  gap, 
already very large, was €104 Billion in 2000). At sectoral level, too, R&D expenditure in the 
high-tech  sectors  is  lower  in  Europe  than  in  the  United  States  (Figure 4b)13.  Amongst  the 
factors that explain Europe’s disappointing performance can be noted:  

Source: R&D expenditure by international enterprises which are leaders in their respective fields
Towards a European Reserch Area. Science, Technology and Innovation. European Commission.
Key figures, 2003-2004

to  meet 

required 

€ millions

USA

30000

25000

10000

15000

20000

35000

40000

2625

5000

EU

0

–  the  greater  difficulty  in  accessing  private  research  fiancing  funds  for  research  in  Europe 

compared to the US,  

–  a culture which is – sometimes – too prudent towards risk (as evidenced by the difficulties 

of the biotechnology industry),  

–  an  insufficient  collaboration  between  public  research  bodies,  including  universities,  the 

industrial sector, 

–  a  much  lower  proportion  of  researchers  in  the  active  population  –  5.7‰  compared  with 
8 ‰,  whereas  the  number  of  doctors  in  science  and  in  engineering  trained  every  year, 
compared with the 25-34 age group – is actually higher: 0,55% (0.49% at 25 years of age) 
compared with 0.41%. 

The  EU  has  made  efforts  in  the  field  of  innovation.  Indicators  which  allow  international 
comparisons  show  an  improvement  in  terms  of  the  means  of  increasing  innovative  capacity 

9 
10 

11 

12 

13 

COM(2003) 226 final, Investing in Research: an action plan for Europe, 30 April 2003. 
A recent econometric study suggests that meeting this goal will create 2 million additional jobs by 2010 
and add a further 400 000 jobs and 0.5% economic growth every year thereafter (“3% d’effort de R&D 
en  Europe  en  2010:  analyse  des  conséquences  à  l’aide  du  modèle  macro  économétrique  européen 
Némesis”, January 2004). 
Levels differ from country to country. Finland and Sweden, for example, spend a higher share of their 
GDP on R&D: 2.68% and 2.84% respectively in 2001 (European Business Economy, 2003, Eurostat). 
Calculated at €/$ exchange rate current in 2000. The gap has declined since 2000 (€104 billion in 2000 
and €99 billion in 2001). 
Towards  a  European  Research  Area.  Science,  Technology  and  Innovation.  European  Commission.  In 
addition, the Commission has launched a European Scoreboard of industrial investment in research. The 
first edition will be published in October 2004, setting out the rankings of 500 European enterprises and 
500 foreign enterprises which invest the most in R&D , and trends in their investments. 

9 

 
 
  
 
                                                 
(venture  capital,  expenditure  on  ICT,  etc.).  Despite  these  encouraging  trends,  however,  the 
gap  between  Europe  and  the  United  States  is  still  wide  (Figure  5  and  Table  8;  see  Annex). 
Japan is also well ahead of the EU in terms of USPTO14-registered patents, workforce skills 
and  ICT  spending  (Diagram  8b;  see  Annex).  The  capacity  for  innovation  has  a  knock-on 
effect  on  all  sectors.  Generally  speaking,  countries  such  as  Finland  or  Sweden,  which  are 
highly  innovative  in  high-tech  sectors,  are  also  relatively  more  innovative  in  the  less 
technology-driven sectors15. This clearly demonstrates the need to encourage innovation in all 
industrial  sectors,  whatever  their  technological  intensity.  Thus,  innovation  in  a  traditional 
sector  such  as  the  shoe  industry  has  enabled  European  enterprises  to  focus  on  technical 
products,  despite  strong  foreign  competition  and  declining  consumption16.  The  same  is  true 
for  the  textiles  and  clothing  sector,  where  European  companies  have  developed  technically 
sophisticated materials and demonstrated commercial creativity. 

Figure 5: Innovation gap between the European Union and the United States, 2002

USPTO high-tech patents

USPTO high-tech patents

Early stage venture capital (% GDP)

EPO high-tech patents

Population with tertiary education

High-tech manufacturing value-added

Business R&D expenditures (% GDP)

ICT expenditures (% GDP)

Public R&D expenditures (% GDP)

EPO patents

S&E graduates

-100

-80

-60

-40

-20

0

20

Current gap between EU and USA

Increase in gap    Decrease 
in gap*                 

5

-15

* Reference years for the indicators vary between 1996 and 2002.
Source: Innovation Scoreboard 2003. Gaps expressed as % difference between EU and USA. 

A  survey  of  major  European  firms17  carried  out  by  the  European  Round  Table  (ERT)  of 
industrialists  in  2002,  served  only  to  strengthen  the  message.  The  survey  showed  that  a 
number of these firms intended to locate new R&D activities outside Europe in the immediate 
future  if  the  regulatory  environment  did  not  improve.  Empirical  studies18  highlight  the  vital 
role  of  the  institutional  and  regulatory  environment  in  research,  innovation,  entrepreneurial 
dynamism  and  productivity  growth.  The  same  studies  reveal  a  more  burdensome  overall 
regulatory  framework  in  Europe  than  in  the  United  States,  especially  in  the  market  for 
products19.  

14 
15 
16 

17 

18 

19 

Patents delivered by the United States Patent and Trademark Office. 
Scoreboard (technical paper innovation No 4).  
‘A  nouveaux  consommateurs,  nouvelles  stratégies  industrielles’,  2000,  carried  out  by  Crédoc  for 
DIGITIP.  
'The  European  Challenge',  message  from  the  European  Roundtable  of  Industrialists  to  the  Spring 
European Council, March 2003.  
The  EU  Economy:  2003  Review,  European  Commission,  OECD  WPs  Nos  18  (1999),  28  (2002),  
329 (2002); IMF WP (2003).  
The  ‘legal  framework’  is  a  broad  concept  which  covers  several  types  of  rules.  The  economic  rules 
concern  the  operation  of  the  markets  and  affect  all  types  of  intervention  –  by  the  state,  competition, 
trade sectors, investments. The administrative rules deal with the facility to perform on the market and 
affect  the  entrepreneurial  dynamism  (regulatory  constraints  on  business  creation,  etc.).  Lastly,  the 
sectoral  rules  now  extend  to  public  services,  the  liberalisation  of  which  is  now  partly  in  hand.  These 
rules do not fall entirely within the authority of the Community, but also within the competence of the 
Member States.  

10 

 
 
  
 
 
                                                 
Moreover, the United States continues to attract researchers and more generally highly skilled 
workers20. This is regularly cited as a source of concern. For example, 10-year projections for 
the  pharmaceutical  industry  foresee  an  intensification  of  this  ‘brain  drain’,  as  R&D 
investment  levels  in  the  United  States  of  nearly  double  those  in  the  EU  help  to  attract 
researchers21.  This  phenomenon  also  affects  Europeans  studying  in  the  United  States. 
According to surveys, of the 15 000 Europeans who have obtained a doctorate in the United 
States,  11 000  intended  to  stay  and  work  there,  a  finding  which  confirms  that  country’s 
obvious attractiveness. 

Box 1: The pharmaceutical industry: where regulation meets innovation 

The pharmaceutical industry has a strong innovative component and depends on a regulatory 
framework which is influenced by public health considerations. In this sense, it highlights the 
interaction  between  these  two  dimensions  and  the  need  to  define  a  regulatory  framework 
which  encourages  innovation.  Its  dynamism  depends  on  its  ability  to  exploit  its  resources. 
However, European industry’s backwardness in terms of innovation and R&D is threatening 
its long-term competitiveness. It is less innovative than its American competitor. From 1992 
to 2002, investments in R&D increased by about 8% annually in the EU, compared with 11% 
in the United States, leading to respective totals of $21 billion and $26 billion. From 1998 to 
2002,  44  new  medicines  were  launched  in  the  EU,  compared  with  85  in  the  United  States. 
These factors determine the added value of products, but also create a virtuous circle in which 
skilled  workers  are  attracted.  The  EU’s  loss  of  attractiveness  has  prompted  a  large  and 
growing  number  of  industrialists  to  locate  their  research  facilities  in  the  United  States 
bringing with them young graduates. This is generating a vicious circle for the  EU.  Among 
the  problems  which  have  been  identified,  therefore,  are  low  R&D  expenditure,  but  also  an 
institutional  and  regulatory  environment  which  is  not  supportive  for  industry:  market 
fragmentation, the lack of competition between national markets, long delays in bringing new 
medicines on to the market, and price controls. 

These  problems  were  examined  by  the  G10  High-Level  Working  Party,  established  by  the 
Commission, which enabled the identification of appropriate policy measures. Some of these 
measures  have  already  been  implemented  in  the  form  of  a  revision  of  legislation  on 
pharmaceutical  products  which  was  formally  adopted  by  the  European  Parliament  and  the 
Council in March 2004, and which will enter into force at the end of 2005. This will lead, for 
example, to the speeding-up of marketing authorisation procedures for medicinal products; to 
the  harmonisation  (at  10  years)  of  the  protection  period  for  scientific  data  related  to  new 
medicines,  with  the  possibility  of  an  extension  for  one  further  year  in  the  case  of  new 
therapeutic indications with a significant clinical benefit; to widening the scope of application 
of  the  Centralised  Procedure  for  rapid  access  to  the  entire  single  market;  and  finally  to  the 
strengthening  and  systematisation  of  the  procedure  for  “scientific  advice”  to  companies 
during the crucial stages of research and development. 

* Bain & Company ** Global Competitiveness in Pharmaceuticals. A European perspective; Enterprise Papers, 
No 1-2001. 

20 
21 

"A Mobility Strategy for the European Research Area", COM(2001) 331 final, 20.6.2001.  
Bain & Company, 2003.  

11 

 
 
  
 
                                                 
2.2.2.  Weakened 

international 

competitiveness  

Figure 6: Trade balance of the EU, USA and Japan (with the rest of the world and China)

€ billions

200,0

100,0

EU

United States

Japan

-100,0

-300,0

-200,0

-400,0

2002

1990

1990

2002

1990

2002

the  EU 
such 

If  indicators  of  the  Community’s 
competitiveness  in  the  high-tech 
industrial  sectors  are  not  very 
promising,  what  is  happening  in 
is 
sectors  where 
as 
strong 
traditionally 
chemicals  and  engineering?  The 
cost 
data 
the 
competitiveness  relative 
the 
United  States  show  that  the  EU 
remains more competitive in these sectors (Table 9; see Annex). However, these sectors are 
facing increasingly tough competition from the emerging economies. The globalisation of the 
economy is not a new phenomenon. The difference is that the ranks of the South-East Asian 
‘tigers’, which have been exerting considerable competitive pressure for several years, have 
now been swelled by two demographic giants: China and India.  

EU’s 

Source : Eurostat, UN 

Rest of the world

on 

to 

China

-600,0

-500,0

- The emergence of new competitors …  

China  emerged  in  the  1980s  as  a  competitor  which  benefited  from  low  production  costs, 
thanks to its abundant and cheap labour. China focused in particular on the toy and textiles & 
clothing sectors, and became a major competitor to Europe and America (Figure 6). The EU 
has a trade deficit in the traditional sectors (Diagram 10; see Annex).  

In  the  1990s,  another  type  of  specialisation  appeared,  centred  on  products  with  a  strong 
technological content (electronics), based on the marketing of assembled products and on the 
presence  in  China  of  foreign  firms,  particularly  from  Japan  and  South-East  Asia.  More 
recently,  China  has  moved  into  other  sectors  with  a  major  technological  content,  such  as 
chemicals, and even into leading-edge sectors (ICT, biotechnologies) and research and design 
activities  (electronic  components).  The  creation  of  "technology  parks"  in  special  economic 
zones (Shanghai, Guangdong Province) is designed to attract foreign companies and testifies 
to the authorities’ desire to develop the country’s industrial potential.  

Chinese  industrialists  are  showing  a  new  interest  in  aspects  of  quality,  which  is  prompting 
them  to  develop  and  internationalise  their  own  brands  and  promote  ‘national  champions’. 
Chinese  companies,  with  the  support  of  their  government,  are  seeking  to  become  global 
players with a presence in all markets, particularly in certain segments (electronics, domestic 
appliances) in which the country has specialised. Some Chinese companies (e.g. TCL) have 
developed  their  brands  on  the  domestic  market  and  are  now  penetrating  Western  markets, 
benefiting  from  access  to  consumers  via  the  brands  and  distribution  networks  of  European 
producers (e.g. Thomson). Other names are also starting to emerge, such as Haier or Galanz in 
the domestic appliance sector.  

Box 2: Causes for concern upstream of the manufacturing industry 

Several  sectors  of  European  industry,  such  as  the  automobile,  aerospace,  mechanical 
engineering and metallurgical industries, have recently been confronted by the emergence of 
international  competition  which  is  no  longer  limited  to  the  market  for  finished  goods  but 
which also extends upstream of the production processes, to the acquisition of inputs. 

12 

 
 
  
 
The markets for certain raw materials (steel, precious and non-ferrous metals, coking coal and 
rubber, etc.) and secondary raw materials (recyclable metal waste) have for some months been 
under considerable pressure, due essentially to the strong growth in China’s industrial output. 
China has become one of the main consumers of recyclable metal waste. Over the last four 
years, exports of copper and aluminium waste from the EU to Asia have doubled, to 400 000 
tonnes. Over the same period, the EU has seen its sources of imports of these two materials 
diminish significantly (from 700 000 to 400 000 tonnes and from 700 000 to 450 000 tonnes 
respectively).  This  situation  is  causing  difficulties  for  European  enterprises  which  use  these 
materials. Some 30 to 40% of metal production in the EU depends on recyclable metal waste. 

At  this  stage,  it  is  too  early  to  accurately  assess  the  scale  of  this  new  phenomenon.  Some 
analysts believe that a similar situation will soon develop with regard to energy products. If 
the current situation were to persist, it would seriously threaten the competitiveness of certain 
European industrial sectors.  

In  the  meantime,  India  has  not  been  standing  still  and,  in  addition  to  its  traditional  sectors 
such  as  textiles,  has  adopted  a  niche  strategy  in  fields  with  high  value  added,  such  as 
biotechnologies and ICT, based on the creation of clusters of local companies and American 
and European multinationals.  

- ... increases pressure to relocate  

These trends, and their acceleration in recent years, have prompted fears, some of which are 
justified, that certain industries will gravitate towards China, bringing in their wake other user 
or  supplier  sectors,  and  weakening  Europe’s  industrial  base.  Some  companies  have  already 
delocalised, or intend to do so, in order to benefit from lower labour costs. A survey carried 
out  by  DIHK  in  Germany  in  200322  showed  that  nearly  45%  of  companies  which  invest 
abroad  do  so  with  a  view  to  cost  savings.  Certain  regions  of  Spain  are  facing  problems  of 
delocalisation, especially Catalonia, which is having to cope with the decisions of European 
and  non-European  companies  (e.g.  Philips  and  Samsung)  to  relocate  their  production 
activities  to  other  parts  of  the  globe.  The  increasing  strength  of  Chinese  industry  in 
technology-intensive  sectors  has  also  sparked  a  fear  that  relocation  is  no  longer  confined  to 
traditional sectors.  

In  fact,  the  phenomenon  of  relocation  is  beginning  also  to  extend  to  research  activities  and 
high-tech sectors, although it is not possible to quantify it accurately or to distinguish it from 
the  worldwide  expansion  in  industrial  activity.  With  improvements  in  infrastructure, 
knowledge  acquired  in  various  high-tech  sectors,  high  levels  of  education,  increasingly 
qualified workforces, high-quality universities and research costs lower than those in Europe, 
some  emerging  countries,  particularly  China  and  India,  have  advantages  which  cannot  be 
ignored  by  European  or  American  industrial  groups.  The  latter  are  starting  to  set  up  R&D 
activities  there,  with  a  pronounced  knock-on  effect  between  enterprises  in  certain  high-tech 
industrial sectors.  

Finally, the relocation phenomenon is now starting to affect certain services which can benefit 
from India’s low-cost, highly qualified, English-speaking workforce. These services, provided 
to  foreign  customers  (often  American  or  British,  but  increasingly  from  other  European 
countries) have grown in the field of call centres, but also in computer services, accountancy 

22 

Produktionsverlagerung  als  Element  der  Globalisierungsstrategie  von  Unternehmen.  Deutscher 
Industrie-und Handelskammertag (DIHK), May 2003.  

13 

 
 
  
 
                                                 
and data processing. A debate is under way in the United States on the economic impact of 
relocation in terms of jobs and productivity.  

However,  although  the  aggregation  of  observations  from  various  sectors  is  a  cause  for 
legitimate concern, they should not lead us into making macroeconomic generalisations.  

In fact, although some attempts have been made to evaluate the impact of relocation, its extent 
is difficult to quantify23. Relocation should be seen in the context of a large outflow of foreign 
investment,  of  which  the  EU  is  one  of  the  main  actors  and  recipients.  In  2002,  it  received 
€85.9 billion  (0.9%  of  its  GDP)  in  direct  investments  from  outside  the  EU,  but  invested 
€130.6 billion  (1.4%  of  GDP)  in  non-member  countries24.  Most  of  these  investments  go  to 
OECD countries, with the United States being the biggest single recipient. Direct investment 
flows to China have increased since the mid-1990s, but in 2002 represented less than 2% of 
European  direct  investment  flows  out  of  the  EU  and  less  than  one-third  of  the  total  which 
went to the Far East (behind Singapore and the Philippines) 25. On the other hand, Europe still 
has a number of important features of attractiveness, which contribute to an overall favourable 
environment,  such  as  the  quality  of  its  education  and  infrastructures,  the  performances  of 
public services, and the quality of its social dialogue.  

Moreover,  their  effect  on  employment  at  macroeconomic  level  remains  uncertain.  Foreign 
investments  can  generate  additional  trade  flows.  Some  studies  have  emphasized  the 
complementarities  between  trade  flows  and  investment  flows:  in  other  words,  investments 
abroad do not replace existing exports, but rather, help to boost trade26.  

This  does  not  disguise  the  fact  that  some  sectors  and  regions  have  been  hit  very  hard  by 
relocations.  A  local  and  sectoral  approach  is  also  required  in  order  to  understand  the 
phenomenon  and  the  factors  which  cause  it:  whether  these  are  a  concern  to  reduce  costs 
and/or the desire to escape what is perceived as an unsatisfactory regulatory framework.  

- Participating in emerging economies’ growth  

Given  the  size  of  their  populations,  the  emergence  of  countries  such  as  China  and  possibly 
India is helping to change the profile of international competition. Their growth potential is 
very considerable, but also offers opportunities. The Chinese market is growing rapidly and 
certainly has major potential for European companies. European industry has actively sought 
to establish itself in the fastest-growing market in the world, and with some success: European 
car manufacturers account for more than 60% of sales in the rapidly growing Chinese market, 
and  similar  successes  have  been  seen  in  important  areas  such  as  the  manufacture  of  mobile 
telephones.  

In  addition,  productivity  gaps  between  countries  such  as  China  and  the  EU  are  still  wide, 
which means that, for the moment, Chinese manufacturers do not acquire a clear comparative 

23 

24 
25 
26 

A  report  produced  by  the  French  Senate  in  2001  shows  that  relocation  constitutes  a  marginal 
phenomenon and that its impact on employment would not exceed 200 000 to 300 000 jobs. It would 
account for 5% of French direct investment in markets near to France (CEECs, Maghreb countries) and 
less than 1% in remote markets.  
These estimates confirm the decline in these flows following a period of growth from 1997 to 2000. 
European Union Foreign direct Investment, yearbook 2001, Eurostat.  
Fontagné L., Pajot M., Investissement direct à l’étranger et échanges extérieurs: un impact plus fort aux 
Etats-Unis qu’en France, in Economie et Statistique, No 326-327, 1999, 6/7.  

14 

 
 
  
 
                                                 
advantage  in  the  sectors  where  they  invest27.  The  commercial  opening  of  China  is  a 
considerable  opportunity  for  European  industry,  so  long  as  it  is  not  shut  out  of  the  Chinese 
market  by  new  non-tariff  barriers.28  China  now  accounts  for  almost  8%  of  EU  imports,  as 
against  2.6%  in  1990,  but  only  3.4%  of  its  exports,  compared  with  1.5%  in  1990.  Growth 
rates in some sectors of the Chinese economy are strong29 and are likely to stay that way. The 
rapid  development  of  the  Chinese  economy  already  constitutes  an  engine  of  world  trade. 
Economic development is not a zero-sum game. A developing and increasingly wealthy China 
will be a China which imports more. Moreover, European industry has not taken part in the 
process  of  fragmentation  of  production  in  Asia,  and  its  trade  is  based  more  on 
complementarity30.  The  opening  of  the  Chinese  market  may  therefore  provide  it  with  an 
opportunity to exploit its advantages.  

2.3. 

The European Union in the face of change  

The arguments can be summarised as follows.  

It  is  not  possible  to  conclude  that  Europe  is  experiencing  genuine  deindustrialisation,  but 
rather  the  effects  of  the  permanent  -  often  painful  if  its  effects  are  concentrated  in  certain 
sectors or regions, through which resources are continually reallocated to those sectors where 
comparative  advantages  exist.  Analysis  of  the  medium-to-long-term  trend  indicates  this 
adjustment process, rather than deindustrialisation.  

More recently, however, and particularly since 1995, worrying signs have emerged, including 
existing  indicators  of  Europe’s  recent  poor  performance  in  terms  of  productivity  growth, 
research spending  and innovation capacity. This  was first observed in the high-tech sectors, 
but also in industrial sectors where Europe was strong.  

If the phenomenon of market opening of industrialised economies is not a new one, the actors 
and the modalities of this international division of labour have changed: a rapid development 
since  the  first  oil  crisis,  the  end  of  the  traditional  international  division  of  labour  between 
North  and  South,  a  new  competition  from  the  countries  of  the  South  without  the  dominant 
position of the North in World trade being seriously undermined, a division of labour within 
branches  and  not  only  between  branches,  an  international  segmentation  of  production 
processes.  The  rapid  expansion  of  exports  from  developing  countries  is  based  on  an 
accumulation of human capital which allowed these countries to implement new investments 
and to penetrate sectors that are relatively highly technological. 

Between the industrialised countries, we are witnessing, more and more, a qualitative division 
of  labour  (or  intra-branch  trade  in  products  of  differing  quality).  Inasmuch  as  the  products 

27 

28 

29 

30 

Some empirical estimates comparing labour productivity in Germany and China show that there is an 
important productivity differential between the two countries, with labour productivity in China being 
only  8.6%  of  that  in  Germany.  Ruoen  R.,  Manying  B.,  China'  s  Manufacturing  Industry  in  an 
international  perspective:  A  China-Germany  Comparison,  Economie  Internationale,  92  (2002),  
pp. 103-130.  
When it joined the WTO, China gave its trading partners a commitment to substantially improve access 
to  its  immense  market  of  nearly  1.3  billion  potential  consumers:  an  average  fall  in  import  duties  on 
manufactured  goods  from  17%  to  9%,  plus  a  reduction  in  peak  tariffs,  the  elimination  of  quotas  by 
2006,  the  opening  up  of  most  service  sectors,  the  protection  of  intellectual  property,  and  improved 
conditions for foreign businesses to become established, etc.  
The energy sector experienced strong growth (+ 22%) over the period 1995-2002. Other sectors such as 
electronics and chemicals also recorded good growth (+12% and + 13% respectively) (Source: BCG).  
WP N°2002, CEPII (2002); WPS 2197, the World Bank (1999). 

15 

 
 
  
 
                                                 
traded  differ  in  their  quality  and  in  the  productive  combination  with  which  they  are 
associated, their trade is based on a new form of comparative advantages. This leads therefore 
to  a  market  segment  positioning.  A  country  which  is  specialised  in  high-end  products  in  a 
number  of  branches  will  make  more  use  of  R&D  and  of  innovation,  with  positive  and 
cumulative consequences on its growth.  

The analysis is, however, complicated by the adverse economic situation, particularly in some 
EU  Member  States.  To  what  extent  have  recent  difficulties  been  the  result  of  this  situation, 
and  to  what  extent  do  they  reflect  long-term  economic  trends?  The  answer,  admittedly  a 
highly  unsatisfactory  one,  is  that  it  is  too  early  to  say.  Moreover  the  EU’s  cost 
competitiveness  has  also  been  affected  by  exchange  rate  movements  in  recent  years,  as  the 
newly launched euro rapidly lost value against the dollar before rebounding equally strongly. 

The  elements  identified  above  are  risks,  not  certainties,  but,  given  the  nature  of  those  risks 
and what is at stake, they cannot be ignored.  

Competitiveness is the key factor in resolving industry’s problems. If it is neglected, examples 
of poor performance could multiply. The decision to foster competitiveness has already been 
taken,  in  Lisbon.  Other  documents  have  hinted  to  the  persistent  gap  between  the  EU’s 
ambitions  and  its  achievements31.  But  the  current  public  debate has  identified  certain topics 
which present numerous challenges for the EU’s industrial policy.  

3. 

THE OPPORTUNITIES PRESENTED BY ENLARGEMENT  

On 1 May 2004, ten new Member States will join the EU. If the respective markets have been 
largely  opened  for  the  last  ten  years,  enlargement  offers  equal  competition  conditions,  as 
European  norms  and  regulations  will  have  to  be  applied  in  the  acceding  countries.  This 
enlargement will constitute a major opportunity for European industry, both in the current and 
the new Member States, providing that the possibilities it opens up are exploited to the full.  

Box 3: Industrial Change in the acceding countries 

On the basis of the figures for 2000, industry in the new Member States will account for 9% 
of industry in the enlarged EU, and 15% of its jobs.  

The structure of these countries’ economies has changed considerably in the last decade. The 
shares of agriculture and subsequently of industry in the economy as a whole have decreased, 
while services have expanded strongly.  

The  new  Member  States  currently  tend  to  be  more  specialised  in  labour-intensive  sectors. 
Their largest industrial sectors are food and drink, transport equipment, raw metals, and metal 
products.  Some  countries,  particularly  the  Baltic  States,  specialise  in  textiles  and  wooden 
products, but the industrial structure of most of these countries has been gradually reoriented 
towards  intermediate  or  high-tech  sectors,  thus  initiating  a  process  of  convergence.  The 
development of their trade with the EU reflects these trends.  

31 

'Report  from  the  Commission  to  the  Spring  European  Council:  Delivering  Lisbon:  Reforms  for  the 
Enlarged Union' COM(2004) 29, 21 January 2004; Broad Economic Policy Guidelines (COM(2003) 4 
final).  

16 

 
 
  
 
                                                 
These  countries  will,  however,  certainly  continue  to  undergo  a  process  of  restructuring  in 
response to intensified competition from EU15 in the coming years. 

Source: European Competitiveness Report 2003. European Economy, Economic Paper, No 181, January 2003: 
"Structural  features  of  economic  integration  in  an  enlarged  Europe:  patterns  of  catching-up  and  industrial 
specialisation". Impact of Enlargement on Industry; SEC(2003) 234, 24.2.2003  

3.1. 

The lure of the new Member States  

Enlargement  will  enhance  further  the  attractiveness  of  the  new  Member  States  for  foreign 
investors. Geographical and cultural proximity and the adoption of the 'acquis communautaire' 
are amongst the additional advantages for European enterprises and their internationalisation 
process.  

Unit labour costs in the accession countries are currently significantly lower (by between 16% 
and 53%) than in EU1532. This advantage is temporary: most of their economies will undergo 
a  process  of  convergence  with  the  rest  of  the  EU33,  although  the  rates  of  convergence  will 
vary.  Moreover,  their  cost  advantage  is  reduced  by  the  fact  that  their  labour  productivity  is 
much  lower  than  in  the  current  Member  States.  Nevertheless,  the  comparative  advantage  of 
the new Member States has already led numerous producers in EU15 to locate some of their 
production  there,  and  this  is  likely  to  continue.  The  accession  countries’  highly  qualified 
workforces,  the  flexibility  of  their  labour  markets  and  the  high  levels  of  foreign  investment 
which they have managed to attract are therefore paying off.  

The  fall  of  the  Iron  Curtain  and  the  resulting  opening  of  markets  paved  the  way  for  a 
reallocation  of  production  capacities  on  a  continental  scale.  The  transfer  of  production 
capacity  to  Central  and  Eastern  Europe  could  continue  to  prove  to  be  a  major  problem  for 
regions of the present Member States affected by this relocation. Such changes have a major 
local impact, particularly for the regions which have traditionally specialised in the activities 
concerned. This was the case, for example, in Baden-Württemberg in the 1990s, when it lost 
out to competition from Central European countries where a number of German companies in 
the  engineering  and  automotive  sectors  had  set  up  operations.  However,  out  of  this  crisis 
came new opportunities. The regional authorities focused their efforts on innovation and the 
promotion  of  ‘clusters’  in  industries  such  as  micro-electronics  or  ICT,  thereby  transforming 
an apparent crisis into a success.  

The impact of the extension of the single market on industry is likely to be the more severe in 
certain  geographical  regions  and  sectors  in  the  current  Member  States.  Border  regions  may 
well be particularly affected, and especially SMEs which serve their local markets (notably in 
Germany  and  Austria).  Similarly,  the  accession  countries’  high  degree  of  specialisation  in 
labour-intensive products has already increased, for ten years or so, the competitive pressure 
on  EU15  countries  which  are  also  specialised  in  those  sectors  (e.g.  Greece,  Portugal  and 
Spain).  

For the time being, however, access to the new Member States may make it possible to keep 
within the EU production that would otherwise have been transferred to Asia, and to maintain 
the competitiveness of the sectors concerned, thanks to the reorganisation of the value chain 

32 
33 

Competitiveness Report 2003.  
Moreover, it appears that some of these countries have already encountered the problem of relocation of 
activities  which  they  had  previously  succeeded  in  attracting  to  countries  with  lower  labour  costs 
(Romania and Ukraine). 

17 

 
 
  
 
                                                 
in Europe. The textiles and clothing industry, where labour costs make up a large share of the 
final  product  price,  has  reorganised  its  production  chain  in  neighbouring  Eastern  European 
and  Mediterranean  countries.  More  recently,  other  sectors,  such  as  the  car  industry,  have 
started  to  reorganise  their  value  chains  so  as  to  benefit  from  the  advantages  offered  by  the 
acceding countries. Such a strategy could also allow the EU (15) to maintain activities that, 
otherwise,  would  risk  being  delocalised  to  other  countries.  By  way  of  example,  the  Finnish 
company Nokia has delocalised part of its production to countries of Eastern Europe in order 
to  reduce  its  costs  and  to  preserve  its  factories  in  Finland  (Oulu,  Salo)  which  are  oriented 
towards high technology. For the moment, however, the process of vertical differentiation is 
concentrated  in  certain  sectors  (including  electrical  equipment,  textiles  and  the  automotive 
sector) and certain Eastern European countries34. Responses to a survey carried out in 2003 by 
the  Netherlands  Ministry  of  Economic  Affairs35,  indicate  that  one  company  in  five  in  the 
engineering  and  electrical  products  sectors  stated  that  they  had  an  establishment  in  Eastern 
Europe  or  wanted  to  invest  there  in  the  next  five  years.  They  cited  labour  cost  differentials 
and the quality of the workforce as major factors.  

3.2. 

Exploiting these opportunities requires regulatory protection and stability  

The  efficient  operation  of  the  internal  market  in  the  enlarged  Union  may  limit  the  partially 
negative effects of the process of reallocating resources to sectors which enjoy comparative 
advantages. European industry will become more competitive if the new Member States can 
be  integrated  quickly  and  effectively,  and  genuine  respect  for  the  internal  market  rules  can 
accelerate the process of resource reallocation. This requires an effort on the part of both new 
and existing Member States in transposing and applying the acquis so as to benefit from the 
opportunities offered by the internal market and from competition-driven innovations.  

The  creation  of  a  harmonised,  stable  and  predictable  legal  framework  will  guarantee  the 
orderly functioning of markets. It will further bolster economic activity in the new Member 
States.  It  should  also  facilitate  their  transition  to  the  knowledge  economy,  thanks,  in 
particular, to more effective protection of intellectual property rights.  

Furthermore,  the  internal  market’s  legal  framework  often  lends  itself  to  flexible  solutions 
which  stimulate  innovation.  This  is  often  the  case  with  the  regulation  of  products.  The 
Commission will ensure that internal market rules are properly enforced in the new Member 
States. In the last few years, prior to enlargement, it has attached considerable importance to 
effective  implementation,  by  ensuring  that  the  future  Member  States  have  adequate 
administrative capacity. The ground has been prepared for the integration of the new Member 
States  in  the  internal  market  particularly  through  free  trade  in  industrial  products  and  many 
services, the application of Community rules on competition and state aid, and the conclusion 
of agreements on mutual recognition and conformity assessment for certain products.  

However,  implementation  of  the  'acquis  communautaire'  continues  to  require  a  major  effort 
on  the  part  of  industry  in  the  new  Member  States.  Industry  will  have  to  make  major 
investments in order to come into line with Community rules in areas such as the environment 
and  public  health,  at  a  time  when  competition  is  likely  to  be  growing  in  intensity.  It  is 
therefore important to be vigilant so as not to weaken the competitiveness of enterprises in the 
new Member States already facing the challenge of the implementation of the acquis. Thus, as 

34 
35 

World Bank WP No 2611 (2001).  
Verplaatsing productie-faciliteiten naar Centraal en Oost-Europa. EMF. CWM. Ministry of Economic 
Affairs, 2003.  

18 

 
 
  
 
                                                 
part of the Commission’s integrated impact assessment procedure, particular attention will be 
paid, wherever necessary, to the impact of proposals and other initiatives relating to industry 
and  the  general  economy  in  those  countries.  Predictability  and  stability  in  a  high-quality 
legislative environment are thus crucial if enterprises in the new Member States are to rise to 
the challenge of enlargement.  

4. 

INSTRUMENTS TO SUPPORT THE PROCESS OF STRUCTURAL CHANGE 

The  above  analysis  highlights  the  weaknesses  of  EU  industry,  the  dangers  to  which  it  is 
confronted,  and  the  need  for  it  to  be  able  to  cope  with  international  competition.  The  new 
financial perspectives proposed by the Commission for the 2007-2013 period also confirm the 
priority that will be given to strengthening the Union’s competitiveness 36 and are designed to 
provide it with the means necessary for achieving this end. 

Facilitating the process of structural change requires three types of action: 

•  The  “better  lawmaking”  approach  will  continue  to  give  industry  the  benefit  of  a  market 
that is as integrated as possible, but must also ensure that the regulatory burden does not 
exceed what is necessary.  

•  Other  Community  policies  which  contribute  in  their  own  way  to  the  competitiveness  of 
industry must also be mobilised, without losing sight of their own objectives. An example 
of  the  potential  for  progress  in  this  domain  is  the  Communication  on  a  pro-active 
Competition Policy for a competitive Europe that will be adopted on the same day as this 
document, and which will examine in detail the contribution of Competition policy to the 
competitiveness of Europe’s economy.  

•  Finally, the specific needs of the various industrial sectors must be taken fully into account.  

Of course, the measures that the EU will implement to accompany structural change can be 
usefully  based  on  the  experience  already  acquired  in  terms  of  accompanying  measures, 
notably in sectors such as steel. 

Box 4: The Commission methodology for tackling competitiveness problems 

Over  the  last  few  years,  the  Commission  has  developed  a  methodology  for  tackling 
competitiveness problems at both horizontal and sectoral levels. It is based on a combination 
of three elements: analysis, consultation and action. 

An analysis of competitiveness must be the foundation, since it identifies the challenges. Only 
a  thorough  analysis  of  industry’s  competitiveness  which  brings  to  light  its  strengths  and 
weaknesses,  as  well  as  those  of  the  framework  conditions  that  have  to  be  improved,  can 
justify  measures  in  the  field  of  industrial  policy  at  both  horizontal  and  sectoral  levels. This 
work can contribute to identifying and accompanying structural change, notably at a sectoral 
or  geographical  level,  and  to  facilitate  the  definition  of  the  appropriate  accompanying 
measures.  Recent  initiatives  regarding  biotechnologies,  aeronautics  and  pharmaceutical 
products  were  all  based  on  a  preliminary  analysis  of  the  sector,  each  time  identifying  the 
underlying issues.  

36 

Communication  ‘Building  our  common  Future  -  Policy  challenges  and  Budgetary  means  of  the 
Enlarged Union 2007-2013’, COM(2004) 101, 10 February 2004.  

19 

 
 
  
 
                                                 
Consultation with the parties concerned is another fundamental aspect. It has to be sufficiently 
broad  and  open  to  allow  all  the  relevant  points  of  view  to  be  expressed,  to  target  measures 
more  accurately  and  to  ensure  that  the  parties  concerned  are  willing  to  accept  them.  The 
initiatives  are  based  on  the  creation  of  high-level  consultative  groups  bringing  together 
representatives  of  industry  and  the  public  authorities  that  issue  recommendations  for 
improving  the  competitiveness  of  the  sector  (G10,  STAR  21,  LeaderSHIP  2015),  and  other 
processes of consultation with the parties concerned. 

The  relevance  of  these  recommendations  is  endorsed,  wholly  or  in  part,  in  a  Commission 
Communication. Their implementation is the responsibility either  of  the  EU  or  the  Member 
States, and makes use of various methods, some regulatory, some not. These measures must 
meet in a specific, proportionate manner the needs which have been identified.  

4.1. 

A regulatory framework favourable to industry 

4.1.1.  Better law-making 

Box 5: The role of the European Union and of the Member States in regulating 

Many  aspects  of  business  activity  are  covered  by  regulations.  When  making  investments, 
businesses must comply with rules on town planning and land use. Their daily activities are 
subject  to  company  law,  tax  rules,  social  security  rules,  labour  law  (including  aspects  of 
health  and  safety  at  work),  rules  on  pollution  control,  and  competition  law.  Their  products 
must  comply  with  technical  rules  on  safety,  health,  and  environmental  and  consumer 
protection.  Some  professions  are  highly  regulated,  as  is  the  right  of  establishment  and  the 
provision of certain services, particularly financial services (for obvious prudential reasons). 
Finally, the supply of some public services (transport, energy, postal services) is still covered 
by  specific  regulations,  although  measures  at  Community  level  have  had  the  effect  of 
significantly reducing their monopolistic character.  

Regulation can be favourable to competitiveness, as shown by the experience of the internal 
market (in which a single set of rules replaced national rules). On the other hand, the absence 
of rules can sometimes be a handicap to industrial competitiveness, as is the case of the delay 
in  introducing  the  European  patent.  Regulation  at  Community  level  can  also  simplify  the 
administrative  burden  on  enterprises  if  it  eliminates  the  need  to  apply  to  a  large  number  of 
national  administrations  and  replaces  them  by  a  “one-stop  shop”.  Similarly,  by  replacing 
barriers  to  intra-Community  trade,  boosting  consumer  confidence  in  a  cross-border  market 
and simplifying the procedures for gaining access to markets or the rules on products (product 
safety, food safety, etc.), Community regulation can make markets more secure, both for the 
consumer as for businesses, a fact which can bolster competitiveness. 

Businesses, purchasers and public authorities recognise the value of a structure defining the 
limits  within  which  businesses  are  free  to  act.  Many  of  these  rules  are  indispensable  (for 
instance,  as  regards  taxation,  social  security  or  food  safety),  although  it  is  questionable 
whether they are always as clear and efficient as they could be. Furthermore, some countries 
which  have  fewer  rules  address  the  same  public  concerns,  but  through  other  means.  For 
example,  in  the  United  States,  the  legal  culture  and  the  need  to  cover  possible  liability  by 
means of insurance has created its own set of rules and constraints.  

20 

 
 
  
 
Community regulations cover a small part of company law, taxation and social security rules, 
particularly as regards cross-border activities. However, the bulk of legislation is of national 
origin. Rules on the labour market, safety at work, consumer protection and pollution control 
are  shared  responsibilities,  with  both  national  and  European  input.  The  rules  on  public 
services are predominantly national, albeit within a Community framework. 

Technical rules on products is the field in which Community regulations play by far the most 
important  role.  About  half  of  all  products  are  subject  to  formal  requirements  before  being 
placed  on  the  market.  Some  simple  requirements  concern  labelling  or  packaging  and  are 
intended to inform the consumer of the risks inherent in the product. Others are weightier, and 
may  range  from  compliance  with  safety  requirements  to  prior  authorisation  for  placing  the 
product  on  the  market,  as  is  the  case  with  pharmaceutical  products.  Community  rules  are 
adopted to ensure recognition of national protection measures. There are many more national 
regulations  than  Community  regulations:  14  proposals  relating  to  products  were  adopted  at 
Community level in 2003. Over the same period, the Member States notified the Commission 
of 486 measures. Some 15% of the drafts notified by the Member States were not compatible 
with Community law. 

Simplifying and improving rules is a long process. That process began with the harmonisation 
of diverging national rules which laid the foundations of the internal market. It has continued 
by efforts to find less restrictive ways of achieving public objectives. The Community’s “New 
Approach”  is  one  of  these  methods.  Eliminating  unnecessary  complexities  at  national  level 
(“gold-plating”) must also continue, since they can lead to market fragmentation and increase 
the  constraints  on  businesses.  "Better  lawmaking"  is  an  integral  part  of  this  improvement 
process, which is far from complete. 

- Progress has been made … 

Implementation  of  the  “better  law-making”  action  plan  has  already  yielded  significant 
improvements in the manner in which the European Union makes its rules: any initiative that 
potentially  has  significant  economic,  social  or  environmental  effects  is  subject  to  a  detailed 
impact  assessment,  the  aim  of  which  is  to  analyse  simultaneously  the  various  effects  of  the 
initiative, in particular on industry and its competitiveness. It is sometimes useful to continue 
such  work.  For  instance,  in  the  case  of  the  REACH  package,  the  Commission  will  work 
together  with  industry  to  complete  the  impact  assessment  already  undertaken,  targeting 
industry’s specific concerns. 

In addition, the use of alternative methods of regulation (for example, self regulation, the use 
of  European  standardisation,  particularly  in  combination  with  co-regulation,  voluntary 
agreements  and  framework  regulations)  may,  in  certain  cases,  be  a  more  effective  way  of 
achieving  an  appropriate  balance  between  the  objectives  pursued  and  the  interests  of 
industrial  competitiveness.  Provided  that  certain  requirements  are  observed,  particularly  the 
principle of legal certainty, these approaches may offer advantages. 

Finally,  progress  has  been  made  regarding  the  consultation  of  interested  parties  prior  to 
launching any initiative likely to have a significant impact on business competitiveness. 

21 

 
 
  
 
Box 6: Better consultation: the example of REACH 

On  October  29th  2003,  the  Commission  submitted  its  proposal  for  a  new  regulatory 
framework  for  chemicals.  The  proposed  system  (REACH,  Registration,  Evaluation, 
Authorisation  of  Chemicals)  is  intended  to  improve  the  protection  of  health  and  the 
environment,  whilst  preserving  the  competitiveness  of  the  Community’s  chemical  industry 
and its ability to innovate. 

When  the  Commission  started  the  preparatory  work  on  the  REACH  proposal,  it  widely 
consulted  all  the  parties  concerned  including  through  an  Internet  consultation,  in  order  to 
optimise the proposal’s cost-efficiency ratio. Over 6 000 replies were received. As a result of 
these contributions, several changes were made to the original proposal. The Commission was 
able  to  revise  its  impact  assessment  and  carry  out  improvements  which,  according  to 
estimates, should lead to a saving of 80% of the direct costs to industry (i.e. more than €10 
billion). 

- … but further steps are needed to reduce the weight of legislation 

The Council has stated its wish to make progress in two directions37. On the one hand, with 
regard to new initiatives, it wants to see the competitiveness dimension taken more fully and 
more carefully into account in the integrated impact assessment procedure, which also covers 
the environmental and social dimensions. On the other, efforts should be made to assess the 
combined impact of existing Community legislation on business competitiveness, taking into 
account possible interaction between legal or regulatory instruments in different policy areas. 
Such  assessments  could  prove  particularly  suitable  for  certain  specific  industries  whose 
competitive  position  is  highly  vulnerable  to  competition  from  non-Member  countries.  The 
automobile industry could be a good example. 

The  2004  spring  European  Council  (Brussels,  25-26  March  2004)  took  up  these  demands, 
noting with satisfaction that the Commission had undertaken to improve further the integrated 
impact assessment process in collaboration with the Council and the European Parliament in 
the  context  of  the  inter-institutional  agreement  on  better  law-making,  by  placing  special 
emphasis on strengthening  the  competitiveness aspect and, in cooperation with  the Council, 
devising a method for measuring the administrative burden on business. 

President Prodi, while reminding that the approach of the European Union as regards impact 
assessment  is  cross-sectoral  and  has  to  be  articulated  around  the  3  dimension  of  economic, 
social  and  environmental  impact,  has  also  confirmed  that  the  Commission  will  examine  to 
what  extent  competitiveness  aspects,  and  particularly  those  linked  to  the  administrative 
burden on business, can be improved in the framework of this procedure. 

Box 7: The cumulative effect of regulations: the example of the car industry 

The  car  industry  is  a  significant  part  of  the  EU  economy.  It  provides  6.5  million  direct  and 
indirect jobs and accounts for 5% of gross domestic product. It makes a major contribution to 
the growth of industry and innovation and employs a skilled labour force, thus contributing to 
the achievement of the Lisbon objective. The sector is innovative and it responds to market 
challenges. For instance, the average fuel consumption of European vehicles is considerably 
lower than that of U.S.-produced vehicles. 

37 

Contribution  from  the  Competitiveness  Council  to  the  spring  European  Council  of  2004  (11  March 
2004). 

22 

 
 
  
 
                                                 
Over  the  last  thirty  years,  the  European  Union  has  managed  to  set  up  a  single  approvals 
system for automobiles. This harmonised acquis constitutes an important progress compared 
with  the  previous  situation,  in  which  national  rules  “coexisted”.  Furthermore,  the  European 
approach to regulation in this field has spread throughout a large part of the world, under the 
aegis of the United Nations Economic Commission for Europe. 

The  regulatory  environment  in  which  this  industry  is  developing  is  becoming  increasingly 
complex. The volume of rules has increased, linked, for example, to aims of road-user safety 
or  of  environmental  protection,  since  both  the  EU  and  the  Member  States  have  taken 
regulatory  initiatives,  sometimes  in  an  uncoordinated  manner,  which  have  not  been  fully 
evaluated as regards their interaction and cumulative effects. A more integrated approach is 
therefore  necessary,  as  are  efforts  to  take  into  account  the  various  factors  influencing  the 
competitiveness of the automobile industry. This is the aim of the ERTRAC (European Road 
Transport Advisory Council) technology platform.  

The Commission is also embarking on new ways of improving the quality of regulatory work 
at both Community and national levels: 

•  Exchanges of good practice as regards regulation with and between the Member 

States; 

•  Work to define regulatory quality indicators; 

•  Ex-post studies on the impact of legislative or other initiatives; 

•  Work to identify the causes of excessive regulation. 

The  quality  of  detailed  impact  assessments  is  also  crucial  to  the  credibility  of  the 
Commission’s proposals. To ensure the quality of these analyses, the Commission plans to set 
up  an  in-house  consultative  body  comprising  specialists  in  these  issues,  which  will  be 
responsible for giving advice on the methodology for such exercises. 

In addition, the impact of regulations on the markets for both new and existing products and 
services,  particularly  research  and  innovation,  should  be  examined  and  taken  into  account. 
From this point of view, an important aim is to identify sufficiently early the fields in which 
existing  legislation  (or  the  absence  thereof)  constitutes  an  obstacle  to  developing  and 
deploying  new  technologies,  and,  where  appropriate,  to  define  measures  to  remedy  the 
problems.  This  pre-emptive  approach  to  adapt  the  legal  framework  to  the  acceleration  of 
technological  progress  will  be  implemented  with  all  the  parties  involved  in  the  European 
technology platforms initiative. 

4.1.2.  The responsibilities of each party 

The  competitiveness  of  EU  industry  concerns  everyone.  The  Council  and  the  European 
Parliament  must  ensure  that  the  measures  resulting  from  the  legislative  procedure,  whilst 
achieving  their  objectives,  do  not  damage  competitiveness.  The  Commission  is  willing  to 
support this endeavour. It could help the other institutions assess the effects of the proposed 
amendments  as  part  of  the  “better  law-making”  initiative.  In  this  connection,  the 
Competitiveness Council, in response to a request from the European Council, announced its 
intention to monitor proposals likely to have a significant impact on competitiveness, even if 
they are not its direct responsibility.  

23 

 
 
  
 
Finally, Community competence and Community instruments as regards industrial policy are 
limited.  The  Member  States  must  ensure  that  the  rules  they  adopt  do  not  have  a  negative 
impact  on  the  business  environment  (for  instance,  by  complicating  access  to  the  market  or 
slowing  down  the  development  of  new  activities  or  new  technologies)  and  do  not  create 
unjustified barriers to trade, which are contrary to the principle of mutual recognition. 

4.2. 

Optimising synergy between different policies 

Europe’s competitiveness depends to a large extent on its industry. However, the Community 
institutions and the Member States must help create a favourable business environment. The 
need  for  an  integrated  approach  to  questions  of  competitiveness  was  recently  raised  by  the 
Commission and the Council38.  

The  previous  Communication  on  industrial  policy  highlighted  possible  areas  of  synergy 
between different Community policies. A close examination has identified specific initiatives 
in  five  areas  (knowledge,  the  internal  market,  cohesion,  sustainable  development  and  the 
international  dimension)  for  improving  the  contribution  which  Community  policies  make  to 
industrial competitiveness. 

Box 8: Unifying the analytical foundation of Community policies 

Optimising  the  synergies  between  various  Community  policies  so  that  they  have  the 
maximum positive impact on industry’s competitiveness requires that those policies be based 
on  an  analytical  foundation  which  is  adequate  and  consistent.  This  facilitates  greater 
coherence  between  the  effects  of  each  policy.  In  order  to  improve  that  foundation,  the 
Commission has undertaken two exercises known as “analysis of the analyses”.  

The first exercise examined the interaction between employment and growth. The results of 
the  analysis  show  that  there  is  no  contradiction  in  the  simultaneous  pursuit  of  growth  of 
productivity  and  of  employment,  especially  not  in  the  medium  term.  Improvements  in  our 
standard of living depend on these two factors. 

In  the  medium  term,  economic  growth  is  determined,  in  the  first  instance,  by  productivity 
growth,  which  itself  depends  on  various  factors:  investment  in  capital  and  in  ICT, 
technological  progress,  organisational  modernisation,  and  education.  Employment  growth  is 
determined  in  the  long-term  by  the  performance  of  labour  markets  and  factors  affecting  the 
labour  supply.  In  recent  years,  it  has  been  employment  growth,  rather  than  productivity 
growth,  which  has  made  the  bigger  contribution  to  overall  growth.  Greater  labour  market 
participation,  higher  levels  of  qualifications  and  greater  adaptability  have  contributed  to 
economic growth that is rich in job-creation. 

Encouraging strong growth in productivity and employment requires specific reforms. These 
reforms  aim  to  increase  the  labour  supply  and  worker  adaptability,  improve  regulation, 
encourage entrepreneurship and innovation, open the internal market for services and improve 
the  modernisation  of  human  capital  and  technology.  At  the  same  time,  they  have  to  be 
underpinned by a stable macroeconomic framework and stable budgetary policies. 

38 

Some  Key  Issues  in  Europe’s  Competitiveness  –  Towards  an  Integrated  Approach,  COM(2003)  704 
final, 21 November 2003. 

24 

 
 
  
 
                                                 
The second exercise centred on the impact of environmental policy on the European business. 

According to the results of this exercise, environmental regulation is concentrated mainly on 
the creation and the attribution (or the reattribution) of property rights as regards the use and 
the pollution of environmental resources. By forcing the interested parties to take account of 
the  growing  scarcity  of  environmental  resources,  this  policy  can  contribute  to  a  better 
economic efficiency. However, whilst potentially improving the efficiency of this allocation 
of  resources,  the  policy  also  has  significant  implications  in  terms  of  distribution,  therefore 
creating ‘winners’ and ‘losers’. 

The  final  result  of  environmental  regulation,  in  terms  of  cost,  is  that,  for  certain  companies 
and sectors, production is more expensive. If it is important to have a correct idea of the costs 
of environmental regulation for companies, for the latter, what counts are the effects of these 
costs on innovation capacity, profitability, prices and demand dynamics. These effects depend 
to  a  large  extent  (i)  on  the  type  of  regulation  (i.e.  how  this  affects  the  inputs  and  the 
production  process  of  the  finished  product);  (ii)  on  the  way  in  which  the  company  affected 
can  finance  pollution-reduction  technologies;  and  (iii)  market  structures  (demand  elasticity, 
level of exposure to international competition …). 

In terms of advantages, the final result of environmental legislation is that some companies or 
sectors benefit from positive effects in terms of demand and employment that would not have 
happened in the absence of such regulation. This regulation should also lead to reductions in 
input costs, both for the regulated industries (by encouraging a better use of resources) and for 
the industries that, in the end, benefit from inputs that are less polluted and the reduced costs 
in terms of worker health and public health. 

The existence of common environmental rules at the EU level ensures a level playing field for 
companies  operating  inside  the  internal  market.  Differences  between  countries  in  the 
strictness of environmental protection rules can be justified  by  differences in environmental 
problems  or  in  the  effects  of  pollution.  However,  different  national  approaches,  whether  in 
terms  of  ambition  or  in  instruments,  must  be  carefully  examined  to  ensure  that  they  are 
effectively and legally compatible with the proper functioning of the internal market.  

The cross-border and global character of many environmental threats requires actions that are 
beyond the ability of one country or region. Measures taken solely at EU level to restore the 
ozone layer or reduce greenhouse gas emissions, for example, are not sufficient. These issues 
require  global  action  and  concerted  multi-lateral  efforts.  Hence  the  need  to  guarantee  the 
participation  and  equivalent  contribution  of  Europe’s  main  trade  partners  when  envisaging 
actions. 

4.2.1.  Using knowledge for the benefit of businesses 

For industry to be competitive, better use must be made of knowledge: this requires measures 
on  research,  innovation,  workforce  training,  ICT  and  a  competition  policy  that  takes  this 
dimension into account. 

- Investing in research: an action plan for Europe 

In  addition  to  the  creation  of  a  “European  Research  Area”  designed  to  create  an  internal 
market  for  research  and  technology  and  counter  the  fragmentation  currently  affecting 
European research, Europe has an action plan to increase investment in research and meet the 
objective  fixed  by  the  European  Council  in  Barcelona  of  increasing  total  R&D  spending  in 

25 

 
 
  
 
Europe  to  3%  of  GDP  by  201039,  whilst  improving  the  quality  of  research  and  its 
appropriateness  to  the  needs  of  the  market.  The  action  plan  requires  the  mobilisation  of 
numerous  policies,  beyond  those  relating  directly  to  research  and  innovation,  and 
improvements in all the instruments of public support. 

The action plan has three main priorities: 

1.  To  increase  public  funding  or  research,  both  at  Member  State  and  EU  national  levels 
(within limits compatible with the European budgetary guidelines), and to strengthen the ties 
between public research and industry. 

2.  To  increase  the  human  potential  in  science  and  technology,  by  improving  researchers’ 
career prospects and mobility, rekindling young peoples’ enthusiasm for science and making 
it  easier  for  the  best  researchers  from  non-member  countries  to  enter  and  remain  in  the 
Union40. 

3. To improve the framework conditions for offering businesses an environment which lends 
itself  to  investment  in  research  and  which  encourages  them  to  increase  their  investments  in 
Europe.  New  actions  will  be  required  in  sectors  such  as  intellectual  property,  market 
regulation, competition rules, financial markets and tax regimes. 

The  aim  of  this  system  is  to  strengthen  Europe’s  attractiveness  for  research  investments, 
especially from private investors, and to increase public funding to 1% of GDP by 2010, using 
the open method of coordination. 

In its recent proposals for the financial perspectives for 2007-2013, the Commission led the 
way  by  planning  to  more  than  double  the  EU’s  research  budget.  The  EU  will  need  to 
concentrate its actions on a number of major themes which have a direct bearing on industrial 
competitiveness,  such  as  pan-European  partnerships  between  the  public  and  private  sectors, 
with  a  view  to  bolstering  technological  research,  research  infrastructures,  human  resources, 
the dynamism and productivity of European research, the creation of poles of excellence and 
the coordination of national and regional research programmes and policies.  

Of  the  initiatives  provided  for  in  the  action  plan,  the  technology  platforms  merit  particular 
attention.  They  will  help  to  mobilise  the  research  and  innovation  effort  and  facilitate  the 
emergence  of  “lead  markets”41  in  Europe.  By  defining  common  research  agendas,  they  will 
provide an impulse for Europe’s potential in advanced technologies (e.g. nano-technology and 
hydrogen technology), and in traditional sectors which face particular challenges. They could 
make  a  major  contribution  to  improving  competitiveness.  For  example,  research  into  new 
materials  or  production  processes  will  be  one  of  the  fields  of  action  to  be  explored  and 
developed  in  the  context  of  the  technology  platform  for  the  textile  and  clothing  sector. 
European  technology  platforms  should  also  help  establish  effective  public-private  relations 
between researchers, industry, the financial community and policy makers. In particular, the 
participation of representatives from the private sector will ensure that technology platforms 

39 
40 

41 

COM(2003) 226 final, “Investing in research: an action plan for Europe”, 30 April 2003. 
The  Commission  recently  made  some  proposals  aimed  at  accelerating  and  simplifying  the  conditions 
under  which  researchers  from  non-member  countries  can  obtain  residence  permits  (COM(2004)  178 
final, 16 March 2004). 
See the Communication from the Commission on “Innovation policy: updating the Union’s approach in 
the context of the Lisbon strategy”, op cit., for an analysis of “lead markets”.  

26 

 
 
  
 
                                                 
take full account of the needs and expectations of the future potential market in the fields in 
question. 

- Innovation policy 

An  action  plan  on  “Innovation  for  Europe’s  competitiveness”,  which  the  Commission  will 
present in the summer of 2004, will aim to put business at the heart of European innovation 
policy.  

The action plan will comprise six main objectives: 

1.  To  encourage  all  forms  of  innovation,  technological  or  non-technological  (e.g. 
organisational), and to promote excellence throughout business.  

2.  To  stimulate  the  effective  spread  of  knowledge  and  technologies  among  businesses.  The 
Member  States and  regional  and  local  authorities should play an active role, particularly by 
encouraging initiatives based on business clusters.  

3.  To  develop  human  resources  for  innovation.  There  must  be  greater  and  more  effective 
investment in education and training, in order to develop the skills necessary for innovation. 
On the basis of analyses of skills requirements, the Commission, the Member States and the 
parties concerned must promote the mutual recognition of professions specific to innovation42 
and encourage professional mobility, particularly between sectors and to SMEs. 

4. To increase the funds for investments in innovation. Community financial instruments must 
be  brought  closer  into  line.  The  6th  R&D  Framework  Programme  (€17.5  billion)  and  the 
regional  funds  (€195  billion  over  the  period  2000-2006)  have  made  a  start.  This  trend  is 
expected to continue in subsequent programmes.  

5.  To  promote  a  regulatory  and  administrative  environment  which  favours  innovation.  The 
management  of  intellectual  property  rights  needs  to  be  improved,  particularly  by  reducing 
costs  for  small  businesses  and  creating  a  help  service  for  the  defence  of  patents  and 
intellectual property rights.  

6.  To  develop  a  model  of  innovation  governance  for  the  Union.  The  players  (the  Member 
States  and  other  interested  parties)  will  be  involved  in  discussions  allowing  common 
objectives  to  be  identified  and  synergies  created.  The  Commission  intends  to  propose 
ambitious  common  objectives  to  the  Member  States  and  to  invite  them  to  adopt  those 
objectives by March 2005.  

- Thinking about the future of research in the manufacturing industry  

From  a  more  horizontal  perspective,  a  strategic  agenda  on  the  future  of  research  in  the 
manufacturing industry will be presented in autumn 2004, with a view to identifying the main 
guidelines  for  research  in  order  to  make  a  medium-  and  long-term  contribution  to  the 
competitiveness of manufacturing businesses.  

42 

The professions in question are varied and relate to different fields: understanding patents in the context 
of  intellectual  property,  using  new  technologies,  financial  risk  analysis  for  innovation,  technological 
and regulatory alertness, technology brokerage in the context of technology transfers.  

27 

 
 
  
 
                                                 
The  document  will  propose  measures  in  the  field  of  future  technologies  and  in  the  areas  of 
education and training, international cooperation and the creation of an environment which is 
favourable  to  industrial  innovation.  It  will  thus  form  the  basis  for  drawing  up  research  and 
innovation  measures  that  will  be  proposed  under  the  Seventh  R&D  Framework  Programme 
(2007–2011).  

- Investing in human capital  

A highly educated, well-trained and adaptable workforce is a key element in competitiveness, 
productivity  and  the  growth  of  employment.  The  report  of  the  Task  Force  on  Employment, 
chaired  by  Wim  Kok,  and  the  Spring  European  Council  of  2004  stressed  that  Europe  must 
invest  more,  and  more  effectively,  in  its  human  capital.  For  this  to  succeed,  responsibilities 
and costs associated with this additional investment need to be shared between the authorities, 
industry  and  the  individuals  concerned.  A  series  of  actions  are  planned  to  improve  human 
capital and worker skills, and to bolster training.  

In  line  with  the  objectives  of  the  European  strategy  on  employment,  the  authorities  have  to 
develop ambitious policies to adapt worker skills, raise levels of education and, in particular, 
reduce school drop-out rates and encourage more of the least qualified sections of society to 
follow training. Certain sectors of industry, often characterised by a high proportion of SMEs, 
invest  less  in  their  labour  force.  As  the  market  is  unable  to  make  sufficient  investments, 
systems of joint cost and profit sharing must be strengthened (e.g. sectoral or regional training 
funds).  From  this  point  of  view,  the  European  Social  Fund  and  the  future  European 
programmes  on  vocational  training  will  play  an  important  part  in  the  modernisation  of 
education and training.  

This  investment  effort  in  human  capital  is  all  the  more  urgent  in  the  current  context  of  a 
rapidly ageing, and soon falling, working population, which increases the risk of inadequate 
qualifications and skill shortages. From this point of view, skills requirements should also be 
more fully anticipated and the supply of training accordingly adapted, especially as industry 
often  complains  of  a  shortage  of  qualified  workers.  The  Commission  has  proposed  that  the 
Committee  on  Employment  of  the  Council  undertake  an  ambitious  experience-sharing 
exercise on this topic under the strategy for employment. In this context, a high level of public 
health can also contribute to a high quality and productive human capital. 

Through  its  vocational  training  initiative,  the  Commission  intends  better  to  anticipate  and 
identify skills shortages, in cooperation with the parties concerned (particularly the Member 
States, via the open coordination method) in order to provide more adequate responses. It will 
also ensure that the next generation of Community programmes in the field of education and 
vocational  training  will  be  better  able  to  meet  horizontal  needs  (e.g.  training  for  engineers) 
and  sectoral  needs  for  certain  types  of  qualification.  The  Commission  has  also  proposed  a 
single framework to ensure the transparency of qualifications and skills (Europass), to assist 
communication in the labour market43. 

The  Lisbon  Strategy  stresses  the  need  to  invest  more,  and  more  effectively,  in  training, 
education  and  life-long  learning  if  the  Union  is  to  achieve  its  goals  in  terms  of 

43 

COM(2003) 796. 

28 

 
 
  
 
                                                 
competitiveness44.  Levels  of  private  funding  for  continuing  vocational  training,  adult 
education and higher education are still totally inadequate. 

The  open  method  of  coordination  is  applied  to  these  questions.  It  is  supplemented  by  local 
programmes,  networks  and  exchanges  of  good  practices.  Those  countries  which  have 
revitalised  their  lifelong  learning  systems  are  those  with  the  best  record  in  productivity, 
research and innovation.  

It  is  also  the  most  competitive  countries  which have created links between industry and the 
academic world, creating networks between the actors, including the financial sector. Lifelong 
training structures can also help countries to reduce the impact of industrial change on their 
workforce. 

- ICT in the service of competitiveness  

The “eEurope 2005” action plan brings together initiatives in the development of services and 
networks in order to create a coordinated approach of Community policies in the field of ICT. 
This plan concentrates on areas in which public policies can provide added value. The main 
areas which influence industrial policy are: 

a) e-business, which aims to create an environment which stimulates the integration of ICT in 
all  aspects  of  production  and  business  processes.  Community  actions  in  this  domain  are 
designed  to  make  the  legal  and  non-legal  framework  favourable  to  the  use  of  e-commerce. 
Other  initiatives  will  help  SMEs  to  define  their  e-business  strategies,  with  a  view  to 
optimising  their  use  of  ICT,  help  them  select  the  most  suitable  technology,  adapt  their 
practices  and  implement  the  necessary  organisational  changes.  Close  attention  should  be 
reserved for SMEs in the manufacturing sector.  

b)  Broadband  communications:  Member  States  will  develop  national  strategies  which  will 
concentrate on both supply and demand, especially for advanced applications which open the 
door to new services and new markets; 

c) Improving the legal framework for the use of information technology. The interoperability 
of technological platforms will give end users, both individuals and companies, secure access 
to public and commercial services. The legal framework of e-commerce will be consolidated 
with the transposition of directives on electronic signatures, on-line trading and royalties, and 
the adoption of directives on public procurement, which introduces on-line purchases for the 
public sector. Moreover, the adoption of a domain name incorporating the letters "eu" could 
boost confidence in e-commerce in the European Union. 

- The contribution of competition policy to developing and spreading knowledge 

In terms of aids to research, the revision in 2005 of the framework for aids to research should 
allow a response to the changing reality of research activities. 

The  Commission  is  also  planning  to  adopt  a  Communication  on  state  aid  for  innovation  in 
2005. This revision aims to improve the possibilities for support for investment by SMEs in 
innovative projects, recruiting skilled staff, or the innovation services provided by incubators 
and other intermediate bodies. In addition, the Commission will, before the end of 2004, draw 

44 

Joint  Progress Report  of  the Council  and  the  Commission  ‘Education  and  Training 2010’  adopted  on 
February 26th 2004. 

29 

 
 
  
 
                                                 
up  a  ‘Vade-mecum’  or  user-guide.  This  document  will  condense  into  a  single  text  the 
possibilities  of  aids  to  innovation  as  well  as  the  approach  to  aids  to  incubators  and  other 
intermediate bodies. 

The treatment of aid for the development of venture capital will also be reviewed in 2005. In 
the meantime, the approval of small amounts of aid which do not have a significant effect on 
competition, including aid to innovation, will be made simpler and more flexible.  

A re-examination of the exemption Regulation for technology transfer has just been finalised. 
It aims to facilitate the dissemination of technology licences as far as possible, by focusing its 
efforts on agreements which could be anti-competitive. The review will attempt to achieve a 
fair  balance  between  the  exploitation  of  intellectual  property  rights  and  the  legitimate 
competition concerns that could consequently result. 

4.2.2. 

Improving the operation of the markets 

Competition within the single market is the best guarantee of competitiveness in the medium 
and long term. The creation of the internal market for both products and services continues to 
be  a  priority  with  a  view  to  optimising  the  interaction  between  industry  and  services.  As  a 
general rule, the Community harmonisation of existing national legislation or their effective 
mutual recognition contributes to improving the working of the internal market. 

- Improving the free movement of products and services 

There are five important initiatives at Community level. 

(1) 

(2) 

(3) 

(4) 

Industry  needs  high-quality  services  to  stay  competitive.  The  swift  adoption  of  the 
recent proposal for a directive on services will create a genuine internal market in this 
field.  By  encouraging  cross-border  economic  activity  and  stimulating  competition,  it 
will  broaden  choice,  improve  quality  and  reduce  prices  for  consumers  and  for 
businesses that use services.  

A more consistent application of the various directives arising from the New Approach 
will  allow  businesses  more  fully  to  exploit  the  flexibility  resulting  from  these 
instruments. 

Consideration  of  the  strategic  role  of  European  standardisation  in  supporting  the 
development  of  European  businesses  both  internally  and  in  the  EU’s  immediate 
neighbours, or even internationally, will improve the use made of this instrument.  

Creating an integrated market for capital and financial services is an essential element 
in a European strategy for competitiveness and notably to improve the competitiveness 
of  the  manufacturing  sector.  The  main  strategic  objective  of  the  Action  Plan  for 
Financial Services, launched in 1999, was to allow pan-European financial markets to 
fulfil  all  their  potential  and  therefore  to  reduce  the  capital  costs  of  investment. 
Finalising  this  plan  in  2005  remains  a  primary  objective  for  the  competitiveness  of 
Europe’s industry. 

(5) 

Implementing  the  Action  Plan  on  Company  Law  and  Corporate  Governance  will 
successfully conclude an integration and modernisation of company law and corporate 
governance that business, markets and the public demand. 

30 

 
 
  
 
- Promoting competitiveness through an efficient competition policy  

The  key  role  of  competition  policy  in  supporting  industrial  competitiveness  will  be 
strengthened by the entry into force on May 1st of the new regulation on anti-trust and on the 
control of concentrations. The new anti-trust framework will lighten the legislative burden by 
abolishing the system of notification system. This will allow companies to gain time in their 
strategic  decisions  as  they  will  no  longer  have  to  wait  Commission  approval  of  their 
agreements. It will also allow the Commission to concentrate the application of antitrust rules 
on  the  most  serious  and  most  damaging  competition  problems.  Taking  efficiency  gains 
resulting  from  concentration  more  explicitly  into  account  will  allow  the  Commission  to 
distinguish better between mergers that reduce competition and those that don’t45. 

Furthermore, the revision of the guidelines on rescue and restructuring aid aims to allow and 
speed  up  restructuring  whilst  minimising  the  distortions  of  competition  in  the  industrial 
sectors concerned to which this type of aid could lead. 

- Reconciling energy constraints with competitiveness  

Three  major  challenges  in  the  energy  sector  will  have  significant  effects  on  industrial 
competitiveness.  Firstly,  the  security  of  energy  supply  will  remain  crucial,  and  the 
Commission  will  continue  to  launch  initiatives  to  guarantee  this  security.  Furthermore,  the 
opening, between now and 1 July 2004, of electricity and gas markets to any commercial user 
will benefit industry as a whole, including SMEs. Finally, the rise in electricity prices could 
have  a  significant  impact  on  competitiveness.  The  EU  is  committed  to  meeting  its  Kyoto 
obligations in a cost-efficient manner to minimise the compliance costs. The Commission will 
look into this issue in order to ascertain the impact of environmental costs on energy prices. 
Other factors, such as the liberalisation of energy markets and fluctuations in the price of oil, 
will also be taken into account. 

- Abolishing certain fiscal barriers to completion of the internal market  

European  businesses  have  to  operate  in  a  single  economic  zone  where  all  the  different 
national corporate taxation systems apply. This causes a loss of economic efficiency, specific 
costs to comply with these regimes, and a loss of transparency. 

With a view to reducing the impact of tax formalities which apply to SMEs that have cross-
border activities within the European Union, the Commission is considering proposing a first 
measure,  on  an  experimental  and  optional  basis.  This  measure  will  consist  in  a  company 
taxation according to the rules of the state of residence rather than the different according to 
the different tax codes of the Member States in which the company carries out its operations. 
Member States participating in this pilot project will consequently have to commit themselves 
to mutual recognition of the various methods of calculating taxable profit.  

With  regard  to  a  consolidated  and  common  tax  base  for  companies  that  carry  out  their 
operations inside the European Union, the possibility of applying the treaty rules concerning 
enhanced co-operation could be envisaged, if it is clear that progress is not possible for all the 
EU Member States. 

45 

Council Regulation (EC) 139/2004, OJ L 24 of 29.1.2004, p. 1; Commission Communication, OJ C 31 
of 5.2.2004, p. 5. 

31 

 
 
  
 
                                                 
In addition, a simplification of VAT obligations is planned for 2004. It is expected to include 
a one-stop shop system. This system should be based on the experiences acquired in the case 
of the European one-stop shop for VAT owed by on-line traders in non-Member countries. It 
will considerably reduce the administrative burden associated with VAT, since it will allow 
businesses to deal with just one tax authority, in their own language, and to comply with just 
one set of obligations. 

Finally,  the  Commission  will  also  assess  ways  of  using  the  open  coordination  method  to 
encourage the dissemination of best practices with regard to the simplification of tax rules.  

4.2.3.  Using cohesion policies to promote industrial and structural change 

- Support for the process of industrial change and regional innovation systems 

Cohesion policy should not only support structural change but also adopt a forward-looking 
approach by encouraging regions to increase their competitiveness and develop their ability to 
innovate.  

The  Commission  recognised  these  objectives  in  its  third  report  on  economic  and  social 
cohesion for the 2007-2013 programming period, which placed great emphasis on innovation 
in companies, notably by encouraging tighter links between research institutes and industry. 
Promoting access to ITC and encouraging their use will be another priority. Improving access 
to  financing  and  to  knowledge  will  promote  entrepreneurship.  This  will  happen  via  the 
creation of new companies from universities (spin-offs), by improving the interface between 
industry and research centres, or by promoting the development of incubators. Through these 
elements,  cohesion  policy  can  best  use  the  potential  of  industrial  clusters  as  a  means  to 
improve the competitiveness of regions. 

Support to less developed regions – both in the new Member States and in the current ones – 
is  the  first  priority  of  cohesion  policy.  In  these  regions,  direct  support  to  industry  will  be 
accompanied  by  an  improvement  of  the  framework  conditions  in  which  these  companies 
operate,  as  well  as  the  extension  and  improvement  of  transport,  telecommunications  and 
energy infrastructures. The creation of an ‘adjustment fund’ has also been proposed. It would 
receive up to €1 billion a year, which would offer the possibility of accompanying economic 
restructuring  in  specific  regions  and  sectors  which  are  particularly  exposed  to  international 
competition or other asymmetric shocks. 

- Putting the European Employment Strategy at the service of competitiveness 

The  European  Employment  Strategy,  which  is  an  integral  part  of  the  Lisbon  Strategy, 
emphasises  the  priorities  directly  contributing  to  the  competitiveness  of  Europe’s  industry, 
such  as  the  development  of  human  capital  and  life-long  learning,  creating  jobs  and 
entrepreneurship and promoting the adaptability of workers and business to economic change. 
These  priorities  are  supported  by  the  European  Social  Fund,  which  contributes  to  the 
development  of  a  sustainably  competitive  knowledge  economy,  thanks  to  investment  in 
training,  education,  active  measures  for  the  labour  market,  and  activities  to  promote  social 
inclusion. 

- Developing trans-European networks and major European projects 

Investment  in  European  networks  is  of  paramount  importance  in  order  to  ensure  greater 
accessibility  and  reduce  congestion,  the  cost  of  which  could,  according  to  some  estimates, 

32 

 
 
  
 
represent  up  to  2%  of  the  Union’s  GDP.  Accessibility  is  cited  by  businesses  as  one  of  the 
most  crucial  criteria  in  their  siting  decisions.  Promoting  major  projects  in  relation  to  trans-
European networks is also a central element in the growth initiative launched last year, which 
includes, in particular, 8 important projects in the areas of R&D, innovation, and broad-band 
networks. 

The  challenge  for  these  projects  is  not  only  identifying  the  best  projects,  but  also  funding 
them46.  New  possibilities  must  be  explored,  such  as  charging,  public-private  finance  or 
European loans, although eventually these projects will have to be funded by their users. 

Several initiatives in this field are in progress or planned:  

–  The  implementation  of  the  trans-European  network  by  the  adoption  of  new 
guidelines  (Decision  1692/96/EC  is  being  revised),  proposed  new  rules  for 
financial aid in the period 2007-2013, and the possible creation of a management 
agency.  

–  Major technological projects are also creating markets for European industry and 
potential  exports  of  technology;  the  ‘priority  projects’  of  the  trans-European 
networks,  will  alone  generate  a  market  of  €30  billion  for  rolling  stock  and 
signalling  equipment  for  high-speed  trains.  From  this  point  of  view,  the 
liberalisation of rail services will also play an important stimulating role. 

–  Implementation  of  the  Galileo  project  through  the  granting  in  2004  of  a 
concession  for  its  deployment  and  operation;  and  the  introduction  in  2005  of  an 
initiative for an industrial programme to develop an integrated air control system 
and have it in place by 2015.  

–  The  reform  of  charging  for  infrastructure  use  by  heavy  vehicles  as  part  of  the 
ongoing  revision  of  the  “Eurovignette”  Directive,  which  will  allow  a  greater 
transparency in the use of the proceeds from this charging system for the benefit 
of the transport sector, which will benefit industry as a user. 

4.2.4.  Reconciling better sustainable development with competitiveness 

- Creating the conditions for sustainable production 

Sustainable production is a necessary condition for breaking the link between environmental 
degradation,  economic  growth  and  production.  The  idea  behind  it  is  “producing  more  with 
less”, in the economy as a whole, but also at sectoral level and inside individual businesses. 
More efficient production habits – both ecologically and economically – are required in order 
to  meet  this  challenge.  Sustainable  production  also  constitutes  a  market  for  suppliers  of 
equipment  and  technology  or  service  providers  in  a  field  where  certain  Community 
enterprises are among the world leaders. 

In 2004, the Commission will propose a political framework designed to promote sustainable 
production  at  enterprise  level.  Its  aim  will  be  to  create  the  conditions  in  which  the  largest 
possible  number  of  enterprises  find  an  economic  interest  in  improving  their  environmental 

46 

The trans-European transport network alone is expected to cost € 600 billion between now and 2020, 
€ 230 billion of which is to be earmarked for priority projects declared as being of European interest by 
the Council and the Parliament. 

33 

 
 
  
 
                                                 
performances and take account of these considerations in their management and development 
strategies. In particular, strengthening the partnership between local authorities and the private 
sector will be proposed, with a double aim: better integrating business in the preparation of 
environmental measures relating to production systems, and promoting business commitment 
in implementing such measures.  

- Promoting clean energies and technologies 

A new impetus is needed for developing clean technologies and new, renewable energies. The 
traditional approach in this field has focused on providing support through the joint financing 
of research projects. This approach demonstrates little interest in businesses’ real needs, since 
it  focuses  excessively  on  basic  research.  To  remedy  this,  there  is  a  need  for  additional 
instruments  which  promote  greater  cooperation  between  the  public  and  private  sectors  by 
creating joint management structures for specific, jointly defined projects. This approach was 
adopted  in  the  Ecotechnologies  Action  Pan  (ETAP)  and  was  implemented  most  notably  in 
supporting technology platforms (see above). There are many applications to be investigated, 
in  industrial  areas  in  which  Europe  has  an  expertise  or  can  rapidly  develop  such  expertise 
(wind  energy,  energy  efficient  technologies  or  alternative  fuels  such  as  hydrogen,  water 
purification and waste management, etc.).  

Furthermore, public procurement could play a very important role in the development of clean 
technologies by supporting new markets.  

- Encouraging social dialogue, including sectoral issues 

Social dialogue is a valuable instrument for consultations and negotiations between the social 
partners,  and  helps  create  a  better  balance  in  the  economic  and  social  pillars  of  sustainable 
development. The social partners are committed to discussing questions arising directly from 
the Lisbon Strategy.  

In 2002 they adopted a framework for life-long learning, and guidelines for anticipating and 
managing the changes which flow from corporate restructuring.  

In  addition,  inter-professional  social  dialogue  could  be  supplemented  by  social  dialogue  at 
sectoral level, which can contribute to job creation and to the process of industrial change. 

The European Monitoring Centre on Change (EMCC), which specialises in the exchange of 
practices,  information  and  ideas  on  anticipating  and  managing  change,  could  also  help  to 
monitor changes in the European economy. 

4.2.5.  Allowing European businesses to develop internationally 

- Facilitating access to markets outside the European Union 

A competitive European industry must have access to non-Member countries’ markets under 
the  same  conditions  as  its  competitors.  The  Union  must  therefore  continue  to  monitor  the 
opening up of those markets, in line with the agreements entered into by our trading partners, 
especially in the WTO framework.  

The Community is implementing a strategy for access to markets which is designed to reduce 
and  eliminate  barriers  to  European  exports  of  goods  and  services  to  third  countries.  Special 
vigilance is required regarding emerging countries whose success in European markets must 
be matched by their observance of rules to which they have agreed to abide. 

34 

 
 
  
 
As regards tariffs, although previous rounds of multilateral negotiations have made it possible 
to reduce substantially the obstacles to market access, they have nevertheless led to extremely 
disparate  tariff  structures,  with  considerable  differences  in  areas  such  as  peak  tariffs,  duty 
progressivity, the percentage of consolidations and the gap between consolidated and applied 
rates.  The  main  issue  in  the  multilateral  negotiations  on  market  access  for  products  is  to 
compress the current level of customs duties applied by WTO member countries as uniformly 
as possible, and to place a ceiling above peak tariffs.  

Improving  the  conditions  for  market  access  by  European  exporters  also  takes  the  form  of 
integrating new WTO member countries and, where appropriate, of concluding bilateral trade 
agreements (negotiations are continuing with the countries of the Gulf  Cooperation  Council 
(GCC) and Mercosur). 

The gradual reduction of tariff barriers, at least in developed countries, requires paying greater 
attention  to  non-tariff  barriers,  the  growing  number  of  which  could  cancel  out  the  tariff 
concessions. An increase in regulatory cooperation with some non-Member countries which 
are  important  markets  for  the  EU  (USA,  Latin  America,  China,  Japan,  Canada  …) 
complements the measures agreed on at multilateral level, and may offset the lack of bilateral 
commercial agreements.  

As  regards  reducing  these  barriers,  cooperation  between  European  standardisation  bodies 
(CEN/CENELEC/ETSI)  and  their  international  counterparts  (ISO/IEC/ITU)  is  resulting  in 
international  standards  likely  to  facilitate  access  to  various  markets,  provided  that  these 
standards are also applied by our trading partners. The Community should also express itself 
with  one  voice  in  international  organisations  governing  the  transport  sector  (IMO,  ICAO, 
OTIF) to guarantee a fair market for operators and vehicle and equipment manufacturers. The 
problem of a fair market is particularly sensitive for the shipbuilding industry. 

Similarly, in the negotiations for the Doha Development Agenda, the EU is asking for greater 
proportionality  between  the  burdens  that  are  imposed  and  the  legitimate  objectives  of  non-
tariff  barriers  (public  health,  environmental  protection,  fiscal  controls,  etc.).  The  customs 
facilitation  measures  (simplification  of  customs  formalities  and  controls  in  order  to  reduce 
disproportionate  administrative  charges  for  operators,  especially  SMEs)  are  also  helping  to 
open  up  markets.  The  use  of  modern  techniques,  especially  information  technology,  will 
facilitate  a  simplified,  paperless  environment  for  businesses,  customs  and  other  bodies 
involved  in  monitoring  international  trade.  Moreover,  the  development  of  certification  of 
businesses  and  hauliers,  coordinated  with  our  main  trading  partners,  will  help  to  lighten 
security checks on trade. 

Finally,  a  proper  protection  of  intellectual  property  rights  is  essential.  The  Community  is 
therefore attentive to intellectual property rights, both at international level, in the context of 
the  Agreement  on  Intellectual  Property  Rights  in  Trade  (TRIPs)  and  other  relevant 
international  agreements,  and  at  the  domestic  level,  with  respect  to  the  fight  against  piracy 
and counterfeit.  

-  Guaranteeing  compliance  with  international  trade  rules  (anti-dumping,  anti-subsidy 
and safeguard measures)  

In  addition  to  the  actions  referred  to  in  the  previous  section,  Community  trade  policy  is 
designed to prevent the building of new barriers to European exporters. This is ensured, for 
example, by careful monitoring of the use of trade defence instruments (anti-dumping, anti-

35 

 
 
  
 
subsidy and safeguard measures) by our trading partners, to ensure that all such measures are 
not implemented in an illegitimate fashion. 

In the other direction, the EU applies its own trade defence instruments so as to ensure that 
imports from non-member countries respect international rules. Although not having a direct 
effect  on  the  competitiveness  of  enterprises,  they  contribute  to  it  indirectly  via  a  leverage 
effect and by creating a stable and predictable investment climate. This positive effect will be 
extended to the new Member States following enlargement.  

- Extending single market rules and EU standards to neighbouring countries 

The Union must increase its efforts to export the internal market model and its disciplines to 
neighbouring countries, so as to ensure competition based on the same rules. This is already 
happening with the candidate countries (Romania, Bulgaria and Turkey) and for the western 
Balkan  countries  which  also  have  an  option  to  join  the  Union.  The  new  “Wider  Europe” 
policy47  proposes  to  Mediterranean  and  east  European  countries  a  rapprochement  of  their 
legislation particularly for industrial products. 

An action plan on the free movement of industrial products has already been adopted by the 
trade  ministers  of  the  EU  and  Mediterranean  countries.  It  is  based  on  the  adoption  of 
European  legislation  and  standards by the Mediterranean partners with a view to promoting 
trade between  the two  regions. One of the aims of  this  action  is  to  conclude  agreements  on 
conformity assessment and the acceptance of products, thus allowing free access of products 
to  the  respective  markets.  The  negotiation  of  similar  agreements  will  be  proposed  to  East 
European  countries  which  have  a  partnership  status  in  the  framework  of  the  European 
neighbourhood policy, such as Ukraine and Moldova. 

- Developing the international dimension of environmental policy 

The  Union  has  an  important  part  to  play  in  international  discussions  on  the  environment. 
International  commitments  can  add  costs  on  Community  businesses,  especially  if  the 
enterprises in our main competitor countries are not subject to the same commitments, or do 
not live up to them. This can be particularly worrying in the case of enterprises from countries 
which are experiencing rapid industrialisation (e.g. China, India, Brazil and Argentina), not to 
mention the reluctance of the USA to enter into similar commitments. The Commission will 
define  principles  which  will  ensure,  during  the  negotiation  of  multilateral  environmental 
agreements, a proper balance between the three pillars of sustainable development. This will 
allow taking into account fully considerations of competitiveness or the cost-benefit ratio in 
the  Commission’s  negotiating  mandate,  and  to  ensure  that  the  Union’s  international 
commitments are compatible with its internal legislation.  

* 

A detailed examination of Community Policies has identified many complementarities. Given 
these benefits, the Commission intends to study this information in greater detail in specific 
Communications  which  will  analyse  the  impact  of  various  Community  policies  on  the 
competitiveness of European industry and ways of improving that impact. 

47 

Communication  from  the  Commission  “Wider  Europe  –  Neighbourhood:  A  New  Framework  for 
Relations with our Eastern and Southern Neighbours“ COM(2003) 104 final of 11 March 2003. 

36 

 
 
  
 
                                                 
4.3. 

Application of industrial policy tailored to the needs of each sector 

The 2002 Communication on industrial policy stressed the need to take account of the specific 
features and characteristics of each sector in the implementation of horizontal measures. The 
framework  conditions  differ  to  some  extent  from  sector  to  sector  and  therefore  require 
suitably adapted responses.  

In some sectors, the regulatory environment is crucial, either for allowing innovation, as in the 
pharmaceutical  sector,  or  because  of  concerns  related  to  sustainable  development,  as  in  the 
automobile or chemical sectors. In sectors such as textiles or ship building, on the other hand, 
the  international  dimension  is  the  determining  factor,  whether  due  to  a  competition  -  not 
always fair – from emerging countries or because of difficulties in penetrating the protected 
markets of non-Member countries. Finally, in a sector such as defence, it is primarily the lack 
of  a  genuine  internal  market  which  constitutes  an  important  problem.  These  examples 
illustrate  the  diversity  of  manufacturing  sectors  and  the  need  to  reflect  this  diversity  by 
ensuring the best possible interaction between policies. 

The  Commission’s  development  of  sector-based  activities  does  not  indicate  a  return  to  the 
interventionist  policies  of  the  past,  but  is  based  on  adapting  measures  which  are  essentially 
horizontal in nature to the specific needs of a given sector, on the basis of the methodology 
described above. The action planned for the coming years should allow this to happen, with a 
view  to  identify,  to  anticipate  as  far  much  as  possible,  and  to  accompany  the  structural 
changes, in close co-operation with all the interested parties 

Continuing existing activities 

The  work  of  the  G10  Working  Party  has  led  to  several  recommendations  on  the 
competitiveness  of  the  pharmaceutical  sector:  defining  a  series  of  performance  indicators 
which  will  permit  comparisons  and  benchmarking,  improving  regulations  and  access  to 
innovative  medicinal  products,  promoting  innovation  and  strengthening  the  scientific  base. 
The  important  thing  here  is  to  strike  a  balance  between  health  concerns  and  the  need  to 
encourage innovation. Activities already under way in the pharmaceutical sector, based on the 
work of the G10 Working Party, will be continued. The Leadership 2015 Group has identified 
a number of priorities in the field of maritime industries: strengthening R&D and innovation, 
establishing a level playing field at world level, developing financial and guarantee schemes, 
ensuring  the  protection  of  intellectual  property  rights,  and  providing  access  to  a  skilled 
workforce. Implementation of these priorities will be subject to particularly close scrutiny. In 
both  cases,  this  will  mean  implementing  the  guidelines  proposed  by  the  Commission  and 
adopted by the Council on the basis of the recommendation of the High-Level groups. 

The Commission will also continue its work on the basis of the guidelines for its strategy on 
life sciences and biotechnologies. 

In the textile and clothing sector, the 2003 Communication clearly identified the key issues in 
the  sector:  innovation,  R&D,  training,  and  industrial  policy  cooperation  with  China.  The 
High-Level Sectoral Working Party set up by the Commission will analyse the challenges to 
Europe’s  competitiveness  and  draw  up  recommendations  for  European  and  national  policy 
makers on the essential issues facing the sector. The Commission will report on this process 
in July 2004. Finally, a European Forum has just been set up for the business services sector. 
It  will  analyse  in  depth  the  interaction  between  the  manufacturing  sector  and  business 
services, in order to identify the trends which are making these services a growing source of 
added value for manufacturing. 

37 

 
 
  
 
Future initiatives 

The  Commission  will  ensure  firstly  a  monitoring  of  the  competitive  situation  of  the  main 
industrial sectors and the evolution of the process of structural change. This should allow, in 
particular, detecting any sudden decline in the situation of a sector, in order to put in place a 
serious response. 

In  addition,  the  Commission  will  continue  to  examine  the  competitiveness  of  some  specific 
sectors each year, and will, if necessary, launch the necessary initiatives on this basis. In its 
choice  of  sectors  to  examine,  the  Commission  will  endeavour  to  reflect  the  diversity  of  the 
competitive  challenges  faced  by  the  different  sectors:  regulatory  factors,  the  international 
context,  the  importance  of  innovation  (both  technological  and  non-technological)  or  areas 
where the internal market has not yet been completed. 

For 2004 to 2005, for example, the following initiatives are planned: 

•  an  initiative  in  the  mechanical  engineering  sector,  which  plays  a  crucial  role  for  the 

economy as a whole as a supplier of capital goods to all branches of industry; 

•  an  analysis  of  the  eco-industries  sector  will  be  carried  out  with  a  view  to  taking  some 
eventual  measures;  it  will  cover  its  international  competitiveness,  of  its  growth  potential 
(including in the new Member States), as well as the obstacles to its development; 

•  In the automobile sector, the creation of a high-level group has already been announced. It 
will examine a number of key themes: innovation, training, safety, and the environment. A 
particular  focus  will  be  given  to  the  cumulative  impact  of  legislation  on  the  sector’s 
competitiveness. 

•  Finally,  the  Commission  will  study  the  non-ferrous  metals  sector,  which  is,  above  all, 

experiencing difficulties accessing recyclable materials, and the IT sector. 

5. 

CONCLUSION:  BOOSTING  THE  COMPETITIVENESS  OF  EUROPEAN 
INDUSTRY  

The European Union is facing a process of structural change which manifests itself at various 
levels: 

industry 

-  On  the  macro-economic  level.  The  ongoing  process  of  resource  reallocation  from 
manufacturing 
to  services  should  not  be  confused  with  a  process  of 
deindustrialisation.  This  process  does  not  in  any  way  imply  a  decline  in  manufacturing 
activity, but rather, reflects changes of a structural nature (changes in demand, organisational 
change, etc.). Seen in this context, the growth of labour productivity in industry is a condition 
for maintaining a strong industrial base in the European Union.  

-  In  the  manufacturing  sector.  International  competition,  whether  from  industrialised 
countries  (the  USA  or  Japan)  or  emerging  countries  (China  or  India)  makes  it  necessary  to 
pursue a shift towards sectors with a higher technological content. This is the only approach 
which will permit European industry to meet the challenges facing it. 

- Within individual sectors. Competition from emerging countries in labour-intensive sectors 
requires  enterprises  in  those  sectors  (textiles,  shoes  and  leather,  etc.)  to  constantly  innovate 
and  focus  on  activities  with  a  high  knowledge  input.  This  is  the  only  strategy  capable  of 

38 

 
 
  
 
limiting the risk of deindustrialisation in sectors which are particularly sensitive to this type of 
competition.  

These changes are necessary. It would be an illusion to pretend otherwise. Rigid adherence to 
existing  positions  can  only  have  the  effect,  over  the  longer  term,  of  making  the  inevitable 
adjustments more painful. It is therefore important to identify and to anticipate these changes, 
and to foster them when this is necessary.  

The various specific measures and initiatives proposed in the present Communication are all 
aimed at contributing to this process: 

–  Improvement  of  the  regulatory  framework  is  designed  to  limit  the  obligations  on 
enterprises  to  what  is  strictly  necessary  for  realisation  of  the  objectives  of  regulation. 
Regulation  must  preserve  a  balance  between  the  objectives  pursued  and  industrial 
competitiveness.  It  should  be  replaced  or  supplemented  by  non-regulatory  approaches 
wherever  appropriate.  At  the  same  time,  the  rules  must  be  sufficiently  clear,  stable  and 
predictable to guarantee legal certainty, which is indispensable and an integral part of an 
environment which is hospitable to business; 

–  Better  exploitation  of  synergies  between  Community  policies  will  make  it  possible  to 
improve their impact on industry’s competitiveness, especially from the dual perspective of 
developing  a  knowledge-based  economy  and  strengthening  the  cohesion  of  an  enlarged 
Union. These two objectives are inseparable: only the strengthening of the cohesion of the 
Union can ensure that the crucial transition to a knowledge-based economy is not limited 
to enterprises in the most advanced regions or sectors; 

–  Lastly,  the  search  for  the  best  combination  of  policies  at  sectoral  level  will  make  it 
possible to verify whether the European Union’s industrial policy toolbox is achieving its 
objectives  in  terms  of  strengthening  its  industrial  competitiveness.  Where  necessary  this 
will lead to proposals for improvements  

The  European  Union  is  on  the  eve  of  the  most  ambitious  enlargement  in  its  history.  Given 
their past, and despite the considerable progress which they have made over the last decade, 
the  new  Member  States  will  face  greater  challenges  than  the  existing  ones  in  successfully 
managing the process of structural change. The priorities which have been set out, which are 
designed  to  act  on  the  various  levels  which  determine  industrial  competitiveness,  are 
particularly important for the new Member States: regulatory restraint will make it possible to 
maintain their, still fragile, competitiveness. The emphasis on cohesion and the dissemination 
of  knowledge  will  enable  them  to  build  sustainable  comparative  advantages,  which  will 
outlive 
to 
competitiveness will facilitate a targeted response to the problems of industrial change which 
are  particularly  acute  for  these  countries.  In  this  way,  the  challenges  which  enlargement  is 
setting the Union’s industrial policy can be successfully met, and the opportunities which it 
offers exploited to the full. 

labour  costs.  The  sectoral  approach 

temporary  advantages  of 

low 

the 

An  industrial  policy  adapted  in  this  way  will  help  to  put  industry  in  the  enlarged  Union, 
including that in new Member States, in a position to make a crucial contribution to achieving 
the objectives set by the European Council in Lisbon.  

39 

 
 
  
 
ANNEX  

Statistical elements 

Table 1: Deindustrialisation: the fall in the proportion of employment in industry – 
1955-1998 

Peak year 

% in  
industry at 
peak 

% in 
industry in 
1988 

Percentage 
fall: peak 
year to 1998 

United 
Kingdom 
Belgium 
Sweden 
Netherlands 
FRG 
Denmark 
Italy 
France 
Austria 
Ireland 
Finland 
Spain 
Greece 
Portugal 
United States 
Japan 

47.9 
47.0 
42.8 
41.1 
49.3 
37.8 
39.7 
39.5 
42.8 
32.6 
36.1 
38.4 
30.2 
37.5 
36.0 
37.2 
Source : Feinstein C., Structural Changes in the developed countries during the XX century. Oxford 
Review of Economic Policy, vol 15, n°4. 1999. OECD data.  

1955 
1957 
1965 
1965 
1970 
1970 
1971 
1973 
1973 
1974 
1975 
1975 
1980 
1982 
1966 
1973 

26.6 
26.1 
25.7 
22.2 
35.0 
26.8 
31.9 
25.2 
30.4 
28.3 
27.7 
30.4 
22.9 
36.4 
23.6 
32.0 

44.5 
44.5 
40.0 
46.0 
29.0 
29.1 
19.6 
36.2 
29.0 
13.2 
23.3 
20.8 
24.2 
2.9 
34.4 
14.0 

Table 2: Annual labour productivity growth, EU-15 and US 
% 

United States 

Total Economy 

Agriculture, Forestry and Fishing 
Mining and quarrying 
Manufacturing 
Electricity, gas and water supply 
Construction 
Distributive trades 
Transport 
Communications 
Financial Services 
Business Services 
Other community, Social and 
Personal Services 
Public Administration, Education and 
Health 

1979-90 
2,2 
5,2 
2,9 
3,4 
2,7 
1,6 
1,3 
2,8 
5,2 
2,2 
0,7 

EU-15 
1990-95 
2,3 
4,8 
13,1 
3,5 
3,6 
0,8 
1,9 
3,8 
6,2 
1 
0,7 

1995-01 
1,7 
3,3 
3,5 
2,3 
5,7 
0,7 
1 
2,3 
8,9 
2,8 
0,3 

1979-90 
1,4 
6,4 
4,4 
3,4 
1,1 
-0,8 
1,8 
3,9 
1,4 
-0,7 
0,1 

1990-95 
1,1 
1,7 
5,1 
3,6 
1,8 
0,4 
1,5 
2,2 
2,4 
1,7 
0 

1995-01 
2,3 
9,1 
-0,2 
3,8 
0,1 
-0,3 
5,1 
2,6 
6,9 
5,2 

-0,3 

0,6 

0,4 

1,1 

0,3 

0,8 

1,2 

-0,4 

0,9 

-0,8 

-0,4 

-0,6 

Source : M. O’Mahony, B. Van Ark (2003). *Labour productivity in hours worked. . 

40 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 3: Sectoral performance indicators 1979-2001 
Value added, employment and  
labour productivity growth 

(Compound annual growth in 
percent 1979-2001) 

Share of 
manufacturing 
(in percent of 
value added, 1995 
prices) 

EU15 trade 
balance 

( EUR billion) 

Employment

1979 

2001 

1989 

2001 

Value added 
(1995 
prices) 
8.5 
7.3 
7.4 
3.9 
3.4 
2.5 
0.7 

Labour 
Product-
ivity* 
8.6 
8.6 
8.0 
6.3 
4.7 
4.4 
3.7 

3.2 

2.4 

2.5 

-0.7 

1.0 
1.6 
1.2 
0.6 
7.5 
0.5 
2.6 

0.2 
0.4 
0.3 
0.3 
4.7 
0.4 
2.9 

-0.1 
-1.2 
-0.6 
-2.3 
-1.3 
-1.8 
-3.1 

na 
na 
- 16.3 
- 11.9 
14.0 
na 
- 5.1 

Electronic valves and tubes 
Telecommunication equipment 
Office machinery 
Radio and television receivers 
Chemicals 
Other instruments 
Basic metals 
Other electrical machinery and 
aparatus nec 
Pulp, paper & paper products 
Aircraft and spacecraft 
Scientific instruments 
Non-metallic mineral products 
Motor vehicles 
Wood & products of wood and cork 
Insulated wire 
Rubber & plastics 
Food, drink & tobacco 
Printing & publishing 
Mechanical engineering 
Fabricated metal products 
Furniture, miscellaneous 
manufacturing; recycling 
* in hours worked.  
Source : M. O'Mahony and B. van Ark (2003) ; Eurostat. Quoted in COM(2003) 704 final, 21.11.2003.  

0.8 
na 
- 1.6 
5.4 
16.7 
- 4.4 
na 
2.5 
2.3 
1.7 
na 
5.4 

-1.0 
-0.6 
-0.2 
-1.3 
-0.7 
-1.0 
-1.0 
0.6 
-0.6 
-0.1 
-1.1 
-0.8 

2.0 
2.1 
2.4 
1.1 
1.6 
1.1 
1.1 
2.4 
1.1 
1.6 
0.6 
0.8 

3.0 
2.7 
2.6 
2.3 
2.3 
2.1 
2.1 
1.8 
1.7 
1.7 
1.7 
1.6 

1.8 
0.9 
1.1 
3.6 
4.5 
1.7 
0.3 
2.7 
7.1 
3.7 
7.7 
6.7 

2.1 
1.1 
1.4 
3.4 
4.8 
1.6 
0.3 
3.5 
6.9 
4.0 
6.7 
6.1 

-0.7 

0.4 

1.1 

2.7 

3.5 

3.2 

3.2 

2.0 

na 
na 
- 33.5 
- 17.7 
53.5 
na 
- 15.6 

4.6 

5.3 
na 
0.8 
7.6 
43.3 
- 4.8 
na 
4.4 
7.0 
3.1 
na 
6.9 

- 6.2 

Table 4: Sectoral performance indicators 1979-2001. 
Value added, employment and 
labour productivity growth 
(Compound annual growth in 
percent 1979-2001) 

Share of 
manufacturing 
(in percent of 
value added, 1995 
prices) 

EU15 trade 
balance 
( EUR billion) 

Value 
added (1995 
prices) 

Employ-
ment 

Labour 
Product-
ivity * 

1979 

2001 

1989 

2001 

Clothing 
Shipbuilding 
Textiles 
Leather and footwear 
Mineral oil refining, coke & 
nuclear fuel 
* in  hours worked. 
Source : M. O'Mahony et B. van Ark (2003) ; Eurostat. Quoted in COM(2003) 704 final, 21.11.2003.  

-3,4 
-3,4 
-3,2 
-3,3 

-9,1 
Na 
-0,2 
0,9 

-0,2 
-0,2 
-0,8 
-1,1 

1,6 
1,6 
2,3 
0,9 

2,2 
2,2 
3,7 
1,4 

3,2 
3,2 
2,3 
2,2 

-1,7 

-3,6 

-7,5 

0,9 

2,8 

-2 

-29,1 
na 
-0,8 
-3 

-6,7 

41 

 
 
  
 
 
 
 
 
 
 
 
 
 
  
Figure 5: Employment and added value at constant prices 
- EU manufacturing sector 

160,0

VA at constant prices 1995. 
100 = 1995

Jobs in billions

45.000

140,0

120,0

100,0

80,0

60,0

40,0

20,0

0,0

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

40.000

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0

VA at constant prices

Jobs

Source : M. O’Mahony, B. Van Ark (2003). 

Figure 6: Annual labour productivity growth* in the manufacturing sector – 1996-2000 

ES
IT
PT
NL
UK
F
DK
SE
BE
EL
D
AT
FI
IE

UE
USA
Japon

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

* By employed person 

Source: Competitiveness Report 2001. 

42 

 
 
  
 
 
 
 
 
 
Table 7: Annual labour productivity growth* according to classification 

TOTAL ECONOMIY 

Classification TIC 
ICT Producing Industries 
Producing Manufacturing 
Producing Services 
ICT Using Industries 
Using Manufacturing 
Using Services 
Non-ICT Industries 
Non-ICT Manufacturing 
Non-ICT Services 
Non-ICT Other 
Skill classification 
High skilled (HS): 
High-intermediate skilled 
(HIS): 
Low-intermediate skilled (LIS): 
Low skilled (LS): 

1979-1990 
US 
1,3 

EU 
2,2 

7,2 
12,5 
4,4 
2,2 
2,4 
2,1 
1,8 
3 
0,6 
3,4 

1,8 

2,2 
1,9 
2,5 

8,7 
16,6 
2,4 
1,2 
0,5 
1,4 
0,5 
2,1 
-0,2 
2 

1,5 

-0,4 
1,3 
1,4 

1990-1995 

US 
1,1 

8,1 
16,1 
2,4 
1,2 
-0,6 
1,6 
0,3 
2,7 
-0,5 
1,2 

1,5 

-0,6 
1,2 
1,8 

EU 
2,3 

5,9 
8,4 
4,8 
2 
2,4 
1,8 
2,1 
3,6 
1,2 
3,2 

1,7 

2,3 
2 
2,7 

1995-2001 
US 
2,2 

EU 
1,7 

7,5 
11,9 
5,9 
1,9 
1,8 
1,8 
1 
1,6 
0,5 
2,1 

1,6 

2,7 
1,3 
1,1 

10 
23,7 
1,8 
4,7 
0,4 
5,3 
-0,2 
0,3 
-0,3 
0,7 

2,5 

1 
3 
0,6 

* in hours worked 
Source : M. O’Mahony, B. Van Ark (2003). See Chapiter 2 for the  classifications used.  

Figure 8a: Expenditure on ICTs as a percentage of GDP 

EE

SE

SK

CZ

UK

LV

NL

BG

DK

FI

US

HU

FR

DE

JP

EU-15

PL

AT

BE/LU

LT

SI

RO

PT

IT

IE

ES

EL

TR

0

1

2

3

%

2001

2002

4

5

6

Source : Enterprise Scoreboard. SEC(2003) 1278, 4.11.2003. 

43 

 
 
  
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diagram 8b: Comparison of certain performance indicators for the EU and Japan

Japan = 100

USPTO high technology patents

USPTO patents

R&D expenditure of business (% GDP)

Internet usage

Pop. having undertaken further educatoin

High technology EPO patents

AV of high technology manufacturing industry

Expenditure on ICT (% GDP)

Public expenditure on R&D (% GDP)

EPO patents

Increase 
in gap

Decrease in 
gap

Source: Innovation scoreboard 2003. Technical Paper No 2. Analysis of National Performances. 2003, Trend: 1997-2001

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 100,

0

Table 9: Cost competitiveness 
Unit labour costs in the E|U (industrial sectors, US = 100). 

Non-metallic mineral products 
Scientific instruments 
Printing & publishing 
Leather 
Machinery 
Pulp and paper products 
Fabricated metal 
Rubber & plastics 
Other electrical machinery 
Wood products 
Food, drink & tobacco 
Textiles 
Insulated wire 
Furniture, miscellaneous manufacturing 
Basic metals 
Radio and television receivers 
Ships and boats 
Chemicals 
Computers 
Aircraft and spacecraft 
Railroad and other transport 
Wearing apparel 
Semiconductors 
Other instruments 
Telecommunication equipment 
Motor vehicles 
Total manufacturing 
Source : M. O'Mahony et B. van Ark (2003)  

1979-81 
60,5 
81,5 
140,7 
82,3 
123,1 
109,4 
64,2 
55,1 
113,1 
116,5 
116,8 
82,7 
73,2 
80,9 
108 
189,5 
117,1 
162,7 
82,5 
165,4 
95,8 
128,8 
167,8 
135 
184,3 
220,1 
92,5 

1994-96 
70,9 
90 
93,4 
98,6 
110,3 
99,5 
89,9 
79,3 
129,8 
116,3 
124,5 
106,2 
94,7 
101 
98,2 
129 
119,1 
144,5 
138,2 
137,2 
130 
151,4 
245,8 
144,1 
211,9 
203,5 
113,1 

1999-01 
53,4 
64,6 
65,2 
68,2 
69,3 
70,2 
72 
72,4 
74,4 
77,6 
78,9 
79,4 
81 
82,2 
83,2 
88,6 
90,1 
93,5 
105,4 
117,2 
123,2 
124,6 
132,1 
135,7 
142,1 
181,1 
94,4 

44 

 
 
  
 
  
 
 
 
  
Figure 10: Balance of trade – EU/China. 2002. Main headings 

Machinery - electrical 
equipment (ch. 84-85)

Textiles(ch. 50-63)

Leather articles  (ch. 41-43)

Shoes  (ch. 64-67)

Optical equipment
(ch. 90-92)

Metal products
(ch. 72-83)
Rubber-plastic
(ch. 39-40)
Wood-wooden articles
 (ch 44-46)

Bn euros

Vehicles, aeronautics (ch 86-89)

-14000

-12000

-10000

-8000

-6000

-4000

-2000

0

2000

4000

Source : Eurostat, Comext 

45