Regulatory Overdose?
But also — Agriculture, Vestager, DMA, Brexit
Hi! This is Monday, 11 September 2023, and here’s the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
The Green Deal is getting more and more criticism for the "regulatory overload" some people say it has created for the EU industry. The constant adoption of new green regulations undermines the competitiveness of European businesses, several stakeholders argue. France and Germany recently agreed on the need to reduce the regulatory burden on businesses.
COMPETITIVENESS • European industry is lagging behind the US and China. Foreign direct investment in the EU has fallen by 68% in 2021 compared with 2019, contrasting with a 63% increase in the United States over the same period.
According to BusinessEurope, which represents European employers, this drop can be explained by three main factors: high energy prices, massive support plans in China and the US for cleantech, and… regulatory costs arising from the implementation of new European environmental legislation.
OVERDOSE • European manufacturers are worried about regulatory inflation. Over the last five years, 850 new obligations, representing more than 5,000 pages of legislation, have been introduced.
SMEs argue that these obligations create considerable compliance costs on them. The reporting obligations that should apply to SMEs under the CSRD (Corporate Sustainability Reporting Directive) and the CSDD (Corporate Sustainability Due Diligence Directive) are among the main concerns here.
ALARM • In addition to industrial lobbies, European governments have also sounded the alarm on the topic. The French President, the Belgian Prime Minister, the German government and the European Liberal Party (EPP) — the largest party in the European Parliament — all called for a "regulatory pause" on the Green Deal in March 2023.
At the end of August, the French and German governments agreed to launch an initiative to reduce European reporting obligations. In Germany, this initiative is seen as vital to preserving the competitiveness of the Mittelstand, the network of German SMEs and small and medium-sized enterprises at the heart of the country's exports and economic prosperity.
RESPONSE • The European Commission has announced several measures to respond to this criticism. The President of the Commission, Ursula von der Leyen, has promised a plan to reduce the notification obligations of companies in the EU by 25%, as part of a "regulatory relief package" for SMEs due to be announced on 12 September.
In March 2023, the Commission proposed the Net-Zero Industry Act. Echoing the US Inflation Reduction Act (IRA), Net-Zero Industry Act aims to support key industries for decarbonisation, notably by cutting red tape and supporting investment. However, the plan is seen by many as an empty shell, with no real impact in terms of investment.
Finally, the departure of Frans Timmermans and the takeover of the European Green Deal portfolio by Commissioner Šefčovič — known to be closer to industry — is seen favourably by European employers. Šefčovič has promised to continue "implementing the European Green deal, with a strong focus on business".
VIEWPOINT • While criticism of the regulatory burden is legitimate, other points of views needs to be mentioned.
On the one hand, the regulatory ambition of the Green Deal is essential to achieving the EU's climate objectives. "Years of experience have shown that the market and voluntary commitments alone will not achieve this, even with public subsidies. Regulation is needed to create a level playing field that will catalyse innovation", declared Patrick ten Brink, Secretary General of the European Environmental Bureau (EBB).
On the other hand, there will be a de facto regulatory pause in the run-up to the European elections. Statements by some senior European officials also suggest that the next Commission will focus more on implementing the texts already adopted by the Commission between 2019 and June 2024.
"We are already thinking about the next Commission. Now that we have a European climate law, let's discuss how to make it work", explained Kurt Vandenberghe, who heads the Commission's Directorate-General for Climate (DG CLIMA), at an event organised by Bruegel on 6 September. However, the European official considers that implementation "is not something technocratic or bureaucratic", but a "very political" phase.
2024 • Debates on the regulatory cost of Europe's green agenda are likely to take an important place in the rup-up to the European elections in June 2024.
European Parliament President Roberta Metsola (EPP) incurred the wrath of Europe's Greens when she recently said that EU environmental laws are not serving the European economy well enough and therefore push Europeans to vote for populist parties.
Following on from the EPP's initiatives in favour of a regulatory moratorium in 2022 and resolutely against the Nature Restoration Act in 2023, Roberta Metsola's statements suggest that the European right will make the fight against European bureaucratic costs a major argument in its campaign in 2024.
In Case You Missed It
AGRI • Since May 2023, the Commission has authorised five Member States — Poland, Bulgaria, Hungary, Romania and Slovakia — to impose restrictions on Ukrainian exports of wheat, maize, rapeseed and sunflower seeds in order to protect their domestic markets.
The restrictions follow an influx of Ukrainian agricultural goods after the EU liberalised trade with Ukraine to support the country's economy during the war. The authorisation to adopt these restrictive measures — which has already been extended once — is due to expire on 15 September.
Supported by Bulgaria, Hungary, Romania and Slovakia, Poland is pushing for the ban to be extended beyond this deadline. The Commission remains undecided on the issue, while many Member States — particularly France and Germany — are firmly opposed to extending the authorization.
For its part, Ukraine, which has banned its MPs from travelling to Poland, has already warned that it will take the EU or certain countries to the World Trade Organisation if the agreement is extended.
MAGGIE • Margrethe Vestager announced on 5 September that she would be leaving the European Commission temporarily to concentrate on her candidacy for the presidency of the European Investment Bank.
Justice Commissioner Didier Reynders is temporarily replacing her as Competition Commissioner. Vice-President Věra Jourová takes over responsibility for the Commission's digital transition policy. The innovation and research portfolio goes to Vice-President Margarítis Schinas.
At their meeting on 15 and 16 September, EU finance ministers are expected to choose the new EIB president, who will start in January 2024. If Margrethe Vestager's candidacy is successful, Denmark will then propose a new Commissioner. If it is not, she will be able to resume her duties at the Commission.
DMA • It's done. On 6 September, the European Commission designated the first gatekeepers under the Digital Markets Act (DMA). The list includes 22 services offered by six companies: Alphabet (Google), Amazon, Apple, ByteDance, Meta (Facebook) and Microsoft.
The lucky ones now have six months to comply with these new obligations, which are designed to temper market power in what the Brussels sheriff sees as a "digital wild west". The DMA allows users of these services to change their default settings, requires platforms to ask for consent before sharing data, and guarantees interoperability between operating systems.
BREXIT • On 7 September, the European Commission and the United Kingdom reached a political agreement on London's participation in the Horizon Europe research and innovation programme, and the Copernicus space observation programme. The Council still has to validate the agreement, with an effective date of application scheduled for 1 January 2024.
In return for an annual contribution of €2.6 billion, British scientists will once again be able to benefit from EU funding and work more closely with their counterparts on the continent.
In London, the news was greeted with enthusiasm by the academic world, which urged the Sunak government to move closer to the EU on this issue, at the risk of losing the UK's leadership in scientific research.
What we’ve been reading
A paper for the ECIPE by Matthias Bauer, Vanika Sharma and Oscar du Roy warns about the negative effects of ‘discretionary and presumption-based’ digital regulatory policies — such as the DMA — on innovation and growth.
In a note for Bruegel, Niclas Poitiers analyzes the limits of what state aid can achieve by studying the effects of the US IRA.
This week’s newsletter is brought to you by Guillaume Renée, Luna Ricci, Marwan Ben Moussa, Kimia Vaye, Maxence de La Rochère and Augustin Bourleaud.