Commissioner Neelie Kroes: State aid reform - the case for research and innovation, European Business Summit

Brussels, 17 March 2006

Ladies and Gentlemen,

I’m very pleased to be here today.

You - the business leaders of Europe – know that research, development and innovation are crucial for Europe’s sustained competitiveness. We must do more in this area if we want to achieve the Lisbon targets for Growth and Jobs. This is one of the most important messages that should come out of next week’s European Council meeting.

Role of competition in promoting R&D and innovation

Research and innovation are primarily driven by industry. Market-driven private investment should make up at least two-thirds of the target of 3% GNP for these activities by 2010.

So, we need to ensure the best possible market conditions so industry will flourish and invest now for a brighter future.

Competition policy has a key role here. Free and fair competition in open markets means companies have to stay ahead of the game. They have to invest in research and turn it into new innovative and desirable products and services. Otherwise they will be overtaken by their rivals.

So our competition policy must create the right market conditions through:

• the right rules;
• properly enforced;
• without too much red-tape.

Getting the right competitive conditions for vibrant private activity is the first, essential, step. Subsidies (which are only allowed to correct a market failure) are not the only tool available. In addition, public authorities of course have other tools for creating the right environment in which business can thrive. For instance:

• infrastructure
• the education system
• universities and not-for-profit institutes
• labour and tax laws and
• the overall regulatory framework.

All of these have a significant bearing on research and development and innovation.

Unfortunately, I cannot shape 25 national economic frameworks to attract more R&D. Nor do I control a European budget which could be used to fund projects. But as European Competition Commissioner, I can and have to provide good State aid rules for R&D and innovation which help Member States better focus subsidies more effectively.

This is why I have made state aid reform my top priority.

State aid reform

In June 2005, we launched our State Aid Action Plan. Revising the rules for R&D and introducing new rules on innovation are key parts of the programme. In September, we published first ideas for concrete measures in our Communication on state aid for innovation. The public consultation provided support and valuable feed-back, which we have taken into account.

We are now working on a new draft Framework for state aid for R&D and Innovation. Today, I would like to give you a taste of the likely shape of our proposals.

Less and better targeted aid

First, the basics. Less and better targeted aid through a refined economic approach is at the core of the State Aid Action Plan. It will also be bang in the centre of our proposals for R&D and Innovation.

We know that there are many market failures in this field. Some public intervention in this field is indeed needed to fill the gaps left by spill-overs, externalities, asymmetric information or coordination problems.

But this intervention must truly target the market failures. Otherwise, it will simply crowd out private investment. It will keep inefficient firms afloat and will reduce competitive pressure. It will create disincentives to private activities.

We also need to cut red tape. Member States must be able to react quickly to companies’ real needs. So, the new Framework will only be the first step in a new state aid architecture. A revised general block exemption will follow in 2007, covering more R&D and some innovation measures.

Community research policy

The new rules for research will better reflect the goals of the Community’s Research policy.

Firstly, they will create incentives for companies to engage more in cross-border collaboration. This is key to achieving a truly European Research Area.

Secondly, we will encourage Public-private partnerships. Europe is good at developing new knowledge. We are not so good at translating it into new products and services. We will encourage companies to bridge this gap by collaborating with public research organisations.

Thirdly, we need to provide greater legal certainty for not-for profit research bodies. When such organisations get funding, it is not always clear whether this amounts to State aid. Our new rules should clarify this and enable both contractual and not-for-profit research to flourish on a level playing field.

We also know that some projects are just too large, too daring and too risky to be carried out by a single company or Member State. Where these projects are in the common European interest, our rules must ensure they take place. But we do need to develop a joint understanding of what ‘common European interest’ means, how to test it, and what types of projects should qualify.

Turning to innovation, you will remember the proposals we made in our Communication last September. We are now working on integrating appropriate provisions into the new Framework for R&D and Innovation.

For example, we would like to allow Member States to grant some support to innovative start-ups given the funding gap they face during their first few years I would also like to enable SMEs to buy services from innovation intermediaries. Of course, the aid amounts for such measures must be limited. But aid that’s really needed should be easily accessible, without a heavy administrative burden.

Many stakeholders welcomed our ideas on helping SMEs to attract qualified researchers and other experienced personnel. This will promote a knowledge transfer between universities, large companies and SMEs. With the same objective in mind, we will also propose new rules on support to innovation clusters.

Conclusion

Ladies and Gentlemen,

I hope I’ve given you and idea of the direction we’re working in. The Commission will adopt the new Framework in the second half of this year. I have given you a flavour of our proposals. Before we take any decision, we will listen to you and other stakeholders carefully.

We’ll be consulting Member States rather soon. The draft document will also be put on our website. We are eager to hear your comments, and keen to benefit from your expertise.

The Lisbon targets can only be met through a genuine partnership between public authorities, businesses, NGOs and citizens. I am confident that, as key representatives of the business world, you will be ready to take up the challenge.

Thank you for your attention.

Item source: SPEECH/06/181 Date: 17/03/2006