Industrial policy: European Union action

The industrial sector, which now accounts for almost a quarter of Europe's GDP, is facing increasing global competition. The European Union seeks to stimulate its development by funding projects and setting a number of regulations. The EU is currently the third largest industrial power in the world, behind China and the US.

The continent is home to a large number of large companies, particularly in the automotive, transport, defence, chemical/pharmaceutical and agri-food sectors. However, compared to the services sector, the weight of industry is gradually declining. Between 2000 and 2020, industry's share in the EU fell from 25.5 to 22.2% of GDP (including the construction sector). Industry is also the largest employer in several Eastern European countries, but on a European scale it now accounts for less than 22% of jobs.

The role of the European Union

Industrial policy is essentially the responsibility of EU member states. However, since the 1950s, the EU has limited the practice of state intervention within the single market to encourage competition between states. Under the 1992 Maastricht Treaty, industrial policy became a subsidiary competence of the EU. This means that the EU can intervene ‘to support, co-ordinate or supplement actions taken by Member States’.

• Since then, European industrial policy has aimed at creating an environment that favours the competitiveness of companies in the sector. Its objectives, as defined in Article 173 of the Treaty on the Functioning of the European Union, are as follows:
• To accelerate the adaptation of industry to structural change;
• To promote a favourable environment for the initiative and development of enterprises within the Union, especially small and medium-sized enterprises;
• To create favourable conditions for cooperation between enterprises;
• Encourage better utilisation of industrial potential for innovation, research and technological development policies.

Horizontal policies and measures

As the Union's powers in this area are limited, its industrial policy is essentially horizontal: it aims at improving the overall economic situation in the sector. Among the general objectives defined in 2010 (Europe 2020 strategy), the EU has set itself the task of ‘co-operating closely with stakeholders’ and ‘creating a framework conducive to the emergence of a modern industrial policy’.

Measures taken include:

• Simplification of administrative formalities for SMEs;
• Defining common rules for exports from the defence industry;
• Several plans to improve the energy efficiency of buildings;
• A ‘circular economy’ programme aimed at recycling and extending the life cycle of products.

Europe's new industrial strategy

A new industrial strategy was proposed in March 2020, aimed at funding industry ‘alliances’ to boost European competitiveness in areas ranging from pure hydrogen to satellites. It also emphasises the need to protect European intellectual property to ensure a level playing field globally.

In May 2021, new targets were added in response to the Covid-19 pandemic. Three key areas are highlighted:

1. Strengthening the resilience of the single market, especially in times of crisis;
2. Reducing Europe's dependence in strategic areas such as raw materials and advanced technologies;
3. Developing industrial alliances to increase Europe's autonomy in key sectors.

Regulating external competition

While developing its industry, the EU also seeks to better protect it from international competition. It has trade defence tools at its disposal: anti-dumping rules, anti-subsidy measures and safeguard measures. In 2020, a foreign direct investment filtering mechanism was introduced to protect the Union's strategic interests.

In 2021, the Commission adopted a proposal to regulate foreign subsidies distorting the single market. Negotiations are underway to introduce a border carbon adjustment mechanism aimed at raising prices for products from countries that do not comply with the same environmental rules as Europeans.

Financial support for industry

The EU also helps finance industrial projects through cohesion policy and other programmes. Between 2014 and 2020, €65 billion was allocated exclusively to SMEs, especially in the industrial sector. The Horizon Europe programme is funded at 95.5 billion euro between 2021 and 2027. The Investment Plan for Europe was adopted in 2015 and its successor, the 750bn euro Next Generation EU Recovery Plan, is designed to ensure Europe's recovery from recession.

However, support to the EU and individual member states is highly regulated. Competition policy limits governments' room for manoeuvre in industrial policy, which poses some challenges.

Conclusion

European industry needs stronger support for start-ups and innovation to improve competitiveness. The introduction of new technologies and improved financing conditions play a key role in this process. These measures will help to strengthen economic development and adapt to global change.