EU examines industrial policy in times of climate change

AEN News

London - The European Commission is examining a renewed interest in industrial policy in light of climate change issues facing the European Union.

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 percent on average over the last two years. It is central to innovation in Europe, and provides 81 percent 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 percent 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 percent on average over 2001-2006 compared to 1.1 percent 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.

Seven major cross-sectoral policy initiatives 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 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 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.

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.

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.

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.

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.

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 percent. 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.

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 percent of corporate R&D investment in Europe, compared with 67 percent for the US, is performed by companies belonging to high R&D intensity sectors, reflecting the weaker position of European companies in these sectors.

The EU has set ambitious environmental goals to increase energy efficiency and reduce greenhouse gas emissions by at least 20 percent 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 percent 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.