Opinion of the European Economic and Social Committee on The management of industrial change in cross-border regions following EU enlargement
Date: 2006-04-21
Institutions: European Economic and Social Committee
Subjects: ESC opinion, accession to the European Union, frontier region, industrial integration, industrial restructuring, structural policy

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— specifying the criteria for defining the concept of

‘general interest’;

2. procedures should be set up for the Commission to approve
these exceptions, with the involvement of stakeholders and
the general public.

5.8
In terms of coordination and cooperation, it is impor-
tant to consider the non-EU countries bordering EU waters, not
just those countries that are parties to international agreements,
so as to encourage them to cooperate and achieve good envir-
onmental results.

Lastly,

5.9
the proposal channels stakeholder and public
participation through the existing State systems. These are
subject to doubt in many countries, sometimes because of a
lack of transparency, sometimes due to delays in responding to
queries, and sometimes because of the ambiguity surrounding
‘stakeholder’ organisations. The Commission should therefore
establish a practical, effective procedure for collecting and
managing complaints from stakeholders and the public, and
guaranteeing the public's right to information, consultation and
participation. The mutatis mutandis criterion should therefore be
removed from the approval system, as stated above.

Brussels, 20 April 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on The management of industrial
change in cross-border regions following EU enlargement

(2006/C 185/05)

On 20 July 2005 the future Austrian Presidency of the Council of the European Union decided to consult
the European Economic and Social Committee, under Article 262 of the Treaty establishing the European
Community, on The management of industrial change in cross-border regions following EU enlargement

The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's
work on the subject, adopted its opinion on 22 March 2006. The rapporteur was Mr Krzaklewski.

At its 426th plenary session, held on 20 and 21 April 2006 (meeting of 21 April), the European Economic
and Social Committee adopted the following opinion by 69 votes to two with five abstentions.

Part 1 — Summary of the EESC's conclusions and recom-
mendations

tiveness of Community instruments used in these areas before
and after accession and to establish the time lag with which EU
policies were implemented in these regions as compared with
elsewhere.

for the
The Austrian Government
Consultative Commission on Industrial Change (CCMI)
to
prepare an exploratory opinion on Industrial change and EU
enlargement: Examining the effects in border regions.

issued a formal request

The Committee considers that, in the course of the next Presi-
dency, it is important to establish a precise and distinct defini-
tion of what is meant by the term ‘REGION’ in a cross-border
and industrial
should distinguish regions
bordering non-EU Member States and take into account
whether or not a given neighbouring state is a candidate
country.

context. One

It is important to establish how one can distinguish between
the effects of the changes that occurred in these regions in the
1990s and those arising from EU accession, to assess the effec-

The Committee notes that a very important and possibly deci-
sive factor which has affected the conduct and development of
industrial policy in cross-border regions in the enlarged Europe,
both now and in the past, is the ability of stakeholders in these
regions to access EU Structural Fund resources. Increasing their
role in these regions is absolutely vital. The Proposal for a
Regulation of the European Parliament and of the Council
establishing a European grouping of cross-border cooperation
is a new opportunity in this area. The Committee
(EGCC)
places particular emphasis on the need to include economic
and social interest groups as well as other civil society organisa-
tions, particularly training establishments. concerned in the

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composition of the EGCC. The establishment of such legal enti-
ties could create an incentive for cross-border cooperation and
give such regions a greater sense of identity and the desire to
harmonise their regulations.

that

the development of

The Committee believes
labour
markets in the regions concerned is a factor for industrial
change which should not be underestimated. At present, there
remain temporary obstacles to the cross-border mobility of
workers within the EU. The Committee calls on the Member
States to look seriously at whether the transition periods could
be ended earlier. This requires appropriate involvement and
consultation of the social partners at all relevant levels. As far
as other
the
Committee stresses the importance of the possible introduction
of a Common Consolidated Corporate Tax Base (CCCTB).

industrial policy instruments are concerned,

In its opinion, the Committee repeatedly stresses the particu-
larly important role that social dialogue and civil society
commitment can play in managing industrial policy in the
regions in question; both in implementing dynamic industrial
policies and in seeking to overcome problems affecting the
mutual relations between different nationalities, cultural and
ethnic groups.

Part 2 — Arguments to support the opinion

1. Introduction

the EU Presidency,

Shortly before taking over

1.1
the
Austrian Government issued a formal request for the Consulta-
tive Commission on Industrial Change (CCMI) to prepare an
exploratory opinion on Industrial change and EU enlargement:
Examining the effects in border regions. By definition, an explora-
tory opinion is issued prior to the adoption of a proposal or
political decision by an EU decision-making body.

1.2
The transition to a market economy and the transposi-
tion of EU internal market and competition rules has created a
new dynamic in many regions of Central and Eastern Europe.
The accession of the new Member States from Central and
Eastern Europe has brought border regions closer together,
reviving,
ties.
former
However, this new dynamic has also brought problems, espe-
cially for labour market policy, and has revealed the infrastruc-
ture shortcomings of cooperating border regions.

trade and business

in many cases,

1.3
In order to take a closer look at the industrial changes
underway in the cross-border regions of the enlarged EU and
to collect the data required to prepare an opinion, workshops
were held by the CCMI and the European Monitoring Centre
on Change (EMCC) in Bratislava on 17 and 18 October 2005.
Held in the CENTROPE cross-border region, the event was
attended by members of the CCMI, representatives of the social
partners from Austria, Slovakia and Hungary, and experts.

2. General comments review of the situation in cross-

border regions of the enlarged EU

Presently around 33 % of the EU's population lives in
for approximately

2.1
border regions, which currently account
40 % of Europe's total surface area (1).

2.2
The EU's borders have been changing continuously since
the signing of the ECSC Treaty. This process looks set to
continue over
the medium term. Given the changes this
the EU needs to systematically update its border
involves,
region policy.

Border regions of candidate countries that border on
2.2.1
the EU are already forging relations with more peripheral
neighbouring EU regions even before their accession, as part of
the harmonisation of their laws and socio-economic systems.

2.2.2
The ‘iron curtain’ was a rather special type of border.
A large part of this frontier now lies within the borders of the
EU-25. When the Berlin wall came down in 1989, nine years
after the Solidarity revolution of 1980, the regions close to the
border that had once divided the countries of the former Soviet
Bloc from the rest of Europe, particularly the areas of ‘no-man's
land’, had practically no infrastructure in place. Despite the
substantial progress made in dealing with the aftermath of the
political decisions that led to this situation, it is still a problem
that is far from being resolved.

2.2.3
Another special border for the EU is the Mediterra-
nean Sea. Though a policy of cooperation between the EU and
the Mediterranean countries has existed for many years, inter-
national developments have meant that it has not recently been
one of the EU's priorities.

2.3
A series of cross-border initiatives (e.g. Euroregions)
were set up in the border regions of the new Member States
prior to their accession as a new form of cross-border coopera-
reached between neighbouring
tion, based on agreements
border areas. There was no requirement to regulate the func-
tioning of the Euroregions with inter-governmental agreements.
Such initiatives were based on the free choice of local govern-
ment institutions and stakeholders. Cooperation through Euro-
regions was aimed at resolving problems jointly, regardless of
political borders, and establishing economic cooperation in the
field of communications and environmental action.

In practice, EU interregional cooperation has, since the
2.4
1990s, primarily taken place within the framework of
the
successive INTERREG programmes. The EESC has also been
involved in certain aspects of
this cooperation, and has
prepared opinions on inter-regional cooperation, based on the
experiences,
inter alia, of the Mediterranean region and the
Baltic Sea area (2), (3), (4).

(1) A. Zölner: Speech at the 216th meeting of the Foreign Affairs
Committee of the Polish Parliament; Warsaw, 26 October 2004.

(2) OJ C 133, 31.5.1995.
(3) OJ C 39, 12.2.1996.
(4) OJ C 39, 12.2.1996.

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2.4.1
The EESC has established that inter-regional coopera-
tion promoted by the Community may be defined according to
the:

do not have metropolitan characteristics (Katowice, Ostrava
region along the borders of the Czech Republic and Poland).

a) type of area: region, large towns, local sub-regional districts;

b) spatial category: adjacent/non-adjacent regions (cross-border

or trans-national cooperation);

c) geographical area: cooperation within the EU or between
EU regions and neighbouring regions of non EU Member
States;

d) level of cooperation, such as:

— the collection of joint experiences, creation of networks

for the transfer of know-how,

— spatial planning,

— joint projects for obtaining investment in infrastructure

and other areas.

In its opinions on INTERREG,

2.4.2
the Committee has
stated that in the 1990s the links between the various cate-
gories of cooperation were somewhat selective. For example,
cooperation functioned only on certain levels and was
restricted to certain spatial categories and geographical areas.

One significant EU achievement in the cross-border
2.4.3
regions of France, Belgium, Germany and Luxembourg, which
intensive restructuring, was the use of
all went underwent
methods combating the depopulation of
such areas and
preventing their transformation into veritable ‘post-industrial’
deserts. Resources and action under the ECSC Treaty had a
marked influence on the
restructuring
processes.

course of

these

2.5
At present, there are around 180 cross-border initiatives
in place across Europe. Most of these initiatives are instruments
for mitigating the negative effects of borders. Thirty-two Euro-
regions are located on the territory of the new Member States;
it is thus clear that the new EU Member States have been very
active in their support for the principle of cross-border coop-
eration.

2.6 Most of the 32 cross-border regions encompassing ‘new’
and ‘old’ EU Member States have yet to witness any joint initia-
tives directly concerned with industrial policy, despite the fact
that many joint undertakings indirectly relate to this policy
area.

2.7
New initiatives in the field of industrial policy have —
as a rule — occurred in those cross-border regions that are
located near to metropolitan areas (e.g. within the Vienna,
Budapest, Bratislava triangle) or which represent an area
containing centres of industry or a group of large towns that

2.7.1
An interesting new example of industrial change is the
Friuli-Venezia Giulia region on the Italian-Slovenian border,
which saw a resurgence in manufacturing activity both prior to
and after EU enlargement, particularly in the furniture sector.

3. Specific comments

3.1 Key features of cross-border regions in the enlarged EU

3.1.1
The features of cross-border regions with a developing
industrial policy outlined in this opinion have primarily been
identified on the basis of observations made
in the
CENTROPE (5) region.

3.1.1.1
This region includes areas from three new Member
States and one of the fifteen old ones (the Austrian provinces
of Vienna, Lower Austria and Burgenland, the Southern Mora-
vian district in the Czech Republic, the Bratislava and Trnava
districts in Slovakia, and the counties of Győr-Moson-Sopron
and Vas in Hungary. The region as a whole combines zones
suffering from typical problems of peripheral areas and neigh-
bouring economically dynamic urbanised central areas.

The area underwent

3.1.1.2
intense restructuring in the
1990s, with investment in parts of the region following as a
direct result. This also led to labour market shifts, with a signif-
icant number of older workers in particular exiting the market,
subsequently resulting in demand for labour — in parallel with
the investments made — although not always at the same loca-
tion.

3.1.1.3
The enlargement of the EU has brought together
diverse labour markets in the region where the borders of
Austria, the Czech Republic, Slovakia and Hungary meet; inte-
grating those markets represents a challenge. Company reloca-
tion and emigration of the labour force to urban areas, as well
as deficient (transport) infrastructure, continue to hamper the
structure of the labour market, together with a marked gap
between salaries in Austria and the new Member States and a
forecast shortage of skilled labour.

3.1.1.4 We are seeing the first signs of the emergence of
cross-border manufacturing networks. The development of
transport infrastructure, requiring substantial
investment, has
played a part in this process. This in turn has led to existing
gaps being filled and to the re-establishment of old ties.

3.1.2
Foreign and domestic investment provides a key
stimulus for industrial change in such regions, also in small
and medium-sized enterprises. In those countries where Special
Economic Zones or Industrial Zones were created prior to acces-
sion most investment has been ‘drawn’ to zones that have
rarely, coincided with a cross-border region (see EESC opinion
CCMI/025). This helps explain the small number of cross-
border cooperation regions in which a new industrial policy
has been developed.

(5) Joint CCMI/EMCC workshop, Bratislava, 17-18.10.2005; presenta-

tions by Roberto Pedersini and Klára Fóti (and others).

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3.1.2.1
The main drivers of growth have been investment in
brown and green-field developments and company relocation.
This investment was motivated, among other things, by identi-
fying new markets, differences in corporate taxation, significant
in salaries and state aids. These factors have
differences
supported the
and contributed to
economic growth.

restructuring process

3.1.2.2
They have helped attract employees with high and
medium-level qualifications and brought about a reduction in
labour as well as non-employee-related costs. There has been a
increase in the demand for machine operators,
significant
fitters, machining experts, welders, mechanical engineers,
IT
specialists — and this is becoming ever more noticeable
throughout the manufacturing sectors of the EU.

3.1.2.3
As a result, this action has improved management
skills, and established a human resources policy and func-
tioning industrial relations.
It has also made it possible to
obtain funds for investment and has helped forge links with
supplier and customer markets.

3.1.2.4
This investment has involved not only large EU
firms but also small and medium-sized enterprises and firms
from outside the EU. These firms have clustered investment,
created multiplier effects, established links with local businesses
and formed ties with domestic businesses and foreign branches.

An analysis of

3.1.3
changes
underway in the cross-border regions under review shows that,
in general, the approach used in these areas is the ‘step by step’
method.

structural

industrial

the

In step one, the manufacturing activity undertaken
3.1.3.1
has been labour-intensive, relying on low-skilled workers; step
two has seen the use of better qualified workers and more
sophisticated services.
In cases where step one has been
successful, attempts have been made to outsource certain activ-
ities outside firms — but still within the region — in the search
for lower labour costs.

3.1.3.2
Two-way structural mergers have had a significant
impact on the structural issues accompanying these industrial
changes. Divided into upward mergers (foreign companies
within a region and beyond) and downward mergers (within a
local area), the aim has been to gain competitive advantages
within a network or region.

3.1.3.3
Higher-risk approaches were also applied (based on
the ‘snowball’ principle), which have led to the forging of
stronger ties. The ‘enclaves’ of an expanding company created

as a result of this process were marked by the ease with which
they were transplanted to other new companies.

3.1.3.4
in cross-
An increasingly common development
border regions, also in the new Member States, is the establish-
ment of new company branches by dynamic investors moving
Industrial
into step two of development in a given region.
policy is also being stimulated in these regions by company
networks, often international in nature, engaged, for example,
in interactive human resource management across borders.

3.2 Factors

for growth and integration accompanying industrial

change in cross-border regions

3.2.1
One such challenge for industrial policy is the use of
direct incentives and the introduction of asymmetry between
companies. Companies integrating small and medium-sized
enterprises into their network encounter greater problems in
applying such a symmetry.

As R. Pedersini states in his presentation (see foot-
3.2.1.1
note 5) the shortening of company operations to the medium
term may occur in the near future, which will undoubtedly
bring social repercussions and should be implemented using
appropriate guarantee mechanisms established through social
and economic dialogue.

3.2.2
One very important challenge for the development of
the whole EU and the future of industrial policy across its
whole range, but especially in cross-border regions, is the issue
of disparities in the taxation of companies, particularly corpora-
tion tax (6).

3.2.2.1
It is very important to decide whether corporate tax
should be harmonised and to establish how the tax base is to
be determined — i.e. according to the location of the registered
office (Home State Taxation — HST) or according to the
Common Consolidated Corporate Tax Base (CCCTB).

3.2.2.2
The HST system eliminates the application in EU
cross-border regions of different laws to establish the tax base.
However, this system involves more risks (7).

Use of the CCCTB option will mean that all busi-
3.2.2.3
nesses operating across borders will apply uniform principles
for assessing their tax base (8),
irrespective of which country
their registered office is based in. Furthermore,
the CCCTB
method will not require any changes to existing national regu-
lations, merely consent for the establishment of new, additional
pan-EU regulations for firms doing business in several coun-
tries.

(6) COM(2005) 532.
(7) Rafał Lipniewicz:

Jeden system dla wszystkich przedsiębiorców (One
system for all businesses), Rzeczpospolita newspaper, 27.7.2004, No
174.
(8) As above.

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3.2.2.4
One drawback of the CCCTB option is the risk that
two businesses from a given country with similar prospects
and a similar presence on the domestic market will use
different methods to assess their tax base.

— What can be done to offset the imminent threat of double
relocations taking place: from cross-border regions to the
countries of Eastern Europe and, ultimately, to Asia?

One of the most important factors affecting the devel-
3.2.3
opment of industrial policy in these regions is the current state
and rate of development of the transport infrastructure in the
region and at its entry corridors. For this reason, in addition to
heavy investment in the construction and modernisation of the
region's transport network, joint transport projects need to be
created and managed in a modern way drawing on innovations
and scientific research.

4. Conclusions and recommendations

The concept of a cross-border region with a new, opera-
4.1
tional
industrial policy is highly complex in nature, both in
general terms and with regard to specific cases and locations.
For this reason, the Committee considers that, in the course of
the next Presidency, it is important to establish a precise and
distinct definition of what is meant by the term ‘REGION’ in a
cross-border and industrial context. This definition should
distinguish regions bordering non-EU Member States and take
into account whether or not a given neighbouring state is a
candidate country.

4.1.1 With regard to regions within new Member States and
those which border on countries of the ‘old’ EU, it is important
to establish how one can distinguish between the effects of the
changes that occurred in these regions in the 1990s and those
arising from EU accession, and to assess the effectiveness of
Community instruments used in these areas before and after
accession.

the effects of delayed development

— Given the action taken in many cross-border regions to
counteract
(with a
historic basis or caused by the failure of EU policies to keep
up with these regions' needs), would it not be wise to intro-
duce certain EU instruments in these regions in advance,
and to treat them as a way of verifying such policies and as
pilot projects.

Given the approach that is typical of the cross-border

4.2
regions of the enlarged EU, and which is characterised by:

— efforts to minimise labour costs,

— dynamic company relocation,

— efforts to shorten companies' planned periods of operations

to the medium term,

— dynamic changes in the employment structure as a result of

the use of the ‘step-by-step’ method,

the EESC considers that it is highly important to ensure social
cohesion and to prevent the undercutting of employment law
and social standards. It is therefore vital that these processes
take place using instruments of modern industrial relations,
established in the EU, particularly in the area of social dialogue
or stakeholders' dialogue.

4.2.1
Given the difficulties on the labour market typical of
cross-border regions caused by past neglect, restructuring and
the dynamic changes produced by the implementation of a
special
industrial policy in such regions, the EESC proposes
applying for specific periods employment promotion mechan-
isms, often used by the EU in the past, which involve subsi-
dising companies creating permanent jobs.

4.1.2
The work of the new Presidency, in cooperation with
the EESC, should also provide answers to the following ques-
tions:

— Are the Community instruments used in cross-border
regions — both directly and indirectly — falling short of
the needs of these regions and, as a result, those of the
whole EU?

— How can one take maximum advantage of the harmony
noted between employers and trade unions that seems to
be typical of many business ventures
in cross-border
regions?

4.2.2
This approach should be backed up by formal safe-
guards to prevent any misuse of public money and ensure that
the jobs created in this manner are genuinely new and perma-
nent. The details of such safeguards were outlined in the
revised EU directives on public procurement.

4.2.3
In particular, businesses which have previously
received support and then relocated jobs, or which have
dismissed workers at their original location following relocation
without complying with national and international legislation,
should not be eligible for state aid or for support from the
Structural Funds.

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4.3
The Committee notes that a very important and possibly
decisive factor which has affected the conduct and development
of
industrial policy in cross-border regions in the enlarged
Europe, both now and in the past, is the ability of stakeholders
in these regions to access EU Structural Fund resources.
Increasing the role of Structural Funds in these regions is abso-
lutely vital for both mitigating the effects of intensive transition
processes and helping regions adapt to the dynamic nature of
the policies used.

On this basis,

the Committee,

4.3.1
referring to its
opinion (9) on the Proposal for a Regulation of the European Parlia-
ment and of the Council establishing a European grouping of cross-
border cooperation (EGCC) places particular emphasis on the
need to expand on those provisions of the regulation relating
to the aim and composition of the EGCC by adding the words
‘and economic and social stakeholders, as well as other inter-
ested civil society organisations …’.

4.3.1.1
Legal entities created both under the EGCC and
other Structural Funds should be responsible for coordinating
the various sources of financing, and for the preparation and
realisation of fund projects supporting industrial policy in the
given region. This financing would be accessible to the repre-
sentatives of the various parties involved in the regions. The
establishment of such legal entities could create an incentive
for cross-border cooperation and give such regions a greater
sense of identity and increase their desire to harmonise their
regulations.

4.3.2 When creating and implementing projects supported
by the Structural Funds, the opportunity should be taken to

Brussels, 21 April 2006.

combine sources of public funding with funds from private
investors without classifying the public share as prohibited aid.
The criterion would be the benefit not to the company but to
the region — through the creation of jobs, infrastructure devel-
opment, and the productivity of the economy.

4.4
The Committee believes that the development of labour
markets in the regions concerned is a factor for industrial
change which should not be underestimated. At present, there
remain temporary obstacles to the cross-border mobility of
workers within the EU. The Committee calls on the Member
States to look seriously at whether the transition periods could
be ended earlier. This requires appropriate involvement and
consultation of the social partners at all relevant levels.

4.4.1
In encouraging better conditions for worker mobility
in cross-border regions, one must not forget about the possible
national and ethnic tensions that could arise. The specific situa-
tion and experience of regions where various cultures and
nationalities have long interacted with one another mean that
these difficult issues should be overcome and alleviated more
effectively than in other areas. Social dialogue and civil society
commitment can also play a particularly important role in
overcoming problems of the mutual relations between various
nationalities, ethnic and cultural groups (10).

4.5
Action relating to dynamic structural changes in cross-
border regions should be the subject of expert assessment and
academic study, undertaken under the auspices of successive
EU presidencies, since spontaneous initiatives may turn out to
be ineffective or even destabilising.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(9) OJ C 234, 22.9.2005.

(10) The European Foundation for the Improvement of Living and
Working Conditions – Report on Regional Social Capital in Europe
– 2005.

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APPENDIX

to the Opinion of the European Economic and Social Committee

The following amendments, which received at least a quarter of the votes cast, were defeated in the course of the
debates:

Point 3.2.2.1

It is very important to decide whether corporate tax should be harmonised and to establish how the tax base is to be
determinedi.e. according to the location of the registered office (Home State Taxation — HST) or according to the
Common Consolidated Corporate Tax Base (CCTB).

Point 3.2.2.2

Delete.

Point 3.2.2.3

Delete.

Point 3.2.2.4

Delete.

Reason

The discussion of fiscal policy solutions has no place in this text. It is also not the purpose of the opinion.

Voting

For: 20

Against: 50

Abstentions: 3.