May 18. 2024. 3:22

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Startups: EU response to US subsidies must go beyond state aid, tackle procurement rules

A series of European startup organisations co-signed a non-paper encouraging the European Commission to consider reviewing public procurement rules for SMEs to better support the ‘twin’ digital and green transitions as the EU adopts its Green Deal Industrial Plan.

The signatories want a revision of EU public procurement rules so that smaller and more innovative SMEs can be eligible.

The non-paper argues that the rules as they stand give too-conservative a definition of innovation, narrowed down to ‘Research & Development’ (R&D), which results in imperfect economic outcomes, and a suboptimal distribution of projects to innovative tech services that lack explicit R&D elements.

The signatories also claim references to the Green Deal and the twin transition are too few in the current rules.

LEAK: EU Commission plan to counter US green subsidy bill

A draft communication, seen by EURACTIV, laid out the measures the European Commission is due to propose on Wednesday (1 February) in reaction to the US Inflation Reduction Act (IRA).

Innovation as an added-value

The non-paper comes as the EU is putting together a strategy to reduce third-country dependencies and tending towards greater autonomy of strategic goods and materials. This new ‘Green Deal Industrial Plan’ was initially presented by European Commission chief Ursula von der Leyen last Wednesday (1 February).

The Commission’s plan sets out a short-term offensive against the worst effects of the US Inflation Reduction Act (IRA) – a package of subsidies and tax credits to help fuel the green transition across the Atlantic, particularly offering advantages for electronic cars produced in the United States.

Temporary state aid relaxation and clarifications and a redirecting of current EU budgets are intended to defend the EU industry’s interests in the next few years.

To startups, whilst necessary, these tools don’t go far enough – and public procurement rules must be urgently addressed.

Public procurement rules are integral to the Single Market and guide the process through which European and third-country companies can bid in tenders and then sell their services to public authorities and governments.

The rules have long been criticised for being too lax against non-EU bidders – with the ultimate risk that EU companies be disadvantaged against third-country firms that are not subject to all the internal market rules.

In 2021, the EU approved an International Procurement Instrument (IPI) to ensure that European companies have access to third countries’ public procurement markets – as foreign companies enjoy in Europe.

New rules should look at innovation “through the lens of the added-value for the European economy” and the “security of supply”, the document reads. Criteria about the circular economy should also be part of the decision-making process for public buyers, and negative externalities should be considered.

At the same time, startups urge the Commission to help promote innovation by drawing from the experience of Green Public Procurement, which enshrines clear and stable environmental criteria for green products and services sold to public institutions.

The Brief — Buy European!

Europe is discussing green industrial policy – and once more, new subsidies and new EU debt are on the agenda. But EU countries already heavily subsidise wind parks, solar panels and electric cars with billions – so what is going wrong?

Medium-term ‘European Sovereignty Fund’

In the medium term, the Commission aired the option of creating a new European Sovereignty Fund for the green transition, the governance and financing of which remains blurry at this stage.

According to the non-paper, however, accessible funding through the fund will need to reflect the expectations of the twin transitions and be in line with the existing EU framework for screening direct investments from non-EU countries.

“SMEs, start-ups, and scale-ups will be key players in addressing the green transition and sovereignty challenges facing the EU,” the trade associations stressed.

Already, some member states recognise the firepower startups can have: earlier on Tuesday, French trade minister Olivier Becht announced more would be done to help SMEs export across the EU and to third-country as part of a wider reindustrialisation investment plan, ‘France 2030’.

In July 2022, French MEP Stéphanie Yon-Courtin also penned an op-ed in EURACTIV, calling for a “Buy European Tech Act”, to be extended to “strategic areas such as 5G, artificial intelligence, cyber security and cloud computing”.

While the signatories welcome the short-run Commission announcements over the relaxation of state aid rules and giving companies more visibility over the type of financing they can benefit from, a longer-term perspective is crucial: “the key to [startups’] sustainable development and competitiveness is revenue,” where “local candidates are given preference in public contracts”.