title: Commission Recommendation of 10 April 2008 on the management of intellectual property in knowledge transfer activities and Code of Practice for universities and other public research organisations (notified under document number C(2008) 1329) (Text with EEA relevance)

text:
               5.6.2008

               EN

               Official Journal of the European Union

               L 146/19

      COMMISSION RECOMMENDATION

   of 10 April 2008
   on the management of intellectual property in knowledge transfer activities and Code of Practice for universities and other public research organisations
   (notified under document number C(2008) 1329)
   (Text with EEA relevance)
   (2008/416/EC)
   THE COMMISSION OF THE EUROPEAN COMMUNITIES,
   Having regard to the Treaty establishing the European Community, and in particular Article 165 thereof,
   Whereas:

               (1)

               When relaunching the Lisbon Strategy in 2005, the Heads of State or Government stressed the key role that better links between public research organisations, including universities, and industry can play in facilitating the circulation and use of ideas in a dynamic knowledge society and in enhancing competitiveness and welfare.

               (2)

               An effort should be made to better convert knowledge into socioeconomic benefits. Therefore, public research organisations need to disseminate and to more effectively exploit publicly funded research results with a view to translating them into new products and services. Means to realise this include in particular academia-industry collaborations — collaborative or contract research conducted or funded jointly with the private sector — licensing and the creation of spin-offs.

               (3)

               Effectively exploiting publicly funded research results depends on the proper management of intellectual property (i.e. knowledge in the broadest sense, encompassing e.g. inventions, software, databases and micro-organisms, whether or not they are protected by legal instruments such as patents), on the development of an entrepreneurial culture and associated skills within public research organisations, as well as on better communication and interaction between the public and private sector.

               (4)

               The active engagement of public research organisations in intellectual property management and knowledge transfer is essential for generating socioeconomic benefits, and for attracting students, scientists and further research funding.

               (5)

               Member States have in recent years taken initiatives to facilitate knowledge transfer at national level, but significant discrepancies between national regulatory frameworks, policies and practices, as well as varying standards in the management of intellectual property within public research organisations, prevent or hamper transnational knowledge transfer across Europe and the realisation of the European Research Area.

               (6)

               Following the 2007 Commission Communication (1), setting out approaches for a common European framework for knowledge transfer, the European Council therefore invited the Commission, in June 2007, to develop guidance on the management of intellectual property by public research organisations in the form of a Recommendation to Member States.

               (7)

               This Recommendation seeks to provide Member States and their regions with policy guidelines for the development or updating of national guidelines and frameworks, and public research organisations with a Code of Practice, in order to improve the way public research organisations manage intellectual property and knowledge transfer.

               (8)

               Collaboration in the field of research and development as well as knowledge transfer activities between the Community and third countries should be based on clear and uniform recommendations and practices that ensure equitable and fair access to intellectual property generated through international research collaborations, to the mutual benefit of all partners involved. The attached Code of Practice should be used as a reference in that context.

               (9)

               A number of good practices have been identified that should help Member States to implement this Recommendation. It is for each Member State to choose the procedures and practices best designed to ensure that the principles of this Recommendation are followed, having regard to what would be most effective in the context of that Member State, since practices that are effective in one Member State may not be as effective in another. Existing guidance provided at Community and OECD level should also be taken into account.

               (10)

               The Commission and the Member States should monitor the implementation of this Recommendation and its impact, and foster the exchange of good practices regarding knowledge transfer,

         HEREBY RECOMMENDS THAT MEMBER STATES SHOULD:

               1.

               ensure that all public research organisations define knowledge transfer as a strategic mission;

               2.

               encourage public research organisations to establish and publicise policies and procedures for the management of intellectual property in line with the Code of Practice set out in Annex I;

               3.

               support the development of knowledge transfer capacity and skills in public research organisations, as well as measures to raise the awareness and skills of students — in particular in the area of science and technology — regarding intellectual property, knowledge transfer and entrepreneurship;

               4.

               promote the broad dissemination of knowledge created with public funds, by taking steps to encourage open access to research results, while enabling, where appropriate, the related intellectual property to be protected;

               5.

               cooperate and take steps to improve the coherence of their respective ownership regimes as regards intellectual property rights in such a way as to facilitate cross-border collaborations and knowledge transfer in the field of research and development;

               6.

               use the principles outlined in this Recommendation as a basis for introducing or adapting national guidelines and legislation concerning the management of intellectual property and knowledge transfer by public research organisations, as well as for concluding agreements concerning research cooperation with third countries, or for any other measures to promote knowledge transfer, or when creating new related policies or funding schemes, while observing State aid rules;

               7.

               take steps to ensure the widest possible implementation of the Code of Practice, whether directly or through the rules laid down by national and regional research funding bodies;

               8.

               ensure equitable and fair treatment of participants from Member States and third countries in international research projects regarding the ownership of and access to intellectual property rights, to the mutual benefit of all partners involved;

               9.

               designate a national contact point, the tasks of which should include the coordination of measures regarding knowledge transfer between public research organisations and the private sector, including tackling transnational issues, in liaison with similar contact points in other Member States;

               10.

               examine and make use of the best practices set out in Annex II, taking into account the national context;

               11.

               inform the Commission by 15 July 2010 and every two years thereafter of measures taken on the basis of this Recommendation, as well as their impact.

      Done at Brussels, 10 April 2008.

            For the Commission

         Janez POTOČNIK

            Member of the Commission

      (1)  COM(2007) 182.

      ANNEX I
      Code of Practice for universities and other public research organisations concerning the management of intellectual property in knowledge transfer activities
      This Code of Practice consists of three main sets of principles.
      The principles for an internal intellectual property (hereinafter IP) policy constitute the basic set of principles which public research organisations should implement in order to effectively manage the intellectual property resulting from their — own or collaborative — activities in the field of research and development.
      The principles for a knowledge transfer (hereinafter KT) policy complement those relating to IP policy by focusing more specifically on the active transfer and exploitation of such intellectual property, regardless of whether or not it is protected by IP rights.
      The principles for collaborative and contract research are meant to concern all kinds of research activities conducted or funded jointly by a public research organisation and the private sector, including in particular collaborative research (where all parties carry out R&D tasks) and contract research (where R&D is contracted out to a public research organisation by a private company).
      Principles for an internal intellectual property policy

                  1.

                  Develop an IP policy as part of the long-term strategy and mission of the public research organisation, and publicise it internally and externally, while establishing a single responsible contact point.

                  2.

                  That policy should provide clear rules for staff and students regarding in particular the disclosure of new ideas with potential commercial interest, the ownership of research results, record keeping, the management of conflicts of interest and engagement with third parties.

                  3.

                  Promote the identification, exploitation and, where appropriate, protection of intellectual property, in line with the strategy and mission of the public research organisation and with a view to maximising socioeconomic benefits. To this end, different strategies may be adopted — possibly differentiated in the respective scientific/technical areas — for instance the ‘public domain’ approach or the ‘open innovation’ approach.

                  4.

                  Provide appropriate incentives to ensure that all relevant staff play an active role in the implementation of the IP policy. Such incentives should not only be of a financial nature but should also promote career progression, by considering intellectual property and knowledge transfer aspects in appraisal procedures, in addition to academic criteria.

                  5.

                  Consider the creation of coherent portfolios of intellectual property by the public research organisation — e.g. in specific technological areas — and, where appropriate, the setting-up of patent/IP pools including intellectual property of other public research organisations. This could ease exploitation, through critical mass and reduced transaction costs for third parties.

                  6.

                  Raise awareness and basic skills regarding intellectual property and knowledge transfer through training actions for students as well as research staff, and ensure that the staff responsible for the management of IP/KT have the required skills and receive adequate training.

                  7.

                  Develop and publicise a publication/dissemination policy promoting the broad dissemination of research and development results (e.g. through open access publication), while accepting possible delay where the protection of intellectual property is envisaged, although this should be kept to a minimum.

            Principles for a knowledge transfer policy

                  8.

                  In order to promote the use of publicly funded research results and maximise their socioeconomic impact, consider all types of possible exploitation mechanisms (such as licensing or spin-off creation) and all possible exploitation partners (such as spin-offs or existing companies, other public research organisations, investors, or innovation support services or agencies), and select the most appropriate ones.

                  9.

                  While proactive IP/KT policy may generate additional revenues for the public research organisation, this should not be considered the prime objective.

                  10.

                  Ensure that the public research organisation has access to or possesses professional knowledge transfer services including legal, financial, commercial as well as intellectual property protection and enforcement advisors, in addition to staff with technical background.

                  11.

                  Develop and publicise a licensing policy, in order to harmonise practices within the public research organisation and ensure fairness in all deals. In particular, transfers of ownership of intellectual property owned by the public research organisation and the granting of exclusive licences (1) should be carefully assessed, especially with respect to non-European third parties. Licences for exploitation purposes should involve adequate compensation, financial or otherwise.

                  12.

                  Develop and publicise a policy for the creation of spin-offs, allowing and encouraging the public research organisation’s staff to engage in the creation of spin-offs where appropriate, and clarifying long-term relations between spin-offs and the public research organisation.

                  13.

                  Establish clear principles regarding the sharing of financial returns from knowledge transfer revenues between the public research organisation, the department and the inventors.

                  14.

                  Monitor intellectual property protection and knowledge transfer activities and related achievements, and publicise these regularly. The research results of the public research organisation, any related expertise and intellectual property rights should be made more visible to the private sector, in order to promote their exploitation.

            Principles regarding collaborative and contract research (2)

                  15.

                  The rules governing collaborative and contract research activities should be compatible with the mission of each party. They should take into account the level of private funding and be in accordance with the objectives of the research activities, in particular to maximise the commercial and socioeconomic impact of the research, to support the public research organisation’s objective to attract private research funding, to maintain an intellectual property position that allows further academic and collaborative research, and avoid impeding the dissemination of the R&D results.

                  16.

                  IP-related issues should be clarified at management level and as early as possible in the research project, ideally before it starts. IP-related issues include allocation of the ownership of intellectual property which is generated in the framework of the project (hereinafter foreground), identification of the intellectual property which is possessed by the parties before starting the project (hereinafter background) and which is necessary for project execution or exploitation purposes, access rights (3) to foreground and background for these purposes, and the sharing of revenues.

                  17.

                  In a collaborative research project, ownership of the foreground should stay with the party that has generated it, but can be allocated to the different parties on the basis of a contractual agreement concluded in advance, adequately reflecting the parties' respective interests, tasks and financial or other contributions to the project. In the case of contract research the foreground generated by the public research organisation is owned by the private sector party. The ownership of background should not be affected by the project.

                  18.

                  Access rights (3) should be clarified by the parties as early as possible in the research project, ideally before it starts. Where necessary for the purpose of conducting the research project, or for the exploitation of foreground of a party, access rights to other parties' foreground and background should be available, under conditions which should adequately reflect the parties' respective interests, tasks, and financial and other contributions to the project.

         (1)  With regard to R&D results having several possible application fields, exclusive licences granted without any limitation to a specific field of use should be avoided. Moreover, as a rule, the PRO should reserve adequate rights to facilitate dissemination and further research.

         (2)  When a PRO engages in contract or collaborative research with an industrial partner, the Commission will automatically (i.e. without any notification requirement) consider that no indirect State aid is granted to the industrial partner through the PRO if the conditions set out in the Community Framework for State aid for R&D&I (OJ C 323, 30.12.2006, in particular points 3.2.1 and 3.2.2 thereof) are fulfilled.

         (3)  Access rights refer to rights granted by the parties to each other, as opposed to licences to third parties. They should determine which parties can use which pieces of foreground/background, for research purposes and/or for exploitation purposes, and on what conditions.

      ANNEX II
      Identified practices of public authorities that facilitate the management of intellectual property in knowledge transfer activities by universities and other public research organisations
      Knowledge transfer as a strategic mission of public research organisations

                  1.

                  Knowledge transfer between universities and industry is made a permanent political and operational priority for all public research funding bodies within a Member State, at both national and regional level.

                  2.

                  The subject clearly falls within the responsibility of a ministry, which is charged with coordinating knowledge transfer promotion initiatives with other ministries.

                  3.

                  Each ministry and regional government body that carries out knowledge transfer activities designates an official responsible for monitoring their impact. They meet regularly in order to exchange information and discuss ways to improve knowledge transfer.

            Policies for managing intellectual property

                  4.

                  The proper management of intellectual property resulting from public funding is promoted, requiring that it be carried out according to established principles taking into account the legitimate interests of industry (e.g. temporary confidentiality constraints).

                  5.

                  Research policy promotes reliance on the private sector to help identify technological needs and to foster private investment in research and encourage the exploitation of publicly funded research results.

            Knowledge transfer capacities and skills

                  6.

                  Sufficient resources and incentives are available to public research organisations and their staff to engage in knowledge transfer activities.

                  7.

                  Measures are taken to ensure the availability and facilitate the recruitment of trained staff (such as technology transfer officers) by public research organisations.

                  8.

                  A set of model contracts is made available, as well as a decision-making tool helping the most appropriate model contract to be selected, depending on a number of parameters.

                  9.

                  Before establishing new mechanisms to promote knowledge transfer (such as mobility or funding schemes), relevant stakeholder groups, including SMEs and large industry as well as public research organisations, are consulted.

                  10.

                  The pooling of resources between public research organisations at local or regional level is promoted where these do not have the critical mass of research spending to justify having their own knowledge transfer office or intellectual property manager.

                  11.

                  Programmes supporting research spin-offs are launched, incorporating entrepreneurship training and featuring strong interaction of public research organisations with local incubators, financiers, business support agencies, etc.

                  12.

                  Government funding is made available to support knowledge transfer and business engagement at public research organisations, including through hiring experts.

            Coherence in transnational cooperation

                  13.

                  In order to promote transnational knowledge transfer and facilitate cooperation with parties from other countries, the owner of intellectual property from publicly funded research is defined by clear rules and this information, together with any funding conditions which may affect the transfer of knowledge, is made easily available. Institutional ownership — as opposed to the ‘professor's privilege’ regime — is considered the default legal regime for intellectual property ownership at public research organisations in most EU Member States.

                  14.

                  When signing international research cooperation agreements, the terms and conditions relating to projects funded under both countries' schemes provide all participants with similar rights, especially as regards access to intellectual property rights and related use restrictions.

            Dissemination of knowledge

                  15.

                  Open access is implemented by public research funding bodies with regard to peer reviewed scientific publications resulting from publicly funded research.

                  16.

                  Open access to research data is promoted, in line with the OECD Principles and Guidelines for Access to Research Data from Public Funding, taking into account restrictions linked to commercial exploitation.

                  17.

                  Archival facilities for research results (such as Internet-based repositories) are developed with public funding in connection with open access policies.

            Monitoring implementation

                  18.

                  The necessary mechanisms are put in place to monitor and review progress made by national public research organisations in knowledge transfer activities, e.g. through annual reports of the individual public research organisations. This information, together with best practices, is also made available to other Member States.


Important legal notice

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52005SC0230

Recommendation for a Council opinion in accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of the United Kingdom, 2003/04-2009/10  /* SEC/2005/0230 final */

	Brussels, 16.2.2005SEC(2005) 230 finalRecommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of the United Kingdom, 2003/04-2009/10(presented by the Commission)EXPLANATORY MEMORANDUMCouncil Regulation (EC) No. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[1] stipulates that non-participating Member States, that is, those which have not adopted the single currency, had to submit convergence programmes to the Council and the Commission by 1 March 1999. In accordance with Article 9 of this Regulation, the Council had to examine each convergence programme based on assessments prepared by the Commission and the Committee set up by Article 114 of the Treaty (the Economic and Financial Committee). On the basis of a recommendation from the Commission and after having consulted the Economic and Financial Committee, the Council delivered an opinion, following its examination of the programme. According to the Regulation, Member States need to submit annual updates of their convergence programmes, which may also be examined by the Council in accordance with these same procedures.The first convergence programme of the United Kingdom, covering the period 1997/98-2003/04, was submitted on 22 December 1998 and assessed by the Council on 8 February 1999. Updates were presented every following year. The UK submitted the most recent update of its convergence programme on 17 December 2004. The Commission services have carried out a technical evaluation of this update, taking into account the results of the Commission services Autumn 2004 economic forecasts, and having regard to the code of conduct[2], the commonly agreed methodology for the estimation of potential output and cyclically-adjusted balances, the recommendations in the broad economic policy guidelines for the period 2003-2005 and the principles laid down in the Communication from the Commission to the Council and the European Parliament of 27 November 2002 on strengthening the coordination of budgetary policies[3]. This evaluation warrants the following assessment:-  The UK authorities submitted the sixth update of their Convergence Programme (hereafter referred to as the update) on 17 December 2004, covering the period from financial year 2003/04 to 2009/10. The update incorporates the authorities’ latest projections for the public finances as set out in the 2 December 2004 Pre-Budget Report (PBR). The programme partly complies with the data requirements of the revised “code of conduct on the content and format of stability and convergence programmes”. Data relating to total expenditure and revenues are not provided on a harmonised ESA95 basis, while information is not provided using the standardised tables agreed by the code of conduct. The update also continues to treat the receipts from the sale of the UMTS spectrum as an annual income stream, rather than as the sale of an asset, and does not provide information on their importance to the public finance projections.-  The central macroeconomic projection is of firm economic growth slowing to trend in 2006 and beyond. Some rebalancing of growth is expected, with domestic demand forecast to slow, while the recent negative drag on growth from net exports is forecast to be eliminated. On the basis of currently available information, the macroeconomic projections contained in the programme appear broadly plausible, notwithstanding risks of lower-than-expected growth in the short term. The forecast appears favourable in 2005, but is in line with the Commission services’ forecast for 2006. Thereafter, the authorities forecast of trend growth in 2007 and beyond is slightly lower than the Commission services’ latest estimates of potential growth.-  It is nevertheless important to note that the UK authorities base their projections for the public finances on a forecast scenario in which trend output growth is a quarter-percentage point lower than the rate used in the central macroeconomic forecast. Even on this lower growth scenario, there is a risk in 2005 of GDP growth slower than that forecast; however, the medium-term assumption for trend output growth is likely to prove a cautious estimate.-  Despite a strong labour market and a pickup in average earnings, HICP inflation remained subdued throughout 2004, generally well below the official 2% inflation target. In anticipation of emerging price pressures, the Bank of England raised its policy rate four times during the year, resulting in a cumulative rise in the repo rate since November 2003 of 125bp, to 4.75%. Sterling’s effective exchange rate rose modestly in nominal terms over the first half of the year but subsequently fell back, and by the end of 2004 the index was little changed on its value at the start of the year; mirroring these developments, the bilateral exchange rate vis-à-vis the euro appreciated during the first half of 2004 before ending the year at a rate close to that of twelve months earlier. Over the past year, developments in UK bond yields were broadly in line with trends in international bond markets, while the differential on 10-year government bond yields relative to Germany rose from around 50bp at the beginning of 2004 to a peak of almost 100bp in mid-November, due to the higher spread between short-term interest rates and to higher government net debt issuance in the UK compared to past years.-  The UK’s fiscal policy framework is based on two domestic fiscal policy rules for the public sector as a whole: the “golden rule”, which aims to ensure that, over the course of the economic cycle, the government borrows only to finance net investment, and not to fund current expenditure; and the “sustainable investment rule”, which aims to keep public sector net debt at “a stable and prudent level” below 40% of GDP over the cycle. Within this framework, the updated programme projects a reduction in the deficit from 3.2% of GDP in financial year 2003/04 to below the 3% reference value in 2004/05 (the financial year being the reference period for assessing the UK’s public finances under the Stability and Growth Pact). Thereafter the update projects a gradual reduction in the deficit over the medium term, but only to a level of 1.7% in 2008/09. The expenditure ratio continues to increase in line with the government’s policy priorities, including a rise in net investment, but the expected increase in the revenue ratio would lead to an overall improvement in the general government balance. Deficit projections to 2006/07 have been revised upward relative to the previous update despite an essentially unchanged macroeconomic outlook, while maintained for 2007/08; consequently, the looser short-term stance is intended to be followed beyond 2005/06 by a sharper consolidation of the public finances than in the previous update.-  Risks of a deficit higher than projected appear weighted towards the near term. In particular, the deficit in financial year 2004/05 might be in excess of 3% of GDP. In both the short and medium terms, risks are present due to the relatively favourable forecast for growth in 2005 and the potential for a weaker-than-expected recovery in receipts, particularly of corporation tax. Especially in the period of slower projected expenditure growth from 2006/07, government departments may find it difficult to adjust to tighter budgets, and thus might make use of accumulated unspent balances. However, from 2006/07 these negative risks are countered by the relatively cautious macroeconomic projections.-  In view of this risk assessment, the budgetary stance in the programme does not seem to provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations at any point during the projection period. It is insufficient to ensure that the Stability and Growth Pact’s medium-term objective of budgetary position close to balance is achieved by 2009/10. At the same time, however, it has to be noted that the debt ratio is relatively low and the projected balances are affected by the implementation of the above-mentioned significant programme of public investment.-  The gross debt ratio is projected to rise modestly over the period covered by the update (largely as a result of deficits on the primary balance), peaking at below 43% of GDP in 2007/08, well under the Treaty reference value of 60% of GDP.-  The programme reviews the government’s structural reform programme since the previous update, providing information on reforms to labour, product and capital markets. It also outlines further measures to improve the quality of public finances through a major programme of enhancing public sector efficiency, consistent with the recommendation, included in the 2003-2005 BEPGs, for the UK authorities to ensure that public services accompanying the planned increase in spending “…are delivered efficiently and with a view to ensuring cost-effectiveness”. The update also notes significant, ongoing efforts to improve the measurement of public sector output.-  The UK appears to be in a relatively favourable position with regard to the long-term sustainability of the public finances. The relatively low debt-to-GDP ratio and the strong emphasis that the UK authorities have placed, in existing policies, on long-term sustainability of the public finances are positive in this regard. The strategy outlined in the programme is mainly based on achieving high and stable long-term economic growth with sound and sustainable public finances regarded as a prerequisite. While higher age-related expenditures cannot be excluded, as there is a possibility of insufficient provision of private pensions which might have implications for the UK public finances, the authorities are introducing the Pension Protection Fund, from April 2005, designed to protect members of private defined-benefit schemes that become insolvent. The effectiveness of this scheme has, however, yet to be tested. In addition, adherence to the UK’s domestic fiscal rules would imply that any increase in public pension provision would (on average over the cycle) be financed from revenue or restructuring of expenditure. The UK’s relatively low tax ratio should ease the accommodation of any imbalances that may arise in the longer term.-  Overall, the economic policies outlined in the update are partly consistent with the country-specific recommendation on the public finances addressed to the UK in the 2004 update of the BEPGs, that the UK should improve the cyclically-adjusted position consistent with a budgetary position of close to balance or in surplus in the medium term. For 2004/05, evidence of significant progress remains unconfirmed in outturn data and there is a high degree of uncertainty over both expenditures and revenues, leaving the risk noted above of a deficit higher than 3% of GDP. Moreover, the planned slight expansionary stance in 2005/06 and the fiscal stance over the medium term are not in line with the recommendation in the BEPGs.-  In view of the above, it would be appropriate for the United Kingdom to ensure that the deficit is below 3% of GDP in financial year 2004/05 in line with plans, and improve the cyclically-adjusted position to ensure that a budgetary position close to balance or in surplus is achieved and maintained over the medium term.Based on this assessment, the Commission has adopted the attached recommendation for a Council Opinion on the updated convergence programme of the United Kingdom and is forwarding it to the Council.Recommendation for aCOUNCIL OPINIONin accordance with the third paragraph of Art. 9 of Council Regulation (EC) No 1466/97 of 7 July 1997 On the updated convergence programme of the United Kingdom, 2003/04-2009/10THE COUNCIL OF THE EUROPEAN UNION,Having regard to the Treaty establishing the European Community,Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies[4], and in particular Article 9(3) thereof,Having regard to the recommendation of the Commission,After consulting the Economic and Financial Committee,HAS DELIVERED THIS OPINION:On [8 March 2005] the Council examined the updated convergence programme of the United Kingdom, which covers the period 2003/04-2009/10. The programme complies partly with the data requirements of the revised “code of conduct on the content and format of stability and convergence programmes”. Data relating to total expenditure and revenues are not on a harmonised ESA95 basis, while information is not presented using the standardised tables agreed in the code of conduct. The update also continues to treat the receipts from the sale of the UMTS spectrum as an annual income stream, rather than as the sale of an asset, and does not detail their importance to the public finance projections. Accordingly, the United Kingdom is invited to achieve compliance with the data requirements.The programme contains two different scenarios for the macroeconomic and budgetary projections: a ‘headline’ macroeconomic scenario; and a lower growth scenario based on an assumption of trend growth a quarter-percentage point weaker than in the central forecast; the latter underlies the public finance projections. The lower growth scenario is thus considered as the reference for assessing budgetary projections, and reflects broadly plausible assumptions. The scenario envisages real GDP growth in 2005 of 3%, only slightly lower than the growth of 3½% in 2004, before slowing to 2¼% by 2007/08. On the basis of currently available information, there is a risk in 2005 of GDP growth slower than that forecast, as projected growth appears on the high side of the current forecasting range; however, over the medium term, the trend growth assumption underlying the public finance projections is likely to prove a cautious estimate. The programme’s projections for inflation also appear realistic.The UK’s fiscal policy framework is based on two domestic fiscal policy rules for the public sector: the “golden rule”, which aims to ensure that, over the course of the economic cycle, the government borrows only to finance net investment, and not to fund current expenditure; and the “sustainable investment rule”, which aims to keep public sector net debt at “a stable and prudent level” below 40% of GDP over the cycle. Within this framework, the updated programme projects a reduction in the deficit from an estimated 3.2% of GDP in financial year 2003/04 to below the 3% reference value in 2004/05 (the financial year being the reference period for assessing the UK’s public finances under the Stability and Growth Pact). Thereafter the update projects a further gradual reduction in the deficit over the medium term, but only to a level of 1.7% in 2008/09. The expenditure ratio continues to increase, in line with the government’s policy priorities, but the expected increase in the revenue ratio would, if realised, lead to an overall improvement in the general government balance. Within the overall level of expenditure, a significant programme of public investment is being implemented, which aims to lift general government net investment from 1.9% of GDP in 2004/05 to 2.4% in 2007/08. Relative to the 2003 update, deficit projections for both this financial year and next have been revised upwards; beyond 2005/06, however, the medium-term projections contained in the update represent a slightly more rapid consolidation of the public finances than those in the previous update.There is a clear risk that the budgetary outcome could be worse than projected in the programme in the short term. In particular, the deficit in financial year 2004/05 might be in excess of 3% of GDP. In both the short and medium terms, risks are present due to the relatively favourable forecast for GDP growth in 2005 and the potential for a weaker-than-expected recovery in receipts, particularly of corporation tax. Especially in the period of slower projected expenditure growth from 2006/07, government departments may find it difficult to adjust to tighter budgets, and thus might make use of accumulated unspent balances. From 2006/07, however, these negative risks are countered by the relatively cautious macroeconomic projections.In view of this risk assessment, the budgetary stance in the programme does not seem to provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations at any point during the projection period. It is insufficient to ensure that the Stability and Growth Pact’s medium-term objective of budgetary position close to balance is achieved by 2009/10. At the same time, however, it has to be noted that the debt ratio is relatively low and the projected balances are affected by the implementation of the above-mentioned significant programme of public investment.The gross debt ratio is estimated to have reached 39.5% of GDP in 2003/04, well below the 60% of GDP Treaty reference value. The programme projects the debt ratio to increase modestly by less than two percentage points over the period to 2009/10.The UK appears to be in a relatively favourable position with regard to the long-term sustainability of the public finances, despite the projected budgetary cost of an ageing population. The relatively low debt-to-GDP ratio and the strong emphasis that the UK authorities have placed, in existing policies, on long-term sustainability of the public finances are positive in this regard. Higher age-related expenditures cannot be excluded as there is a possibility of insufficient provision of private pensions which might have implications for the public finances, but the authorities are introducing the Pension Protection Fund, from April 2005, to protect members of private defined-benefit schemes that become insolvent. These measures are welcome, though their effectiveness is yet to be tested. The UK’s relatively low tax ratio should ease the accommodation of any imbalances that may arise in the longer term.The economic policies outlined in the programme are partly consistent with the country-specific recommendation on the public finances addressed to the UK in the 2004 update of the BEPGs, namely that the UK was recommended “in endeavouring to avoid the occurrence of an excessive deficit, to improve the cyclically-adjusted position to consolidate the public finances, consistent with a budgetary position of close to balance or in surplus in the medium term”. For 2004/05, there is a risk of a deficit higher than 3% of GDP. Moreover, the planned slight expansionary stance in 2005/06 and the fiscal stance over the medium term are not in line with the recommendation in the BEPGs.* * *In view of the above assessment, the Council is of the opinion that the United Kingdom should (i) ensure that the deficit is below 3% of GDP in financial year 2004/05 in line with plans, and (ii) improve the cyclically-adjusted position to ensure that a budgetary position close to balance or in surplus is achieved and maintained over the medium term.Comparison of key macroeconomic and budgetary projections[pic] [1] OJ L209, 2.8.1997. All the documents referred to in this text can be found at the following website: http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm.[2] Revised Opinion of the Economic and Financial Committee on the content and format of stability and convergence programmes, endorsed by the ECOFIN Council on 10.7.2001.[3] COM(2002) 668, 27.11.2002.[4] OJ L 209, 2.8.1997, p. 1. The documents referred to in this text can be found at the following website:http://europa.eu.int/comm/economy_finance/about/activities/sgp/main_en.htm.


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		52013DC0362

			Recommendation for a COUNCIL RECOMMENDATION on Italy 2013 national reform programme and delivering a Council opinion on Italy’s stability programme for 2012-2017 /* COM/2013/0362 final */

Recommendation for a
COUNCIL RECOMMENDATION
on Italy 2013 national reform programme
and delivering a Council opinion on Italy’s stability programme for 2012-2017
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 5(2)
thereof,
Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2] and in particular Article 6(1)
thereof,
Having regard to the recommendation of the
European Commission[3],
Having regard to the resolutions of the
European Parliament[4],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
After consulting the Economic and Financial
Committee,
Whereas:
(1)       On 26 March 2010, the
European Council agreed to the Commission’s proposal to launch a new strategy
for growth and jobs, Europe 2020, based on enhanced coordination of economic
policies, which will focus on the key areas where action is needed to boost
Europe’s potential for sustainable growth and competitiveness.
(2)       On 13 July 2010, on the
basis of the Commission's proposals, the Council adopted a recommendation on
the broad guidelines for the economic policies of the Member States and the
Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines
for the employment policies of the Member States[5],
which together form the ‘integrated guidelines’. Member States were invited to take
the integrated guidelines into account in their national economic and
employment policies.
(3)       On 29 June 2012, the Heads
of State or Government decided on a Compact for Growth and Jobs, providing a
coherent framework for action at national, EU and euro area levels using all
possible levers, instruments and policies. They decided on action to be taken
at the level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)       On 6 July 2012, the
Council adopted a recommendation on Italy’s national reform programme for 2012
and delivered its opinion on Italy’s updated stability programme for 2011-2015.
(5)       On 28 November 2012, the
Commission adopted the Annual Growth Survey[6],
marking the start of the 2013 European Semester of economic policy
coordination. Also on 28 November 2012, the Commission, on the basis of
Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report[7], in which it identified Italy
as one of the Member States for which an in-depth review would be carried out.
(6)       On 14 March 2013, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to
pursue differentiated, growth-friendly fiscal consolidation, to restore normal
lending conditions to the economy, to promote growth and competitiveness, to
tackle unemployment and the social consequences of the crisis, and to modernise
public administration.
(7)       On 10 April 2013, the
Commission published the results of its in-depth review[8] for Italy, under Article 5 of
Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude
that Italy is experiencing macroeconomic imbalances, which require determined
policy action. In particular, the loss of external competitiveness as well as
high public indebtedness in an environment of protracted subdued growth
continue to be identified as Italy's main macroeconomic imbalances.
(8)       On 11 April 2013, Italy
submitted its 2013 stability programme covering the period 2012-2017 and its
2013 national reform programme. Following this submission, the new government appointed
on 28 April indicated the intention to strengthen the structural reform agenda,
while confirming the budgetary targets put forward in the stability programme. On
17 May, a decree law was adopted, containing new provisions on real estate
taxation and the extension of the wage supplementation scheme for
under-employed workers. In order to take account of their inter-linkages, the
two programmes and the new measures taken by the government have been assessed
at the same time.
(9)       Based on the assessment of
the Stability Programme 2013-2017 pursuant to Council Regulation (EC) No
1466/97, the Council is of the opinion that the macroeconomic scenario
underpinning the budgetary projections in the programme is optimistic for 2014,
when compared with the Commission 2013 spring forecast. It is plausible as from
2015, but this is under the assumption of the full implementation of the
adopted structural reforms, which remains challenging. The budgetary strategy
outlined in the programme was confirmed by the new government and endorsed by
Parliament. It aims to maintain the deficit below 3% of GDP throughout the
programme period, reach the medium-term objective (MTO) in 2013 and put the
debt to GDP ratio on a declining path as from 2014. The programme confirms the
MTO of a balanced budgetary position in structural terms, which is in line with
the Stability and Growth Pact. The deficit was brought to 3% of GDP in 2012
and, according to the Commission 2013 spring forecast released on 3 May, is
expected to remain below the reference value in 2013-14. The provisions adopted
by the Italian government on 17 May are assessed to have no significant impact
on the deficit, if consistently implemented. After improving by 2.7 percentage
points of GDP in cumulative terms between 2009 and 2012, and assuming no
further policy changes, the structural balance as a share of GDP is forecast to
improve by a further percentage point in 2013, to -0.5%, and then deteriorate
marginally in 2014. The structural primary balance would reach nearly 5% of GDP
in 2014. The forecast structural adjustment for 2013 is appropriate, also based
on an analysis of expenditure net of discretionary revenue measures, while for
2014 it shows a deviation from the adjustment path towards the MTO. The
programme projects the government debt ratio to peak in 2013 and to start
declining thereafter, also thanks to foreseen privatisation proceeds amounting
to 1 percentage point of GDP per year. In the forecast however, the debt to GDP
ratio continues increasing, also due to the settlement of commercial debt,
which adds around 2.5 percentage points over 2013-14, while no privatisation
proceeds are included as the details have not yet been specified. As from 2013,
Italy is in a three-year transition period regarding compliance with the debt
criterion and the debt trajectory in the stability programme ensures sufficient
progress towards compliance with it. However, the deficit and debt projections in
the programme are predicated upon full implementation of the budgetary measures
and structural reforms adopted, which are essential to anchor market confidence
and boost growth and jobs.
(10)     While important reforms
have been adopted to foster fiscal sustainability and to spur growth, their
full implementation remains a challenge and there is scope for further action.
Several key measures proposed have not yet been approved or still require
enacting legislation and there are risks that their concrete application is not
consistently followed up through all levels of government.
Public-administration efficiency in terms of the regulatory and procedural framework,
quality of governance and administrative capacity continue to suffer from
significant weaknesses that affect implementation of reforms and the business
environment.
(11)     Completing the civil-justice
reform by swiftly implementing the revision of courts' organisation and reducing
the excessive duration of case-handling, court backlogs and high level of
litigation is necessary to improve the business environment. Following the
Constitutional court ruling in October 2012 on mediation, action is needed to
promote the use of out-of-court dispute-settlement mechanisms. Corruption
represents a serious concern implying costs estimated at 4 % of GDP, which
severely hinders the potential for economic recovery. The Anti-Corruption Law
of November 2012 requires follow-up action and the effectiveness of the repression
of corruption could be further improved, in particular with regard to the statute
of limitations currently characterised by short
prescription terms.
(12)     The ambitious fiscal
consolidation strategy enacted so far has been accompanied by the introduction
of a balanced budget rule in the Constitution in April 2012 and action to
improve the efficiency and quality of public expenditure. However, gaps in
implementation have hampered the full effectiveness of the action taken, in
particular with regard to public-sector employment efficiency and to the
reduction of the number of provinces. The Cohesion action plan made it possible
to speed up the absorption of structural funds accounting for about EUR 12.1 billion
in three consecutive phases. Nevertheless, the improvement of the overall
management of funds continues to lack ambition especially in the South of Italy
raising serious concerns in view of the 2014-2020 programming period. This
leaves ample scope for enhancing the efficiency of public expenditure.
(13)     Banks traditionally play a
decisive role in supporting Italian economic activity, notably through lending
to small firms, but their ability to take on this role has been weakened due to
the prolonged economic recession. Increased credit risk, with a large and
rising stock of non-performing loans, has contributed to a contraction in
lending and exacerbates banks' low profitability. In response, the Bank of
Italy is assessing the adequacy of provisioning for impaired loans with on-site
inspections. Specific corporate governance features of Italian banks may limit
the effectiveness of their financial intermediation. Measures were adopted to
encourage the use of non-bank financing channels, in particular equity
financing, and foster innovation capacity, but their scope remains limited and
they have not yet been fully implemented. The transposition of the EU directive
on late payments in commercial transactions and the planned settlement of the
accumulated stock of commercial debt will contribute to improving the liquidity
of firms.
(14)     A wide-ranging labour-market
reform was adopted in June 2012 addressing the rigidities and segmentation of
the labour market. The reform needs to be completed by adopting pending implementing
legislation and its concrete operationalisation on the ground carefully
monitored. Moreover, the public employment services have yet to be integrated with
the unemployment-benefit administration to support the implementation of efficient
activation strategies. A new wage-setting framework was defined by social
partners in successive agreements over 2011-2013. It is supported by tax
incentives to foster better alignment of wages with productivity and with local
labour-market conditions. This framework should be effectively implemented and progressively
adjusted on the basis of the monitoring of results.
(15)     Youth unemployment and the
proportion of young people not in employment, education or training continued
to increase, reaching 37 % and 21.1% respectively by the end of 2012. Both
the tertiary education attainment and the employment rate for young tertiary
graduates are the lowest in the EU, which shows that the skills of young
graduates are of little relevance to the job market. Although moderately
declining, early school leaving remains high. This raises concerns as regards
the performance of the education system. One of the key elements is the
teaching profession, which is currently characterised by a single career
pathway and offers limited prospects in terms of professional development. The
participation of women in the labour market remains weak and the employment
gender gap is one of the highest in the EU. The risk of poverty and social
exclusion, and notably severe material deprivation, are markedly on the rise,
while the social protection system has increasing difficulties to cope with
social needs since it is dominated by pension expenditure and social transfers excluding
pensions are insufficiently focused on fighting poverty and promoting social
inclusion.
(16)     The structure of the tax
system remains complex and weighs heavily on labour and capital. After the
effort undertaken in 2010-2011, additional measures adopted to shift the tax
burden from the productive factors onto consumption, property and the environment
have been more limited. Action is still needed to simplify the tax system, streamline
tax expenditures, align the property tax base with market values, enhance
compliance and dissuade evasion. Pending a revision of cadastral values, the
envisaged reform of real estate taxation will aim at improving its fairness,
within the constraints of the budgetary strategy laid out in the stability
programme. Reducing the shadow economy and undeclared work can benefit public
finances and have positive implications for equity. The review of VAT
exemptions or reduced rates and of direct tax expenditures may require some
adjustment in social transfers to minimise its distributional impact.
(17)     Notable efforts have been
made towards liberalisation in the services sector. However, the reform of regulated
professions should be taken further to address remaining restrictions and its
key principles should be safeguarded against possible setbacks, particularly stemming
from the reform of the legal profession. Following the ruling of the
Constitutional Court in July 2012, action to open local public services to
competition is also important.
(18)     The reform of the network
industries is on-going in terms of opening market access and improving infrastructure
capacity but important challenges remain. The unbundling in the gas sector is
due to be completed by September 2013 and the March 2013 national strategy for
energy needs to be implemented. Opening telecommunications to competition is a further
potential field of action. The new transport authority responsible for
highways, airports, ports and railways has not yet been set up. It should be
independent, supplied with the resources it needs to function and have powers
to sanction. There is also a serious problem of internal and cross-border
infrastructure shortcomings, with North-South disparities, contributing to high
energy prices, low broadband penetration and transport bottlenecks.
(19)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of
Italy’s economic policy. It has assessed the stability programme and national
reform programme and presented an in-depth review. It has taken into account
not only their relevance for sustainable fiscal and socio-economic policy in
Italy but also their compliance with EU rules and guidance, given the need to
reinforce the overall economic governance of the European Union by providing
EU-level input into future national decisions. Its recommendations under the
European Semester are reflected in recommendations (1) to (6) below.
(20)     In the light of this
assessment, the Council has examined Italy’s stability programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.
(21)     In the light of the Commission’s
in-depth review and this assessment, the Council has examined the national
reform programme and the stability programme. Its recommendations under Article
6 of Regulation (EU) No 1176/2011 on the prevention and correction of
macroeconomic imbalances are reflected in recommendations (1) to (6) below.
(22)     In the context of the
European Semester the Commission has also carried out an analysis of the
economic policy of the euro area as a whole. On this basis the Council has
issued specific recommendations addressed to the Member States whose currency
is the euro. Italy also should ensure the full and timely implementation of
these recommendations.
HEREBY RECOMMENDS that Italy should
take action within the period 2013-2014 to:
1.           Ensure that the deficit
remains below 3% of GDP in 2013, by fully implementing the adopted measures. Pursue
the structural adjustment at an appropriate pace and through growth-friendly
fiscal consolidation so as to achieve and maintain the MTO as from 2014. Achieve
the planned structural primary surpluses in order to put the very high
debt-to-GDP ratio (forecast to be 132.2% of GDP in 2014) on a steadily
declining path. Continue pursuing a durable improvement of the efficiency and
quality of public expenditure by fully implementing the measures adopted in
2012 and taking the effort forward through regular in depth spending reviews at
all levels of government.
2.           Ensure timely
implementation of on-going reforms by swiftly adopting the necessary enacting
legislation, following it up with concrete delivery at all levels of government
and with all relevant stakeholders, and monitoring impact. Reinforce the
efficiency of public administration and improve coordination between layers of government.
Simplify the administrative and regulatory framework for citizens and business
and reduce the duration of case-handling and the high levels of litigation in
civil justice, including by fostering out-of-court settlement procedures. Strengthen
the legal framework for the repression of corruption, including by revising the
rules governing limitation periods. Adopt structural measures to improve the
management of EU funds in the southern regions with regard to the 2014-2020
programming period.
3.           Promote corporate
governance practices in the banking sector conducive to higher efficiency and
profitability to support the flow of credit to productive activities. Take
forward the on-going work as regards asset-quality screening across the banking
sector and facilitate the resolution of non-performing loans on banks’ balance
sheets. Promote further the development of capital markets to diversify and enhance
firms' access to finance, especially into equity, and in turn foster their innovation
capacity and growth.
4.           Ensure the effective
implementation of the labour market and wage setting reforms to allow better
alignment of wages to productivity. Take further action to foster labour market
participation, especially of women and young people, for example through a
Youth Guarantee. Strengthen vocational education and training, ensure more
efficient public employment services and improve career and counselling
services for tertiary students. Reduce financial disincentives for second
earners to work and improve the provision of care and out-of-school services. Step
up efforts to prevent early school leaving and improve school quality and
outcomes, also by reforming teachers' professional and career development. Ensure
effectiveness of social transfers, notably through better targeting of
benefits, especially for low-income households with children.
5.           Shift the tax burden from
labour and capital to consumption, property and the
environment in a budgetary neutral manner. To this purpose, review the scope of
VAT exemptions and reduced rates and of direct tax expenditures, and reform the
cadastral system to align the tax base of recurrent immovable property to market
values. Pursue the fight against tax evasion, improve tax compliance and take
decisive steps against the shadow economy and undeclared work.
6.           Ensure the proper
implementation of the measures aiming at market opening in the services sector.
Remove remaining restrictions in professional services and foster market access
for instance in the provision of local public services where the use of public
procurement should be advanced (instead of direct concessions). Pursue
deployment of the measures taken to improve market access conditions in network
industries, in particular by setting- up the Transport Authority as a priority.
Upgrade infrastructure capacity with focus on energy interconnections,
intermodal transport and high-speed broadband in telecommunications, also with
a view to tackling the North-South disparities.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ L 306, 23.11.2011, p. 25.
[3]               COM(2013) 362 final.
[4]               P7_TA(2013)0052 and P7_TA(2013)0053.
[5]               Council Decision2013/208/EU of 22 April 2013.
[6]               COM(2012) 750 final.
[7]               COM(2012) 751 final.
[8]               SWD(2013) 118 final.
[9]               Under Article 5(2) of Council Regulation (EC) No
1466/97.