A Future Agenda for Europe

POSITION PAPER | EUROPEAN POLICY

A Future Agenda for Europe Seven priorities for industrial policy 2019 to 2024

5 July 2019 ▪ The EU needs a modern industrial strategy that is founded on strong governance.

This strategy should be implemented and coordinated by a Vice President in the 23. Oktober 2017 new European Commission. The objectives of the industrial strategy are to create a level playing field at both global and European level and promote the development and application of emerging technologies in Europe.

▪ The EU institutions should develop and implement an ambitious action plan for the completion of the Single Market in all areas.

▪ To strengthen the competitiveness of our continent in the long term, investments in trans-European transport networks, the digital infrastructure and European energy grids need to be more consistent.

▪ The European competition regime should be strengthened by promoting cooperation between businesses, improving merger control proceedings, taking greater account of the global competition in merger decisions, and focussing state aid rules on stimulating investment and innovation.

▪ The digital transformation of the economy must be supported by establishing a common European data space, focussing on industrial digital business models, and implementating Horizon Europe in an industry-friendly fashion.

▪ We will only manage to build a sustainable Europe if we succeed in aligning the goals of industrial policy with ecological goals in the further development of the gas sector, the circular economy, mobility, and climate and environmental policy.

▪ The EU must make all efforts to uphold the WTO as the central regulator of international trade and pursue an ambitious foreign economic policy, particularly in relation to the United States and China.

A Future Agenda for Europe

Content Preamble: Setting the Course for Europe’s Political Agenda ........................................................ 3 1. Develop an EU Industrial Strategy 2030 ....................................................................................... 4 2. Launch a new start for the Single Market ..................................................................................... 5 3. Promote investment and infrastructure ........................................................................................ 6 4. Strengthen the European competition regime ............................................................................. 7 5. Make the European digital economy a frontrunner ..................................................................... 8 6. Strengthen the industrial base for a sustainable Europe ........................................................... 9 7. Preserve and develop the international economic order .......................................................... 10 Imprint ................................................................................................................................................ 11

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A Future Agenda for Europe

Preamble: Setting the Course for Europe’s Political Agenda In view of the numerous challenges facing Europe from within and abroad, caused by increasing international tensions, climate change and rising populism and nationalism, the continent needs a strong and sovereign European Union (EU). The European Union must not only retain its global influence in the realm of foreign, security and development policy, but also strengthen Europe’s position in economic, financial and industrial policy in international competition by adopting a wise course.

Only a strong European economy will build a strong Europe. The key objectives for financial and economic policy in the next European policy cycle must be structural reform in the tax system and in educational policy, public investment in infrastructure and incentives for private investment in research, development and emerging technologies as well as new business models. During the next EU legislature, these key objectives must be supported by an Industrial Strategy 2030, an ambitious deepening of the Single Market, and a realignment of the EU Financial Framework 2021-2027. This encompasses a reformed regional policy that is closely aligned with the EFSI successor programme InvestEU and making the ninth research framework programme, Horizon Europe, industry-friendly.

Monetary policy must remain accommodating in order to maintain macroeconomic stability. Financial policy must be geared consistently towards growth and consolidation, particularly in the highly indebted EU member states. Many member states need to make their public budgets more growth-oriented.

This means not only making the necessary investment in public infrastructure and human capital, but also reducing the tax burden of companies to an internationally comparable level and making the high investments needed in climate protection, sustainability, innovation and digitalisation. Consistent progress needs to be made in deepening the Monetary Union and completing the Banking Union and the Capital Markets Union.

Steps must be taken to strengthen Europe’s security and capability to act. The common EU foreign, security and defence policy embedded in the transatlantic alliance strengthens the ability of Europe to shape the international arena. Swift progress is needed with the European Defence Fund and Permanent Structured Cooperation. Core components here must include clearly defined requirements regarding military capabilities and innovations, a substantial increase in the volume and efficiency of defence expenditure, and common arms development and procurement projects. Only united can Europe increase its effectiveness and efficiency, secure its technological sovereignty, reduce costs and benefit from significant efficiency gains through cooperation in planning, research, development and procurement.

This paper sets out the measures which Germany industry – both listed corporations and mediumsized family businesses – believes are required of the EU in the next policy cycle in the field of economic and industrial policy. The EU institutions have recently already taken major steps to set the future course, for example in the relations of the EU to China. More major decisions are on the horizon, including the appointment of leadership positions, the new political agenda of the EU, and the financial framework. The EU needs a high level of social responsibility, capable institutions and a clear course to prepare for the future.

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A Future Agenda for Europe

1. Develop an EU Industrial Strategy 2030 The EU needs an Industrial Strategy 2030 that aligns industrial policy, ecological and social objectives, and focuses on the following: -

Formulate ambition for industrial policy: The EU institutions should set an ambitious industrial target for the year 2030. This target should be substantiated with a set of indicators that enables a quantitative monitoring of the industrial development in Europe on a global comparison.

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Set up industrial policy governance: The Commission President should mandate a Vice President with the coordination and implementation of the EU Industrial Strategy. The European Commission should also appoint a high-level group of industry representatives to provide a qualitative analysis of EU industrial policy in the context of global developments.

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Better align the EU Council towards competitiveness: The EU heads of state and government should address industrial development every year at the spring meeting of the European Council and adopt industrial policy guidelines. The EU Competitiveness Council should work in closer cooperation with other council bodies on all levels to include the competitiveness perspective into discussions on environmental, climate and consumer policy at an early stage.

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Greater resolve in strengthening Europe as an industrial location: The top priority should be economic and trade policy measures that reinforce rules-based global competition. The EU institutions should also focus particularly on strengthening competition in Europe by deepening the Single Market for services, energy and digital services and products. In the upcoming financial framework, the budget for agricultural policy should be reduced in real terms and investment substantially increased in research and development, new technologies and infrastructure for transport, energy and digital networks.

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Develop emerging technologies in Europe: The EU institutions and member states should review increasing their public commitment to the financing of innovation. The European Commission should also continue the work on key strategic value chains and ensure that it follows a transparent selection process based on clear criteria. The objective here must be to bring technologies in Europe to industrial application and enabling them to grow.

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Support innovative climate protection technologies and transformation processes in the economy: The EU should support research areas that advance climate protection and that are essential for retaining European value chains with a particularly high level of investment. The European Commission should tackle the reduction of regulatory and social barriers to innovative technologies in, for example, carbon storage, power lines and energy storage. Sustainable financing for the transformation processes in industry and contributions to climate and environmental protection as part of value chains should also be possible.

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A Future Agenda for Europe

2. Launch a new start for the Single Market Companies can not harness the full potential of the EU Single Market due to persisting fragmentation, the inefficient implementation and enforcement of EU legislation, and protectionism. The EU institutions should therefore develop and swiftly implement an action plan for the completion of the Single Market in all sectors.

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Create a Single Market for industry-related services: The European Commission should conduct an extensive analysis of all barriers to the cross-border provision of industry-related services. The EU institutions should then implement concerted measures on this basis to reduce the fragmentation of national service markets. Further necessary steps are improving the channels available to companies to receive information on specific market regulations and facilitating the cross-border deployment of employees.

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Prepare Single Market for international tax competition: In order to facilitate cross-border business operations and create a level playing field, the EU institutions should swiftly work on complete harmonisation of the EU value added tax system. The EU should also continue to work towards harmonising standards for corporate taxation. The introduction of a Common Consolidated Corporate Tax Base (CCCTB) should ensure that companies are only taxed once within the EU. Finally, to tackle the challenges posed to taxation by digitalisation, the European Commission should work towards global solutions and creating a level playing field as well as establishing an effective dispute avoidance and resolution mechanism.

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Make European company law more business-friendly: The EU institutions should simplify the freedom of establishment in the Single Market, ensure entrepreneurial freedom in the founding and conduct of business operations, and increase legal certainty. The new procedure for cross-border restructuring measures must be implemented efficiently and not turn out in practice to be a barrier to mobility. The objective of establishing the legal form of a European Private Company (SPE Statute) should be taken up again and the statute adopted in a process of increased cooperation.

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Ensure a modern SME policy: The European Commission should provide SMEs with nonbureaucratic channels to the relevant funding programmes and targeted regulatory exemption clauses. Another important step is the reform of the SME definition (increased thresholds) and ensuring that a culture of “think small first� prevails in all the Commission services.

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Reduce bureaucracy, improve EU law-making: The decision-making procedures on the EU level must be made more transparent and provide opportunities for all stakeholders to participate in a more significant way. To achieve this, the European Commission should update and expand the Guidelines and Toolbox for Better Regulation. It should also further develop mechanisms to avoid or reduce bureaucracy.

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Improve implementation and enforcement of EU legislation: The European Commission should put more focus on the correct national implementation of EU legislation with more systematic monitoring and more detailed implementation plans and reports. She should make consistent use of the instrument of infringement proceedings to combat violations of EU law.

Involving stakeholders in the Commission’s monitoring of implementation should also be considered.

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A Future Agenda for Europe

3. Promote investment and infrastructure High private and public investment in products, knowledge, business fields and infrastructure are still essential to strengthen Europe’s competitiveness for the long term.

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Promote investment activity: After the successful implementation of the EFSI, the EU institutions should now make swift progress with InvestEU in concert with a reformed cohesion policy that makes greater use of the instrument of investment promotion. Cohesion policy should be coordinated more closely with the European Semester and the application process structured made more business-friendly. The member states must improve their tax parameters in general and for investment in research and digital technologies in particular.

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Create high-performance trans-European transport networks: In order to optimise crossborder logistics processes, investment in transport infrastructure at the EU level needs to be more coordinated, particularly in the expansion of capacities, the interoperability of the rail network and broadband mobile telephony coverage along the transport routes. Furthermore, innovative vehicle concepts for the transport of goods by road, rail, waterway and sea, and the digitalisation and standardisation of logistics must be supported. More climate-friendly and less resource-intensive mobility also requires investment in new technologies for transport management systems and the development of refuelling and charging infrastructure for alternative drives and fuels.

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Guarantee secure and reliable digital infrastructure for cross-border applications: Gigabyte networks should be available to all companies, private households and along all transport routes and across internal borders by 2025. Fifth-generation mobile networks, fibre optic networks, ideally right up to individual buildings and apartments and equally highperformance connections, such as HFC networks, will be key components of the gigabyte technology mix. Extensive harmonisation and coordination of the spectrum is required in Europe to strengthen investment and allocate suitable spectrum in good time and efficiently.

The availability of frequencies for 5G must be guaranteed. Secure hardware in combination with trustworthy data must be used to guarantee data security.

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Further expand European energy grids: All member states must reach the European objective for interconnection by 2020 of at least ten percent of installed electricity production.

It is equally important that grid bottlenecks within individual member states are remedied more rapidly than in the past to also physically enable a real Single Market for energy. The expansion of transmission grids must take place hand-in-hand with the growing proportion of renewable energy to keep capacity shortages and the consequent shutdowns of wind and solar plants and the expensive provision of secured output to a minimum. It should also be ensured that the amounts of electricity are really also available across borders in the event of regional shortages.

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A Future Agenda for Europe

4. Strengthen the European competition regime The competition regime of the EU has generally proven to be successful throughout the last 60 years.

The openly protectionist industrial policy approach adopted by some countries outside the EU to create national champions, and the advancing digitalisation of the economy pose new challenges to the competition regime. The top priority must be to defend the achievements of the market economy in Europe.

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Strengthen rather than weaken the EU competition regime: Open markets and an effective supervision of competition by the European Commission and the national competition authorities are key elements of our economic system. Any changes to competition law made as a response to global markets should therefore also be considered in the light of their impact on competition within the Single Market. Well-established instruments such as EU merger control and the state aid law should under no circumstances lose their power.

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Encourage cooperation between companies: Competition legislation does not clearly define limits for collaboration between companies, or for joint research projects, which play an important role in the age of Industry 4.0. Companies who, for example, want to develop new digital projects using a common platform need to have greater legal certainty. This could be achieved through, for example, informal preliminary talks with authorities, official decisions that indicate that “there are no grounds for action”, and a revision of the guidelines of the European Commission on horizontal cooperation agreements.

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Improve merger control proceedings: Merger control proceedings of the European Commission often take too long and cause disproportionate costs. The excessive amount of information and documentation currently required must be reduced to a reasonable and manageable amount and the often lenghty pre-notification procedures should not constitute the norm. The current elements of “checks and balances” within the European Commission should be strengthened considerably by, for example, setting up separate teams to investigate and prepare decisions.

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Take greater account of global competition in merger control proceedings: Depending on the individual case, the European Commission could focus more on the global competition from non-European companies, extend the timeline for reviewing any anticipated potential competition and take greater consideration of efficiency aspects.

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Re-align state aid rules: EU state aid rules should focus on promoting the investment and innovation of key technologies. IPCEIs, joint projects in key technologies such as microelectronics, battery cell production or the low carbon industry, must be promoted more broadly and approval procedures accelerated.

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Create a global level playing field: The international community must persue the reform agenda of the WTO. This includes introducing new rules on state-owned enterprises and against the forced transfer of technology. Compliance with existing rules, such as subsidy control, needs to be improved. All members should commit to move towards market openness, depending on their economic development. Furthermore, the EU should continuously review its trade defence instruments with respect to effectiveness and adequacy of procedures.

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A Future Agenda for Europe

5. Make the European digital economy a frontrunner The EU institutions should support the digital transformation of the economy by promoting collaboration across borders, industries and technologies.

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Collecting data and building up a European data space: We need to drive forward the development of the European data economy. For this purpose, the EU institutions must support the creation of European standards. The application of competition and data protection law should enable partnerships. The voluntary provision of data to support the development of AI applications in Europe needs to be stimulated. We strongly oppose the introduction of general legal obligations to grant access to data and on data sharing and are convinced that strengthening the principle of contractual freedom and self-regulation within individual sectors is the way to go.

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Expand potential of digitalisation in industrial core competences: In order to harness the enormous potential of digitalisation – not least to combat climate change – the EU must focus on its core industrial competences and build on them. The technological leadership of European industrial enterprises, particularly in the B2B sector, needs to be expanded to make Europe the leading place for industrial digital business models. The European Commission must step up its efforts to press ahead with digital industrial policy and promote cross-border cooperation.

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Strengthen security and trust: The EU must make the security of data, services and networks a priority. The key step here is to strengthen the cybersecurity industry in Europe – above all by creating a common, standardised European procurement market. The EU institutions also need to structure and support high-performance data centres, which are the essential basis of the data economy in Europe, in a manner that promotes competition.

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Targeted support and broadening application of key enabling technologies: The objective of the EU must be to strengthen the good starting position of Europe in international competition in the industrial application of technologies. The EU institutions must provide targeted support for the research and development of key enabling technologies and pave the way for increased cooperation between research and industry. The application of emerging technologies must be broadened and companies supported in building up the competence to integrate these technologies into their own products and processes.

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Develop an ambitious innovation policy: The EU institutions should further notch up their funding policy in comparison to the United States and China. The first negotiation results on Horizon Europe are pointing in the right direction. The focus now has to be on achieving industry-friendly implementation and providing an appropriate budget of at least 120 billion euros.

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A Future Agenda for Europe

6. Strengthen the industrial base for a sustainable Europe German industry supports the UN Sustainable Development Goals and considers the restructuring of the EU into a climate-neutral economy and society one of the largest challenges of our times. We can only build a sustainable Europe with a strong industrial base. A strong industrial base, in turn, requires swift action on the following fronts: -

Set course to reach long-term climate policy goals: The EU institutions should analyse the need for renewable electricity and synthetic fuels as well as the necessary storage and infrastructure at an early stage and remove any barriers. They should also develop an international supply strategy to cover the expected imports of synthetic gases and fuels that will be required.

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Align climate protection and supply security in the gas sector: The announced EU gas package should set out the framework for the low-cost supply of natural gas and provide incentives for a large-scale implementation of green PtX projects. The use of green and possibly blue hydrogen in industrial processes and the transport sector should be given priority in the medium term over an EU-wide addition of hydrogen to the natural gas network.

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Further develop the circular economy: The EU should continue in its efforts to create a market-based circular economy and support the development of functioning markets for highquality secondary raw materials. That encompasses further strengthening the coherence between legislation on chemicals, products and waste as well as supporting technical innovations in recycling and waste recovery.

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Technologically neutral approach towards mobility: The White Paper on Transport should set out concepts to support the market penetration of climate-friendly technologies. The EU institutions should develop a lifecycle methodology to measure the emissions of a vehicle.

During the review of the CO2regulation incentives for the exploitation of synthetic fuels should be included in order to reap the benefits of all alternative powertrains.

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Promote international cooperation in climate protection: To establish a climate-neutral economy and society, the European Commission needs to advance cooperation between the contracting states with proposals for the formulation of Article 6 of the Paris Agreement.

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Update state aid regulations: The carbon leakage protection must be further developed and the guidelines in energy and environmental sector adapted in order to address the risks of distorting international competition through rising electricity and carbon costs and reduce the overall burden.

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Set realistic environmental policy goals: The European Commission should further develop the Water Framework Directive to provide legal certainty beyond 2027. The revision of the directive must enable the effective authorisation of industrial facilities.

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Make the instruments and procedures of environmental legislation more effective: In its review of the Industrial Emissions Directive, the European Commission should improve the process of drawing up conclusions on the best available techniques. This includes creating reliable framework conditions based on technical expertise and an impact assessment as well as focussing data collection on processes and pollutants that are relevant to the environment and improving data evaluation.

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A Future Agenda for Europe

7. Preserve and develop the international economic order The EU must make all efforts to preserve the World Trade Organization (WTO) as the central institution to prevent trade disputes and establish and enforce liberal rules of trade on the international level. A strong foreign trade policy is essential to strengthen the competitiveness of Europe and defend the principles and values of the market economy.

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Strengthen the world trade order and multilateral cooperation: Preserving and strengthening the WTO must continue to be a priority for the EU. All forums, including the G7, G20 and the OECD, must be used to work towards open markets, fair competition and transparency, particularly vis-à -vis state-controlled economies, and to modernise the multilateral set of rules – e.g. in digital trade.

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Negotiate modern free trade agreements (FTAs) and create framework conditions for development: The EU should focus on bringing the negotiations with the Mercosur countries and the ASEAN member countries to a successful conclusion and implementation. In the FTAs, the EU should promote transparency and public support as much as the reduction of non-tariff trade barriers and simplifying the use of these agreements. With provisions in FTAs, the EU actively contributes to achieving ambitious social and environmental policy goals.

These efforts must not result in protectionism or bring negotiations to a standstill. As the largest individual donor of official development aid, the EU institutions and the member states together should resolutely advance the implementation of the Economic Partnership Agreements. The current standstill in negotiations, above all with partner countries from East and West Africa, must be overcome.

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Promote cross-border investment: Especially in these times of rising investment protectionism around the world, the European Commission should show resolve in supporting the openness of the EU to foreign investors. The European Commission must also ensure that cross-border investments of European investors are afforded sufficient protection. Following the termination of intra-EU investment agreements, a new legal protection instrument must be swiftly put in place in the EU to ensure that the level of protection given to European investors does not diminish. Ambitious investment promotion and protection agreements must be concluded with other countries such as China. The plans to establish a multilateral investment court need to be pursued further.

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Strengthen transatlantic relations: The European Commission should work with the United States to find solutions to trade policy disputes. The punitive tariffs imposed by the US on steel and aluminium imports must be lifted and the threatened restrictions on car imports prevented.

Transatlantic trade discussions on tariffs for industrial goods and regulatory issues must now be successfully continued and concluded. Both sides should use their common interests to modernise their international trade rules, ideally within the framework of the WTO.

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Implement measures for an EU-China strategy swiftly but prudently: The ten actions proposed by the European Commission and the High Representative to structure the relations of the EU with China, and particularly those related to economic policy, are a step in the right direction. The EU institutions need to take concrete and swift action on the competition between our open market economy and the state-controlled economy of China while preventing new risks and burdens for European companies. Implementation should take place in close coordination with international partners that share our values.

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A Future Agenda for Europe

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Contact partner Dr. Klaus Günter Deutsch Head of Department Research, Industrial and Economic Policy T: +49 30 2028-1591 k.deutsch@bdi.eu Dr. Heiko Willems Director BDI/BDA The German Business Representation T: +32 2 7921002 h.willems@bdi.eu

BDI publication number: D 1054

This translation is based on “Position | Europapolitik” as of 20 June 2019.

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