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The growth rate of R&D investment has been in decline since 2000 and is now close to zero, the report's authors found, and the EU is on track to fail to meet its objectives for an increase in spending of between 1.9 and 3 per cent by 2010.

Growth of R&D investment as a percentage of GDP grew just 0.2 per cent between 2002 and 2003. Europe already devotes a much lower share of its wealth to R&D than the US and Japan: 1.93 per cent of GDP in the EU in 2003 compared to 2.59 per cent in the US and 3.15 per cent in Japan, and this report suggests that the gap is only going to get greater. Moreover while China currently spends less, investment is currently growing at 10 per cent and if the respective rates continue, China will be spending the same amount of GDP on research as the EU by 2010.

'We must heed this wake-up

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call,' said the European Commissioner for Science and Research, Janez Potocnik. 'If the current trends continue, Europe will lose the opportunity to become a leading global knowledge-based economy.'

The report says that the main reason for the decline is the slowdown in business research funding. In 2002, business financed 55.6 per cent of domestic R&D expenditure in the EU, compared to 63.1 per cent in the US and 73.9 per cent in Japan, and this share is decreasing. If the trend is not reversed, not only will the EU miss the overall target of two-thirds of R&D expenditure financed by the private sector in 2010, but the situation will have worsened.

The report follows a European Commission investigation into the impact of R&D spending. The investigation found that it has a positive effect on both productivity and economic growth and on generating additional business investment. The Commission has called for a 'substantial and wide-ranging' programme to attract R&D investment from all over the world.

Otherwise, it says, Europe will comprise a series of national programmes, with little coherence and businesses will continue to relocate their R&D to other continents offering attractive public support and larger research, innovation and commercial markets. It added that a recent public opinion survey showed that EU citizens support spending more on research at both national and European level.