Opinion of the European Economic and Social Committee on the scope and effects of company relocations
Date: 2005-07-14
Institutions: European Economic and Social Committee
Subjects: common commercial policy, competitiveness, economic consequence, industrial policy, industrial restructuring, new economic order, offshoring

25.11.2005

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Official Journal of the European Union

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Opinion of the European Economic and Social Committee on the scope and effects of company
relocations

(2005/C 294/09)

On 29 January 2004 the European Economic and Social Committee, acting under Rule 29(2) of its Rules
of Procedure, decided to draw up an opinion on ‘The scope and effects of company relocations’.

The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's
work on the subject, adopted its opinion on 13 June 2005. The rapporteur was Mr Rodríguez García Caro
and the co-rapporteur was Mr Nusser.

At its 419th plenary session of 13 and 14 July 2005 (meeting of 14 July), the European Economic and
Social Committee adopted the following opinion by 128 votes to 15, with six abstentions.

1. Introduction

1.1 We live in a world of growing globalisation (a process
accelerating the breakdown of frontiers), internationalisation of
trade and extremely rapid technological development (1). The
increase in institutional investment (2) and trans-frontier cross-
investment, the relocation of tasks, rapid changes in ownership
and greater use of information and communication technolo-
gies mean that geographical
identities are becoming blurred
and competitiveness is taking on a global dimension. Thus
competitiveness is the overall objective of the economic dimen-
sion which, in interaction with the social, environmental, poli-
tical and institutional dimensions, shapes the process of sustain-
able development.

1.2
The European Union today appears as a major nucleus
of integration against a backdrop of globalisation, with a single
market, economic and monetary union and real progress in the
field of the common foreign and security policy and in the area
of justice and home affairs.

A society needs to be competitive as a whole. Competi-
1.3
tiveness should be understood as the capacity of a society
continually to anticipate, adapt to and influence its economic
environment (3). In its Communication of 11 December 2002,

(1) The French magazine ‘Problèmes économiques’ published a special
issue in September 2004 (no. 2859) devoted entirely to the issue of
relocations. It includes an article that states that the term ‘globalisa-
tion’
is an Anglicism used to evoke the phenomenon known as
‘mondialisation’ in French. It is described as the transition from an
international economy,
in which politically autonomous nations
organise their national economic space and maintain economic
exchanges of higher or
towards a global
economy which goes beyond national regulations.

importance,

lower

(2) The term ‘institutional investment’ refers to investments made by
entities with a high volume of funds or reserves. For example, this
type of investment can be made by investment funds, banks, insur-
ance companies or pension funds.

(3) See EESC Opinion of 19.3.1997 on Employment, Competitiveness
and Economic Globalisation (OJ C 158 of 26.5.1997); rapporteur:
Ms Konitzer (Group II – Germany).

Industrial Policy in an Enlarged Europe (4),
the European
Commission defines competitiveness as
the
economy to provide its population with high and rising standards of
living and high rates of employment on a sustainable basis’. More-
over the importance of overall competitiveness is underlined by
the European competitiveness reports regularly published by
the European Commission since 1994 (5).

‘the ability of

For companies competitiveness means being able to
1.4
meet customers' needs in a sustainable way, more efficiently
than its competitors, providing goods and services which are
more attractive in terms of price and other factors (6)‘Organisa-
tional competitiveness’ can be defined as the extent to which
an organisation is capable of producing high-quality goods and
services which achieve success and acceptance on the world
market (7). Organisations must comply with the ‘three E's’: effi-
ciency, efficacy and effectiveness. Efficiency in the management
of resources, efficacy in achieving objectives and effectiveness
in influencing the environment.

Human resources are fundamental to companies' ability
1.5
to compete.
training and
promotion opportunities, and contributions within a context of
social dialogue are important.

their motivation,

In this respect,

1.6
Today companies face a constantly changing environ-
ment. Increasingly open markets, highly developed infrastruc-
tures and means of communication and transport, technologies
and technological applications undergoing constant innovation
and ever
intensifying competition provide the framework
within which companies have to develop their day-to-day activ-
ities.

1.7
In the specific case of the European Union, 1 May 2004
was a landmark in its history, with the accession of ten new
Member States. As stated in the Committee's Opinion on

(4) COM(2002) 714 final. See EESC Opinion of 17.7.2003 on the

subject (Mr Simpson, OJ C 234 of 30.9.2003).
the

in particular,

(5) See,

seventh edition, published in 2003

(SEC(2003) 1299), and the eighth edition published in 2004.

(6) See EESC Opinion cited in footnote on page 2.
(7) John M. Ivancevich, Management: Quality and Competitiveness (1996).

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the EU in the global market, provided that

enlargement, (8)‘[t]he enlarged single market will bring many
economic advantages and will strengthen the competitiveness
of
the Union
manages to exploit its existing potential rather than allowing it
to go unused.’ However, it has to be borne in mind that the
economic structures of these countries have not yet reached
the standards in the EU 15. According to the European compe-
titiveness report 2003, the CEEC-10 (9) have an advantage in
labour-, resource- and energy-intensive industries compared to
the EU-15 whereas
they have comparative disadvantages,
primarily in capital- and technology-intensive industries. This
pattern leads
the CEEC-10
to competitive advantages of
regarding (upstream) primary and (downstream) consumption
goods whereas they have disadvantages regarding intermediate
and capital goods.

1.8
An internal market of almost 455 million people, where
companies can operate within one common framework,
capable of ensuring stable macroeconomic conditions in an
area of peace, stability and security, is the main advantage of
the enlargement that took place on 1 May 2004. Although,
after enlargement, the population of the EU increased by 20 %
and GDP by 5 %, hourly labour costs and labour productivity
on average become lower in the EU-25 as a whole.

1.9
However, enlargement of the Union should not be seen
as a threat, per se, for the ‘old’ Member States of the EU.
Previous enlargements of the Union show how GDP and living
standards improve in countries joining the EU. An example of
in Ireland (10), Spain (11) and
this
Portugal (12) since their accession. Furthermore, it must not be
overlooked that since 1 May 2004, the future of the EU has
become part and parcel of the future of its 25 Member States.

the increased GDPs

is

1.10
In addition, enlargement provides an opportunity for
European business to benefit from the advantages offered by
new EU partners — not only in terms of cost or training, but
also in terms of a geographical proximity and cultural and
linguistic similarity far greater
than that offered by other
possible locations.

1.11
The phenomenon of relocation represents a dual chal-
lenge for European society: firstly, relocation to other Member
States, in search of better conditions; secondly, the relocation

(8) See EESC Opinion of 12 December 2002 on Enlargement (OJ C 85

of 8.4.2003); rapporteur: Ms Belabed (Group II – Austria).

(9) This abbreviation refers to the following Central and Eastern Euro-
pean Countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Slovakia and Slovenia, plus Bulgaria and Romania.

(10) GDP increased from 63.3 % of the EU-15 average in 1970 to
123.4 % of the average in 2004. Source: Statistical Annex of the
European Economy – Spring 2005 (ECFIN/REP/50886/2005).
(11) GDP increased from 71.9 % of the EU-15 average in 1986 to
the European

89.7 % in 2004. Source: Statistical Annex of
Economy – Spring 2005 (ECFIN/REP/50886/2005).

(12) GDP increased from 55.8 % of the EU-15 average in 1986 to
the European

67.4 % in 2004. Source: Statistical Annex of
Economy – Spring 2005 (ECFIN/REP/50886/2005).

to non-EU states, such as Southeast Asian countries (13) or
countries with emerging economies (14), particularly China. This
second case is partly driven by favourable production condi-
tions but mainly by the chances offered by entering very large
new markets with enormous growth potentials.

The relocation phenomenon, apart

from being the
1.12
direct cause of job losses, could also bring other, associated
problems, such as an increase in social security costs for
governments,
increased social exclusion, and less economic
growth overall, partly as a result of a general demand shortfall.
Moreover it should be mentioned that relocation of industrial
production can, at best, help to promote social rights in coun-
tries receiving investment and necessarily involves the regular
transfer of know-how; consequently relocation can make a
the comparative
considerable contribution to levelling out
advantages described in 1.7 above and to further increasing the
competitiveness of the relocated businesses.

Despite the effects mentioned above,

1.13
the European
Commission acknowledged, in its Communication on Restruc-
turing and Employment of 31 March 2005 (15), that restructuring
must not be synonymous with social decline and a loss of
this Communication also
economic substance. Furthermore,
states that restructuring operations are often essential to the
survival and development of enterprises, although it is neces-
sary to accompany these changes in such a way as to ensure
that their effects on employment and working conditions are as
short-lived and limited as possible.

Today,

investing in other countries is no longer an
1.14
issue that affects large companies only: SMEs, particularly those
with high technological added value, are already setting up
business in other countries or outsourcing part of their busi-
ness.

1.15
On the one hand, the creation of the most advanced
technological processes in high-cost countries is one of the
factors limiting company relocations, generating new areas of
activity and adding to the skills and know-how of companies'
workers. On the other hand,
the countries with emerging
economies and Southeast Asian countries have markets with
major potential, where tax regimes and the energy prices
offered are often more favourable than in the EU; in addition,
labour costs are much lower, in part due to lower development
of social rights, which are in some cases non-existent
in
comparison to the fundamental standards of the International
Labour Organisation (ILO), and a lower cost of living. This
enables companies located there to compete globally on the
basis of lower costs. At the same time, these countries favour

(13) Brunei Darussalam, Burma/Myanmar, Cambodia, Indonesia, Laos,
Malaysia, Philippines, Singapore, Thailand, Vietnam, East Timor
(source: European Commission).

(14) This term refers to any economy with low-to-middle per capita
income and characteristically undergoing the transition from a
closed economy to a market economy, which involves the imple-
mentation of a series of structural, economic reforms, and receiving
a high volume of foreign investment [Antoine W. van Agtmael;
World Bank, 1981]. Emerging economies include China,
India,
Brazil and Mexico.
(15) COM(2005) 120 final.

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foreign investment, sometimes with the help of economic free
zones where labour laws and social conditions are weaker than
in other parts of the country, because they realise that it will
provide major income for their economies. For this reason,
more and more companies are coming to see the benefits of
relocating the lower added-value part of their businesses to
these areas, usually creating poor quality, low-wage jobs in the
process.

In the light of

the economic takeoff of emerging
1.16
it is revealing to
economies and Southeast Asian countries,
note that foreign direct investment (FDI) is indeed increasing in
these regions, as are the EU's trade flows with them. Conse-
quently, even though the figures
show that Europe has
managed to maintain an important share of inward FDI, the
global flow has been reoriented and is increasingly directed
towards Asia.

b) relative deindustrialisation: This is the decline in the share
of industry in the economy, reflecting a process of struc-
tural change in the relationship between the industrial
performance and the service sector. (17)

In addition to internal and external relocations, it is also worth
mentioning another phenomenon which has been highlighted
by recent events at some production sites: reverse relocation.
This occurs when an employer urges employees to accept a
lower standard of working conditions or face the risk of being
relocated. This phenomenon is particularly harmful as it can
encourage competition between workers, and can have a snow-
ball effect

Thus, recent data confirms the new course being taken
1.17
by the European Union's external
trade, although the USA
continues, by a wide margin, to be its main trading partner.
However, this country's importance is tending to diminish in
favour of countries like China (16).

2. Causes and implications

1.18
the concepts of delocalisation and deindustrialisation:

At this point it would be worthwhile to try and define

— Delocalisation occurs when a business activity is totally or
partially ceased, to be reopened abroad by means of direct
investment.
In the European Union we can distinguish
between two types of relocation:

a) internal: Total or partial transfer of business activity to

another Member State;

b) external: Total or partial transfer of business activity to

non-EU countries.

— Deindustrialisation: Within this concept a distinction should

be made between:

a) absolute de-industralisation: This

implies a decline in
employment, production, profitability and capital stock
in industry, as well as a decline in exports of industrial
goods and the emergence of persistent trade deficits in
this sector;

(16) With regard to the EU's external trade flows, data published by
Eurostat on 22 February 2005 for January-November 2004 show a
clear increase in imports from China (21 %), Russia, Turkey and
South Korea (18 % each), while the only decrease was seen in
imports from the USA (–1 %). In the section on EU exports, the
most significant increases were for exports to Turkey (30 %), Russia
(22 %), China (17 %) and Taiwan (16 %). During the period in ques-
tion, EU-25 trade showed an increase in the trade deficit with
China, Russia and Norway, while there was an increase in the trade
surplus with the USA, Switzerland and Turkey.

in principle,

In order to tackle the negative effects of relocation, it is
2.1
clear
that economic and social measures are required to
promote the creation of wealth, well-being and employment. In
this context, particular attention should be paid to small and
medium-sized enterprises, given the importance of their contri-
bution to employment in the EU, and to companies in the
social economy — small, medium-sized and large — owing to
their continuing tendency to create jobs, and jobs moreover
that their statutes make,
less easy to relocate.
Therefore, the Committee supports the European Commission's
proposal to establish a Competitiveness and Innovation Frame-
work Programme (CIP) (18), in which it proposes the creation of
three sub-programmes aimed at providing a common frame-
work to boost productivity, innovation capacity and sustainable
growth. The first of these sub-programmes, entitled the Entre-
preneurship and Innovation Programme,
intended to
support, improve, encourage and promote, inter alia, access to
finance for the start-up and growth of SMEs, and sector-specific
innovation, clusters and action in relation to entrepreneurship
and the fostering of a favourable environment for cooperation
between SMEs. It is vital to the creation of regional clusters that
multinationals decide not to relocate and encourage the activity
of SMEs in their local area.

is

(17) Cf.

in this respect,

the study ‘The Significance of Competitive
the Service

Manufacturing Industries for
Sector’, Bremen, December 2003.
The key messages of this study are the following:
— a reduced share of the manufacturing in GDP does not equal

the Development of

reduced importance;

— the linkages between the manufacturing and the service sectors

are increasing;

— dynamically growing, enterprise-related services depend particu-

larly strongly on industry's demand;

industry is an important
process innovations in the service sector.

technology provider for product and

(18) COM(2005) 121 final 6 April 2005: Proposal for a Decision of the
European Parliament and of the Council establishing a Competitive-
ness and Innovation Framework Programme (2007-2013).

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2.2
Furthermore, the indirect effects that the risk of reloca-
tion can have on salaries and working conditions must be
considered. The social partners, through collective bargaining
and optimised creation and use of European works councils
wherever the law provides for them, should minimise these
risks and safeguard the future of the enterprise and working
conditions of a high standard.

others by relocation (22). A company's position on relocation
also depends on its degree of independence in terms of corpo-
rate and technological structure. The weakest group will be
branches of foreign-based multinationals and companies which
do not own the technology for their products or processes.

2.3
Historically,
the EU–15 has been characterised by
income, employment and
regional disparities
in levels of
productivity, which reflect the differences in the level of indebt-
edness, in the tax benefits and in the attitude towards innova-
tion. After the enlargement of 1 May 2004 this regional diver-
sity has increased considerably (19).

2.7
Europe's insufficient output in terms of research and
innovation is worrying since relocations do not seem any
longer to be restricted to labour-intensive sectors. Relocations
are now increasingly observable in intermediate sectors and
even in certain high technology sectors where there are tenden-
cies to relocate activities such as research and services, China
and India being the biggest beneficiaries of these developments/
transfers.

2.4
At regional level, the consequences of company reloca-
tion can be dramatic especially if the region specialises in a par-
ticular sector of activity. This is why a massive relocation of
companies in a particular sector can have a strong impact in
terms of falling employment rates, a noticeable fall in demand,
reduced economic growth and a major social exclusion among
others, with all the negative consequences that this implies. In
order to avoid this, the European Commission,
in its Third
Cohesion Report (20), highlights the importance of focusing its
efforts on cohesion to improve economic efficiency and the
competitiveness of
the European economy, which implies
mobilising all its resources and regions (21).

It is essential that efforts be made to retrain the work-
2.5
force, boost
in innovation and research, and
develop incentives to promote the entrepreneurial spirit in the
European Union.

investment

2.6
According to data from the European Monitoring Centre
on Change (Dublin), some sectors will be affected more than

(19) According to Eurostat data of 7 April 2005, the per capita GDP of
the European Union (EU-25) in 2002 was between the 32 % of the
EU-25 average found in the region of Lubelskie, in Poland and the
315 % in the Central London region in the United Kingdom.
Among the 37 regions with a per capita GDP greater than the
European average of 125 %, 7 were situated in the United Kingdom
and Italy, 6 in Germany, 4 in the Netherlands, 3 in Austria, 2 in
Belgium and Finland and finally 1 in the Czech Republic, Spain,
France, Ireland, Sweden and Luxembourg. Among the new Member
States, the only region to exceed 125 % was Prague in the Czech
Republic (153 %). Conversely, among the 64 regions with a per
capita GDP lower than the Community average of 75 %, 16 were
in Poland, 7 in the Czech Republic, 6 in both Hungary and
Germany, 5 in Greece, 4 in France, Italy and Portugal, 3 in Slovakia
and Spain and finally 1 in Belgium, the United Kingdom, Estonia,
Latvia, Lithuania and Malta.

(20) COM(2004) 107, 18.2.2004. See related EESC Opinion (ECO 129).
(21) The Committee has issued an own-initiative Opinion on Industrial
change and economic, social and territorial cohesion (OJ C 302 of
7.12.2004). rapporteur: Mr Leirião (Group III – Portugal), co-
rapporteur: Mr Cué (CCMI Category 2 – Belgium).

some companies are bringing
2.8 We also know that
production back home because the EU offers a good climate
for the production of advanced goods and services. Although
relocation of production to low-cost countries will continue,
the focus should be on helping to maintain or create a good
climate for the production of advanced goods and services in
order to attract production with high value added.

2.9
The United States is the world's most powerful economy
and the EU's main trading partner. In the 1990s a number of
changes took place in various countries, especially the United
States, which gave rise to the ‘new economy’. The rapid devel-
opment of information and communication technologies (ICT)
and their application in business led to an acceleration of the
rate of GDP growth and a sharp fall in unemployment. The
effects of the telecommunications revolution were thus felt
throughout society and the economy.

Even though fostering research is extremely important
2.10
in order to slow down the process of relocation, which for
some European regions is already a preoccupying issue, it is
the application of the results of research that is decisive. It is
the implementation of the results of scientific and technological
real economic development and
research which produces
growth. This means that the key factor is not the technology
itself but the use made out of it, i.e. the innovation.

However, it must be realised that innovation alone will
2.11
not prevent the relocation of traditional
industrial activities
which will be transferred elsewhere because they lack competi-
tiveness. But innovation will be a driving force for the replace-
ment of relocated activities with alternative products, processes
and services in these areas.

(22) The European Monitoring Centre on Change (www.emcc.eurofoun-
d.eu.int) notes that the sectors most affected by relocations since
2000 are the metal, telecommunications, motor, electrical, textile,
food and chemical sectors.

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2.12
An economy based on the integration of technological
progress into the production processes provides a wide range
of new products and processes of high added value, both in
In this context, the countries
production and consumption.
that joined the EU on 1 May 2004 should be considered as a
source of opportunities since, with the help of an adequate
industrial policy, European companies will be able to design a
new strategy on a continental scale, making the most of the
opportunities brought by enlargement.

Relocation means a company moving all or part of its
2.13
activity from one place to another. Companies,
like people,
leave their place of origin with one aim in mind: improvement.
In highly developed economic areas with partially saturated
markets, the potential for growth of the national economy
within its own market gradually comes up against its natural
limits. Entire industrial sectors are therefore obliged to search
for future opportunities in other economic areas. Moreover, in
the age of globalisation, companies face strong global competi-
tion in both their home and export markets. In this context,
the competitiveness of companies depends not only on the
quality of
their
suppliers, but also on their prices, exchange rate variations and
the presence of open, competitive global markets whose stan-
dards are observed by all.

services and those of

their products or

2.14
The choice of location is a strategic issue for compa-
nies and consequently forces them to consider numerous
aspects of a very different nature. Companies take their deci-
sions on the basis of (among other things) high levels and the
right kind of training, good public services, moderate costs,
political stability,
institutions inspiring a minimum of confi-
dence, the proximity of new markets, the availability of produc-
tive resources and reasonable levels of taxation. Moreover, a
company's position on relocation also depends on infrastruc-
ture and transaction costs. It also depends on its degree of inde-
pendence as determined by its corporate and technological
structure and the efficiency of the public administration. Hence
labour costs are not the only factor in deciding for or against
relocation and should be weighed against productivity since the
productivity/cost ratio is essential to competitiveness.

2.15
Relative business costs are largely determined by
national or regional conditions. Countries receiving company
infrastructure,
investment must provide minimum levels of
education and security. When contemplating taking on entre-
preneurial risk, companies seek stability and confidence (in that
order) before investing. Events generating instability, or particu-
larly uncertainty about
the future, undoubtedly influence
investment decision-makers. Political decision-makers have to
be extremely aware of the importance of attracting investment
which creates high-quality jobs, facilitates technological devel-
opment and boosts economic growth. Furthermore, when
designing development aid, greater store should be set by
improving political, civil and social rights in recipient countries.
Companies must help to achieve this objective by applying the
principles of social responsibility (23).

(23) The EESC, in its Opinion on Corporate Social Responsibility (Green
Paper) acknowledges that ‘[v]oluntary (...) action is one of the funda-
mental principles of CSR’ (OJ C 125 of 27.5.2002); rapporteur: Ms
Hornung-Draus (Group I – Germany), co-rapporteurs: Ms Engelen-
Kefer (Group II – Germany) and Mr Hoffelt (Group III – Belgium).

2.16
The social partners have a particular duty to create
stable rules of engagement for the labour market. Collective
agreements, as part of an autonomous social dialogue, ensure a
level playing field for companies, a balance between the market
and workers' rights that leads to growth, security and develop-
ment potential for employees and companies.

Further aspects also play a key role. On the one hand,
2.17
the nature and scope of products and services do,
in many
cases, require the goods to be produced and the services to be
provided in or at least near the target markets. On the other
hand, there is often a need, particularly in the case of supply
industry enterprises, to follow their business customers to the
locations which the latter has chosen. Finally, in many cases, it
is not possible to tap new markets unless the enterprises
concerned ensure that their goods and services include at least
some degree of locally-provided added value.

Finally, it should not be overlooked that, since consu-
2.18
mers lend great importance to price and consumer demand
also influences supply, there is considerable pressure on retai-
lers to lower their prices. Large retailers, having decided to
offer the consumer low prices, then put pressure on suppliers
to reduce their prices. In this situation, suppliers, especially the
smallest ones, do not usually have the economic resources to
satisfy the large retailers' demands (24).

2.19
Due to the disparity between the economies of the EU
Member States, and between that of the EU as a whole and
those of Asian countries, there are certain factors that encou-
rage company relocations:

— cheaper supply;

— tax advantages;

— potential access to new markets;

— technology;

— lower labour costs.

2.20 Movement of companies, especially away from the EU,
could give rise to some difficulties such as:

— loss of competitiveness: companies remaining in the EU
would be obliged to bear higher costs than their competi-
tors; this is likely to result in a loss of worldwide market
share, with negative consequences for the achievement of
the Lisbon Strategy objectives
economic
growth with more and better jobs and greater social cohe-
sion, and respect for the environment);

(sustainable

(24) See the EESC Opinion The Large retail sector – trends and impacts on
farmers and consumers. Rapporteur: Mr Allen (Group III – Ireland)

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— less generation of know-how: European companies,
forced to compete with companies with lower costs, could
possibly be obliged to invest less and less in research; this
would result in a loss of innovative capacity, which is essen-
tial for survival in today's market;

i) A regulatory framework favourable to industry at
national and EU level, not necessarily meaning fewer regu-
lations, but rather clear regulations applied in a uniform
manner across the EU.

— loss of jobs and deterioration of job opportunities for
an ever growing number of employees in the affected
regions and sectors; this will result in increased social exclu-
sion and in states having to devote a greater part of their
budgets to social spending; the workers who suffer most
will be those of branches of multinationals with their head-
quarters in another country and those of companies which
do not own the technology for their products or processes;

— slower economic growth: caused in part by reduced
internal demand, due to the effect that pay cuts, job losses
and fewer opportunities in the job market will have on the
population.

3. Conclusions

3.1
In response to the concerns expressed by the European
Council (25), and aware of the anxieties aroused by the danger
of deindustrialisation and of the ways in which we can prepare
ourselves and face the structural transformation which is taking
place in European industry, on 20 April 2004 the European
Commission adopted the Communication entitled Fostering
structural change: an industrial policy for an enlarged Europe (26), in
which it sketches the outlines of an industrial policy for an
enlarged European Union. The Committee deals specifically
with this Communication in a separate Opinion, (27) in which it
welcomes the Commission's initiative.

3.2
In this document the European Commission states that,
although the majority of sectors are increasing their production
and although no general process of deindustrialisation is to be
observed, Europe is nonetheless undergoing a process of
restructuring,
involving the transfer of resources and jobs to
activities with a high knowledge content. In this context, the
Communication points out that in all the Member States the
number of jobs in the industrial sector fell during the period
1955-1998.

3.3
The Commission also points out that enlargement offers
numerous opportunities for industry and that, in some cases, it
can help retain production in the EU which might otherwise
have been transferred to Asia. The Commission calls for action
to anticipate change and continue the policies necessary to
support
the new financial
perspectives for the period to 2013 and in three areas:

in the context of

this process,

ii) Optimising synergy between different policies,

to
encourage competitiveness, with a special focus on areas
like research, training, competition rules and regional aid.

iii) Adopting measures in specific sectors to respond politi-
cally to specific needs, move up the value chain and
anticipate and flank structural change.

3.4
There is no doubt that industry is the engine of the
economy, and that a healthy and dynamic industry can give an
impetus to the economy as a whole, whereas weak industrial
competitiveness and flagging industrial production can lead to
this back-
general stagnation of economic activity. Against
ground, it is essential to pursue an industrial policy (28) which
promotes the establishment and growth of firms in the Union
which invest heavily in innovation and development, rather
than competing on costs. Only by exploiting the advantages
which Europe offers (such as high-quality information society
infrastructure, a high level of investment in research and new
technologies and their exploitation in industry, the promotion
of continuing education and training for workers,
social
dialogue and all the advantages of the single market) will it be
possible to maintain and improve the competitiveness of Euro-
pean industry. In this way it would be possible to promote
economic growth and progress towards full employment and
sustainable development.

3.5 With a view to improving and preserving the competi-
tiveness of businesses in the EU,
the Committee calls for
improved protection for intellectual property rights and the
enforcement of those rights in third countries.

3.6
It is necessary to promote a production model which
emphasises factors other than the price of the products manu-
factured. It should be stressed that competitiveness is not based
on costs or tax incentives alone, but that people are a funda-
mental part of firms' competitive edge. Research and the devel-
opment of new technologies which make it possible to reduce
production costs and improve productive capacity are essential,
but sight should not be lost of the fact that the real value of
these advances lies in their application. It is therefore a matter
of priority to have the necessary knowledge for the appropriate
exploitation of these processes, making it possible to exploit
the considerable potential for improvement, as well as to make
companies aware of the risks and the need to search for new
applications for existing technologies, i.e. to promote an inno-
vative attitude. In this entrepreneurs and workers undoubtedly
have a crucial role to play. Ultimately the aim is to encourage

(25) At its meeting held in October 2003, under the Italian Presidency.
(26) COM(2004) 274 final, 20.4.2004.
(27) OJ C 157 of 28.6.2005, rapporteur: Mr Van Iersel (Group I – Neth-
erlands), co-rapporteur: Mr Legelius (CCMI Category 1 – Sweden).

(28) The need for an active industrial policy was acknowledged by the
European Council at the Spring Summit 2005, held in Brussels on
22 and 23 March 2005.

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European firms to base a large part of their added value and
competitive advantage on human capital. That
is why
measures targeted at continuing training and boosting invest-
ment in research and innovation are of decisive importance.
Here too European social partners play an important role,
through their joint work programme (29).

However, some measures only apply to intra-EU reloca-

3.7
tion.

3.7.1
The enlargement of the EU and the consequent exten-
sion of the internal market rule out placing any kind of restric-
tions on the relocation of companies from Western Europe to
Central and Eastern Europe. Consideration must be given to
introducing EU funding criteria, which ensure that only
company set-ups which initiate a new business activity or line
are supported, and not those which simply transfer existing
manufacture or services from elsewhere within the EU. Efforts
should thus be encouraged with a view to levelling out, as soon
as possible, the enormous discrepancy between eastern and
western Europe as regards production conditions in general
and production costs in particular.

3.7.2
The most important conclusion is that there should be
an ongoing process to improve competitiveness in the EU. This
process should run in harmony with the Lisbon Strategy and
be led by companies (development of better products, creation
of
innovative business models, more efficient production
processes, etc.) and facilitated by improved European and
national legislation.

advantageous

It would therefore be

3.7.3
to increase
support for investment in human capital and other types of
infrastructure. The European Union needs a strong, innovative
and technologically advanced industrial base. To achieve this, a
thorough understanding of
situation in both
regional and national economic sectors is vital, so that the
specific advantages that exist locally can be put to best use.

the current

regional

In order to help to keep companies in their places of
3.7.3.1
incentives should be increased as regards
origin,
training;
it would be worthwhile promoting other initiatives
such as exchanges with universities for research, and partner-
ships with local authorities for developing regional ‘clusters’ of
support for businesses (30).

3.7.3.2
The Committee supports the Commission's proposal
to increase from 5 to 7 years the period for which businesses
receiving financial aid must maintain the investment for which
this aid was requested (31), thus encouraging them to lay down

(29) See the Joint declaration on the mid-term review of the Lisbon strategy,
presented at the Tripartite Social Summit held on 22 March 2005.
Framework
and
Programme (COM(2005) 121 final, 6 April 2005), mentioned
above (see point 2.1), included such activities.

Competitiveness

Innovation

(30) The

(31) See the European Commission's proposals for the Structural Funds.

roots. Should these businesses not comply, they will have to
give back the financial aid received.

3.7.4
Committee will
Europe (32).

Given the relevance and interest of this issue,
follow the development of

the
relocation in

4. Recommendations

As the European Commission noted in its Communica-
4.1
tion on integrated guidelines for growth and jobs (2005-
2008) (33), firstly, the EU must seize the opportunities provided
by the opening up of rapidly growing markets, such as China
and India, and, secondly, the EU has a high potential for devel-
oping further its competitive advantages, and it is crucial that
actions are pursued with determination to exploit that poten-
tial.

The Committee believes

4.2
that creating a knowledge
society, based upon human capital, education, research and
innovation policies, is the key to boosting growth potential and
being in a position to face up to future challenges. Further-
the Committee believes that sustainable growth also
more,
requires greater demographic dynamism, improved social inte-
gration and fuller utilisation of the potential embodied by Euro-
pean youth as recognised by the European Council of 22 and
23 March 2005 in adopting the European Youth Pact.

4.3
The Committee considers it necessary to achieve greater
convergence and synergy between the EU's different internal
policies, actions and objectives. This not only requires firm
internal coordination in the Commission, but also in dialogue
with the European Parliament and the Council.

4.4
The Committee recommends that the Commission also
pursue a sector-based in addition to a horizontal approach in
EU industrial policy, since the recommendations of the High-
Level Groups show that the pharmacy, textiles and clothing,
ship-building and automobile sectors all face specific problems
that call for tailor-made solutions and specific measures (34).
These problems cannot be solved through a horizontal
approach.

(32) In this context, the quantitive and qualititive analyses being carried
out by the European Monitoring Centre on Change (Dublin) should
be taken into account.

(33) COM(2005) 141 final, 12 April 2005.
(34) The principal common objective of these four High Level Groups
(HLGs) set up by the European Commission between 2001 and
2005 is to stimulate debate on initiatives that will facilitate the
adjustment of
the respective sectors to major challenges and
improve conditions for the competitiveness of related European
industry. Of these HLGs, three have published their reports (phar-
maceuticals in May 2002;
textiles and clothing in June 2004,
although it has resumed its work at ‘sherpas’ level to continue the
debate on unfinished issues and to monitor the situation of the
sector in 2005; shipbuilding in October 2003). The CARS21 HLG
final report is expected before the end of 2005.

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4.5
In order to prevent, as far as possible, the negative
effects of company relocations in Europe, the following aspects
need to be given special attention:

consumers with more accurate information on the origin of
their products.

Education, training and skills Human capital is very
4.5.1
important
for industrial competitiveness and will probably
become even more so (a clear example of this is the fact that
lack of skilled workers is the main constraint on the develop-
ment of SMEs). In the coming years it will become increasingly
clear that the availability of skilled workers is a critical factor in
determining the long-term international competitiveness of
European industry. For that reason great importance will be
attached to training and immigration in the context of the
legislation and common policy of the Union. European indus-
trial policy must put education, training and skills at the centre
of its strategy, with special attention being paid to the ongoing
training of workers.

Human capital and know-how are competitive advantages

Consumers must be made more aware of the consequences of their
behaviour

Key sectors. A more active sector-based industrial
4.5.5
policy, which fosters public-private cooperation,
is needed.
Therefore, the Committee considers that the quantitative and
qualitative analyses being carried out by the European Moni-
toring Centre on Change (Dublin)
should be taken into
account, in order to have a more adequate basis for the public
debate on relocation.

Greater public-private cooperation in key sectors seems crucial to accel-
erate development

4.5.2
Research and innovation. These are key factors in
the competitiveness of European industry. Europe must work
to achieve the objective of devoting 3 % of its GDP to research
and must redouble its efforts to develop public and private-
sector research. In this context, the establishment of the Euro-
pean Research Area is of vital importance in providing the EU
with the necessary basis
scientific and technological
for
progress.

4.5.6
Responses to unforeseen events. What all sectors
require, as stated in the Communication from the Commission
on restructuring and employment (36),
is ‘reform of financial
instruments for better anticipation and management of restruc-
turing’ with suitably adjusted budgets,
in view of the social
impact. Furthermore, public authorities should also intervene in
the event of
‘unforeseen events with a severe regional or
sectoral impact’. The EESC therefore supports the creation of
‘contingency reserves’ within the Structural Funds.

At the same time, it is important that research be translated
into industrial
innovation and that private investment be
increased in those capital goods which actually bring about
technological change.

Scientific and technological innovation is an important differentiating
factor

4.5.3
Competition policy. Although increasing, the inter-
action between industrial and competition policy is still insuffi-
cient. It needs to be stepped up. The appropriate implementa-
tion of the competition rules, interlinked with the objectives of
industrial policy, will contribute significantly to growth and
employment in the long term.

Market monitoring must be stepped up, and new and amended
directives must
they are
uniformly applied in all Member States.

include conditions ensuring that

It is necessary to link competition policy with industrial policy

Awareness. Given the role of current price-driven
4.5.4
consumer trends,
to raise consumer
it would be beneficial
awareness of the consequences of this behaviour. Companies
can become involved in this awareness campaign through
labelling (social, quality, etc.). (35) They could also provide

(35) See EESC opinion on Information and measurement instruments
responsibility (rapporteur: Ms Pichenot)

social

for corporate
adopted on 8 June 2005.

The EU needs flexible financial instruments that can cope with unfore-
seen events

Infrastructure. Transport,

4.5.7
telecommunications and
energy networks need to be improved nationally, within the
Community and with neighbouring countries. Infrastructure is
a key requirement for competitiveness and therefore must be
made available to companies at a competitive cost. Effective
public services are a necessary requirement for the development
of enterprises, in particular SMEs, and also serve to stimulate
this development.

Facilitating the work of companies through investment in infrastruc-
ture is an incentive for them to stay in Europe

4.5.8
Promoting the entrepreneurial spirit and encoura-
ging business activities. In order to guarantee the future of
European industry, it will be essential to establish a business
climate favourable to the establishment and development of
entrepreneurial activity, paying particular attention to small
and medium-sized enterprises. It will be necessary to improve
access to financing in the early and intermediate stages of
companies' development and, as far as possible, to simplify the
procedures for the establishment and management of compa-
nies. It will also be necessary to promote a change of mentality,
in business
encouraging the acceptance of
activity.

risk inherent

(36) COM(2005) 120 final.

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It is also important to consider the involvement of workers in
achieving their firms' objectives.

Promoting the establishment of companies in order to ensure growth
is mandatory

4.5.9
Social policies. The best way of tackling the under-
standable concerns over the negative consequences of company
relocations is to develop and properly implement social policies
that promote a positive attitude to change, enable workers to
adapt and upgrade their skills, and encourage job creation.

It is necessary to develop and implement social policies that minimise
the possible negative consequences of company relocations

4.5.10
Social dialogue. European industrial policy needs to
be defined in business, sectoral and intervocational terms, and
put into practice with input from the social partners, whose
expert knowledge, as the main stakeholders affected, will be
vital. This requires that companies make their intentions clear
at an early enough stage to make appropriate action by the
other stakeholders feasible.

The European social partners should address this issue in the
context of restructuring and the new agenda for European
social dialogue, including at sectoral level. Within the frame-

Brussels, 14 July 2005.

work of the social dialogue, collective agreements are a major
factor for the creation of fair conditions of competition for
businesses.

Striking a constructive and creative balance between the interests of
the various stakeholders is a continuous task

4.5.11
Competition and international rules. Although
relocation represents a structural change, it is not acceptable
for changes to be motivated, albeit partially, by an EU policy
that is too flexible when it comes to negotiating and inter-
preting basic international regulations. Account must be taken
of the social dimension of globalisation and an appropriate EU
policy mix found to encourage cooperation between the WTO
and the ILO. The EU must therefore act within these interna-
tional bodies to ensure that these rules are respected and if not,
to apply the existing mechanisms as effectively as possible.

There must be open, competitive global markets whose rules are
obeyed by all

The aim should be to promote new investment

in
retain existing investment and continue European

4.6
Europe,
investment abroad.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND