UNION EUROPEENNE DE L’ARTISANAT ET DES PETITES ET MOYENNES ENTREPRISES
EUROPÄISCHE UNION DES HANDWERKS UND DER KLEIN- UND MITTELBETRIEBE
EUROPEAN ASSOCIATION OF CRAFT, SMALL AND MEDIUM-SIZED ENTERPRISES
UNIONE EUROPEA DELL’ARTIGIANATO E DELLE PICCOLE E MEDIE IMPRESE
UEAPME's proposals for the upcoming communication
of the European Commission on Industrial Policy
UEAPME thanks DG Enterprise for having the opportunity to contribute to the work on the
upcoming Communication from the European Commission on "Industrial Policy". Please find
below our answers to your questions we were asked at the last meeting with the European
Business Organisations. Off course, our reaction to your questions will focus on the specific
needs of SMEs.
1. What are the main challenges that affect industry and its competitiveness in an
enlarged EU?
 The opening of the service markets will accelerate the new division of labour between
the old and the new Member States as it happens after the European Agreements on
the good markets. A shortage of qualified employees in the current Member States and
an increasing demand gap for low qualified workers will be the result. This will also
lead to a growth in shadow economy, to which the more labour intensive service
sector is especially susceptible.
 In general, Europe's economy suffers from a low growth of potential output (lack of
investment and technological development), which will have negative influence on the
speed of structural adaptation in the new Member States.
 Currently Europe's industrial policy is more horizontally orientated, which in general
is supported by SMEs. If there were any sector initiatives, the focus was on the ICT
sector. This policy will not fit into the situation in the new Member States, where
traditional industrial sectors play a much more important role.
 Due to the deficits in the finalisation of the internal market, Europe faces a relatively
low degree on internal economic co-operation (public procurement, public services,
transport infrastructure, patent, liberal professions, ...). These barriers especially hinder
SMEs, which exists until now.
 Structural problems within social protection systems (ageing population) and
regarding access to the labour markets (negative incentives to take a job or to stay in a
job) are responsible for high costs and inefficiencies.
 Compared with other regions, Europe's economy is tied by high costs and
inefficiencies regarding market regulations and environmental legislation.
 The main reason for most of the problems mentioned above is the failure to implement
the Lisbon Strategy.
2. What are - present and possible future - policies / initiatives / activities that
particularly affect the competitiveness of EU industry / SMEs?
SMEs not only represent more than 99 % of all enterprises in Europe, they are also
responsible for most of the employment. In addition they are more engaged in vocational
training than big companies. As a result, the fact, that most of the European regulations,
which affect the industrial sector, are targeted to the large enterprises, is no longer
acceptable. It is not enough, if these regulations only foresee exemptions for small
enterprises (more than 95 % of all enterprises) where necessary. There is a need for a
change in the general approach to ruling the business sector. Europe needs a "think small
first - approach". We need regulations which fit to the majority of enterprises (99,8 % are
SMEs) and exemptions, where necessary, for the rest.
Positive effects on SMEs:

implementation of the European Charter for Small Enterprises

more co-operation in tax policies and steps to harmonise corporate taxation

simplification of VAT system (reduction of compliance costs)

Enlargement

further flexibility in labour markets

voluntary instruments and market based instrument in the environmental policy

lower costs for public services due to liberalisation
Negative effects on SMEs:

Corporate social responsibility

Basel II

social and environmental standards in public procurement

implementation of the Kyoto targets

Framework Directive on Environmental Liability

new burdens regarding health and safety for workers (stress, mobbing, violence)
3. How would you characterise the interaction between the Community policies having
an impact on industrial competitiveness?
If competitiveness is seen in a dynamic context, one can judge an economy as
competitive, if there is a raise in real income, an acceptable level of unemployment and a
balanced foreign account under the condition of stable or improving social and
environmental standards.
As a result, Europe's economy faces several advantages but also disadvantages:

Even if there is a - slow - growth in real income and even there is a balance or even a
surplus in foreign accounts, Europe has a deficit regarding the level of employment
and the potential output growth. The employment problem seems primarily as a result
of regulatory deficits in the labour markets and the social protection systems. The low
rate at which potential output grows, results from low investments due to a lack of
expected profitability, which can be explained by insufficient market regulations
(Lisbon Process).

Europe has already high social and environmental standards compared to our
competitors and they increase further. The real problems regarding these policies are
not the standards themselves but the very bureaucratic and costly way of
implementation.
In this context, we also have doubts about the methods, used by the European
Commission to compare productivity and its development between Europe and other
economic regions, and use them as measure for competitiveness.

Productivity measured by GDP per head of population or per employee may be an
indicator of welfare or overall real income per person, but it is not an indicator for the
productivity and respective efficiency of the business sector. Therefore, productivity
per working hour is the relevant aspect. This would reduce the gap between Europe
and US significantly and would give a more precise picture to asked questions. Lower
employment rates and less working hours per year for the average European
employee can explain this difference. The decision for more free time instead of more
real income by the population in Europe is an issue of social preferences and not an
issue of competitiveness. This is the case as long as it is a free choice and not
enforced by unemployment. The later explains only a small part of the difference
between the average employment in Europe and the US.

If an economic model is used, where competitiveness is measured only by increases
in (labour)- productivity, all measures, which produce positive external effects (on
environment or social standards), will reduce productivity compared with areas (US)
where these measures are not implemented. This is because only the "market"-output
(price of goods and services) are measured and not the additional output (external
effect = higher environmental and social standards, which often means also lower
costs for the inhabitants, consumer, workers, etc.).