Source: EURLEX
Language: en
Format: md

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| 25.11.2005 | EN | Official Journal of the European Union | C 294/45 |

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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

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| 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)](#ntr1-C_2005294EN.01004501-E0001). The increase in institutional investment[(2)](#ntr2-C_2005294EN.01004501-E0002) and trans-frontier cross-investment, the relocation of tasks, rapid changes in ownership and greater use of information and communication technologies mean that geographical identities are becoming blurred and competitiveness is taking on a global dimension. Thus competitiveness is the overall objective of the economic dimension which, in interaction with the social, environmental, political and institutional dimensions, shapes the process of sustainable development. |

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| 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. |

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| 1.3 | A society needs to be competitive as a whole. Competitiveness should be understood as the capacity of a society continually to anticipate, adapt to and influence its economic environment[(3)](#ntr3-C_2005294EN.01004501-E0003). In its Communication of 11 December 2002, Industrial Policy in an Enlarged Europe[(4)](#ntr4-C_2005294EN.01004501-E0004), the European Commission defines competitiveness as ‘the ability of the economy to provide its population with high and rising standards of living and high rates of employment on a sustainable basis’. Moreover the importance of overall competitiveness is underlined by the European competitiveness reports regularly published by the European Commission since 1994[(5)](#ntr5-C_2005294EN.01004501-E0005). |

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| 1.4 | For companies competitiveness means being able to 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)](#ntr6-C_2005294EN.01004501-E0006)‘Organisational 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)](#ntr7-C_2005294EN.01004501-E0007). Organisations must comply with the ‘three E's’: efficiency, efficacy and effectiveness. Efficiency in the management of resources, efficacy in achieving objectives and effectiveness in influencing the environment. |

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

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| 1.6 | Today companies face a constantly changing environment. Increasingly open markets, highly developed infrastructures 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 activities. |

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| 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 enlargement,[(8)](#ntr8-C_2005294EN.01004501-E0008)‘[t]he enlarged single market will bring many economic advantages and will strengthen the competitiveness of the EU in the global market, provided that 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 competitiveness report 2003, the CEEC-10[(9)](#ntr9-C_2005294EN.01004501-E0009) 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 to competitive advantages of the CEEC-10 regarding (upstream) primary and (downstream) consumption goods whereas they have disadvantages regarding intermediate and capital goods. |

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| 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. |

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| 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 this is the increased GDPs in Ireland[(10)](#ntr10-C_2005294EN.01004501-E0010), Spain[(11)](#ntr11-C_2005294EN.01004501-E0011) and Portugal[(12)](#ntr12-C_2005294EN.01004501-E0012) 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. |

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| 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. |

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| 1.11 | The phenomenon of relocation represents a dual challenge for European society: firstly, relocation to other Member States, in search of better conditions; secondly, the relocation to non-EU states, such as Southeast Asian countries[(13)](#ntr13-C_2005294EN.01004501-E0013) or countries with emerging economies[(14)](#ntr14-C_2005294EN.01004501-E0014), particularly China. This second case is partly driven by favourable production conditions but mainly by the chances offered by entering very large new markets with enormous growth potentials. |

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| 1.12 | The relocation phenomenon, apart from being the 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 countries receiving investment and necessarily involves the regular transfer of know-how; consequently relocation can make a considerable contribution to levelling out the comparative advantages described in 1.7 above and to further increasing the competitiveness of the relocated businesses. |

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| 1.13 | Despite the effects mentioned above, the European Commission acknowledged, in its Communication on Restructuring and Employment of 31 March 2005[(15)](#ntr15-C_2005294EN.01004501-E0015), that restructuring must not be synonymous with social decline and a loss of economic substance. Furthermore, this Communication also states that restructuring operations are often essential to the survival and development of enterprises, although it is necessary 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. |

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| 1.14 | Today, investing in other countries is no longer an 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 business. |

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| 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 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. |

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| 1.16 | In the light of the economic takeoff of emerging economies and Southeast Asian countries, it is revealing to note that foreign direct investment (FDI) is indeed increasing in these regions, as are the EU's trade flows with them. Consequently, 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. |

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| 1.17 | Thus, recent data confirms the new course being taken 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)](#ntr16-C_2005294EN.01004501-E0016). |

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| 1.18 | At this point it would be worthwhile to try and define the concepts of delocalisation and deindustrialisation:   |  |  |  |  |  |  | | --- | --- | --- | --- | --- | --- | | — | 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; |  |  |  | | --- | --- | | b) | relative deindustrialisation: This is the decline in the share of industry in the economy, reflecting a process of structural change in the relationship between the industrial performance and the service sector.[(17)](#ntr17-C_2005294EN.01004501-E0017) | |   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 snowball effect |

2.   Causes and implications

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| 2.1 | In order to tackle the negative effects of relocation, it is 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 contribution 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, in principle, less easy to relocate. Therefore, the Committee supports the European Commission's proposal to establish a Competitiveness and Innovation Framework Programme (CIP)[(18)](#ntr18-C_2005294EN.01004501-E0018), in which it proposes the creation of three sub-programmes aimed at providing a common framework to boost productivity, innovation capacity and sustainable growth. The first of these sub-programmes, entitled the Entrepreneurship and Innovation Programme, is 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. |

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| 2.2 | Furthermore, the indirect effects that the risk of relocation 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. |

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| 2.3 | Historically, the EU–15 has been characterised by regional disparities in levels of income, employment and productivity, which reflect the differences in the level of indebtedness, in the tax benefits and in the attitude towards innovation. After the enlargement of 1 May 2004 this regional diversity has increased considerably[(19)](#ntr19-C_2005294EN.01004501-E0019). |

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| 2.4 | At regional level, the consequences of company relocation can be dramatic especially if the region specialises in a particular 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)](#ntr20-C_2005294EN.01004501-E0020), 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)](#ntr21-C_2005294EN.01004501-E0021). |

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

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| 2.6 | According to data from the European Monitoring Centre on Change (Dublin), some sectors will be affected more than others by relocation[(22)](#ntr22-C_2005294EN.01004501-E0022). A company's position on relocation also depends on its degree of independence in terms of corporate 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. |

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| 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 tendencies to relocate activities such as research and services, China and India being the biggest beneficiaries of these developments/transfers. |

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| 2.8 | We also know that some companies are bringing 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. |

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| 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 development 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. |

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| 2.10 | Even though fostering research is extremely important 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 research which produces real economic development and growth. This means that the key factor is not the technology itself but the use made out of it, i.e. the innovation. |

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

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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 production and consumption. In this context, the countries 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. |

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| 2.13 | Relocation means a company moving all or part of its 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 competition in both their home and export markets. In this context, the competitiveness of companies depends not only on the quality of their products or services and those of their suppliers, but also on their prices, exchange rate variations and the presence of open, competitive global markets whose standards are observed by all. |

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| 2.14 | The choice of location is a strategic issue for companies and consequently forces them to consider numerous aspects of a very different nature. Companies take their decisions 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 confidence, the proximity of new markets, the availability of productive resources and reasonable levels of taxation. Moreover, a company's position on relocation also depends on infrastructure and transaction costs. It also depends on its degree of independence 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. |

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| 2.15 | Relative business costs are largely determined by national or regional conditions. Countries receiving company investment must provide minimum levels of infrastructure, education and security. When contemplating taking on entrepreneurial risk, companies seek stability and confidence (in that order) before investing. Events generating instability, or particularly 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 development 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)](#ntr23-C_2005294EN.01004501-E0023). |

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| 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 development potential for employees and companies. |

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| 2.17 | Further aspects also play a key role. On the one hand, 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. |

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| 2.18 | Finally, it should not be overlooked that, since consumers lend great importance to price and consumer demand also influences supply, there is considerable pressure on retailers 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)](#ntr24-C_2005294EN.01004501-E0024). |

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| 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 encourage company relocations:   |  |  | | --- | --- | | — | cheaper supply; |  |  |  | | --- | --- | | — | tax advantages; |  |  |  | | --- | --- | | — | potential access to new markets; |  |  |  | | --- | --- | | — | technology; |  |  |  | | --- | --- | | — | lower labour costs. | |

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| 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 competitors; this is likely to result in a loss of worldwide market share, with negative consequences for the achievement of the Lisbon Strategy objectives (sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment); |  |  |  | | --- | --- | | — | 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 essential for survival in today's market; |  |  |  | | --- | --- | | — | 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 exclusion 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 headquarters 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

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| 3.1 | In response to the concerns expressed by the European Council[(25)](#ntr25-C_2005294EN.01004501-E0025), 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)](#ntr26-C_2005294EN.01004501-E0026), 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)](#ntr27-C_2005294EN.01004501-E0027) in which it welcomes the Commission's initiative. |

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| 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. |

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| 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 this process, in the context of the new financial perspectives for the period to 2013 and in three areas:   |  |  | | --- | --- | | i) | A regulatory framework favourable to industry at national and EU level, not necessarily meaning fewer regulations, but rather clear regulations applied in a uniform manner across the EU. |  |  |  | | --- | --- | | 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 politically to specific needs, move up the value chain and anticipate and flank structural change. | |

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| 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 general stagnation of economic activity. Against this background, it is essential to pursue an industrial policy[(28)](#ntr28-C_2005294EN.01004501-E0028) 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 European industry. In this way it would be possible to promote economic growth and progress towards full employment and sustainable development. |

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

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| 3.6 | It is necessary to promote a production model which emphasises factors other than the price of the products manufactured. It should be stressed that competitiveness is not based on costs or tax incentives alone, but that people are a fundamental part of firms' competitive edge. Research and the development 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 innovative attitude. In this entrepreneurs and workers undoubtedly have a crucial role to play. Ultimately the aim is to encourage 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 investment in research and innovation are of decisive importance. Here too European social partners play an important role, through their joint work programme[(29)](#ntr29-C_2005294EN.01004501-E0029). |

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| 3.7 | However, some measures only apply to intra-EU relocation. |

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| 3.7.1 | The enlargement of the EU and the consequent extension of the internal market rule out placing any kind of restrictions 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. |

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| 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. |

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| 3.7.3 | It would therefore be advantageous 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 the current situation in both regional and national economic sectors is vital, so that the specific advantages that exist locally can be put to best use. |

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| 3.7.3.1 | In order to help to keep companies in their places of origin, regional incentives should be increased as regards training; it would be worthwhile promoting other initiatives such as exchanges with universities for research, and partnerships with local authorities for developing regional ‘clusters’ of support for businesses[(30)](#ntr30-C_2005294EN.01004501-E0030). |

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| 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)](#ntr31-C_2005294EN.01004501-E0031), thus encouraging them to lay down roots. Should these businesses not comply, they will have to give back the financial aid received. |

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| 3.7.4 | Given the relevance and interest of this issue, the Committee will follow the development of relocation in Europe[(32)](#ntr32-C_2005294EN.01004501-E0032). |

4.   Recommendations

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| 4.1 | As the European Commission noted in its Communication on integrated guidelines for growth and jobs (2005-2008)[(33)](#ntr33-C_2005294EN.01004501-E0033), 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 developing further its competitive advantages, and it is crucial that actions are pursued with determination to exploit that potential. |

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| 4.2 | The Committee believes 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. Furthermore, the Committee believes that sustainable growth also requires greater demographic dynamism, improved social integration and fuller utilisation of the potential embodied by European youth as recognised by the European Council of 22 and 23 March 2005 in adopting the European Youth Pact. |

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| 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. |

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| 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)](#ntr34-C_2005294EN.01004501-E0034). These problems cannot be solved through a horizontal approach. |

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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: |

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| 4.5.1 | Education, training and skills Human capital is very 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 development 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 industrial 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 |

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| 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 European Research Area is of vital importance in providing the EU with the necessary basis for scientific and technological progress.  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 |

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| 4.5.3 | Competition policy. Although increasing, the interaction between industrial and competition policy is still insufficient. It needs to be stepped up. The appropriate implementation 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 include conditions ensuring that they are uniformly applied in all Member States.  It is necessary to link competition policy with industrial policy |

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| 4.5.4 | Awareness. Given the role of current price-driven consumer trends, it would be beneficial to raise consumer awareness of the consequences of this behaviour. Companies can become involved in this awareness campaign through labelling (social, quality, etc.).[(35)](#ntr35-C_2005294EN.01004501-E0035) They could also provide consumers with more accurate information on the origin of their products.  Consumers must be made more aware of the consequences of their behaviour |

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| 4.5.5 | Key sectors. A more active sector-based industrial policy, which fosters public-private cooperation, is needed. Therefore, the Committee considers that the quantitative and qualitative analyses being carried out by the European Monitoring 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 accelerate development |

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| 4.5.6 | Responses to unforeseen events. What all sectors require, as stated in the Communication from the Commission on restructuring and employment[(36)](#ntr36-C_2005294EN.01004501-E0036), is ‘reform of financial instruments for better anticipation and management of restructuring’ 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.  The EU needs flexible financial instruments that can cope with unforeseen events |

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| 4.5.7 | Infrastructure. Transport, 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 infrastructure is an incentive for them to stay in Europe |

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| 4.5.8 | Promoting the entrepreneurial spirit and encouraging 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 companies. It will also be necessary to promote a change of mentality, encouraging the acceptance of risk inherent in business activity.  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 |

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| 4.5.9 | Social policies. The best way of tackling the understandable 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 |

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| 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 framework 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 |

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| 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 interpreting 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 international 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 |

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| 4.6 | The aim should be to promote new investment in Europe, retain existing investment and continue European investment abroad. |

Brussels, 14 July 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

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