EU Commission wants sweeping new powers to secure supply chains

On Tuesday (13 September), the EU executive is expected to present its proposal for a Single Market Emergency Instrument (SMEI) to facilitate monitoring of supply chains of critical sectors and, in emergencies, intervene in the markets, according to a draft proposal seen by EURACTIV.

The proposal is a reaction to the disruptions in supply chains during the COVID-19 pandemic and the war in Ukraine. Its goal is two-fold: First, the SMEI should make sure that member states do not raise barriers within the single market in times of crisis. Second, it should make sure that the supply of critical goods is guaranteed at all times.

To this end, the Commission proposes an escalating set of modes of operation that are applied depending on the level of emergency.

For normal times, the Commission proposes a framework for contingency planning. For times in which there is trouble on the horizon but no full-blown emergency, the Commission proposes a framework for “single market vigilance”. For emergencies, there should be a framework for “single market emergencies” that would give the Commission far-reaching powers to intervene in the market.

Advisory group

Moreover, the Commission proposes an advisory group that would help the Commission evaluate how critical the situation is in different sectors and whether the activation of the vigilance framework or the emergency framework is warranted.

The advisory group would consist of the Commission and one representative of each EU member state. Furthermore, other crisis-relevant EU bodies can take a seat as observers in the advisory group.

While the advisory group can give voice to the concerns of member state governments, its power is limited as it can only advise the Commission.

Contingency planning

In normal times, when no event is likely to severely disrupt the Single Market, the SMEI would require the Commission and member states to put in place an early warning system and crisis protocols. This should enable them to react more quickly when a crisis hits. The EU Commission also wants to institute training drills and rehearsals to this end.

In this stage of contingency planning, the Commission would regularly carry out risk assessments to determine which sectors, goods and services are of strategic importance and might be vulnerable to disruption. This opens the door for a variety of sectors to be included in the EU’s framework.

Single market vigilance

According to the draft proposal, the “vigilance mode may be activated in case a significant incident has occurred, which has the potential to significantly disrupt the supply chain of goods or services of strategic importance.”

The Commission would have the power to single-handedly activate the vigilance mode by means of an implementing act, having taken into consideration the opinion of the advisory group.

Triggering the vigilance mode would lead to monitoring measures and to the build-up of strategic reserves.

To monitor the critical supply chains, member states would need to set up national inventories and ask companies to voluntarily provide information about the availability of certain goods and services.

Regarding strategic reserves of certain products, the Commission can set recommended targets for each member state. Although these would be voluntary targets, the Commission could make them mandatory for member states that “continuously fall significantly short of the targets,” according to the draft proposal seen by EURACTIV.

Emergency mode

When a crisis escalates to a point at which it has a severe impact on the single market, the EU Commission can propose the activation of the emergency mode to the EU Council, which would then be activated if the EU Council agrees.

In an emergency, the Commission wants to prevent scenes such as those of the first weeks of the COVID-19 pandemic, when member states suddenly closed their borders to keep medical protective equipment within their borders and to limit the free movement of persons.

That is why the draft proposal aims to set clear limits to such disruptions of the single market. For example, the draft SMEI text bans intra-EU export bans for crisis-relevant goods and services and it also bans any restrictions on the free movement of workers that are involved in the provision of crisis-relevant goods and services.

Moreover, the Commission could require companies or their associations to provide information about the supply of crisis-relevant goods in times of a Single Market emergency. If the companies or associations do not comply with the information requests or provide wrong information, they can be fined a sum of up to €300,000.

Prioritise orders

Probably the most invasive provision of the SMEI, however, is the possibility for the EU Commission to require companies to prioritise certain orders over others. For example, this could allow the EU Commission to force a vaccine manufacturer to prioritise orders meant for EU citizens over other orders if the emergency mode was activated in response to a pandemic.

A similar provision was also integrated into the Chips Act that the EU Commission proposed earlier this year with the aim to secure the supply of semiconductors for the EU.

The SMEI would give the EU the possibility to apply such measures to any industry that is relevant to the crisis at hand.

Non-compliance with such prioritisations could become expensive for companies. According to the draft proposal, the penalty could reach up to 1.5% of the company’s turnover.

The official proposal by the EU Commission is expected to be presented next week.

Luca Bertuzzi contributed to reporting for this article.

[Edited by Nathalie Weatherald]


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