Presidency summary of proceedings at meeting of EU Competitiveness Council

Dublin, Apr 2004

Ministers from 31 countries in Europe and three EU Commissioners gathered in Dromoland, Co. Clare to consider the competitiveness challenges faced by Europe and the performance and future of European industry. Ministers were joined by leaders in industry, science and innovation.

Faced with the concerns of many European leaders relating to trends in exports, jobs, and lacklustre productivity performance, the meeting focused on the nature and scale of these problems and on how Europe can address them.

Together with contributions from industry and science leaders, a background paper prepared by the Irish Presidency and recently published papers by the European Commission on Industrial Policy, Innovation and Competition Policy provided the backdrop to the day's proceedings. The Ministers examined Europe's productivity performance and suggested how Europe's performance in this regard could be strengthened by becoming more innovative. The object of this debate was to agree on practical initiatives for creating a better environment for industry in Europe, and thereby to create more jobs and prosperity for EU citizens.

Views of Industry Leaders

Industry leaders in Europe identified a number of competitive challenges facing their sectors:

• Excessive regulations at the EU and member state levels that provide disincentives to invest in R&D in Europe.
• Continuing barriers to trade within Europe, which suppress competition and innovation. It was argued that there is no competitiveness without competition.
• The lack of long-term finance and venture capital for private research investment in Europe, particularly compared with the USA.
• Fragmentation and insufficient focus in the European research effort.
• The weak interface between European researchers and the market place.
• Lack of sufficient intellectual property protection in Europe.
• Lack of reform within the European university system to promote excellence.
• Insufficient investment in skills and training.

Excessive regulation was a major theme in the industry presentations. Well-meaning regulation has, as a result of unintended consequences and its cumulative effect over time, resulted in the loss of high-skilled jobs in Europe. Regulating solutions can freeze innovation; identifying desired outcomes and then challenging industry to achieve them promotes innovation. There is also a need for regulation to recognise the implications of the digital world. Greater information from technology means that the way we made regulation in the past to protect consumers is no longer appropriate. Instead, we should encourage this process of consumer empowerment through access to information.

Increasingly nations and regions, as well as companies, must think about themselves in competitive terms. This requires three things:

Investing in education and skills

Investing in innovation

Investing in the right climate for growth, entrepreneurship and innovation.

Industry leaders argued that putting in barriers to globalisation and corporate relocation and investment in developing countries is counter-productive. Internationalisation makes companies stronger.

Industry leaders argued that industrial policy and efforts to promote innovation must focus on improving the operating environment for all sectors of the economy, not just manufacturing. At the same time, it is important for policy makers to understand the requirements of individual sectors and to support industry initiatives to improve productivity and competitiveness within those sectors.

Location remains a crucial factor for promoting jobs in research and innovation. Even large companies operate to an increasing extent in networks involving academic institutions and other innovative companies. The creation of attractive knowledge communities is a prime inducement for innovators to relocate. Europe needs to develop such communities to keep researchers and innovators in Europe.

Summary of Main Points from Discussions

EU countries are naturally concerned about the impact of rising competition from developing countries on the competitiveness of Europe and its companies. This has led to concerns in many EU states about the relocation of industrial activities and jobs to more competitive locations - the so-called "de-industrialisation" process. Indeed, these concerns relate not just to low-skilled assembly activities, but also to higher-skilled and knowledge-intensive research and services activities.

Ministers and industry leaders expressed great concern about the current performance and future direction of the EU economy, and in particular the still high rate of unemployment and the low rate of economic growth compared with other major regions. The key reason why the European economy is under-performing (particularly compared with the USA) is because of weak productivity growth since the mid-1990s, reflecting Europe's inability to re-structure economically in the face of rapidly evolving production technologies, changing consumption patterns and intensifying competition.

In this regard, the two key problems identified were:

Excessive regulation and the resulting lack of sufficient competition in Europe.

There are still too many industries in Europe where there are insufficient incentives to produce innovative new products and services - where high levels of investment in research and development are necessary for companies to remain profitable. This reflects barriers to competition, and rigidities in Europe's product, labour and capital markets. This raises questions about how poor regulation in Europe and its member states has weakened competition. Better regulation to deliver a true European Single Market in goods, services, people and capital is probably the single most important tool available to EU policy makers to support faster EU productivity growth.

The environment for carrying out research in Europe.

Even in those industries where competition to innovate is intense and where European companies are investing in research, they are increasingly doing it in the USA and other locations. This reflects the better environment in the USA and other locations for carrying out research (greater focus in government research programmes, better resourced universities, better linkages between industry and universities, availability of skills, access to venture capital etc.).

Notwithstanding the globalisation of economic activity, Europe remains the master of its own economic destiny. Achieving greater European competitiveness is a matter of choice for European policy makers. We are not at the mercy of competition from lower-cost locations. The solutions to insufficient growth in productivity and employment in Europe lie not in protecting existing industries from competition from lower cost economies, but in providing a business environment that encourages and facilitates those industries to restructure into those higher skilled activities best suited to the high wage environment of Europe.

By providing for a larger market in goods, people, capital and knowledge, EU policy makers and industry leaders were agreed that enlargement of the European Union from May 1 will help to address these challenges.

Next Steps

The EU Competitiveness Council has a pivotal role in the Lisbon Agenda and driving EU economic reform, as recently emphasised by the European Council at its most recent meeting in March. But there are no quick fixes. The challenge is not to re-design the Lisbon Agenda, but to secure speedier implementation and better execution.

The Irish Presidency is working closely with the next three incoming Presidencies, Netherlands, Luxembourg and the UK to secure a more attractive economic and regulatory environment. Priorities going forward will include:

• Better EU Regulation
• o Avoiding unnecessary and excessive regulation
• o Creating competitive markets and a level playing field for business
• o Focusing on objectives, rather than on means/solutions.
• o Regulating the floor in terms of standards (environmental protection, workers' and consumers' rights etc.), not the ceiling..
• o Providing improved impact assessment.
  
  

• More Competition
• o Removing barriers to trade in services - Services Framework Directive.
• o Reforming and reducing state-aids.
• o Improving competition policy and competition enforcement.
• o Using competitive forces to improve public services, where appropriate.
  
  

• Stimulating Research Excellence
• o Increasing public and private investment in R&D combined with measures to ensure value for money and sufficient economic and social returns on investment.
• o Aligning EU research priorities with the needs of industry
• o Creating critical mass and excellence in the EU R&D industry through more effective identification of priorities and through more competition in the allocation of funding.
• o Adopting the Community Patent as a matter or urgency.
• o Encouraging the development of more advanced venture capital markets needed to finance research activity.
• o Using structural funds and funding from European Investment Bank to improve Europe's research infrastructure.
• o Simplifying procedures for accessing EU research initiatives, particularly for SMEs (this should be reflected in the 7th Framework Programme).
  
  

• Stimulating Innovation and Entrepreneurship
• o Strengthening the links between European researchers and the market place. This should be industry-led i.e. facilitating industries to "reach into" universities to extract useful knowledge for commercialisation. To be successful, innovation must be business-led.
• o Promoting iterative and small-scale process improvements at the SME level; innovation is not just about discovery through science and knowledge creation.
• o Using public procurement budgets across Europe to promote innovation and competition.
• o Cutting red tape and bureaucracy.
• o Integrating entrepreneurship into second- and third-level curricula.
• o Strengthening management capabilities.
• o Strengthening business acumen of researchers.

Ministers welcomed the publication of the Commission's Communication on Industrial Policy and look forward to the publication of the European Commission's Innovation Action Plan. The Communication on Industrial Policy will be considered at the formal meeting of EU Competitiveness Council Ministers at its meeting in Brussels on 16/17 May. Today's proceedings will contribute to the formal conclusions of the Council in May.

Irish Presidency
Item source: http://www.eu2004.ie/content/index.asp?s Navlocator=66&list_id=618