Mr
Erkki Liikanen Member of
the European Commission, responsible for
Ladies and
Gentlemen,
It is a pleasure
for me to join you here in
One of the
priorities, if not the priority of the Prodi
Commission is about to become a reality. In about 3 months from now, we will
see the biggest enlargement in the
The city of
Nine years later,
in December 2002, again in
The ten new
Member States will increase the
We are looking
forward with great excitement to the First of May this year. It will be a
historical date. Enlargement will indeed produce major economic, political and
social impacts.
All parties
involved have worked hard to prepare for accession. After a decade of
transition, almost all the necessary preparations are in place. Economic
integration has evolved gradually, but the reforms of the societies in the
accession countries have been impressive driven forward by the prospects of EU membership. This process has already brought remarkable
opportunities for enterprises in both the current and future Member States.
In the Accession
countries, income, investment and productivity growth have been high, in some
cases even higher than in the
Enterprises in
the current Member States are also benefiting from enlargement. As Accession
countries invest in new equipment to comply with EU
(environmental and safety) standards they have become one of the main markets
for EU exports. Their share in external EU trade has continued to increase from 5% in 1990 to about
15% today. This is more than the share of
This is a
significant increase. But I believe that the most important opportunities
flowing from enlargement do not lie in the trade area, but rather in the
possibilities for companies in current and new Member States to re-organise
themselves and their processes. By taking advantage of the diversities and
skills of the enlarged
However, there
are still important difficulties with respect to the economic development of
most of the Accession countries. Per capita incomes are around 60% below the EU average, ranging from 70% below average in
But I believe
that such a slow catch-up scenario is unlikely, given the huge opportunities of
enlargement.
Government and
business will have to collaborate closely to make the most out of these
opportunities, to maximise win-win situations and to minimise the risks.
The current
economic situation in Accession countries
Let me briefly
elaborate on the current economic situation in Accession countries.
After a decade of
privatisation, downsizing and reorganisation, the industrial structure of the
Accession countries has come closer to the EU pattern,
both in terms of production and employment structures.
Since 1995
industrial labour productivity has increased fast in most Accession countries.
But significant divergences persist.
As in the current
Member States, productivity grows unevenly across sectors. The positive
development in the electrical, optical, transport and furniture sectors is
strong. Some of these have even increased their comparative advantage
vis-à-vis the present Member States. Sectors where challenges remain are
food, beverages and tobacco, textiles, leather, wood products and chemicals.
In the more
advanced Accession countries, production is shifting towards more sophisticated
sectors. Important shares of exports from technology-driven industries are
observed in the
Overall,
Accession countries are converging with the EU in
terms of competitiveness, industrial structures and trade specialisation. But
some divergences have nevertheless emerged. Countries specialising in
technological sectors are catching up relatively quickly. Other countries seem
to be stuck in more traditional sectors, mainly concentrated on low-skill labour
intensive activities.
The role of
foreign direct investment
As mentioned
earlier, I believe the potential for trade based economic integration has to a
large extent been exploited. The next wave of integration will rely on other,
"deeper" forms of cooperation.
Foreign direct
investment has already contributed a lot to restructuring and modernisation.
Most FDI has gone into the manufacturing sector. It has
attracted nearly half of the FDI in Central Europe
and approximately one fourth in the
Foreign owned
companies in export-oriented branches such as automobiles, electrical and
optical equipment are now among the main exporters in some countries.
The motivations
for investing have evolved over time. Initially, investment choices were mostly
"market seeking". Investors wanted to gain a foothold in stable
domestic markets, such as tobacco and beverages, sometimes using them as
springboards into the region.
The low-cost and
educated labour force has been another attraction for FDI.
This has motivated transfers of production from the EU
to candidate countries, notably in the textile and clothing sector.
Low-cost
relocation strategies helped to retain production activities in Europe that
would otherwise have been lost to
However, design,
marketing, input supply, management and other high-skill segments of the
production chain usually remained in the current Member States. This unequal
distribution of added value along the supply chain has sometimes led to
negative perceptions of FDI by the general public.
And indeed,
low-cost relocation alone will not bring about long-term catching-up. As wages
in the Accession countries will gradually converge with those in the EU, standard labour-intensive tasks will tend to move
further east to countries with still lower wages, such as
It is precisely
to prevent wages from "racing to the bottom" and to overcome fears of
"social dumping" that motivated Accession countries to join the
Maximising
win-win situations through innovation
But, there are
now signs that industrial co-operation in the enlarged
These
international production networks integrate Eastern and Western capabilities in
a more complementary way. We may call it the "high road" of
industrial integration through innovation. It allows EU
industry to fully exploit opportunities in the enlarged EU,
while at the same time accelerating sustainable growth in the new Member
States.
West/East
inter-firm co-operation is in the process of rapidly intensifying, from simple
trade-based activities to more stable business networks and capital joint
ventures. More "deep integration" of this kind is an indispensable
condition for local subsidiaries and suppliers to move up the value chain.
"Deep
integration" requires good co-operation skills, even more so in
trans-national cooperation schemes, where bridging cultural differences and
building mutual trust is paramount. Enterprises from the Nordic countries are
good at cooperative innovation.
Companies from
the Accession countries are less experienced in network-based business models
and could learn from the Nordic example.
How can public
policy contribute?
The development
of innovation-based West/East production networks in the enlarged
It is a challenge
for enterprises in the current and in the new Member States. It is the
enterprises that are in the driver's seat and it is not up to public
authorities to tell them how to innovate, cooperate and build partnerships.
But public policy
is far from neutral to companies. The way we design and implement policies can
promote or hinder enterprise. The public in general and businesses in
particular expect a positive contribution from policy makers.
Public policy has
already contributed a lot, but it must do even more to help economic
development in the enlarged
·
First, framework conditions,
·
Second, regional development, and
·
Third, research and innovation policy.
During the entire
accession process, national governments and the European Commission have
cooperated to reform the institutional environment and provide a stable
framework for entrepreneurial decision making.
The acquis communautaire has been
largely transposed and as a result legislation has reached a high degree of
alignment with the European Union.
But improving
framework conditions is not only a matter of legislation. Initiatives such as
the European Charter for Small and Medium-sized Enterprises, the
Entrepreneurship Action Plan and various European benchmarking exercises are
equally important. They have contributed to improve the entrepreneurial climate
in
For example,
registering a company on-line is already possible in
I expect
enlargement will push reform further and not hamper it. A greater variety of
locations competing for investment will inevitably lead to more pressure for
optimising national framework conditions. Ineffective taxation structures will
increasingly be challenged.
Let me now turn
to regional and cohesion policy.
The future
Structural and Cohesion funds will address the structural changes and provide
the capital necessary for catching-up. The institutional and conceptual
preparations to ensure a proper use of Structural funds have started well ahead
of accession. "Development Plans" and "Community Support
Frameworks" for the years 2004-2006 are in place in all Accession
countries.
Developing the
transport, energy and telecommunications infrastructure will remain a crucial
function of these funds. But the main challenge for the next programming period
will be to adapt regional and cohesion policy to encourage nature of economic
convergence in the knowledge economy. We want to move towards integrated
approaches that combine infrastructure development, training measures and the
provision of quality business support services around identified investment
projects.
Innovative means
of support to enterprise networking and co-operation requires the active
contribution of business and other stakeholders in the design and
implementation of these policies. New forms of public-private partnerships are
at stake.
One example is
human capital development and knowledge creation. Both aspects have already
been dealt with under the Structural funds of the past. But much of these
efforts relied on the intervention of public institutions. This is not always
the most efficient way to satisfy the needs of the private sector.
Building strong
universities and public research centres is certainly necessary as these can
stimulate regional clusters of knowledge-based activities. But government
R&D and business R&D are not the same; public R&D is not a
substitute for private R&D and innovation. We should think about new ways
to manage structural funds in a way that encourages companies in the target
regions to execute themselves a larger share of research, innovation and
training.
This requires
intense cooperation between companies and regional authorities. The degree to
which the private sector is prepared to take responsibility is critical for the
economic success of a region.
Last but not
least I want to mention research and innovation policy. This is a third area
where public policy must play an active and leading role to contribute to
economic development and convergence in the enlarged
I mention
research and innovation policy together because research and innovation are
indeed closely connected. Many innovations are directly based on research, for
example in biotechnology.
For quite
sometime now, the EU's Framework Programmes for
Research have been open to participants from Candidate countries. This means
many opportunities for companies to build research partnerships with companies
from the new Member States. It means opportunities for enterprises, including SMEs, to strengthen their technology base and enhance their
contribution to European competitiveness.
However, not all
innovation is research based. Applying an existing technology in a new context
and for new purposes can be as challenging as entering a totally new
technological field.
Take for example
the widespread and in-depth adoption of Information and Communication
Technologies. Faster adoption of ICT is not primarily
a matter of research. Rather it involves innovations in the work environment,
development of new skills, and organisational change in general. Our analyses show
that weaknesses in organisational innovation are one of the main reasons behind
Europe's productivity gap with the
The ICT example shows that our view of innovation should be
more comprehensive. Research and hi-tech are essential but they are not
everything. This is a strong message from the draft European Action Plan for
Innovation that we plan to launch for consultation shortly. This initiative
will complement the European Action Plan on research that fixed the 3%
expenditure target for R&D and which is already well underway.
The Innovation
Action Plan will be focussed on companies and on entrepreneurial innovation.
One strand of action will improve the conditions for innovative companies who
want to become truly European innovators.
The European
Internal Market is a reality but it is still far from perfect. Europe's
innovative companies still have difficulties in taking full advantage of
Concluding
remarks
In conclusion,
let me stress that the opportunities of enlargement are significant. New
countries, companies and citizens will enter the
There will be new
challenges for industry to reorganise across national borders. New innovation
based value chains will emerge. Making enlargement a success will depend on the
ability of all of us to innovate.
Stakeholders,
including the business community, must be involved in the shaping of policies.
Let us consider
the upcoming enlargement as an enormous opportunity. An
opportunity to enrich our lives, as the newcomers add their part to the
mosaic of European society. With the right policy mix in place, it is also an
opportunity for European business to innovate and to reinforce itself.
Thank you for
your attention.