Cash bid sparks new R&D debate

Date: 14/12/1995

By Tim Jones

WHEN Research Commissioner Edith Cresson goes to her colleagues next week with a request for 700 million ecu to finance investments in the predicted growth areas of the future, she will do so more in hope than in expectation.

The money she and the European Parliament want to direct into future transport, information and environmental technologies will only be available if Union budget ceilings are broken.

This cannot be done without agreement between the European Commission, Parliament and Council of Ministers; a long drawn-out process Budget Commissioner Erkki Liikanen wants to avoid conducting on a subject-by-subject basis.

“He wants everyone to come with a package of demands and not for each Commissioner to come one at a time,” said one official.

The problem now facing Cresson stems from a decision taken in December last year, before she joined the Commission. It was then that the EU's 12.3-billion-ecu five-year plan for funding and coordinating research, known as the Fourth Framework Programme, was approved by Union research ministers.

When they earmarked the cash for the research budget - which rose to 13.16 billion ecu when three new member states joined the EU in January this year - they also set aside a 700-million-ecu reserve. This was to be used if extra spending was needed, but only on condition that it was released by 30 June 1996 - otherwise it would be lost.

Cresson has decided to make a formal proposal for the release of the additional funding at the Commission's last meeting of the year on 20 December, but will do so in the knowledge that she will not win her colleagues' support.

Liikanen, aware that the international aid programme for the reconstruction of the former Yugoslavia will place unexpected and heavy demands on the Union's budget, wants a global package put together. He wants to wait until then before starting the tortuous negotiations required to change the EU's financial perspectives.

Cresson recognises this, but is impatient. Unless the reserve is freed, it will be lost to projects she has identified as key to her vision of European research and development.

Since she took over the reins in January, Cresson has tried - although with the limited success to be expected in an area which rarely, if ever, hits the headlines - to put the EU research effort on the map.

While its budget is large, research funding is locked into five-year cycles and spending is usually made in small quantities. The bulk of research funding to industry must be for projects deemed “pre-competitive” or so far in advance of product development that it cannot be considered anti-competitive state aid.

Most of the EU effort is concentrated on contract research with cost-sharing. Until now, the Union has been able to assume responsibility for as much as 50&percent; of research costs in areas where the risks are high and there is a long time-lag before the product starts yielding profits.

Cresson wants to use research as a competitive weapon and often points out that Europe lags behind its competitors by setting aside only 2&percent; of its gross domestic product for R&D, compared with 2.7&percent; in the US and 2.8&percent; in Japan.

While much of this is private-sector financing with a commercial goal, Japan and the US also out-bid the EU in public spending on research. State spending on research in the Union is just 77 ecu per citizen, compared with 88 ecu in Japan and 131 ecu in the US, she complained recently.

Her worries on this score recently prompted an internal battle with Competition Commissioner Karel Van Miert over how to deal with the research consequences of the Uruguay Round GATT trade liberalisation settlement.

This capped state aid for industrial research at 75&percent; of its total cost, compared with the 50&percent; maximum operating in the EU - leg-room that Cresson and the staff of DGXII, the Directorate-General for science, research and development, were keen to exploit. But Van Miert was concerned that merely lifting the ceiling would reinforce the unequal patterns of research subsidies that are already operating within the Union.

At the moment, large companies in France, Germany and the Benelux countries account for the lion's share of R&D subsidies. Van Miert wanted the system to be rebalanced in favour of small- and medium-sized enterprises (SMEs) and the countries benefiting from Cohesion Fund spending - Spain, Portugal, Ireland and Greece - where R&D subsidies are low.

“We want to avoid a subsidy race for R&D,” he warned. “Most of the R&D is concentrated in the big countries and companies, so we are trying to stimulate research in the cohesion countries and small companies.”

After months of wrangling between the two sides, a complicated compromise was struck. While basic limits on the amount governments can give firms for research will stay unchanged, small companies - or even large ones with cohesion country subsidiaries - will be permitted to apply for bonuses to top up the amount of state aid they receive to 75&percent;.

Cresson was not happy with the compromise, but accepted it in order to put an end to the battle. But the dispute illustrated the extent to which she regards the EU's R&D as a key weapon in the fight to ensure a European competitive edge.

The US targets its research spending, with 50&percent; more going into aerospace than in Europe, three times more into electronics and nine times more into car development.

Where Europe has concentrated its efforts, as in the development of GSM mobile telephony, the results have been remarkable. Where it has not, for instance in developing wide-screen television, innovation has not been translated into commercial success.

“We have to define priority objectives while avoiding the 'scatter-shot' approach which has dominated for so long,” Cresson said recently.

The Commissioner says research funding should be focused on two aims: to help improve the competitiveness of European industry and to ensure that the results of the R&D are obvious to Europe's citizens. “You ask an ordinary person about R&D. If they know anything, they will talk about Ariane or Airbus, which are not EU research programmes,” said a Commission official.

Targeting is all. Task forces were set up to work on six key areas of research and development: the car, train and aircraft of the future, vaccines against viral disease, educational multimedia software and the combined use of transport.

The job of these groups was to group together all the services working in each area, often in the transport or industry directorates-general, to identify priorities for study and create 'clusters'. These bring together areas of work that were originally separate to cross-fertilise and even reduce costs.

What has been learnt from the past is that Commission officials should not try to preach to industry what technical standards it should use in any given area. “Remember HDTV?” said one official.

Former Commission President Jacques Delors championed high-definition television, but the EU's insistence that a particular satellite-broadcasting standard was used was rejected by the industry without subsidies to go with it.

While the EU bickered over the standard and funding, the US leap-frogged with new digital HDTV technology.

With the task forces' initial work done, Cresson has identified four areas where the reserve funding will be needed: transport intermodality, clean technology, the future car and educational software.

Of all of these, software is dearest to her heart and yet the hardest area to coordinate. While the car and aerospace industries tend to rely on a few large firms, Europe's software industry is fragmented into thousands of tiny SMEs.

So while Europe has the brains, it does not have the brawn.

Yet this is the key battleground with the US. Cresson seems to be haunted by a vision of European history taught to European children by Disney and Bill Gates. Only one European child in 30 has access to a computer, compared with one in ten American children.

As she warned in a speech last month: “We need multimedia software for education adapted to our educational principles and our cultures. For us Europeans, the bottom line is to permit our youth to learn and understand in our languages and follow our own modes of thought rather than standards imported from elsewhere.”