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Science and Technology and European Market Integration: Changes and Continuity DR. PRESS: Our first speaker is Vice President Pandolfi of the Com- mission of the European Communities. Vice President Pandolfi is responsible for science, research and development, telecommunications, information industries and innovation, and joint research an impressive list. Mr. Pandolfi was in business before entering the full-time political world. He served in the Italian Parliament for 20 years from 1968 to 1988 as a member of the Christian Democratic Party. From 1976 until 1988, he was, in turn, minis- ter of finance, minister of treasury, minister of industry, and minister of agriculture. And from 1979 until 1980 he was chairman of the Interim Committee of the International Monetary Fund. In 1989 he became vice president of the CEC with the responsibilities I have described. I can think of no better person to lead off our symposium and its discussion of European market integration and what will happen than Vice President Pandolfi. MR. PANDOLFI: Mr. Chairman, ladies and gentlemen, thank you for having invited me to this important symposium. It is actually an excellent occasion to understand and be understood. To understand and be understood is a mutual need for the European Community and the United States. This is made easier by our roots, which are common, and by our political friendship, which is strong. It is made imperative by our new responsibilities, faced with the great events in central and eastern Europe. The winds of history are blowing ever more strongly in our favor. Our model of society has come out triumphant; it is spreading. Being used to and constrained by a difficult exercise in historical patience, we were mistaken about the timing, not the result. The exciting task that now awaits us is to shape the architecture of a new era. We need to understand each other thoroughly to shape it together, understand each other in every area and on every point, including 3

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4 EUROPE 1992 what we are starting to discuss here science and technology and European market integration. The road to the Single Market in 1992 is a complex one. Like all complex processes, it tends to create events that we hope for and events that we fear. It is a typical combination of a bet and a challenge. This is true for everyone. It is true for us Europeans who are living through this process. It is true for you Americans who are wondering about this process. I would like to clear up three points straightaway. 1. European integration is first and foremost a political fact. It is a fact of historical importance that includes the economic aspect but goes beyond it. Allow me a quotation: "The European experiment has succeeded not just because it has appealed to the enlightened self-interest of European producers and consumers. This experiment has succeeded because the vi- sion of its founders encompassed and yet transcended the material. This experiment has succeeded because it also held out the higher goal of politi- cal as well as economic barriers overcome, that is of Europe united. This was the goal of Monnet and Schuman. This was the goal supported by the United States of Marshall and Acheson. This was the goal contained in the Treaty of Rome and more recently in the Single European Act. The United States supports this goal today with the same energy that it did 40 years ago." These, you will understand, are not the words of a European. They are the words of Secretary of State James Baker in Berlin on December 12, 1989. 2. The nature of the Single Market is inseparable from the concept of liberalization. The movement toward the 1992 goal may seem like a pure process of integration and aggregation. This it is not. To use a metaphor, I think of the Single Market in terms of a parallelogram of forces. The push toward the Single Market is the result of two forces: integration and harmonization on the one hand, deregulation and liberalization on the other. Neither of these factors alone would have the strength to carry the Single Market to completion. Creating a unified market by itself does not mean that Europe will set off in the right direction. We have to combine the integration of the market with measures to liberalize it. And this is what we are doing. Then the resultant force, and the direction in which it pulls Europe, are all the more effective. 3. The economy of the 12 European states is an economy particularly open to foreign trade. The percentage of imports in our GNP is much higher than for the other two great trading blocs. In 1989 imports of goods- I'm referring to goods because the statistics are simpler into the 12 mem- ber states ran to $1,100 billion. The corresponding figure for the United States was $480 billion and for Japan $190 billion. I repeat: 1,100 for the 12 member states of Europe, 480 for the United States, 190 for Japan. The comparison is something of an oversimplification, of course. We need to

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SCIENCE AND TECHNOLOGY AND EUROPEAN MARKET INTEGRATION s take intra-Community imports into account. But we also need to take into account the structural trends that can give a push to replacing intra-Commu- nity imports with imports from outside the Community. One thing is certain, though: the strengthening of Europe's economy through the Single Market will bring about increased demand to be put at the disposal of the whole world. It is difficult for me to resist the temptation to quote James Baker again: "We think that Americans will profit from access to a Single Euro- pean Market just as Europeans have long profited from their access to a single American market. However, it is vital to us all vital to us all that both these markets remain open and indeed that both become even more open." These first thoughts have touched on the history, nature, and reality of the Single European Market. How far we are from the idea of shutting ourselves in defensively! It seems to me that, far from fearing the Single European Market, those who believe in free trade should welcome it, because success in trade depends on having trading partners who are wealthy enough to be able to buy one's goods. And the studies we have performed show conclusively that Europe will be all the poorer without the removal of internal barriers. After 1992 the Single Market will help companies to recover the costs, including the spiraling costs associated with R&D. But what is true for European companies is also true for American and Japanese ones. The Single Market has been described as "a present for none but an opportunity for all." We shall all be obliged to work harder to exploit that opportunity. And now, to concentrate on science and technology, what does 1992 mean for research activities? What does it mean, through research activities, for the industrial and economic environment? To express my views on those points, I take as a starting point the Single European Act. It represents the major update to the treaties underpinning the European Communities; signed in early 1986, it came into force in June 1987. The consequences of this act can be summarized as follows: An enhancement of the decision-making system of the Communities, increasing the role of the European Parliament and providing for more ma- jority voting in the Council of Ministers. A major boost to integration in the political as well as economic and monetary spheres and to social and regional cohesion. A fixed time schedule for the completion of the internal market. This is where the magic number 1992 comes from. Finally and specifically, recognition of science and technology policy as an important and separate element of Community policy as a whole. l want to be precise on this last point. The Single European Act has inserted a whole title into the Treaty of Rome, on research and technologi-

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6 EUROPE 1992 cat development. The first article of this title says clearly: "The Community's aim shall be to strengthen the scientific and technological basis of European industry and to encourage it to become more competitive at [the] interna- tional level." Having in mind some controversial disputes on this subject, I want to underline that the Single European Act does not envisage an "indus- try policy." It does not envisage one, not in this title nor anywhere else. It simply but strongly shapes a Community R&D policy. Let me add that this policy implies support of precompetitive research only. This is not the case, as you know, of the policies implemented by some of the member states of the Community. While we are on national and Community policies, let me say that it is now recognized that we should achieve a critical mass through combining our national strengths in cooperative efforts at the European level. Only in this way can one afford the huge investments needed to come up with competitive solutions in high-technology sectors such as telecommunications or face the need for multidisciplinary research in a subject such as the environment, to name but a few examples. The Framework Program for Research and Technological Development is nothing more and nothing less than the main instrument of this policy of combining strengths and achieving critical mass in leading-edge technologies at the Community level. Perhaps most of you are familiar with the existence of the program and its main characteristics. It covers a period of five years, with a rolling revision. It is decided by unanimity in the Council of Ministers of the Community (unanimity is a very complicated target, as you can understand). The Framework Program is composed of a number of actions with indicative budgets; for each action there are one or more specific programs of precompetitive and prenormative, transnational, cooperative research. Each of these programs may be decided in the Council of Minis- ters by a qualified majority voting. I will restrict myself to pointing out that last December we took advan- tage of the midterm review of the Framework Program then running, in order to face up to the new perception of priorities, both within the member states of the Community and vis-a-vis the outside world. We proposed, and had accepted by the Council of Ministers, a third Framework Program (1990- 1994) with considerable streamlining of its specific programs 15 instead of 37 and a more flexible planning and budgeting cycle. Within that new Framework Program, an important part is taken by information and communication technologies; that is, the first line. The other actions are industrial and material technologies, environment, life sciences, energy, and, finally, human resources six actions. Some of these, especially envi- ronment, have acquired greater importance in the past few years. This is reflected in the new arrangements. In this connection I should like to stress that information and communication technologies are important not only in

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SCIENCE AND TECHNOLOGY AND EUROPEAN MARKET INTEGRATION 7 a narrow sectorial sense. They pervade, in a horizontal way, many other sectors in order to make them efficient and competitive. The overall budget for activities related to the third Framework Program, approved last December, is 5.7 billion ECUs, approximately $7 billion. Taking into account the financial resources forecast for the first two years of the period under the provisions of the second Framework Program, the two figures become, respectively, 8.8 billion ECUs and $10.5 billion- nearly $2 billion per year. It is necessary now to consider a broad horizon, to examine other aspects of the interrelation between European market integration and R&D matters. The most important issues in this context are standards and technical regu- lations, intellectual property rights, and the openness of the research system itself. I will deal with these in reverse order. First, the openness of the research system. Let me stress that the condi- tions for participating in EC research programs are transparent and nondis- criminatory with respect to Community-based organizations with foreign parentage. If they comply with the rules that, in essence, say the work is to be done in the Community by two or more firms that are not established in the same member state and that the work is to be exploited in Europe, they are treated exactly as firms with Community ownership. Of course, we aim to achieve a maximum benefit for Europe from the taxpayers' money invested in these projects, but benefit for Europe does not have to mean to the detriment of anybody else. In this we may take as a guideline the general framework of principles for international cooperation in science and technology, adopted in May 1988 by the OECD Council. This recognizes that the growth and development of all countries increasingly depend on advances in science and technology, which require both a sustained research effort and the widest possible circulation of ideas and information. Looking at the particular case of the European Community and the United States, for the moment the situation is not fully satisfactory. By way of example, participation in our programs by EC-based firms with U.S. ownership or control is now as high as 1.5 percent. On the other hand, only 0.18 percent of U.S. publicly funded R&D goes to U.S. based organizations that are not U.S. owned or U.S. controlled. Turning to the protection of intellectual property rights, we firmly believe that intellectual property protection rules should make a contribution to technology transfer rather than act as an impediment to it. Dissemination of knowledge should be carefully weighed against the legitimate returns due those who invest in research and development. Some problems have emerged about intellectual property rights clauses in agreements related to traditional areas of EC-U.S. cooperation, when those have come up for renewal. I am confident that in the end a mutually acceptable solution will be found for this problem.

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8 EUROPE 1992 On the third issue I mentioned, it should come as no surprise that stan- dards and technical regulations are of such importance to completing the internal market. The absence of homogeneous standards and regulations has been the item identified by the European business community as one of the most important barriers to achieving the Single Market. In 1983 the Community adopted the "new approach" in standardization that predates the Single European Act and the drive for 1992 by several years. This can be taken as evidence of the fact that already back then we were fully aware that an effective and streamlined standardization mechanism was absolutely essential for true market integration. I think it can be said with some justification that already this approach has yielded considerable benefits for all those who operate in the European market by reducing technical barriers to trade. This new approach has permitted considerable progress to be made in a number of areas. Among these has been the area of telecommunications, in particular terminal equipment. While we are on the subject of telecommu- nications, let me digress to comment on U.S. government application of certain provisions of the 1988 Omnibus Trade Act to telecommunications. The Community is engaged in a comprehensive program of liberalization and harmonization for this sector, which was first announced in the Commission's 1987 Green Paper. Since then, we have made a lot of progress and various legislative initiatives are completed or well advanced. These include opening up the terminal equipment market to full competition, legislative work on an open network provision, and a directive on telecommunications services. We see success in accomplishing this program as a vital element in meeting the twin challenges of 1992 and of technological development in this crucial sector of the economy. In Europe the telecommunications sec- tor has long been excluded from competition rules and market opening measures and is only now going to be addressed in the Uruguay Round of GATT. The GATT negotiations are the logical counterpart to the Community's own liberalization drive. You may then understand our disappointment when, under the 1988 Omnibus Trade Act, the Community was put on the priority list for negotiating the elimination of barriers to U.S. exports. This was in early 1989. The U.S. trade representative has had a number of exchanges of views and information with us that were qualified by both sides as very useful. Regrettably, the procedure under the Telecommunications Trade Act has not yet been concluded. I am glad to say, however, that a new spirit is now pervading this exercise. In a letter written to me a few days ago, Carla Hills, the U.S. trade representative, recognizes explicitly that "the European Community has made solid progress in realizing a more open and competi- tive telecommunications market in Europe." This seems to me very important. I hope my presentation has served to clarify, explain, and illustrate; now

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SCIENCE AND TECHNOLOGY AND EUROPEAN MARKET INTEGRATION 9 it is time to make proposals. A visit such as the one I have the pleasure of making will not amount to much unless it leaves on the ground a visible trace of its passage. I am referring to the ground of scientific and techno- logical cooperation between the European Community and the United States. It is fertile ground, but perhaps not cultivated enough. We must do more; we must cultivate it more intensively. I will purposely leave to one side for the moment the ambitious prospect of a new cooperation agreement or agreements on R&D between the Euro- pean Community and the United States. Article 130n of the EEC Treaty, as amended by the Single European Act of 1987, provides the legal basis for such an agreement. The new Framework Program for 1990-1994 and the specific programs that will follow provide the factual basis, so there are possibilities, but we need to build the preconditions. Let's keep the main aim in sight, but start straightaway to work on well-defined points. I propose that we concentrate on five priority areas through appropriate forms of joint work. These must be explored in depth in a sufficiently short time with a commitment aimed at decision making. First, information technologies. Important new moves toward EC-U.S. cooperation by companies are taking place. I remind you of the IBM America- Siemens agreement on semiconductors. It is consistent with our JESSI program. On both sides, though, things are moving more slowly in the area of publicly funded programs. There is still asymmetry. There is still a shadow of diffidence. Taking as a term of reference the network of participants in the ESPRIT program on the Community side and the network of engineering research centers on the U.S. side, I propose that we study determinedly and in depth any realistic possibility of collaborating. According to many people, definite areas and specific points for possible cooperation exist. We have to identify them. Second, prenormative research in the biotechnology sector. The areas in which public authorities are called upon to exercise their legislative or regulatory powers are becoming even wider. Health, safety, and environmental protection are among these areas. This is the case with bioengineering. We need to fix disciplines and set rules for the release of genetically modified organisms, for example. On this point the European Community is badly behind the United States. This determines a disadvantage to American industries that are deprived of the possibility of access to the European market. Fixing rules, or improving those already in existence, implies a preliminary research activity we can call it prenormative to have a solid and sound scientific basis. Getting together with a view to cooperating- this is our proposal. Avoiding duplication, speeding up results, increasing reliability these are our aims. Third, energy and environment. I am not referring to the usual subject of the constraints closely connected with the production of energy and the

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10 EUROPE 1992 need to protect the environment. I am referring to a newer and, in a certain way, more radical subject. It's a question of working on an overall cost- benefit balance sheet. It's a question of constructing models, combining scientific and economic approaches, that include larger series of variables than we have used up until now. It's a question of conceiving schemes for wider geographical areas than we have until nowcontinental and intercon- tinental, as is the case for acid rains. In this area, international cooperation is a must. Cooperation between the European Community and the United States must not be exclusive. It must be a driving force. Fourth, research and technological development with and for the countries of eastern Europe. It would be a mistake to think of possible and welcome initiatives in this area as a simple extension of existing activities along well-known lines of research. We must identify specific emergencies, like the environmental one, and specific needs. We must develop a program whose aim is the transfer of technologies, targeted rather than advanced, capable of facilitating and speeding the recovery of productivity in a context of widespread obsolescence. We need to favor progress toward a market economy in this way. Concerted action between the two sides of the Atlantic will give more impetus to the initiatives of the Group of 24. Through this action it will be possible to better use the room for maneuver that is progressively opening up as the COCOM restrictions are eased. Fifth, large-scale scientific projects. We propose a regular exchange of views in order to arrive at common approaches in a number of very expen- sive, large-scale initiatives. The initiatives include, as you know, global change, the human genome, fusion, high-energy physics and the superconducting supercollider, space stations, deep-sea research stations, and deep drilling on land. Research on the subject of global change and the human genome could be carried out through networks of many centers. The other initiatives require a highly expensive concentration of effort in large research facilities and a very long duration for this program. Within this list we need to make a selection, fix realistic targets, and establish ways of cooperating. We will take existing priorities into account. I would like to mention that among the priorities we have already agreed upon is a Global Change Program. We welcome warmly the initiative of President Bush in holding a White House Conference on Science and Economic Research Related to Global Change on April 17 and 18, 1990. These then are five concrete examples of possible consultation and coop- eration between the United States and the European Community. We propose that these should be explored and tried out. The list is neither binding nor exhaustive. We should take on board the biblical message: try everything; keep what is good. [Speaks in Greek] I have seen that there are some Greek words in the hall of this building, so I am allowed to utilize Greek words. What is important is for us to sit around the same table, to share the same

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SCIENCE AND TECHNOLOGY AND EUROPEAN MARKET INTEGRATION 1l aims, to speak the same language, and to speak to each other, for I have the impression that we have not communicated enough. Incidentally, why not set up a joint permanent task force? This is an item I have discussed with Dr. Bromley. By talking more and sharing this first exploratory work, we may be helped to face two problems that crop up and rightly worry both the authorities and the scientific community in this country. The first is an institutional problem. The second is a problem of human resources. The institutional problem is that of the shift in Europe of the center of gravity in research activities, from the member states toward the Community and its programs. Right now only 3 percent of the total funding for research in the 12 countries is accounted for by Community funding. Right now th Community acts according to the so-called subsidiarily principle, the mod- ern equivalent of the "jus supletivum" of medieval law: What can be done at the level of the member state is best done by the member states; what they cannot do by themselves is done by the Community. At the moment, then, this is how it is. But what of tomorrow? How will the current structure of multibilateral relationships between the two sides of the Atlantic change? Will we succeed in understanding each other on the crucial questions? These are the important issues for our American partners and friends, for the scientific community, and for the business community itself. The second problem touches on human capital and its mobility. This is an ever more essential factor in research activities. The whole world, and particularly we in Europe, knows what role the United States has played in preserving and increasing the human heritage in research. It has done this through good times and through bad times. We can never forget this. On this point, there is now stronger sensitivity in the countries of the European Community on the need for more intra-Community exchange, particularly at the level of young researchers. This is natural. One of the new initiatives of the 1990-1994 Framework Program deals precisely with the mobility of young researchers at the postdoctoral level. I can well understand that even on this point questions will arise in the minds of our American friends. What effect will Community initiatives have? Will there be undesirable repercussions in terms of mobility for the United States? To sum up, what do we do? For the two problems I have raised, and for others, both known and unknown, the answer is not to stop the clock. Pro- cesses like European economic and political integration answer to the demands of history. The great merit of the United States is in recognizing and supporting them. I stress this right at the beginning. The solution is not to be found in unilateralism either. This is the way for those who succumb to the temptation of going it alone in the sure knowledge that their reasoning is right but deaf to the sound reasoning of others. We must not, we do not want to take this road.

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2 EUROPE 1992 The answer to our problems lies in the practical recognition, in word and deed, of our interdependence. We are to all intents and purposes interdependent in science and technology as well. I have come here to say this to you. I have come here to learn this from you. I have come here because we can work together better on this basis. Science and technology are progressing. Markets are integrating. New ambitions are emerging, but the humble and great task that Thomas Jefferson gave to his fellow American citizens two centuries ago remains valid for always and for everyone, Europeans included: "Cultivate peace and com- merce with all."