By Bill Wilson BBC News Online business reporter at the CBI conference

Mr Mandelson has set his sights on tearing down trade barriers

"British-style economic openness" needs to marry with European-style investment in social and economic infrastructure, he told a CBI conference in Birmingham.

Earlier, CBI President John Sunderland had warned that a climate of fear and EU regulation was hurting UK business.

He added "Britain's greatness was built on risk-taking" but was being stifled by the EU, or "Cotton Wool Union".

The EU was the source of over half the regulations British business faced with each UK firm subject to an average 85 separate health and safety regulations, Mr Sunderland said.

Red tape rapped

While Europe had no shortage of good intentions about boosting its economic competitiveness, Mr Sunderland said he was unsure whether that could overcome the "pervasive EU mindset on protection and regulation".

For many years business has watched incredulously as the European Union has developed a mindset which is introverted, self-protective and ever-more addicted to regulation. John Sunderland, CBI CBI chief hits out at US on trade

In his speech at the annual CBI conference in Birmingham, Mr Mandelson, who said he was "pro-Europe, pro-reform in Europe", admitted that the new European Commission's "compelling cause" must be economic reform.

"We should be espousing economic dynamism with greater social cohesion and social justice, as we see best exemplified in such European Countries as Finland, Sweden and Denmark."

His comments came a week after former Dutch prime minister Wim Kok reported that Europe was making insufficient progress on reforms, and highlighted the failure of member states to get to grips with pledges to boost employment and growth.

The former MP for Hartlepool said that amid the "breathtaking speed" of change in the economic power balance, the reversal of Europe's relative global decline would be his top priority.

In such a changing world, the UK could not risk becoming merely an "associate member" of the European economic area, he added.

However, he did recognise that the mood of much of British business towards the EU had changed for the worse with "not so much pro-European fervour as perhaps 10 or 15 years ago".

Protests

"I don't think a centralised organisation should be talking about private enterprise when they don't understand it," said one delegate, Simon Eccleston of Midlands-based engineering firm Production Automation.

Protestors from the World Development Movement and Friends of the Earth also questioned whether Mr Mandelson was the right person to oversee European economic development, given what they said were his "connections with big business".

We are living in a new world ... where trade is getting freer and faster, tariffs and barriers fewer and lower John Sunderland, CBI UK firms to look abroad, CBI says

"For too long European trade policy has put the needs of big business before the needs of the developing world and the planet," WDM's head of policy Peter Hardstaff said.

However, it was other European concerns that were taxing the CBI's Mr Sunderland, who warned that the "formidable" cost of compliance with EU regulations was squeezing business - particularly small firms - eating capital and income, and demanding "precious management time and energy".

Many of the new EU rules were now holding back the UK's potential role in the global economy, at the same time as nation's like China were imitating Britain's Industrial Revolution and "on its way to the same conquests of world markets".

'Fatal attitude'

"For many years business has watched incredulously as the European Union has developed a mindset which is introverted, self-protective and ever-more addicted to regulation."

China has benefited from UK-style risk-taking, Mr Mandelson said

"Such attitudes would be costly at any time; in today's global economy they could be fatal."

He said the Chinese had managed to build seven ring roads in 10 years, while it took Britain seven years to hold a planning inquiry into a new terminal for Heathrow.

"We are living in a new world that everyone must understand - government, regulators, business, trade unions, pressure groups, consumers and voters alike.

"It is a world where trade is getting freer and faster, tariffs and barriers fewer and lower.

Competitive drive

"To compete in this new world we need a society that accepts a business environment based on freedom, flexibility and fearlessness in the face of risk."

I want to liberalise markets, tear down barriers to trade ... and see an effective opening of the single market Peter Mandelson

Mr Mandelson admitted Europe was being "outsmarted and outgunned" in many economic sectors, and was facing a formidable challenge from China. He also acknowledged the new European Commission would have to act on regulation.

"New rules may well be justified, but only when they genuinely - and proportionately - serve public policy objectives which cannot exist in a different way."

He said there was a need to "redynamise Europe's old economic structures so as to achieve more efficient markets, a faster rate of innovation, higher productivity and growth, and therefore higher levels of employment for Europe's citizens."

"I want to liberalise markets, tear down barriers to trade...and see an effective opening of the single market," he said.