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21. A Forward-Thinking Approach to Open Strategic Autonomy: Navigating EU Trade Dependencies and Risk Mitigation

Author:
Matthias Bauer, Oscar du Roy, and Vanika Sharma
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
For the EU, fostering economic interdependence is a more proactive and forward-thinking approach than resorting to defensive measures like eliminating alleged economic dependencies through restrictive regulations, as such actions would negatively impact Member States’ economies. The European Commission and some Member State governments keep pushing for “EU Open Strategic Autonomy”. Several EU laws have already been infused with the concept, resulting in a broad spectrum of EU interferences in production, trade, and investment in the Member States. With the “Resilient EU2030 Report on Open Strategic Autonomy”, the Spanish Presidency of the Council of the EU in September 2023 presented a new roadmap for how to further reduce external dependencies and strengthen EU technological leadership.[1] Similarly, implementing the EU’s Economic Security Strategy initiative, the European Commission presented a list of 10 critical technology sectors aiming to reduce potential economic dependencies and the risk of economic coercion.[2] This paper shows that EU claims about trade dependencies are not supported by trade data. Except for only few products, such as minerals and energy commodities, there are no critical dependencies on products and services imported from outside the EU. Regarding technology leadership, financial transfers for intellectual property rights indicate that EU businesses and public sectors institutions are benefiting much from advanced foreign technologies and innovation. Many if not most of these technologies are crucial for the EU’s international competitiveness, and they cannot easily be replaced by native EU production. At the same time, the EU is a significant exporter of technologies, including ICT and digitally enabled services that are not easily replaceable by non-EU countries. Policymakers should acknowledge the presence of these mutually beneficial interdependencies, as they can act as a hedge against risks like policy-induced disruptions in value chains and economic coercion. EU policymaking needs to recognise that trade and investment interdependencies, which include advanced technologies, are unavoidable. Trade interdependencies are critically important for maintaining competitive economies and high living standards in the EU. To mitigate potential risks, the EU should promote trade and investment relationships with trustworthy and like-minded partners, such as the US and OECD countries. EU policymakers should leverage trade interdependencies by increasing the competitiveness of EU exports, which act as a safeguard against dependency and the risk of economic coercion. Rather than limiting imports, the EU and Member State governments should initiate supply-oriented structural reforms to enhance the capacity and efficiency of production factors within the EU, which would ultimately bolster Europe’s export performance.
Topic:
International Trade and Finance, Treaties and Agreements, European Union, and Strategic Autonomy
Political Geography:
Europe

22. The Imperative of International Cooperation for EU Competitiveness and Resilience in Technology-Driven Industries

Author:
Matthias Bauer, Renata Zilli, and Dyuti Pandya
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The EU must embrace international cooperation and collaboration in technology-driven industries to ensure competitiveness and global relevance, while also considering the drawbacks of isolationist policies. The EU’s commitment to open markets and global cooperation has historically been its strength, and EU policymakers should continue to prioritise on these principles. Global markets, international R&D collaboration and global industry-led standards are crucial for innovation and efficiency in technology-intensive industries. Various sectors, including pharmaceuticals, ICT, aerospace, and defence, heavily rely on global partnerships to stay competitive and advance technologically. International cooperation in economic and security affairs, as exemplified by EU participation in global value chains of advanced semiconductors, the traditional EU approach to industry-led technology standardisation, and EU involvement in the international F-35 fighter development program, is critical for leveraging industry expertise, sharing technological advancements, and collectively addressing challenges in strategic sectors, thereby enhancing Europe’s economic resilience and security capabilities. Trust and legal certainty form the foundation for international partnerships in high-tech and defence sectors. Collaborations among like-minded partners enable secure information sharing, intellectual property protection, financial commitments, and compliance with regulations, while ensuring adherence to key EU values like human rights and the rule of law.
Topic:
International Cooperation, Science and Technology, European Union, Trade, Resilience, and Competition
Political Geography:
Europe

23. The Impacts of EU Strategy Autonomy Policies – A Primer for Member States

Author:
Matthias Bauer
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
EU governments should be much more sceptical and critical of the EU’s strategic autonomy agenda and the new polices intended to achieve the EU’s “long-term” industrial and technological ambitions. The long-term costs for Member States’ economies and the process of economic convergence are largely ignored by the agenda. Negative impacts of strategic autonomy on trade openness and the international rules-based trading system are also greatly understated. Many EU strategic autonomy ambitions are inherently guided by a “European Union First” impulse. Policymakers follow the assumption that EU values are superior to those in other parts of the world and EU regulation should be different from third countries. Major strategic autonomy aspirations represent a relapse of the EU to the old policy of EU member states designing and enforcing their own laws without considering the economic and political costs of regulatory fragmentation and economic disintegration from others. Recent strategic autonomy policies are estimated to create income losses in the EU of between 0.08% and 0.15% of EU27 GDP. These losses correspond to short-term economic harm resulting from changes in the use of productive resources in the EU. Long-run impacts, which reflect losses to productivity and innovation, could be up to 3 to 5 times higher with national income per capita falling by up to 0.5% to 0.75%. The costs are not evenly distributed across the EU27. Larger countries like France and Germany are less impacted than smaller ones, notably Ireland and the Baltic states. The impacts on Ireland, for example, are close to 4 times bigger than they are for France, the impacts on Estonia close to twice those on Germany. Strategic autonomy ambitions have failed to account for negative impacts on developing countries. To the extent that the EU’s policy stance further fragilizes rules-based multilateralism, there are longer-term impacts stemming from a less certain legal environment and higher barriers for cross-border trade and investment. EU strategic autonomy policies have the effect of empowering vested interests in developing countries to engage in lobbying for their own protectionist policies. Accordingly, EU strategic autonomy policies risk encouraging the diffusion of protectionist policies globally, particularly in countries with weak institutional capacity. EU Member States should examine their options and ask themselves whether there are better long-term strategies to pursue than those currently proposed at the EU level, strategies guided by the spirit of an open society – a society embracing the principles of free trade, non-discrimination, and economic freedom. Europe’s policymakers should aim for closer market integration and regulatory cooperation with trustworthy international partners such as the G7 and the larger group of the OECD countries. It is in the EU’s self-interest to advocate for a rules-based international order with open markets. It is neither in the EU’s economic nor its political interest to disintegrate from partner countries.
Topic:
Markets, Treaties and Agreements, European Union, Trade, and Strategic Autonomy
Political Geography:
Europe

24. Strategic Autonomy and Long-term Innovation Competitiveness: On the Importance of Intellectual Property Rights for the Production of High-Value Medicines in the EU

Author:
Matthias Bauer
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s political leaders have in recent months called for “European industrial autonomy”. Notions of dependency, sovereignty and resilience are now also referred to in policy proposals targeted at pharmaceutical companies, with “strategic autonomy” being the ultimate political ambition. The precise meaning of strategic autonomy in biopharmaceutical industries remains yet to be defined, although the current Pharmaceutical Strategy only refers to “open strategic autonomy” in the context of dependencies and supply chains. This is regrettable, as it does not take into account the importance of strategic research and innovation autonomy, allowing the EU to ensure a high degree of autonomy in innovative medicines and therapies. Current policy conceptions fail to account for businesses’ long-term international innovation competitiveness and Europe’s capability to attract investments in pharmaceutical research and cutting-edge production technologies. Present conceptions of strategic autonomy of Europe’s pharmaceutical industry disregard the fact that the EU is substantially lagging the USA and, increasingly, other parts of the word in pharmaceutical innovation. Clinical trials’ pipeline data shows that, in the future, EU Member States will very likely become increasingly dependent on innovative medicines that are temporarily protected by patents and market exclusivity rights held by non-EU rights holders in many therapeutic areas. This gives some urgency to Commission President von der Leyen ensuring that the European industry remains an “innovator” and “world leader” (Mission Letter by Commission President von der Leyen to Commissioner Kyriakides). The European Commission’s current understanding of sovereignty in pharmaceutical industries centres around one core theme: the reduction of dependencies from pharmaceutical suppliers outside the EU. At the same time, in an effort to achieve equitable access to affordable medicines and to foster research into unmet medical needs, it considers changes in the incentive structure for research in medicines for children and rare diseases, and new obligations for companies to achieve a more equitable access to medicines across Member States. While these objectives are generally merited, the Commission has established a narrow perspective about a concept that is aiming for ambitious long-term achievements for Europe’s pharmaceutical industry. The industry’s future innovation competitiveness and the capacity to develop and produce high value-added medicines, which should be at the core of any concept of long-term autonomy, have largely been ignored.
Topic:
Intellectual Property/Copyright, European Union, Innovation, Medicine, Strategic Autonomy, and Economic Competition
Political Geography:
Europe

25. The EU Digital Markets Act: Assessing the Quality of Regulation

Author:
Matthias Bauer, Fredrik Erixon, Oscar Guinea, Erik van der Marel, and Vanika Sharma
Publication Date:
02-2022
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The proposed Digital Markets Act (DMA) is an opportunity to prevent and remedy anti-competitive conduct by large digital platforms. If the Act is designed in an adequate manner to target specific problems, it can improve the contestability of platform services markets and markets that rely substantially on digital services. However, the DMA takes a novel approach to regulation, and novelty in concepts and regulatory requirements can lead to outcomes that later have to be corrected. Fortunately, the EU is not alone in experimenting with new regulations that specifically target the market power of large digital platforms. There is a great scope for policymakers to learn from similar frameworks in Europe and the United States. In this study, we compare key parts of the DMA proposal with similar legislation implemented or proposed in Germany, the United Kingdom and the United States –– in light of established principles for good regulatory design. We analyse the structure and quality of these regulations, not if they go in a certain ideological, political or commercial direction. We find that there are some areas where the EU could learn from other proposals to make the DMA more fit for purpose, and avoid unintended consequences on Europe’s economy.
Topic:
European Union, Regulation, Digital Economy, and Digital Markets Act (DMA)
Political Geography:
Europe

26. Discrimination, Exclusion and Environmental Harm: Why EU Lawmakers Need to Ban Freight Transport Restrictions to Save the Single Market

Author:
Matthias Bauer
Publication Date:
06-2020
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The EU’s Mobility Package 1 legislative proposal was once intended to improve the working conditions of truck and small-van drivers in the EU. Initially, the European Commission also aimed at securing a smooth and non-discriminatory functioning of the Single Market. Some provisions of the current package may indeed have a positive impact on drivers’ working conditions, e.g. limits on working time and obligatory rest periods. However, over the past three years, the legislative procedure towards the current draft of the Mobility Package 1 was hijacked by the protectionist agenda of Western Europe’s haulage and logistics businesses. Spearheaded by the French government, some national governments and Members of the European Parliament called for tighter freight cabotage and return-to-home provisions to shield Western European transport markets against competition from other EU Member States. The proposed restrictions to cross-border trade in the European Single Market are up for a vote in the European Parliament in mid-2020. Learnings from the Covid-19 situation in the Single Market: In its response to Covid-19 border measures, the European Commission called on EU governments “to act immediately to temporarily suspend all types of road access restrictions in place in their territory (weekend bans, night bans, sectoral bans, etc.) for road freight transport and for the necessary free movement of transport workers.” These actions are step in the right direction and should continue even once the Covid-19 crisis is over, yet they are the exception not the rule in the EU. The rise of protectionist measures to Member States’ national transport markets vividly demonstrates the need to abolish freight cabotage restrictions in defence of the Single Market. For the sake of a greener, more inclusive and better functioning of the European Single Market, lawmakers need to abandon all existing restrictions on freight cabotage services in the EU27 and vote against new restrictions such as cooling-off periods and return-to-home policies. Maintaining legal restrictions on the freedom to provide transport services in the EU’s Single Market would increase tensions between economically less-developed countries in Central and Eastern Europe and more developed Western European countries – economically, mentally and politically. Discrimination on the basis of EU passport: Cabotage restrictions infringe upon the fundamental values stipulated in the Lisbon Treaty. Furthermore, data on transport flows and employment demonstrate that cabotage regulations disproportionately discriminate against Eastern European companies and citizens. Available data shows that Polish (4,574 enterprises), Romanian (1,864), Lithuanian (519), Hungarian (398), Slovakian (347), and Dutch (309) haulage companies are disproportionately affected by current EU-imposed cabotage restrictions. By contrast, only a very small number of French freight transport companies (an estimated number of 70 enterprises) directly depend on intra-EU cabotage services. In France, only about 800 workers employed in road freight transport services are directly affected by the restrictions. The numbers are substantially higher for other, particularly Central and Eastern European, countries: 20,100 persons in Poland, 9,800 in Romania, 6,300 in Lithuania, 3,400 in the Netherlands, 2,300 in Portugal, 2,200 in Hungary, and 2,100 in Germany. Exclusion from economic opportunity: Freight cabotage restrictions increase the administrative burden for internationally operating haulage companies across the EU. Industry assessments indicate that additional limitations on international freight transport services within Europe’s Single Market would raise the prices of transporting goods in Western Europe. Negative impacts are estimated for employment, wage growth and the process of economic convergence in Central and Eastern Europe. In addition to the EU’s existing freight cabotage restrictions, new limits on cross-border freight transport in the EU – such as EU law-imposed return-to-home trips and EU-mandated cooling-off periods – would deprive many Eastern European households of economic opportunities and impede the process of economic convergence and converging standards of living in the EU. Environmental harm: The return-to-home policies proposed in the latest Mobility Package 1 would require companies to send drivers back to operational centres or the driver’s place of residence. Return-to-home provisions would substantially increase the number of empty trailers on European roads. Accordingly, and adding to the adverse environmental impacts caused by existing freight cabotage restrictions, new EU-imposed return-to-home obligations would deteriorate Member States’ carbon emission footprints. The highest increases would take place in the EU’s major transit countries such as Germany, the Netherlands, Belgium and France. While this is recognised by the European Commission, the majority of the European Parliament’s Transport Committee is still pushing for such policies to be implemented as the EU law. How to save the EU’s fundamental values and the freedoms of the Single Market – lessons from aviation: In 1993, the EU completed the EU’s internal aviation market for passenger cabotage. Guided by the European Commission, EU lawmakers should follow the same rationale for freight cabotage services to render the Single Market more single and less discriminatory. In the process towards a real, more inclusive Single Market, EU lawmakers must abstain from catering Western European companies’ vested commercial interests, which stifle economic opportunity across the EU and stand in opposition to the EU’s fundamental principles for international trade and a competitive and social market economy.
Topic:
International Political Economy, International Trade and Finance, Law, European Union, Global Markets, Legislation, Shipping, and Protectionism
Political Geography:
Europe

27. Europe’s Quest for Technology Sovereignty: Opportunities and Pitfalls

Author:
Fredrik Erixon and Matthias Bauer
Publication Date:
05-2020
Content Type:
Research Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Covid-19 and its broader implications have highlighted the importance of Europe’s digital transformation to ensure Europeans’ social and economic well-being. It provides important new learnings about Europe’s quest for “technology sovereignty”. While the debate about technology sovereignty is timely, the precise meaning of sovereignty or autonomy in the realm of technologies remains ambiguous. It should be noted that the political discussions about European technology sovereignty emerged far before the outbreak of the Coronavirus. The European Commission’s recently updated industrial and digital policy strategies “institutionalised” different notions of sovereignty, reflecting perceptions that more EU action is needed to defend perceived European values and to secure Europe’s industrial competitiveness. Often the political rhetoric reflected perceptions that Europe is losing global economic clout and geopolitical influence. It was said that dependency on technological solutions, often originating abroad, would require a European industrial and regulatory response. Against this background, the Corona crisis provides two important lessons for EU technology policymaking. Firstly, during the crisis digital technologies and solutions made European citizens stronger. Technology kept Europe open for business despite the lock-down by enabling Europeans to work from home, receive essential home deliveries, home schooling, online deliveries and to use online payments, etc. In addition, Europe’s citizens became more sovereign with respect to accessing information and data that helped track and contain the spread of the virus. Secondly, the crisis tested Europe’s resilience and perceived dependency on (foreign) technology solutions. Early developments indicate that Member States’ homemade solutions did not fare better than existing European and international solutions. A few national and EU IT solutions failed while existing European and global solutions, from cloud infrastructure to communications, payments to streaming services, all continued to work well. Politically, however, the crisis could be used to justify more EU or national government interference in Europe’s digital transformation. Indeed, for some the debate about European technology sovereignty is largely about designing prescriptive policies, which paradoxically risk reducing Europeans’ access to the innovative technologies, products and services that helped Europe through the crisis. Policies taken into consideration include new subsidies to politically picked companies, or new rules and obligations for certain online business models. Policy-makers advocating for such policies tend to ignore critical insights from the Covid-19 crisis and failed industrial policy initiatives, including sunk public investments and protracted subsidies for industrial laggards. In a time of economic hardship, the EU and national governments should be wary of spending even more taxpayer money to replicate existing world-class technology solutions, that in most cases are used in combination with local technologies, with “Made in EU” services of inferior quality and reliability. Moreover, due to different levels of economic development and differences in regulatory cultures, prescriptive technology policies would exclude many Member States from utilising existing and new opportunities that arise from digitalisation, slowing down economic renewal and convergence. The EU cannot be considered a monolithic block that thrives on a unique set of prescriptive technology policies. Before the Corona pandemic, initiatives towards European technology sovereignty were mainly pushed by France and Germany, fed by concerns over their companies’ industrial strength in times of growing economic and geopolitical competition. Industrial and technology policies favoured by the EU’s two largest countries will have a disproportionately negative impact on Europe’s smaller open economies, whose companies and citizens could be deprived from cutting-edge technologies, new economic opportunities and partnerships on global markets, undermining these economies’ development and international competitiveness. Any EU-imposed technology protectionism along the lines suggested by some policy-makers in large EU Member States would leave the entire EU worse off. It would disproportionately hurt countries in Europe’s northern, eastern and southern countries more than the large countries whose economies are generally more diverse than Europe’s smaller Member States. It would, however, make sense for the EU to agree on a shared definition of “technology sovereignty”. Different interpretations could cause serious policy inconsistencies, undermining the effectiveness of EU and national economic policies. Anchored in technological openness, technology sovereignty can indeed be a useful ambition to let Europe’s highly diverse economies leapfrog by using existing technologies. To become more sovereign in a global economy, Europeans need to focus on becoming global leaders in economic innovation – not just in regulation. If anchored in mercantilist or protectionist ideas, technological sovereignty would make it harder for many Member States to access modern technologies, adopt new business models and attract foreign investment – with adverse implications on future global competitiveness, economic renewal and economic convergence. Policymaking towards a European technology sovereignty that benefits the greatest number of Europeans – not just a few politically selected “winners” – should aim for a regulatory environment in which technology companies and technology adopters can thrive across EU Member States’ national borders. The European Single Market has deteriorated in recent years and significantly during the crisis. The new von der Leyen Commission has now repeatedly called for a strengthening of the Single Market. Becoming a world leader in innovation requires a real Single Market in which companies can scale up, with as few hurdles as possible, and then compete globally. It should be supplemented by pro-competitive policies and incentives for research and investment. Brussels cannot set the global standards in technology policymaking alone. Europe’s policy-makers should aim for closer market integration and regulatory cooperation with trustworthy international partners such as the G7 or the larger group of the OECD countries. It is in the EU’s self-interest to advocate for a rules-based international order with open markets. International cooperation should be extended beyond trade to include cooperation on technology policies, e.g. artificial intelligence. Regulatory cooperation with allies such as the USA is essential to jointly set global standards that are based on shared values. Both the EU and the US have much more to gain if they prioritise such alignment, to advance a shared vision for a revamped open international trading system, in a world increasingly influenced by regimes with fundamentally different views on state intervention and human rights. Anchored in technological openness, the EU and the US can promote technology sovereignty that allows for development and renewal elsewhere in the world.
Topic:
Industrial Policy, International Political Economy, Science and Technology, Sovereignty, European Union, and COVID-19
Political Geography:
United States, Europe, and Global Focus