Opinion of the European Economic and Social Committee on Global trade integration and outsourcing: How to cope with the new challenges
Date: 2007-09-26
Institutions: European Economic and Social Committee
Subjects: economic and social cohesion, globalisation, international trade, outsourcing

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Opinion of the European Economic and Social Committee on ‘Global trade integration and
outsourcing: How to cope with the new challenges’

(2008/C 10/17)

On 16 February 2007 the European Economic and Social Committee, acting under Rule 29(2) of its Rules
of Procedure, decided to draw up an own-initiative opinion on Global trade integration and outsourcing: How to
cope with the new challenges.

The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's
work on the subject, adopted its opinion on 12 September 2007. The rapporteur was Mr Zöhrer and the
co-rapporteur was Mr Lagerholm.

At its 438th plenary session held on 26 and 27 September (meeting of 26 September), the European
Economic and Social Committee adopted the following opinion by 151 votes to one, with eight abstentions.

1. Summary

reaching similar growth rates to that in goods, and is growing
faster than GDP. Services account for just under 20 % of inter-
national trade.

The changes in trade and the increasing integration of
1.1
economies into the system of world trade are driven by a wide
range of factors. One of the most important factors in this is
the development of an international division of production that
intermediate products
has led to an increasing number of
the
(goods and services) being traded at various stages of
production process. Trade in intermediate products is one of the
most significant driving forces behind industrial change and
represents a particular form of
the international division of
labour.

1.2
In this context, outsourcing is measured by the external
trade flows of intermediate products, which differs from the
is
usual definition and to some extent overlaps with what
known as offshoring. In order to make this distinction, one
could therefore use the term ‘offshore outsourcing’.

1.3
There are a number of reasons behind this offshore
outsourcing. Lower labour costs (lower wages and/or lower
social protection) are the most prominent
in the debate.
However, above and beyond this, prices of raw materials and
proximity to emerging growth markets also play a significant
role. Cost advantages arising from less strict environmental laws
or tax advantages can also drive offshore outsourcing.

The phenomenon of offshore outsourcing is not a new
1.3.1
development, but
is synonymous with the organisation of
production based on the division of labour, under which busi-
nesses specialise in what they do best and most cost-effectively.
Information technology and cheap communication speed up
this development and make cross-border trade possible in many
new sectors — especially in the service sector.

1.3.2
mental prerequisite for offshore outsourcing.

A cheap and efficient

transport system is a funda-

1.4
The volume of goods currently being traded across the
world is fifteen times greater than in 1950 and its share of
global GDP has tripled. Worldwide trade in services is now

Between 1992 and 2003,

1.5
intermediate
goods in overall imports rose from 52,9 % to 54,1 % and of
capital goods from 14,9 % to 16,6 %. The share of consumer
goods fell slightly. Amongst intermediate products, there is a
significant shift towards the parts and components category.

the share of

Trends also vary widely at regional level. While the share
1.6
of intermediate products in imports has fallen in the EU-15,
Japan and the USA, it has risen in China, south-east Asia and
the new EU Member States (EU-10).

1.7
The rapid growth in trade in services has mainly
taken place in the ‘other services’ category, which includes busi-
ness-related services. Within that, financial, computer and infor-
mation services are growing particularly strongly. The winners
from service outsourcing are the USA, the EU-15 and India, the
latter having done particularly well.

the

Overall,

EU has

successfully maintained

1.8
its
leading position in world trade in both goods and services.
The European economy is the market leader in a wide range of
mid-technology industries and in capital-intensive goods. The
increasing trade deficit with Asia and the EU's rather weak
performance in the area of ICT give cause for concern.

Offshore outsourcing increases trade, which increases
1.9
prosperity overall. However, the Committee is also aware that
there are losers as well as winners in this game, and that the
losers are usually easier to identify, as the impact is immediate
(for example workers who lose their jobs).

1.10
Given that these developments in trade in intermediate
products are on balance positive for the EU, the latter would be
well advised to adopt a positive and proactive attitude towards
free but fair worldwide trade and an active globalisation strategy.
That said, particular care must be taken within the EU to ensure
that the benefits that arise are shared out.

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The EU must act

1.11
fair conditions and
(economically, socially and environmentally) sustainable devel-
opment in world trade.

in favour of

The EU should be aware of its strengths and build on
1.12
them.
above-mentioned mid-technology
In particular,
sectors are often characterised by high levels of innovativeness.
Beyond this, however,
investment in equipment and ideas is
needed in new areas.

the

1.13
In the light of the development of offshore outsourcing,
more, detailed analyses are urgently needed. The Committee
recommends that the Commission launch such analyses, which
should include possible scenarios in the short and medium
involves the relevant stakeholders in the
term, and that
process. Such analyses could also form part of
the sectoral
analyses under the new industrial policy and serve as a basis for
the discussions under sectoral social dialogue.

it

1.14
The answers to the challenges for Europe arising out of
the integration of world trade and the increasing offshoring of
European production lie mainly in the Lisbon strategy. In this
context, the Committee highlights the following points as being
key to an adaptable, competitive Europe within the process of
globalisation:

— Completion and strengthening of the internal market

— Promotion of innovation

— Stimulation of employment.

2.3
Trade in intermediate products is one of the most signifi-
cant driving forces behind industrial change and represents a
particular form of the international division of labour, which is
rapidly eclipsing more traditional forms of globalisation. It is
patently obvious that the globalisation of markets, along with
technical progress, makes it possible to fragment the production
process of a particular product into a series of various upstream
and downstream stages that are usually spread across several
countries.

2.4
This opinion seeks, first of all, to examine the extent to
which the worldwide phenomenon of outsourcing of goods and
services is being driven mainly by developments in Asian coun-
tries (in particular China and India), and by the integration of
the new EU Member States. At the same time, it is important to
look at whether and to what extent
the EU is vulnerable
following the emergence of new global trading powers and the
changes to comparative advantage that goes with it, in particular
with regard to those markets in which the EU currently has a
leading position. These are first and foremost those that are
medium-tech and capital intensive in nature, such as the auto-
mobile and pharmaceutical industries and the manufacture of
specialised equipment.

2.5
The phenomenon of relocations is not dealt with in this
opinion, as it has already been covered in other Committee
opinions.

2.6
In short, this means that we are dealing here with an
interesting phenomenon in industry that will force businesses in
the EU to develop the comparative advantages from which they
have benefited in the past but are no longer guaranteed, not
even in entirely new economic sectors such as services. By
examining this development process,
it would be possible to
identify sectors that are currently weak or may become so in
the future, and to advise industries in the EU to take the appro-
priate decisions.

2. Background to and justification for the opinion

3. Development of global trade

2.1
The changes in the field of trade, and the increasing inte-
gration of economies into the system of global trade, are driven
by a range of factors (trade liberalisation, lower transport and
communications costs, rising incomes, increasing international
division of labour, etc.). One of the most important factors in
this is the development of an international division of produc-
tion that has led to an increasing number of
intermediate
products (goods and services) being traded at various stages of
the production process. This increase in intermediate trade,
described here as outsourcing, is giving rise to the restructuring
of numerous production processes at global and regional level,
and is also happening in many areas of the service sector.

The

traditional

industrialised countries'

comparative
2.2
advantages in terms of their skilled workforce and their tech-
nical know-how in relation to their products and/or production
processes are subject to increasing pressure from a number of
directions. In this rapidly changing environment, the EU is faced
with new competitors that have come into existence a wide
range of sectors of the economy and in a high value-added
service sector. The challenges
for EU businesses are thus
increasing apace.

3.1
The following analysis is based on a study published in
October 2006 by the European Commission Directorate-
General for Economic and Financial Affairs as Number 259 of
the Economic Papers series (1).

3.1.1
This study covers the period between 1990 and 2003.
This is of interest because significant changes affecting Europe
took place in global trade at the beginning of the 1990s. The
PR China began to play a bigger role in international trade,
which led to its accession to the World Trade Organisation. The
further realisation of a single market led to deeper integration
within the EU. The political and economic opening of the coun-
tries of central and eastern Europe, and their integration into
the EU, led to an expansion of the single market. Thus, the EU
had 12 Member States at
this period,
compared to 27 today.

the beginning of

3.1.2
At the same time, significant changes took place in
India, Russia and Latin America (in particular Brazil), which
have strengthened these countries' position in global trade.

(1) Economic Papers, Number 259: Global trade integration and outsourcing:
How well is the EU coping with the new challenges by Karel Havik and
Kierian McMorrow.

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3.1.3
Since no reliable data are available for the period
following the completion of this study in 2003, there is no
basis on which to make statements about developments since
then. However, one can assume that, where the study refers to
the EU-10, similar trends can also be observed for Bulgaria and
Romania. The example of the textile industry shows that the
developments observed are, if anything, speeding up.

3.2
The volume of goods currently being traded across the
world is fifteen times greater than in 1950 and its share of
global GDP has tripled. Worldwide trade in services is now
growing at rates similar to those of goods (about 6 % per year
on average since 1990) and is thus rising faster than GDP.
Services account for just under 20 % of international trade.
Services account for just under 20 % of international trade.

3.2.1 While overall trends are broadly stable, the growth
rates in the various categories of goods and services have been
seen to diverge sharply.

3.2.2
As mentioned in the introduction above, the interna-
tional division of labour is one of the most significant driving
trade. This division of
forces in the development of global
labour is leading to ever-increasing volumes of
intermediate
trade (in goods and services). This growth in intermediate trade
(e.g. in semi-finished goods, parts and components) or ‘outsour-
cing’ reflects the reorganisation of many production processes
on a global or regional level — as opposed to on a national
basis — and is a mirror image of the enormous growth in FDI
flows (foreign direct investment) from less than 5 % of world
GDP in 1980 to over 15 % by the late 1990s. However, not all
foreign direct investment is related to outsourcing.

3.2.3
Globalised production systems, which, in conjunction
with the emergence of powerful information and communica-
tions technologies (ICT), lead to outsourcing or, to use another
term, ‘vertical specialisation’, are also having an impact on many
areas of the service sector.

3.2.4
The internationalisation of production processes at
regional and global levels is generating increased intra-industry
and intra-firm trade. A country's exports from a given industry
are increasingly dependent on imports of intermediate goods,
which are either produced by the same industry or by a
subsidiary of a multinational.

3.3 Overview of trade by stage of production

Using the UN's Broad Economic Categories Classifica-
3.3.1
tion, it is possible to classify products according to their final
use (e.g. whether they are intermediate, consumer or capital
goods).

3.3.2
Between 1992 and 2003, the share of intermediate
goods in overall imports rose from 52,9 % to 54,1 % and of

capital goods from 14,9 % to 16,6 %. The share of consumer
goods fell slightly. In the area of intermediate goods, there has
been a significant shift towards the parts and components cate-
gory, particularly in the ICT and car industries.

level. While the
Trends also vary widely at regional
3.3.3
share of
intermediate products in imports has fallen in the
EU-15, Japan and the USA, it has risen in China, south-east Asia
and the new EU Member States (EU-10).

the bulk of

individual EU Member States'

3.4
These comments do not take account of trade and trends
within the EU-15. It must be noted, however, that it is here that
by far
trade is
In this context,
conducted between two thirds and 80 %.
outsourcing is thus measured exclusively by the external trade
flows of intermediate products, which differs from the usual
definition and to some extent overlaps with what is known as
offshoring. In order to make this distinction, one could there-
fore use the term ‘offshore outsourcing’.

4. Reasons for increasing offshore outsourcing

4.1
There are many different reasons why a company decides
to move its business operations or parts of it abroad. The lower
cost of labour seems to be the most prominent at the moment.
But factors like lower prices of raw materials and being near the
growth market also play an important role. Factors that may
militate against such a decision include low productivity, uncer-
tain legal systems, poor infrastructure, unfavourable trade condi-
tions (e.g. customs duties, standards) and lack of scope for
monitoring and remedial action should problems arise.

4.2 Moving production facilities or indeed sourcing goods
previously made by firms themselves is not a new development.
Substituting foreign for domestic labour has been a common
practice in all
industrialised countries for many years. The
phenomenon of outsourcing is effectively synonymous with the
division of labour and with companies remaining competitive
and cost-conscious while specialising in what
they do best.
What is new, however, is that information and communication
technology (ICT) in recent years has made outsourcing of whole
new types of services — and production of goods — possible.
IT and cheap communication today facilitate companies to
outsource most things that can be reproduced/conducted in
digital form, such as IT-support, back office, call-centres, soft-
ware programming, and some R&D functions.

Similarly,

4.2.1
ICT has enabled additional outsourcing in
goods manufacturing, as intermediate inputs can now be seam-
lessly sourced from multiple suppliers. Just-in-time production
techniques rely heavily on ICT to simultaneously coordinate the
production and delivery of individual parts and components
from different manufacturers operating over varying distances.

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4.3 What can be outsourced can normally also be offshored.
Offshoring may take the form of a transfer of particular tasks
within an organisation to a foreign location or to an indepen-
dent supplier.

As said, this is not an entirely new phenomenon but the rapid
development in ICT and the accompanying drop in the cost of
communication have enabled many new inputs of particularly
services to be traded across borders. Today such tasks as tech-
nical drawing in architecture, radiologist readings of X-rays, or
certain legal services may be sent overseas. Hence, the develop-
ment of ICT has expanded international trade by lowering trans-
action costs and making entirely new things tradable. This is
not unlike the impact of the international container system in
the 1950s, which also caused international trade to soar (2).

4.4
In this opinion we concentrate on offshore outsourcing.
But in the general political debate this is often mixed up together
with the issue of FDI. For example there are developments that are
often presented as forms of outsourcing/offshoring but are in
fact part of expansions of business operations abroad to cater to
the local markets. In order to determine whether a particular
relocation of a production facility is an example of offshoring it
is necessary to determine which market is to be serviced. An
expansion of business operations abroad for the sole purpose to
serve foreign markets (horizontal FDI) won't necessarily- not
even in the short run — have any negative effects on employ-
ment in the home country. On the contrary: it might have very
positive effects both on profitability and on employment at the
headquarters of the firm.

But of course,

4.5
it is not only lower labour costs (low
wages and/or lower social protection) and the need to get closer
to markets that make companies relocate production. The drive
can also be lower costs, due to i.e.
less strict environmental
regulations or tax-advantages. An interesting example of recent
offshoring, that can illustrate this, is what has happened in the
European cement industry. Because of the very sharp increase in
energy prices in Europe — partly caused by the EU trading
system for CO2 emissions — and the direct
limitation on
CO2emission for the industry, some European cement producers
have outsourced the production of clinker to China.

Last but not least, a cost effective and efficient transport

4.6
system is a precondition for offshore outsourcing.

aries established outside the EU, is a reflection of the following
factors:

— World trade flows are being driven by the internationalisa-
tion of production structures and the rise in global FDI
flows.

— World imports of intermediate goods (especially parts and
components) and capital goods are on the increase. This is
also resulting in rising levels of intra-industry and intra-firm
trade.

— There is a sharp increase in complementary, two-way, trade
flows between industrialised and developing/emerging coun-
tries. The share of intermediate products in imports to the
EU-15, the USA and Japan is falling, while it is at the same
time rising in their less advanced regional partners.

— Given the global companies involved, outsourcing of certain
production phases is a particular feature of the ICT and
automobile industries.

6. Services outsourcing

Global trade in services has being growing rapidly since
6.1
the mid-1990s, attaining growth rates similar to those of trade
in goods, and thus rising much faster than GDP. Services trade
rose from 3,8 % of overall GDP in 1992 to 5,7 % in 2003.

6.2 While the transport and tourism categories have been
growing in line with GDP, the big growth area here has been in
the ‘other services’ category, which includes business-related
financial, computer and information
services. Within that,
services are growing particularly strongly.

In net terms (exports less imports), the winners in the
6.3
services outsourcing market have been the USA, the EU-15 and
India; in relative terms, India has experienced the greatest gains.

5. Goods outsourcing

7. EU strengths and weaknesses

5.1
Outsourcing, defined in the study as the contracting-out
of production areas to external suppliers or to dedicated subsidi-

(2) Containerisation is an inter-modal system of transporting the general
cargo or product in lots using ISO standard containers. The goods can
be easily moved from one location to another in these containers
which can be loaded intact onto the container ships, trucks, railroad,
cars and planes. The concept of containerisation is considered as the
key innovation in the field of logistics which has revolutionised freight
handling in the twentieth century and dramatically reduced shipping
costs.

7.1
Since 1990, the EU has, overall, successfully maintained
its leading position in world trade in both goods and services.
This is to some extent due to the fact that the investment-inten-
sive phase of the global catch-up process in the early 1990s
favoured those industries that manufacture capital-intensive
goods — an area in which the EU holds a relatively strong posi-
tion. The EU is the market leader in a variety of medium-tech-
nology and capital-intensive goods industries and is particularly
strong in worldwide automobile production, in the pharmaceu-
ticals industry, in the field of specialist equipment and in finan-
cial and business services.

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Between 1992 and 2003,

7.1.1
trade
surplus rose from 0,5 % to 1,5 % of GDP and makes a signifi-
cant contribution to GDP growth.

the EU's external

7.1.2
A key EU strength is also undoubtedly its own internal
market, which not only offers a stabile legal framework but also
a correspondingly large domestic market. As a result of enlarge-
ment, some of the outsourcing has taken place in the new
Member States.

The study shows that,

from the USA to Mexico and Brazil;

7.1.3
in some manufacturing fields,
such as the automobile industry, offshore outsourcing tends to
focus on specific regions (from the EU-15 to the new Member
States;
from Japan to
south-east Asia and China). This is largely explained by the
distance-related costs involved, e.g. for transport. In the case of
the new technologies and services, however, these costs play a
less important role.

7.2
At the same time, however, the study also highlights a
number of areas of concern: geographically, the EU's growing
trade deficits with Asia in general; and, technologically, the EU's
somewhat poor performance on the ICT front. One particular
factor that must be borne in mind here is that some developing
countries are keen to get ahead quickly in the value chain and
are thus investing a great deal in R&D and training.

7.2.1
To date, Asia's success on the world market has largely
been in product areas such as ICT, which, from a European
perspective, have been less important than other areas such as
the automobile industry, pharmaceuticals or the chemical sector.
Over the last fifteen years, many Asian countries have specia-
lised in the export of ICT products (3). It is to be expected that,
as they develop further, these countries will also turn their atten-
tion to those industries in which the EU has so far been domi-
nant (as the example of the textiles industry shows).

The EU and China enjoy strong complementarities in
7.2.2
terms of
their trade structures, with the EU specialising in
medium-high technology and capital goods, and with China
focusing on low-technology,
labour-intensive and ICT-related
product areas. This complementarity pattern translates directly
into favourable terms of trade trends for the EU, with many EU
Member States presently enjoying significant gains in their
pricing power relative to emerging market powers such as
China. These results suggest that the catching-up processes of
large emerging economies such as China can be a mutually
beneficial process, with strong per capita income gains for both
the developed and developing world.

7.2.3
macroeconomic importance.

Services outsourcing to India is (still) currently of little

In the medium to long term the EU faces the following

7.3
potential external trade problems:

The EU's good performance in the 1990s was largely
7.3.1
the result of gains made in the initial,
investment-intensive
phase of world trade liberalisation — a scenario that will not
continue indefinitely.

7.3.2
industries, most notably ICT.

The EU is weak in a wide range of high-technology

Asia is becoming a potential trade competitor in some
7.3.3
of the EU's core industries. China's low-cost producers are likely
to dominate a range of low-technology, labour-intensive indus-
tries. The implications of this will be greater for the EU than for
the USA or Japan.

8. Winners and losers of offshore outsourcing

trade generates wealth,

8.1
Offshore outsourcing generates more trade, frequently in
new types of inputs and in new sectors. We know from theory
and empirical studies that
thus the
offshore outsourcing should assumingly increase world welfare.
A complicating factor here is of course the fact that the cost
advantages that cause the offshoring of a certain production can
be an effect of less strict environmental regulations concerning
environmental effects of a global nature. But if that is not the
case, we can assume that offshoring increase world welfare. But
we also know that trade often generates both winners and
losers and the question is who will be the winners and who will
be the losers in Europe of the growing offshoring.

8.1.1
Of course, the decision from a company to outsource a
certain task can turn out to be a bad decision from the compa-
ny's point of view. There may be many reasons to that. Custo-
mers may not like to be served by call-centres overseas, compa-
nies may not receive the intermediate goods in the required
quality at the specified time, cultural misunderstandings may
occur between companies and clients or across international
borders, or proprietary information may be leaked to competi-
tors.

(3) Cheap production sites in which expensive high-tech US or European
products and know-how are often also processed have resulted in a
situation in which goods such as computers or mobile telephones
come onto the market at affordable prices and are thus available to a
broad swathe of consumers.

But here we have to start with the assumption that the
8.1.2
decision to offshore or offshore outsource a task by a company
(or government)
is implemented in a successful way. What
winners and losers may then be identified?

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8.2 Winners

8.2.1
offshore outsourcing.

European companies

engaging in offshoring and

These get access to potentially large cost savings, mostly arising
from lower labour costs. In the longer term, these companies
will also gain access to new pools of skilled labour, both directly
through their own offshored facilities and indirectly through
offshore outsourcing from local suppliers. Furthermore,
for
companies located in European countries with well regulated
labour markets, offshore locations generally will sometimes
allow a more flexible management of their workforce levels.
Development of new markets may also very well start with the
location of an offshore facility there. Such local production facil-
ities can allow European companies to produce goods and
services at prices
in low-wage countries
possible.

that make sales

8.2.2
outsourced production and services.

European countries that supply offshored and offshore

the European Union now contains several

With the accession of the twelve new Member States in 2004
and 2007,
large
suppliers of offshored and offshore outsourced products and
services. However, some EU-15 countries, especially Ireland,
have also benefited as ‘offshore production locations’. Supplying
countries' benefits are straightforward: In the short term benefits
are in terms of the jobs generated and the investment attracted,
and those in the longer term are in terms of the technology and
skill transfers to local populations that accompany offshore and
offshore outsourcing decisions by companies.

8.2.3
production and services.

Consumers of offshored and offshore outsourced

Ultimate consumers of offshored goods and services may
benefit from lower prices of the items they consume. There has,
for instance, been estimated that between 10 and 30 percent of
the price decline in semiconductors and memory chips during
the 1990s occurred because of the globalisation of the IT hard-
ware industry. Consumers may also benefit
from expanded
business hours in many services industries — for instance the
opportunity to reach a company call-centre in Bangalore after
5 pm GMT/CET. Price declines will, depending on the extent of
offshoring and offshore outsourcing relative to the total, drive
inflation lower and thereby lead to greater purchasing power.

8.3 Losers

8.3.1
offshoring and offshore outsourcing.

European workers who lose their

jobs because of

Workers who lose their jobs as a consequence of offshoring and
offshore outsourcing are the obvious and immediate losers.

Those who lose their jobs are a small and concentrated group
hit hard, relative to the much more numerous and diverse
group of winners from offshoring and offshore outsourcing,
who (with the possible exception of companies) will all benefit
only relatively little individually. This asymmetry between
winners and losers makes the political economy of offshoring
identical to most other discussions of free trade and import
competition. The European Globalisation Adjustment Fund set
up by the Council at the Commission's prompting provides the
EU with a way of helping this group, albeit with limited
resources.

8.3.2
through offshoring and offshore outsourcing.

European companies unable to adopt ‘best practices’

The fundamental problems plaguing Europe today is
low
productivity growth. As globalisation accelerates, for more and
more industries offshoring and offshore outsourcing strategies
are a competitive imperative for companies and companies
unable to restructure their operations with the use of offshoring
and offshore outsourcing of particular intermediate inputs or
tasks will be at a competitive disadvantage against both their
non-EU competitors and EU competitors able to do so. That
means that they risk to face slower growth and may ultimately
either be driven completely from the marketplace or choose to
relocate their entire production outside their countries of origin
— in both cases likely with larger job losses occurring than if
offshoring and offshore outsourcing had been possible at an
earlier stage.

9. The need for action and recommendations

9.1
The Committee has in the past issued several opinions
on the subjects of world trade and globalisation in general (4),
most recently in the opinion on The challenges and opportunities
for the EU in the context of globalisation (REX/228 — Rapporteur:
Mr Malosse). In that opinion, the Committee advocates inter alia
a common strategy to contend with globalisation, a planetary
State governed by the rule of law, the balanced and responsible
opening-up of trade, a faster pace of integration, and globalisa-
tion with a human face.

9.1.1
Not least because these developments in trade in inter-
mediate products are on balance positive for the EU, the latter
would be well advised to adopt a positive and proactive attitude
free worldwide trade and an active globalisation
towards
strategy. That said, particular attention must be paid to ensuring
that the benefits that arise are shared out and to the political
discussion. The EU must act in favour of fair conditions and
(economically, socially and environmentally) sustainable devel-
opment in world trade.

(4) — REX/182 — The social dimension of globalisation, March 2005

— REX/198 — Preparation for the sixth WTO ministerial confer-

ence, October 2005

— SOC/232 — Quality of working life, productivity and employ-
ment in the context of globalisation and demographic challenges,
September 2006

— REX/228 — Challenges and opportunities for the EU in the

context of globalisation, May 2007.

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increasingly be

EU trade policy must

9.1.2
aimed at
improving social and environmental standards worldwide and at
finding a political approach that combines solidarity with
self-interest and benefits everyone. More progress needs to be
made on dismantling non-tariff trade barriers, especially where
there is discrimination against European businesses. In connec-
tion with offshore outsourcing, the Committee stresses its call
for better protection of intellectual property.

9.1.3
The current debate on climate change, greenhouse gas
emissions and sustainable development will increasingly lead to
re-evaluation of many aspects of globalisation, including trade.
Developing countries are already looking for greater assistance,
or ‘capacity building’, in the use of cleaner technologies. Greater
attention will be given to the use of cleaner, more energy-effi-
cient use of transport, especially to transport by sea, where
appropriate. Environmental considerations will carry greater
weight in decisions as to the future location of manufacturing
plant and subsequent distribution of goods. The Committee
therefore looks to the Commission, where it is not already
doing so, to undertake separate studies into the trade-related
aspects of the wider climate change debate.

The EU should first of all be aware of its strengths and
9.2
build on them.
In particular, the above-mentioned mid-tech-
nology sectors are often characterised by high levels of innova-
tiveness. Beyond this, however, investment (in equipment and
seventh framework
ideas)
is needed in new areas. The
programme (2007-2012) highlights some of
these opportu-
nities. This avenue should be pursued further and more inten-
sively (5).

In the light of

9.3
the rapid development of offshore
outsourcing, more analyses (taking into account sectoral and
regional differences) are urgently needed, especially since the
study mentioned in this opinion paints only a very broad
picture and does not take account of the latest developments.

The most recent EU enlargements have created new
9.3.1
opportunities for outsourcing towards the new Member States
and this requires very careful analysis, since both the winners
and the losers are within the Community. If we consider that
offshore outsourcing towards the new and future Member States
is to make a positive contribution to the cohesion strategy, it is
logical to examine the future direction of the relevant EU finan-
cial instruments.

9.3.2
of outsourcing on employment and skills.

No detailed studies are available on the further impact

The Committee recommends that

the Commission
9.3.3
launch such analyses, which should include possible scenarios in
the short and medium term, and that it also involve the relevant
stakeholders in the process. Surveys of decision-makers in busi-
nesses sometimes paint a different picture than that given by
trade statistics.

providing the latter with an additional means of dealing with
and anticipating
various
CCMI/EESC opinions.)

(On this

change.

subject,

see

9.4
The answers to the challenges for Europe arising out of
the integration of world trade and the increasing offshoring of
European production lie mainly in the Lisbon strategy. In this
context, the CCMI highlights the following points as being key
to an adaptable, competitive Europe within the process of globa-
lisation:

— Completion and strengthening of the internal market

— Promotion of innovation

— Stimulation of employment.

9.4.1
The further development and expansion of the single
market with the aim of optimising the free movement of goods,
services, people and capital will make a significant contribution
to enhancing competition and will thus boost business, innova-
tion and growth.

The internal market can fully become a reality only
9.4.2
when the legislation has been fully and properly transposed and
has come into force. The Commission and the Council must
ensure that Member States do not delay this process.

9.4.3
Developing technology and attracting innovation to the
Union are critical to ensure that Europe can compete in the
global marketplace. Doing so will have the impact of increasing
the number of high skilled jobs in the EU and thus make the EU
a more attractive location to undertake business and investment.

9.4.4
To help promote innovation the patent process has to
be cost-effective and simple. At present a patent that would
offer EU-wide protection for inventions is substantially more
expensive and complicated than the US patent. A cost-effective
Community Patent must come in operation.

9.4.5
A concerted effort must be made to hit the 3 % target
of GDP set down by Lisbon to be earmarked for national
research and development spending within the shortest possible
timeframe. As the key figures on science, technology and inno-
vation released by the Commission on 11 June 2007 show, in
85 % of cases, delays in achieving that target are the result of
poor investments from the business sector. At the same time,
however, a high degree of R&D can be achieved if major
private-sector commitment is accompanied by high levels of
public investment. Within the EU, the public sector (that is to
say, the Member States) must therefore continue to invest in
R&D so that private-sector R&D activities continue to develop.
Moreover, governments should introduce an innovative funding
policy to promote R&D investments.

Such analyses could also form part of

9.3.4
the sectoral
analyses under the new industrial policy. They could also serve
as a basis for the discussions under sectoral social dialogue, thus

(5) On this point, see the EESC opinion INT/269 — 7th R&D framework

programme, December 2005.

9.4.6
Investment in information and communications tech-
nology would promote efficiency in government and speed
connections between consumers and markets within Europe.
The development of a comprehensive network of broadband
internet connections must be a priority.

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9.5
in this
Employment policy is particularly important
process. This is a matter of, firstly, finding new employment
opportunities for those who lose their jobs as a result of
offshore outsourcing, and secondly, maintaining standards for
workers' skills and adaptability. Workers who lose their jobs as a
result of relocation increasingly find it particularly difficult to
find a new job. Just a few years ago, it was generally possible to
find a new job within three to four months. This process can
now drag on for several years, as more and more labour-inten-
sive production is relocated and no adequate alternative is on
offer. Flexible, well-trained and motivated workers are the key to
Europe's economic competitiveness.

9.5.1
the conclusions of the Wim Kok report (6) in relation to

In this context too, therefore, the Committee highlights

— Increasing the adaptability of workers and businesses, thus

increasing their chances of anticipating change

— Bringing more people on to the labour market

— Increased and more effective investment in human capital.

opportunity and employability, through the provision of skills
and steps to promote workers' adaptability and capacity for
retraining and their geographical mobility. Central to this ambi-
tious challenge is the need for national education and skills poli-
cies, designed and implemented by Member States, and built on
the foundation of investment in education and lifelong learning
to equip people to adapt
to change and to new areas of
comparative advantage. As was emphasised in the Lisbon
agenda, this should include ‘new basic skills, such as IT skills,
foreign languages, technological culture, entrepreneurship and
social skills’.

it

skills,

is very important

Alongside workers'

9.6
that
loss of
offshore outsourcing does not lead to an additional
know-how. An environment must be maintained that makes
Europe an attractive location for research and development. For
this to happen, the role of universities (in particular technical
subjects and the natural sciences) needs to be rethought, along
with their European networking and their cooperation with
industry.

9.5.2
In a world of rapid change, technologies arrive and
quickly become out of date. European governments must ensure
that their citizens are able to adapt to this new environment, to
ensure opportunity for all. There is an urgent need for modern
social and labour market policies geared towards promoting

Europe's competitiveness will

first and foremost be
9.7
based on a knowledge-based,
innovative economy and a soli-
darity-based social model ensuring strong cohesion. Europe
cannot win a competition with low social or environmental
standards.

Brussels, 26 September 2007.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(6) Report of

the Employment Taskforce headed by Wim Kok,

November 2003.
The taskforce started its work in April 2003 and reported to the
Commission on 26 November 2003. The Commission and the Council
integrated the findings of the report into their Joint Employment
Report for the 2004 Spring Council, which confirmed the need for
decisive action by Member States along the lines suggested by the task-
force.