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EU industrial structure 2011 — Trends and Performance sectors except textiles, paper, machinery n.e.c, electrical equipment and basic metals, half or more of EU‑27 exports are destined for high income countries. Part of international trade consists of cross‑border flows of products of different industries (inter‑industry trade) reflecting relative different factor (labour and capital) endowments and technology. Countries which are relatively endowed with capital tend to trade capital intensive goods in exchange for labour intensive goods from countries which are relatively well endowed with labour: for example, pharmaceuticals for textiles or motor cars for food. However, there is a high share of exchange of similar goods between countries, with comparable levels of income. High income countries tend for example to trade different brands of cars with each other and low income countries different types of clothes for each other. This intra‑industry trade (IIT) is explained by factors such as economies of scale and demand for differentiated products, rather than by relative factor endowments. As demand for differentiated products, and varieties of different qualities, tend to rise with income, per capita incomes of countries play an important role in determining trade patterns. Almost 54 % of world trade occurs between countries in the groups composed of the EU‑27 and other high‑income countries. If upper‑medium countries are included, this share rises to 70 %. China stands out in the group of BRIC countries (Brazil, Russia, India, China). More than 40 % of EU imports in furniture, leather and footwear, clothing, electrical equipment, non‑metallic mineral products, and metal products come from China. Brazil captures 14 % and 12 % of EU imports of paper and food products. Competitiveness on world markets is measured by indices of revealed comparative advantages. The measurements of revealed comparative advantages for manufacturing in 2009 show that the EU‑27 had comparative advantages in industries such as printing, beverages, tobacco products, motor vehicles and pharmaceuticals. In contrast, the EU‑27 did not have any comparative advantages in the production of computers, electronic and optical products, textiles, other manufacturing, clothing and refined petroleum. The measure of revealed comparative advantages has some weaknesses which should be taken into account. It is sensitive for the level of sectoral aggregation, which may mask differing performance in various categories of goods within the same group of products. This is particularly relevant for industries which 10 have a large variety of brands and quality levels for the same type of goods. Another consideration is country heterogeneity within the EU, as the performance of the EU as a whole is explained in some cases by the performance of a few EU countries. Finally, the weight of each sector and country in the export structure of the EU should be borne in mind to get to a balanced assessment of the EU’s sectoral performance in external trade. Analysing comparative advantages for individual Member States reveals that many EU countries, in 2009, have comparative advantages in the production of wood and wood products. The high revealed comparative advantages for Austria, Estonia, Finland, Latvia and Portugal are in line with the specialisation patterns that could be observed in the analyses of industrial structure. Belgium, Cyprus and Ireland appear to have comparative advantages in basic pharmaceutical products. Bulgaria, Greece, Portugal and Romania have comparative advantages in clothing and Italy, Portugal and Romania have comparative advantages in leather and footwear. US manufacturing industries have comparative advantages in chemicals, pharmaceuticals, machinery and other manufacturing goods. Japanese manufacturing industries have comparative advantages in motor vehicles, other transport equipment, machinery, computers, electronic and optical products. Analyses of the BRIC countries show that the Brazilian, Indian and Russian manufacturing industries have comparative advantages in the production of labour intensive goods or products which are based on endowments of natural resources. Chinese manufacturing industries display a different pattern. It may seem as if China has become one of the most important trade partners in high technology goods but the high comparative advantage of China in this type of trade should be taken with a pinch of salt. China exports proportionally more technology‑intensive goods, but a large share of the content is imported from developed countries. As confirmed by data on trade in intermediate goods, China is still more an ‘assembler’ than a producer of high technology goods. While the Chinese import of intermediate goods consists of high quality goods, their exports seem to be of a lower quality. The analyses of trade in service show that the EU, in 2009, has comparative advantages in almost all sectors except personal, cultural and recreational, construction services and travel. 1 Cyprus, Luxembourg and the UK has comparative advantages in financial services. 1 See Chapter IV for a definition of these types of services.
Ireland also has a high RCA in computer and information services, together with Finland. US service industries have comparative advantage in financial services and in trade with personal, cultural and recreational services. Japanese service industries have comparative advantages in construction services, as do China and Russia. India is highly specialised in computer and information services. China differs from India in this respect. While China has strong comparative advantages in manufacturing radios, televisions and telecommunication equipment, it does not have any advantage in the services related to those manufacturing goods. Brazil has comparative advantages in other business services. Increased internationalisation of EU industries The globalisation of economic activity shows itself not only in increased trade but also in increased foreign direct investment (FDI) which has displayed higher growth than trade for at least the last 15 years. The stocks of both inward and outward EU FDI are concentrated in the financial and real estate sectors. In absolute terms, financial Executive summary intermediation, real estate and business activities represent almost two thirds of the overall outward EU FDI stock and more than two thirds of the inward EU stock of foreign direct investment Globalisation also has an impact on corporate research, development and innovation (R&D&I). Internationalisation of R&D has increased considerably in the EU. The share of foreign owned patent applications in the EU increased from some 10 % in 1990 to 17 % in 2007. The largest increase has been recorded by intra‑EU patent applications. The most internationalised manufacturing industries in terms of foreign‑owned patents in the EU‑27 are manufacture of radio, TV and communication equipment, food and drink, office machinery and chemicals. Outward patenting and R&D outside the own country is still relatively modest. On average, only 10 % of all EU‑27 patents were granted abroad between 2003 and 2007 at the same level as US patents while BRIC countries had a larger share of outward patenting. The US is the most important location for EU outward R&D. The US accounts for 60 % of overseas patents applied by EU entities at the EPO. The BRIC share is still small but rising fast and is now larger than the Japanese share of EU outward patenting. 11
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