"R&D Subsidies in the European Union - A Competitiveness Issue for U.S. Firms?"

This paper examines European public research and development (R&D) subsidies that support precompetitive development (PCD), which is R&D up to and including a prototype. The research seeks to determine How effective these subsidies have been and whether European practice has been influenced by the recent change in GATT (General Agreement on Tariffs and Trade) subsidy language and by the current controversy over R&D subsidies in the U.S. The paper examines the European Union (EU) Framework Programs, the EUREKA program, and the French and German programs of direct subsidy to industries. The conclusion of this preliminary examination is that there is little evidence that current European support to PCD threatens American competitiveness. With very few exceptions, European programs do not go beyond prototype, and there is no evidence of a change in policy as a result of the recent GATT agreement on subsidies signed last year. Budget constraints prevent the EU and member states from supporting the expensive prototype-to-commercialization stage of the innovation process. While European programs have generally not been successful at bringing new products to market, they have provided numerous secondary benefits. These benefits include diffusion of knowledge, development of cross-border and vertical collaborations, and improvement of university-industry links. The U.S. could learn some useful lessons from the European experience.