Industrial Policy: The Softer Side of Differentiated Integration

Differentiated integration in the area of EU industrial policy is the result of one or more of five factors: differences in ideology among Member States, domestic political circumstances, capacity (level of economic development), national economic structures, and technical preferences. There is a considerable degree of ‘capitalist diversity’ in the EU (Wilks, 1996). Even among the ‘Original Six’ Member States there are important differences in approach to economic regulation, even if they all embrace the EU system (Gerber, 2000). Ideological difference may contribute to differentiation in that Member States where economic liberalism holds more sway in government circles will pursue different policies than those pursued by Member States where interventionist solutions to industrial problems are more acceptable. Different levels of economic development have repeatedly been used as a justification for temporary derogations for poorer Member States in the implementation of EU legislation. Justifications stemming from ideology, economic development and structures can result in differentiated participation in EU-led or other European R&D projects. Technical preference has been a cited reason for delays in certain national programmes of sector-based market liberalisation. In several areas these five factors overlap, and assessing their relative importance is difficult. Differentiated integration in industrial policy areas is largely ‘soft’ and unofficial and comes in three forms: varying national participation in EU and other European projects; the discretion permitted in the implementation of EU legislation; and varying levels of compliance with EU legislation. Legally entrenched, multi-speed differentiation is present principally in terms of temporary derogation on a limited range of EU legislation. The explicit legal sanction of more permanent differentiation in industrial policy areas is rare. This chapter presents one recent legislative development that effectively entrenches differentiation in energy markets and potentially undermines market integration in this sector.