Select Committee on European Scrutiny Twentieth Report


2 Industrial policy for an enlarged Europe

(25580)

8875/04

COM(04) 274

Commission Communication — Fostering structural change: an industrial policy for an enlarged Europe

Legal base
Document originated20 April 2004
Deposited in Parliament28 April 2004
DepartmentTrade and Industry
Basis of considerationEM of 12 May 2004
Previous Committee ReportNone
Discussed in Council17-18 May 2004 Competitiveness Council
Committee's assessmentPolitically important
Committee's decisionFor debate in European Standing Committee C

Background

2.1 The Commission Communication examines the competitiveness of European industry and assesses the risk of deindustrialisation. It follows on from the Commission's Communication on Industrial Policy of December 2002,[5] when some of the foundations that should underpin the EU's industrial policy were set out, and the Communication of November 2003,[6] which gave initial views on deindustrialisation. The Conclusions of the Spring European Council also expressed concern about deindustrialisation.

The Communication

2.2 The Communication acknowledges that industry makes an essential contribution to Europe's prosperity and dynamism. Industry is increasingly enmeshed with services and contributes to their development. But it is facing major challenges — increasingly rapid technological development; skills gaps; expectations regarding consumer, environmental and health protection; new global competitors. However, the Commission concludes that there is no proof of a generalised process of deindustrialisation. The decline in the share of the economy accounted for by industry should be seen in the context of the long-term reallocation of resources to services in developed countries. Although likely to cause difficulties of adjustment, it should be seen not as a threat but rather a natural consequence of economic progress which should be facilitated and encouraged as a precondition to maintaining competitiveness and sustainable growth.

2.3 That said, the Commission highlights the emergence of worrying signs, including poor performance in productivity growth, research spending and innovation. This is manifested in the fact that relocation of industrial activity away from the EU is no longer limited to the traditional labour-intensive sectors, but is beginning to be observed in intermediate and even high-technology sectors, including some research activities and services. India and China are the main beneficiaries. Competitiveness is seen as the key factor in resolving industry's problems. Compared with the US, the Commission notes a greater difficulty of access to private funding, a "culture which is sometimes too cautious to take risks", and insufficient collaboration between public research bodies (including universities) and the industrial sector.

2.4 Enlargement is seen as a major opportunity through the extension of the internal market and temporary competitive advantages, such as low labour costs, before the new Member States have been fully transformed into knowledge-based economies. Stability and regulatory prudence are essential to exploiting these opportunities.

2.5 The Communication proposes three types of action to facilitate structural change. The first is a "better lawmaking" approach that, along with giving industry the benefit of an integrated market, ensures that the regulatory burden is minimised. Here, integrated impact assessments involving other Community institutions and the Member States are seen as central. Secondly, in order to exploit synergies between different Community policies affecting competitiveness, five policy areas are identified:

  • knowledge — innovation, research and training all having a key role;
  • functioning of the internal market;
  • cohesion policy — in particular regional policy and employment policy contributing to the process of structural change, specifically by promoting the development and the spread of knowledge;
  • development of a policy of sustainable production; and
  • the international dimension — in particular improving Community companies' access to third country markets and exporting the regulatory approaches successfully implemented by the Union inside the Single Market.

2.6 Thirdly, the effectiveness at a sectoral level of "horizontal" policy instruments should be analysed: in 2004-2005, mechanical engineering, eco-industries, the automotive sector and non-ferrous metals will be thus analysed.

2.7 In conclusion, the Communication emphasizes that the new Member States will face greater challenges than the existing ones in successfully managing the process of structural change. The priorities set out in the Communication are seen as particularly important to maintain their, still fragile, competitiveness. The emphasis on cohesion and the dissemination of knowledge is seen as the key to enabling them to build sustainable comparative advantages that will outlive the temporary advantages of low labour costs. The sectoral approach to competitiveness will facilitate a targeted response to the problems of industrial change, which are particularly acute for these countries. In this way, the challenges that enlargement is setting the Union's industrial policy can be met, and the opportunities that it offers fully exploited. An industrial policy adapted in this way will, the Commission says, help to put industry in the enlarged Union, including that in the new Member States, in a position to make a crucial contribution to achieving the objectives set four years ago at the Lisbon European Council.

2.8 The Communication notes that the Commission intends to present a "strategic agenda" on the future of research in manufacturing industry in autumn 2004. It will propose measures on future technologies, education and training, international cooperation and the creation of an environment favourable to industrial innovation. The Commission intends this to form the basis for the research and innovation measures to be proposed under the seventh R&D Framework Programme (2007-2011).

The Government's view

2.9 In her 12 May Explanatory Memorandum, the Minister of State for Industry and the Regions, and Deputy Minister for Women and Equality, at the Department of Trade and Industry (Jacqui Smith) notes that the Communication

"is not setting out any new policy initiatives at Member State level. Therefore there are no direct policy implications for the UK. In taking forward work to improve the Industrial Competitiveness of the EU, Member States will continue to work together through the open method of co-ordination, to share best practice in fostering a more competitive and enterprising regulatory framework. The Commission will focus on improving the synergies between Community polices to improve their impact, and continue to assess the effectiveness of its policies in strengthening industrial competitiveness".

2.10 She points out that "the Communication also includes several references to tax. As the UK Government has made clear, taxation issues are a matter for Member States, in accordance with the principle of subsidiarity". Finally, she notes that "the Government has not launched a formal consultation on this Communication" but "has launched a public consultation on the shape of the next R&D Framework Programme".

Conclusion

2.11 There could scarcely be a more important policy area for the future prosperity and stability of the enlarged Union. As the most recent OECD "Economic Outlook" concluded, "there is an urgent need for large continental European countries to better understand why they have been under-performing in comparison with other OECD economies and to take the necessary steps to overcome this deficiency". The Spring European Council called for "a clear and integrated response to the competitiveness challenges facing the Union", adding that "the incoming President will wish to consider how to ensure the competitiveness agenda is effectively supported". We accordingly think that it would be timely for there to be a wider discussion and we recommend the Communication for debate in European Standing Committee C.


5   Communication from the Commission, 'Industry Policy in an Enlarged Europe' COM(02) 714, 11 December 2002. Back

6   Communication from the Commission, 'Some key issues in Europe's Competitiveness - towards an integrated Approach' COM(03) 704, 21 November 2003. Back


 
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