Lifting the EU Arms Embargo on China

____Relations among the EU, China and the US

I. Introduction　　
Two years ago, discussions had been hotly held within the EU on the question of lifting the embargo on arms exports to the People’s Republic of China. The prospect that the EU would lift its embargo on arms exports to China has led to a number of on-going discussions between EU member states and the US.

　　
The US government strongly opposed lifting the embargo at that time on human rights and security issues grounds. However, core member states of the EU, particularly France and Germany, strongly supported lifting of the embargo. And, the UK had advised the Bush Administration that it would also support lifting the embargo when the subject is formally addressed by the EU, most likely during the early spring of 20051.

　　
Arms embargo, as a discriminatory policy to China, has made China be at an unequal status in the international market, so China had been seeking to ask the EU to lift it. Lifting the embargo had become an important symbolic political act by the EU, and a Cold War era relic, and thus an impediment to better relations with European Union members. France, Germany, and other EU members claim the embargo hinders stronger EU political and economic relations with China. After their December 16 and 17, 2004 meeting, EU leaders pledged to address lifting the embargo2. The Council of the EU noted that if the arms embargo on China were to be lifted, that action should not result in either a quantitative or qualitative increase in EU arms exports to China3. The United Kingdom has argued that it believes that the European Union’s Code of Conduct on Arms Exports, while not legally binding, would, with some enhancements, provide a solid safeguard against worrisome arms exports by EU states to the Chinese in the future4.

　　
Unfortunately, the hope was killed in June of 2005 for strongly interferences of the US into the EU. The discussion was eliminated and the problem was put in box and no body argued it any more.

　　
Why it is so hard for the EU to make the decision to lift arms embargo on China, which will surely bring benefits for it?

　　
This article draws an outline of the origination and development of this problem, emphasizes on main reasons for the EU not to lift arms embargo on China, and deliver some possible measures for the future.

II. The EU arms embargo on China

A. Derive of this problem and it’s influence to China and the EU

　　
After World War II was ended, the East and West blocs of the formation of the Cold War started to limit the Western industrialized countries selling socialist countries the high-tech strategic goods. The US in November 1949 established the so-called "Export Control Co-coordinating Committee", headquartered in Paris, also known as "the Paris Commission" and short for Batumi. China was not its initially regulatory object until July of 1950.

　　
The relation between China and West countries became eased after President Nixon’s visit to China in 1972. The US began to broaden export policy to China, followed by the EU. In the same year, China obtained same status as the SU from the Batumi, but until 1981 China could not import more advanced technologies from the US and other West countries. Subsequently, negotiations were launched between China and French, Italy on importing military equipments and technologies and arms sale relationship was established between China and the EU. From December 1985, the Batumi adopted more relaxed Green Policy which made military technological cooperation between China and the EU developing quickly.

　　
On June 27, 1989 the European Council, convened in Madrid, agreed to impose an arms embargo on China. The arms embargo against China has not been interpreted uniformly by the EU members since it was imposed. This has been attributed to several factors, including lack of specificity in the political declaration, absence of a legally binding document, such as a Common Position, as is the case with subsequent embargoes imposed on other countries and, more importantly, the existing loopholes and weak points in the EU arms control system. For instance, the UK interpreted the embargo in a narrow manner, as to include the following items: lethal weapons such as machine guns, large-caliber weapons, bombs, torpedoes and missiles; specially designed components of the above, and ammunition; military aircraft and helicopters, vessels of war, armored fighting vehicles and other weapons platforms; and equipment which might be used for internal repression5. The French have interpreted the embargo similarly.6

　　
Since 1989, European non-governmental organizations have reported that the embargo on China has been bypassed by several EU members and has been reduced to a mere “symbolic instrument.7” One arms trade expert with the Stockholm International Peace Research Institute (SIPRI) of Sweden has stated that “many European licenses for the arms trade are actually issued for material which, on paper, can be used for civilian purposes; what is known as ‘dual usage’… The embargo has actually been circumvented in this way for years.8” Amnesty International in its 2004 report, Undermining Global Security: the European Union Arms Exports, contains several examples of EU members that have made exports to China within the framework of the existing arms embargo9. For instance, the United Kingdom exported components for Chinese military aero engines as well as technology, software and related systems for weapons platforms; an Italian joint venture company was involved in the manufacture of vehicles reportedly used as mobile execution chambers in China. In addition, the German Deutz AG diesel engines were incorporated into armored personnel carriers that were transferred to China10.

　　
Recently, China requires the EU to lift the unequal ban on arms sales in many occasions. On 13th October 2003, the Chinese government issued China's EU Policy Paper, spelling out objectives of China's EU policy and outlining plans and measures on bilateral cooperation in the coming five years, in which it stated that the EU should lift its ban on arms sales to China at an early date so as to remove barriers to greater bilateral cooperation on defense industry and technologies11.

　　
China’s requirement was responded and advanced by French President Chirac and German Prime Minister Schroeder. The EU 15 members agreed to consider lifting this ban on European Submit on 13th December 2003. On 26th January 2004, the EU Council of Foreign Minister discussed this problem and required the Political and Security Commission to deliberate the proposal. On 18th December 2004, the European Submit declared again the political aspiration to lift arms embargo on China and required the Rotation Presidency State Luxemburg go on to work so as to conclude agreement after June of 2005.

　　
However, the EU did not abide this promise. On 13th June 2005, Conference of the EU Foreign Minister discussed and at last dropped the plan which was decided to lift arms embargo on China in June of 2005, and expressed that they would set no time table on this question. From then on, this hot question became cold and there has been not any progress up to now.

B. Strong tendency to lift this embargo

　　
Even contemporary the EU is reluctant to lift arms embargo against China, this is absolutely a historical tendency and no body can restrict it.

1. The product of Cold War should be dropped

　　
This embargo is a product of Cold War mentality. China has been subjected to the Western embargo and blockade. In November 1949, the United States and its Western allies in Paris, the establishment of secret "Paris Output Control Commission" right Including China, the socialist countries were imposed a comprehensive arms embargo. Implementation of this policy continued for as long as two or three decades up to end of the 1980s and early 1990s; the international political situation had undergone great changes. Subsequently, in June 1989, President Bush announced the United States would imposed sanctions on China and then stopped all military sales to China. The U.S. Senate also passed a resolution demanding that the allies of the United States agreed to carry out military sanctions to China. EC Summit announced immediately to suspend military cooperation and arms trade between its members states and China. The ban has been in use ever since.

　　
The EU ban on arms sales to China in the last century the late 1980s that the special historical period to make political decisions. EU Trade Commissioner Peter Mandelson, when visiting Beijing February of 2005, said: "The arms embargo is a product of the Cold War." This is political discrimination facilitated by the West against China during the Cold War. French President Jacques Chirac made clear that the EU ban on arms sales to China today, "has not been in keeping with contemporary political and social reality… had never been justified."

　　
Compared with the 1980s and 1990s, the international strategic situation has undergone great changes. The Cold War lasting for half a century has ended, and the bipolar pattern has been dissolved, which makes maintaining common western camp meaningless to exist without political reasons. In a diverse world, all countries of the world strategic interests are not the same. The United States of America has the interests of Europe European interests, so it tries to continue maintaining the shadow of the Cold War confrontation, which is not only inconsistent with the trend of the times, nor is it compatible with the European countries strategic interests.

2. Development of relationship between China and the EU

　　
In the context of globalization, Europe and China's economic, political relations have become increasingly close, and showed more and more growing interdependence. In particular, the beginning of the new century, China and the EU, on the equal and mutually beneficial basis, comprehensively promoted the strategic partnership, targeting to the mutually political trust, economic and trade exchanges, security consultation, and technical cooperation. In 2004 the EU became China's largest trading partner and China becomes the EU's second largest trading partner. The bilateral trade volume came to over 150 billion U.S. dollars. In 2004 the EU and China signed "Galileo satellite navigation cooperation agreements". China and the EU launched a remote sensing satellite largest cooperation project "Dragon" to the EU in high-tech areas of cooperation providing a good example. Clearly, the continuation of the arms embargo on China is not appropriate.

　　
Growing political and economic reform in-depth, high-speed economic growth comes true in China, as a confident, prosperous, responsible big country to be recognized by the international community. As former French Foreign Minister Dominique de Villepin said, "China today is the EU's special partner, and China has got an important position in the international community." China's development was further explanation that the Western embargo is discriminatory founded. Quickly lifting the arms embargo on China and the elimination of the Cold War relic of the era will correct this error, which is absolutely necessary for the wise.

3. The rationale of arms embargo has disappeared

　　
The only rationale of the EU to enhance arms embargo on China is that Chinese Government paid little attention to human rights. Under this premise, supporting China's transition to an open society based on the rule of law and the respect for Human rights is central to EU-China relations.

　　
The EU has committed to promote Human rights in China in an active, sustained and constructive way. Over the last decade, human rights have been mainly discussed between the EU and China in the framework of both their political dialogue as well as a specific dialogue. This dialogue was set up in 1995. Two rounds of the dialogue take place every year, under every EU Presidency. It allows the EU to channel all issues of concern (such as the death penalty, re-education through labor, ethnic minorities' rights, civil and political freedoms, individual cases etc.) in a forum where China is committed to responding. The dialogue, together with pressure from other international partners, has contributed to yield some concrete results (visits to China by the UN Commissioner for Human Rights, signing of the UN Covenants on Civil and Political Rights, signing and ratification of the UN Covenant on Social, Economic and Cultural Rights, release of prisoners, setting up of Commission co-operation projects etc).

　　
Human rights situation in China has improved sufficiently even in the eyes of the US and therefore the original rationale for the embargo no longer applies.

4. The Embargo: an empty shell

　　
In fact, the “embargo” is nothing more than a single sentence in a 1989 communiqué, and is nothing more than a voluntary proclamation by the EU member states at the time. As such, it is not legally binding and does not have strict enforcement mechanisms, is becoming increasingly “leaky” in any event, and should be scrapped. What’s more, all of its other 1989 sanctions have long been lifted by the EU, and thus maintaining this one is anachronistic.

　　
While the Europeans balked at selling China complete weapons systems during the 1990s, their arms embargo was honored more in the breach than in the observance.

　　
Between 1993 and 2002, France sold over $US122 million in defense goods to China. The United Kingdom sold China Racal/Thales Skymaster airborne early warning radar systems and Spey aero-engines for Chinese JH-7 fighter-bombers. The University of Surrey cooperated in China’s micro-satellite development, a technology; the Chinese acknowledge will be used in ‘parasitic’ anti-satellite weapons12. At sea, German and French marine diesel engines power new Chinese submarine and surface combatants. Germany’s MTU is co-producing marine diesel in China to power China’s new Song A-class submarines. French-designed Semt Pielstick marine diesels power the new very stealthy Chinese 054-class frigate13.

　　
Between 2002 and 2003, the European Union almost doubled its arms export licenses for China, raising questions about its insistence on having no intention of increasing its sales, once it lifts its arms embargo on China. The EU annual report on arms exports shows that the value of EU licenses for selling arms to China totaled €416 million ($US544 million) in 2003 compared to €210 million in 2002. According to the information in the EU Official Journal issued in December 2004, France granted €171 million worth of licenses for arms sales to China in 2003, Italy €127 million, and the UK €112 million, showing all figures well above the €210 million level of 200214.

　　
It is evident that even with the embargo in place, the licenses for arms sales to China granted by EU member states have increased rather than decreased. Thus, the EU arms embargo on China has proved to be inefficient, simply a political statement, and lacks legal basis and strict EU-wide enforcement mechanisms. It is also true that the embargo has not been a complete prohibition on defense technology or component transfers to China.

III. Factors halting the pace of the EU

　　
Over the years, sound supporting to lift the EU’s arms embargo on China is growing louder and louder. France, Germany, Italy, the Netherlands and other EU countries and the EU Council has issued a statement, calling for an early change in the span between the EU and China. However, the unhappy resolution of the EU Summit in June of 2005 gave us a clue that this problem would not be so easy to resolve. There are two aspects of potential reasons for this. The first is external pressure from the US and other Western countries; the other is internal problem within the EU.

A. External pressures from the US to the EU

1. Reluctant to see a strong China with competitiveness

　　
That the ban of arms sales is insisted so strongly by the US is in order to prevent the U.S.-led unipolar structure and the Cold War system from being collapsed. Maintaining the arms embargo, weaving a containment network for China is one of most important measures of the United States to maintain the outdated Cold War order and lead a dominant role in the European affairs.

　　
Especially, the US has been always treating China as its potential and most important competitor in the international community. A strong China, in particular a China with powerful defense force, will absolutely threaten the dominant position of the US.

2. Be afraid military power across Taiwan Strait out of balance

　　
The second worry from the US is that there will be risk, in the possible Taiwan conflicts, for the US army to confront military equipments and technologies originated from the US or other Western countries, which also may enhance the possibility for China to use force in resolving Taiwan issues. Out of this consideration, the US compelled the EU not to lift the embargo in order to maintain a balance of military power across the Strait and support that the US will possess overwhelming advantage once it interferes Taiwan issues. A commenter of Washington Observe said that the reason for the US to adhere the arms embargo on China is not that the US is afraid to be defeated in military conflicts but that it promises the least loss the US would cost.

3. Be afraid the EU go too closer with China

　　
The US is afraid that the EU will go too closer with China strategically, so it tried its best to delay the development of China and maintain a "strategic gap" in between. Fundamentally speaking, the United States has always considered China as a potential competitor; China's development will never be allowed to challenge the US’s core interests of the great powers. If China and the EU go closer, the structure of international strategic pattern will be finally influenced and develops in the direction of multi-polarization. If the lifting of the EU arms embargo on China comes true, China will be more in relaxed strategic environment, which is not the situation the United States and Japan want to see.

4. Maintaining dominant role in European affairs

　　
The US has been always very cautious to control the Europe in his hands. Through the maintenance of the arms embargo on China, the US may be able to continue maintaining the EU political and military influence on European states, intervening European affairs, and counteracting the developing deviation power of the EU.

　　
Lifting arms embargo is consider being the second affair the EU made its own decision without instruction from the US besides the Iraq War 2003. Integration of the EU requires real capability of foreign diplomacy and defense. If all the 27 members manage to achieve unanimity on this problem, political integration will be encouraged and advanced, which, of course, will bring a huge strike to the dominant position of the US in the Europe.

B. Internal problem

1. Obstacles of decision making regime

　　
If the proposal to lift the ban on China is passed, all 27 members should agree unanimously. This decision-making regime adds difficulty to this problem. Inside the EU, some major States such as France, Germany and Italy support to cancel the ban on China according to strategies and economic interest. But some middle and small States are not so agreeable to see that, mainly because that they keep prejudice to China, considering there is serious human rights problem in China, worrying China will strike Taiwan, and thinking that the lift will bring nothing good for them as they do not have military trades with China.

2. Human rights problem

　　
Beside some Northern European countries object to lift the ban for human rights problem, the European Parliament, Parliaments, Parties and Human Right organizations of some member states join in to oppose to dismiss the ban and load influence to national government.

　　
On 18 December 2003, under the reason that human rights situation in China was still unsatisfactory and there were no sufficient excuse to lift the ban, the EU Parliament passed a resolution to maintain arms embargo on China, which brought negative influence to governments of the EU member states. For another example, even though Netherland government agreed to dismiss the ban, the Netherland Parliament passed a similar resolution which made the government difficult to draw decision. Green Party and Social & Democratic Party proposed a joint bill to require China ratify carry out ICCPR, actualize human rights and private property protection provisions in the new modified Constitution, and further improve automatic rights of minorities.

3. Negative influence from stagnancy of European integration

　　
The European Constitution was rejected in referendums of France and Dutch respectively in 2005, which caused negative influence to the issue of lifting arms embargo. The veto of the EU Constitution drew more attention of the EU to eliminate internal handicap and problem and weakened the consideration of international problems.

4. A Strengthened Code of Conduct and Export Controls will be Effective

　　
The Parliament, governments and Parties of some member states insist that there should be a forceful code for conduct of arms exportation which regulate in details about standards and quantity of weapons exported to China and other third countries.

　　
A strengthened Code of Conduct had been in preparation in Brussels for over a year. The proof will be in the pudding of the new Code, but EU officials already admit that it will not be legally binding and will remain substantially up to each member state to interpret15. Moreover, there will be no provisions for dual-use technologies (civilian technologies with military application), which fall under the Wassenaar Arrangement. European export controls – particularly at the EU level – are in real need of strengthening, particularly in the wake of the 2004 inclusion of ten new East and Central European member states16. There may also be a need for replacing the defunct COCOM and dysfunctional Wassenaar Arrangement17. Even if such a broader mechanism is not put in place, there is still a need for regular and institutionalized cross-checking and monitoring of export license applications between the EU and U.S. prior to their issuance.

IV. Looking forward

　　
It is obvious that lifting arms embargo on China is not a question about “Whether” but a question of “When”. However, achievement of this target calls for political wisdom.

A. Strengthen the strategic relationship between China and the EU

　　
Economic cooperation relationship between China and the EU has become relative mature, but political and strategic and security relationships are comparatively weak. Both China and the EU are changing from regional power to a global one. In this progress, enhancing and deepening mutual relationship, enlarging mutual respect and improving international position of ourselves are common targets of the both entities. Lifting arms embargo will absolutely bring interests to both sides, but it also needs hand work from them. New effort should be made to facilitate political and strategic and security cooperation, one of the most premise is that principles of mutual trust, equal treat and respect counterpart’s interests should be abided.

B. Focusing on persuading Member States of the EU

　　
Even the EU has arrived at integration at a considerable level; member states are still most important subjects to decide foreign policies. MS possess the leading power to control strategic and security affairs. Following enlargement of the EU, member states become more and more, and their interest become more and more diversified and difficult to harmonize. Factual importance of core states like France and Germany has declined. This new situation suggests that if China wants the EU to reach an agreement to lift the arms embargo, it has to do homework towards member states of the EU, not just staying at the Union level. Targets and requirements of policies towards China of the EU and its member states are not exactly the same. Different state emphasizes in different areas according to its own political and economic benefits. The contemporary work for China to do is to motivate enthusiasm to improve relation with China and restrain negative factors interfering and holding down strategic relationship between China and the EU.

C. Concerning the tri-angle relations among China, the EU and the US

　　
As discussed above, the power of the US should never be overstepped in dealing with the problem of arms embargo. Stable relationship between China and the US is the precondition to create a kind of loosely outer environment for relationship between China and the EU. Accordingly, when developing bilateral relationship with any giant entity or country, China should clearly persist in excluding not any third entity and pointing at no third entities. Keeping peace, developing and cooperating are fundamental principles in dealing with relations between China and the EU and the US, which will finally accomplish a benign, interact in the triangle relations among China, the EU and the US.

　　


Reference：

Journal

　　
Asian Wall Street Journal

　　
Far Eastern Economic Review

　　
The Nonproliferation Review (Summer 2003)

Newspaper

　　
Current Affairs

　　
Financial Times

　　
Space News International

　　
Dow Jones International News

　　
Aviation Week & Space Technology

Document

　　
China’s EU Policy Paper (2003)

　　
Council of the European Union, 16/17 December 2004. Presidency Conclusions. 16238/1/04 REV 1, p. 19. Published on February 1, 2005.

　　
Robin Niblett, The United States, the European Union, and Lifting the Arms Embargo on China, 10 EURO-FOCUS no. 3 (Sept 30, 2004). Center for Strategic and International Studies.

　　
Seema Gahlaut, Michael Beck, Scott Jones, and Dan Joyner, Roadmap for Reform: Creating a New Multilateral Export Control Regime (Athens, GA: University of Georgia Center for International Trade and Security, 2004)

1 “Germany: Schroeder Calls for EU to End China Arms Embargo,” Dow Jones International News, December 6, 2004; “France reiterates support for end to China arms embargo,” Agence France Presse, December 6, 2004.

2 Peter Sparaco and Robert Wall, “Chinese Checkers; Widening business opportunities drive EU’s review of China arms embargo,” Aviation Week & Space Technology, December 13, 2004, p. 37.

3 Council of the European Union, 16/17 December 2004. Presidency Conclusions. 16238/1/04 REV 1, p. 19. Published February 1, 2005.

4 Marc Champion, “EU Aims to Calm U.S. Arms Fears–Officials say likely end to Sales Embargo on China won’t increase imports,” Asian Wall Street Journal, February 21, 2005, p. A1.

5 Robin Niblett, The United States, the European Union, and Lifting the Arms Embargo on China, 10 EURO-FOCUS no. 3 (Sept 30, 2004). Center for Strategic and International Studies.

6 EU arms embargo on China. [http://projects.sipri.se/expcon/euframe/euchiemb.htm]

7 Thijs Papot, “‘A Symbolic Instrument’” the EU’s arms embargo against China,” Current Affairs, January 25, 2005.

8 Ibid.

9 Amnesty International. Undermining Global Security: The European Union Exports. Available at http://web.amnesty.org/library/index/engact300032004

10 Press Release of Coalition of European NGOs including Saferworld, Oxfam, Pax Christi, and Amnesty International: “Flimsy Controls Fail to Prevent EU Countries Selling Arms to Human Rights Abusers.” September 30, 2004.

11 See China’s EU Policy Paper (2003).

12 Far Eastern Economic Review, 12 August 2004, 27.

13 Space News International, 14 February 2005, 19.

14 Financial Times, 18 January 2005.

15 Apparently, there is some consideration being given to making the revised Code legally binding. See Daniel Dombey, “EU Considers Binding Rules on Arms Sales,” Financial Times, April 18, 2005.

16 See Scott Jones, “EU Enlargement: Implications for EU and Multilateral Export Controls,” The Nonproliferation Review (Summer 2003), pp. 1-10.

17 See Seema Gahlaut, Michael Beck, Scott Jones, and Dan Joyner, Roadmap for Reform: Creating a New Multilateral Export Control Regime (Athens, GA: University of Georgia Center for International Trade and Security, 2004).

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[Full Text]

Constitutional Obstacles and Foreground Expectation of the EU

I. Introduction

2005 was an uncommon year for the EU, in which the process of European integration was halted for the frustration encountered by the Constitutional Treaty. Subsequently, anxiety and bewilderment began to go the rounds the EU.

Nowadays, as two years passed, the EU is still wandering outside the door of political integration. What are main obstacles the EU is now confronting to transcend its integration dilemma? And how is the future of the EU?

In this article, five key factors, economy, social problems, system obstacle, relationship between member states and common conscious, will be brought forward to analyze the contemporary situation of the EU. Hereafter, two important issues related with future development of the EU, deepening and enlargement of the European integration will be discussed.

II. Background

Since 1957, the EU has experienced many enlargements, which testimony EU’s development and grandness, and some even become milestones in the process of integration. Especially in 2004, the EU historically enlarged to east, which is peerless in its developing history, no matter number of countries, geography, population and difference of polity, economy and culture between old and new member states. Truly speaking, such features mean problems and challenges to the EU, but the more important meaningfulness of this is that it indicates great success of European integration. The essential difference of this round of enlargement from the former four rounds is that object of this time is Central and East European Socialism countries. In 1990s following the Revulsion of East Europe, when Central and East European Socialism countries were trying their best to return Europe, the EU instinctively, timely and successfully got hold of the occurring-only-once-in-a-thousand-years chance to realize European unification, the core target of European integration after WWII. Achievement of this enlargement indicates the end of abruption of East and West Europe, and foundation established to make the dream of Grant Europe come true. Thus, European integration is endowed real significance of holistic Europe, which will influence not only European development but also combination and diversification of world pattern in new century.

European integration is a zigzag historic process. In 1950s, as the birth of EEC and EURATOM, European integration went in a new age. European economic integration experienced one by one difficult period, but these never stopped the process of integration and got some progress in the field of political integration. The launch of European constitution in 2002 was a new and important development and the signature of European Constitutional Treaty in 2004 symbolize a new milestone in the process of integration. All of these are more important and worthy to emphasize than the fact of failure of the treaty in 2005. Without doubts, the frustration of the treaty is the same as other treaties in the history of the EU, and never avoids negative impacts to the process of European integration, but it is still a growing pain.

III. Key Factors influencing the trend of EU development

The EU is, in many eyes, especially old member states, a community with rich life, stable society and sufficient society security. Actually, the EU is full of problems and it’s very difficult to resolve, which restrain the EU’s future development and solution of such problems decide its orientation to go ahead.

Firstly，in economy, the core question is the long economic depression. These years, economic increase of principal states paces up and down around 1-2%, which is not only obviously lower than the US and even worse than Japan in 2005. Accordingly, all kinds of social, regional and inter-member-states contradictions flood in. what’s more, revenues are reducing, so governments in member states have to use money of future, which results in more and more financial deficits. The EU regulates that financial deficit of every member state should not exceed 3% of total financial budget of this year. However, Germany, France, Italy and Portugal have broken through upper limit several years and gotten warning from the EU. 7 out of 10 new member states joining in 2004 have not met the standard. Public debts of member states become more and more onerous. According to statistics from the EU Commission, balance of public debts in Italy, Belgium and Greece have exceeded their GDP; debt of other 11 states including Germany, France, Holland etc, have exceeded 50% of their GDP. Out of financial budgets of many member states, mature debts paid take a great part.[1]

Secondly, social issues take place ceaselessly. Even though West Europe is a high-welfare society, the network with Medicare,endowment insurance and society relief has become destroyed for economic depression. Unemployment rate has increased these years. In 2005, the registered unemployment rate of the EU is 10%, which was highest in past years. To solve problems above, governments have no excrescent money to add investment to research, education and public establishment. What’s more, declination of birthrate and problem of aging compelled the EU accept more and more immigrants. External immigrants are not able to freely inosculate into local community, which brings forward unstable factors and new social problems.

Thirdly, there is an obstacle of system restricting development of integration. Nobody can answer clearly what is development target of the EU. Somebody hope it will be a free trade area; somebody expect it to be a supranational combination; somebody claim to develop it to a federation. Where does the EU end since quite a number of countries want to join in? Can Turkey be accepted as a member? What about Russia? Most member states complain the institutions do not work quite well. Once analyzing institutions and organs of the EU at different levels, we will find that all the institutions, essentially speaking, are no more than machines of discussion and execution, and there is not an organ with full power of decision making. Up to now, every member state still keeps veto to the EU’s policies, which seems like more democratic but actually result in uncertainty of developing target of the EU.[2]

Fourthly, relationship between member states should be adjusted. Europe is a continent composed of small countries, so its future becomes more and more dependent upon whether a thinking of big country will be formed in these small countries. No matter we like or not, it has been a truth that the enlarged EU consists of small countries. Before, following guideline established by the three big countries Germany, France and the UK, the EU could go forward effectively and bring hope to the EU people. However, in the future, from a long run, the sticking point for the EU to obtain success is that it should combine competitiveness of big countries and small countries. Without this combination, the EU will achieve nothing in political area.[3]

Fifthly, common conscious is still indifferent within the EU. Totally speaking, notwithstanding the European integration has passed half century, on the contrary, attention and understanding of European people to the EU becomes reducing.[4] Attraction and influential power of the EU to its citizens are cutting down. One of reasons is that the EU has been lead by social elite from every state, most decisions are decided by compromise and interest-exchange of political leaders behind the curtain, and there is no chance for public to speak one word. Second reason is that, as analyzed above, economic and social problems people encountering during the process of integration strike their enthusiasm to participate Union affairs. Another reason is that communication is not sufficient between the EU Institutions and people, which results in insufficient understanding of benefits to be brought by integration to European people. For reasons above, the EU is being settled in a puzzled situation in risk of losing demotic support and weakness of people’s common conscious. The common conscious to the EU is the most important foundation to establish a unified Europe politically and culturally, especially today when these political elites cannot preside the integration process by themselves any more. Without eliminating the crisis of common conscious, the EU will have to do nothing but wait for ratification of the Constitutional Treaty as of old.

IV. Widening and deepening of EU

European integration is a comprehensive and systematic project, which relates with different areas of economic, political social, etc. That is to say, a full-scale integration of economy, polity and society is initial part of European integration; at the point of approach and measure to its realization, the essential questions to resolve are deepening and enlargement, which are two wheels, being reciprocal causation and interpromomtion, supplementing each other, and driving the EU to develop ahead.[5]

Deepening promoted by the Constitutional Treaty

Constitution making and ratification of the Constitutional Treaty are further appearance and logic result of reaction and stimulated effect of European enlargement to its deepening. It is universally considered that a Constitution promoting revolution of political system of the EU must be established to insure the EU continue working smoothly after enlarging to 27 member states.

Presently, although the Constitutional Treaty encountered obstacles in some states, what we should do is to analyze the frustration rationally and keep a positive attitude to foreground of the EU.

Firstly, the deadline to ratify the Constitutional Treaty has been put off by EU Resolution. As interests related with the Treaty are so complicated that it is normal for the EU to make a measurable adjustment, which will derogate authority of the Treaty, on the contrary, it will be propitious to governments of member states to propagandize and persuade public within a reasonable period.

Secondly, draft of the Treaty prescribed an especially flexible clause[6], analyzing from which we will find that the principle of unanimity in the EU is not rigescent but can be modified. Although the Constitutional Treaty was encountered frustration temporarily, the number of states seems impossible to arrive at 5 as the flexible clause stipulated.

Thirdly, it is historically proved that every crisis the EU confronted with will be eliminated as last. One or two states’ rejection to European integration cannot compose impassable obstacle, which is normality in the road to going forward. Accordingly, this so-called Constitution Crisis will be nothing but only seeming like danger.

Fourthly, what French and Dutch people opposed is not the Constitutional Treaty itself and not the Constitutionalism progress. According to a public-opinion poll finished by the European commission and published on June 16, 2005, 52% of French people and 44% Dutch people agreed that the Constitutional Treaty was meaningful to construction of the European integration, and the reason why French people denied the Treaty was its internal social, economic and political problems; the reason in Netherland was its insufficient drumbeating.[7]

The developing process for the EU is also a process to conform all kinds of interest together. The Constitutional Treaty is the summary for hard work of the last decades of years and also regulations to comminute interests nowadays and future, thereby, contradictions and bifurcations are indispensible. Ratification of the Constitutional Treaty indicates a brand-new stage for European political integration and embodies correctness of conjunct to self-reliance and peaceful logos.

A new perspective: change absorption to fusions

In November 2005, a concept of “absorption capability”, which means capability to action, decision-making and executive on the basis of respect of inter-institutional balance and limited budget, was firstly brought forward in documents of the EU enlargement strategies.

On November 8th 2006, the EU Commission delivered an annual evaluation report of negotiation to join the EU, in which a new strategy was brought out for the EU to enlarge in the future. Outstanding of the new strategy is that a new concept of “fusion capability” was used to replace the concept of “absorption capability”. From then on, enlargement of the EU would be more cautious, slow and acceptation to the NMS would be decided according to fusion capability of itself. That is to say, three requirements should be fulfilled: first, the candidates must strictly perform conditions to join in the EU; second, enlargement must be considered with deepening of the integration process and healthy development of EU itself; third, communication with the people should be enhanced and comprehension and support to enlargement from European people should be obtained.[8]

Fusion capability, which emphasizes more on bidirectional character of interest dependence between new and old member states, is a modification and improvement to the concept absorption capability.

European integration is not only embodied a deepening process where European states relinquish national power and sovereignty gradually to the EU but also an enlarging process to absorb other European countries into the EU. To be sure, every enlargement of the EU will increase diversity among member states at different level, and consequently constitutes restriction to deepening of European integration in a specific period or a specific area. However, this kind of restriction is usually temporary, which will never be able to stop the pace of integration.

V. Conclusion

Europeans have learned how to deal with crisis and how to compromise and seek balance after mutual study in the progress of integration in the past 50 years. Therefore, when encountered frustration, leaders of the EU are usually capable to find out the balance point which can be accepted by two counterparts and erase dangerous for the integration process to go ahead smoothly. It is believable that after a period of reassessment, this crisis of Constitutional Treaty will be eliminated according to compromise among member states.

Europe has a long and dignified history and the Europeans have venerable historical sense of mission. They pay great attention to summarize historical experience and are good at search answers to realistic problems from historical experience.

On the future road, there will be plenty of difficulties to solve for European integration. It is obvious that the EU has become a highly integrated Union, whose member states have been involved in areas of economy, polity and society. To speak in one word, European integration is a historical process with inner motivation and development logic, and a significant enterprise aiming to enhance Europe to grow up renewedly. These motivation, target and dream bear the weight of history and refulgence, and will continue to assist the EU to stretch wings to fly.

Reference

l Zhou Wei, Establishment and foreground of European Constitutional Treaty, Journal of ShanXi Politics and Law Institute for Administrator, Vol 19. No. 2, June, 2006.

l Su Huimin, the EU Is Confronting Difficult Transformation, Journal of Peace and Development, No.1, 2006.

l Wang Li, New Strategic for Enlargement of the EU, International Materials Information, No.11, 2006.

l Zhao Huaipu, Several Points of view about situation and orientation of the EU, Journal of International Issues Research, No.2, 2006.

l Zhang Jian, Identification crisis restricts development of the EU, People’s daily, 20th Oct. 2006

l Tinothy Sitka Dayton Ashe, The future of EU will gradually be dependent on small member states, source from www.singtaonet.com

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[1] Su Huimin, the EU Is Confronting Difficult Transformation, Journal of Peace and Development, No.1, 2006. Pp49-50.

[2] Ld.

[3] Tinothy Sitka Dayton Ashe, The future of EU will gradually be dependent on small member states, source from www.singtaonet.com

[4] Zhang Jian, Identification crisis restricts development of the EU, People’s daily, 20th Oct. 2006

[5] Zhao Huaipu, Several Points of view about situation and orientation of the EU, Journal of International Issues Research, No.2, 2006. Pp 37.

[6] See Article 30 of Appendix of Constitutional Treaty.

[7] Zhou Wei, Establishment and foreground of European Constitutional Treaty, Journal of ShanXi Politics and Law Institute for Administrator, Vol 19. No. 2, June, 2006. Pp1-4.

[8] Wang Li, New Strategic for Enlargement of the EU, International Materials Information. No.11, 2006. Pp41-42.

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Disputable and Fruitful Eastern Enlargement of the EU

I. Introduction

Before the enlargement of the EU to 10 new member states (NMS) in 2004, there was a universal anxiety that East European countries’ affiliation would possibly slow down the pace of the EU. Nowadays, as three years passed and two new member states joined in following that ten, the anxiety seems being weakened.

Enlarging to East European countries, especially the eight countries which had belonged to former Soviet Union, was considered as a milestone for development of the EU, which bring the EU to a more special and diversified organization, setting a good example of regional integration to the world.

As we know, the process to overcome new obstacles emerged with enlargement was never a smooth or favorable one, on the contrary, it took a long transition and experienced success and failure.

The main objective of this paper is to analyze extrusive problems the EU encountering and then generalize solutions which were adopted and played important roles in the transition period.

Firstly, the background of the EU Eastern Enlargement will be described. Then three problems of challenges will be discussed, which separately refer to productivity gap, budget c and foreign and security problem. After that, pertinently, some solutions will be provided to show the obvious success of the EU to overcome the enlargement issues. Then future map will be expected and possible new problems will be brought forward. At the end, the author will put forward a new perspective to solve new problems, which is, keeping thinking to fusion instead of absorbing.

II. Background of EU Eastern Enlargement

Fundamental change of East European and disintegration of the SU (Soviet Union) indicated that the two-pole structure embodied with contending between the SU and the US was finally ended. In the new polarization and reshuffle of international political powers, East European countries belonging to former Socialism camp turned to the West step by step, establishing Multi-Partism system in polity and market economy, trying to cast of control of the Russia.

Reasons for that are the followings: firstly, establishment of Socialism was not out of East European people’s aspiration but under the pressed control by the SU; secondly, rigescent socialism pattern of the SU resulted in economic depression, political turbulence and unrecoverable social problems, on the contrary, under the EU framework, the West European countries not only solved economic and social problems such as economic crises, high unemployment and social inequality, what’s more, successful economic integration in the EU showed great influence to the East European countries.

New technical revolution combines every country in the world together, no matter its social system, method of production and development level, and enhances mutual dependence among every country and accelerates integrated development of the world[1]. Globalization is an objectively historical process, and Eastern Enlargement of the EU is acclimatizing this process.

III. Problems and challenges

The EU had made a good progress in enlargement during the last 50 years. However, it had never and impossibly been too smoothly successful. A series of complex questions and challenges were always circling it, especially when the EU began enlarging to East European countries, three main issues related with which will be discussed following.

1. Productivity gap between old and new member states

Firstly, there was a huge economic disparity between the EU-15 members and NMS. For example, the per capita income of Eastern and Central Europe, despite massive amounts of Western aid and investment over the last decade, is only 15-30 percent of the EU average. Countries farther east, beyond the Golden Curtain, are poorer still[2]. Anyone who has traveled in Eastern Europe knows there are still large areas characterized by abysmal living standards, high illiteracy rates, substandard housing, malnutrition, disease, low life expectancy, and other conditions associated with the Third World.

Secondly, the unemployment rate in the NMS is relatively higher. In 2004, the average of unemployment rate in the NMS is 14.3%, higher than that of EU-15, 8.1%.

Thirdly, industrial structure of the NMS needed to be adjusted. Although proportion of agriculture in the GDP of the NMS had a slightly descend and service industry ascended a little, compared with the EU-15, they were more dependent on agriculture, resource and manufacturing, facing the problem of transforming the first and second industries to the third one and adjusting population structure.

Fourthly, deepening degree of finance was too low. In 2004, finance capital of the NMS was 2.5-4.5 times of GDP, but the multiple of the EU-15 is 8. Development of finance intermediary organs was also too slow, and the finance system was too dependent on external investment.

The great productivity gap restrained the integral development pace of the EU.

2. Dilemma of the EU budget

The great gap brought an intractable problem to finance distribution system of the enlarged EU. Contractions on the EU budget between new and old member states became more and more stipulated, in this way, the EU finance legal system appeared relatively lagged in the process of integration.

The 2004-2006 budget of finance capital for NMS was concluded by Heads of every state in Copenhagen Conference held from 12th to 13th in December of 2002 (See the following table).

Table 1: The 2004-2006 budget of finance capital for NMS to join the EU[3]

Unit: Million Euros

Year Program	2004	2005	2006
Agriculture	1897	3747	4147
Structural Policy Fund	6095	6940	8812
Internal Policy Expenditure	1421	1376	1351
Management Cost	503	558	612
In total	9952	12675	14985

The income and cost structure of the EU budget is mainly decided by industrial structure and economic power, which results in imbalance between contribution and benefit of every member state. According to Table 1, agriculture and structural fund took up most part of the EU budget in NMS, so carrying out contemporary policies, the EU budget would be surely enlarged in great deal, which means, at the point of contributors of the budget, pure contributing states must give out more and pure benefiting states maybe become pure contributing states, and, at the point of benefiters, these states which had gotten plenty of profits from the budget reallocation will lost some of their benefit. In this way, Eastern Enlargement of the EU would perplex contradictions between “East-West” and “North-South”, even may intensify conflicts and cause crisis.

What’s more, the EU initially expected to improve its status in international political stage by integrating and arriving at “Speak in One word”, but unfortunately, as every member state had voting power in European Parliament and European Council, those member states whose separate interest were damaged usually keep a un-cooperation attitude in every voting within the EU, accordingly, a lot of decision could not be passed in time.

3. Negative influence to EU defense integration

Cold War was over, but the Europe still lacked security. Out of appetence of security, as NATO, the EU chose the orientation going ahead to the East, changing the former counterparties to friends, expecting which will bring security to itself. On January 1st, 2007, the EU absorbed Romania and Bulgaria as member, from then on, almost all the East and Central European countries belonging to Socialism Camp joined in this supranational organization. Eastern Enlargement brought in a series of influence to the foreign and security policies, which enlarged the area to defense and restrain the defense integration that the EU were implementing.

The negative effect can be summarized as the follows:

Firstly, security diversity within the EU was extended. There are 27 member states in the EU, that is to say, there are 27 kinds of national interest and 27 explanations and requirements to security. It is difficult and even impossible to amalgamate the different positions even following the spirits of “seeking similarity and keeping difference”. Cooperation in area of foreign and security policies are sometimes general and incompact, playing little importance in key moment.

Secondly, the imbalance between military power and military target was deepened. After enlargement, the EU got World First in economy and became one of the most important poles in polity. However, its military power did not match its international status. Enlargement to the east did not bring a more powerful armament, on the contrary, it increase security burden to the EU.

Eastern Enlargement caused a series of negative effects to the defense integration. However, as we know, transformation from economic power to military power needs a period of time. In this period, the EU may be tender and full of troubles, but after it finishing the integration, the EU would bring a far-reaching influence to the world.

IV. Improvement of problems

Since 2004 when 10 NMS joined in the EU family, a series of new policies and measures have been adopted. Even though not all the actions are successful, it still has made a good progress.

1. A good pace of economic convergence

Compared with the EU-15, economic convergence in the 10 NMS has made a good advancement, which mostly is represented in the following respects:

Firstly, economic strength has grown at a considerable speed. Calculating according to fixed price, the GDP of the NMS has increased by 4.9% in average by year during the last 5 years, while that of the EU-15 is just 1.6%. The increasing economy in the NMS has pulled integral increase within the EU.

Secondly, inflation has been effectively controlled. In November of 2005, the average inflation rate in the 10 NMS was just 2.8%, obviously descending compared with years before absorption.

Thirdly, trading volume has increased at good speed. Open rate of trade has increased from 32% to 48% during the last ten years, at the same time, that rate in Euro Area has just increased from 27% to 35%.

Fourthly, capital market has been fused and developed. The economic development in the NMS attracted a great deal of foreign direct investment and securities business is becoming amalgamated, for example, stock exchanges in Sweden, Fenland and other 4 states united and established the Nordic and Baltic Stock Exchange.

Overall, integration degree in the EU has run far away from any other organization in the world, even though there are still challenge waiting for the EU old and new member states. As Klaus Liebscher, the governor of the Austrian Central Bank, has said: “the full economic integration process between the old and new EU member states may be longer than monetary unification process, it will be a catching-up process.”

2. Reform of the financial system in the EU

The EU has made a good effort to improve budget dilemma, especially embodied on the Stability and Growth Pact (SGP), which pertains to the third stage of economic and monetary union (EMU), beginning on 1 January 1999. It is intended to ensure that the Member States maintain budgetary discipline after the single currency has been introduced. The SGP opens the way for the Council to penalize any participating Member State that fails to take appropriate measures to end an excessive deficit. Initially, the penalty would take the form of a non-interest-bearing deposit with the Community, but it could be converted into a fine if the excessive deficit is not corrected within two years[4].

However, up to now, effect of the SGP has shown not so obvious. The NMS are settled in a quandary: on one side, it is too difficult to improve supply conditions of national economy by reducing the tax, meanwhile there is a risk of finance reduction; on the other side, they are compelled to compress finance expenditure and reduce devotion of fundamental establishment, which deteriorates the economic environment.

Accordingly, to reform finance system of the EU, they should begin with amending the SGP. European experts advise that: finance integration should be carried out step by step; distribution of financial budget should follow the economic principle, avoiding from interference of national interest and political elements; there are still much work for the EU to do for bridging bifurcation and incompatibility among member states on the question of voting regime related with enlarged EU.

3. Adjustment of the foreign and security policies

The enlarged EU faces the new border, which bring it new posture and new challenge. There are three levels composing foreign policy of the EU. The first is relation with circumjacent states, which is divided into little circumjacent and big one. The former contains Balkan and East and Central Europe, while the latter includes Mediterranean and Middle East. The second is relation between the EU and the US, and the third one is globally foreign relationships.

The little circumjacent foreign policy, which consists of the following contents, is more related with the eastern enlargement of the EU. Firstly, the EU tried to maintain security and stability of the Middle East by eastern enlargement, weakening national state and establishing a new security structure. Secondly, actions are taken to carrying out stability and association policy to Balkan and facilitate “Color Revolution” in area between its NMS and the Russia. Thirdly, it started up negotiation with Turkey about joining as a member state. Turkey is a regional big country, whose foreign policy directly touches diplomatic, security and economic interest of the EU. Absorption of Turkey will produce structural influence to the EU’s future and establish stable relationships with Mediterranean neighbors and Middle East Islamic countries.

V. A new perspective: from absorption to fusion

In November 2005, a concept of “absorption capability”, which means capability to action, decision-making and executive on the basis of respect of inter-institutional balance and limited budget, was firstly brought forward in documents of the EU enlargement strategies.

On November 8th 2006, the EU Commission delivered an annual evaluation report of negotiation to join the EU, in which a new strategy was brought out for the EU to enlarge in the future. Outstanding of the new strategy is that a new concept of “fusion capability” was used to replace the concept of “absorption capability”. From then on, enlargement of the EU would be more cautious, slow and acceptation to the NMS would be decided according to fusion capability of itself. That is to say, three requirements should be fulfilled: first, the candidates must strictly perform conditions to join in the EU; second, enlargement must be considered with deepening of the integration process and healthy development of EU itself; third, communication with the people should be enhanced and comprehension and support to enlargement from European people should be obtained.

Fusion capability, which emphasizes more on bidirectional character of interest dependence between new and old member states, is a modification and improvement to the concept absorption capability.

VI. Conclusion

Successfully accomplishment of the EU Eastern Enlargement will push the integration to develop more deeply. After getting economic increasing, the EU has enhanced its self-determination consciousness and began to get rid of control and influence of the US and speak in its own words.

Although the EU stands at the same side with the US in maintaining Western value, there has been a great deal of differences relating to global economic interest between the two entities[5]. It is undeniably that the US is still an only super big country in contemporary world, whose economic and military power, technologies and political influence are all incomparable, but the EU, going with China, Russia and the Third countries, will surely restrain the US to build and preserve a "unipolar world" and promote the development of multipolarization.

Reference

Lucia tajoli, How Much Integration After the Enlargement? Working papers from Istituto Pee Glistudi Di Politicainternazionale . 2007.

Silke Roth. Opportunities And Obstacles-Screening The Eu Enlargement Process From A Gender Perspective. Loyola University Chicago International Law Review. 2004-2005. pp117.

Howard J. Wiarda. Where Does Europe End Now? Expanding Europe's Frontiers and the Dilemmas of Enlargement and Identity. Brown Journal of World Affairs. summer / fall 2005 • volume xii, issue 1.

http://www.europa.eu/index_en.htm.

Li Tao, Wu Hongjin, Li Li. A Hard Road of Eastern Enlargement. Journal of Dali University. November, 2006, Vol 5.

ShiYinhong, New Trendency, New Pattern, and New Criterion, Law Press. 2001.

ShouDe, HongYinxian. “Theory of International politics”. Peking University Press. 2000.

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[1] ShouDe, HongYinxian. “Theory of International politics”. Peking University Press. 2000. pp288

[2] The Brown Journal Of World Affairs, Summer / Fall 2005 • Volume Xii, Issue 1

[3] See Copenhagen Conference Document, EU Official Journal, 2002, pp3.

[4] See http://www.europa.eu/index_en.htm

[5] ShiYinhong, New Trendency, New Pattern, and New Criterion, Law Press. 2001.pp157-160.

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Innovation and the New Economy in the European Union

Chapter One: Introduction to Innovation
Main ideas:
From the world of contexts, everything is always changed. Not only the geologically and biologically changes that are changed extremely slow, but lead to human society is changed quickly, while many things had been created, changed or innovated.
The concepts of change and innovation are need to distinguished. The change is only altered or make differences base on exist thing, and it can be good or bad for the thing. However, innovation is an improvement process through analysis requirements, conditions and around environments, or an active attitude that always to overcome risks and pursue new changes, also it must be results oriented and positive change to products, technologies, processes and so on.

Innovation is concerning all fields, an example of technological that the model of innovation has improved from linear to interactive. There are many changed external factors to promote innovation, such as better social environment and higher education; quickly developing of economic and trend of globalization; new Technologies emerging frequently that expanding physical abilities as much as possible; improved Legal issues and all aspects of policies giving enough protection and promotion.
The innovation policy is a direction of how to improve existing things toward more quantity and efficiency. While the emphasis of innovation from what is produced into how to process, scientific research increasingly and technological development continually, especially force R&D more rapidly in business for long-term, more technology and knowledge based firms cooperating and playing important role in the network era.
Therefore, innovative firms are generated. These firms are efficient, creative and intelligent; employ workers who have higher skills, competencies and incentives; need much motivation and capital; and are influenced by business environment, such as competitiveness, economic factors and policies or regulations. The innovativeness of firms have four levels that are measured much capability from level zero to three. The features of successful innovative firms are more valuable skills of strategic and organizational, and productive abilities of technological and managerial. In addition, the new technology based firms which are more and more important in the innovation systems. The governments provide a regulatory environment and some policies to support and encourage innovative firms’ activities. Both of larger and smaller innovative firms need business support networks and services, administrative commitment, and a regulator way of supervising and responding to changes and opportunities, but the smaller ones are often limited by know-how, finance, information and business environment. So the firms cannot innovate alone but interdependent and regarding globalization.
Conclusions:
Innovation can focus not the products and services but the process, not technology but management and organization, not fixed on a formal way but an informal way, and not developing by doing but by using and interacting. It is also influenced by dynamic external changes and it tends to knowledge-base and new economy. The innovative firms play a main role in economic innovation and use all forms in their strategies for innovation of new knowledge which is protected by intellectual property rights and knowledge which is a core competitive advantage and competence.
Personal evaluation:
From this chapter, I’ve learned definition, trends, influential factors of innovation, characteristics of innovative firms, government’s attitude for innovation, and so on.

Chapter Two: System of Innovation
Main ideas:
In the real business world, each entity should be limited by the external environment. How these entities could keep themselves always competitive? They need to take advantage of their partners. But what should they do to make these become true. Hence, a System of innovation approach applied.
System of innovation is consisting of internal components such as relative organizations or institutions and the interacting relations between them that as a multiprogramming network is also affected by external environment.
These main components of the system are performed and interacted in designated procedures and formal frameworks with relative protection laws, innovation policies, and so on.
The main products of institutions are legal system, standard, etc. When the organizations want to perform some activities; they need to refer to those standards which related institutions draw up. This is the base relationship the above two entities need to follow.
In this chapter, we also find that the overall function of SIs: produce, diffuse and use innovations. Especially, Incubate new firms, Facilitate regulation, create and diffuse products, etc. are focusing on innovations.
In order to make a better use of the SIs, we define the SIs into three categories with Boundary are Spatial, sectoral and functional. The spatial boundarie of SIs is a very important level when it is implemented into national level, and it always has critical impact. In comparison to the sectoral SIs, the national SIs becomes inefficient caused by very little overlap with aeronautics. With the social capability and Technological congruence, the low income regions could grow faster than high income ones, we could know that how innovation so important to the world.
The SIs processes always change. No optimal or ideal SI could be determined. A better approach turns up while the market failure approach happened in traditional economics.
The sources of innovation are very diversity. some large countries which have enough capital to support scale and highly develop rate, some small one are flexibility and are short of capital but much depend on ICT which can facility delivery or diffusion and innovated by less cost.
All organizations such as governments, enterprises, universities that are play different roles of setting innovation policies. Innovation policies define the behaviors of innovation, promote innovations much efficiency and quantity and avoid failure of the system.
Conclusions:
In this chapter, we get the relationship between organization and institutions. Acknowledge the main function of SIs. Also get a basic understanding of the three categories of SIs
Personal evaluation:
We could not get the best SI, because of we always get a better one while we make failure in the market approach. The innovation policies always need to be improved while environment changed or new circumstance emergence.

Chapter Three: Innovation Policies in the new Economy
Main ideas:
The New Economy is also called knowledge-based economy that has a wide definition. Knowledge is the most important factor of product than ever before that covers all fields of economics, nature, clusters, etc. Codified knowledge is the basis of R&D and source of any changes or new knowledge. ICT as a new instrument to optimal the transaction costs and efficiently transmit information. The role of education and training is graduated important while innovation climate has been necessary condition to establishing knowledge-based economy in Europe. Innovation as recombination of varied codified knowledge to generate new.
We could define Knowledge-based firms which have really high percentage intangible assets. In Europe, the venture capitalists always do their investment according to the proven tracks records. Under the driven by knowledge economy, there are three key phenomena. One is Globalization that have three issues of European firms can implement technological activities and knowledge can exploited all over the world, the firms have much larger share of patents granted from foreign subsidiaries to continuing and delivering innovation activities, In order to be the best, firms of any nationality became partner in given industry. Go with above, policy considerations turn up. Second, Europe increase the size of service sector, but it don’t enhance the role of R&D in service filed which is much rely on experience and mind of persons and management routines.
Policy implication is facilitated exploitation and mobility of knowledge by use ICT and generates a European network which regard to produce renew or advanced technologies. The innovation policies has intervene almost areas and cooperation between them. Knowledge globalizations can rich information environment, especially, develop e-economy with ICT or other communicative tools.
Conclusions:
Turning to the new century, many MNEs and innovation activities are emerged, so setting policies to regulate them is necessary. The firms exploit knowledge as much as possible out border and apply them to local and boost cooperation.
Personal evaluation:
I think innovation policies are essential guidelines. It creates a frame of innovation activities and make sure everything can be implemented along with optimal direction.

Chapter Four: Intellectual Property Rights
Main ideas:
How to treat Intellectual Property rights? What we should do and to benefit the society or to protect them as secrecies by law? As to patent, it can be considered as a contract between the inventor and the society. The former disclose his workings and the latter give him a temporary monopoly to make economic benefits.
IPR policies play a more and more crucial role in the era of knowledge economy. Some organizations such as WIPO, EPO are established and judicial systems are improved to protect IPR. In this area, European countries have less comparative advantages than the US or Japan. There are some factors influencing the rates to patent in Europe especially for the SMEs. Sizes of firms determine whether they have enough resources to do research and develop new inventions. Larger firms have in-house patent offices, which tend to patent routinely, so SMEs have to adopt other business strategies such as doing business in high technology areas. What’s more, high costs for application and defense for their patents slow down the pace of SMEs, and preventing imitation and disclosure of information is also a headache for large firms. Patent as source of information is used to benefit both by SMEs and large R&D performing firms in different rates. There exists a dilemma between public and private interests, which cannot be overstepped. The inventors want the patent system to be better developed but the latter need more diffusion of knowledge. Anyhow, the Europe should adjust policies to establish a better system for resolving patent infringement cases, adopt a more reasonable patent fees system, make out medium and long-term policy to discourage misuses of the patent system, and provide better access to patent information.
Since 1990s, attentions have been paid to perfect IPR policy system, such as First Action Plan for Innovation in Europe (1996). IPR policies tend to arrive at two objectives: encouraging inventions and innovations, and assuring proper disclosure of technical information, for which are embodied in three areas: SMEs, public sector research and frontier technologies.
Conclusion:
In the new era of technology economy, intellectual property becomes a key factor for competitors to win in the global market. The European face the same pretty pass as the other countries. To take more comparative advantages than others, it should adjust IPR policies to balance the public and private interest on one hand, and catch up with the US and Japan to take up a more favorable status in the world on the other hand.
Personal evaluation:
In my opinion, intellectual property is sure to benefit the society, but at present, we should better emphasize the protection. If there is no perfect protect system, the basic rights of inventors may be damaged easily, in this way, their passions and motive to do more inventions will derogate. So the preoccupation for the European is to establish a consummate legal system to encourage inventions and innovations.

Chapter Five: European Union Innovation Policy Instruments
Main ideas:
Green Paper was issued in 1995. Its purpose is promote innovation and make a executable European strategy to measure performance of innovation at both national and community levels. Systemic view of Green Paper is enhance interaction between innovative firms and their external environment and make relative policies in all fields to improve competences of innovation.
The innovation of EU face many Challenges that procedure of innovation still like a linear model. The EU has much success on Science, however, overall performance of technology and commerce in high-technology fields has weaken in the past, advanced research and technologies hard to develop innovations and become competitive advantages, and effort of R&D is less than competitors all over the world, especially U.S. and Japan.
Situation of innovation is diversity in Europe. Member states have much different standards, procedures, levels, and so on. However, the governments give enough priority on policies of R&D and cooperation to promote convergence, insistence capacity of SMEs to absorb technology, and emphasize on regional level.
There are some Obstacles of innovation. Both the number of specialized persons and the amount of investment for innovation are much less than competitors, but lack of industrial research and participation. Moreover, some serious issues are inadequate education and training system, restrictions on human resources mobility; neglect financial factors such as imperfect innovation financing system, taxation system and in support of research funds; and use of protection rules is limited that due to firms have to increase cost if protect patents, also set standards for exist products, technologies and performance that go against innovation, complex administrative procedure is still used in firms, and without statute for firms that discourage interaction of innovation in the Europe. Subsequently, the EU made a Routes of Action to overcome obstacles and improve situation and conditions of innovation in Europe. For instance, develop technology supervise and forecast, increase investment or effort on research, encourage more abundant and more mobile human resources, promote benefits of much innovation to public, improve the financial condition and create fiscal regime, facilitate protection of IPR, simplify administrative manner, set up a optimal structure of legal and regulatory, and so on.
Then European commission established the 1st Action Plan which is guideline, measure and framework of innovation. It also adopted new actions that are both commission and member states have more practice on enhance atmosphere of innovation culture and guide developing of innovation on basis of the Green Paper.
European trend chart is an analytical instrument of innovation policy. There are three building blocks as sub-tools to help policy maker study other successful practices and adopt suitable way or experience for making further policy.
European research area is adopted at the Lisbon European Council, its purpose is to coordinate policies, resources and objectives of R&D in Member states, introduce or set a common research policy that balance different developing levels in EU, and promote technology progress and innovation in all fields and enhance interaction of them as a network. Moreover, it is measured by two quantitative indicators and pursues to achieve the goal of Lisbon Strategy. Building the European research area goes well beyond 6th and 7th Framework Programme as new instrument for R&D in EU.
Conclusions:
Promoting innovation and Building a knowledge-based new economy must with more ambitious policies and useful instruments for R&D that also improving competitive advantages and European convergence.
Personal evaluation:
I know about the situation of innovation in EU, the action which the EU adopted, and learned many new instruments that are good for making innovation policy and helping EU become the strongest competitor in the new economy era.

Chapter Six: Lisbon Agenda
Main ideas:
EU initiated Lisbon strategy in March 2000,set itself a new strategic goal for the next decade: to become the most dynamic and competitive Knowledge-based society, achieving sustainable development, creating more and better jobs, centralizing social cohesion, emphasizing environmentally sustainable growth, and Building a partnership for reform. The European social partners must take up their responsibility and actively participate in the implementation of the Lisbon strategy.
Achieving the goal requires an overall strategy, Firstly, “preparing the transition to a knowledge-based economy and society by better policies for the information society and R&D, as well as by stepping up the process of structural reform for competitiveness and innovation and by completing the internal market” ; Secondly, “a modernizing European Social Model relying on three key drivers that are making more investment in people and create more and better jobs, activating social policies and strengthening action against old, and new forms of social exclusion” ; Thirdly, “the coherent and systematic implementation approach combines European coherence and respect for national diversity. It defines the required European guidelines in each policy domain and identifying best practices and reference indicators. The open method of coordination aims to organize a learning process about how to cope with the common challenges of the global economy in a coordinated way while also respecting national diversity. The purpose of the approach is to establish a vast process of innovation, learning and improvement between European countries, in which commission may play a new role as catalyst, and to speed up European convergence.”
KOK report is a midterm review of the Lisbon strategy. The report of the High Level Group which concern with all three pillars of the Lisbon strategy include economic, social and environmental. It was given recommendations of disappointing performance of the strategy, challenges when facing enlargement, encourage member states cooperation, and purse to build knowledge based society.
After 2005, EU renews the Lisbon Agenda that encourage all members create employment opportunities as much as possible, promote economic development, increase research and development investment, reform state aid plan, etc.
As action lines that is common vision and strong consensus about what needs to be done. There are two main instruments: one is the community Lisbon programme as significant progress; another is the national reform programmes as main tools.
As the strategy is a medium to long-term agenda requiring implementation on the ground. This will require a major effort from both member states or civil society and the EU institutions.
Conclusions:
The Lisbon strategy is not an attempt to become a copy-cat of the US and far from it as an innovation. Lisbon is about achieving Europe’s vision of what it wants to be and what is wants to keep in the light of increasing global competition, an ageing population and enlargement. From view of future, Europe needs more economy growth and more people in work.
Personal evaluation
From my opinion, the Lisbon strategy is Sustained political determination, implementing the Lisbon agenda immediately impact on people’s daily lives and is not indiscriminate action. Member States must take their responsibility and take ownership of the process.

Chapter Seven: E-Europe
Main ideas:
E-Europe is part of Lisbon’s Strategy which aims to build a knowledge based on economy in Europe. It began with the E-Europe 2002 Action Plan and was updated to be E-Europe 2005.
The E-Europe 2005 Action Plan aims to develop modern public services and a dynamic environment for e-business through widespread availability of broadband access at competitive prices and a secure information infrastructure. This plan contains a series of policies such as Broadband, Public Service On-line, e-Business, e-Inclusion Benchmarking etc. Broadband provides fast access to the internet at cheap prices. Public Service On-line includes e-government, e-health and e-learning. E-Business stimulates the growth of e-commerce and the inherent re-organization of business processes to digital technologies. E-inclusion makes sure the information society is accessible to the largest number of citizens, overcoming geographical and social differences. Benchmarking is brought through visible and easier using indicators, more analysis of impact of measures undertaken on e-Europe and increased policy relevance of benchmarking. The contribution to Lisbon Strategy of this plan is to Shift emphasis from supplying to demand and measuring adoption to looking at impact.
I2010 is a European information society for growth and employment, which continues contribution to Lisbon Strategy. The I2010 program is the follow up of e-Europe 2005 and updated annually. I2010 focuses on comparatively few but concrete policy priorities (as we called three pillars):
Creating a single information space, this includes revising regulations, supporting content creation and broadband as well as security issues;
Increasing EU investment in ICT research, which includes trans-European demonstrator projects and actions for SMEs; and
Promoting an inclusive European information society, this includes better public services and quality of life.
Conclusions:
The evolution of this plan makes it more and more perfect and brings more benefits to the European people. The e-Europe ensure the EU fully benefits from the changes brought by the Information Society and its objectives are to bringing every citizen, home and school, every business and administration, into the digital age and online.
Personal evaluation
The E-Europe Action Plan is routed in the analysis and developments of the 'new economy' and its impact. This plan facilitates the EU to stay at a leading station in technology economy era and make a good example for other countries.

Chapter Eight: Patent Rights in the EU
Main ideas:
There is no unified patent regime at present in the EU, the existing regime of which can be considered as composed of four regimes in different level: national systems, Patent Co-operation Treaty regime, the European Patent regime and the Community Patent regime. This situation caused a disorder of the litigation procedures, that is, no specialized courts and insurance to cover litigation costs.
Compared with patent attorney fees, applicants own costs, extensions to other countries, agent fees, and translation costs, national patent filing costs are low.
The European patent regime is a bundle of nationally enforceable patents in the designated states, which is granted by the EPO under the EPC. It has a unitary and centralized procedure, and is conducted in three languages: English, French and German. Patent costs consist of patent fees payable to the EPO, translation costs and fees for professional representatives, which is much higher compared with that in the US and Japan. The grant duration is between three and five years. Typically, after filing date, there is 6 months before receiving the search report, 27months for the first communication from examination division, and 44 months for the patent grant. Applicants may request accelerated procedure to reduce search time to about three months and further nine months for examination.
The Community Patent Regime is a patent law measure being debated within the European Union, which is granted by Luxemburg Convention which never entered into force. The objectives of this regime are to eliminate distortions of internal market, to enable Europe to reap full benefits of research and to stimulate private R&D investment. The EU made efforts to adopt a Community Patent Regulation which is directly applicable to Member States and guarantee the Community Patent self full legal certainty but not successfully.
This system will coexist with existing national and European systems. The application is directed by the EPO and will be published in the Register of Community Patents or the Community Patents Bulletin or both. It adopted the same linguistic regime as the European Patent but the difference is that Community Patent directly and immediately valid for the whole of the Community. It is parallel with the patent systems of MSs which means applications can be initiated either to Register of MS or directly to the EPO. It will create a centralized Community IP Court to guarantee the unity of law and the consistency of case law.
Since Lisbon European Council Summit (2000), the EU has made a good effort for this regime but till now it is still not approved by the Council, for too many controversies between the MS.
Conclusions:
At present, four patent regimes are taking effect in the EU. At national level, every state has already established an integrated legal system which regulates patent rights and obligations with in the country. At the European level, the European patent regime also works fluently. However, at the European Union level, the patent regime has not been established yet. This new regime in intended to solve problems which the former two cannot resolve, but it seems to need a longer time before all the MS get a consensus.
Personal evaluation:
The EU is a good model of regional economic integration for other regions in the world. Even though there is a bottle-neck to build a unified patent regime for all over the EU world, I am sure as time goes on, this problem will be resolved at last.

Conclusion
To sum up, “The purpose was to define a European way to evolve to the new innovation and knowledge-based economy, using distinctive attributes ranging from the preservation of social cohesion and cultural diversity to the very technological options. A critical step would be to set up a competitive platform that can sustain the European social model, which should also be renewed.”
The "Lisbon Agenda" seems hardly to achieve its target and goals by 2005. One of the main reasons is members of the EU had not implemented their products and services market liberalization. Although fixed numerical goals in R & D doesn’t make economic significance, emphasize the role of innovation in growth is reasonable. Building on the achievements and on-going actions under renew Lisbon strategy and National Reform Programmes.
It is possible to achieve European knowledge-based economy and the goal of economy growth if adapt to support the research and innovation strategy. Europe needs a new paradigm of mobility, flexibility, and adaptability to allow R&D and innovation to support the strategy of Europe. There are some simultaneous actions are needed: creation of a market for innovative products and services; providing sufficient resources for R&D and innovation; improving the structural mobility of Europe; and building positive attitudes and a culture favorable towards entrepreneur risk taking. Therefore, much stronger commitment is needed to adapt European economy to the new, as innovation policies, IPR, patent protection, and so on.

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