NOW! action for tomorrow's Europe

Voka Memorandum

For a competitive and sustainable European policy

COLOFON

Voka-kenniscentrum

Frank Beckx | Directeur kennis- en lobbycentrum

Bart Van Craeynest | Hoofdeconoom

Sonja Teughels | Arbeidsmarkt

Gianni Duvillier | Werk en sociale zekerheid

Veerle Van Nieuwenhuysen | Arbeidsmarkt

Julie Beysens | Onderwijs

Daan Aeyels | Welzijns- en gezondheidsbeleid

Katelijne Haspeslagh | Milieu en klimaat

Robin Verbeke | Omgeving en ruimtelijke ordening

Freija Fonteyn | Logistiek en mobiliteit

Yannick Van den Broeck | Energie en klimaat

Karl Collaerts | Fiscaliteit en begroting

Johan Guldix | Innovatie en ondernemen

Dieter Somers | Digitale transformatie

Koen Van Diest | Bestuurzaken en staatshervorming

Maarten Libeer | Internationaal ondernemen

Redactie

Maarten Libeer

Eindredactie

Eric Laureys, Sandy Panis

Foto’s Adobe Stock

Vormgeving Capone

Cover Studio Chapo

Druk

INNI Group, Heule

Dit Europees Memorandum is een uitgave van Voka vzw. De overname of het citeren van tekst uit deze publicatie wordt aangemoedigd, mits bronvermelding.

Verantwoordelijke uitgever

Hans Maertens i.o.v. Voka vzw

Burgemeester Callewaertlaan 6 8810 Lichtervelde info@voka.be - www.voka.be

03

06 COMPETITIVENESS AS UNDERLYING THEME FOR EU POLICY

17 ECONOMIC GROWTH VIA THE SINGLE MARKET AND EUROPEAN FREE TRADE AGREEMENTS

28 THE TRANSITION TO CLIMATE NEUTRALITY IN

Ontdek meer info op voka.be/verkiezingen.

Action now for tomorrow’s Europe!

In today’s sustainable and digital transitions, it is impossible to stand still. The world around us is evolving at an unprecedented rate. The changes are not only being felt on the geopolitical and economic world stage, but are also penetrating the core of the European Union and deep into the fibre of business.

The international economic environment is undergoing a transformation. The turbulence of geopolitics, exacerbated by armed conflicts in Ukraine, the Middle East, and elsewhere in the world, is casting long shadows over the economy. This is accompanied by major transformation within the European Union. The UK left the EU in 2019, the COVID crisis has resulted in an unprecedented recovery fund and the Green Deal is showing the EU’s pace and ambition in terms of sustainability.

for companies. It is an entity that is not only imposing stricter regulations, but which is also a major player that can and must compete effectively on the geoeconomic and political world stage.

The EU is at a crossroads: it has growing relevance, but an urgent need for agility and strength. A strategic vision is emerging: ‘lean, mean and green’. It represents more than just a slogan; it encompasses the vision of an agile institution that is not trapped in bureaucratic structures, that is assertive

It is in this context of change, challenge and ambition that this European Memorandum has been drawn up. It is a documented representation of our vision, based on the reality of today, the urgent needs of tomorrow and the future of the day after tomorrow. As well as offering recommendations, this memorandum is an invitation to join forces in setting the course for a more efficient, resilient European Union, which represents the interests of businesses and citizens, but also takes the lead in a new and sustainable future.

“The EU is at a crossroads: it has growing relevance, but an urgent need for agility and strength.”

This memorandum promotes the core idea of ‘Action now for tomorrow’s Europe’. This baseline summarises the urgency with which we must act, but it is also a call for proactive and forward-looking action, and today we are laying the foundations for a Europe that thrives on fundamental values, innovative entrepreneurship, resilience and progress. Together, we must not only address today’s challenges, but also seize the opportunities ahead of us to create a dynamic and prosperous Europe. Action now for tomorrow will happen in Europe.

Hans Maertens, Managing Director of Voka

Rudy Provoost, President of Voka

The 10 European priorities for Voka

Targeted regulation with room for innovation

Integrated European industrial policy

Strong European budget based on excellence

Economic openness to likeminded partners

The internal market at the top of the political agenda

Harmonise the European security and sanction framework

Pragmatic balance between environment, climate, industry and energy

Focus on the implementation of the climate ambitions

Competitive energy prices

Strengthened monitoring of the European Agenda with the business community

INTRODUCTION

The European Union is a positive story for the Flemish economy. For an open, export-driven and innovationoriented economy like that of Flanders, the European level strengthens these assets. But Europe is changing rapidly and has long been more than just an economic project. Consider, for example, the ambition of climate neutrality by 2050, the geopolitical storm clouds that are increasingly gathering over the continent and, finally, the many institutional and other issues involved in a possible enlargement to include Ukraine.

Europe’s importance will thus only continue to grow. The same is true for business. For those reasons, the upcoming European elections are more relevant than ever. According to Voka, three challenges are essential in the next European policy period: competitiveness, growth and the transition to 2050. There are certainly many other themes at play, but for this memorandum we have chosen those that are most important for the Flemish economy.

This European Memorandum is therefore structured in accordance with these three major challenges:

Firstly, the focus must be resolutely on competitiveness. The feeling of many business leaders is that we are lagging behind (among other things, in terms of support packages) in comparison with other economies. Europe has spent a lot of time on regulation in the recent period, now it is time to ensure that companies also remain competitive through, for example, a European ‘Industrial Deal’. This combination of less regulation and simple support packages makes the ‘licence to operate’ easier outside Europe. This can be solved by better regulation with a systematic check on international competitiveness, a strong industrialeconomic policy and finally a future-oriented budget.

If we, as Europe, are competitive, we can also continue to grow. And growth in Flanders, given our limited domestic market, also means crossing the border, via exports. This can be done via intra-European exports within the European internal market and extra-European exports via trade agreements. There is also a need for a

According to Voka, three ‘challenges’ are essential in the next European policy period: competitiveness, growth and the transition to 2050.

geopolitical strategy for the supply of necessary goods, raw materials and energy, for example. These priorities form the basis for the second part of this memorandum: strengthening the internal market and using offensive and defensive trade instruments.

The third challenge is strongly focused on a coherent and achievable route to climate neutrality by 2050. In 2019, the EU pioneered the Green Deal with objectives and ambitions for climate, environment, nature and energy. Now the focus must be firmly on the realistic implementation of these ambitions in a densely populated and industrial region like Flanders without undermining economic development.

Competitiveness as underlying theme for EU policy

The combination of structurally higher energy prices (including ETS costs), numerous new regulations and strong incentive programmes in other trading blocks has ensured that competitiveness is once again at the top of the agenda. However, the problem of Europe’s competitiveness pre-dates our current economic problems. Urgent action is now needed to turn the tide.

The EU’s share of global GDP has fallen from 25% in 1990 to 17% in 2020. This means that global growth over the past three decades has largely taken place outside the EU – particularly in Asia and more specifically in China. Some of the decline is due to the catch-up effect in this region, but growth in the EU, and especially within the eurozone, has also been weak compared to the United States. Between 2014 and 2019, European companies grew on average 40% more slowly than their American counterparts and spent 40% less on R&D.1

Moreover, questions about European competitiveness are no longer just playing out externally compared to our global competitors such as the US or China. Within Europe, too, a fierce subsidy race is currently raging between European Member States, resulting in an uneven playing field. So, as an open economy, we’re doubly affected.

The good news is that, in many ways, Europe is still a leading economy and there are reasons to be optimistic about Europe’s economic prospects, provided the right policies are in place. A policy framework at EU level to boost competitiveness and productivity growth will close the gap between Europe and the world leaders in growth and innovation.

This requires a focus on both a policy that has competitiveness as its underlying theme and on strengthening European structures. Is the EU as we now know it fit for the future, when Member States are still putting

Administrative complexity Fast-changing policies and legislation

“The EU’s share of global GDP has fallen from 25% in 1990 to 17% in 2020.”

their own interests first – sometimes at the expense of benefits for the Union as a whole? What is the role of the many European regulations if they actually lead to less investment here?

These are all important questions and that is why we are starting the memorandum with a chapter on competitiveness. We have identified three priority policy tracks:

» Challenge 1: Tackle European regulatory pressure

» Challenge 2: Work towards a coherent European industrial policy

» Challenge 3: Opt for a future-oriented European budget

CHALLENGE: TACKLE EUROPEAN REGULATORY PRESSURE

The recent European policy period has led to European companies being confronted with a great many new regulations and reporting burdens. Between 2017 and 2022, the European legislator imposed a total of 850 new obligations on companies, representing more than 5,000 pages of legislation2 that imposes additional burdens on companies. This not only applies to large companies. Smaller companies are often indirectly affected by European regulations as well. This leads to higher compliance costs, limits the scope for experimentation and can even lead to higher trading costs if obstacles are created in this way. Instead of dealing with markets and customers, companies have more and more adminis-

trative work to do and must comply with an increasing number of reporting obligations. Not only is it a lot of regulation, it is also extremely complex, which means that we are out-competing ourselves (Figure 1).

There is another way. Regulation that is effective, evidence-based and consistent can strengthen European competitiveness. If the EU as a standard-setter leads other trading blocks to change their rules, this will be a win for European companies. But in addition to regulation, the EU must also develop policies that safeguard international competitiveness.

While doubtless it was never the intention to overwhelm companies with regulation, we have now reached a clear saturation point. Below are proposals to mitigate or rectify this in a subsequent policy period.

1. https://ecipe.org/wp-content/uploads/2022/11/COMPCompass_ OP062022FV3_changed.pdf

2. Source: https://www.euractiv.com/section/economy-jobs/opinion/ the-eus-global-leadership-relies-on-strong-companies/

Figure 1: European stumbling blocks for business

PROPOSAL: IMPROVE THE QUALITY OF REGULATION THROUGH QUALITATIVE AND SUBSTANTIATED IMPACT ASSESSMENTS

New legislation must be based on facts and figures rather than chasing established goals. Both quality and attention to robust impact assessments have declined and a regional approach is not being reflected. Often, too little account is taken of the necessary budgets, making it impossible to achieve the objectives set out in the legislation.

In addition, we must look much more closely at the broader interests of new legislation and not just the intended objectives. This has to be solved by identifying social and economic costs and benefits more in new initiatives, including at international level. Strongly linked to this is the fact that far too little account is taken of the indirect effect of policy, as a result of which the aforementioned cost-benefit analyses are limited anyway, and therefore inadequate. The lack of robust methodologies in impact assessments and ex-post evaluations has a negative impact on the effectiveness of the final legislative proposal.

ILLUSTRATION

The analysis of the European Nature Restoration Law fell short

A key example of recent legislature was the European Nature Restoration Law. The impact assessment carried out by the EU looked in particular at the positive impact that the initiative would have on biodiversity, an objective that was certainly supported. However, it failed to take into account the impact the far-reaching tightening would have on densely populated and industrial regions such as Flanders. Flanders then had two impact assessments carried out itself, which showed that the European Commission’s original proposal would have a very significant impact on the granting of permits. This impact on permit granting had not been included in the European Commission’s assessment.

Finally, too little account is taken of the effects of other regulations and regulatory proposals in the same economic sector or at international level. This cumulative effect must be assessed and reduced in each sector. Individual legislative initiatives from different policy areas may not be considered in isolation, but rather in the context of their interaction with other regulations. Rules must be coordinated to ensure their overall impact.

PROPOSAL: DEVELOP THE COMPETITIVENESS CHECK

The ‘competitiveness check’, which is included in the impact assessments, must from now on also identify and reduce the regulatory burden. This international competitiveness testing is to become an essential part of EU decision-making and is to be applied to every EU policy and legislative process, including legislative initiatives, secondary legislation, fiscal measures, strategies, programmes and international agreements. In particular, the use of ‘delegated acts’ or ‘implementing decisions’3 must be taken into account in view of the far-reaching impact this legislation can have. This check must also monitor EU legislation for duplications and consistency with other legislation.

SMEs also deserve extra attention. EU legislation must be drafted in such a way that it can be easily put into practice by all companies and especially by SMEs. The SME test and the assessment of (international) competitiveness, which are already partially included in the Commission’s impact assessment, will have to be carried out much more consistently.

ILLUSTRATION

Unattainable, European targets

It is a regrettable development that the European Court of Auditors has already had to establish in a number of cases that the legislation developed is probably not feasible. This was the case, for example, with legislation on combustion engines. In that legislation, the combustion engine was banned from 2035, but the draft overlooked the immense need to produce batteries for cars. By not taking this aspect into account, the European Court of Auditors, in its ex-post analysis of the legislation, saw the objective of completely eliminating the combustion engine by 2035 as unfeasible.4

The same thing happened with the revision of the Renewable Energy Directive, which imposes unattainable targets on Belgium regarding green hydrogen in industry by 2030. The hydrogen target within RED III concerns the so-called target for RFNBOs (renewable fuels of nonbiological origin, namely hydrogen) for industry. The target stipulates that 42% of the hydrogen used in industry must be green by 2030. The lowcarbon blue variant does not count. Moreover, the EU is making it particularly difficult to produce green hydrogen here by imposing additional criteria. For a region like ours with limited renewable energy potential and which uses a lot of hydrogen in petrochemistry, this is therefore an unattainable target.

PROPOSAL: AIM FOR TARGETED REGULATION WITH ROOM FOR INNOVATION

The EU wants to set the standard with state-of-the-art legislation and become the norm, not only within but also outside Europe. This regulation is also often based on objectives that come first and foremost. It is necessary for the policy to be based on sound impact assessments and thus mapped out bottom-up. However, the pendulum now seems to have swung a little too far. Recent initiatives not only incorporate the objectives into legislative texts, but also define in a more and more (technology-)specific way how those objectives must be achieved.

It is this very thing that can stop companies from innovating further, because they are too busy complying with the regulations. This is also strongly linked to the debate between the precautionary principle and the principle of innovation, where the focus must be more on the latter. It is increasingly noted in European regulations that the use of the precautionary principle slows down innovation by making it impossible for innovators to know what it is they are still allowed do.

For example, by shifting the burden of proof to producers who have to prove that a product does not cause injury, the precautionary principle also contributes to uncertainty about the regulatory environment. This encourages innovative companies to focus on the risks rather than the benefits of their new products.

3. After the adoption of an EU law, it must sometimes be updated to take account of developments in a particular sector or to ensure that it is properly implemented. Parliament and the Council can authorise the Commission to adopt delegated acts or implementing acts to that end.

4. https://www.eca.europa.eu/en/publications/SR-2023-15

SOURCE: IMF

That’s why we completely agree with the German and French governments5 that refer to the golden rule of Montesquieu: ‘If it is not necessary to make a law, it is necessary not to make a law.’ Besides that, we also advocate the roll-out of regulatory sandboxes at European level to stimulate innovation. This will allow innovative companies to test new products, services or even business models without having to meet all the regulatory requirements that may apply to the company.

CHALLENGE : WORK TOWARDS A COHERENT EUROPEAN INDUSTRIAL POLICY

The need for a visionary European industrial policy is undeniable. Especially since the United States invested heavily in its own industrial policy (Chips & Science Act, Inflation Reduction Act), there has been a growing awareness in the EU that a strong industrial policy is necessary. This is clearly demonstrated in Figure 2, where it emerges that industrial image is on the rise worldwide, for several reasons.

An industrial policy at European level is not only necessary at international level, but also to ensure that the European internal market does not disintegrate. After all, industrial policy is a matter for both the EU and the Member States, mainly through State aid mechanisms. As Figure 3 shows, it is absolutely disastrous when this industrial policy is mainly coordinated at Member State level. It means relations between Member States are completely distorted.

It is clear that

SOURCE: EUROPEAN COMMISSION

A genuine European Industrial Deal must allow Member States and the EU to remain competitive on international markets without getting bogged down in an internal subsidy race. For these reasons, below we provide a number of building blocks for a strong European industrial policy.

PROPOSAL: WORK TOWARDS AN AMBITIOUS AND INTEGRATED EUROPEAN INDUSTRIAL POLICY WITH A FOCUS ON GEOSTRATEGIC DEPENDENCIES

Transcend Member State caveats and give the European Union the levers it needs to be able to measure itself on the economic world stage. At present, European industrial policy consists of a patchwork of EU and

Figure 3 shows the State aid paid out in the context of the temporary crisis and transition framework.

the large Member States are ahead of smaller Member States both in terms of supporting their own energy-intensive industry and in terms of strategic industrial development, due to the loosened State aid rules.

Figure 2: Industrial policy on the rise worldwide Motivation for industrial policy

Figure 3: Germany ‘wins’ the European subsidy race

national initiatives. In order for us to effectively move towards a strong and coherent industrial policy, a policy based on a European logic is necessary. To become a globally competitive ‘clean industry’ power, Europe cannot rely on fragmented national measures. These will be insufficient to drive investments in clean technology at the scale and speed required.

Currently, European Member States still often see industrial policy as a matter of national sovereignty and mutual competition. That’s looking at it from the wrong angle. At international economic level, it is not France or Germany that are our biggest competitors, but the United States and China. Almost no European Member State is in itself large enough to compete with international competitors. The European response – divided or united – will show whether Europe can reinvent itself. If not, we will end up fighting amongst ourselves for the remaining crumbs in the form of a subsidy race between Member States. This also requires a strong, financial architecture, which will be discussed in more detail in a subsequent chapter.

This European industrial policy must also take account of geostrategic dependencies. Understanding these dependencies provides insight into vulnerabilities, such as the consequences of high dependency on particular raw materials or technologies. Through these insights, Europe can develop strategies to be more resilient to disruptions in supply chains. This will enable Europe not only to protect its economy where necessary, but also to invest in innovation and technological development. Strengthening Europe’s own industrial capabilities, especially in areas of strategic importance, will not only ensure Europe’s security, but also promote competitiveness and (open) strategic autonomy on the world stage. However, this must be done in a pragmatic and sensible way so that it does not fall into blind protectionism.

PROPOSAL: SEE INDUSTRIAL POLICY AS A POLICY MIX AND STREAMLINE THE EUROPEAN GOVERNANCE STRUCTURE

Appoint an Executive European Commissioner for Industrial Policy, who will draw up a coherent vision across all European Directorates-General. At present, industrial policy is still too often defined within vertical sectoral policy with various exceptions, whereas what is actually needed is horizontal policy to monitor the coherence of the whole. An overarching Commissioner for Industrial Policy can reconcile policies between all the European Commission departments and make them into a coherent whole, instead of the current silo operation.

After all, there is no silver bullet for a new industrial policy. On the contrary, it is a complex puzzle in which policies are intertwined and where the various cogs must be optimally positioned: from financing, through innovation, to the energy cost handicap and the permitting policy. Coherence is absolutely essential for this reason. All the pieces of the puzzles must fit together optimally so that the business case for companies is right from start to finish. And that fertile ground for the business case is a necessary condition for continuing to invest here.

However, the current Industrial Policy Strategy is more akin to a fragmented set of energy, climate, innovation and social policy initiatives than a coherent and legally secure, stable and predictable framework for industrial policy. In order to compete globally, the EU must

5. https://presse.economie.gouv.fr/12102023-reducing-bureaucracyin-these-unprecedented-times-french-german-paper-on-betterregulation-and-modern-administration-in-europe/

6. For example the Net Zero Industry Act, that is focusing only on a limited number of sectors

Neighbourhood and the world: 9%

Security and defence: 1%

Migration and border management: 2%

Natural resources and environment (from which 96 % argriculturerelated funds): 33%

European public administration: 7% € 1.074 billion

“To compete globally, the EU must strengthen its ability to implement simple, homogenous policies that respond quickly to external shocks.”

strengthen its ability to implement simple, homogenous policies that respond quickly to external shocks. Stronger inter-departmental coordination within the European Commission is therefore absolutely essential.

PROPOSAL: START FROM TECHNOLOGY NEUTRALITY AND TAKE THE WHOLE INDUSTRY WITH YOU

Europe must start from an integrated value chain approach to industrial policy. This is necessary because different sectors are closely intertwined in complex value chains, with major consequences when these complex chains are unravelled. The successful decarbonisation of Europe cannot be achieved without recognising the complete value chains and the need to decarbonise industry as a whole.

Moreover, technology and material neutrality is a necessary condition. The transition to climate neutrality is, after all, an evolution for all companies and so all

Single market, innovation and digital: 12%

Cohesion and values: 35%

SOURCE: EUROPEAN COMMISSION

sectors must be in the same boat, without focusing only on a limited number of sectors. The European economy will have to make use of all available technologies, advanced or under development. Focusing solely on certain technologies or materials carries potential risks. This could prevent innovation and progress in technologies that are currently not yet ready for market. In addition, companies wishing to invest in technologies not prioritised by the EU could relocate to regions that provide a more technology-neutral environment for developing green solutions.

CHALLENGE : OPT FOR A FUTURE-ORIENTED EUROPEAN BUDGET

It has already been mentioned above that providing a business case is a necessary condition for companies to invest here. Providing a financing model is essential in this regard. The simplicity of the Inflation Reduction Act proves that the right financial incentives in a relatively simple regulatory framework can lead to an influx of new investments that provide an economic tailwind. In Europe, however, financial incentives are split between Member States and European level. We will look at both approaches.

Figure 4: The current European budget is not sufficiently forward-looking Distribution of policy expenditures within the European budget

Neighbourhood and the world: 5% European public administration: 6%

Security and defence: 1%

Migration and border management: 1%

Natural resources and environment (from which 96 % argriculturerelated funds): 20%

€ 1.824,3 billion

Single market, innovation and digital: 8%

Cohesion and values: 60%

When industrial policy is implemented through national funding, State aid rules are used. The European Commission loosened these State aid rules so that Member States can assume a greater burden of investment. However, since the fiscal space in the eurozone is not evenly distributed, such an approach is fundamentally wasteful and the option to work via State aid leads to a subsidy race, as demonstrated in the previous chapter.

The second option is to work via EU-wide funding. But in order to work efficiently and effectively here, it is necessary to strengthen and reform the European financial architecture. When we look at the distribution of the EU budget below, we see that the large majority of the budget goes to agricultural funds and cohesion funds (Figure 4).

Cohesion policy funds are allocated through national envelopes that are then molded into national plans by each member state. The growth and convergence impact of these funded projects appears to be generally positive, but small and dependent on other regional characteristics. Importantly, these funds appear to be less effective where regional institutions and regional policies are already performing poorly, and in less socially and economically developed regions. More recently, it has been shown that the small positive impact of regional policy

is also short-lived. Questions have also been asked about the effectiveness of the agricultural funds.7

The funds from the Corona Recovery and Resilience Facility (RRF) were also paid out from national envelopes. There too, the European Court of Auditors (ECA) identified ‘shortcomings’ in the monitoring of the implementation of the plans.8 It is not possible to assess the extent to which the RRF is meeting its main objectives, in particular in the climate and social fields. The ultimate beneficiaries of European aid are also unclear. When we look at the distribution of the EU budget, including the Corona Recovery and Resilience Facility, we see that an even larger part is done via ‘envelope financing’ (Figure 5).

This is in stark contrast to other European funds (e.g. Horizon Europe) where the funds are not distributed according to national envelopes but based on excellence: a call for projects is made and the best project receives the funding. If the European Union is serious about its ambitions for digitalisation and climate neutrality, the budget (and procedures) must also follow. Below are some suggestions.

7. https://www.bruegel.org/blog-post/eu-budget-common-agriculturalpolicy-and-regional-policy-en-route-reform

8. https://www.eca.europa.eu/en/publications?ref=SR-2023-26

Figure 5: The Corona Recovery Fund money was also distributed via ‘envelope’ financing Distribution of policy expenditures within the European budget

SOURCE: EUROPEAN COMMISSION

PROPOSAL: NEED FOR A STRONG EUROPEAN INSTRUMENT TO SOLVE STATE AID PROBLEMS

A competitive Europe also means that future-oriented priorities are reflected in the European budget. Europe must now face a host of supranational challenges that will require huge investment in a short period of time, including defence, the green transition and digitalisation. A strong European financial instrument that must be capable of competing with other economic support packages is necessary. In the end, the sovereignty fund proposed by the European Commission did not happen during this policy period. However, such an instrument does now have to be developed to cope with geo-economic competition.

We see a number of important conditions here. What is essential is that this instrument is sufficiently large in the first place and also solves the problems of State aid

“A competitive Europe also means that forward-looking priorities are reflected in the European budget.”

and the subsidy race within Europe. In addition, projects must fit into a European strategy instead of being merely a collection of national projects pushed into a European straitjacket. Secondly, this instrument must be structured differently from the national envelopes of the European Recovery and Resilience Facility or the cohesion funds. Priority must be given to innovative projects through excellence requirements, as is the case, for example, with Horizon Europe and the Innovation Fund.

There are several ways in which this instrument can be implemented. Incentives for sectors and technologies active in the sustainable transition can be mobilised,

but are not yet profitable. Non-existent, disruptive and future-oriented innovative technologies must also fall within the scope of this instrument, with a first-mover advantage being able to provide important comparative advantages in the long term. Finally, the EU could also take on part of the financing of smaller Member States, so that they do not clash with the limits of their own budgets and become out-competed by larger Member States within alliances of European Member States.

If a strong European instrument is to be developed, the robustness of European competition policy must be restored and control tightened again. Several crises have prompted the EU to apply exceptions to State aid. Although these exceptions are supposed to be temporary, they have become too permanent, with all the attendant consequences for the European internal market.

PROPOSAL: A SHIFT IN RESOURCES AND NEW INNOVATIVE WAYS OF FINANCING

A final essential condition is that this instrument is sufficiently large. In the first instance, we must look at shifting the budgets within the current European budget. The European Union must give budgetary priority to the development of the above instrument. Many more resources will also have to go to the European internal market, innovation, defence, and research and development.

In order to finance this budgetary shift towards innovation and the economy, other expenditure must be kept under review. As stated above, most of the European budget currently goes to agriculture and cohesion funds. If the European budget does not increase, a shift is a necessary path. In addition, overlap and synergy must be considered. List the existing instruments, analyse their impact and go to the simplest possible instruments for companies.

If all of this is not enough, there may also be no taboo on taking on new European debts, with the condition of juste retour for companies. It is not the intention that companies be hit by new European debts. This is a second-step solution in which the focus is on being able to cope with aid packages for companies from third countries, such as the Inflation Reduction Act. Under no circumstances can there be any new envelope financing for Member States. This money must go to projects

based on excellence requirements. It is also necessary to look at new and innovative ways of financing where the European Commission and Member States co-finance projects in order to solve the State aid problem.

PROPOSAL: FOCUS ON LOW-THRESHOLD ACCESS TO EUROPEAN FUNDING

The Commission must set up a framework to better inform companies about existing funding opportunities in European programmes. There is plenty when it comes to European financing, but there is a lack of optimisation and synergy between these various instruments, which means that companies can no longer see the wood for the trees. In addition, Europe must also learn from the

Inflation Reduction Act, especially as regards its simplicity. Since the IRA offers tax credits, you invest first and then get support in a very simple way through tax credits. Europe, on the other hand, often has overly complicated procedures for companies to apply for subsidies, leading to more bureaucratic approval procedures. This makes it more complex to check the financial return on investment. In addition, EU programmes are difficult, time-consuming and extremely bureaucratic, while the chances of success are low. This concerns the access and participation procedure as well as the planning burden and reporting of the various European programmes. This is all the more true for smaller companies, which are obliged to work on the basis of partnerships – which makes the administration even harder.

CHAPTER 1 RECOMMENDATIONS: Competitiveness

REGULATORY PRESSURE

Improve the quality of regulation by qualitative and substantiated impact assessments based on facts and figures, where the cumulative effect is also taken into account.

Establish an international competitiveness check on all legislative initiatives to find out the precise impact on the international competitiveness of our companies and which maps out the regulatory burden.

Aim for targeted regulation with room for innovation (e.g. through regulatory sandboxes) and keep in mind the golden rule of Montesquieu: if it is not necessary to make a law, it is necessary not to make a law.

EUROPEAN INDUSTRIAL POLICY

Work towards an ambitious and integrated European industrial policy that transcends Member States’ box-ticking thinking and takes into account geostrategic dependencies.

See industrial policy as a policy mix and streamline the European governance structure.

ILLUSTRATION

Complexity of European subsidies

The start date plays a crucial role in the granting of a subsidy. A subsidy must always be applied for before the investments have started (first invoice date), a condition imposed by Europe. But innovations can’t always be moulded into clearly defined projects with an exact start date; it’s an evolving process. The very rigid application of that start date rule often proves a stumbling block. This clearly shows why there must be a simpler way, in line with the business logic in the field.

Start from technology neutrality and take the entire industry with you through an integrated value chain approach.

A FUTURE-ORIENTED EUROPEAN BUDGET

There is a need for a strong European instrument that firstly solves the State aid problem and secondly works on the basis of excellence.

A shift of resources within the European budget is necessary to finance this new instrument.

Focus on low-threshold access to European funding.

Economic growth via the Single market and European Free Trade Agreements

How does a company grow in Flanders? The rest of the world is the most important market for many companies, given that our domestic market is limited. Export is therefore one of the most important lifelines for the Flemish economy. Hence, in this chapter we will examine the question: how can Flemish companies continue to grow via exports, both intra-European and extra-European.

The role of the European Union for Flemish exports is hard to overestimate. Firstly, via intra-European export, which accounts for 64.2% of our total exports. This immediately demonstrates the importance of a European internal market that works as smoothly as possible. It is estimated that 56 million jobs are linked to intra-EU trade and that the internal market has contributed to trade benefits worth 4.4% of GDP for Belgium.

The remaining 35% of Flemish exports are extra-European exports to so-called ‘third countries’ outside the European Union. Here too, clear added value is provided at European level through European trade policy. Trade agreements allow European companies to access raw materials and other inputs more easily and at lower prices, allowing them to remain competitive. They can also compete more effectively abroad and export more to countries and regions outside the EU.

An open mentality is therefore essential for our country, also in terms of cross-border exchange, technology, innovation and competition. Yet in recent years, the international order, for a long time regarded as beneficial, has been called into question. This is very damaging. The disintegration of world markets and the emergence of economic blocks hampers international growth and innovation.

The internal market is also still incomplete 30 years after its formal establishment and it lacks common

“The internal market is still incomplete 30 years after its formal establishment and it lacks common and uniformly applied EU legislation.”

and uniformly applied EU legislation. For businesses, cross-border trade remains complicated. Incorrect implementation and transposition of regulations is leading to more market fragmentation. The European Commission’s enforcement policy also lacks teeth in relation to Member States that continue to introduce additional national rules or administrative requirements.

We are therefore arguing for the following recommendations:

» Challenge 1: Focus on a strong, proactive European trade policy

» Challenge 2: Focus on an assertive trade policy

» Challenge 3: Enforce and strengthen the internal market

9. https://www.cpb.nl/sites/default/files/omnidownload/CPB-NotitieHandelsbaten-van-de-EU-en-de-interne-markt.pdf

CHALLENGE : FOCUS ON A STRONG AND OFFENSIVE EUROPEAN TRADE POLICY

The EU must launch a new trade expansion aimed at renewing its existing relationships and establishing new ones, with a primary focus on like-minded and trusted partners. This will provide additional access to the global market for Flemish companies, which is especially relevant given that Europe’s share of the world economy is shrinking. Europe must continue to work hard on trade agreements. But diversification for the necessary critical raw materials and an ‘export of rules’ also offer many opportunities.

The above is all the more important for Flanders and Belgium within Europe. Figure 6 shows that we are one of the most open economies in Europe and beyond. A number of specific recommendations are given below.

PROPOSAL: REMAIN FULLY COMMITTED TO ECONOMIC OPENNESS IN ALL ITS FACETS

In particular, the EU must continue to pursue enhanced economic cooperation with trusted partners as a strategy rather than resorting to defensive measures that may negatively affect the economies of the Member States.

A number of trade agreements must be speeded up. These include agreements with Australia, Mercosur and Chile as well as new agreements with Indonesia, Thailand and India. To speed up the adoption of these agreements, future trade agreements must also be divided into a section on trade and access to raw materials on the one hand and investment protection on the other. That way, the EU – within the exclusive remit – can immediately approve these agreements. The investment agreements can then follow in a second phase.

In addition to trade agreements, partnerships are also a useful tool to promote trade. Think here of the cooperation with the United States and India within the framework of the technology and trade platforms. Building partnerships creates space for dialogue and cooperation, which can be a platform for the EU to agree common standards, for example. If trade agreements are not successful, we have to strengthen cooperation in other ways.

Finally, we cannot and must not simply cut ties with countries that are further away from our values. Decoupling from the Chinese economy, for example, is not a viable or desirable option for the EU. On the contrary, it is in the world’s interests for the EU and China to maintain stable and flexible relations. In order to achieve this, the principles of transparency, predictability and reciprocity must be taken into account as necessary conditions for a reliable trading relationship.

PROPOSAL: NEIGHBOURHOOD POLICY –DEVELOP A COMPREHENSIVE NORTH SEA COOPERATION AND PREPARE FOR FUTURE EU ENLARGEMENT

One specific focus is right at our door, where an improved and comprehensive relationship with the United Kingdom should be sought. It seems like an eternity ago, but at

Figure 6: Belgium is the most open country in the EU Trade openness: this indicator measures the importance of international trade in goods relative to the GDP

the last election, Brexit was not a done deal. While the worst seems to be over, the figures clearly show that we have a less close relationship with our historical trading partner.10

Within its existing neighbourhood policy the EU must commit to a comprehensive North Sea strategy, which does not yet exist. Such strategies already exist, for example, for the Mediterranean and Eastern regions, with joint political and economic agendas being set up through political dialogue and a number of other instruments – including financial support and technical cooperation.

Relations with the United Kingdom are now going through the Trade and Cooperation Agreement, but this should be even broader, with the focus also needing to be on cooperation in many policy areas from energy to innovation. The possibility of joint economic programmes that used to exist (think of Interreg programmes) can also be restarted via a North Sea neighbourhood (Noordzeenabuurschap).

In addition, there must also be, of course, an important focus on the Eastern Partnerships and the new EU candidate countries from 2023.11 Preparations for this possible accession are essential in view of the enormous impact – both in terms of budget and trade – that the accession of these countries would have.

PROPOSAL: FOCUS ON EXPORTING DIGITAL AND OTHER SERVICES

Whereas export is mainly still linked to the export of physical goods, there is great potential in Flanders and Europe with regard to the export of digital and other services. These are also internationally traded much more readily than physical goods.12 Further harmonisation of the rules for digital trade across Europe and with partner countries – via e.g. Digital Economy Agreements – can contribute to a faster and safer transfer of information. An open digital trade strategy can give Europe access to markets where new technology is being developed, which is essential to ensure that the EU does not lag behind in terms of technology and remains competitive.

European Union

European Economic Area

Accession candidates

Eastern Partnership

After all, the EU imports and exports more digital services than any other economy13, also giving it an advantage over the US and China. Policymakers must therefore focus more on those digital services. This sector has great potential and the EU is already at the forefront of regulating and facilitating digital service flows worldwide. If the EU continues with this, it will gain a privileged position in the areas of data traffic, e-commerce and investment, which will be crucial in the future. However, the EU only has trade agreements with extended chapters on digital services with three of its nine main partners in this area – the UK, Japan and Canada – and continues to adopt a more defensive attitude towards other partners.

10. https://feb.kuleuven.be/research/LES/pdf/LES%202023-206.pdf

11. The European Union started accession negotiations with Ukraine and Moldova in 2023. EU leaders have also decided to grant Georgia candidate status and agreed to open accession negotiations with Bosnia and Herzegovina once it has achieved the required level of compliance with the membership criteria.

12. See also the Voka paper: https://issuu.com/vokavzw/docs/ vokapaper-gilles-pages?fr=sOTQzNTY0MDY5Mw

13. https://institutdelors.eu/wp-content/uploads/2023/08/PP293_MapingEU-digital-trade_Kholer-Suzuki.pdf

Figure 7: The EU neighborhood policy

PROPOSAL: HAMMER HOME THE NEED FOR AN INTERNATIONAL SYSTEM FOCUSED ON SHARED NORMS AND VALUES

The rules of the international economic arena must preferably be further developed through multilateral trade institutions. The multilateral trade system has started to falter in recent years. For example, the last round of multilateral liberalisation in the World Trade Organisation (WTO) has already been going on for 18 years and there is no immediate breakthrough in the offing. The EU must take a leading role in reforming the WTO to break this deadlock.

To achieve this, the EU must actively promote the use of multilateral negotiations, sectoral agreements and ad hoc alliances. By the same token, the EU must support the strengthening of judicial institutions and binding mechanisms to help address non-compliance, resolve disputes and enforce global rules. Issues such as the dysfunction of the WTO dispute settlement mechanism must be resolved as soon as possible. By the same token, what works multilaterally must also be preserved at all costs.

CHALLENGE: FAIR COMPETITION THROUGH AN ASSERTIVE TRADE POLICY

European policy has long been known for its inherent openness. From this point of view, competitiveness is also about fair competition with companies outside the European Union. But there are growing concerns that other countries are taking unfair advantage of Europe’s openness in various ways, because they do foreclose their own markets and give their companies generous government subsidies from their own countries. Figure 8 also shows that trade restrictions are on the rise.

In addition, foreign companies can also operate under less stringent regulations, for example by producing goods or services in jurisdictions where there is less concern about the environment. While the EU must strive to avoid the fragmentation of the global economy, it must also prepare itself to deal with protectionism,

fragmented value chains, a global subsidy race and the use of dependencies as a possible economic weapon.14

A number of priorities are set out below.

PROPOSAL: ENFORCE THE SAME STANDARDS THROUGH EUROPEAN TRADING INSTRUMENTS

The instruments already developed – think, for example, of the regulation on foreign subsidies or the anti-coercion instrument – must be used. Given that the World Trade Organisation has somewhat lost its role as arbiter in recent years, the EU is well advised to use trade defence instruments in a proper manner against unfair trade practices by third countries.

In addition, it is important that goods entering the EU meet the same standards and norms as those produced by our own companies. To solve this problem, the EU must focus on strengthening (1) market surveillance cooperation procedures between Member States, (2) operational enforcement capacity and (3) enforcement tools for market regulators. In this respect, it is important that customs checks to check the conformity of goods are carried out quickly, efficiently and in a targeted manner to ensure that lead times are not unnecessarily long. The monitoring process must also take place in such a way that the impact on the daily functioning of our own business world remains as limited as possible.

PROPOSAL: HARMONISE ECONOMIC SECURITY POLICY

There is a need for a centralised EU sanctions watchdog. European trade sanctions are logically decided at European level, but are implemented at national level, resulting in a patchwork of 27 different interpretations and ambiguities. This new body must counteract this fragmentation of the internal market and strengthen the EU’s ability to take effective sanctions. This is necessary because the Flemish export policy is stricter than that of other European Member States, which results in an unfair disadvantage for our companies.

This requires good coordination, analysis and strict implementation. We are calling for a shift in resources – financial and human – to significantly increase EU capacity, which is aimed at implementing and avoiding circumvention of sanctions. Within the institutions, a platform must be created for common analysis of trade flows and individual cases of circumvention, allowing for a coordinated response and strengthening the EU’s international standing with third countries and market participants.

This watchdog must also more broadly monitor and coordinate economic security policy, combining national security powers with EU institutions to define and translate security risks into a European economic policy strategy. The focus must be on hard security risks, especially in relation to dual-use R&D, export controls to limit the spread of dual-use technology for improper use, critical infrastructure, cybersecurity, hybrid resilience and inward investment screening.

Figure 8: Protectionism on the rise

Worldwide trade

PROPOSAL: ENSURE SMOOTH OPERATION OF THE INTERNAL AND EXTERNAL BORDERS

The integrity of the Schengen area must urgently be restored. Indeed, one of Europe’s showpieces is under pressure from a growing number of countries that enforce or have reintroduced internal border controls due to, for example, migration or terrorism. During the COVID period, we also saw many border controls being re-introduced.

These border controls also have an economic impact: a delay on every journey and thus an impact on costs because the transport of goods slows down. Calculations show that for each border crossing in the Schengen area, the bilateral flow of goods is reduced by 2.7%.15

In addition, external borders through the customs union must also work optimally. Customs plays a fundamental role in the proper functioning of the internal market, the controlling of goods entering the EU and the meeting of EU standards and the management of crisis situations. There is also a proposal on the table currently to further improve the customs union.

This proposal must be implemented quickly in Europe. The focus must be on the pragmatic management of risk. At the moment, the focus is on risk controls, which create significant bureaucratic hurdles, rather than targeted measures to stop specific abuse. Not much attention is paid to measures to facilitate trade and to achieve innovative and future-oriented solutions.

In addition, there is also a lack of uniformity between Member States on the implementation and interpretation of certain customs procedures, which means that the administrative burden on businesses can vary greatly from one Member State to another. The idea of establishing a customs agency at European level, as set out in the proposal to reform the Union Customs Code, can play an important role here and therefore deserves our support.

Border controls

Planned border controls

EU and Schengen zone

Non-EU and Schengen zone

EU and non-Schengen

CHALLENGE: DEEPEN AND ENFORCE THE INTERNAL MARKET WITH A VIEW TO MAXIMUM HARMONISATION

The internal market is the backbone of the EU’s prosperity and industrial competitiveness. For 30 years, the internal market has been one of the EU’s greatest achievements: by facilitating cross-border trade, increasing competition and ensuring the same levels of safety and quality throughout the block, the internal market has boosted job creation and growth. This plays a crucial role for an open and export-oriented economy like ours, as Figure 10 shows.

However, European businesses fear that the integration of the single market has stagnated in recent years:

Figure 9: Schengen zone under pressure

SOURCE: EURACTIV

intra-EU trade in goods has increased by only 3.5% of the EU economy since 2006, and intra-EU services account for only 6% of European GDP.16 The internal market is also increasingly seen in relation to specific objectives, where previously the pursuit of the internal market was based on harmonisation and the reduction of cross-border barriers as an end in itself.

The potential of the European internal market can only be fully exploited if enforcement and harmonisation are effective. The European Union must place deepening the European internal market at the very top of the political agenda for the 2024-2029 policy period. After thirty years, the internal market needs new (political) momentum, and below we provide a number of specific initiatives.17

PROPOSAL: FOCUS ON A NUMBER OF LARGE THEMATIC SITES

We see the following areas as critical:

1. We lack an integrated capital market in Europe. A European Capital Markets Union must be fully mobilised, given the immense need for investment. Access to venture and other capital must be facilitated by the completion of the Banking Union and the Capital Markets Union, which remains a necessary ingredient to meet its future financing needs.

2. We need a internal market without barriers to explore, innovate and deploy green and digital products and services in the EU. A competitive environment for innovative research and new business models that promote the return on investment in new technologies and their rapid adoption is crucial. To encourage investment in the development of new and innovative solutions, companies must be able to rely on a strong and effective IP system in Europe.

3. The possibilities of the use of data must be fully developed by creating a digital internal market where digital business models can serve the entire EU market without additional requirements. Cross-border, European data spaces must be encouraged and facilitated. Initiatives such as the European health data spaces can also be developed for other policy areas.

4. More competition and further implementation of the Services Directive is also needed in the services sector. Create a true single market for services by removing unjustified or disproportionate regulatory and administrative barriers and simplifying access to the cross-border service market, including by promoting effective freedom of establishment for all businesses in the EU.

15. https://www.euractiv.com/section/justice-home-affairs/news/ schengen-how-europe-is-ruining-its-crown-jewel/

16. https://www.businesseurope.eu/sites/buseur/files/media/position_ papers/internal_market/2023-11-28_businesseurope_-_priorities_for_ the_single_market_beyond_2024_0.pdf

17. Source studie: https://cdn.ceps.eu/wp-content/uploads/2024/01/CEPSInDepthAnalysis-2024-03_Empowering-the-Single-Market.pdf

Figure 10: Single market benefits for Belgium amount to 4,4% of GDP

SOURCE: CENTRAAL PLANBUREAU VAN NEDERLAND

5. Another key priority is to complete an internal energy market, which will be discussed in more detail in a subsequent chapter. It is essential to create an effective European Energy Union by focusing heavily on cross-border infrastructure and interconnectivity, so that the different energy mixes of the Member States combined with geostrategic imports can be used to maximise energy efficiency.

6. Given the major labour market shortages, the internal market has to become a real European labour market, based on free movement of people, which reduces labour shortages, enables the development of skills and attracts talent. The current European set of instruments is complex, fragmented and suffering from a lack of cooperation. Both intra-European labour mobility and extra-EU economic migration must be taken forward. The EU must compete better in the global race to attract the necessary talent to Europe. Based on strategic work force planning, common objectives must be developed and the instruments aligned accordingly. Think of better recognition of qualifications and better coordination of social security systems. Coordinate the joining of forces and facilitate the actors of the Member States within this framework.

PROPOSAL: REMOVE THE GENERAL BARRIERS

There is still a lot of work to be done. In this document, we would like to refer to a survey conducted by our European umbrella company, Eurochambres, which Voka also participated in, which looked at the main barriers to doing business in the internal market.

There are plenty, according to Figure 11, which provides an overview of the main obstacles facing European companies and shows that the fragmentation of the internal market is still a long-term problem in EU economic integration. It is striking that companies of all sizes are facing the same barriers that existed 20 years ago.

Businesses are particularly concerned about heterogeneous rules for contracts, guarantees, legal remedies and dispute resolution in cross-border sales, followed by complex rules, terms and conditions for the delivery of

both goods and services. The uncertainty and complexity involved in obtaining information and understanding the different regulatory requirements, especially for SMEs, as well as the differing technical standards undermine the real purpose of the internal market. Most of these barriers were already high in the previous study from 2019.

As outlined in Figure 12, companies would very much welcome solutions that simplify operational processes, reduce the fragmentation of rules and standards and increase the overall ease of doing business, especially for SMEs. There is also a role for strengthening digital European instruments and cross-border eGovernment services. This would also help them obtain information, manage paperwork, apply for licences or public contracts and comply more efficiently with legal requirements.

A majority of respondents also felt it was very important to pay more attention to the specific regulatory issues faced by SMEs. In order to strike a balance between ensuring compliance with legislation and facilitating the growth of business activities, a future-proof regulatory framework must be developed.

The fifth point on harmonisation and enforcement is

Most important solutions for businesses in the single market19

Better

also very important, which immediately leads us to the following subject: the importance of enforcement and how it has decreased over the past policy period.

PROPOSAL: STRENGTHEN THE ROLE OF THE EUROPEAN COMMISSION AS GUARDIAN OF THE INTERNAL MARKET AND AVOID GOLD-PLATING

The correct implementation and enforcement of existing rules must be better observed. For this reason, enforcement must once again be at the top of the agenda. This can be done by investing in a Single Market Enforcement Officer. The Single Market Enforcement Task Force currently exists, but it is a comparatively non-transparent body with no representation from the business community. In addition, there is currently far too little political weight behind it.

Analogous to the role of the Trade Enforcement Officer, a Single Market Enforcement Officer can develop a

18. A complete overview of all solutions can be found in the Eurochambres study

19. A complete overview of all the solutions can be found in the Eurochambres study.

Figure 11: Most important stumbling blocks for businesses in the single market18

Figure 12:

methodology for a internal market review when new legislation is proposed. The focus here must be on uniform implementation and enforcement of internal market rules by investing significantly in resources for administrative cooperation between Member States. This can be done, for example, by strengthening the internal market Information System and by strengthening the advisory role of supervisory authorities for companies rather than relying heavily on private enforcement through costly and lengthy legal proceedings.

Barroso Juncker von der Leyen

Figure 13: Lack of enforcement hampers EU single market Number of infringement procedures initiated by the European Commission

SOURCE: FINANCIAL TIMES / EUROPEAN COMMISSION

Stricter action must also be taken against gold-plating. EU law too often allows for differentiated transposition in EU Member States and EU enforcement policies do not meet national requirements, leading to fragmentation of the internal market. After all, much of European legislation forms a framework in which the finality is defined, but in which the Member States are free to give their own interpretation of how they want to achieve these goals. This leads to different implementations in Europe. Where a European standard exists, additional national technical requirements and standards without added value must be phased out. This issue is more serious in Flanders (the so-called gold-plating effect) because Flanders interprets European regulations very rigidly and with little flexibility, but also precisely because this harmonisation is of vital importance to Flemish entrepreneurs.

European legislative texts can also explicitly include harmonisation provisions in order to ensure a level playing field for companies throughout the single market, with possible amendments to the level of harmonisation six years after the entry into force of the Directive. The provision would prevent Member States from introducing stricter rules than those provided for in the EU Directive.

CHAPTER 2 RECOMMENDATIONS: Growth

STRONG AND OFFENSIVE TRADE POLICY:

Remain fully committed to economic openness in all its facets and split trade agreements into a trade component and an investment protection component.

Neighbourhood policy – develop a comprehensive North Sea cooperation and prepare for the future enlargement of the EU.

Focus on exporting digital and other services via Digital Economy Agreements.

Hammer home the need for an international system focused on shared norms and values.

FAIR COMPETITION THROUGH AN ASSERTIVE TRADE POLICY

Enforce the same standards through European trading instruments to counter unfair trade practices by third countries.

Harmonise economic security policy through a centralised EU sanctions watchdog.

Ensure the smooth operation of the internal and external borders through the Schengen area and the customs union respectively.

THE EUROPEAN INTERNAL MARKET

Give political backing to the internal market again and remove the general barriers to trade.

Focus also on a number of major thematic sites such as an integrated capital market, the free flow of data, increased competition in the services sector and the development of a real European labour market.

Strengthen the role of the European Commission as guardian of the internal market and avoid gold-plating by having a Single Market Enforcement Officer.

3. The transition to climate neutrality by 2050

This chapter focuses on European ambitions in terms of climate, environment and energy. The basis of these ambitions, of course, lies in the European Green Deal, with 2050 as the final destination. In any case, the premise of this chapter is positive: industry supports the overall ambition to achieve climate neutrality by 2050, but requires a coherent and realistic path that must be accompanied, above all, by an industrial policy to deliver the ambitions in concrete terms.

As we know, conditions have changed dramatically compared to 2019, when the Green Deal was presented. The energy crisis in 2022 brought about a turning point, both positively and negatively. The shift to carbon-free energy was fully deployed and the theme rose to the top of the agenda, in terms of both business and policy.

On the other hand, it also became clear that in the coming years we will be in a precarious situation with an international energy cost handicap. Unfortunately, this aspect increasingly plays a role within the European Union, where energy prices differ considerably between Member States and the internal level playing field is disrupted.

The road to climate neutrality must therefore be further paved. That is why we are advocating a pragmatic transition, not a revolution, in which clarity and facilitating the goals are at the forefront. Europe’s ambitious climate goals will only be successful if all climate solutions are used. In addition, it is also necessary for climate and economic objectives to be better aligned so that they

“It is necessary for climate objectives and economic objectives to be better aligned so that they can reinforce each other and not be pitted against each other.”

can reinforce each other and not be pitted against each other.

The third challenge is very much about a coherent and feasible route towards climate neutrality by 2050. That is why we advocate the following:

» Challenge 1: A coherent environmental and climate policy

» Challenge 2: Focus on implementing the ambitious climate goals

» Challenge 3: Focus on sustainable energy affordability and guarantee energy security.

CHALLENGE: A COHERENT ENVIRONMENTAL, NATURE AND CLIMATE POLICY

As Voka, we endorse the ambitions for the environment and climate, but have reservations about the distribution of the objectives among the Member States, which tend not to take into account population density, degree of industrialisation, potential for energy generation, etc. At the same time, we notice that we seem to be running into a number of (European) walls, with an immense impact on the granting of permits.

When it comes to environmental indicators, we in Flanders measure more thoroughly and more strictly than the other Member States. This is partly due to the fact that Europe is often not ready on time to draw up guidelines to measure the indicators laid down in the legislation. As a result, Member States are obliged to work with their own guidelines, which are generally stricter in Flanders than in other Member States. It also

means that we are more up-to-date with environmental challenges.

Because we measure better, we are facing certain challenges in Flanders, with permit granting being the prime example. But even apart from the measurement frequency, the causes of the problem lie deeper. All Member States are facing major challenges in reconciling the climate transition, sufficient and affordable housing, economic development, biodiversity and climate adaptation. All these priorities are often accompanied by conflicting claims on space. This is all the more important for us in view of our highly fragmented space that is already occupied. In a densely populated and industrial region such as Flanders, we face the impossibility of achieving the short-term environmental, climate and other objectives at Member State level. The objectives conflict with each other in their actual implementation; all the tasks must be tackled simultaneously and associated with each other. This is an extremely difficult task, which ultimately reflects in the permitting policy and therefore on investment security, the industrial transition and welfare creation, too. Without permits, we cannot deliver on the industrial transition.

The table gives an overview of a number of projects that are suffering as a result. Increasingly, not only large projects but also smaller projects are being confronted with additional administrative and technical obligations that weigh heavily on small structures. In addition, this also has the conflicting consequence of slowing down the sustainability of outdated processes due to a limited exceeding of environmental standards.

Maintaining

Environmental legislation (including Habitats Directive, Birds Directive, Water Framework Directive, etc.)

Climate legislation (EU Climate Law and the Fit for 55 legislation)

Figure 14: Many European ambitions

EXAMPLE

A chemical company wants to modernise chemical facilities for CO2 reduction but cannot reduce NOx intensity yet, although overall NOx emissions will be reduced thanks to a more efficient facility. As a result, problems occur with the permit granting because NOx must also decrease in parallel to the CO2 reduction.

A European network operator wants to upgrade power grids but is not granted a permit for certain projects due to nitrogen emissions during the construction phase. Result: delays in electrification and sustainability for entrepreneurs.

The environmental permit (omgevingsgvergunning) for a new rail link access to a European port by rail freight was nullified because of the failure to assess the construction phase in the appropriate assessment.

A company is hesitating to set up a new recycling project because of the uncertain permitting climate, at the expense of circular economy and recycling targets.

A chemical company wants to install a new facility that is among the best in terms of sustainability and CO2 reduction in its sustainability, with spill-over effects for other facilities. But the company fails to obtain a permit due to stringent EU legislation.

WHICH OBJECTIVES COLLIDE?

Nature legislation versus CO2 reduction

Nature legislation versus electrification

Nature legislation versus modal shift

Nature legislation versus circular economy

Nature legislation versus CO2 reduction

Many wind farm projects continue to be killed off by the Birds Directive. Often, permits for wind turbines are rejected for reasons related to nature: birds, bats, and the like.

Nature legislation versus renewable energy

As Voka, we certainly support the ambitions of the various directives, but we have concerns about their applicability in a densely populated and industrial region such as Flanders. The list of examples also shows that a balance between objectives is absolutely vital. Due to the immense importance for Flanders, we propose a number of items below.

PROPOSAL: A EUROPEAN SOLUTION TO THE PERMITTING ISSUE

We need a broad solution to the permitting issue in Flanders. Not only are we up against the nitrogen challenge in Flanders, but European obligations regarding water and air quality also threaten to become a major problem in the long term and have a major impact on the granting of permits. There is therefore a need for a general solution, where the following principles are crucial.

Recognising cross-media effects

Countering emissions of certain substances in light of the EU’s zero pollution ambition may lead to increased emissions of other parameters. The EU should pay more attention to these cross-media effects. For example, VOC emissions can only be further reduced by installing an (additional) afterburner, which means that CO2 emissions and NOx may be released again. The pursuit of the air quality goals thus leads to cross-media effects, which in turn may hinder other objectives. A similar example is the NOx techniques, where a large reduction in NOx emissions is associated with small, limited ammonia emissions.

Enabling an integrated improvement

Many European regulations set binding objectives. These objectives are often linked to a ban on deterioration and/ or explicit obligations to improve. Think, for example, of the Habitat and Birds Directives or the Water Framework Directive. However, this system often leads to a stalemate; on the one hand, a Member State must make an active effort to achieve its objectives, while, on the other hand, it must also secure the granting of its permit.

In the context of an integrated approach, it is not unreasonable to allow for a limited, temporary deterioration of one substance in exchange for a significant improvement of other substances or surface water quality as a whole and to achieve the long-term objectives set. This ‘integrated improvement’ method ensures a tailor-made trajectory with a balance between economy, industry, climate and environment.

Striving for a programmatic approach that focuses on net environmental quality gains

However, it is necessary to strive for global impact assessments, which focus on a net improvement of overall environmental quality. This also facilitates the transition, enabling incremental improvements (by introducing new, improved techniques time and again). A short-term temporary deterioration simplifies a longterm programmatic approach and allows Member States to work towards the various objectives in an overarching and integrated manner.

Allowing sequencing

Where it is not possible to achieve all objectives at the same time, a framework must also be developed, indicating the sequence of objectives to be followed for Member States. If, for example, it is not possible to achieve both climate neutrality and all the environmental objectives related to habitat protection by 2050 and maintain an industrial base at the same time, Europe must indicate which objectives are more important.

In a far-reaching scenario without a general, structural solution at European level, Flanders, together with the Netherlands, must advocate a carve-out for certain objectives. By this we mean area-based derogations from the generically applicable standards or time schedules. To this end, criteria must be developed (‘when does this area-based derogation apply?’) and the scope of these derogations (‘to which legislation does this area-based derogation apply?’) must also be further developed.

PROPOSAL: AIM FOR COHERENCE BETWEEN EUROPEAN LEGISLATION AND WORK OUT A EUROPEAN STRATEGY FOR INDUSTRIAL REGIONS

In addition, here too we notice a lack of coordination between EU legislation. During the past policy period, initiatives were proposed that focus, for example, on a relaxation of permit granting, see the figure below.

There are two problems with this. First of all, the initiatives are certainly welcome, but they are each very diverse and fragmented (always different details, always different technologies that get exemptions from permits). In addition, it is incongruous to see that the above initiatives were aimed at simplifying permits for renewable energy projects, while during the same policy period the European Nature Recovery Law made renewable energy projects in Flanders more difficult by imposing new nature goals.

The European Union must therefore ensure coherence in new or revised legislation and ensure that other legislative packages are consistent with each other. Not only in relation to permits, but also with regard to industrial policy. Europe increasingly wants to focus on a strong industrial base on its own continent (see Chapter 1). Flanders has a number of crucial building blocks for this: they include the various highly developed and innovative industrial clusters that our country has.

This is why we are calling on the European Commission to draw up a strategy for industrial and densely populated regions for the 2024-2029 policy period, as already exists for agricultural regions. That way, all long-term ambitions can be integrated into one comprehensive

December 22 - 2022

March 16 - 2023

November 20 - 2023

Figure 15: EU-initiatives to accelerate granting of permits

framework and, above all, made realistic. In this strategy, we expect Europe to develop an integrated vision that takes into account economic, climate and biodiversity objectives, including a clear assessment framework if overriding European objectives nevertheless conflict with each other.

PROPOSAL: (EQUIVALENT) MEASURING IS KNOWING – MORE INSISTENCE ON THE UNIFORMITY OF MEASURING TECHNIQUES

As described above, the method of measurement sometimes varies greatly between Member States. It is essential that Member States or regions that carry out very small-scale modelling, such as Flanders, are not punished for this by being assessed on this basis, when this is not the case for Member States that do not model.

In order to ensure that data collected on environmental indicators are sufficiently representative and comparable across the European Union, it is important to use standardised measurement and modelling techniques and common criteria when measuring and assessing. This ensures efficiency; Europe does not have to convert the various reports first in order to be able to compare them. This will ensure a level playing field between Member States and allow for faster and better adjustment. It will mean that local environmental and health authorities can be adequately informed about the risks of local pollution.

Therefore, current and future proposals must include a clear framework (including guidelines on number and location of monitoring stations, measurement frequency and modelling methodology) to ensure sufficient, accurate and comparable data are collected, including data on emerging pollutants of concern.

CHALLENGE: FOCUS ON IMPLEMENTING THE AMBITIOUS CLIMATE GOALS

Over the past policy period, the EU has set ambitious targets for decarbonising the economy by 2030 and 2050. Business supports the ambition for climate neutrality, but notes the need to create the right conditions to invest in the transition. This can be done by creating a business-friendly and business-enhancing environment for climate solutions, which is also consistent with the EU’s

ILLUSTRATION PFAS in Flanders and Europe

An illustration of this is the need for an integrated approach with regard to achieving the European environmental quality standards for PFAS currently being drawn up. PFAS is a largely historical pollution and a widespread problem in Europe and also in the various regions in Belgium. Through the Flemish BAT study of PFAS water, we know that there are still insufficient techniques to be able to purify PFAS to below the European environmental quality standards (EQS). We therefore have gaps in knowledge and innovation and may not be able to meet the European EQS. Various initiatives to tackle PFAS are also being taken through product policy. It is important to have an integrated approach so that we can achieve the EQS in a cost-efficient way with the timeline that Europe sets out. In this integrated approach, account must be taken of the knowledge needs that must stimulate innovation, product policy initiatives and historical pollution.

short-term and long-term competitiveness. The EU must provide companies with planning certainty for the next five years and beyond, without their having to comply with additional new legislation. More specifically, there is also a need for effective financing, joint infrastructure and resilient supply chains. .

PROPOSAL: CREATE AN EFFECTIVE FINANCIAL INSTRUMENT WITH BOTH CAPEX AND OPEX SUPPORT AND ADAPT THE EUROPEAN TAXONOMY TO THE FIELD

One of the challenges for the future is mobilising massive investment for sustainable transition and innovation, as Figure 16 also shows.

For many climate technologies, there are strong arguments for EU funding: many of the benefits come at EU level, so the costs must also be borne at EU level. This is strongly linked to the budgetary wishes already discussed in Chapter 1. Specifically in terms of climate, we see two other important points for improvement.

1. First, the focus must be on financial support for both investment (CAPEX) and operational costs (OPEX), for example through contracts for difference of fixed premiums. It is a fact that at European level, a relatively large number of financial instruments exist to mitigate somewhat the high investment expenditure associated with the transition. The current focus is still too much on CAPEX support. CAPEX grants are often not enough to create a sound revenue model for low-carbon energy investment projects or decarbonisation projects because of higher operating costs. As the use of new raw materials and carbon-free energy leads to higher OPEX costs for companies with a negative impact on the competitiveness of their products, OPEX support must therefore come into the picture, together with CAPEX (which is often more expensive for climate-friendly technologies than traditional technologies). This provides investment security and protection against market disruptions of, for example, gas, electricity or CO2 prices.

2. Secondly, the developed European taxonomy must be adapted to a feasible instrument, including for small and medium-sized enterprises. The taxonomy must ensure that funding flows to sustainable projects as optimally as possible. However, the current regulation on taxonomy has several limitations. Firstly, the criteria must be more in line with the technical and economic reality of the sectors, so that they are realistic. Caution must also be built into the DNSH principle. Although that sounds fine on paper, it is a condition that is difficult to attain and

Figure 16: Annual financing needed for the EU Green Deal objectives (in billions euro)

monitor on the ground for almost all companies, with many possible side effects.

PROPOSAL: WORK ON (COMMON) INFRASTRUCTURE

To achieve the climate goals, there is also a need for the infrastructure of the future. Firstly, the focus must be on the development of a well-connected, cross-border infrastructure for energy, both for electricity and for new energy carriers, which will allow the efficient use of new production and import facilities.

Strong electrification is an important piece of the puzzle for achieving climate neutrality. The urgent need for low-carbon electricity is increasingly pressing in Europe and will continue to increase. We must examine how, and with whom, we can cooperate at European and international level. This could include joint projects, synergies in the North Sea (including the United Kingdom and Norway) and the development of (additional) interconnection capacity via, for example, privileged partners such as certain (North) African countries. In addition, the flexibility of the use of the network and more specifically how consumers and producers can bring their (surplus) energy to market must also be considered. The intermittent nature of renewable energy will put increasing pressure on electricity grids, but concentrating too much on demand side flexibility as a solution may have the opposite effect for certain sectors and even lead to productivity losses. Therefore, in addition to electrification and other intermittent technologies, other solutions, such as nuclear energy,

will have to be developed simultaneously to achieve climate neutrality. The shift towards more low-carbon energy generation must be linked to highly connected European electricity markets and more storage capacity. It is also necessary for smaller and medium-sized companies to have access to the new infrastructure and energy carriers, given that low-carbon entrepreneurship is a necessity for everyone.

Further consideration must also be given to Carbon Capture Utilization and Storage (CCU/CCS) projects in the pipeline, where Flanders has every interest in developing a cross-border and high-performance CO2 infrastructure. In order to stimulate this further, it is advisable to coordinate and harmonise the various private investments more closely, for example through facilitating European legislation on maximum flexibility in (cross-border) CO2 transport. The necessary network can then be realised in the most cost-efficient way, along with the necessary pipeline infrastructure in the ARA region (Amsterdam, Rotterdam and Antwerp port area). Technical specifications should be agreed at European level so that carbon transport can actually take place efficiently and across borders.

Finally, Flanders is now a crucial player in the European Union in terms of security of supply for natural gas. In light of the climate goals, natural gas as an energy carrier and raw material in industry will gradually be replaced, at least partially, by low-carbon hydrogen by 2050. Due to the relatively limited renewable energy

potential in our region plus the high demand (current and future) for hydrogen in industry and the European objectives in this regard, the use of ‘blue hydrogen’ (low-carbon hydrogen based on natural gas with carbon capture) and the import of low-carbon and renewable hydrogen will be an important element in the security of supply. All forms of low-carbon hydrogen have their merits and are complementary. A technology-neutral policy can stimulate the supply and roll-out of low-carbon hydrogen. The development of a common, well-connected infrastructure for hydrogen will allow the efficient use of new production and import facilities.

PROPOSAL: DEVELOP RESILIENT SUPPLY CHAINS AT SCALE FOR KEY LOW-CARBON TECHNOLOGIES

The European Union currently imports many of the critical inputs that clean technologies need, such as solar panels, wind turbines and batteries. Supply chains for some of these key technologies are already under pressure, and geopolitical tensions have exacerbated existing problems. That is why European supply chains must be created at scale.

First, this can be mitigated by building partnerships with commodity suppliers from a diversified range of exporting countries. The European Union could create a more resilient supply chain by identifying scarce materials and technologies produced in geographically concentrated areas and then developing partnerships with suppliers elsewhere.

But production of critical technologies must also be scaled up within Europe. The European Union could boost the scaling up of the European supply chain by imposing local content requirements, providing subsidies, improving access to capital and introducing European sustainable labels. The focus must be on scaling up existing technologies, such as offshore wind power, and creating capabilities with a more innovative and long-term vision. These must be checked against the following three criteria: 1) the EU already has a competitive advantage; 2) it has the potential to be a front-runner; or 3) it needs sufficient capacities because these are crucial for its future economic security. In addition, further efforts must be made to promote recycling and circularity in order to reduce Europe’s dependence on imports of certain raw materials.

CHALLENGE: MAKE ENERGY COSTS COMPETITIVE AND ENSURE ENERGY SECURITY

One of the main challenges for European companies is the price of energy, as Figure 17 also illustrates.

This in itself is very worrying. A further negative development is that the level playing field has not only been disrupted outside Europe, but is also increasingly starting to manifest itself within Europe. This is happening as a result of several uncoordinated national support and pricing measures across the EU that favour its own industry. This also strengthens internal competition between Member States, where energy costs for companies vary widely depending on the region in which they are located.

Two prominent examples were the French reform of the way the state-owned company EDF sells electricity generated by nuclear power and a political debate in Germany about how aggressively the electricity price of energy-intensive companies must be subsidised.20 Of course, this is also strongly linked to the previous discussions on the level playing field with regard to State aid earlier in this memorandum.

In order for a robust industrial base to be maintained in the EU, affordable energy for all European industry must become an absolute top priority of a new European policy agenda, given that the energy costs for industry are still structurally higher in Europe compared to other, global competitors. We note the following points for attention with a view to tackling the energy handicap

Figure 17: Energy cost handicap for EU companies

within and outside Europe.

PROPOSAL: FOCUS ON INTERCONNECTIVITY AND AN INTERNAL EUROPEAN ENERGY MARKET

The European energy market is one of the major sites for development. The Russian invasion of Ukraine has exposed the incohesive nature of the EU energy market. EU countries were unable to break their ties with Russia because they had too few, if any, alternatives to import natural gas, in particular, outside the Russian routes.

By further linking energy infrastructure in all EU Member States, the EU as a whole will be more resilient to sudden changes in energy imports. In addition, the EU must further develop its internal energy generation to manage supply and demand more efficiently and to become more resilient. All low-carbon technologies must be used to make the energy transition sufficiently fast and affordable. The energy infrastructure that is being installed must be adapted to the most cost-effective mix of intermittent generation such as sun and wind, supply-safe generation such as nuclear energy and energy imports via pipelines and ships.

An EU-wide energy infrastructure geared to internationally diversified supply routes will also help EU Member States to manage energy supply fluctuations. Investing in a robust and interconnected energy infrastructure will facilitate the seamless transfer of energy sources between Member States, optimise demand and supply dynamics and ensure more stable energy prices. The EU must play a role in earmarking funding for cross-border energy infrastructure projects, in providing an EU system vision in prioritising these investments and in facilitating discussions between EU Member States so that these investments are implemented quickly.

PROPOSAL: A SOLUTION FOR ENERGY-INTENSIVE INDUSTRY

The huge increase in electricity and gas prices is having a dramatic impact on the competitiveness of European energy-intensive companies. If there is no industrial energy policy that gives energy-intensive industries a place in Europe, this will lead to potential relocation of industry outside Europe and the corresponding knock-on effect that the exodus of some major industrial players will have on value chain-linked clusters (for

example, the Belgian chemical cluster). In addition, we will make ourselves dependent again on imports for certain crucial building blocks (e.g. steel) and the risk that these imports will be made in a more polluting way than was the case in Europe.

Therefore, the implementation of an industrial energy policy specifically for energy-intensive industries is essential. A systematic international competitiveness check in the regulations is therefore necessary. At the same time, a supportive policy must preferably be European and not discriminate between Member States. Europe cannot afford a two-speed Union, where one group of Member States is able to protect its industry and another group of Member States is not.

PROPOSAL: DEVELOP A NEW ENERGY SAFETY STRATEGY WITH A FOCUS ON GEOSTRATEGIC DEPENDENCIES

Russia’s invasion of Ukraine and the turbulence on the European energy markets have ensured that energy and energy security are at the very top of the agenda. The European Union’s energy security strategy was adopted in 2014, shortly after Russia annexed Crimea. Ten years ago, there was no European Green Deal or further escalation in the conflict. This new reality must be reflected in the strategic documents following this year’s European elections.

20. https://www.bruegel.org/policy-brief/europes-under-radarindustrial-policy-intervention-electricity-pricing

It is important that the geopolitical and geostrategic aspects of energy security are fully taken into account, given that the supply of necessary raw materials and energy is the driving force for European industry and economy. This will have to be a combination of energy efficiency measures, our own energy generation, and imports – as we are still 75% dependent on imports for our energy supply.

The security aspect must also be viewed from a European perspective, given that individual measures taken by national governments to protect their own national energy supply are likely to have negative effects on other Member States. The EU must continuously assess this dependence and take appropriate measures. The continuation of joint purchases of energy raw materials can also offer a solution here.

CHAPTER 3 RECOMMENDATIONS: Transition to 2050

A COHERENT ENVIRONMENTAL AND CLIMATE POLICY

A European solution to the permitting problem by allowing global impact assessments and a programmatic approach in European directives.

Aim for coherence in European legislation and work out a European strategy for industrial regions.

(Equivalent) measuring is knowing – more insistence on the uniformity of measurement techniques via standardised measurement and modelling techniques and common criteria.

LINK AN INDUSTRIAL POLICY TO THE IMPLEMENTATION OF THE AMBITIOUS CLIMATE GOALS

Create an effective financial instrument focusing on both CAPEX and OPEX support and adapt the European taxonomy to the field.

Focus on all climate solutions and work on (common) infrastructure for electrification and projects such as CCS and CCU.

Develop resilient supply chains at scale for low-carbon technologies.

MAKE ENERGY COSTS COMPETITIVE AND ENSURE ENERGY SECURITY

Focus on interconnectivity and an internal European energy market.

Implement an industrial energy policy that gives energy-intensive industries a place in Europe.

Develop a new energy safety strategy with a focus on geostrategic dependencies.

Conclusion

It is clear throughout this memorandum that Europe’s importance will continue to grow in terms of geopolitics, competitiveness, climate neutrality and so much more. At a time when globalisation and international competition are on the rise, the importance of a strong and cohesive EU is only becoming more urgent. United action within the EU is vital not only to protect the interests of individual Member States, but also to remain resilient as a European economy in a competitive global landscape. With major economic powers expanding their influence, such as emerging markets and established power blocks, a united Europe is essential if we are to avoid falling behind.

However, if we as a continent want to keep fighting, we will also have to act more as one Europe in order to make a difference. Throughout this memorandum, it has become clear that we also expect this from the business world.

But then Europe will also have to move away from too formalistic and bureaucratic an attitude. The institutions must be reformed and act more decisively. The challenges facing the EU include not only transcending bureaucracy and formalism, but also revising its institutional structure so it can operate more decisively. Reforms are needed to reduce silo operation between different institutions and allow for streamlined, effective legislation. It requires flexibility and adaptability to create an environment

that fosters innovation and promotes growth.

Business is ready to play an active role in promoting closer cooperation with the EU to safeguard the interests of Flemish companies at European level. This symbiosis between companies and policymakers is crucial to creating an environment that encourages entrepreneurship and stimulates economic growth. For this reason, this memorandum is also a call to all policymakers: work towards a proactive, internationally competitive European policy in which business is involved.

“If we as a continent want to keep fighting, we will also have to act more as one Europe in order to make a difference.”

Looking ahead, we must continue to strive for a Europe that is not only strong and resilient, but also flexible enough to anticipate changes and challenges in a rapidly changing world. By working together and striving for a more dynamic and effective EU, we can promote Flemish interests while at the same time establishing a solid European base for future growth and prosperity.

Action now for tomorrow’s Europe

For a competitive and sustainable European policy