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Brussels, 4th July 2007

Renewed EU industrial policy in times of climate change and globalization

The 2005 Communication on industrial policy was based for the first time on an integrated approach; addressing sector-specific as well as horizontal issues (see IP 05/1225). Since 2005, the overall performance of EU industry continued to develop favourably against a background of an increasingly integrated world and an accelerating pace of technological change. Therefore, the analysis of the 2005 Communication is still largely valid concerning globalization and technological change. The challenge of climate change has gained in significance since 2005. Climate change will affect industry but can at the same time provide new opportunities for it.

This memo provides the following information:

1. Snapshot of European industry

2. Assessment of progress since 2005 and current state of play

Example: the CARS21 initiative

3. EU industry challenges in times of climate change and globalization

4. Commission initiatives to spur industry’s competitiveness

1. Snapshot of European industry

Industry in the EU-27 is healthy and dynamic, and contributes substantially to growth and jobs in Europe. Directly, industry represents around a fifth of EU output and grew by 2.6% on average over the last two years. It is central to innovation in Europe, and provides 81% of private sector R&D expenditure and an increasing number of high skilled jobs. Manufacturing industry’s innovative capacity significantly strengthens Europe’s competitive advantage and provides 73% of the EU exports. Indirectly, manufacturing is responsible for the dynamism of many services sectors and contributes significantly to employment growth.

Continuous specialisation, changes in the skills composition of employment, investments in technology, and restructuring of value creation chains contributed to the continued labour productivity growth in manufacturing, which grew by 2.9% on average over 2001-2006 compared to 1.1% for the economy as a whole. Nonetheless, EU manufacturing remains specialized in medium-tech sectors and has not taken advantage of the fast growth of certain high tech sectors. European businesses have not fully exploited either the opportunities offered by ICT technologies. Also, within sectors, the EU is comparatively slow to reallocate resources to the most productive companies. This points to a higher degree of rigidity in the EU, indicating that the structure of European industry adapts only slowly over time to changing market realities and new technological developments.

2. Assessment of progress since 2005 and current state of play

Seven major cross-sectoral policy initiatives (see IP 05/1225) were announced in the 2005 Communication to address common challenges across groupings of different industries and to reinforce the synergies between different policy areas in the light of competitiveness considerations. In addition to these, seven sector-specific initiatives were followed up in different ways, depending on the approach considered most appropriate. This took the form of High-Level groups involving senior politicians, expert groups, and Commission-internal working groups with the aim of improving the synergy between different Commission policies.

The initiatives which have already delivered results have had a significant impact on policy development. They succeeded in bringing together a wide spectrum of stakeholders and reached agreement on key issues and the way forward:

  • The High Level Group on Competitiveness, Energy, and the Environment helped to merge three different policy strands and made significant contributions to the Commission energy climate change package and development of a sustainable industrial policy.
  • The HLG on Textiles helped to identify policy priorities, and, to set up an industry-wide platform for research and development.
  • The EnginEurope initiative on mechanical engineering and the task force on ICT competitiveness delivered reports that helped to shape European industrial policy.

- Pharmaceuticals Forum and the Defence Industry Forum have delivered partial results but their work is still in progress

  • The initiative on IPR has led to several initiatives, including a joint EU/US Action Strategy on IPR and counterfeiting.
  • The CARS21 initiative was the basis for the Commission’s Communication on the automotive regulatory framework and led to important legislative proposals e.g. on extending the European whole-vehicle type-approval system and on simplification (see example below).
  • The High Level Group LeaderSHIP 2015 developed recommendations that helped to turn European maritime industries that were heavily depending on State Aid for its operational business into a vibrant and competitive industry. Shipyards benefit from innovation aid, but with aid intensities tailored to reflect and reward intelligent risk-taking and enhance technological ascendancy. The industry is now highly competitive, with full order books till 2010/2011, but must square up to the threat of major overcapacity in the years beyond.

Example: CARS 21 initiative

The High Level Group CARS 21 brought together all the main stakeholders (including consumer and environmental organisations and trade unions), to advise on future policy. In February 2007 the Commission adopted a Communication setting out the direction in which it intends to steer future automotive policy. The Communication reflects extensive stakeholder consultation and dialogue on automotive issues. The main priorities are:

Simplification of the regulatory environment and reduction of administrative burdens: The Commission will propose replacing 38 EC directives with corresponding global UN/ECE regulations. In addition, self testing and virtual testing will be introduced for 25 directives and UN/ECE regulations to reduce compliance costs and make administrative procedures less costly and time consuming.

Reduction of CO2 emissions: The Commission strategy is based on an integrated approach, involving not only engine technology, but also other technological improvements and an increased use of low-carbon content fuels (e.g. bio-fuels). It also focuses on additional efforts by Member States such as traffic management, improvement of driver behaviour and infrastructure in order to further reduce CO2 emissions cost-effectively.

Road safety: based on a combination of specific improvements in vehicle technology, road infrastructure, driver behaviour and enforcement.

Trade: The Communication proposes to assess the potential of using bi-lateral trade agreements (particularly in the Asian region) to improve market access and reinforces the need to enforce intellectual property rights globally.

Research and development: Clean renewable fuels and vehicles and intelligent vehicles and roads have been identified as core research priorities. A mid-term review of progress made is foreseen for 2009.

Other initiatives cover the European space programme, raw materials, biotechnology, shipbuilding, ICT, pharmaceuticals etc.

3. EU industry challenges in times of climate change and globalization

Taking stock of the achievements since 2005, today’s Communication identifies the key challenges currently facing industry in Europe. The added value of the EU’s industrial policy is that it enables us to tackle important challenges that either can not, or can only be insufficiently addressed at national level, and hence require action at European level as well. Promising areas where synergies can be expected include the space industry, and the response of EU industry to the challenge of climate change.

Globalisation has taken on a new dimension

In recent years the scale and scope of globalisation has continued to increase. A continued fall of transaction and communication costs, coupled with the nearly unlimited supply of cheap labour, high investment rate and the growing demand and output from emerging economies has spurred international trade. The EU has done well in goods trade, in which its export share in world trade stabilized around 15%. Yet, globalisation is no longer exclusively about trade in goods. More recently, the range of activities that companies trade and outsource has been increasing as ICT, organisational innovations and the growing skills base in India and China allow companies to slice-up value chains and outsource intermediate inputs and tasks.

Technological Change: narrowing the innovation gap to the US

Rapid advances in science and technology also exert pressure on manufacturers to constantly adapt and exploit new technical possibilities. The pace of technological progress has accelerated across the board and rapidly growing sectors like nanotechnologies and new energy technologies offer the prospect of a wide range of product and process innovations. Yet, most indicators of innovation and R&D show the EU still has a significant innovation gap with respect to the US and Japan, especially in business R&D. Only 36% of corporate R&D investment in Europe, compared with 67% for the US, is performed by companies belonging to high R&D intensity sectors, reflecting the weaker position of European companies in these sectors.

3.3. Climate change and Industry

The EU has set ambitious environmental goals to increase energy efficiency and reduce greenhouse gas emissions by at least 20% by 2020, and to promote renewable energy sources. Environmental industries in Europe are at the global forefront on technologies generating a turnover of approximately 2.2% of EU GDP, and employing 3.4 million people. To overcome regulatory and other obstacles, which can prevent the full exploitation of the new market opportunities, a range of policy tools including market based instruments and well designed regulation will be needed. When realising these policy tools, due account must be taken of the competitive position of those energy intensive industries that are exposed to international competition.

4. Commission initiatives to spur industry’s competitiveness

Based on the assessment of the current situation, and building on the achievements since 2005, the Commission has identified areas where some of the ongoing initiatives should be strengthened. In addition, some new initiatives are envisaged as a response to today’s challenges.

Horizontal initiatives

  • Simplifying and improving the regulatory environment and reducing the administrative burden on enterprises will remain a top priority for the Commission.
  • The lead market initiative aims to explore the extent to which the available policy instruments such as regulations, open-innovation mechanisms, standards, public procurement practices, intellectual property rights, or the availability of venture capital could spur the growth of markets for innovative products and services in a limited number of illustrative cases (for example for low energy using products, see below).

Initiatives on the technology/innovation challenge:

Creation of new and strong cross-border relationships and dependencies between products and services.

  • Collaborative networks, such as innovation poles and research-driven clusters, can be powerful engines of regional economic development and drivers of innovation.
  • Today, some high growth potential markets where Europe can develop a competitive advantage for research and innovation intensive goods fail to develop because the framework conditions are not right. A single market open to competition is essential for the innovative capacity of business.
  • Regulation, standards, IPR, procurement rules and access to risk capital in Europe are not optimally designed for innovative industries. For example, the standards initiative aims to make it easier for the results of R&D to find their way to market, and facilitate, for example, the uptake of new low carbon and energy efficient technologies.
  • In addition, ongoing work will be stepped up in a number of sectors which are confronted not only with the need to respond both to rapid technological and scientific developments, but are also hampered by obstacles to fully exploiting the benefits of the Internal Market. The lack of a large, unified market hinders these sectors to create the knowledge and technology spillovers that benefit the entire economy.

Community funding programmes, as well as current and planned European Technology Platforms and Joint Technology Initiatives build open partnerships and foster innovation, but other forms of pro-active response are also required.

Initiatives on energy, environment and competitiveness

Basic principles of a sustainable industrial policy are:

  • Stimulate the development and commercialisation of low carbon and energy/resource efficient technologies, products and services, for example by developing lead markets and creating incentives for frontrunners. This may require appropriate financing instruments and the development of market-based instruments that encourage the uptake of environmentally friendlier products and services, including through a better internalisation of environmental costs without prejudice to state aid rules.
  • Creation of a dynamic internal market: The Commission will develop a strong product policy and remove obstacles in the internal market. This will include realistic and progressively more ambitious minimum requirements coupled with, where appropriate, voluntary "lead" standards and incentives, such as labelling, to drive performance upwards.
  • Creation of global markets for low carbon and energy/resource efficient technologies, products and services: Faster uptake of environmental technologies and standards for more sustainable technologies, products and services in the EU can pave the way to the development of international standards which better integrate environmental aspects, taking a life-cycle approach.

An Action Plan will be launched in early 2008. It will contribute to reaching the objectives of the energy and climate change package adopted by the European Council in March 2007.

In addition, Energy Intensive Industries will require particular attention, as recognized by the European Council. Cost-efficient measures are needed to improve both the competitiveness and the environmental impact of such European industries. The Commission will publish a policy document in the autumn setting out how this goal could best be met.

The Commission will also seek to use its external energy policy in international relations, trade policy and industrial dialogue to encourage sustainable energy and climate change policies in partner nations, including China, India and other developing countries as well as the USA and Russia.

More information

Figures and graphics available in PDF and WORD PROCESSED

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