Proposed EU powers could force member states to stockpile and break contracts during supply crises

Wed 21 Sept 2022
Posted by: William Barns-Graham
Trade News

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The EU is looking to introduce emergency powers to protect European supply chains during times to crisis such as the pandemic or war in Ukraine.

New rules, which would require new legislation, would force member states to stockpile key products and break contracts during a crisis.

Aimed at public procurement of critical goods and services, the ‘Single Market Emergency Instrument’ would also allow Brussels to ask companies for information about their production capacity and inventory.

Avoid restrictions

The instrument would prevent individual states from enacting internal restrictions such as restrictions on exports, border closures or price hikes that aggravate the effect of a crisis and lead to the fragmentation of the Single Market.

Officials said the bloc needed to be better prepared to react to the next supply chain crisis, reports the FT.

Other countries, including the US and Japan, already have measures in place for strategic reserves and priority orders.

‘Command economy’

Reuters reports that the initiative put forward by the European Commission on Monday could face pushback from companies, especially Eastern European states who feel it smacks of a ‘command economy’.

The draft rules empower the Commission to order EU states to reorganise supply chains and increase supplies of crisis-relevant goods as quickly as possible, including expanding or repurposing existing production capacities or setting up new ones and placing crisis-relevant goods on the market.

Green transition

European Commission president Ursula von der Leyen has also said that the EU needs to update its links with reliable countries to secure supply of lithium and rare earths that power the switch to a green economy, reports Reuters.

The EU wants to avoid the type of dependency it is experiencing with oil and gas, noting that 90% of rare earths and 60% of lithium are processed in China.

FTA clauses

Politico reports that the EU is getting serious on including sustainability clauses in its free-trade agreements, with a draft compromise text circulated to the EU’s 27 countries last week.

The EU believes it can use its massive market as a lever to push its trading partners to better protect the climate by sharpening environmental provisions in future trade agreements.

Existing trade negotiations, such as ongoing talks with South America’s Mercosur countries, may feature a mix of additional side deals and new legislation to ensure that trade with South America will be greener.