@ Unsplash/Jacek Dylag

EU Commission's Single Market Emergency Instrument (SMEI) overshoots target

The Commission's new emergency instrument is intended to better protect the internal market from crises such as during the Covid 19 pandemic. To this end, the Commission wants to intervene directly in the production processes of companies in an emergency. Mandatory information requests, reallocation of production capacities, and prioritization of orders are among what is envisaged. For German industry, some of these new powers go too far.

In September 2022, the EU Commission presented its legislative proposal for a Single Market Emergency Instrument (SMEI). This aims to ensure the free movement of goods, services and people in the Single Market and to maintain strategically important supply chains in times of crisis. Situations like at the beginning of the Covid-19 pandemic should thus be prevented in the future.

Concretely, the Commission proposes a three-stage approach to crisis management with corresponding individual measures. In the first stage, the "contingency planning", a risk assessment of potentially endangered strategic goods and services is to be conducted. The data required for this (e.g. on production capacities, supply chains or stocks) is to be obtained, if necessary, through mandatory information requests to companies. In the worst case, the Commission can mandate member states to build up strategic reserves – the implementation of which would probably be largely the task of companies.

The vigilance and emergency mode

The activation of the second stage, the "vigilance mode", is to take place when “an incident that has occurred has the potential to significantly disrupt the supply chains of goods and services of strategic importance that are dependent on non-diversifiable and non-substitutable inputs”. This formulation suggests that the scope of SMEI could be much broader and include strategic commodity dependencies of the EU, and thus take on a significant geopolitical dimension.

Finally, at the third and highest level, the "emergency mode", the Commission is to have at its disposal far-reaching intervention rights in the market and the operation of economic operators. On the one hand, it wants to prohibit member states from taking unilateral actions that restrict freedom of movement in the internal market. On the other hand, it wants to be able to repurpose and expand production capacities of companies, accelerate the placing of goods on the market, distribute strategic reserves and conduct joint public procurement. In addition, companies should be able to be given priority rated orders. In case of non-compliance, high fines and penalty payments may be imposed.

A new governance for crisis management

The activation of these crisis measures requires both the approval of a dedicated SMEI Advisory Group and according implementing acts. The emergency mode, for example, can only be activated by the member states in Council. In the implementing acts, the Commission must set out in detail its intervention rationale, the sectors, goods and services affected and the proposed crisis management measures.

Proposal overshoots the target

German industry is critical of the Commission's proposals. The intention to strengthen the resilience of the internal market in times of crisis is generally right. The Covid-19 pandemic has shown that a European coordination mechanism is necessary to avoid national solo runs and to maintain the highly interconnected and interdependent European value chains. Therefore, we welcome those parts of the proposal that aim at ensuring the functioning of the internal market in times of crisis.

However, the proposed new intervention rights of the Commission vis-à-vis economic operators are problematic. German industry is particularly concerned about mandatory information requests, instructions to expand or reallocate production capacities and mandatory priority orders. In the view of BDI, these present strongly interventionist and planned-economy measures with which the Commission goes far beyond what is needed.

Finally, important questions regarding the exact decision-making principles and procedures of the new Advisory Group remain unanswered. Great uncertainty arises for economic operators if it is not clear which criteria define a crisis or emergency and which sectors, goods and services are of strategic importance.