REPORT on the communication from the Commission to the Council and the European Parliament on industrial cooperation with the countries of Central/Eastern Europe (COM(95) 0071 - C4-0108/95)

22 March 1996

Committee on External Economic Relations
Rapporteur: Mr Peter PEX

By letter of 16 March 1995, the Commission forwarded to the European Parliament its communication to the Council and the European Parliament on industrial cooperation with the countries of Central/Eastern Europe.

At the sitting of 25 April 1995, the President of Parliament announced that he had referred this communication to the Committee on External Economic Relations as the committee responsible and the Committee on Foreign Affairs, Security and Defence Policy and the Committee on Economic and Monetary Affairs and Industrial Policy for their opinions.

At its meeting of 20 April 1995, the Committee on External Economic Relations had appointed Mr Pex rapporteur.

The Committee on External Economic Relations considered the communication from the Commission and the draft report at its meetings of 23 January 1996 and 21 March 1996.

At the latter meeting, the committee adopted the motion for a resolution unanimously.

The following took part in the vote: De Clercq, chairman; Hindley and Sainjon, vicechairmen; Kittelmann (for the rapporteur); Arroni (for Chesa), Dimitrakopoulos (for Moorhouse), Elchlepp, Falconer, Ferrer, Galeote Quecede (for Schwaiger), Konečny, Kreissl-Dörfler, Mann, E., Miranda de Lage, Novo, Nußbaumer, Porto (for Bossi), Rübig (for Verwaerde), Smith, Toivonen and Valdivielso de Cué.

The opinions of the Committee on Foreign Affairs, Security and Defence Policy and the Committee on Economic and Monetary Affairs and Industrial Policy are attached.

The report was tabled on 22 March 1996.

The deadline for tabling amendments will be indicated in the draft agenda for the relevant part-session.

A MOTION FOR A RESOLUTION

Resolution on the communication from the Commission to the Council and the European Parliament on industrial cooperation with the countries of Central/Eastern Europe (COM(95)0071 - C4-0108/95)

The European Parliament,

- having regard to its resolution of 30 November 1994 on the European Union's strategy to prepare for the accession of the countries of Central and Eastern Europe (CEEC)[1],

- having regard to the communication from the Commission to the Council and the European Parliament (COM(95)0071 - C4-0108/95),

- having regard to the report of the Committee on External Economic Relations and the opinions of the Committee on Foreign Affairs, Security and Defence Policy and the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0084/96),

A. aware of the drastic upheavals Europe has been going through since the collapse of the Iron Curtain, which do not merely involve economic problems, but also present new challenges in terms of foreign and defence policy,

B. having regard to the express wish of the countries of Central and Eastern Europe to accede to the EU as soon as possible, and to the EU's declared readiness to create the necessary conditions for enlargement at the 1996 Intergovernmental Conference,

C. recognizing the achievements of the countries of Central and Eastern Europe during the process of political and economic reform, and the support provided by the EU under the Europe Agreements and the PHARE programme,

D. conscious that mutual cooperation is conditional on respect for human rights and the rights of minorities and on the stability of democracy and the rule of law in the CEEC,

1. Is aware that the opening up and eventual enlargement of the EU to include Central and Eastern Europe is changing the locational parameters for European industry, and calls on the Commission to ensure, in pursuing its strategy for growth and employment and its pre-accession strategy, that the process of economic restructuring they entail in both the CEEC and the EU Member States benefits the people of all the countries affected;

2. Regards closer cooperation between the industrial sectors of the EU and the CEEC, which must be based on the principle of reciprocity as playing an important role in the process of economic reform and the preparation of the CEEC for their eventual membership of the Union;

3. Welcomes, therefore, the Commission's intention of developing industrial cooperation as an integral part of the strategy to prepare the CEEC for accession to the EU, as acknowledged at the Essen European Council in December 1994 and set out in practical terms in the White Paper on the integration of the CEEC into the EU's internal market;

4. Points out that it lies within the Commission's responsibilities to comprehensively develop the framework conditions for successful rapprochement between the countries of Central and Eastern Europe and to pay particular attention to the problematic situation of the infrastructure of environmental services, which do not yet provide a basis for environmentally acceptable investment; supports, therefore,the Commission's proposals to insist on the modernization of industry in Central and Eastern European countries being subject to an environmental impact assessment in line with European standards as applied in the EU countries; calls on the Commission to promote, as a priority, the creation of the necessary legal and administrative framework and its application and enforcement in the CEEC;

5. Points out that cooperation between industrial undertakings and associations in the EU and the CEEC is primarily a task for industry itself, in this context the EU's main role is to create the necessary legal framework; acknowledges, however, that, in view of the radical reform process under way in the CEEC, an economic policy aimed at controlling the process might be advisable;

6. Regards the creation of a favourable business climate and the promotion of the reciprocal exchange of information between the industries of the EU and CEEC as an important area for action by the Commission, which must take account of the specific circumstances in individual CEEC and of the special relationships between various individual Member States and the CEEC;

7. Regards further privatization of previously state-owned undertakings, including those in the industrial sector, on the part of the CEEC as an important pre-condition for successful industrial cooperation, the main emphasis of which must be to achieve the transition to a modern, environmentally acceptable industrial system;

8. Is convinced that this will provide greater incentives for the influx of investment capital from the EU to the CEEC, which will form the basis for long-term cooperation between undertakings and will also provide the CEEC with the technical know-how required for the reform process;

9. Calls on both sides to cooperate closely in the harmonization of technical specifications, standards, quality controls, and testing and licensing procedures on the basis of the programme set out in the White Paper, to ensure that these do not create administrative obstacles to closer industrial cooperation and that social and environmental dumping are not permitted;

10. Welcomes, therefore, the Commission's efforts to ensure that the rules of origin for CEEC products offer the possibility of cumulation for all the CEEC;

11. Stresses the importance of free access to EU markets for CEEC products as without it there would be no prospect of successful industrial cooperation;

12. Calls on the Commission to give greater support to promoting local trade and to exploit the advantages of direct cross-border cooperation to show how administrative reforms can be improved to strengthen local performance in these regions by establishing pilot schemes for local cooperation; in particular financial and legal barriers should be removed;

13. Stresses the importance of comprehensive professional training and retraining for the success of the economic reforms in the CEEC and calls on the Commission to take due account of this point in its industrial cooperation activities by including the CEEC in the EU's education and research programmes;

14. Hopes that exchange programmes to provide young people with vocational training and language skills will make a significant contribution to mutual industrial cooperation;

15. Notes the importance of good relations between the social partners as the basis of a social market economy and therefore regards the development of legislation on employment contracts and collective agreements, and arrangements for its implementation in practice, as an important task for industrial cooperation;

16. Is convinced that the CEEC will also benefit from closer industrial cooperation amongst themselves, and therefore suggests that the requisite preconditions be created in the context of the Central European Free Trade Area;

17. Calls for special consideration to be given to industrial cooperation with the Baltic States, as they are in particular need of such cooperation in the aftermath of their independence and subsequent exclusion from the economic system of the former Soviet Union, and points out that such activities should promote closer cooperation throughout the Baltic region;

18. Recalls that industrial cooperation must go hand-in-hand with an effective competition policy, to prevent such cooperation being abused to the detriment of competition; regards the Europe Agreements as an appropriate basis for close cooperation between both sides in this area;

19. Considers that closer industrial cooperation with CIS states bordering on the CEEC would be desirable in the context of the partnership agreements and the TACIS programme, and should be coordinated with the EU's industrial cooperation with the CEEC; calls on the Commission, therefore, to give more thought to this point in future;

20. Would like the EU's industrial cooperation with the CEEC to be coordinated with the initiatives of other Western industrialized nations and international organizations such as the UN, IMF, the World Bank and the OECD;

21. Points out that the energy sector is the basis of the process of economic transformation and that existing traditional and centralised structures are not suited to the transformation and development of a diverse and environmentally sound industrial landscape in the CEEC, and that there is, therefore, an urgent need to transform the energy sector so that it can be used on an environmentally sustainable basis; in addition to the introduction of a new legal framework, swift investment is also required in this area;

22. Instructs its President to forward this resolution to the Council, the Commission and the governments and parliaments of the EU and of the countries of Central and Eastern Europe.

• [1]  OJ C 363 of 19 December 1994, p. 16

B. EXPLANATORY STATEMENT

I. INTRODUCTION

1. For over five years, the countries of Central and Eastern Europe (the CEEC) have been involved in a process of radical transformation. After the collapse of the Eastern bloc and its economic and military structures (notably the Council for Mutual Economic Assistance and the Warsaw Pact) all the CEEC except the former Yugoslavia embarked on a peaceful transition to democratic institutions and a market economy. Since 1994, most CEEC have been linked to the European Union through Europe Agreements, association agreements designed to create a free trade area and, ultimately, pave the way for the accession of the CEEC to the EU. In addition, since the beginning of this decade the CEEC have received technical assistance under the PHARE programme.

2. Meanwhile, since the June 1993 meeting of Heads of State and Government in Copenhagen, the EU has for its part been preparing for the accession of the CEEC. The Commission has developed a pre-accession strategy to enable the CEEC to be integrated into the internal market in the medium term. This will require the creation or harmonization of the requisite legal framework for a market economy, as outlined in the Commission's White Paper; it will also require action to ensure that the new market economies of the CEEC are capable of competing on the internal market. The industrial sector, in particular, must be brought up to Western levels of technological development and productivity. During the 40 years of Communist economic misrule, the industrial sector had fallen far behind its counterparts in the West, and in some respects remained at the pre-war level. The reasons for this state of affairs include the fact that scientific and technical development was geared to a disproportionate extent to military requirements, an economic policy aimed at self-sufficiency within the Eastern bloc, and also the CMEA countries' restrictions on sensitive products.

3. The modernization of the CEEC's industrial structures is primarily a matter for the private sector itself. Economic policy does, however, have a flanking role to play here. The CEEC will have to create the conditions for as unrestricted as possible an influx of private western investment capital. The EU can be of particular assistance in improving the industrial infrastructure and promoting cooperation between industrial undertakings and associations in East and West. While the former is the main objective of PHARE and is supported by loans from both the EIB and the European Bank for Reconstruction and Development (EBRD), the Commission has made industrial cooperation the subject of the communication to the Council and the EP with which this report is concerned.

II. SUBSTANCE OF THE COMMISSION'S COMMUNICATION

4. The Commission's future strategy for industrial cooperation with the CEEC is one element of the many forms of cooperation covered by the Europe Agreements. Its main objective should be to improve the framework conditions for industrial development in the CEEC, to support the processes of privatization and restructuring of industry and to enhance the influx of private investment capital. The Commission stresses that practical industrial cooperation in all its various forms, ranging from straightforward distribution arrangements, through outward processing to joint ventures, must be carried out by the economic operators themselves. The active participation of EU companies must be facilitated by the creation of appropriate information and communications structures to provide support for business operations, the organization of contact fora and concrete cooperation projects. Account should also be taken of the needs of those sectors of industry within the EU which are themselves undergoing radical restructuring, such as the textile industry.

5. Taking as a starting point the cooperation already established under the Europe Agreements and in the context of financial and technical assistance, the Commission proposes initiatives in the following areas:

- establishment of an industrial policy dialogue involving the social partners to promote environmentally sustainable growth, enhance competitiveness and create new jobs;

- development of a regulatory framework and the approximation of laws along the lines laid down in the White Paper on the integration of the CEEC into the internal market of the EU;

- cooperation with regard to standardization, certification and quality control and on environmental standards;

- improvement of the legal and administrative framework for investment in the CEEC;

- promotion of the privatization and modernization of the CEEC's industrial sector;

- establishment of business links and promotion of cross-border investment projects;

- regional policy initiatives in the context of the PHARE-INTEREG programme;

- intensification of trade by the promotion of a convertible trading environment;

- cooperation in the fields of education, research and energy.

6. Pressing ahead with economic reform in the CEEC is crucial for the success of these measures. When the process began, it resulted in spectacular falls in output, employment and real income. The removal of state price controls which had previously often contained an element of subsidy - released inflationary pressures which proved difficult to restrain as the reform process continued. State budgets registered massive deficits, as the poor state of the economy and the transformation of the tax system resulted in falling revenues while expenditure to control the social effects of the economic reforms rose sharply. At the same time, trade balances with the Western industrialized countries went into deficit, as the previously suppressed demand for consumer goods, and also the demand for investment in productive plant and equipment could only be satisfied on foreign markets. Mutually advantageous industrial cooperation now requires stable macro-economic framework conditions. The CEEC have made good, if uneven, progress in this direction with the help of the EU and of international financial institutions.

7. At the micro-economic level, the main task before the CEEC is to privatize the former state-owned undertakings. Whereas it has generally proved possible to make considerable progress in the privatization of small- and medium-sized undertakings, particularly in the retailing and skilled trades sectors, the privatization of big state concerns, particularly in the field of heavy industry, is still encountering major obstacles. Although the voucher systems which have been used in some case have made it possible to extend nominal ownership to a wide public, they have not had the effect either of increasing output or of bringing new capital into the undertakings. One objective of industrial cooperation must therefore be to provide particular assistance with regard to commercial cooperation in this sector. The CEEC, meanwhile, must take action to ensure that foreign investors, too, can take part in the privatization process.

8. In reviewing the measures taken to date by the EU, the Commission places particular emphasis on the importance of creating a free trade area for industrial products, as envisaged in the Europe Agreements. The swift opening up of markets is indispensable to establish favourable framework conditions for industrial cooperation. The promotion of scientific and technological cooperation is particularly important for the modernization of the CEEC's productive capacity. To that end, additional protocols to the Europe Agreements were negotiated to give the CEEC access to the EU's research programmes. The technical aid programmes centre on developing the legal and administrative structures for investment and competition. With regard to competition policy, which is important for industrial cooperation, decisions were recently taken in the context of the Association Councils which provide for the CEEC to adopt many of the competition provisions contained in the EC Treaty with regard to undertakings with a dominant market position, mergers between undertakings and state aids. Both sides are already working closely together with regard to standardization and certification procedures and quality control, with a view to mutual recognition of assessment procedures.

9. Building on these measures, the Commission's communication basically proposes continuing this policy. The institutional framework of the Europe Agreements should be exploited to the full to lay the general basis for close cooperation in practically all areas of the economy, including the industrial sector. This cooperation should centre on establishing an industrial policy dialogue between the EU and the CEEC. The dialogue should incorporate the concept of sustainable and environmentally acceptable development developed in the Commission's White Paper on growth, competitiveness and employment. The dialogue should continue to centre on the issues of framework conditions for investment, privatization, the restructuring and modernization of the CEEC's industries and the development of commercial relations between undertakings from both sides.

III. ASSESSMENT OF THE COMMISSION PROPOSAL

10. The Commission regards the promotion of industrial cooperation as an integral part of the total strategy to prepare the CEEC for future membership of the EU. This explains why the present communication, unlike its predecessors, excludes the CIS States. This systematic approach appears to be correct. Given that cooperation between industrial undertakings must be mainly carried out by those undertakings themselves, the emphasis on political action to support such cooperation by establishing the necessary legal framework is quite justifiable. We must guard against an interventionist approach to industrial policy that seeks to determine the development of individual industrial sectors. Where this approach has been adopted in the Western industrialized countries, it has failed to produce any positive results. It cannot be considered as a means of restructuring the economies of the CEEC.

11. With regard to subsidiarity, the question arises as to whether the promotion of industrial cooperation should be a matter for the EU, or alternatively mainly for the Member States. Since the main emphasis of the policy pursued at EU level is on approximation of legislation, which is a task for the Union rather than individual Member States, it is surely sensible for action of this kind to be taken by the Union. In fact, the key role of industrial cooperation in the process of preparing for accession makes this essential. Moreover, many concrete projects, whether involving scientific and technological cooperation, competition matters, vocational training, energy or the environment fall within the Union's remit. This does not, however, rule out the possibility of concrete initiatives by the Member States with regard to individual CEEC. These can usefully supplement industrial cooperation at EU level by addressing the specific situation of particular branches of industry in individual EU Member States or CEEC.

12. Industrial associations and chambers of industry and commerce should be involved in industrial cooperation to a greater extent than envisaged in the Commission communication. Such organizations can bring their considerable experience to bear, in particular, on paving the way for commercial contacts and the assessment of legal framework conditions in the CEEC. Furthermore, the social partners, i.e. particularly trade unions and employee representatives, should participate as equal partners in the industrial policy dialogue. This corresponds to the model of the social market economy practised in most EU Member States and is particularly important in Central and Eastern Europe in view of the social problems involved in the restructuring process.

13. However desirable closer industrial cooperation is, at the same time care must be taken to ensure that undertakings do not abuse the links between them to the detriment of competition. This could come about, for example, by pricing agreements, by firms dividing up the market between them, or by exploiting the dominant market positions created by mergers. It is thus of great importance for industrial cooperation to be accompanied by equally close cooperation between the authorities responsible for regulating competition. The requisite legal structures were set up under the Europe Agreements. The task is now to carry such provisions into effect by close cooperation between the regulatory authorities of both sides.

14. The Commission rightly emphasizes the strategic significance of creating a favourable investment climate for foreign investors, which the CEEC must guarantee by establishing stable macroeconomic conditions and a transparent and non-discriminatory legal framework. Machines must, however, be operated by well-trained workers, and undertakings must be managed and administered by well-qualified executives. In other words, vocational training must not be overlooked because of the pressing need for capital. Industry and the industrial associations of the EU can make a useful contribution here, backed by corresponding funds from the EU. The possibility should also be considered of enabling workers from the CEEC to attend short-term vocational training courses in the EU Member States.

15. Industrial cooperation between the EU and the CEEC must also concentrate more on promoting regional cooperation between individual CEEC in the field of industrial policy. The bilateral basis of the Europe Agreements is still an obstacle to this process. The drawing up of standard rules of origin to enable a product produced in different CEEC to be exempt from import duties under the Europe Agreements has already largely eliminated one of the main obstacles to cooperation between undertakings within the CEEC. By setting up the Central European Free Trade Area (CEFTA), meanwhile, the CEEC themselves have taken an important step towards promoting regional industrial cooperation on the basis of increased reciprocal trade.

16. In the context of closer cooperation between commercial concerns in the EU and the CEEC, and more generally in connection with preparations for accession, the EU's economic policy must clearly recognize that the creation of a common European economic area incorporating the CEEC will increase the pressure to adjust on a number of industrial sectors within the European Union. This applies above all to sectors such as steel, textiles and shipbuilding, which are already in deep structural crisis as a result of internationalization. The industrial policy dialogue with the CEEC must include accompanying measures by both sides to shape this process of adjustment and ensure that the job losses arising from it are not exploited politically for the protectionist cause.

17. To sum up, the Commission's intentions with regard to industrial cooperation with the CEEC can be endorsed. Given its rather broad presentation of future initiatives, the priority for the next few years will be to set up concrete projects to breathe life into the concept of industrial cooperation. The central element of such projects should not be the transfer of financial resources. Rather, the emphasis should be on the exchange of information and technical know-how. In this way, the promotion of industrial cooperation can help ensure that, in the medium term, the CEEC are capable of accession. The EU, for its part, must make every effort to ensure that it is capable of enlargement. The course for this must be set unequivocally at next year's Intergovernmental Conference, the successful conclusion of which should signal the start of accession negotiations with the CEEC.

OPINION

(Rule 147 of the Rules of Procedure)

of the Committee on Foreign Affairs, Security and Defence Policy

for the Committee on External Economic Relations

Draftsman: Mr Arie Oostlander

At its meeting of 19 July 1995 the Committee on Foreign Affairs, Security and Defence Policy appointed Mr Arie Oostlander draftsman.

At its meeting of 20 December 1995 it considered the draft opinion and adopted the conclusions as a whole unanimously.

The following were present for the vote: Tindemans, oldest member and acting chairman; Oostlander, draftsman; Bertens, van Bladel, Burenstam Linder, Cars (for André-Léonard), De Melo, Dillen (for Muscardini), Gahrton, Goerens (for La Malfa), Gomolka, Newens, Pradier (for Lalumière) and Schroedter (for Aelvoet).

1. The communication from the Commission to the Council and the European Parliament on industrial cooperation with the countries of Central/Eastern Europe addresses a very important problem that must be seen in the context of the preaccession strategy to prepare these countries for membership of the European Union as originally outlined at the Copenhagen European Council (June 1993) and confirmed at the Essen European Council (December 1994). It anticipates the White Paper on preparing the associated Central/Eastern European countries for integration into the internal market of the Union (COM(95) 0163).

2. The European Union pre-accession strategy is supported by two principal mechanisms:

- the Europe Agreements, that create a form of association to enable these countries to secure the eventual objective of accession by progressively establishing between the parties concerned the economic freedoms on which the Union is based and adopting arrangements for approximating legislation;

- structured relations with the Union's institutions, which supplement the bilateral Europe Agreements and provide a multilateral framework for dialogue and consultation.

3. Industrial cooperation with the Central/Eastern European countries is consequently intended to facilitate the eventual accession of those countries to the European Union. In the Commission's view the strategy to be pursued must give priority to:

- improving overall conditions for industrial growth,

- privatizing, restructuring and modernizing industrial and commercial undertakings

- promoting investment.

To that end, three types of instruments must, in the Commission's view, be set up:

- the Europe Agreements, which constitute the basic guideline for the Union's policy on technical and financial assistance, in particular under the PHARE programme;

- scientific and technological cooperation, which must be stepped up with the Central/Eastern European countries, which themselves must be encouraged to take part in the movement towards the universal information society;

- further modernization of industry in the European Union itself, which must develop a system of inter-undertaking partnerships with the Central/Eastern European countries.

4. The Committee on Foreign Affairs will not enter into the details of the measures set out by the Commission to achieve the above objectives or the specific mechanisms that can be created. It prefers to concentrate on some of the essential conditions that appear to it as indispensable if the Central/Eastern European countries are eventually to accede to the European Union, and which are also important features of industrial cooperation with the Central/Eastern European countries.

5. Firstly, the Europe Agreements are essentially political mechanisms aimed at establishing in the states of Central and Eastern Europe a state based on the rule of law, consolidating democracy and supporting economic reforms with a view to establishing a social market economy - one from which ecological considerations should not be absent.

These agreements contain what amounts to a 'democracy clause', non-adherence to which can in extreme cases entail the suspension or repudiation of the agreement. The clause establishes a link between, on the one hand, adherence to democratic principles and human rights together with the principles of the market economy, which constitute an essential component of the association, and the actual implementation of that association. It goes without saying that respecting the rights of minorities, even if it is not explicitly stated in the Europe Agreements, is an integral part of those agreements.

6. The move to democracy and a state subject to the rule of law in Central and Eastern Europe is also being strengthened by political (bilateral) and structured (multilateral) dialogue with the Central/Eastern European countries. The latter of these is particularly important since, when these countries become members of the European Union, they will be led to cooperate with each other. The structured dialogue is a good preparation for accession.

The stability in Europe pact, a joint action by the European Union adopted in Paris on 21 March 1995, leads in the same direction by encouraging the applicant countries to solve their bilateral problems before accession.

7. If industrial cooperation is to develop it will need democratically established stability at internal level based on respect for human rights and the rights of minorities, along with adherence to democratic principles and, at external level, conditions of peace between the states of Central and Eastern Europe and between those states and neighbouring states. If these two conditions cannot be met there can be no long-term projects: no industrialist in our Member States, for example, will be willing to make commitments to multiannual cooperation with partner firms, or undertake direct investment in the Central/Eastern European countries if he risks being caught up in a conflict, whether an internal one or one between states. The example of former Yugoslavia will always be there to bear witness to a fundamental truth.

8. Similarly, human factors, and in particular cultural ones, must not be underestimated. Immediate participation by these countries in Community programmes, whether in training, education or the scientific and technical field, will be of the highest importance to developing a perception of a common destiny. Without that common vision it will in effect be much harder to overcome the differences that may well set these countries against each other, in particular where the problems of minorities are concerned. In that connection actions directed at young people certainly hold out most hope for the future. It is young people also who are more receptive to tolerance and to the values of democracy. It is they too who are likely to learn most rapidly the techniques of the market economy.

9. In the matter of industrial cooperation with the Central/Eastern European countries, it will be essential for Community undertakings to engage tactfully with partner firms and to recognize the achievements of these countries even if the products placed on the market cannot match the standards operating in the West. It will be essential to realise that the transition from a closed economy to an open system, from a centrally directed to a market economy, cannot be achieved from one day to the next, and that firms located in the Central/Eastern European countries need time to adapt to conditions of international competition.

It would be detrimental to these country's prospects for accession to the European Union to play down the importance of what each country has accomplished in difficult conditions. Similarly, it would be inappropriate to seek to subject them prematurely to radical changes when attitudes had not been prepared to receive them.

CONCLUSIONS

10. The Committee on Foreign Affairs, Security and Defence Policy asks the Committee on External Economic Relations, as the committee responsible, to take the following points into account:

1. Industrial cooperation with the Central/Eastern European countries must be approached in the context of the pre-accession strategy as drawn up at the Essen European Council and described in the White Paper;

2. Industrial cooperation between the European Union and the Central/Eastern European countries presupposes that Central and Eastern Europe will develop in conditions of stability and democracy, which further presupposes that the state based on the rule of law will be consolidated everywhere and that democratic principles and human rights and the rights of minorities will be respected;

3. Industrial cooperation with the Central/Eastern European countries also presupposes that relations between the states of Central and Eastern Europe, and between those states and their neighbours (Russia, Belorussia, Ukraine, Moldova) will develop harmoniously and that consequently questions of minorities and of frontiers will be resolved. In that connection the pact for stability in Europe has played a useful role even although much remains to be done;

4. The European Union must encourage industrial cooperation not only between its own undertakings and those of the Central/Eastern European countries, but also between the Central/Eastern European countries themselves, to develop their mutual cooperation in anticipation of eventual accession. Emphasis must be placed on trans-border cooperation to consolidate relations between the Central/Eastern European countries and between them and the European Union, and to welcome the initiatives they have themselves taken to develop economic cooperation, such as the CEFTA agreement concluded between the Visegrad countries;

5. Industrial cooperation should not be confined to the Central/Eastern European countries alone but should extend also to countries further to the east, such as Russia, Belorussia, Ukraine and Moldova, so as not to exclude from the long term benefits of this process countries for which accession to the European Union has not been envisaged;

6. Finally, care must be taken not to neglect the human environment favourable to industrial cooperation and to encouraging, in the framework of opening Community programmes to the Central/Eastern European countries, actions relating to training, education and scientific and technical cooperation, giving priority to addressing these actions to young people.

OPINION

(Rule 147 of the Rules of Procedure)

of the Committee on Economic and Monetary Affairs and Industrial Policy

for the Committee on External Economic Relations

Draftsman: Mr Norbert Glante

At its meeting of 13 September 1995, the Committee on Economic and Monetary Affairs and Industrial Policy appointed Mr Glante draftsman.

At its meetings of 21 February 1996 and 19 March 1996 it considered the draft opinion.

At the last meeting it adopted the conclusions as a whole unanimously.

The following took part in the vote :

von Wogau (chairman); Metten, Theonas, Katiforis (vice-chairmen); Donnelly (for Glante, draftsman); Areito Toledo, Argyros (for Christodoulou), Cassidy, Cox (for Larive), Gasoliba I Böhm, Giansily (for Gallagher), Herman, Kestelijn-Sierens, Langen, Lindqvist, Meier (for Harrison), Miller, Murphy, Peijs, Rapkay, Rijs-Jörgensen, Schreiner, Secchi, Trizza and Wibe (for Rönnholm).

I. The Commission published its communication on industrial cooperation with the countries of Central and Eastern Europe ahead of its White Paper on the integration of the countries of Eastern and Central Europe. It would have been more correct and made more sense to publish the strategic document (the White Paper) first, before addressing individual policy areas and sectors of the economy. Nevertheless, the draftsman takes the view that industrial policy has a pre-eminent role to play in creating the right conditions for integration.

II. Regardless of the foregoing, it must be said that the communication is very detailed and stimulating and properly reflects the importance of this subject.

III. The draftsman notes with satisfaction that the Commission attempts to strike a balance between the various opposing views and interests which are a feature of the public debate over Europe, in particular as regards the timescale for the possible integration of individual CEECs, namely:

- the naive and/or for both sides politically irresponsible target of the year 2000, which is repeatedly mentioned;

- and the exaggeration of the economic differences between the EU and the countries concerned, which would appear to exclude the possibility of integration for the next two generations.

The draftsman takes the view that both of these positions are irresponsible and dangerous.

IV. Furthermore, the Commission alternates between the understandable desire to protect industry in the Union and the view that, without economic development in the CEECs, the essentially desired integration of those countries would be postponed for a long time or become too expensive.

V. The draftsman regrets that the Commission attaches too little importance to cooperation between the CEECs. He considers such cooperation to be essential if they are to develop in a stable manner.

The Commission should seriously examine the prospects for cooperation within the existing framework of CEFTA and, following the example of EFTA, draw up or provide the impetus for proposals to this effect. Links with the internal market alone are, of course, not enough; relations with the individual countries, which still vary in terms of closeness, constitute the foundation for the market. Much of the aid provided by the EU could possibly be used more effectively, too. Such a an approach would help countries which have not acceded to the Union. Particularly when it is borne in mind that by no means all the countries concerned can, or possibly wish to, accede at the same time, such an approach could help the countries which remain outside the Union.

The draftsman would point out in this connection that differences exist between the various countries' levels of development. This will mean that at different times some countries will possibly need more, and some less, aid of various kinds.

VI. The draftsman takes the view that the restructuring and modernization of undertakings with a view to boosting their competitiveness should take priority over privatization. Decisions must be taken in a sector-by-sector basis, and efficiency used as the criterion for selection. The countries concerned should gain their own experience with different models in order to find the best solution.

VII. Infrastructure in the countries concerned holds the key to economic transformation and, apart from in the political and economic centres, which have always received preferential treatment, there is much room for improvement in this regard. The opportunities for foreign investment, including by the EU, are substantial in this sector. However, it would be wrong to leave the field open solely for foreign investors, particularly in areas such as telecommunications. The CEECs need space and help to develop their own modern research capabilities and industries and/or to restore their own capacities.

Although not mentioned in the communication, the debate on and practice regarding the deregulation of sectors in the Union hitherto organized by public-sector monopolies cannot be transferred automatically to the CEECs, either. The draftsman would point out that in the telecommunications sector, for example, dense networks have for decades been developed by state monopolies as an expression of political will.

Conclusions

The Committee on Economic and Monetary Affairs and Industrial Policy

1. Welcomes the Commission's communication on industrial cooperation between the EU and the CEECs and supports the threefold strategy entailing privatization and modernization of industry, improvement of framework conditions for industrial development and promotion of investment, intended to strengthen the economic structure of the CEECs and to promote the presence of Community industry on the markets of the CEECs;

2. Points out that the individual aspects of closer relations with and, ultimately, integration into the Union must be viewed in context, such aspects including agriculture, the impending institutional changes to be made at the IGC, and in particular industrial policy;

3. Points out that of the three priority areas of the strategy advocated in the communication, promotion of investment is the hardest and yet the most important because :

a) growth is increasingly dependent on investment, rather than on exports in CEECs

b) European industrial involvement in the CEECs can be promoted only under a stable legal and regulatory framework, efficient public administration and a healthy monetary and fiscal environment

c) flows of foreign direct investment are insufficient

d) advanced technology embodied in investment requires appropriate R & D centres and institutions

e) adequate financing is not forthcoming due to administrative and fiscal obstacles, and savings are low owing to very low per capital income.

4. Points out that the CEECs, being assisted by the Europe Agreements, have also obligations towards the Union consisting of taking concrete measures to adapt the conditions of an open market economy.

5. Reminds the Commission of some unfavourable economic trends in the CEECs in 1994 :

a) growth ranged from 2 per cent to 5 per cent, but given the average GDP per head of the CEEC-10 being only 30 per cent of the EU average, in order to reach 50 per cent of the EU average, it would need to obtain a growth differential with the EU of about 11 per cent for the next ten years;

b) foreign direct investment as percentage of GDP was about 1,5 per cent, about half of what the economies of South East Asia had attained;

c) exports grew strongly but the CEEC-10 as a whole have a trade deficit with the EU;

d) fiscal and monetary policies continued to be relatively tight.

6. Points out that, ultimately, economic integration of these countries only makes sense if it maximizes all parties' opportunities for growth;

7. States with satisfaction that the private sector now accounts for more than half of the CEEC-10 GDP except in Bulgaria and Romania, but also notes that foreign direct investment has mainly been the vehicle of the privatization process;

8. Is of the opinion that the Commission, in order to support the modernisation and adaptation of the CEECs' industry, should mainly concentrate its efforts on the structural changes needed (legal and regulatory framework, monetary and fiscal environment, etc.) which go beyond industry's own capacity for action.

9. Is of the opinion that the EU could, via its Europe Agreements and White Paper on the CEECs, contribute to the completion of the legal and institutional framework for a market economy in which the sectors of energy, telecommunications and banking could be privatized in a transparent manner;

10. Proposes that consideration be given to the drawing up, jointly with the CEECs, of a programme of cooperation between the EU and those countries in the fields of technology, industry and industrial policy identifying possible future structures, the key areas in which the CEECs' technological and industrial potential is to be developed and the key elements of their integration into the internal market;

11. Calls for other Commission programmes to be used to offset the reduction in the appropriations earmarked for the CEECs in connection with the information society under the Fourth Framework Programme for research;

12. Calls for a significant increase in appropriations for scientific and technological cooperation with the CEECs;

13. Calls upon the Commission to update and revise its potential instruments for assistance of the CEECs cited in the communication, in the light of the above observations and the necessary business cooperation and industrial modernisation, through a continuous dialogue and consultation between the Commission, industry on both sides and CEEC governments.