B. Biotechnology and its diffusion

5.5.

The Community has taken a number of initiatives, on the one hand to promote the competitiveness of bio-industries, and on the other hand to ensure the safe application of biotechnology. It implies mainly funding of research and development and the putting into place of a regulatory framework.

5.6. Potential of biotechnology and similarities with information technologies

There are a number of features which biotechnology shares with electronics and information technologies which reinforce its potential: it is science-based, the scientific input being the most crucial element of the technology trajectory; the gap between developments in basic science and their research and development applications and even further downstream is small and diminishing; a very major and growing stimulus can be expected for process equipment, instrument and engineering sectors; and finally the impacts of the processes, techniques and hardware represented by biotechnology are felt across a number of sectors.

The Community is highly competitive in these sectors which cover chemicals, pharmaceuticals, health care, agriculture and agricultural processing, bulk and specialised plant protection products as well as decontamination, waste treatment and disposal. These sectors where biotechnology has a direct impact currently account for 9% of the Community's gross value added (xb1 450 bio Ecu) and 8% of its employment (xb1 9 mio). Beyond this perhaps only modern biotechnology has the potential to provide significant and viable thrusts, compatible with CAP reform and not dependent on operating subsidies, to new energy/fuel and industrial outlets for agricultural raw materials. The important role of biotechnology in these sectors is likely to be to maintain employment by stimulating its productivity as well as to create highly skilled labour demand.

The following are two valid indicators of the potential of biotechnology: the pace of international innovative activity and the evidence of growth in output and value added in products derived through biotechnology. Measuring innovative activity by patents filed for relevant products in the US, Community and Japan shows that patents filed have increased from 1100 per annum in the early 1980s to 3.350 per annum in 1990. In 1980 the Community was in a leading position, by 1990 the US was filing 50% more patents than the Community. European Patent Office statistics reveal a similar evolution: between 1980 and 1991 biotechnology patents filed with EPO increased by a factor of 10, the most being filed by US-based companies.

Current global indicators of the growth prospects of the biotechnology industry are the following: in the US the industry based on modern biotechnology had a turnover of over $8 bio in 1992, a growth rate of 28% with employment growing at 13%. It is estimated on the basis of the observed rates of diffusion of biotechnology that the US biotechnology industry's revenues will grow at an average rate of 40% to reach $52 bio by the year 2000. The current industry size in Japan is officially put at $3.8 bio and is estimated by the Ministry of International Trade and Industry to reach $35 bio by the end of the century. In the Community, despite the emergence of a significant number of firms and a substantial growth in the market, primarily for bio-pharmaceuticals, to over $3 bio, at the current rate of growth, the value of output and employment is about the same as that in Japan. It is therefore clear that by the year 2000 with an estimated world market of 100 bio ECU for the biotechnology industry, the Community growth rate will have to be substantially higher than at present to ensure that the Community will become a major producer of such products, thereby reaping the output and employment advantages while at the same time remaining a key player in the related research area.

5.7. Factors favouring growth, competitiveness and employment in the Community

The Community firms in these sectors (chemicals, pharmaceuticals, agricultural processing), are leading firms at a global level with substantial capabilities in the area of innovation.

Among other factors favouring investment in biotechnology in the Community are the strong science base and infrastructure, the availability of skilled labour, and the high quality of process engineering and production facilities.

5.8. Unfavourable factors

The key factors that may jeopardize a significant expansion of biotechnological applications in the Community are the following:

1. in an area where the technology trajectory is crucially dependent on basic science, public research and development expenditure in the Community lags behind. For financial year 1993 publicly financed US biotechnology research and development expenditures are set to exceed $4 bio; in Japan in 1991 they exceeded $900 mio whereas the Community's and Member States' expenditures totalled around $600 mio. The fourth research and development framework programme proposes 650 MECU in biotechnology over 5 years. Member States also have programmes devoted to R&D in biotechnology;

2. privately financed research and development on biotechnology in the Community has not compensated for the shortfall in public funding; on the contrary, available indicators identify a delocalisation - an investment outflow, largely net, from Community companies towards mainly US and Japan of $2.2 bio since 1984. In the most vigourous sector of biotechnology, biopharmaceuticals, in 1990 67% of patents were held by US-based companies and only 15% by Community-based companies. There exists the risk that the Community will be a leading future market for biopharmaceuticals but not a leading future producer. There is an evident feedback between technology diffusion and private investment;

3. regulation concerning the safety of applications of the new biotechnology is necessary to ensure harmonization, safety, and public acceptance. However, the current horizontal approach is unfavourably perceived by scientists and industry as introducing constraints on basic and applied research and its diffusion and hence having unfavourable effects on EC competitiveness;

4. technology hostility and social inertia in respect of biotechnology have been more pronounced in the Community in general than in the US or Japan. It has become clear that these issues should be examined in greater detail in order to properly address these concerns. Supporting actions such as under the BIOTECH programme and the creation of a Group of Advisers to look at ethical issues have been undertaken.

5.9.Conclusions and recommendations

The potential of biotechnology to dramatically impact on competitiveness is greatest in certain sectors of Community chemicals, pharmaceuticals, process equipment and appliances, agriculture and agricultural processing. These sectors contribute substantially to value added and employment. The observed international growth in output of between 30-40% in the most vigorous of the biotechnology dependent sectors and the associated labour intensive service activities (e.g. research, health care) has the capacity to provide a valuable stimulus to employment growth.

The means to achieve a fuller realisation of the Community's inherent strength in biotechnology are to be found in overcoming existing constraints by creating appropriate channels for biotechnology policy development and coordination and by acting on the following recommendations.

a) Given the importance of regulations for a stable and predictable environment for industry and given that they influence localisation factors such as field trials and scientific experimentation, the Community should be open to review its regulatory framework with a view to ensuring that advances in scientific knowledge are constantly taken into account and that regulatory control is based on potential risks. A greater recourse, where appropriate, to mutual recognition, is warranted to stimulate research activities across Member States. Furthermore, if the Community is to avoid becoming simply a market rather than a producer of biotechnology-derived products then it is vital that Community regulations are harmonised with international practice. The development of standards will supplement regulatory efforts.

b) The Commission intends to make full use of the possibilities which exist in the present regulatory framework on flexibility and simplification of procedures as well as for technical adaptation. To sustain a high level of environmental protection and to underpin public acceptance it is important to reinforce and pool the scientific support for regulations. An advisory scientific body at Community level for biotechnology diffusion drawing on the scientific expertise within and at the disposal of the existing committees could play a crucial role in intensifying scientific collaboration and in providing the support needed for a harmonised approach to the development of risk assessments underlying product approval. This body could also advise on the development of a further Community strategy for biotechnology.

c) Since the Community is not matching efforts elsewhere in research and development expenditure, it needs to compensate for this by focusing on the most vigorous biotechnology research and development areas and on increased coordination between the Community and Member States in order to avoid duplication, encourage collaborative research and to improve efficiency of expenditure on research and development.

d) Research-oriented small and medium-sized firms play an important role in biotechnology diffusion and the growth of this sector would substantially benefit from the creation of a network of existing and new biotechnology science parks in the Community linking together academic institutions, research laboratories and SMEs. This would create the possibilities for both greater educational investment in molecular biology and biohardware and the involvement of venture capital and other financial institutions. The Structural Funds could also play an important role.

e) Member States should provide additional incentives to further improve the investment climate for biotechnology and to facilitate the transfer of applied research and development to the market place. These might include fiscal incentives respecting the existing Community guidelines that have a bearing on biotechnology innovation and investment.

f) The commercialisation of biotechnology will in certain areas require specificactions aimed at further enhancing public understanding of the technology. Member States should encourage interest groups to make objective information available and to encourage dialogue.

g) It is necessary to further clarify ethical issues in relation to some applications of biotechnology. In view of this, the Commission will reinforce the role of the Group of Advisers on the Ethical Implications of Biotechnology and other groups which examine in particular ethical questions related to biomedical research.