-Why is an update of the 2020 New Industrial Strategy needed?
On 10 March 2020, the Commission laid the foundations for an industrial policy that would support the twin transitions to a green and digital economy, make EU industry more competitive globally, and enhance Europe's open strategic autonomy. One day after, the World Health Organisation declared COVID-19 a pandemic.
This update neither replaces the 2020 Industrial Strategy nor completes the processes launched by it - much of that work is in progress, and requires dedicated efforts. This is a targeted update, which focuses on what more needs to be done and what lessons need to be learned. Today's targeted update of the Industrial Strategy reflects the need to take full account of the new circumstances following the COVID-19 crisis that accelerated existing trends, in order to speed up recovery and ensure Europe's leadership in green and digital technologies.
The Communication recalls the lessons learned from the crisis and lays out the main policy priorities under three main strands, i.e. strengthening Single Market resilience, dealing with Europe's strategic dependencies and accelerating the twin transitions. The Communication thus also addresses several requests from Member States, notably in relation to the assessment of the resilience of the Single Market, to the identification of strategic dependencies in key vulnerable ecosystems, such as health, and to the selection of Key Performance Indicators (KPIs) to monitor the implementation of the Strategy.
-What are the lessons learned from the COVID-19 crisis?
The COVID-19 pandemic hit the European economy harder than any other economic shock in the history of the EU. Policy makers and economic actors are drawing a number of lessons from this experience. First, despite severe disruptions in production, transport and people's mobility, most value and supply chains have shown remarkable resilience. However, the measures introduced with the intention to curb the spread of the pandemic, including intra-EU border controls and closures, have affected the free movement of persons, goods, and services and capital. This clearly highlights the need to strengthen the resilience of the Single Market, especially in times of crisis.
Secondly, the COVID-19 pandemic triggered wider awareness of the need to analyse and address strategic dependencies, both technological and industrial. The EU and its trading partners gain resilience from world markets being open and integrated in global value chains, which help to absorb shocks and drive the recovery. The pandemic showed that disruptions in global value chains could affect specific essential products and inputs, such as medical supplies, that are particularly critical for society and the EU economy. One of the key lessons of the crisis is to get a better grasp of Europe's current and possible future strategic dependencies.
The crisis also showed that despite the testing times, the Single Market enabled numerous companies to respond and adapt to the crisis in innovative ways and remain competitive. Some industries adapted production to meet the immediate needs of the crisis, like companies in the fashion sector that started to manufacture personal protective equipment. Digitalisation enabled conducting business online, while many companies made the shift to e-commerce overnight or acted quickly to find new suppliers. Major EU efforts have supported vaccine development and production in Europe. All these are examples of Europe's industrial agility and show that embracing change and transition is key to ensuring our businesses' industrial leadership in the future.
-How is the Industrial Strategy update structured?
The Communication ‘Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe's recovery' is accompanied by three Staff Working Documents. They reflect certain early deliverables of the 2020 Industrial Strategy and offer the analytical underpinning for the update:
-What is the state of our Single Market?
The impact of the crisis on the Single Market showed how restrictions caused major disruptions to the free movement of people, goods, services and capital, profoundly affecting value chains and economic activity. The ability of industry to quickly introduce and scale up production in critical areas was seriously constrained.
To assess the state of the Single Market, the Commission is today publishing a first Annual Single Market Report, which analyses the resilience of the Single Market. It looks at the impact of the pandemic and the public policy measures to counteract it, on the functioning of the Single Market and on European companies, including SMEs.
The Report takes a detailed look at the impact of the crisis across 14 industrial ecosystems. It shows that the impact of the crisis has been uneven among ecosystems - with tourism, mobility, textiles and cultural & creative ecosystems hardest hit. The impact is also different for companies of different sizes. SMEs were especially affected, with over 60% of SMEs reporting a fall in turnover and two thirds reporting that they have delayed investment decisions or downsized investments. They were particularly affected by border controls and closures, supply chain disruptions, lock-down measures, and persisting high uncertainty, which added to a number of existing barriers to companies operating within the Single Market. Women, youth and low-income workers were particularly affected by the crisis, partly due to the fact that they represent a large majority of employees in the most affected sectors. The crisis has underlined not only the fundamental importance of a well-functioning Single Market, but also the need to make it more resilient and prepared to face future crises.
-How will the Commission measure Monitoring industrial trends and competitiveness?
The Annual Single Market Report defines a set of key performance indicators (KPI), based on publicly available data sources, to analyse economic developments and monitor the progress achieved, focussing on competitiveness, Single Market integration, SMEs, the twin transition, and economic resilience. The KPIs also provide a forward-looking view based on investment and a confidence indicator, and an overview of the performance of the EU economy, comparing it to international partners and analysing the specificity of industrial ecosystems. The analysis of these indicators, which will be performed regularly by the Commission, can help in taking a strategic stance on the EU economy, anticipate challenges, and inform policy and investment decisions.
In full synergy with existing monitoring tools (e.g. Single Market Scoreboard), the Commission will monitor main indicators of the competitiveness of the EU economy as a whole, in particular:
-Single Market integration, based on indicators on intra-EU trade or price dispersion across Member States, to help assess policies fostering a favourable business and innovation environment.
-Productivity growth, based on labour productivity.
-International competitiveness, based on EU global market share or extra-EU trade, to support policies for open and fair access to export markets - Public and private investment, based on data on net public and net private investment as % of GDP, to notably illustrate the potential transformation of the economy in line with the twin transition objectives.
-R&D investments, based on public and private R&D expenditure as % of GDP, to support innovation.
-What is the Single Market Emergency Instrument?
The Single Market is central to functioning supply chains, for the free movement of persons and the access to services and goods, especially in times of difficulties.
The COVID-19 crisis has shown that some of the current rules and tools for the Single Market are insufficiently adapted to crises and emergencies. For this reason, the Commission will propose a Single Market Emergency Instrument to ensure greater transparency and coordination, when a critical situation emerges. This will help mitigate the harmful impacts on the Single Market, safeguard the free movement of services and goods and maximise the availability of essential products. Reflections on such an emergency instrument are ongoing; the instrument could include reinforced governance tools, targeted transparency measures and tailored digital solutions in fields such as standard setting and sharing, fast-track conformity assessment and public procurement cooperation.
-What other tools does the Commission foresee to strengthen resilience in the Single Market?
Efforts to address restrictions and barriers are under way notably through the Single Market Enforcement Task Force (SMET). To make progress in the areas of services, the full enforcement of the Services Directive will ensure that Member States comply with their existing obligations, including the notification obligation, in order to identify and eliminate new potential regulatory barriers.
The update of the 2020 New Industrial Strategy sets out actions to further strengthen the Single Market in the services areas and stepping up the digitalisation of market surveillance. For instance, the Commission will explore the merits of a legislative proposal for regulating key business services supported by harmonised standards. Services standards lay down technical requirements, e.g. levels of quality, performance, interoperability, environmental protection, protection of health or safety. They can increase consumer confidence and further integrate European service markets. They can help overcome barriers linked to multiple national certification requirements.
EU competition policy has a key role to play in maintaining a level playing field and it is one of our biggest assets in ensuring that the Single Market supports companies to innovate and grow. Preserving competition in the Single Market contributes to the resilience and competitiveness of our companies on the global markets. The Commission will also continue to monitor the application of the State aid Temporary Framework (extended until end-2021) and the implementation of COVID-19 related State aid measures, with a view to progressively phasing out crisis support measures when the situation allows, while avoiding cliff-edge effects.
-What is the Commission doing to support SMEs?
The 2020 SME Strategy set out measures to help SMEs in the twin transitions and access finance and markets. The crisis, which had a tremendous impact on SMEs, has furthermore underlined the need for these actions and their prompt implementation. To take account of the new situation, the Commission is now adjusting and reinforcing some of these actions where needed.
As a primary vehicle of innovation in the various ecosystems, SMEs need to be borne in mind in all actions under this Strategy. This is reflected in a horizontal manner by increased attention to regulatory burden under the Commission's revised approach to Better Regulation: by introducing a ‘one in, one out' approach adapted to the policymaking in the EU, it strengthens the attention of policymakers for the implications and costs of applying legislation, especially for SMEs .
The new actions identified in the updated Industrial Strategy will strongly benefit SMEs and start-ups, whether it be from a strengthened Single Market, reduced supply dependencies or the accelerated green and digital transitions. The strategy also includes some measures dedicated to SMEs such as on increased resilience, combating late payments, and supporting solvency.
In particular, the crisis led to increased late payment behaviour, which puts additional burden on SMEs. The EU Observatory on late payments, which monitors unfair payment practices and analyses how late payments spread through the supply chain, will expand its current work on the construction ecosystem to other areas. To address unfair payment practices exacerbating payment delays and often leading to long disputes, the Commission will design and implement pilot Alternative Dispute Resolution schemes.
To help address the solvency risk affecting notably SMEs, the Commission will work towards introducing dedicated capital support to SMEs through financial products of InvestEU, and invites Member States to contribute to EU-wide efforts.
-What is the result of the Commission's initial analysis of strategic dependencies?
As 85% of global growth will take place outside of the EU in the next decade, openness to trade and investment is a strength and source of growth and resilience for the EU, which is a major importer and exporter. Yet the crisis has triggered wider awareness of the need to analyse and address strategic dependencies, both technological and industrial. The Commission has carried out an analysis to provide first insights on our strategic dependencies, looking at 5,200 products imported by the EU.
Based on this analysis, the Report on strategic dependencies and capacities identifies 137 products for which the EU is highly dependent, in sensitive ecosystems, which represent 6% of the EU's total import value of goods. A subset of 34 products (representing 0.6% of the EU's total import value of goods) are potentially more vulnerable given their possibly low potential for further diversification and substitution with EU production.
These are related mainly to the energy-intensive industries (such as raw materials) and health ecosystems (such as active pharmaceutical ingredients) but also concern other products relevant to support the green and digital transformations. About half of all imports of these dependent products originate in China, followed by Vietnam and Brazil. The analysis also shows challenges and dependencies in the area of advanced technologies such as for cloud and microelectronics, predominantly linked to the global market structure.
The analysis also highlights the issue of possible internal dependencies within the Single Market, linked to a concentration of activities at the level of individual firms.
Moreover, the analysis develops six in-depth reviews of strategic areas (raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors and cloud and edge technologies), providing further insights on the origin of strategic dependencies and their impact.
The Commission will launch a second stage of in-depth reviews of potential dependencies in key areas, including products, services or technologies key to the twin transition, such as renewables or energy storage and cybersecurity. It will also ensure a monitoring system through the Commission's Observatory of Critical Technologies and a periodic review process.
Discussing the results of this assessment with Member States and industry (e.g. in the context of the Industrial Forum) will help to deepen the Commission's analysis of the exact nature of identified dependencies, including whether they entail risks to the resilience and functioning of the EU's industrial ecosystems.
While the EU faces certain dependencies, other countries also depend on the EU (“reverse dependencies”). The Commission will also examine further such reverse dependencies, as mutual dependencies may be an element of stability in global value chains. The EU also shares foreign dependencies with other countries (“common dependencies”), which may provide opportunities for building up cooperation with likeminded partners to find mutually beneficial solutions.
-What can the EU do to reduce its dependency in strategic areas?
In most cases, industry itself is best placed - through its corporate policies and decisions - to improve resilience and reduce any dependencies that may lead to vulnerabilities, including through diversification of suppliers, increased use of secondary raw materials and substitution with other input materials. There are however situations where concentration of production or sourcing in only one single geographical area results in the unavailability of alternative suppliers.
In areas of strategic importance, the Commission is identifying policy measures that can support industry's efforts to address strategic dependencies and to develop necessary strategic capacity. Such measures are generally based on a mix of actions, targeted and proportionate to ecosystems' needs and identified risks.
The Commission will work in close cooperation with the relevant stakeholders to identify measures to reinforce the EU position in global value chains, including by strengthening and diversifying external trade. A more circular economy and improved resource efficiency also contribute to reducing dependencies and strengthening resilience. In addition, these measures should enable the EU to strengthen its own capacity, building on the strengths of a fully functioning Single Market with open and competitive markets. It will leverage its privileged relations with its closest neighbours - in particular the ones already engaged in regulatory convergence with the EU.
As outlined in its Trade Policy Review, the Commission will work towards diversifying international supply chains and pursue international partnerships. In addition, the EU should strengthen its own capacity in strategic areas where necessary.
The Commission has today adopted a proposal for a Regulation on foreign subsidies distorting the Single Market. It is a key element to deliver on the EU Industrial Strategy by ensuring a level playing field and by promoting a fair and competitive Single market.
The Commission will continue to support industrial alliances, in strategic areas where such alliances are the best tool to accelerate activities that would not develop otherwise. Industrial alliances will be supported where they attract private investors to discuss new business partnerships and models in an open, transparent and competition-compliant manner, and have a potential for innovation and high-value job creation. Alliances provide a platform that is broad and open in principle, and will pay particular attention to inclusiveness for start-ups and SMEs.
-What is the EU model of open strategic autonomy?
In a nutshell, open strategic autonomy means that the EU maintains its model of an open economy and remains open for international cooperation whenever it can. At the same time, the EU stands ready to protect itself against unfair practices, including by taking autonomous measures, whenever it must.
-Is the Commission preparing new industrial alliances?
Building on past positive experience in the fields of batteries, raw materials and hydrogen, the Commission is preparing the launch of the two alliances that had already been announced in the New Industrial Strategy and in the Digital Decade Communication in the digital field: the Alliance on processors and semiconductor technologies and the Alliance for Industrial Data, Edge and Cloud. Bringing together a wide range of stakeholders, these alliances will help achieve key EU policy objectives in microelectronics and strengthen Europe's industrial position in the global cloud and edge computing market, notably addressing the trend towards increasing distribution and decentralisation of data processing capacities and the need to enable federated and vendor-agnostic cloud ecosystem.
The Commission is also considering the preparation of an Alliance on Space Launchers to bring together all players, big and small, to work towards a globally competitive, cost-effective and autonomous EU access to space, and an Alliance on Zero Emission Aviation to ensure market readiness for disruptive aircraft configurations (e.g. hydrogen, electric), leveraging the existing investments under the Clean Sky initiative and contributing to Europe's 2050 climate neutrality objective.
-Which new actions is the Commission proposing to support the twin transitions?
With the Industrial Strategy Update, the Commission proposes new measures to support the business case for the green and digital transitions by ensuring that all our policies and investments are geared towards achieving this objective. Among these measures, the Commission will:
-Co-create, in partnership with industry, public authorities, social partners and other stakeholders, transition pathways for ecosystems, where needed, starting with tourism and energy intensive industries. Such pathways will offer a better bottom-up understanding of the scale, cost, long-term benefits and conditions of the required action to accompany the twin transition for the most relevant ecosystems, leading to an actionable plan;
-Consider measures to support the uptake of corporate renewable Power Purchase Agreements, as part of the revised Renewable Energy Directive in June 2021; consider a European approach for carbon contracts for difference in the proposal for a revised Emissions Trading System Directive;
-Develop the Energy and Industry Geography Lab, in collaboration with industrial stakeholders, which will provide geospatial information for companies and energy infrastructure planners.
-What are transition pathways and how are they designed?
Each industrial ecosystem faces different challenges in its twin transitions. They have to overcome different barriers and costs, while presented with different opportunities, investment cycles and market dynamics; and as a result, progress at different speeds.
To ensure that our climate targets are met and to preserve the competitiveness of our ecosystems, there is a need to work together with all relevant players - industry, Member States and other stakeholders - in a bottom-up process to co-create dedicated pathways where it is deemed necessary.
The first analysis of the challenges and opportunities for 14 industrial ecosystems presented in the Annual Single Market Report could serve as an initial input to this process. Priority should be given to the ecosystems and sectors that face the most important challenges in meeting climate and sustainability goals and embracing the digital transformation, and whose competitiveness depends on this, such as energy-intensive industries (including the chemical and steel sectors), retail and construction. Priority should also be given to sectors heavily affected by the crisis, which benefit from accelerating their twin transition in order to boost their recovery (such as tourism and mobility).
-What is the Commission doing to ensure affordable and decarbonised electricity?
To deliver on its climate commitments and modernise its economy, Europe needs to accelerate the roll-out of renewable energy sources. The Commission will work with Member States to increase their ambition on renewable energies, notably supporting large-scale integrated projects and necessary grid expansions.
The shift in our energy system also has a geographical dimension: renewable energy sources have to be harvested locally where they are available - often far from industrial demand centres. To ensure that energy-intensive industries are well connected to decarbonised electricity generation, the Commission is currently developing the Energy and Industry Geography Lab, which will serve as a geospatial information hub collecting information on the availability of renewable energy sources, energy infrastructures and the location of industrial demand centres, and serve as a tool for companies and energy infrastructure planners.
As our energy system becomes more integrated and the share of intermittent electricity generation from wind and solar grows, industry has a role to play in providing demand-side flexibility and acting as the ‘battery' of Europe. Industrial consumers and SMEs can also support the expansion of renewables by concluding corporate renewable Power Purchase Agreements. These are long-term contracts between corporate buyers and renewable power producers to purchase green electricity at pre-agreed prices, thus providing price security to both sides and improving the bankability of renewable power projects. The Commission will consider measures to facilitate the uptake of such agreements.
With the expansion of green technologies, the demand for raw materials will increase significantly. The European Raw Materials Alliance, launched in September 2020 as part of the Action Plan on Critical Raw Materials, is establishing a project pipeline for both the rare earths and magnets value chains, which are key for solar and wind energy solutions, and on energy storage and conversion materials.
-Why has the Commission done a dedicated analysis of the steel sector? What are we doing to support a clean and competitive steel sector?
Steel is a vital component in most of the EU's industrial ecosystems. It is a key material for a modern, industrialised economy. Buildings, cars, ships, tools, industrial machinery and household appliances would not be imaginable without steel and its unique properties. The EU steel industry has more than 500 production sites operating across 23 Member States. The industry directly employs 330,000 people, and if we include indirect and induced jobs in other sectors, creates 2.6 million jobs throughout the EU. The EU steel industry has been hit hard by the crisis.
The EU steel sector is also facing major challenges due to global overcapacity and international trade distortions. The EU is already addressing these issues by engaging internationally to reduce overcapacities and by using trade defence instruments to level the playing field.
Despite this situation, the EU steel industry is also strongly committed to making the green and digital transitions a reality. It is expected to invest in research and development, rethink its production processes and deliver substantial emission reductions in order to stay competitive. In the Staff Working Document ‘Towards competitive and clean European steel', the Commission illustrates which policies and tools are already available or in the pipeline for the steel industry to help it achieve the twin transitions and resilience objectives.