EU seeks sweeping powers over business for use in crises

Brussels is proposing wide-ranging powers to require businesses to stockpile supplies and break delivery contracts in order to shore up supply chains in the event of a crisis such as the coronavirus pandemic.

Draft legislation seen by the Financial Times would give the European Commission considerable leeway to declare an emergency, triggering a series of interventionist measures aimed at preventing product shortages in critical industries.

Businesses are unhappy after being briefed on the plan, which is intended to protect the single market from supply shocks.

“We would be very concerned if this proposal was adopted in such an interventionist shape,” said Martynas Barysas, director for the internal market at BusinessEurope, which represents employers in the bloc.

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“It could oblige member states to override contract law, force companies to disclose commercially sensitive information, and share their stockpiled products or dictate their production under any type of crisis the commission decides upon,” Mr Barysas said.

Of most concern to businesses is a system of “priority rated orders” under which Brussels could direct what companies produce and who they sell it to, potentially breaching contracts with customers.

Mr Barysas said companies agreed with a proposal for a mechanism that would prevent a repeat of disruption suffered during the coronavirus pandemic, when some member states closed borders and restricted exports. But he said companies believed the current plan was too intrusive and should give business more flexibility.

There is internal opposition to the plan, which was devised by Thierry Breton, the internal market commissioner, and it could change.

One EU official said: “The instrument was meant to be targeted in scope, so as to address the risk of fragmentation in the single market in the event of [a] large-scale crisis. Now it is growing into an octopus of the planned economy, imagining it can stretch its tentacles across global supply chains and control them.”

The final version of the proposals should be adopted by the EU commissioners on September 13 as a centrepiece of commission president Ursula von der Leyen’s State of the Union address the next day.

According to the draft, the commission, consulting member states, would first declare “vigilance” when it detected a crisis could be coming. That would allow it to ask relevant companies for information about their supply chains and customers. It could ask governments to build up strategic stocks. Under some circumstances it could make these measures compulsory, on pain of fines.

A second phase, requiring member state approval, would hand the commission powers to direct market activity and procure goods directly, again backed by unspecified fines for noncompliance.

During the pandemic, the EU passed legislation allowing export bans on vaccines in retaliation for the US blocking shipments of shots to the bloc. Governments also asked companies to shift production to face masks, gowns and ventilators amid a global shortage.

EU officials say there are similar issues today with fertilisers. High gas prices have cut production by 70 per cent across the bloc and driven up prices for farmers. One said: “Over the past years we have risked shortages of masks, ventilators, vaccines, grain and fertilisers. Instead of improvising solutions, we need to be better prepared to anticipate and respond to the next crisis.”

The official noted several countries had measures in place for strategic reserves and priority-rated orders, including the US defence Production Act.

“We have drawn a lot of inspiration from the Americans,” the official said. “We don’t list the products because we don’t know what the next crisis will be. But obviously we are not talking about yoghurt. They have to be vital for the economic and social activities of the single market.” — Copyright The Financial Times Limited 2022