It’s not a great time for EU industry. Historical carmakers are facing unprecedent turbulences, tech startups have chronic difficulties in raising capital, manufacturers deal with energy costs persistently higher than those of their competitors. A report about the state of EU competitiveness is very timely.
Much of Mr. Draghi’s report is about what hinders growth on the Old Continent. Sluggish productivity, limited investments, incomplete single market, cumbersome regulations. Unsurprisingly, in these times of geopolitical disruptions, “classical” trade is not the priority of the report – Enrico Letta’s work had more. Nonetheless, Draghi makes several considerations of what position the EU should take in the world, notably in critical value chains. The US and China are what we’re measuring ourselves against.
First of all, in Draghi’s view, trade seems to be subordinate to industrial policy, rather than an end goal. Increasing security appears to be the key trade prescription. Echoing President von der Leyen’s guidelines for her new mandate, Draghi calls for a genuine “foreign economic policy” based on securing what is needed to power the struggling EU economy: critical raw minerals (CRM) and technologies. The primary goal of trade agreements becomes gaining access to what we don’t have and can’t produce alone, rather than opening markets for exports.
On CRM, the EU is dependent on a handful of resource-rich and processing countries, which exposes us to the typical price volatility of these commodities. Beijing’s export restrictions on CRM grew by nine times between 2009 and 2020. To compete, the EU should develop a “resource diplomacy”, offering exporting countries investments and preferential trade agreements.
While the report’s stance isn’t particularly pro-trade, Draghi says that tariffs should be used only for “overriding geopolitical imperative”. Countering China’s manufacturing overcapacity is one of them, in order to shield the EU – “a joint plan for decarbonisation and competitiveness.” Yet, he adds, there’s no point in using tariffs in sectors where European producers are far behind (solar panels), instead prioritising those where there is still a game to play (electric vehicles).
Still, on clean technologies, he calls for a sound implementation of the Net Zero Industry Act, meaning that, when procuring clean technologies, EU governments should not only consider efficiency but also “resilience criteria”. The bloc should also introduce import diversification targets per technology and establish industrial partnerships with reliable third countries.
On emerging technologies, Draghi warns that dependencies on the US for cloud and quantum are massive. Although he’s aware that the costs of catching up are significant, the EU must try to build a domestic industry for sovereignty reasons. Still, we can’t do without the US. To ensure access to cloud and data markets, he proposes a “digital transatlantic marketplace” for “trusted equipment and software.”
On semiconductors, the EU is only leading on equipment and materials, but this is being challenged by rising export controls at a global level. To shield these technologies, Draghi proposes introducing an ad-hoc budget and preferences for EU products in procurement.
Despite the ballooning amount of money needed, there’s a caveat about investments from abroad. Draghi calls for better coordination and screening of incoming investments, as proposed by the Commission’s new reform. Much like with energy, EU countries should collectively negotiate with large foreign investors to obtain better conditions, retaining know-how and capacity in strategic sectors.
To conclude, for the new legislature, companies, especially foreign ones, will have to be ready for more calls for de-risking, economic security and “buy European” in public procurement. Now these proposals are also backed by Super Mario.
Antonio Pilati, Public Affairs Consultant