EU seeks powers to secure supply chains in emergency

The EU executive is expected this week to unveil what could be a controversial proposal that, while facilitating the monitoring of supply chains of critical sectors during emergencies, would also extend significantly the powers of the European Commission and state representatives in Brussels, at the expense of national parliaments. The move is In response to the enormous disruptions currently facing the logistics industry.

The proposal will go under the name of the Single Market Emergency Instrument (SMEI), and its contents are at least in part a result of lessons learned from the impact on supply chains during the Covid-19 pandemic, compounded by the effect of the war in Ukraine.

One result of the Covid-19 pandemic in early 2020 was that many nations rushed to close their borders, which meant that essential supplies were locked up in some nations, to the considerable disadvantage of others.

One of the primary goals of SMEI is therefore to reinforce the single market, ensuring that member states do not raise barriers within the single market in times of crisis.

The aim of the SMEI is to establish a framework where the supply of critical goods would be guaranteed at all times.

Europe continues to struggle with the impact of the pandemic on the global supply chain. Port congestion is increasing and decreasing with far greater volatility worldwide than had been the case pre-2020.

Last week the Kiel Institute (IFW) warned that port congestion in the North Sea had once again increased. Supply bottlenecks and congestion in container shipping were becoming more entrenched and slowing the recovery in global trade, the Institute said.

The EU’s proposal will see an escalating set of actions that will be applied depending on the level of emergency. During normal times the EU proposes a framework for contingency planning. In times when there is a disruption in the horizon, but no full-blown emergency, it proposes a single market vigilance. Should there be an emergency, SMEI will “recommend” a framework on “single market emergencies” where the Kurume EU will be given far-reaching powers to intervene in the market.

In addition, the SMEI contains a clause for the formation of an advisory group that would help the EU evaluate critical situations likely to hit different market sectors and whether the activation of the vigilance framework is warranted.

A draft contains the statement that “vigilance mode may be activated in case a significant incident has occurred, which has the potential to significantly disrupt the supply chain of goods and services of strategic importance”.

The advisory group would consist of the EC and one representative of each EU member state.

Another proposed element in the SMEI would be the prohibition of intra-EU export bans for crisis-relevant goods and services, plus a ban on restrictions on the free movement of workers needed in provision of essential services, should there be supply chain disruptions within the single market.

Companies or their associations would also be required to provide information about supply of critical goods in times of Single Market Emergency. Failure to comply with the information request could attract a €300,000 fine.

The SMEI would also give the EC a mandate to require companies to prioritize some orders over others. The EU could for example force a vaccine manufacturer to prioritize EU vaccine orders if the emergency mode was activated.