European industrial policy: effects for the member states

In March 2020, the EU launched a European industrial strategy, a continental national economies’ transitional plan towards green and digital perspectives in development. After a year of deliberation, the Commission proposed a regulation which reflects to main efforts: a) a continued openness to trade and investment as a source of national strength in growth and competitiveness; b) the Union’s intentions “to defend itself” decisively from unfair and distortive practices by third countries.

The pandemic presented unprecedented challenges both the EU institutions and the national economies followed by enormous shocks to the whole strata of socio-economic development. The states needed urgent efforts in recovery, resilience and adaptability of businesses, industries and manufacturing. From the EU side, there are constructive efforts to update existing industrial strategy with the aim of applying the acquired knowledge in the new growth pattern and governance means.

The updated strategy is a big step forward in recognizing the importance of circular economy’s patterns in moves to regional industrial decarbonisation and facing expected transformation of almost all industrial value chains. With all the positive sides of the new strategy, the process of reinforcing the member states’ industrial/manufacturing policies will presumably take a couple of years in line with the European industrial and strategic autonomy.

 

Short history

Industry plays a vital role in the European economic growth and prosperity: European industry is a recognized global leader in many sectors representing about 20 percent of the total value added of the EU-28, providing jobs for about 35 million people in the Union.

In March 2019, the European Council called for a comprehensive and long-term EU industrial policy strategy along with an integrated approach for a deeper and stronger single market. The need for a new “industrial way” for Europe has been reflected in the EU’s political guidance in development for 2019-2024 (i.e. for the present Commission’s college term) including the European Green Deal and the Commission’s Strategy on Shaping Europe’s Digital Future.

On the European political guidance see: https://ec.europa.eu/info/strategy_en

 

First of all, the main principles and actions of the industrial strategy-2020 remain fully valid: hence, the Commission laid the foundations for the policy that would support the twin transitions to a green and digital economy, making the EU industrial sector both more competitive globally, and enhance Europe’s open strategic autonomy.

The package of March-2020 initiatives outlined a new approach to European industrial policy that has been deeply rooted in European values and social market traditions with a range of actions to support main actors in the European industry, including big and small companies, innovative start-ups, research centers, service providers, suppliers and social partners. Thus a “dedicated strategy for SMEs” aimed to reduce red tape and help European SMEs to do business across the single market and beyond, with an adequate access to financing and assistance to the digital and green transitions.

An industrial strategy formulated in March 2020 was aimed at helping to deliver on three key priorities: a) maintaining European industry’s global competitiveness and a level playing field at home and globally, b) making European continent climate-neutral by 2050, and c) shaping Europe’s digital future.

Some aspects of the 2020-strategy have had a lasting effect on businesses through the following means:

= Comprehensive measures to modernise and decarbonise energy-intensive industries, support sustainable and smart mobility industries, to promote energy efficiency, strengthen current carbon leakage tools and secure a sufficient and constant supply of low-carbon energy at competitive prices

= Enhancing Europe’s industrial and strategic autonomy by securing the supply of critical raw materials through an Action Plan on Critical Raw Materials and pharmaceuticals based on a new EU Pharmaceutical Strategy and by supporting the development of strategic digital infrastructures and key enabling technologies.

= A Clean Hydrogen Alliance to accelerate the decarbonisation of industry and maintain industrial leadership, followed by Alliances on Low-Carbon Industries and on Industrial Clouds and Platforms and raw materials.

= Further legislation and guidance on green public procurement.

= A renewed focus on innovation, investment and skills.

 

Therefore, the 2021industrial initiative –as a follow-up to a previous one – also includes concrete steps to address barriers to a well-functioning single market, Europe’s strongest asset to allow all businesses in the member states in their efforts to the European growth and competitiveness in the world.   

 

New strategy for SMEs

SMEs play a key role in the European industrial fabric, providing two out of three jobs, and are central to the success of the new Commission’s industrial approach. The new strategy aims to help SMEs to lead the twin transitions, which also means securing access to the right skills. To build SMEs’ capacity for these transitions, the Commission will upgrade the European Enterprise Network with dedicated sustainability advisors. It will also expand Digital Innovation Hubs across every region in Europe to empower SMEs to integrate digital innovations; besides, it will open up possibilities for volunteering and training on digital technologies.

To make it easier for SMEs to operate in the single market and beyond, the Commission proposes actions to remove regulatory and practical obstacles to doing business or scaling up. Among them, the Commission is stepping up its efforts to ensure prompt payment, in particular through a new virtual observatory, as well as through alternative dispute resolution.

To make it more accessible for SMEs to go public in Europe, the Commission will also support an SME Initial Public Offerings (IPOs) Fund under the InvestEU SME window.

It will also empower female entrepreneurship by stimulating investment in women-led companies and funds.

Furthermore, the Commission invites the EU member states to ensure one-stop shop assistance to national companies with the objective of making Europe the best place to start a business and grow. Commission will work with the states on an EU Start-up Nations Standard to share and adopt best practices to accelerate growth of high-tech SMEs and start-ups. To ensure political commitment for these measures, a high-level EU SME Envoy will guarantee close partnership and coordination with the member states through national SME envoys, as well as with regional and local authorities.

More in: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_416

 

Presently, the EU’s official “industrial website” shows the Union’s policy in “single market, industry, entrepreneurship and SMEs”. See: https://ec.europa.eu/info/departments/internal-market-industry-entrepreneurship-and-smes_en

Note: the DG GROW’s responsibilities were previously covered by the Directorate-General for Internal Market (DG MARKT) and the Directorate-General for Enterprise and Industry (DG ENTR); hence, the DG GROW develops and carries out the Commission’s present policies on “business and industry”.

See more in: https://ec.europa.eu/info/topics/business-and-industry_en

 

Updated industrial strategy

The updated Strategy reaffirms the priorities set out in the March 2020 Communication, published the day before the WHO declared COVID-19 a pandemic, while responding to the lessons learned from the crisis to boost the recovery and enhance the EU’s open strategic autonomy. It proposes new measures to strengthen the resilience of our Single Market, especially in times of crisis. It addresses the need to better understand our dependencies in key strategic areas and presents a toolbox to address them. It offers new measures to accelerate the green and digital transitions. The updated Strategy also responds to calls to identify and monitor the main indicators of the competitiveness of the EU economy as a whole: single market integration, productivity growth, international competitiveness, public and private investment and R&D investment.

https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1884; May 5, 2021

 

Three factors are in the core of the new EU industrial policy:

First, the pandemic has highlighted some fragility in the European single market when exposed to particular types of disruption.

Second, there has been a growing trend in several member states to analyse vulnerabilities in key strategic value chains.

And third, the corporate efforts towards green and digital transitions have become stronger; the digital transition in particular was accelerated by the pandemic crisis.

The Commission has put forward a Single Market Emergency Instrument, to deal with future pandemic crises and disruptions.  It has become critical that in tandem with the new instruments proposed, the EU and the member states will continue to address long-standing barriers and restrictions to the prospectively functioning Union’s single market.

The Commission provided for the following examples of a modernized single market for businesses:

  1. A perennial problem for SMEs is late payments, which even in good times put companies out of business. The problem has been made even worse by the crisis. So, in addition to reinforcing the monitoring of late payments, we will also try to shorten disputes between the companies involved.
  2. Companies consistently suffer from the administrative hurdles in sending staff, such as engineers to another country to work on a building site. The Commission promised to work with the member states in devising a common form, in electronic format, to make the posting of workers easier, without compromising on protection for workers (to start with, this could be introduced on a voluntary basis).
  3. The Commission promised to continue to eliminate existing hard-wired barriers that still persist within the Union’s single market. That means for example a more serious approach to enforcement of the Services Directive and making sure that the states comply with their existing obligations.

 

Additionally, three working documents will be elaborated: a) Annual Single Market Report 2021 analysing the state of play of the European economy based on an assessment of 14 industrial ecosystems, evaluating the progress made in delivering the 2020 Industrial Package and presenting a set of key performance indicators to monitor further progress; b) an analysis on Europe’s strategic dependencies and capacities with an in-depth review in a number of strategic areas; and c) a paper on competitive and clean European steel analysing the challenges for the industry and the necessary EU’s “toolbox”.

The European Commission’s revised industrial strategy employs the narratives of the circular economy, renewable energy and some aspects of sustainability; however, without considerably reducing available and imported resources, the member states’ efforts towards transition to a circular economy would be destined to failure.

More in: https://meta.eeb.org/2021/05/11/eus-new-industrial-strategy-fails-to-square-the-circle-of-sustainability/.

 

Strategy’s political facets  

The European Commission addresses EU’s dependencies in an efficient and targeted manner, while closely working with global partners in strengthening the resilience of the regional supply chains. However, the biggest challenge lies in preventing future strategic dependencies, especially for inputs and advanced technologies that will be vital to the green and digital transitions. For example, this includes batteries, semiconductors, critical raw materials and hydrogen; the member states have to build up the critical capacities in these areas in view of securing raw materials and rare elements that are critical for the European ICT and renewable energy technologies.

In this regard, the Commission intends to launch two industrial alliances in the digital field:  a) the Alliance on processors and semiconductor technologies, and b) the Alliance for Industrial Data, Edge and Cloud.

Besides, the Commission is also considering the preparation of an Alliance on Space Launchers and an Alliance on Zero Emission Aviation, to complement the expected Renewable and Low-Carbon Fuels Alliance.

However, it is evident that the European global leadership in modern technology depends on the corresponding leadership in standard-setting: hence, the active present strategy’s attention to standardization with the aim of taking a more assertive stance on the European interests and seeking cooperation with the likeminded partners around the world, in order to lead the global conversation on standard-setting and future regulation. For example, the Industrial Emissions Directive (IED), which regulates pollutant levels in industry, could be an interesting theme in the global cooperation; however, the emissions’ issues are not mentioned in the strategy, though they are important in delivering on the decarbonising perspectives and in “de-polluting” EU industry. On IED see: https://ec.europa.eu/environment/industry/stationary/ied/legislation.htm 

 

Strategic dependencies in global value chains

Though openness to trade and investment is vital for the EU’s growth recovery and resilience, the EU has to resume its position as a leading global importer and exporter. Some pandemic disruptions have already damaged the European manufacturing and industrial sectors, in particular the pharmacy and health sectors, which show the main positions in which the EU’s strategic dependencies and the perspective developing facets would appear.

The Commission has made a “bottom-up analysis” based on trade data, which provides the following first insights:

  1. a) out of 5,200 products imported into the EU, some 137 products were identified for which the EU states are highly dependent, which represent about 6 percent of the total value of imported goods.
  2. b) about half of imports for these dependent products originate in China, followed by Vietnam and Brazil. For most of these products, industry itself is best placed to reduce dependencies, for example, through diversification of suppliers. However, of this group, 34 products representing 0.6 percent of the total value of imported goods are potentially more vulnerable, given their low potential for further diversification or substitution with EU production.

Source: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_2282 -5.05.2021

 

More information in the following Commission’s web-sites: –Questions and Answers; –‘Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery’; – Annual Single Market Report 2021; – Strategic dependencies and capacities; – Towards competitive and clean European steel; – Fact-page on the Industrial Strategy Update; – Fact-page on in-depth reviews of strategic areas for Europe’s interests; – A New Industrial Strategy for Europe (March 2020).

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