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Industrial policy in an enlarged Europe

Outline of the Community (European Union) legislation about Industrial policy in an enlarged Europe

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Industry

Industrial policy in an enlarged Europe

To trigger a debate on how industrial policy can improve the competitiveness of industry and to refine the integration of the various policy instruments that have an impact on industrial competitiveness.

2) Document or Iniciative

Commission Communication of 11 December 2002 on industrial policy in an enlarged Europe [COM (2002) 714 final – Not published in the Official Journal].

3) Summary

Background

The communication is to be seen in the context of the European Councils in Lisbon in 2000 and Gothenburg in 2001. The Commission had, in a previous communication, stated that the current economic recession could jeopardise the goal set at Lisbon of making the European Union (EU), by 2010, ‘the most competitive and dynamic knowledge-based economy in the world, capable of sustainable growth with more and better jobs and greater social cohesion’. In addition, the Gothenburg summit had emphasised the need to promote the objective of sustainable development, whilst aiming at the simultaneous pursuit of the objectives under the economic, social and environmental pillars.

Industrial policy has a key role to play in helping the European Union meet the objectives it set itself at Lisbon and Gothenburg.

The communication takes a brief look at the situation of industry in the EU, listing its assets and handicaps. It also examines the implications of the future enlargement of the EU. The document also gives an overview of the challenges which European industry will have to face and suggests a number of actions to be taken to make it more competitive.

Analysis of the situation

In the face of competition which is now conducted at a global level, most sectors of European industry have made substantial efforts to upgrade their production infrastructures and integrate new forms of organisation.

In addition, following the emergence of certain decisive factors such as the growing importance of the internal market and the introduction of the euro, EU industry, and especially the services sector, experienced significant mergers and acquisitions activity in the second half of the 1990s.

The European Union is a major force in international trade. The reduction in the EU’s market share of world trade is relative, given that whilst its figures fell from 19.3% over the 1991-95 period to 18.4% in 2002, the falls experienced by its main competitors were greater. Over the same period, the US share went down from 15.1% to 12.1%, and Japan’s from 12.2% to 8.2%. Furthermore, the trade balance for EU goods was in surplus in nine of the last ten years.

Despite enterprises’ demands for a more highly skilled workforce, levels of educational attainment are not high enough. Whilst the average duration of education of the working population in the European Union is increasing, the figures fall below those recorded in the USA and Japan, with the average duration in the EU being 87% and 90% of the average US and Japan levels respectively. When it comes to the EU’s public spending on education and training as a percentage of gross domestic product (GDP), the figure has actually fallen from 5.7% in 1990 to 5% in 2001.

In the EU, labour productivity growth (GDP growth divided by the number of persons in employment) between 1995 and 2001 was lower (1.2%) than in the United States (1.9%), whereas the comparison was still in the EU’s favour between 1985 and 1990. More specifically, two main reasons for this adverse trend have been analysed: the fact that investment in information and communication technologies (ICT) is not sufficiently translated into productivity gains and a lack of innovative activity as illustrated by the EU’s low share of patent and research and development (R&D) activity compared to the USA and Japan. Especially in some sectors of industry, such as electronics, biotechnology or nanotechnology, the EU is lagging behind its competitors.

Even though they account for about two thirds of employment and 60% of total value added, relatively few small and medium-sized enterprises (SMEs) in Europe grow to the necessary critical size to compete effectively with large dominant incumbents or to enter foreign markets.

Enlargement

There are sizeable differences between the structure of manufacturing industry in the existing Member States and in the candidate countries. This is due to the fact that industry in the candidate countries is less specialised and more centred on low-technology sectors, such as food and beverages, textiles, basic metal industries and wood products. Significant progress has, however, been made in recent years in increasing labour productivity, even if this is, in all cases, still below 50% of the EU average.

All sectors have to cope with a difficult environment for companies to flourish: the cost of complying with the Community acquis, especially environmental legislation; difficulties in accessing finance; insufficient support from the public authorities, etc. On the other hand, some SMEs in the existing Member States, mainly in border regions, could be faced with competition.

EU enlargement should offer opportunities for competitive reorganisation. For example, given the increased heterogeneity of wage structures and technological skills, the candidate countries have tended to specialise in low-cost production, which is reflected in limited transfers of production from the current Member States to the candidate countries. In addition, many EU enterprises have acquired companies in the candidate countries on the basis of local technological inputs and skills.

The challenges for a new industrial policy

The main challenges which European Union industrial policy will have to face are analysed in this communication as being:

globalisation: geographical location remains a crucial factor for research and innovation. It is therefore vital to improve the attractiveness of the EU as a productive location;
technological change: the aim is to combine information and communication technologies, new managerial and organisational techniques and develop a skilled labour force to help substantially improve the competitiveness of industry;
innovation and entrepreneurship: the competitiveness of companies is based on factors such as the continuous creation of new firms, and the growth of existing ones, particularly in times of rapid technological progress. European industry also requires the development and economic exploitation of new or improved products and services, and the optimisation of business processes. There is also a need to increase R&D expenditure relative to GDP, as the European Union lags behind its main competitors in this area;
sustainability and new societal demands: there is also a need to face up to the growing demand for safety, health, consumer and social protection, which in part reflects public concerns about the environmental, ethical, or public health implications of some new technologies. A fair balance must be struck between the Lisbon and Gothenburg goals.

The way forward

The communication is largely focused on the future and the outlook for industrial policy and improving the competitiveness of industry.

The framework conditions: framework conditions are essential for the competitiveness of enterprises. Despite monetary union, the internal market and the liberalisation of certain sectors such as telecommunications, energy and transport, the efforts to introduce a more business-friendly environment still fall short of the mark. The following factors are particularly damaging in this respect, as they limit the room for manoeuvre in companies’ activities:

regulatory barriers;
technical barriers;
the poor financial environment;
shortcomings in intellectual property protection in that there is no Community patent;
differences in indirect taxation and national corporate tax systems;
an inadequate corporate governance framework.

A more systematic approach to industrial policy: the European Union has developed a number of general approaches to improve the business environment:

at EU level, the aim is to limit regulation to essential requirements linked to product safety or interoperability, allow manufacturers to declare conformity with the essential requirements, ask standards organisation bodies to develop harmonised European standards, and carry out an assessment of the impact of legislative initiatives on various categories of stakeholders, as provided for by the Commission in its 2002 Action Plan (FR ) (pdf);
at Member State level, the new open method of coordination should be put into practice. This involves compiling scoreboards, comparing the performances of individual Member States, exchanging best practices and setting quantitative targets.

Improving the integration of EU policies: the competitiveness of enterprises is determined by a large number of policies. The EC Treaty takes this into account when it stipulates in Article 157 that the Community shall contribute to the achievement of the objectives of industrial policy through its other policies. It is essential to ensure appropriate integration between all EU activities that can contribute to meeting these objectives. These are, in particular, trade policy, single market-related policies, energy and transport policies, R&D policy, competition policy, regional policy and macroeconomic policy. In order to reconcile the objectives of the Lisbon European Council with those of the Gothenburg European Council, and simultaneously pursue economic, social and environmental objectives within the framework of the sustainability strategy, other policies need to be taken into account. These include social, employment and vocational training policies, consumer protection and public health policy, environmental protection and corporate social responsibility.

Enlargement, global governance and the horizontal approach: Some industrial policy instruments should be adapted to the specific needs of the candidate countries, such as skills upgrading and SME development.

In addition, it is very much in the interest of the European Union to continue to develop globally accepted principles in fields such as environmental protection, consumer safety and social and labour standards, so that European companies are not placed at a disadvantage vis-à-vis their global competitors.

Industrial policy will continue to follow a horizontal approach in, for instance, actions to foster entrepreneurship and innovation. A vertical approach will also, however, be required to take account of the specific characteristics of certain sectors of industry: the strong requirement for R&D in the steel industry, environmental and consumer protection aspects in the chemical and biotechnology sectors, the fact that the internal market is still incomplete in the aerospace industry, and over-capacity in the telecommunications sector.

Specific tasks for the European Union: more specifically, the following activities should be pursued:

Promotion of innovation, knowledge and research:
– achieve the objective set by the European Union at the Barcelona European Council of raising the level of R&D investment to 3% of GDP by 2010;
– develop technological platforms in order to foster cooperation between stakeholders and work out a long-term strategy for R&D and innovation, thus ensuring synergy among public authorities, users, regulators, industry, consumers, and poles of excellence;
– invest in intangible assets and human capital in order to make the most efficient use of existing knowledge and maximise its diffusion;
– look closely at the defence industries, in view of the specific nature of their high record in terms of research and innovation and their dependence on orders from the State.
Entrepreneurship:
– increase entrepreneurial activity by improving the environment in which companies operate:
– easier access to finance in the earlier stages of a company’s life cycle;
– enhance skills;
– reduce regulatory and tax burdens.
The marketing of more environmentally-friendly products that are increasingly demanded by regulators and consumers:
– the promotion of a viable recycling industry;
– the development of voluntary agreements;
– the diffusion of clean technologies;
– the use of environmental management schemes.

4) Implementing Measures

5) Follow-Up Work

Communication from the Commission –[COM(2004) 274 final – Not published in the Official Journal]

Communication from the Commission to the Council and the European Parliament –[COM(2003) 704 final – Not published in the Official Journal].

LeaderSHIP 2015

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LeaderSHIP 2015

Outline of the Community (European Union) legislation about LeaderSHIP 2015

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Transport > Waterborne transport

LeaderSHIP 2015

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 21 November 2003: LeaderSHIP 2015 – Defining the future of the European Shipbuilding and Repair Industry – Competitiveness through Excellence [COM(2003) 717 final – Not published in the Official Journal].

Summary

In January 2003, the Commission set up the LeaderSHIP 2015 Advisory Group. This group was made responsible for drafting recommendations to improve the competitiveness of the shipbuilding and repair sector. In this notice, the Commission presents the recommendations, divided into eight fields of crucial importance for the competitiveness of the sector.

A level playing field for shipbuilding worldwide

European shipbuilding essentially suffers from unfair competition from certain countries. This takes the form of prices set below cost levels and injurious subsidisation. The Commission therefore approves the following three recommendations made by the LeaderSHIP 2015 Group:

continuation of the EU’s current commercial policy;
implementation of the rules of the World Trade Organisation (WTO) applicable to shipbuilding;
negotiation within the Organisation for Economic Cooperation and Development (OECD) of an agreement on shipbuilding and the application of the existing rules.

Research, development and innovation

In order for the shipbuilding sector to receive sufficient support from the Member States for its research activities, the Commission has adapted the rules governing innovation aid for the shipbuilding sector.

Financing

The shipbuilding sector needs substantial financing for both the construction phase (pre-delivery) and the operational phase (post-delivery) of the vessel. However, many banks are losing interest in shipbuilding. The Commission therefore proposes that the European Investment Bank support pre- and post-delivery financing.

In view of the risks linked to markets in foreign currencies, the Commission suggests organising an exchange-rate risk insurance system at European level.

Safety and environment

In the fields of maritime safety and protection of the marine environment, the Commission supports all the recommendations made by the LeaderSHIP 2015 Group:

the strict application of European legislation and its promotion on an international scale;
more transparent, uniform, efficient and independent inspections;
the establishment of a programme to assess the quality of shipyards throughout the world, also covering the construction of new ships and repairs;
improvements in ship repairs;
the creation of an expert committee to assist the Commission and the European Maritime Safety Agency;
exploitation of the potential of short-distance maritime transport.

European approach to shipbuilding needs

The naval defence industry does not have the same needs as the commercial naval sector. The Commission is in favour of creating a common market for defence equipment. It also approves the following proposals:

the strengthening of cooperation between shipyards, particularly between different Member States. The creation of highly integrated European stakeholders will encourage European competitiveness;
the harmonisation of export rules by the Member States. Such harmonisation would make it possible to avoid distortions of competition and increase industrial cooperation.

Intellectual property rights (IPRs)

In order to protect the shipbuilding industry from pirating and the violation of intellectual property rights, the Commission supports the following initiatives:

maximum use of existing IPR instruments (copyrights, registered designs and models, trademarks, patents, specific non-disclosure and cooperation agreements);
the creation of databases containing information on the state of the art, existing patents, the competitive situation for certain products and the main right holders;
the examination, and even reinforcement, of international patent rules.

Education and training

In order to keep a skilled workforce and attract young people, the following measures are recommended:

the development of management training programmes specific to the shipbuilding sector. New management skills will be needed in order to adapt to the new structure of the industry, which comprises a few large businesses and many subcontractors;
increased sectoral social dialogue should make it possible to meet new qualification needs. The Commission has in fact established a social dialogue committee for the sector;
the exchange of staff and know-how, university workshops;
the launch of an advertising campaign to improve the image of the sector;
the creation of regional centres of excellence to support the implementation of these recommendations. Businesses and educational establishments could participate in these centres of excellence, thus facilitating student exchanges, transfers of knowledge, the dissemination of good practices and the recognition of qualifications throughout the EU.

Building a stable industrial structure

The sector has specific needs which require an appropriate response. The Member States must acknowledge the important strategic dimension of shipbuilding and ship repair in Europe. They need to develop a political approach to the sector in order to prevent its extinction in the near future. Furthermore, for security reasons, it is important to preserve some shipbuilding capacity for both maritime transport and defence.

Lastly, greater cooperation between naval defence and shipbuilding resources in Europe can also help to improve the competitiveness of the sector.

Related Acts

Commission working document of 25 April 2007 – LeaderSHIP 2015 Progress Report [COM(2007) 220 – Not published in the Official Journal].
The LeaderSHIP 2015 strategy is achieving results. The sector is no longer perceived as a subsidised industry on the decline, but is now seen as a modern, efficient industry which creates growth and jobs. The Commission intends to continue with the initiative, accelerating it in a number of fields.

Specific programme Capacities

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Specific programme Capacities

Outline of the Community (European Union) legislation about Specific programme Capacities

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Research and innovation > General framework

Specific programme “Capacities”

Document or Iniciative

Council Decision 2006/974/EC of 19 December 2006 on the Specific Programme: capacities implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013).

Summary

Continuing previous action, the “Capacities” programme aims in the main to create new research and innovation infrastructures across Europe.

To this end, the programme calls for a strategic approach in two phases: a preparatory phase and a construction phase. This approach concerns the following areas:

research infrastructures;
research to benefit SMEs;
regions of knowledge;
research potential;
science in society;
horizontal activities in the field of international cooperation.

The budget required for executing this specific programme is estimated at EUR 4 097 million for the period from 1 January 2007 to 31 December 2013.

CHARACTERISTICS AND GENERAL AIMS

All of the financial resources mobilised by the programme correspond to specific aims in each area:

to optimise use and development of research infrastructures;
to reinforce SMEs’ innovation capacities and their ability to benefit from research;
to promote and sustain development of regional groupings which depend on research;
to unlock research potential in the European Union’s convergence and outermost regions;
to bring science and society closer together;
to stimulate international cooperation;
to encourage coherence in research policy and synergies with other policies and Community programmes.

It is worth noting that theFramework Programme, including the various specific programmes and the research activities they give rise to, should respect fundamental ethical principles and give consideration to social, legal, socio-economic, cultural and gender equality aspects.

THEMES: OBJECTIVES, APPROACHES, ACTIVITIES

For each of the themes touched on by the programme, the following are defined:

a specific aim;
a suitable approach;
specific activities.

Research infrastructures

The specific programme aims to optimise the use and development of European research infrastructures * and to support their creation or modernisation. Support measures could also be proposed in order to respond to possible needs arising at a later date. More generally, it is a question of reinforcing the technological know-how of Europe to benefit a more competitive and dynamic knowledge-based economy.

The measures relating to research infrastructures (which may already exist or have been newly created) and the emergence of new needs involve:

promoting trans-national access to structures already in place;
improving coordination through integrated modernisation;
developing on-line infrastructure based on ICT;
supporting the design and creation of new infrastructures;
strengthening cooperation within Europe and internationally.

The budget allocated to this field of research will amount to EUR 1 715 million.

Research benefiting SMEs

To allow SMEs and SME associations to use advances made in research to benefit their growth, their know-how and their innovation capacity, two special schemes are planned:

one is designed to aid small business groups to resolve, in the short term, common or complementary technological problems;
the second should allow technical solutions to be found for problems common to a large number of SMEs on a longer-term basis (e.g. conformity to European norms or regulations in areas such as health, safety and environmental protection.)

These projects will receive funding of EUR 1 336 million.

Regions of knowledge

Strengthening the research potential of European regions is the prime objective pursued here by the specific programme. To do this, support will be concentrated throughout Europe on the development of “regional clusters”, bringing together regional authorities, universities, research centres, businesses and other stakeholders. Better coordination between regional policy and research policies is one of the priorities of the programme.

The different projects in this section concern the following activities:

analysis, development and implementation of the research agendas of regional clusters (planning capacity and priorities for research and development);
“mentoring” of regions with a less developed research profile by highly developed ones, in particular by setting up trans-national regional consortia;
initiatives to improve integration of research actors and institutions in regional economies (e.g. trans-national activities organised within the framework of regional clusters);
measures aiming to promote the systematic exchange of information and interaction between similar projects (e.g. analysis and synthesis workshops, round tables, publications, etc.).

The budget allocated to the regions of knowledge will be EUR 126 million.

Research potential

The programme’s impact should centre around the European Union’s convergence and outermost regions to enable them to benefit fully from their research potential. This should, in the long term, stimulate the research potential (reinforcing knowledge, developing new skills, increasing visibility) of the enlarged Union.

In terms of specific activities, the focus will be on encouraging strategic partnerships, including twinning, between research groups from these regions (from both the public and private sectors) with prominent research groups elsewhere in Europe. These partnerships and twinning schemes will allow research groups in the least advanced regions, selected on the basis of their quality and potential, to benefit from:

exchanging knowledge and experience;
recruiting experienced researchers in charge of imparting knowledge and giving training;
acquiring and developing some research equipment;
organising workshops and conferences;
dissemination and promotion activities to maximise their visibility.

EUR 340 million funding will be dedicated to the development of research potential.

Science in society

Building an effective and democratic knowledge-based European society inevitably entails the integration of the scientific dimension into the European social fabric.

Despite being the driving force behind innovation and therefore growth, well-being and sustainable development, scientific research remains, generally speaking, badly integrated within society. Several causes for this can be identified:

insufficient public participation in the debate relating to the priorities and direction of scientific policy;
growing reservations with regard to certain scientific developments (lack of control, the questioning of fundamental values, etc.);
the perceived isolation of science from the everyday realities of economic and social life;
questioning the objectivity of scientific evidence made available to public policy-makers.

Further ambiguities arise from the increasing desire to undertake more research to address major social challenges (diseases, pollution, epidemics, unemployment, climate change, ageing of the population, etc.) and from a growing feeling of distrust regarding the possible misuses of science.

The danger of an increasing scientific divide in our societies therefore makes it essential to:

make scientific research more open, transparent and ethical;
strengthen the role of Europe on a global level in debates on shared values, equal opportunities and social dialogue;
bridge the gap between those who have scientific training and those who do not;
encourage a taste for scientific culture;
stimulate public debate on research policy;
make the world of science more accessible and more comprehensible;
help women to continue to progress in scientific careers;
adapt scientific communication to the present (using new means of communication to reach the widest possible audience).

Implementing this aspect will follow three general strands:

management of the relationship between science and society: strengthening and improving the European science system, anticipating and resolving political, ethical and social problems, a better understanding of the place of science and technology in society, development of the role of universities;
potential and prospects for the scientific world: consolidating the role of women and young people;
scientific communication: re-establishing the connection between science and society.

In terms of the European science system, three aspects are on the agenda:

improving the use of scientific advice and expertise in developing policies in Europe and evaluating their impact;
promoting trust and self-regulation within the scientific community;
encouraging debate on the distribution of information.

In anticipating and resolving political, ethical and social problems, two aspects come into play:

broader engagement on science-related questions;
setting up an informed debate on ethics and science.

To improve understanding of the place of science and technology in society, the programme advocates the formation of specialised university networks. These would have the task of demonstrating the actual role of science in building a European society and identity. To this end, several elements should be highlighted:

relationships between science, democracy and law;
research on ethics in science and technology;
the reciprocal influences of science and culture;
the role and image of scientists.

Regarding the evolving role of universities, emphasis will be placed on:

defining better framework conditions to optimise university research;
promoting structured partnerships with the business world;
reinforcing knowledge-sharing between universities and society at large.

Furthermore, programmes will be put in place to reinforce the role of women and the gender dimension within scientific research.

Equally, youth-based activities will be centred around:

supporting science education in schools;
reinforcing links between science education and science careers;
research and coordination on new methods in science teaching.

On matters of scientific communication, efforts will focus on the following aspects:

the reliability of information distributed to the scientific press;
creation of a European centre for scientific information;
training in and exchange of good practice to bring the media and the scientific community closer together;
reinforcing the European dimension of science events targeting the general public;
increasing the prominence of science by using audiovisuals;
promoting multinational communication (e.g. by awarding public prizes);
researching new methods and equipment to aid communication of scientific material.

The budget allocated to this topic will be EUR 330 million.

International cooperation

To develop an international policy of the first order for science and technology, the EU intends to:

support European competitiveness through strategic partnerships with third countries and welcome their best scientists to Europe;
address problems of accessibility that third countries face or will face.

Cooperation with third countries will mainly involve the candidate countries, the Mediterranean Partner Countries (MPC), the Western Balkan countries (WBC), the countries of Eastern Europe, Central Asia and the Caucasus (EECAC), developing countries and emerging economies.

This cooperation will entail:

the establishment of priorities and definition of policies;
improving and developing partnerships;
improving coordination of national policies and activities.

A budget of EUR 180 million will be dedicated to activities in the field of international cooperation.

Coherence of research policies

In addition to enhancing the efficiency and coherence of national and community research policies, the EU aims to:

increase their coordination with other policies;
improve the impact of public research and its links with businesses;
increase public funding and its leverage effect on private sector investments.

To do this, two lines of action will be adopted:

monitoring and analysis of research-related public policies and industrial strategies, including their impact;
supporting open coordination and transnational cooperation initiatives.

These activities will receive EUR 70 million funding from the programme.

Background

Since 1984, the EU has been following a technology research and development policy based on multi-annual framework programmes. The Seventh Framework Programme is the second since the launching of the Lisbon strategy in 2000. Its role is vital in relation to growth and employment in Europe over the coming years.

Key terms in the act
Research infrastructure: facilities, resources and services which the scientific community needs to do its research in all scientific and technological domains. This encompasses personnel, equipment, knowledge-based resources, information and communications technology, plus anything used for scientific research.

References

Act	Entry into force and expiry date	Deadline for transposition in the Member States	Official Journal
Decision 2006/974/EC	1.1.2007 – 31.12.2013	–	OJ L 400 of 30.12.2006

Related Acts

Communication from the Commission of 29 April 2009 to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions on the progress made under the Seventh European Framework Programme for [COM(2009) 209 – Not published in the Official Journal].

All actions under the “Capacities” programme are in heavy demand, notably those supporting research for SMEs and SME associations. The realisation of 44 priority infrastructure projects of strategic European interest identified by the ‘European Strategic Forum on Research Infrastructures’ (ESFRI) are limited by a lack of Community and national resources. However, the adoption of a new legal framework for European research infrastructures in 2009 should provide a further boost and financial planning security integrating other financial instruments (EIB, Structural Funds).
The “Research potential” and “Regions of knowledge” activities which bring together scientific capacity between regions have not produced the expected results (particularly in convergence regions), as they also suffer from a lack of resources. A more efficient, targeted use of Structural Funds would raise the level of scientific and technological excellence in the EU.
The new financial system is more encouraging towards the creation of a partnership between research and society.

Decision N° 743/2008/EC of the European Parliament and of the Council of 9 July 2008 on the Community’s participation in a research and development programme undertaken by several Member States aimed at supporting research and development performing small and medium-sized enterprises [Official Journal L 201 of 30.7.2008].
The Eurostars programme supports research and development (R&D) performing SMEs. This programme is founded on Article 169 of the EC Treaty concerning the participation of the Community in the R&D programme implemented jointly by several Member States. Eurostars is aimed at aligning and synchronising national research and innovation programmes to establish an integrated joint programme in scientific, management and financial fields and to contribute towards the realisation of the European Research Area.
Eurostars is a joint programme between Eureka and the Seventh Framework Programme for technological research and development (Capacities).
It is co-funded by Member States, the other participating countries and the Community. The Community financial contribution will be EUR 100 million, whilst the 22 Member States of the EU and the 5 countries associated to the 7^th FPRD will jointly provide an additional EUR 300 million. Private funding will reach EUR 400 million. The total amount for European SMEs that are active in the field of research will therefore be EUR 800 million over six years.

Iceland – Enterprises

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Iceland – Enterprises

Outline of the Community (European Union) legislation about Iceland – Enterprises

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > International dimension and enlargement

Iceland – Enterprises

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1202 final – Not published in the Official Journal].

Summary

In its 2011 Report the Commission gives a positive assessment of Iceland’s alignment with the European Union (EU) acquis due to its participation in the European Economic Area (EEA). Preparations for accession must be pursued.

EUROPEAN UNION ACQUIS (according to the Commission’s words)

EU industrial policy seeks to promote industrial strategies which strengthen competitiveness by accelerating adaptation to structural changes and encouraging a framework conducive to the creation and development of enterprises across the EU and to national and foreign investment. It also seeks to improve the overall business environment in which small and medium-sized enterprises (SMEs) operate. It presupposes a process of privatisation and restructuring (see also Chapter 8 – Competition policy). The Community strategy in this area essentially involves defining fundamental principles and drawing up industrial policy declarations. The implementation of enterprise policy and industrial policy requires an adequate administrative capacity at national, regional and local level.

EVALUATION (according to the Commission’s words)

In general the country has achieved a high level of alignment in the field of enterprise and industrial policy. Specific measures have been adopted concerning industrial policy and small and medium-sized enterprises (SMEs) in order to overcome the challenges emerging in the wake of the economic and financial crisis.

Access to financing for businesses

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Access to financing for businesses

Outline of the Community (European Union) legislation about Access to financing for businesses

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Employment and social policy > Job creation measures

Access to financing for businesses

Setting up one’s own business and developing its activity requires considerable financing. Although their first investors are generally family members or friends, entrepreneurs often have to resort to other sources of financing. However, access to appropriate financing often proves difficult, particularly for small and medium-sized enterprises (SMEs), as financial players are unwilling to take the risk that such businesses represent. The consequent market shortcomings compromise European entrepreneurship and, as a result, European growth.

It is therefore essential to ensure a more favourable financial environment for businesses, particularly SMEs. Some of the market shortcomings can best be remedied by the Member States. The European Union supplements and widens the scope of national mechanisms by offering European businesses financial support mainly indirectly (financial instruments) but sometimes also directly (other types of financial support).

Indirect Support

The Community financial instruments facilitate access for businesses, in particular SMEs, to equity loans or financing. Businesses do not receive the Community financing directly but via a financial intermediary.

The financial instruments fall within the scope of the Framework Programme for Innovation and Competitiveness (2007-2013) and, more specifically, of its Entrepreneurship and Innovation Programme, which ensures the continuity of the multi-annual programme for businesses and entrepreneurship, in particular for SMEs (2001-2006). 510 million euros had been allocated under the multiannual programme and 3.6 billion euros have been allocated under the Framework Programme.

The financial instruments provide indirect financial support to European businesses. The European Investment Fund (EIF) covers the management side on behalf of the Commission. It acts through financial intermediaries, banks and investment funds, thereby guaranteeing proximity financing.

Injection of equity

Initial investment and the ongoing injection of equity are essential if a business is to tap into its growth and innovation potential. However, SMEs often face an equity gap.

The Community financial instruments therefore encourage the supply of equity to SMEs, particularly innovative SMEs, by investing in specialised venture capital funds which in turn provide equity to SMEs. The investments can also take the form of investment funds or arrangements promoted by informal investors, business incubators or business angels.

Under the Multiannual Programme for Enterprise and Entrepreneurship, the ETF (European Technology Facility) start-up facility supports innovative businesses and rapidly developing start-ups. This facility focuses mainly on seed capital.

The High Growth and Innovative SME Facility (GIF) ensures the continuity of the ETF start-up facility within the framework of the Entrepreneurship and Innovation Programme. The GIF facilitates the supply of seed and start-up capital for young SMEs. It introduces a new element by also offering “follow-up” capital during the expansion stage for high-growth, innovative businesses. It thus helps businesses to market their products and services and encourages them to innovate.

Bank credit and guarantee systems

Loans provide an advance of funds that are often essential for business establishment or development. However, SMEs and innovative businesses often cannot offer sufficient guarantees to obtain a loan. This situation is aggravated by the increasing reluctance of financial institutions to take risks (“Basel II” regulatory framework).

The Community financial instruments therefore encourage financial institutions to grant loans to businesses, in particular SMEs and innovative businesses, using guarantee instruments based on risk-sharing. They thereby increase the loan facility available to businesses.

The SME guarantee mechanism, for instance, facilitates access to debt financing, i.e. loans and leasing. It guarantees loans for developments linked to information and communication technologies (ICT), which are considered to be high risk. This mechanism also offers guarantees for micro-credits to encourage financial institutions to grant loans of less than 25 000 euros, which involve high risk and low profitability. In addition, it provides guarantees for the acquisition of shareholdings or for equity investments in SMEs.

The SME guarantee mechanism was introduced under the Multiannual Programme and has been continued under the Entrepreneurship and Innovation Programme with a new securitisation instrument for debt finance portfolios which will help to mobilise additional loan financing for SMEs.

Capacity building

The financial instruments also strengthen the capacity of financial intermediaries, particularly in the new Member States, thereby stimulating the venture capital available to innovative businesses and businesses with growth potential.

The seed capital action of the Multiannual Programme and the capacity building instrument of the Enterprise and Innovation Programme support investment funds by improving their technical and technological potential and helping with the recruitment of specialised staff.

Direct Support

The Structural Funds provide an important source of financing for businesses, particularly SMEs. In fact, businesses make a crucial contribution to achieving the objective of reducing development disparities between regions and promoting economic and social cohesion in the European Union.

The European Regional Development Fund (ERDF) supports development and structural adjustment in regional economies by helping small businesses and promoting entrepreneurship. The purpose of the Joint European Resources for Micro-to-Medium Enterprises initiative (JEREMIE), to become operational in 2007, is to improve access for small and medium-sized businesses to financing in the least developed regions, thereby encouraging the creation of new businesses, particularly in innovative sectors. The initiative offers loan guarantee systems and also equity and venture capital financing.

Financing under the Structural Funds is made available through the national or regional authorities. Under the JEREMIE initiative, financing can be accessed through financial intermediaries, banks and investment funds, and in particular through the EIF and the European Investment Bank (EIB).

Businesses can also have direct access to European financial support when it is to be used for the achievement of specific objectives. The Community programmes therefore offer the possibility of direct financing in the fields of research and innovation (the Sixth and Seventh European Community Framework Programmes for Research), environment and energy (see section entitled “Incentives and Environment Subsidies”), education and training (Socrates and Leonardo da Vinci) and health and safety.

If they meet the criteria laid down by the programme in question, businesses can make a direct application for financial support to the European Commission department responsible for the programme.

Financing SME Growth

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Financing SME Growth

Outline of the Community (European Union) legislation about Financing SME Growth

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Employment and social policy > European Strategy for Growth > Growth and jobs

Financing SME Growth

Document or Iniciative

Communication from the Commission to the Council, the European Parliament, the European Economic and Social committee and the Committee of the Regions of 29 June 2006 – Implementing the Community Lisbon Programme: Financing SME Growth – Adding European Value [COM(2006) 349 final – Not published in the Official Journal].

Summary

The challenge of financing for small and medium-sized enterprises (SMEs)

Improving access to finance for SMEs, and more specifically initial investment and the ongoing injection of equity, is essential if an SME is to tap into its growth and innovation potential. However, a large number of SMEs in the EU face an equity gap. 2. When their initial funds have been exhausted, entrepreneurs have to obtain external finance to develop their project. Financing SMEs is, however, often considered too risky on account of the low rates of return, particularly during the seed phase. There is thus a serious lack of business angels and venture capital funds that are willing to invest in young innovative SMEs.

The inability to obtain early-stage investment prevents many SMEs reaching a size where they can attract expansion capital, thus stunting their growth.

SMEs, as sources of innovation and job creation, are the engines of European growth, and giving them the opportunity to start up, develop and achieve their potential makes a vital contribution to the Lisbon process.

Boosting SME financing

The European Commission suggests different measures to boost financing for SMEs.

Raising more venture capital investment

Encouraging venture capital investment involves the establishment of an internal market for venture capital. The aim is to overcome the fragmentation of the venture capital market and allow the various operators to invest across borders without incurring unfavourable tax treatment.

More attention should also be paid to the exit strategy (the point at which the venture capitalist can recover his capital by giving up his share). As initial public offerings of stock provide a natural exit route for venture capital investors, it is essential to make European growth stock markets more liquid and efficient.

The EU should also develop a growth and investment culture. Successful entrepreneurs should therefore be encouraged to invest in turn and become business angels.

Developing debt finance for SMEs

The EU should encourage traditional bank finance for innovation. A round table between banks and SMEs will be organised in order to improve the scope for long-term banking relationships, promote microfinance (loans of less than 25 000) and “mezzanine finance” (hybrids of loans and equity), and also evaluate the advantages of tax relief systems for young innovative companies.

Strengthening the EU contribution to SME financing

The EU needs to devote more resources to SME financing.

The main existing Community instruments in this respect are the Competitiveness and Innovation Framework Programme (CIP) (2007-2013), the JEREMIE (Joint European Resources for Micro to Medium Enterprises) initiative, under the EU’s regional policy and the Seventh Research Framework Programme (2007-2013).

The EU has also reviewed its regulations on State aid for risk capital funds, particularly to help innovative SMEs.

Introducing better governance at national level

It is also up to the Member States to ensure that the regulatory and fiscal environment favours SME access to debt finance and venture capital. Some Member States have already been successful in doing so. It is therefore essential to identify and spread good practices.

It is also recommended that the Member States draw up support schemes for entrepreneurs to make them aware of investor concerns and prepare them on how to present their projects better.

Background

This Communication forms part of the Lisbon strategy and its proposals complement the Communication on a modern policy for SMEs.

The European Commission will present a report on the progress made in SME financing in 2009 that will feed into the reporting on progress with the renewed Lisbon strategy.

Related Acts

Communication from the Commission to the Council, the European Parliament, the European Economic and Social committee and the Committee of the Regions of 10 November 2005, entitled “Implementing the community Lisbon programme – Modern SME policy for growth and employment” [COM (2005) 551 final – Not published in the Official Journal].

Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises [Official Journal L 124 of 20.05.2003].

Business environment

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Business environment

Outline of the Community (European Union) legislation about Business environment

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

Business environment

The process of starting up and developing a business is not just an adventure, but also a real challenge. In order to help entrepreneurs with this, it is essential to create a favourable business environment.
Ensuring easier access to funding, making legislation clearer and more effective and developing an entrepreneurial culture and support networks for businesses are all instrumental as far as the setting up and growth of businesses are concerned.
However, creating a favourable business environment does not mean simply improving the growth potential of businesses. It also means turning Europe into a place in which it is advantageous to invest and work. In this way, the promotion of corporate social responsibility is contributing to making business in Europe more attractive.
Small and medium-sized enterprises (SMEs) make up 99% of European businesses. Their small size makes them very sensitive to changes in the industry and environment in which they operate. It is therefore vital for their well-being to be a focus of political attention.

SMALL AND MEDIUM-SIZED ENTERPRISES (SME) – 99% OF EUROPEAN ENTERPRISES

A “Small Business Act” for European SMEs
A modern policy for SMEs
European Charter for Small Enterprises
Definition of micro, small and medium-sized enterprises
The SME Envoy
A programme for clean and competitive SMEs

ENTREPRENEURSHIP

Action plan for entrepreneurship
Promoting entrepreneurship in schools and universities

BUSINESS SUPPORT

Financing

Developing Public Private Partnerships
Development of micro-credit
Access to financing for businesses
Financing SME Growth
Competitiveness and Innovation Framework Programme (CIP) (2007-2013)

Advice

Support to businesses

IMPROVING THE BUSINESS ENVIRONMENT

Improving rules, practices and management

Combating late payment in commercial transactions
Green Paper: European Contract Law for consumers and businesses
Open method of coordination: BEST procedure
Reducing administrative costs
Administrative burdens: sectoral reduction plans 2009
A simplified business environment
Transfer of businesses
Overcoming the stigma of business failure
Community eco-management and audit scheme (EMAS)
Late payments

Corporate social responsibility (CSR)

A European strategy 2011-2014 for Corporate Social Responsibility
Promoting corporate social responsibility
Corporate social responsibility: a business contribution to sustainable development.
Green Paper on corporate social responsibility
Sustainable Consumption, Production and Industry Action Plan

A programme for clean and competitive SMEs

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A programme for clean and competitive SMEs

Outline of the Community (European Union) legislation about A programme for clean and competitive SMEs

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Interaction between enterprise policy and other policies

A programme for clean and competitive SMEs

Document or Iniciative

Communication of 8 October 2007 from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, entitled: “Small, clean and competitive – A programme to help small and medium-sized enterprises comply with environmental legislation” [COM(2007) 379 – Not published in the Official Journal].

Summary

Small and medium-sized enterprises (SMEs) represent 99 % of all enterprises and 57 % of economic added value in the European Union (EU), yet they fail to apply a significant number of European environmental laws. This happens either because they fall below the thresholds that trigger the application of these laws, or because they are unaware of their impact on the environment and of the legislation applicable to their activities.

This situation has adverse effects on the competitiveness of SMEs, which don’t reap the economic benefits associated with better environmental management and eco-innovation, and also on the environment and the health and safety of workers.

To help SMEs adopt sustainable production methods and business practices, the Commission aims to increase SME compliance with environmental legislation by reducing the costs involved, increasing the eco-efficiency of SMEs and enhancing their eco-innovation and competitiveness.

This action plan entails improving legislation, adapting environmental management tools, providing SMEs with financial assistance, building local expertise and improving communication and information. The Commission and Member States must regularly review the programme’s implementation, whose initial assessment will take place by 2010.

Better regulation

Measures that can be taken to improve the design and implementation of legislation include streamlining administrative procedures in order to cut costs, grouping and disseminating best practices for meeting environmental obligations, for instance via initiatives such as BEST, working with implementation authorities such as the IMPEL Network and consulting with SMEs in policy-making and policy implementation.

Tailoring environmental management schemes to SMEs

The Commission encourages the application of the environmental management and audit system (EMAS). In particular, it intends to extend this system to a given industrial cluster or sector, and to develop tools such as EMAS-Easy to facilitate its implementation. Furthermore, it plans to reduce the red tape involved in dealing with EMAS in order to encourage European companies to use it. .

Providing appropriate and sustainable financial assistance

To facilitate investment in eco-efficient processes, SMEs can receive European funding and aid through programmes such as LIFE+, the Competitiveness and Innovation Framework Programme and the new instruments of the Cohesion Policy 2007-2013, such as the ERDF, the Cohesion Fund and the European Social Fund. The Commission plans to publish a handbook on new funding opportunities for businesses.

In addition, Community regulations on State aid make it possible for Member States to financially assist businesses that comply with and even improve on the EU’s environmental legislation.

Building local expertise

The Commission plans to build capacity to support SMEs in the Member States by organising training seminars on how to find information and on the legal requirements and the benefits of improved environmental performance. The Euro Info Centres (EIC) Network and, from 2008, the new network in support of business and innovation, integrating the services of EICs and the Innovation Relay Centres (IRCs), will support the efforts of the Commission by promoting partnerships and working actively with SMEs.

Improved communication and more targeted information

A multilingual website should be established to provide SMEs with information on the implementation of laws, management tools, funding opportunities, good practices and so on. The Commission also intends to develop guidelines for SMEs to help them control their impact on the environment.

Definition of micro, small and medium-sized enterprises

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Definition of micro, small and medium-sized enterprises

Outline of the Community (European Union) legislation about Definition of micro, small and medium-sized enterprises

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

Definition of micro, small and medium-sized enterprises

Document or Iniciative

Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises [Official Journal L 124 of 20.05.2003].

Summary

The definition of micro, small and medium-sized enterprises is updated to take account of economic developments since 1996 (inflation and productivity growth) and the practical lessons learnt.

The new definition thus qualifies small and medium-sized enterprises (SMEs) and the concept of the microenterprise. It strengthens the efficiency of the Community programmes and policies designed for these businesses. The aim is to ensure that enterprises whose economic power exceeds that of an SME do not benefit from the support mechanisms specifically intended for SMEs.

Micro, small and medium-sized enterprises

Micro, small and medium-sized enterprises are defined according to their staff headcount and turnover or annual balance-sheet total.

A medium-sized enterprise is defined as an enterprise which employs fewer than 250 persons and whose annual turnover does not exceed EUR 50 million or whose annual balance-sheet total does not exceed EUR 43 million.

A small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.

A microenterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.

Autonomous, partner, linked enterprises

The new definition of an SME clarifies the typology of enterprises. It distinguishes between three types of enterprise on the basis of the type of relations they have with other enterprises in terms of percentage interest in capital, voting rights or the right to exercise a dominant influence:

autonomous enterprises;
partner enterprises;
linked enterprises.

Autonomous enterprises are by far the most common. These include all enterprises which are not one of the other two types (partner or linked). An enterprise is autonomous if it:

does not have a holding of 25 % or more in another enterprise;
is not owned 25 % or more by an enterprise or public body or jointly by several linked enterprises or public bodies, with a few exceptions;
does not draw up consolidated accounts and is not included in the accounts of an enterprise which draws up consolidated accounts and is thus not a linked enterprise.

An enterprise may continue to be considered autonomous, even if this 25 % ceiling is reached or exceeded, if there are certain categories of investor who play a positive role in business financing and creation, such as “business angels”.

Partner enterprises: This type represents the situation of enterprises which establish major financial partnerships with other enterprises, without the one exercising effective direct or indirect control over the other. Partners are enterprises which are neither autonomous nor linked to one another. An enterprise is a partner of another enterprise if:

it has a holding of 25 % to less than 50 % in the other enterprise;
the other enterprise has a holding of 25 % to less than 50 % in the applicant enterprise;
the applicant enterprise does not draw up consolidated accounts which include the other enterprise, and is not included by consolidation in the accounts of the other enterprise or of an enterprise linked to it.

Linked enterprises correspond to the economic situation of enterprises which form a group through the direct or indirect control of the majority of the capital or voting rights (including through agreements or, in certain cases, through individual shareholders), or through the ability to exercise a dominant influence on an enterprise. Such cases are thus less common and very different from the two preceding types. To avoid difficulties of interpretation for enterprises, the European Commission has defined this type of enterprise by adopting – wherever they are suitable for the purposes of the definition – the conditions set out in Article 1 of Council Directive 83/349/EEC on consolidated accounts, which has been in application for several years. An enterprise will thus generally know immediately that it is linked, since it is already required under that Directive to draw up consolidated accounts or is included by consolidation in the accounts of an enterprise which is required to draw up such consolidated accounts.

Staff headcount relevant to the definition of micro, small and medium-sized enterprises

The staff headcount is measured in annual work units (AWU), i.e. the number of persons who worked full-time within the enterprise in question or on its behalf during the entire reference year under consideration. The work of persons who have not worked the full year or have worked part-time is counted as fractions of AWU. Apprentices or students engaged in vocational training under an apprenticeship or vocational training and maternity or parental leave are not counted.

Legal value of the definition

The definition of micro, small and medium-sized enterprises is binding only for certain matters, such as State aid, implementation of the Structural Funds or Community programmes, particularly the Framework Programme on Research and Technological Development.

The European Commission nevertheless urges the Member States, the European Investment Bank and the European Investment Fund to use it as a reference. The measures taken in support of SMEs will then be more consistent and effective.

Timetable

To allow a smooth transition at Community and national level, the new definition has been used since 1 January 2005.

On the basis of a review of the application of the definition of 6 May 2003, and taking account of any amendments to Article 1 of Directive 83/349/EEC on the definition of linked enterprises within the meaning of that Directive, the Commission will if necessary amend this definition, particularly the ceilings for turnover and for the balance-sheet total, in order to take account of experience and economic developments in the European Union.

Background

The Commission adopts a new definition of micro, small and medium-sized enterprises to replace, from 1 January 2005, the definition laid down in Recommendation 96/280/EC.

References

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Recommendation 2003/361/EC	1.1.2005	–	OJ L 124 of 20.5.2003

The SME Envoy

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The SME Envoy

Outline of the Community (European Union) legislation about The SME Envoy

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Enterprise > Business environment

The SME Envoy

The competitiveness of the European Union (EU) is fundamentally dependent on the wellbeing of its small and medium-sized enterprises (SMEs). The EU’s 23 million SMEs make up 99 % of all EU companies and account for the majority of new jobs created. SMEs are thus an essential source of growth, increased employment and better jobs in the European economy, which are key aims of the Lisbon strategy.

Although they are affected by many EU policies, it is difficult for SMEs to make their opinions heard.

In order to give them an opportunity to express themselves, and so as to implement in practice the “Think Small First” principle set out in the European Charter for Small Enterprises adopted by the Santa Maria de Feira European Council in June 2000, the European Commission decided to appoint an SME Envoy.

The SME Envoy acts as the interface between European SMEs and the Commission. She plays a dual role, simultaneously acting within the Commission and interacting with the outside world.

Internally, the Envoy’s role is to improve the Commission’s awareness of the problems facing SMEs. She examines EU polices that could have an impact on SMEs and ensures that their interests and specific needs are taken into account during policy-making.

The Envoy’s task is part of the impact assessment system intended to ensure that the Commission’s proposals are subject to prior evaluation of their economic, environmental and social effects. The key contribution of the SME Envoy is that she argues SMEs’ case at an early stage of the law-making process and thus anticipates the effects of new laws.

In this way, the Envoy’s work increases coordination within the Commission on issues concerning SMEs.

Externally, the Envoy gives the Commission a human face in its dealings with SMEs. She is a visible contact person who is recognised by the SME community. Her role is to listen, by means of direct contact, both regular and informal, with SMEs and their representative organisations. Besides gathering information, the Envoy keeps SMEs informed on EU programmes and funding and can answer their questions directly. By establishing dialogue between the EU and European business, the Envoy contributes to improving governance in Europe.

The first SME Envoy, Mr Timo Summa, then a Director of the Enterprise DG, was nominated in 2001 at the initiative of Erkki Liikanen, the then Commissioner for Enterprise and the Information Society.

The current SME Envoy is Mr Calleja Crespo, Director-General of the Enterprise and Industry DG.

Related Acts

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – “Think Small First” – A “Small Business Act” for Europe [COM (2008) 394 final – Not published in the Official Journal].