BDI-Evaluation of the EU Industrial Strategy

POSITION | EUROPE | EU-INDUSTRIAL STRATEGY

BDI-Evaluation of the EU Industrial Strategy Communication from the Commission: A new industrial strategy for Europe COM (2020)102

27 April 2020 General Assessment German industry welcomes the adoption of the industrial strategy package by23. the Oktober European Commis2017 sion as an important and long overdue step. The Commission demonstrates that it intends to bring back economic and industrial policy to the top of the EU political agenda. In view of the Corona pandemic and its massive impacts on European economies, this renewed focus on strengthening European industry is of utmost importance and urgency. It is now imperative that the Commission swiftly follows up on its announcements with concrete action and incorporates the strategy in the European recovery plan. It will also be essential to astutely reconcile the ambitious objectives in the area of climate protection with those of increased growth, competitiveness and the creation of new jobs. Only with a strong industry Europe can achieve a swift and sustainable economic recovery and mitigate the impending recession alongside its medium and long-term socioeconomic consequences.

This being said, German industry notes that the strategy contains features of a paternalistic industrial policy. It seeks to set the "ambition, speed and direction of travel for the years to come" (p. 1) but scarcely emphasises the role of competition and the free market. The Commission somewhat narrows down the manifold complex global challenges to the ecological and digital transformation. Besides the Corona pandemic and its massive impacts, which were not yet foreseeable at the time this strategy was adopted, other megatrends such as the changing framework conditions of globalisation, demographic change or increased security risks represent socioeconomic challenges that also ought to remain on the industrial policy radar.

The Commission formulates high expectations for industry. It expects from all industrial value chains including energy-intensive sectors - that "they will all have to work on reducing their own carbon footprints but also accelerate the transition by providing affordable, clean technology solutions and by developing new business models” (p. 3). It should be noted that German industry has long been committed to sustainability and is already a world leader in a myriad of "green technologies”.

The Commission believes that the green transition is primarily an opportunity for companies to actively shape the green transformation and to take advantage of the opportunities offered by Europe's strong position in the field of recycling and clean technologies. Therefore, in the Commission’s view, the new initiatives and announced legislative measures represent a competitive advantage per se. However, the strategy fails to discuss sufficiently how the challenges arising from the transformation can be met

Dr. Heiko Willems | BDI/BDA – The German Business Representation T: +32 2 7921002 | h.willems@bdi.eu | www.bdi.eu

BDI-Evaluation of the EU Industrial Strategy

by companies, especially small and medium-sized enterprises and "small mid-caps". This is even more pertinent in the context of the current Corona-induced crisis, in which companies are fighting for their survival. A massive investment boost is needed in Europe, in which companies need support from the EU and its funding agencies as well as from the Member States. In this respect it is necessary to not only agree on an EU budget and “ensure [it] is used with maximum impact” (p. 10), but also to ensure that the objectives presented in the strategy have an adequate financial underpinning. The present strategy does not yet provide a concrete answer to these questions. But the success of the strategy and the post-Corona recovery plan eventually depend on guaranteeing the financial basis.

Beyond political visions and general announcements, German industry also notes the lack of a coherent implementation plan with concrete measures to meet the rapidly growing demand for safe, clean and affordable energy for climate-neutral production processes and to avoid production relocation to third countries with lower energy costs. The shift to climate-neutral production processes is quickly increasing the demand for green electricity and hydrogen at internationally competitive prices. Companies need a large-scale European strategy for the import of renewable energy sources and the EUwide development of hydrogen infrastructures.

Finally, it remains somewhat unclear how the Commission defines "industry". Only at selected junctures does the strategy discuss the importance of value-added networks differentiated by sector, region and company size. The Commission creates the impression that industry is primarily understood in terms of large companies. The reference to the SME strategy which accompanies the industrial strategy, however, raises hopes for a coordinated approach and the necessary merging of industrial and SME policy at European level. Synergies need to be sought and developed for the benefit of the EU as a marketplace - whether in metropolitan areas or rural regions. German industry welcomes that the Commission intends to focus on "industrial ecosystems" and on "value chains". Inevitably, small and medium-sized enterprises and family-run businesses, or SMEs and small mid-caps, must also be included in industrial policy considerations.

It is important that the focus on industry is not limited to the manufacturing sector alone. Advancing tertiarisation means that the service portfolio of companies is being broadened to include service aspects such as more product-related services, R&D, IT and logistics. While the manufacturing industry in the EU12 countries has reduced employment between 2001 and 2015, business services have increased employment.1 Therefore, industrial value-added networks of manufacturing industry and business-related services must be considered and promoted together.

1

IW Consult, “Produktivitätswachstum in Deutschland” (2019)

2

BDI-Evaluation of the EU Industrial Strategy

Table of Contents Summary ............................................................................................................................................. 4 Ensure Industrial Mainstreaming .......................................................................................................... 4 Enable Private Investment in Climate Protection Technologies ........................................................... 4 Promote Emission Reductions in the Mobility Sector ........................................................................... 4 Develop an Import Strategy for Renewable Energy Sources ............................................................... 4 Ensure Reliable Protection against Carbon Leakage ........................................................................... 4 Create Rules for Electricity Price Compensation .................................................................................. 5 Revise the Legal and Financial Framework for IPCEIs ........................................................................ 5 Promote Hydrogen................................................................................................................................ 5 Revise EU Competition Law ................................................................................................................. 5 Make 5G Applicable for Industry while Keeping 6G in Mind ................................................................. 5 Create Legal Certainty under the General Data Protection Regulation ................................................ 5 Promote Competencies in Key Technologies ....................................................................................... 6 Assessment of Individual Measures ................................................................................................. 6 On Chapter 3.1 Creating Certainty for Industry: A Deeper and More Digital Single Market (p. 5-6) .... 6 On Chapter 3.2 Upholding a Global Level Playing Field (p. 6-7) .......................................................... 9 On Chapter 3.3 Supporting Industry towards Climate Neutrality (p. 7-9) ........................................... 10 On Chapter 3.4 Building A More Circular Economy (p. 9-10) ............................................................. 13 On Chapter 3.5 Embedding a Spirit of Industrial Innovation (p. 10-11) .............................................. 13 On Chapter 3.7 Investing and Financing the Transition (p. 12-13) ..................................................... 14 On Chapter 4 Reinforcing Europe's Industrial and Strategic Autonomy (p. 13-14) ............................ 14 On Chapter 5 Joining the Dots: A Partnership Approach to Governance (p. 14-15) .......................... 17 Imprint ................................................................................................................................................ 19

3

BDI-Evaluation of the EU Industrial Strategy

Summary Ensure Industrial Mainstreaming The EU institutions should apply industrial mainstreaming in order to account for industrial competitiveness in environmental, climate or consumer policy discussions at an early stage. This is indispensable also for addressing the socio-economic consequences of the Covid-19 crisis. The objectives formulated in the strategy should furthermore be complemented by a set of performance indicators that allow quantitative monitoring of industrial development in Europe in a global comparison.

Enable Private Investment in Climate Protection Technologies Stepping up climate protection puts pressure on companies and requires additional annual investments of 250-300 billion euros. Rising climate-protection-related costs in Europe must not, however, under any circumstances lead to production relocations. This would benefit neither the economy nor the climate. The strategy does emphasise the importance of energy-intensive industries for Europe but does not present concrete measures of support. Only if the investment conditions in the EU are right, investments will be made. As a matter of urgency, the Commission should put in place enabling framework conditions in the area of taxation policy, funding and state aid rules to encourage higher private investments in climate protection technologies.

Promote Emission Reductions in the Mobility Sector The BDI welcomes the adoption of the strategy for sustainable and smart mobility. However, beyond the commitment to promote research and development, a targeted strategy for the market ramp-up of alternative drive systems and fuels for all modes of transport is lacking. In this context, it is important to develop synthetic and biogenic fuels as alternatives to hydrogen.

Develop an Import Strategy for Renewable Energy Sources One of the basic prerequisites for a successful decarbonisation of industry, which is not addressed in the strategy, is reliable access to low-cost electricity from renewable energy sources. Companies need a comprehensive EU strategy for importing renewable energy sources. The EU must exploit the cost advantages for electricity and hydrogen production in the Asia-Pacific region and African countries.

Ensure Reliable Protection against Carbon Leakage The strategy does not make reference to the Commission's much more concrete “Masterplan for a Competitive Transformation of EU Energy-Intensive Industries".2 The gap between the EU's climate protection ambitions and those of its competitors is widening, which is why extended carbon leakage protection measures are necessary. Additional technology-neutral measures and market-based incentives are needed to enable the necessary investments and innovations for the realisation of the "Green Deal". In 2020, the Commission should present a plan of action on how European companies will obtain carbon leakage protection in the future. This should include an adjustment of European state aid law to adequately address international cost differences.

2

https://ec.europa.eu/docsroom/documents/38403

4

BDI-Evaluation of the EU Industrial Strategy

Create Rules for Electricity Price Compensation Currently, the CO2 border adjustment measures identified in the strategy cannot replace free allocation and electricity price compensation under the EU ETS Directive. The list of companies entitled to electricity price compensation must not be reduced from 14 to eight sectors. Energy and electricity intensive companies will be particularly affected by the implementation of the projects announced in the "Green Deal". In contrast, it should be examined whether the circle of eligible sectors should be expanded in order to effectively support value creation in the EU in times of increasing global challenges.

Revise the Legal and Financial Framework for IPCEIs The "Important Projects of Common European Interest" (IPCEIs) enable the implementation of strategic innovations in technology policy. IPCEIs must be liberated by the European institutions from their current ad hoc approach and established on a changed European legal and financial basis. In this sense, BDI welcomes the Commission's announcements.

Promote Hydrogen German industry welcomes that a European hydrogen alliance ("Clean Hydrogen Alliance") will be created. The capital-intensive investments in hydrogen technologies and the need for cross-border cooperation on infrastructure development require a joint European response. The concrete form of the alliance will depend on whether this initiative is placed in the context of a European hydrogen strategy, which is currently lacking. Although the role of hydrogen is to be addressed in the planned strategy for smart sector integration, no specific "EU hydrogen roadmap" is planned so far.

Revise EU Competition Law The Commission rightly seeks to review the rules of EU competition law to ensure that they are effective and compatible with the current key challenges facing industry. Our companies require answers to unfair competition from state-subsidised companies from third countries. Better promotion of business cooperation in the EU and leaner, faster merger control procedures are also necessary.

Make 5G Applicable for Industry while Keeping 6G in Mind Although the strategy specifically emphasises the importance of 5G networks, there is a lack of concrete implementation, in particular for network security, industrial applications and 6G. As with the rollout of 5G networks, a 6G action plan must be drawn up as soon as possible by mid-2020. The needs of industry must be taken into account at an early stage in this area as well.

Create Legal Certainty under the General Data Protection Regulation The industrial strategy does not include a statement on the General Data Protection Regulation (GDPR). In the upcoming evaluation of the GDPR this year, targeted legal adjustments should be made in order to increase legal certainty concerning the application practice of companies. A large part of the legal requirements in the GDPR are formulated very broadly and therefore need to be interpreted accordingly. Within the EU, interpretation by national supervisory authorities is inconsistent.

5

BDI-Evaluation of the EU Industrial Strategy

Promote Competencies in Key Technologies We welcome that the EU Commission is pursuing a strategy geared towards “industrial innovation".

Especially in the case of key technologies such as artificial intelligence (AI), the focus must be on industrial applications in order to be able to compete with global competitors such as China and the USA. However, the strategy does not go beyond formulating objectives. No new impulses are given as to how these goals can be achieved. Instead, the strategy refers to Commission projects that have already been launched.

Assessment of Individual Measures On Chapter 3.1 Creating Certainty for Industry: A Deeper and More Digital Single Market (p. 56) The BDI regularly points out that despite continued political commitment to deeper integration, the EU Single Market remains fragmented in all areas. Companies cannot exploit the full potential of the common market because of overly complex and incoherent regulations, incomplete implementation and enforcement of EU law, and national protectionism on the part of the Member States. Not least the current Corona-induced blockages and disruptions of supply chains in the Single Market have successfully demonstrated the central importance of the common market for the European economy. It is therefore good that the Commission has prioritised the deepening of the Single Market in its industrial strategy. This will also be of central importance for the economic recovery. The Corona crisis must be taken as an opportunity to initiate a relaunch of the internal market in all areas. Thereby, industrial policy and Singe Market policy must not be separated from one another, but viewed as two sides of the same coin.

On the Single Market Enforcement Action Plan: The action plan proposed by the Commission to better enforce Single Market rules is urgently needed. The inadequate implementation and enforcement of EU law in and by the Member States remains one of the most serious obstacles to a wellfunctioning Single Market. The enforcement of Single Market rules and punishment for infringements are essential for many Single Market policies such as competition law or public procurement. The presented measures for a better exchange in the area of application and enforcement as well as the announcement to reform EU law seem appropriate to contribute to deeper integration and create a "level playing field". German industry will continue to monitor and evaluate individual measures relevant to industry.

The creation of a Single Market Enforcement Task Force announced in the Action Plan is also welcome. However, it is essential that its membership be expanded to include representatives of the business community. This is indispensable in order to be able to better identify existing problems in practice and develop adequate solutions.

Moreover, the Commission should continue to make committed use of the infringement procedure in the event of violations of Single Market law. This also applies to the extent that national legal remedies are also available to pursue violations of nationally implemented EU law. Experience has shown that the EU infringement procedure serves as an important corrective instrument when national remedies are unsuccessful or EU law is not sufficiently taken into account in national proceedings.

On the Single Market Barriers Report: The Commission's report on barriers in the Single Market is also fully welcome. The thirteen barriers identified in the report accurately reflect the problems faced by many German companies - especially SMEs and “small mid-caps�. The Commission rightly points

6

BDI-Evaluation of the EU Industrial Strategy

out the responsibility of Member States for most of the barriers. However, it remains unclear how the identified barriers are to be exactly removed. The Commission should quickly propose concrete measures for each identified barrier or clarify which initiatives included in the Commission's annual work programme are already foreseen to remedy the situation.

Regarding the removal of tax obstacles (Barrier No 9, p. 7), the creation of a Common Consolidated Corporate Tax Base (CCCTB) is the right approach. However, the implementation of the common tax base alone does not per se provide relief for businesses. In order to achieve the objective originally associated with the CCCTB, namely to improve the framework conditions for cross-border business activities in the Single Market, both stages, i.e. the harmonisation of the tax base and consolidation, must be implemented in rapid succession. In addition, the EU still lacks a system of VAT which is suited to the demands of the single market.

The report lists several measures to address the Complexity of EU Law (p. 13). In this context, the reference to the REFIT programme is welcome. However, REFIT should be made more transparent with regard to the so-called "acquis screening" of the Commission: Clear selection criteria are needed for including pieces of legislation in REFIT. The future Fit for Future Platform must continue to allow stakeholders to make bottom-up suggestions to the Commission. It must remain directly linked to the annual work programme. It is important to actively involve the Member States and the business community in the development of solutions. This also applies to ex-post evaluations and fitness checks.

Furthermore, the Better Regulation Agenda must be broadened and deepened, and the Interinstitutional Agreement on Better Regulation fully implemented by all EU institutions. The Commission rightly points out the need for carrying out impact assessments on substantial amendments to legislative proposals. However, it does not explain how it intends to ensure this, considering that this would be a responsibility of the legislators. The Commission, Council and EP should jointly develop a definition of “substantial amendment" - for example in the form of a guidance document.

Finally, a European "One In One Out" Mechanism (OIOO) must under no circumstances lead to a segmentation of the existing internal market acquis. OIOO must be applied in a complementary way to the existing instruments for better regulation and cover both administrative and compliance costs.

OIOO also requires the Commission to strengthen its capacity to quantify regulatory costs and benefits in ex-ante impact assessments and ex-post evaluations.

On a Strategy for Networking between SMEs: A strategy for networking between SMEs is fundamentally positive. However, networking of SMEs alone is insufficient. SMEs are often already an integral part of value-added networks in which SMEs, small mid-caps and large companies jointly develop competitive solutions and offer them globally. The planned strategy should refrain from artificially separating "technologically savvy SMEs" from "established industrial companies". Instead, the Commission should focus on strengthening cooperation in value-added networks differentiated by sector, region and company size, thereby simultaneously generating benefits for industrial and SME policy.

On Standardisation and Certification Systems: A stronger commitment by the EU in international standardisation bodies is welcome. The New Legislative Framework (NLF), which provides the framework for the European harmonisation process of standards, should again be developed into a wellfunctioning standardisation system. Overly bureaucratic mandates and long examination processes on the part of the Commission have for some years prevented a rapid listing of harmonised standards in the EU Official Journal, thus jeopardising rapid market access and the competitiveness of European industrial companies.

7

BDI-Evaluation of the EU Industrial Strategy

On the Action Plan for Intellectual Property: An evaluation of the legal framework for intellectual property - particularly with regard to the protection, enforcement and appreciation of intellectual property rights - is welcome. German industry will accompany and assess the evaluation and possible follow-up measures. The EU's otherwise asserted efforts to achieve the protection and enforcement of intellectual property rights through trade and investment agreements is also welcome in principle. However, the Commission should ensure that a level playing field is really created for all companies: The protection and enforcement of intellectual property rights must also be applied in legal practice equally to EU and non-EU companies.

On the Assessment, Review and, where necessary, Adjustment of EU Competition Rules: The Commission rightly intends to review the rues of EU competition law in terms of their effectiveness and compatibility with current core challenges facing industry. In this context, tried and tested instruments of EU competition law, such as merger control and state aid law, which contribute to a level playing field within the internal market, but which do not lose their effectiveness, must not be allowed to lapse.

Open markets and effective competition control by the Commission and the national competition authorities are among the core elements of our economic order and are also key elements in systemic competition. The harmonisation of competition policy and conditions of competition law must be promoted both in the Single Market and at international level, especially within the WTO. In merger decisions, the Commission should - where necessary - focus even more strongly on global competition from non-European companies, examine potential competition over a longer period of time and take greater account of efficiency considerations. The Commission should also accelerate and streamline merger control procedures.

The changes in markets and value chains associated with progressive digitisation should be given more consideration in competition law. Data cooperation or the (necessary) cooperation for the realisation of innovative projects, e.g. within the framework of joint platforms and the implementation of joint research projects, is made more difficult or even prevented in practice by a lack of legal certainty with regard to antitrust assessment. The Commission should take the opportunity to increase the urgently needed legal certainty in the current revision of the framework conditions for horizontal cooperation agreements by explaining the scope of application in more detail, making it more precise and extending it to include further cases. The BDI has also already made proposals in this respect, for example in favour of informal preliminary talks and official decisions stating that "there is no reason to take action".

It has also issued a detailed statement with many proposals for amendments within the framework of the consultation on the Horizontal Guidelines.

EU state aid law should focus on promoting investment and innovation in key technologies and thus give European companies better starting opportunities in global competition. The BDI welcomes the funding of "IPCEI projects" in areas such as microelectronics, battery cell production or the low carbon industry. A broader focus, more practical cases and faster approvals are nonetheless needed in these areas. The "matching clauses", which are also provided for in the research aid framework and in the Communication on IPCEIs, are intended to compensate for competitive disadvantages of European companies vis-Ă -vis competitors from third countries in specific cases. However, they are not practicable in their current form and should be revised.

The cost-intensive conversions of industrial processes necessary in the context of the "green transition" envisaged by the Commission in the “Green Deal� should be taken into account in the evaluation of the respective state aid schemes. Furthermore, the economic burdens on companies caused by the effects of COVID-19 should also be included in an overall assessment.

8

BDI-Evaluation of the EU Industrial Strategy

On the Follow-Up of the European Data Strategy and the Digital Services Act: German industry welcomes the basic approach of harmonising the regulatory framework for digital platforms throughout Europe. A level playing field for operators and users of digital platforms is needed in a digital internal market. At the same time, the different characteristics of B2C and B2B oriented digital platforms should be taken into account when drafting the law on digital services. This is important because regulatory measures disproportionately affect small B2B platforms, often operated by SMEs or start-ups, for which compliance with monitoring obligations and constantly changing regulatory requirements cause particularly high compliance efforts.

On Chapter 3.2 Upholding a Global Level Playing Field (p. 6-7) On the White Paper on an Instrument on Foreign Subsidies: In order to maintain fair competition in the world, it is necessary to make use of the internationally regulated possibilities of trade defence instruments in the interest of EU industry as a whole. Subsidies granted to foreign suppliers in the EU from their home countries can have negative consequences for fair competition. A stronger orientation of application practice towards foreign investment and an open-ended examination of a new EU instrument is therefore welcome. Of particular importance is the issue, referred to by the Commission, of access for state-owned companies from third countries to EU procurement markets and EU-funded projects. It is important to counteract the undesirable practice of many EU Member States of giving preference in EU-funded projects to bidders from third countries (especially state-owned enterprises) who offer their products and services at dumping-prices and create unfair competition to EU companies. Fighting such problematic practices could be achieved, for example, by making it binding for the award of contracts for EU-funded or supported projects, that certain minimum EU contract-related conditions have to be met, for example in the area of environmental protection. Just as in the discussion on the "International Procurement Instrument" ("IPI", see below) care must be taken to ensure that any instrument on foreign subsidies does not have adverse effects on EU actors that are not dominated or controlled by companies from closed third countries.

On strengthening the global rules on industrial subsidies: In principle, the BDI supports the EU's initiatives to more strictly regulate industrial subsidies in the WTO. The BDI will shortly present a position paper on this. However, this should not restrict the measures and incentives for industry that are necessary to achieve the climate protection targets and combat carbon leakage.

On the International Procurement Instrument: The Commission's efforts to improve the access of European companies to still closed markets in third countries and the objectives of the IPI are welcome.

However, the present proposal for a regulation on an International Procurement Instrument ("IPI") needs to be improved. Otherwise, there would be a considerable risk of unnecessary bureaucratic burdens, legal uncertainties and risks for public purchasers and companies alike. The BDI continues to actively support the consultations on this issue.

On the Action Plan for the Customs Union including Intensified Customs Controls: German industry rejects increased customs controls. Given the differences in customs practices throughout the EU, this seems an inappropriate measure. In many respects, German customs have arrived in the 21st century and IT-supported risk analysis procedures have been utilised for a while. German customs are already fulfilling one of its core tasks, i.e. protecting the Single Market. However, one of the tasks of the Chief Trade Enforcement Officer (see below) could be to examine customs practices throughout the EU and inform the public. There are still considerable differences, especially with respect to the varying levels of digitisation in the Union. Such transparency could lead to new insights on how digitised measures can improve customs procedures for economic operators. This was the central promise of the Union Customs Code. Up to now, however, possible simplifications have too often been disregarded in favour of new digitised control options.

9

BDI-Evaluation of the EU Industrial Strategy

On the Appointment of a Chief Trade Enforcement Officer: Compliance with international trade agreements is central and remains a challenge, particularly in view of the growing number of comprehensive EU free trade agreements and the WTO crisis in the area of dispute settlement. The BDI welcomes the new focus on the enforcement of rules in principle. However, the design and practice will determine the helpfulness of the creation of a new office. BusinessEurope has submitted important requirements for the senior trade representative to the Commission.3 Regarding the proposal to make compliance with the Paris Convention an essential part of all future comprehensive trade agreements: If compliance with the Paris Convention on Climate Change becomes an essential part of all future comprehensive trade agreements, not only ratification but also compliance with the Climate Agreement, which is sometimes difficult to verify, will become a decisive criterion. The BDI supports binding sustainability chapters in trade agreements, which may also include provisions in support of the Paris Climate Protection Agreement. However, since FTAs without this component can also make a substantial contribution to environmental protection and sustainability, the BDI rejects giving compliance with the Paris Convention such a dominant weight in FTAs. This could make it considerably more difficult or even impossible to start ad conclude negotiations and implement comprehensive trade agreements with partners of strategic importance such as the USA. If it is in the EU's interest to conclude trade agreements, this must not be prevented by rigid red lines, even if these concern the climate protection agreement.

On Chapter 3.3 Supporting Industry towards Climate Neutrality (p. 7-9) On the Strategy for Smart Sector Integration: In terms of concrete implementation, it will be important to place this initiative in the context of a European hydrogen strategy, which is currently lacking.

Although the role of hydrogen is to be addressed in a joint strategy, there are no plans for a dedicated "EU hydrogen roadmap". In the view of the BDI, this is necessary for a coordinated approach by the Member States. Such a roadmap is also necessary for the concretisation of the objectives of the "Clean Hydrogen Alliance". At the moment, the objectives and measures remain rather vague. The "Clean Hydrogen Alliance" should become a large-scale R&D project. The focus should primarily be on the implementation of first projects on an industrial scale and the development and financing of the necessary infrastructure.

On the Common European Energy Data Space: The generation of data in the Common European Energy Data Space is of central importance for increasing the innovation capacity of the energy sector.

The comprehensive capture, development and availability of large heterogeneous data should be made possible, taking into account the regulatory requirements of unbundling. The energy industry already has many interfaces with other sectors of the economy. In an AI-based real-time energy industry, these interfaces not only increase in importance, but also become an economic component. The intersection of the real-time energy industry to Open Data and others must be promoted to the benefit of all sectors. In particular, the integrated use of data between network and sales would open up further AI efficiency potentials. The rights of use of data must be defined and regulated privately and autonomously, also in the area of services of general interest.

On the establishment of a Just Transition Platform: In order to set the right course for the intended transformations of industry within the next five years, it is necessary to improve the framework conditions under competition law. Companies must be supported in cost-intensive innovation processes.

3 https://www.businesseurope.eu/publications/chief-trade-enforcement-officer-letter-markus-j-beyrer-eu-commissioner-philhogan (eingesehen am 2.04.2020)

10

BDI-Evaluation of the EU Industrial Strategy

More space and more legal certainty for horizontal cooperation between companies and the expansion of "Important Projects of Common European Interest" ("IPCEI") are essential components.

On the EU Strategy on Clean Steel and the Chemicals Strategy for Sustainability: The strategy pays little attention to the issues of clean steel and chemicals. The "Masterplan for a Competitive Transformation of EU Energy-intensive Industries"4 discusses "developing climate-neutral solutions and financing their uptake". It is unclear why no reference is made to it. One of the basic prerequisites for successful decarbonisation of industry, which is not addressed in the industrial strategy, is reliable access to low-cost renewable electricity. The German Chemical Industry Association (VCI) has shown in its study "Roadmap Chemistry 2050"5 that the massive investments required in the chemical industry will only be made if renewable electricity (in sufficient quantity, i.e. from the mid 2030s on about 628 TWh per year) is reliably available for no more than 4 â‚ŹCent/kWh. Similar estimates exist for other sectors.

Furthermore, it is unclear why the issue of emissions trading and CO2 pricing (carbon leakage etc.) is not addressed, especially since the EU ETS is presented by DG Climate as a key instrument for climate protection in industry.

On the Review of the Trans-European Network Energy Regulation: The BDI welcomes that the Regulation on Trans-European Networks is to be revised this year. The BDI also appreciates the nine priority corridors identified by the Commission in the energy, gas and oil sectors. Furthemore, the envisaged smartification of networks is intended to improve the integration of renewable energies and create opportunities to stimulate energy consumption in a more efficient way according to price signals.

The construction of "Electricity Highways" within the EU is also positive for the further integration of the Single Market. It is positive that the Commission not only wants to promote the content of the abovementioned corridors and topics, but also offers the prospect of funding for new infrastructure.

In line with the Smart Sector Integration Strategy, the expansion of electricity and gas pipelines should be considered jointly. In this context, the BDI welcomes the scenario framework for electricity and gas at European level that has been prepared by the transmission system operators for electricity and gas together for the first time. The regulatory framework should also make it possible to transport renewable gases and hydrogen. The retrofit of gas grids or the expansion of hydrogen-compatible transport networks and their operation is a fundamental requirement for the creation of a single European hydrogen market.

On the EU Strategy on Offshore Renewable Energy: German industry welcomes the announcement of a European offshore wind strategy. The potential of offshore wind energy has not yet been sufficiently developed in Europe. However, the EU has promising sites for offshore wind, especially in the North Sea and the Mediterranean. In order to fully make use of these sites, a reliable European regulatory framework for joint offshore wind projects is needed. This should therefore be addressed within the framework of the planned offshore wind strategy, or the strategy should present a proposal for such a European regulatory framework. First concrete steps have already been taken under the German Presidency of the North Sea Cooperation in the first half of 2020.

On the Strategy for Sustainable and Smart Mobility: The BDI welcomes the announcement of a strategy for sustainable and smart mobility. It is essential that this strategy recognises and harnesses the advantages of each transport mode for the whole system. However, besides the commitment to

4

https://ec.europa.eu/docsroom/documents/38403?locale=de https://www.vci.de/services/publikationen/broschueren-faltblaetter/vci-dechema-futurecamp-studie-roadmap-2050-treibhausgasneutralitaet-chemieindustrie-deutschland-langfassung.jsp 5

11

BDI-Evaluation of the EU Industrial Strategy

promote research and development, there is a lack of a specific strategy for the market ramp-up of alternative drive systems and fuels for all modes of transport. Here, in addition to hydrogen, synthetic and biogenic fuels must be developed as alternatives.

In addition to the strategy for sustainable and smart mobility, the announced strategy for intelligent sector integration should also identify links between the mobility sector and other industry sectors and provide the appropriate framework for better cooperation between the different sectors.

The Commission is right to focus on targeted investment in transport infrastructure. Better framework conditions should be created here both for a multimodal transport system and for the ramp-up of alternative propulsion systems and fuels. However, there is a lack of concrete proposals as to how incentives to switch to climate-friendly technologies can be provided not only on the supply side but also on the demand side. Regarding the necessary infrastructure for ecological change, it is important to press ahead with the expansion of the rail network for passenger and freight transport, as well as the construction of charging and refuelling infrastructures in road transport. Furthermore, the strategy lacks a well-founded assessment of the current and possible future performance (i.e. transport capacities) of rail as a mode of transport. It does not consider the fact that the attractiveness of rail freight transport depends on efficient road feeder and onward carriage.

It is true that the global technological leadership of the EU mobility industries can only be maintained if there is an increase in investment in the sector. IPCEIs offer the opportunity to drive new technologies forward. The further development of the battery alliance is very important; the same applies to the promotion of hydrogen technologies. It is also encouraging that the European Commission recognises that new standards for safe, sustainable, affordable and reliable mobility should be agreed at international level and integrated into development along the entire value chain.

The EU industrial strategy does not make any concrete statements on connected and automated mobility. Within the framework of the strategy for sustainable and smart mobility, concrete measures must be announced which recognise the potential of this innovation in the transformation process of the coming decades. Intelligent traffic management systems, connected and automated driving and "Mobility as a Service" applications are an important building block on the road to safe and climatefriendly mobility and offer new business models in a changing industry. The expansion of the 5G infrastructure along transport routes and the creation of a traffic data infrastructure are of great importance for this development.

On the "Renovation Wave" Initiative and the Strategy on the Built Environment: The implementation of the climate package also involves the rapid and comprehensive mobilisation of the potential for major greenhouse gas savings in the building sector. It has been shown that greenhouse gas reductions in the building sector can be implemented more inexpensively and easily than in other sectors.

The Commission's project to strengthen the enforcement of legislation on the energy performance of buildings, starting with an assessment of Member States' long-term national renovation strategies in 2020, is therefore important. When assessing the sustainability of the built environment, already established instruments must be taken into account, such as the ETS, which ensure the sustainability of construction product manufacturing.

On the Carbon Border Adjustment Mechanism (CBA): The climate protection ambition gap to competitors is growing; therefore, an extended carbon leakage protection is necessary. Additional technology-neutral measures and market-based incentives are necessary to enable the necessary investments and innovations for the realisation of the Green Deal. There are concerns in industry about CO2 limit compensation measures (CBA). A comprehensive and open-ended assessment of this instrument

12

BDI-Evaluation of the EU Industrial Strategy

is necessary. CBAs cannot replace free allocation and electricity price compensation under the EU ETS Directive.

On Chapter 3.4 Building A More Circular Economy (p. 9-10) The Circular Economy Action Plan contains numerous measures that will have a significant impact on the design of products, the flow of production processes and the design of value chains. This applies, for example, to the announced framework for a sustainable product policy, which will regulate issues such as durability, reusability, reparability or the content of recycled materials in products.

Equally relevant are consumer-related initiatives, such as the planned "right to repair", which will have an impact on general warranty law. Furthermore, the goal of pollutant-free cycles will entail considerable changes in product design and production processes.

In the strategy, the Commission assumes that the main opportunity for companies will be to actively shape the green transformation and to take advantage of the opportunities that Europe's strong position in the field of environmental services and clean technologies will provide. The new initiatives and announced regulations therefore represent, in the Commission’s view, a competitive advantage per se. In contrast, however, there is a lack of discussion on how companies, especially small and mediumsized enterprises, can manage the challenges arising from transformation processes. The industrial strategy would have to provide a more concrete answer to this question, for example regarding the necessary investments or the promotion of innovation in this area. The announced innovation strategy could offer an approach here. However, this strategy would have to make a concrete reference to climate and environmental technologies as well as to the circular economy.

On Chapter 3.5 Embedding a Spirit of Industrial Innovation (p. 10-11) The central importance of innovation, innovative mindsets and skills for creating value in Europe, particularly in the field of digital technologies, is rightly emphasised. The BDI also shares the Commission's analysis of the need to invest even more in research and innovation in the future and to promote more industrial innovation (instead of purely "digital" innovation). The analysis is also correct that too few breakthrough/disruptive innovations - especially by SMEs - are created and successfully implemented in the market in Europe. Incentives for more innovation can also benefit SMEs and family businesses.

However, it is important here to create low-bureaucratic, low-threshold, accessible and practical offers.

The new European Innovation Council (EIC) in Horizon Europe (HEU) should remedy this situation from 2021 onwards by providing concrete support for innovative/disruptive European start-ups and SMEs. On the Communication on the Future of Research and Innovation and the European Research Area: The central importance of a legal framework that promotes innovation is at least touched upon.

Here the strategy could have referred to current discussions, for example on the further anchoring of the innovation principle. There is no concrete reference to currently ongoing or planned instruments, for example Horizon Europe (HEU) as a whole. There is only a reference to the need to establish public-private partnerships to achieve the goals of the “Green Deal” and to an imminent pact for competences. This could have been exemplified with individual instruments/initiatives of HEU. It is welcome that the Commission pursues a "strategy geared to industrial innovation". Particularly in the case of key technologies such as artificial intelligence (AI), the focus must be on industrial applications in order to be able to compete with global competitor such as China or the USA. However, no new impetus is being given as to how the aforementioned objectives can be achieved. Rather, the strategy refers to projects already launched by the Commission. It emphasises that we must “shift our mind-et from risk averse to failure tolerant” (p. 10). However, this is not realistic. For example, the

13

BDI-Evaluation of the EU Industrial Strategy

White Paper on Artificial Intelligence provides for a horizontal regulatory framework to address the risks of AI. This is in contradiction with a more risk-averse approach to innovation policy. The measures proposed in the White Paper on AI, such as the planned conformity assessments, may considerably delay or even prevent the market launch of innovative AI applications.

On Chapter 3.7 Investing and Financing the Transition (p. 12-13) On Adopting and Implementing the Next Long-Term Budget: In order to cope with the economic and social consequences of the Corona crisis as well as the ecological challenges of our time, an enormous boost of investment is needed in Europe, for which the companies require support from the EU itself, its funding agencies as well as from the Member States. This must be ensured in the new proposal for a multi-annual financial framework. Presently, essential parts of this industrial strategy and of the post-Corona economic crisis management strategy are not comprehensively funded.

On Examining the Possibilities for Coordinated Investments by Member States and Industry in the Form of New IPCEIs: The "Important Projects of Common European Interest" (IPCEIs) are an important instrument to enable innovations of technological significance to be implemented in the market. The development of investment fields in the context of "strategic value-added networks" in industrial ecosystems and the creation of a new legal and financial framework for IPCEIs must be liberated by the European institutions from their current ad-hoc approach and put on a modified European legal and financial basis. In the design of the projects, financing should also be made available from European budget funds, from InvestEU and from the European Investment Bank, in addition to national budget funds. The Commission should also create a standardised legal vehicle with structured financing possibilities and borrowing capacity in order accelerate the administration, clarification under European law and financing in specific cases. German industry will follow these issues closely.

On the Revision of the State Aid Rules for IPCEI: The intention to revise the state aid rules for IPCEI is basically positive. However, the planned revision in 2021 must not lead to a delay in the implementation of IPCEI. After all, project ideas are already on the table today. Speedy implementation is central to the EU's technological leadership in competition with Asian manufacturers in particular.

On the Renewed Sustainability Finance Strategy (EU Taxonomy): The Commission rightly notes that incentives must be created in the financial system for investment in competitive sustainability.

Taxonomy will play a crucial role here. It is vital for industry that the taxonomy stimulates investment in a wide range of technologies to achieve climate targets and supports companies in their sometimes very cost-intensive transformation processes. SMEs and small mid-caps will face considerable challenges in terms of corporate financing and should be examined separately in all Commission initiatives and impact assessments. Against the background of the financing needs of companies after the Covid19 crisis, the practical design of the technical criteria is of crucial importance. Furthermore, companies must not be overburdened regarding the provision of information in the form of disclosure requirements.

Regarding the Action Plan on the Capital Markets Union: the BDI shares the Commission's continuing efforts to create a capital market union. The focus should be on the securitisation market, easier access to the bond and stock markets, particularly for larger SMEs, and the promotion of venture capital and equity financing. We also consider the removal of structural obstacles in insolvency, corporate, securities and tax law to be of great importance for the project.

On Chapter 4 Reinforcing Europe's Industrial and Strategic Autonomy (p. 13-14) On the Follow-Up to the Communication on 5G Deployment and the Recommendation on Cybersecurity of 5G Networks: Achieving the goal of European industrial and strategic autonomy requires

14

BDI-Evaluation of the EU Industrial Strategy

an integrated European industrial, innovation and security policy strategy, guided by the principle of strategic digital sovereignty. So far, however, there has been a lack of willingness to align different policy strands coherently with this very principle.

On strategic digital sovereignty, it should be noted that striving towards strategic digital sovereignty must not be addressed for its own sake but must rather be understood as a core component of a futureoriented location policy. This requires a holistic approach that integrates technologies, competencies and the regulatory/political framework as well as the individual, organisational and political levels.

On the development of key enabling technologies, it is welcome that the strategy places a special focus on key technologies and on quantum computing - here Europe has enormous opportunities.

Scientific progress and successful new business models are based to an ever-greater extent on the processing of large quantities of data. The availability of high-performance computing capacities is therefore an essential prerequisite for ensuring the EU's long-term competitiveness.

With the revision of the EU regulations for the telecommunications sector (EU Code/ E-ECC), which are now being implemented in the Member States, the Commission has created clever incentives for investment in gigabit networks. Ambitious targets for the expansion of fixed and mobile networks and a close monitoring of the measures adopted are now needed to equip the economy with the best networks in the world.

On 5G, the importance of 5G networks is specifically highlighted in the industrial strategy. However, there is a lack of concrete design, especially in the case of ยง

Network Security: the steps taken so far by the Commission to strengthen the security of 5G networks are correct and important. Exclusion of manufacturers of individual components from the core network may only take place based on transparent security requirements. All manufacturers of 5G network components must meet the same high technical, political and legal criteria. Concrete measures need to be identified and implemented, including the preparation of the cyber-security catalogue based on the EU legal act on cyber-security for 5G network components. This could be used to set uniform security requirements for 5G network components throughout Europe.

ยง

Industrial Applications: The objectives of highly secured and state-of-the-art 5G networks and the strengthening of standardisation and certification systems must be combined. Industrial requirements must be included in the early stages of the 5G standardisation process. This requires greater cooperation between the Commission and industry standardisation platforms such as the 5G-ACIA consortium. The aim must be to create a global framework that guarantees the industry access to 5G spectrum.

ยง

6G: As with the roll-out of 5G networks, a 6G Action Plan must be developed as soon as possible by mid-2020. Here too, the needs of industry must be considered at an early stage.

It is critical that the strategy does not address the issue of ensuring consistent cyber regulation for Europe. The strengthening of the cyber-resilience of hardware and software products must continue to be promoted in the future. It is important to ensure consistent cyber-regulation for Europe. It is very important for companies that their efforts to strengthen cyber-resistance are not thwarted by inconsistent regulations, national go-it-alone initiatives or unilateral requirements. As products are regularly subject to more than one regulation, consistent and coherent requirements are essential.

15

BDI-Evaluation of the EU Industrial Strategy

European standardisation work should continue to be actively involved in the development of cyber security requirements in accordance with the principles of the New Legislative Framework (NLF).

On the Action Plan for Synergies between the Civil, Defence and Space Industries: greater joint efforts in the area of "security and defence" are welcome and are long overdue. Unfortunately, the measures announced by the Commission are insufficient for what is needed.

At the present time, the European Defence Fund (EDF) appears to be underfunded and very complex.

Member States and industry will be struggling to deal with it in the foreseeable future. Moreover, the EDF should not aim to satisfy many stakeholders on a scattergun basis and therefore be limited in its impact; target-oriented measures are required. In order to counteract the strong fragmentation of the European defence market, it is above all necessary to harmonise the needs of the Member States.

Only if the Member States see a concrete military, technological and industrial added value in the EDF and its projects and agree on common specifications can the EDF contribute to the development of European defence capacities and to the closing of critical capability gaps.

Joint research, development and, where appropriate, procurement, efficient value chains, cross-border cooperation, open and dynamic supply chains with SMEs and disruptive technologies must be sought for. An important precondition is the pursuit of excellence and free and fair competition. But unfortunately, the industrial strategy does not mention the sometimes-unequal competitive environment.

In addition to the industrial strategy presented and the policy field and sector-specific papers already available, the following further measures are necessary: ยง ยง ยง ยง ยง

Orientation towards real military needs; Future technologies and harmonisation of requirements; Coordination of European processes with national planning and budget compilation; Simplification of procedures and reduction of bureaucracy in European research and development projects, including sector-specific financing; Compliance with competitive framework conditions / level playing field.

It is very welcome that the space sector is seen as of central importance for the future of the EU. It is also right and important to emphasise the influence of space technologies, data and services on the development of all cutting-edge technologies, including in areas that at first sight do not appear to be necessarily linked to space.

The linkage of the civil, defence and space industries in EU programmes in order to achieve synergies is welcome but must be given a more concrete form.

The paper does not take sufficient account of the connection between digital technologies of the future (AI, big data, IoT), the growing importance of data (access to data) and the space sector: space travel should be more strongly emphasised as the key to the corresponding data availability. This, together with independent, autonomous and self-determined access to space, is essential for industrial competitiveness and the technological and strategic sovereignty of the EU. In addition, a stronger focus on the increasing commercialisation of space travel worldwide and concrete measures to meet the resulting challenges would also be necessary and desirable.

On the EU's New Pharmaceutical Strategy: The BDI welcomes the Commission's intention to strengthen the production and research of medical products and drugs with an independent strategy.

Against the background of the Covid-19 pandemic, the importance of functioning health systems is self-explanatory. It is important that various sectors of the health industry contribute to the security of

16

BDI-Evaluation of the EU Industrial Strategy

medical care: the pharmaceutical industry, medical technology, biotechnology and information and communication technology. In addition to a drug strategy, Europe needs an industrial strategy for the entire industrial health sector. The aim must be to create structures that enable companies to bring sustainable, innovative solutions quickly into standard patient care. In this context, greater digitisation of the European healthcare systems - especially in the form of a European Health Data Space - is of particular importance.

BDI proposes the following concrete measures to strengthen the industrial health industry in Europe: 1. Expansion of industrial research funding; 2. The establishment of a European data space for the secure exchange and use of health data for academic and industrial research; 3. Better remuneration of European manufacturing sites with high production and delivery quality. The latter should always be based on the targeted setting of incentives. The competitiveness of Europe as a health care location goes hand in hand with secure, high-quality and affordable care for European health care systems.

On the Action Plan on Critical Raw Materials: It is welcome that importance is attached to securing the EU's future supply of raw materials. An action plan on critical raw materials is a long overdue measure that must now be implemented rapidly. However, further concrete approaches and measures must be defined and implemented promptly, with the involvement of experts from industry. All three pillars of raw material security - imported raw materials, domestic raw materials and recycled raw materials - must be given equal priority. Policy-makers must create reliable framework conditions to enable fair competition in open markets and thus ensure non-discriminatory access to raw materials from abroad. The expansion of international partnerships for access to raw materials is the right step to take.

In this context, the EU should become even more committed to the conclusion of international trade agreements and influence local conditions by means of a stronger interlocking of raw material extraction and development policy.

It is essential to achieve the diversified raw materials procurement aimed at in the paper. Concrete measures are needed to accomplish this and reduce dependence. The strategic and security relevance of a secure supply of raw materials, which is essential for the functioning of all industrial value chains, should be considered to an even greater extent.

Finally, the establishment of a fact-based raw material awareness is required as the basis for a trust in responsible raw material extraction that is shared by society at large.

On Chapter 5 Joining the Dots: A Partnership Approach to Governance (p. 14-15) On the European Clean Hydrogen Alliance: German industry welcomes the initiative of the European hydrogen alliance ("Clean Hydrogen Alliance"). There are capital-intensive investments in hydrogen technologies needed which require a joint European response and a cross-border cooperation on infrastructure development issues.

On the formation of industrial alliances, BDI welcomes the EU's support for industrial clouds and platforms but points out that these must be managed by companies and not by the state. The state can play a role as a promoter and as a major customer, helping young industrial cloud/platform solutions to succeed in the marketplace through its demand.

Building on the industrial strength of the European economy, German companies are making an essential contribution to the implementation of Industry 4.0 with their digital B2B platforms. If these

17

BDI-Evaluation of the EU Industrial Strategy

platforms are to be regulated, the European legislator must proceed with a sense of proportion and analyse the European platform landscape in advance. This is because currently no market-dominating tendencies of individual platforms in Europe can be identified in the area of digital B2B platforms. Industrial platforms are often highly focused on specific, narrowly defined fields of application and industries. In addition, there are significantly less asymmetries between platform operators and platform users, as the latter are also companies. These different realities must be considered in future regulatory measures (especially in the Digital Services Act).

On the Analysis of Industrial Needs and the Identification of Ecosystems: It is welcome that the Commission intends to analyse, with the participation of the parties concerned, the risks and needs arising from the "role of SMEs and large companies". Small and medium-sized enterprises from the BDI would be happy to provide concrete input and to act as "ambassadors for strategic entrepreneurship" in the sense of the European SME strategy On Establishing an Industry Forum: The BDI welcomes this initiative as a measure to increase the visibility and political relevance of industrial policy at EU level. However, such a forum cannot and must not replace the established forms of exchange between policymakers and representative business associations in Europe. This form of exchange must continue simultaneously.

18

BDI-Evaluation of the EU Industrial Strategy

Imprint The Federation of German Industries (BDI) Breite StraĂ&#x;e 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0

Contact Dr. Heiko Willems Director BDI/BDA The German Business Representation T.: + 3227921002 h.willems@bdi.eu Dr. Klaus Deutsch Head of Department Research, Industrial and Economic Policy T.: +493020281591 k.deutsch@bdi.eu Document number: D 1668

19