April 14. 2024. 7:04

The Daily

Read the World Today

Green Deal Industrial Plan is no substitute for a Competitiveness Agenda

The European Union’s initial response to the US subsidy programme is no substitute for a strategy to improve competitiveness, writes Stefano Mallia.

Last week, the European Commission presented its first response to US President Joe Biden’s unprecedented climate package, the Inflation Reduction Act, supporting American industry with a record $369 billion in subsidies.

The proposal ticks many boxes – predictable regulatory framework, access to funding, adequate skilled workforce and open trade agenda – but after a first assessment, EU employers concur it is very much a work in progress if we are to achieve long-term competitiveness.

Although the plan demonstrates an awakening to the crucial role the Commission should play in leading Europe out of its long-standing competitiveness crisis, EU employers have lingering concerns that must be addressed by EU leaders at a summit this week.

First and foremost, we should not forget the other part of the equation, the digital transition. This too must be given visibility and importance.

Second, it is useful to point out that subsidies on their own will not do the trick. The real problem of the IRA is not only the amount of subsidies, which are actually less than what the EU’s budget and different funds offer, but rather the combination of the subsidies and the low energy prices in the US. It is the two together that make the IRA problematic.

Add to the mix the comparatively low productivity of EU industries and indeed we are facing a very dangerous situation for the European economy.

Let me say that subsidies can be toxic. They have already divided EU countries and will ultimately lead to the fragmentation of the single market, harmful races and will weaken regional development. We are also running the risk that the “temporary” relaxation of state aid rules becomes somewhat permanent.

For the past three years, we have seen time-limited measures last longer than expected as a response to new crisis and that should be avoided.

Third, the Commission’s plan seems to be based on an old-fashioned ‘pick the winner’ approach. It hints at a scenario under which policymakers would set goals for industrial capacity, based on sector-specific analysis, and considering the whole supply and value chains, thus determining which businesses to favour for regulatory and financial support.

The term ’cleantech sector’ is already arbitrary, as the green transition takes place across all sectors and all kinds of businesses. I assumed this kind of thinking was dead and buried a long time ago.

Evidently, I was wrong.

We all know where the problem lies: It’s competitiveness.

Various data sets have repeatedly reminded us that global growth in the past decade has primarily taken place outside the EU – in Asia and particularly China. The EU’s global share of GDP has dropped, from 25% in 1990 to 17% by 2020.

Between 2014 and 2019, European firms grew on average 40% slower than their US peers and spent 40% less on R&D. This is also reflected in the generation of new technologies. The US outperforms Europe in all classes of transversal or cutting-edge technologies.

So, of course, there is an urgent need to regain ground and the transition to the Green economy provides us with such an opportunity. But being competitive and creating jobs must become a way of life and central to our policy-making. This is why EU Employers are advocating for a Competitiveness Agenda.

Since the end of the Lisbon Agenda in 2010, competitiveness has fallen off the EU map.

Nobody argues that that strategy had its flaws, but it also had its goal set in stone: to make the EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion”.

Most of the goals were not achieved because we failed to address structural problems which continue to dog us to this very day.

What we need is the political will to finally put competitiveness first, because it is competitiveness that matters.

Here is what we need and want. To avoid the relocation of our companies we need much faster and simpler permitting processes for building clean and affordable domestic energy capacity, but not only for clean-tech industries, for all sectors.

The formal requirements for the hiring of staff from third countries must also be reassessed and addressed in order to have access to an adequate workforce.

There is a clear need to remove market barriers and avoid creating further burdens for businesses. For too long, enterprises have been taken for granted and have been asked to deal with unrealistic regulatory and administrative frameworks.

To this effect, the competitiveness check that we, employers, have been asking for the past two years is finally on the Commission agenda and we are pleased to see this idea is an integral part of the first pillar of the plan – a predictable and simplified regulatory environment.

This is also true for member states that must strictly implement and enforce EU common rules and refrain from national gold-plating or introducing national regulations that, at worst, conflict with EU rules, such as the recent adoption by France and Spain of legislation that prevents European Retail alliances in spite of their clear undeniable advantages.

As we celebrate the 30th anniversary of the Internal Market we all know that it remains the crown jewel of the EU. There are however a number of missing gems.

The Commission proposal for a Green Industrial Plan provides a path forward which however still requires some work. As European Employers, we are convinced that with the right political will and vision, we will succeed in truly building a competitive Europe that will drive prosperity for all.