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International market distortion hampers new technologies

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Key enabling technologies (KETs) are an essential element of 21st century industry. Comprising advancements such as nanotechnology and industrial biotechnology, KETs enhance conventional industrial products and provide enormous economic potential. Because third countries are investing so heavily in KET industries – and sometimes adopting measures which distort the international market – the European Commission is taking steps to ensure that the EU remains competitive in KETs.

The term ‘industry’ might conjure oversized images – huge slabs of steel, or assembly lines churning out automobiles. While such products no doubt play a role in industry, there is a fast-growing segment of European industry that is smaller – much smaller – but every bit as important: key enabling technologies (KETs).

KETs – which include nanotechnology, industrial biotechnology, photonics, advanced materials, micro/nano electronics and advanced manufacturing systems – are the building blocks of 21st century industry. They make steel stronger and more durable; they make cars lighter and safer; and they make a plethora of other products, from medicines to bio fuels to mobile devices, more effective and sustainable.

Europe is not alone in understanding the importance of KETs. Many third countries, particularly the United States and Asian nations, have adopted specific policies designed to attract foreign investment in KETs. In the U.S., for instance, the National Nanotechnology Initiative has helped fuel nearly €14 billion in cumulative investment since 2001. Meanwhile, in China, biotechnology, advanced materials and advanced manufacturing technology are all areas of emphasis in China’s 12th Five-Year Plan, which helps establish the strategic direction of Chinese policy.

These efforts may sometimes result in the distortion of the international market for KET-related industries by creating incentives that are often difficult to match. Indeed, there have been cases in which EU-based KET companies have invested in third countries, simply because the incentives were too attractive to turn down.

This is especially problematic because KETs are a key component of the goal, set out in Europe 2020, of having industry represent 20 % of the EU GDP by 2020. KETs will become ever more integral to industry between now and 2020, and losing the race to establish a KET climate means that EU industry could fall behind.

Plans for EU KETs

The global market for KETs was an estimated €646 billion in 2008 and is expected to reach more than €1 trillion by 2015. While this market is enormous, so, too, is the investment required to create KETs: Enterprises hoping to create KETs need up-front investment and incentives – precisely the type of investment and incentives currently being offered by third countries.

Recognising the importance of KETs, and recognising the market distortion taking place around the globe, the European Union has both the instruments and the will to make Europe a hotbed for KETs.

The EU already has a coherent set of common rules that covers both state aid and international trade. These rules help prevent an internal competition between EU Member States and give the EU greater weight in the international arena. But by fine-tuning and appropriately adapting these regulatory tools, the EU can combat international market distortion.

No doubt, the EC is actively working to make this happen. In 2012, for example, the Commission began modernising state aid rules, which are being reviewed to accommodate the need to increase Europe's global competitiveness. Furthermore, the EU is negotiating different trade agreements, both at bilateral and multilateral levels, which should ensure a favourable trade environment and a level playing field for KETs in full compliance with World Trade Organisation (WTO) rules.

In terms of financial investment, there will be dedicated support for pilot lines and demonstrator projects in order to facilitate industrial take-up and commercialisation. KETs have also been defined as one of the priority investment areas in which Structural Funds can be used to finance projects that are approaching market-readiness. Finally, a Memorandum of Understanding between the EC and the European Investment Bank (EIB) has already yielded huge returns: The amount of EIB lending to KET projects in the first half of 2013 totalled nearly €2.6 billion – just shy of the amount from all of 2012.

KET market distortion is a real problem. But evidenced by these measures, the EC has solutions to ensure that the EU can compete internationally by establishing KET industries locally.

Contact

More information available online

http://ec.europa.eu/enterprise/sectors/ict/key_technologies/

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