IW Competitiveness Index 2013 (II) Table 5-4
6 The way forward
6.3 How adequate is EU industrial policy?
In the preceding chapter, general requirements for economic policymaking were de-rived. While chapter 5 has already provided a general evaluation of the strengths and weaknesses of Member State policies, this and the following subsection focus on EU in-dustrial policy. After a short overview, positive initiatives are briefly highlighted, followed by a critical evaluation of shortcomings (chapter 6.4).
6.3.1 EU industrial policy – a brief overview
Industrial policy has a long tradition in the EU, as illustrated by the following mile-stones:
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As early as 1952 a basis was created for a supra-national industrial policy with the European Coal and Steel Community (ECSC). The treaty provided for various inter-ventionist tools in order to shape the Member States’ steel industry.•
In 1986, the foundation for industrial policy was created with the Single European Act in the context of the European Community.•
The next step followed in 1992 with the so-called Treaty of Maastricht when industri-al policy got its own title (XIII). According to the new Article 130, “the community and the Member States shall ensure that the conditions necessary for the competitive-ness of the Community’s industry exist”.However, from the 1990s to 2010 only limited political weight was placed on industri-al policy as the manufacturing sector was somewhat left on the sidelines. This reversindustri-al of attitude was mostly due to the ongoing deindustrialisation and the impression that certain service sectors provided better growth opportunities. After the financial and euro debt crisis industrial policy has experienced a renaissance and some kind of rediscovery of industry took place in political circles.
In fact, industrial policy is one of seven flagship initiatives in the context of the Europe 2020 Strategy launched in 2010 by the European Commission (COM (2010) 614 final). Remarkably, the European Commission wrote in October 2012: “The political atten-tion on industry is grounded in the realisaatten-tion that a strong industrial base is essential for
a wealthy and economically successful Europe” (COM (2012) 582 final). The Commission now intends to stop the process of deindustrialisation and reverse it. The share of manufac-turing in GDP shall rise again to 20 per cent by 2020 having declined to around 15 per cent.
The current arsenal of the EU’s industrial policy consists of horizontal and vertical or sector-specific measures. In fact, EU industrial policy has always been characterised by a dualism of liberal und interventionist elements. In 1970, the Commission’s strategy for industrial development (Memorandum “The Community’s Industrial Policy”, COM (70) 100) was based, on the one hand, on the promotion of industrial champions and innova-tions, e. g. by technological forecasting, while on the other hand, the memorandum advo-cated the completion of the Single Market. In 1990 a Commission Report (COM (90) 556 final) rejected an interventionist industrial policy to promote targeted industries. Instead, it clearly favoured a horizontal approach based on three axes: maintaining a favourable business environment, implementing a positive approach to adjustment and maintaining an open approach to markets. However, sectoral policies were not completely absent at the EU level in the so-called New Industrial Policy from the 1990s to 2010 (Veugelers, 2013).
With its communications on industrial policy from 2010 and particularly from 2012, the European Commission has introduced a “fresh approach”, which has a significantly stronger vertical element (COM (2010) 614 final, 4).
Horizontal measures comprise strengthening the Single Market including competi-tion policy, improvement of infrastructure, standardisacompeti-tion, enforcing intellectual proper-ty rights, easing access to finance for businesses, labour market policy, and education and training policies. Additionally all policy proposals that have a significant effect on indus-try shall undergo a thorough analysis for their impact on competitiveness. This includes new climate change or environmental legislation. According to the European Com- mission, the internal market is a key tool to achieve a highly competitive social market economy.
The vertical dimension of the EU’s industrial policy contains various sector-specific instruments. The Commission has identified six fast-growing areas for priority action (COM (2012) 582 final): advanced manufacturing technologies for clean production; bio-based industries; sustainable industrial and construction policy and raw materials; clean vehicles and vessels; smart grids; and key enabling technologies (KETs). KETs comprise micro- and nano-electronics, advanced materials, industrial biotechnology, photonics, nanotechnology and advanced manufacturing systems.
6.3.2 Positive EU policy initiatives
While vertical strategies carry a certain risk of policy failure (as the market generally knows where future business potential is going), many of the horizontal measures clearly go in the right direction. However, important shortcomings remain in EU (industrial) poli-cymaking and are addressed in chapter 6.4. Nevertheless, several positive examples of mainly horizontal measures are highlighted in this subsection with a focus on policy initia-tives relevant to our narrative of “Moving Forward Together in Europe”.
The Global Europe trade initiative of 2006 and the Commission’s 2010 Communica-tion “Trade, Growth, and World Affairs” (European Commission, 2006) have set EU trade
policy on a more active footing. They have strengthened the policy momentum to further open international markets for EU exporters. Due to the demise of WTO negotiations and the current Doha World Trade Round, the EU has set a significantly stronger focus on bi-lateral trade agreements. As a result, access to attractive (large and/or fast-growing) for-eign markets has been considerably increased and is currently being negotiated. Special focus is on emerging markets in Asia and, recently, on highly developed countries like the United States, Japan and Canada. Moreover, trade topics have been tackled that go beyond the current WTO realm, like investment, public procurement, non-tariff and regulatory trade barriers, and intellectual property rights.
Furthermore, the Market Access Strategy is continuously used to identify and tackle current trade barriers of all kinds across the world. These initiatives support industrial competitiveness because they facilitate the internationalisation of EU companies and their rising integration into GVCs. In addition, with lower trade barriers for imports into the EU, competition intensity is increased (and thus competitive challenges for EU firms in their home market).
The EU’s Raw Materials Initiative of 2008 (COM (2008) 699 final) is intended to secure access for EU firms to essential resources in three dimensions: in the global mar-ket; through better access to primary resources in the EU; and by raising the resource use, efficiency and recycling. Focusing on global markets, the EU has actively used the WTO dispute settlement to ensure the application of existing trade rules, e. g. concerning China’s export restrictions for rare minerals and various raw materials. Directorate General Trade also aims to improve international trade rules to increase trade disciplines for raw materi-al exports on the multilatermateri-al and bilatermateri-al level. For example, bilatermateri-al trade agreements with Colombia, Peru and Central America include prohibitions of export duties with only limited exceptions. Moreover, the EU has developed raw material policy dialogues, for example with Argentina, China, Greenland, Russia and the United States. Secured access to raw materials is key for industrial competitiveness and also for sustaining existing value chains in the EU.
The Innovation Union (COM (2010) 546 final) comprises a (more) strategic and en-compassing innovation framework in the EU to promote R&D investment and innovation.
Within this concept, Horizon 2020 – the EU Framework Programme for Research and Innovation – is the key financing instrument in the period 2014–2020. It provides funds, e. g. for top-level research initiatives and key technologies, simplifies innovation funding by combining three former programmes, and particularly intends to enable companies to better bridge the gap between research and the market.
The European Research Area (ERA) initiated in 2000 has the objective of enabling businesses and research institutions to better cooperate and move across borders, which is particularly relevant in the context of this study.
The Services Directive (2006/123/EC) also intends to foster economic integration in the service sector where many regulatory barriers still prevent a fully functioning internal market. Based on the Single Market Strategy in 2000 and on the originally proposed Di-rective of 2004 (relying on the country of origin principle) the revised Services DiDi-rective (now based on the principle of the freedom of service providers) is a significant step
for-ward tofor-wards the elimination of barriers in the trade of EU services. This initiative, which has until now been partly implemented at the Member State level, is highly important in our context, because industry relies on cooperation with service integration and cost-effi-cient service suppliers.
Concerning the internal market in energy, the EU took several wide-ranging initia-tives in order to foster competition in energy in the past, for example, the Directive on the internal market in electricity in 1996 and the Acceleration Directive due to implementation problems in 2003. The last major initiative, the Third Energy Package of 2009 (in force since 2011), intends to further increase competition in gas and electricity markets and consists of two directives and three regulations. It focuses on unbundling energy supply and distribution networks as well as on the independence of national energy regulatory bodies. These partly implemented initiatives have, inter alia, led to a rising price conver-gence in wholesale electricity markets. As energy supply has to be secure and affordable, making progress in the EU internal energy market is of vital relevance to industrial com-petitiveness and value chains.
The Commission’s proposal of 2011 for a Connecting Europe Facility (COM (2011) 665 final) bundles important elements of improved cross-border infrastructure. It had foresight to very significantly increase EU funds to €50 billion (prices in 2011) for the new Multiannual Financial Framework 2014–2020 for these objectives to be distributed as fol-lows:
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€32 billion to build missing links and remove bottlenecks in cross-border transport infrastructure (including €10 billion ring-fenced in the Cohesion Fund for transport projects);•
€9 billion to support investment in fast and very fast broadband networks and pan-European digital services which were to be leveraged by other private and public mon ey; and•
€9 billion for trans-European energy infrastructure, e. g. for network bottlenecks and better interconnections to improve the security of supply and the possibility to trans-port renewable energy in a cost-effective manner across the EU.This initiative is of high relevance to the concept of “Moving Forward Together in Europe” as cross-border value chains in goods, services and ICT essentially rely on suffi-cient transnational infrastructure.
The Commission’s initiative on smart regulation (COM (2010) 543) intends to en-sure that EU policies and laws bring the greatest possible benefits in the most effective way, especially by reducing unnecessary regulatory burdens. In particular, the needs of SMEs should be taken into account:
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Concerning existing legislation and regulation, an Action Programme for Reducing Administrative Burdens reduced the administrative burden, which stemmed from 40 legal acts and 32 additional acts, by 25 per cent by 2012. Furthermore, the REFIT Programme (on regulatory fitness and performance) systematically reviews EUlegis-lation. In a recent Communication (COM (2013) 685 final), the Commission outlined where it will take further action to simplify, revise, withdraw or evaluate EU laws.
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Regarding new legislation and regulations planned by the Commission, Impact As-sessments (IAs) of economic, social and environmental effects feature as a main in-strument to ensure the intended smartness. IAs are generally accompanied by stake-holder consultations, which are published online. Competitiveness Proofing (CP) is a relatively new instrument in the context of IAs. They are intended to implement the request of the Industrial Policy Flagship Communication of the Commission to “ensure that all policy proposals with a significant effect on industry undergo a thorough analy-sis for their impacts on competitiveness” (COM (2010) 614 final).Reducing the regulatory burden for businesses is essential to securing industrial com-petitiveness and also enabling SMEs to be more successful in integrating in international value chains.