Preserving EU Competitiveness

The competitiveness of the European Union (EU), as a global trade actor is achieved through a combination of three elements: investments into research and development, technology based industry and functioning of the Internal Market. But the recent economic crisis, revealed a number of structural weaknesses of the Union which caused a lowering of the competitiveness on the global markets. This paper has the aim to identify the underlying reasons for decreased competitiveness and point out potential future challenges for the EU. Even though the EU has a sizeable advantage in higher value added economic activities as a result of a high level of innovations and research and development, in the recent years USA is gaining competitiveness over primary innovations. Also, EU technology based industry which uses a highly educated workforce creates disadvantages for the EU in commoditized markets where price plays the most important role. That creates emerging opportunities for low costs productions. China has become the global leader in labor intensive manufacturing based on a comparative advantage in cheap labor, and it is increasing the quality and the share in the sectors which have traditionally been important to the European economy such as industrial machinery, automotives, computer equipment and certain chemicals. As a result of that, the EU is losing the dominant position in emerging markets such as ASEAN, South America, the Middle East and Africa. Finally, the third element, the Internal market is fragmented between national manufacturers who lacked economies of scale, still not harmonized national policies and increased usage of barriers to trade (especially during the economic crisis), which again has an influence on the lower EU competitiveness on the world market