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European Union seeks supply chain emergency powers

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The EU's draft proposal would force Europe-based companies to prioritise the manufacture of key products and to stockpile goods in order to help address the supply chain crisis caused by the Covid-19 pandemic.

The bloc's 'Single Market Emergency Instrument' is intended as an emergency tool that would give the EU executive powers to protect supply chains and ensure that essential goods can continue to circulate around the continent in times of crisis, such as a pandemic. 

The proposal is a response to bottlenecks caused by unexpected events, such as the Covid-19 pandemic and Russia's invasion of Ukraine, and it echoes similar measures adopted by the United States and Japan. However, it is expected to face strong pushback from businesses and some of the countries in the bloc - including Belgium, Denmark and the Netherlands - have already warned that it could overstep the bloc’s authority.

The EU's plan has been designed as a way of avoiding the spring 2020 scenario, when the bloc's governments took unilateral decisions to secure masks, gloves and ventilators, including commercial checks and border closures. This situation fractured the EU's internal market, based on the free movement of people and goods. 

"The Covid-19 crisis showed our single market is not perfect. It's strong, but not unbreakable," said Margrethe Vestager, the Commission's executive vice-president, whilst unveiling the draft legislation. "A lack of coordination and transparency damaged our supplies and increased the shortages."

The SMEI instrument introduces a staged approach which would give emergency powers to the commission to monitor and tackle any potential threat that could trigger disruptions or shortages of key products within the EU.

Under the emergency mode, the European Commission would be able to force companies to fill orders within the European Union first during times of crisis or risk fines. It would also ban member states from adopting restrictions on critical goods unless this is justified as a "last-resort measure", asking them to inform in advance of any other unilateral action, such as border closures.

Additionally, the Commission would also be able to procure goods on behalf of all 27 countries, as was the case with the Covid-19 vaccines. They will also oversee the distribution of strategic reserves and recommend the repurposing of certain production lines.

The overall goal is to replace ad-hoc decision-making with greater coordination and planning so as to minimise disruption for both citizens and companies, the EU said, and the emergency mode would require a qualified majority vote in the Council to be triggered. 

"Rather than relying on ad hoc improvised actions, the Single Market Emergency Instrument will provide a structural answer to preserve the free movement of goods, people and services in adverse times," said Thierry Breton, EU commissioner for the internal market. "This [instrument] is not to close supply chains but to keep them open."

The new tool "will give us an inclusive, transparent, fast way to deal with future crises," Vestager added. "We need new tools that allow us to act fast and collectively at whatever kind of risk we face". 

According to the proposed draft, businesses that provide incorrect or misleading information risk fines of up to €300,000 (£262,000). Those failing to comply with an order to prioritise key products could face daily periodic penalty payments of 1.5 per cent of average daily turnover.

Eurochambres, an industry association that represents 20 million businesses in Europe, welcomed the announcement and the focus on preventing "arbitrary restrictions", but warned that the legislation "goes beyond what is needed and risks creating legal uncertainty."

Lobbying group BusinessEurope also voiced its concerns, saying: "An intrusive mandatory ex-ante market monitoring for 'something that may or may not happen under certain conditions which may change beyond our control' fails to meet the proportionality and necessity principles."

The legislation is still a proposal and needs to be negotiated and amended by the European Parliament and member states. The commission already included similar ideas when it proposed the EU’s Chips Act earlier this year to head off potential semiconductor shortages. 

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