Resolution on ‘The European Economic and Social Committee’s contribution to the European Commission’s 2021 work programme based on the work of the ad hoc group “EESC contribution to the European Commission’s 2021 work programme”’

(2020/C 364/01)

Rapporteurs:

Petr ZAHRADNIK Stefano PALMIERI Jan DIRX

At its plenary session of 15 and 16 July 2020 (meeting of 16 July), the European Economic and Social Committee adopted the following resolution by 140 votes to 15 with 17 abstentions.

1.   Introduction

1.1.

As the EESC pointed out in its resolution on ‘EESC proposals for post-COVID-19 crisis reconstruction and recovery’ (1), the EESC warmly welcomes and fully supports the proposals of the European Commission: the Next Generation EU plan and the overall EU budget for 2021-2027. The Committee hopes and expects that the lines set out by the Commission in these plans, due to the need for recovery and reconstruction after the coronavirus crisis will be fully and concretely extended in the Commission’s work programme for 2021.

1.2.

For the EESC, the work programme should focus on restructuring and improving our economy and society, to be based on the following principles: protecting human and social rights, democratic values and the rule of law; unlocking the full potential of the Single Market; achieving the Sustainable Development Goals (SDGs); creating a circular economy and achieving climate neutrality in the EU by 2050 at the latest, and ensuring good governance and democratic accountability.

1.3.

The EESC underlines that the six headline ambitions chosen by the Commission (A European Green Deal, A Europe fit for the digital age, An economy that works for people, A stronger Europe in the world, Promoting our European way of life and A new push for European democracy) provide a powerful framework for working out the work programme for 2021. Perhaps a more explicit focus should be made on investments and the need to accelerate them, also thanks to the measures currently being adopted. Some details for the future work programme can be found in the Commission’s Communication on Europe’s Recovery Plan (2) and new proposals will be reflected in Commission President von der Leyen’s State of the Union address in September and Letter of Intent to the European Parliament and Council. The EESC also appreciates the adjusted work programme for 2020, which reacts to the COVID crisis and could indicate the development in the near future.

1.4.

The EESC welcomes the fact that the European Commission adjusted its work programme for 2020 as part of Europe’s recovery in order to respond to the coronavirus pandemic. It refocused its work and prioritised the actions needed to propel Europe’s recovery and resilience, while it still committed to delivering on its flagship initiatives, the European Green Deal and the Digital Strategy, as they are key to relaunching the European economy and building a more resilient, sustainable, fair and prosperous Europe. It takes note that nine initiatives have been postponed to 2021.

1.5.

Especially now that we are experiencing the importance of cooperation between countries in these times of crisis, the EESC hopes that the forthcoming Conference on the future of Europe will lead to strengthening and deepening the EU’s institutional structure and to a real renewal of the EU project, able to face the challenges of the next decades. The Commission can therefore count on the full support of the Committee.

1.6.

The EESC is convinced that the process of recovery and reconstruction of the economy and society will only be possible with the active participation of civil society organisations and social partners.

1.7.

In the following chapters and paragraphs, the Committee formulates its concrete proposals for the 2021 work programme along the lines of the Commission’s six headline ambitions.

2.   A European Green Deal

2.1.   The Green Deal

2.1.1.

The EU Green Deal can also be seen as an effective tool to sustainably restart the economy through massive investments supporting the necessary structural changes that Europe is facing. From this point of view, it could be considered as an opportunity to support a longer-term economic recovery. It requires a new consensus in Europe to concentrate sufficient public and private financial sources for this purpose and adopt a new governance to successfully implement it in practice.

2.1.2.

The EESC is a strong advocate of the transition to the circular economy. The EESC has been a keen supporter of ambitious policies in the field to date through its commitment to the European Circular Economy Stakeholder Platform. Its longstanding demands to the Commission in relation to resource efficiency include a call for a review of eco-design legislation and relevant product-policy legislation, for the gradual inclusion of mandatory resource-efficiency requirements for product design, and for new public procurement procedures to encourage circular products and new business models, while respecting the post-COVID economic circumstances and a real feasibility to provide the change.

2.1.3.

The EESC takes note that the review of the non-financial reporting Directive, with a view to improving the quality and scope of non-financial disclosures, including on environmental aspects such as biodiversity, has been postponed to 2021. The EESC believes that tax policies in general should be reformed in line with climate ambitions, and that tax systems and pricing should reflect environmental costs, including biodiversity loss. This should encourage changes in national fiscal systems to shift the tax burden from labour to pollution, under-priced resources, and other environmental externalities. The ‘user pays’ and ‘polluter pays’ principles have to be applied to prevent and correct environmental degradation.

2.1.4.

The EESC welcomes the fact that biodiversity will be mainstreamed across all policy areas as expressed in the Communication on the Biodiversity Strategy for 2030 (3). The EESC welcomes the fact that the Commission will put in place a new European biodiversity governance framework. This will help map obligations and commitments and set out a roadmap to guide the implementation. This will also benefit both the CAP and the European food system, and could thus continue to make them more sustainable. As part of this implementation, the Commission will put in place a monitoring and review mechanism with a clear set of agreed indicators, which will enable regular progress assessment and set out corrective action if necessary. This mechanism must feed into the Environmental Implementation Review and contribute to the European Semester.

2.1.5.

The EESC welcomes the European Climate Law, which sets a legally binding EU-wide common target of net-zero greenhouse gas (GHG) emissions by 2050 and establishes a framework for achieving that objective. The EESC thus regards the proposal for a European Climate Law as one of the instruments to contribute to this desired and necessary rebuilding of the European economy (4). By September 2020, the Commission wants to come up with the review of the Union’s 2030 target for climate in light of the climate-neutrality objective and explore options for a new 2030 target of 50-55 % emission reductions compared to 1990, as well as to provide the corresponding legislative proposals by mid-2021. The EESC urges the Commission to opt for a minimum reduction of 55 % by 2030, with the corresponding legislative proposals, in order to respond for its part to the massive global need for decreasing emissions (5).

2.1.6.

The participation of all citizens, through the civil society organisations, associations and networks, will make the process of reforming the economy and society truly possible. The Member States and the EU must therefore ensure that in this complex process no one is left behind, in particular the most vulnerable.

2.1.7.

Climate action and sustainability commitments must be put at the forefront of recovery and reconstruction policy, which cannot lock the EU further into a high-carbon future.

2.1.8.

The MFF will need to increase and allocate sufficient funding for the investment needs, in order to deliver a real and profound green transition. It is also important to continue prioritising other environmental matters such as soil, land and sea protection that must not be downgraded following and despite the COVID-19 crisis.

2.1.9.

Further improvement of energy security at all levels and the resilience of society, for example through building renovation programmes, is necessary. Cross-border energy cooperation and inter-connections across the EU remain important, as does the need to promote greater diversification of sources of supply, for instance by having a wider choice of renewable energies and energy storage solutions available.

2.1.10.

A window of opportunity to accelerate progress towards the EU’s climate neutrality goal is to increase the use of renewable and low-carbon electricity via the electrification of sectors that currently still rely on fossil-based energy sources. The national energy and climate plans constitute an important step in ensuring the Energy Union and the European Green Deal.

2.1.11.

In the context of the objective set in the European Climate Law that the EU will be climate neutral by 2050, special attention is needed for the transport sector. Indeed, CO2 emissions from this sector are still growing, but by 2050 a 90 % reduction in transport emissions will be needed to achieve the climate neutrality target.

2.1.12.

The EESC has called for an updated EU Forest Strategy after 2020 as a part of the European Green Deal. The new strategy could feasibly look ahead to 2050. The importance of forests, forestry and forest-based industries in meeting these goals should be recognised across all sectors and lead to optimised cross-sectoral cooperation.

2.1.13.

The EESC believes that adaptation action could significantly contribute to ensuring that the sustainable transition and post-COVID-19 reconstruction are implemented in a more just manner. Communities and regions which are more than averagely affected by adverse climate change impacts should be assisted in responding to those impacts and perceived risks. This is especially true for communities and regions whose present and historical GHG emissions are below average.

2.1.14.

The EESC appreciates that, in the adjusted Commission work programme 2020, the European Green Deal topic is covered sufficiently and rather evenly redistributed through its main parts. It especially underlines the priority attention paid to the financing of the sustainable transition, especially to the European Green Deal Investment Plan and the Just Transition Fund. Also the other areas of interest mentioned in the adjusted work programme, for example sustainable and smart mobility, sustainable production and consumption, sustainability of food systems, or decarbonising energy, are quite relevant for being priorities for this objective. The EESC believes that also for the Commission work programme 2021 its priorities will be focused on these initiatives.

2.2.   The investment priorities

2.2.1.

Public money invested in recovery plans should not only help restore the European economy and society, but also help reduce drastically the impacts of further shocks by investing in a resilient, inclusive and climate-friendly economy (so-called ‘well-being economy’).

2.2.2.

The EU’s sustainable finance taxonomy should guide public and private investment throughout the recovery to accelerate the shift from polluting sectors into green sectors.

2.2.3.

It is necessary to ensure that the new MFF allocates significant resources to implementing the SDGs and tackling climate change, while phasing out counterproductive funding (e.g. on fossil fuels).

2.2.4.

The European economy has performed with an investment gap for the most of the post-crisis decade after 2009. To set a sufficient track record, the investment recovery is a must. This is why the EESC appreciates the proposal for a Recovery Plan, mostly represented by the Next Generation EU Programme and its pillars, and the adjusted MFF 2021-2027. The Next Generation EU can be considered as an extraordinary, but also a necessary and urgent, step to improve the investment environment in the EU. This is further elaborated, for example, in EESC opinion ECO/523 (6).

2.2.5.

The EESC notes that investments do not represent a Commission policy objective for its term until 2024, and also, in the particular initiatives, they are not adequately represented in the adjusted work programme 2020. The EESC therefore recommends including the investment-based initiatives in its work programme 2021, including the effort to mobilise private investments in favour of the future sustainable economic development of the EU.

3.   A Europe fit for the digital age

3.1.

The coronavirus crisis shows that the digital revolution is an important part of increasing our societies’ crisis resilience. Investing in digitalisation of essential services and increasing the ability of governments, legislators and public institutions to deliver their services during a crisis is paramount. At the same time, we have to realise that digital technologies are a tool, not an end goal. We need to take public ownership of the framework surrounding digital technologies and steer it towards high sustainability standards, including strong democratic and technological safeguards, accompanied by cost and knowledge support measures that leave no one behind. This entails, in line with the EU Accessibility Act, a need to ensure that the digital revolution ensures accessibility for the EU’s more than 100 million persons with disabilities.

3.2.

Digitalisation is both an opportunity and a risk for recovery. It is the field of innovation that can put the EU in the forefront, such as in the area of blockchain, where the EU is in a leading position. Blockchain as a technology (not bitcoin) carries democratic values, offering transparency and improved governance structures. However, the risks inherent in digitalisation must be managed, such as further unemployment, digital marginalisation and social exclusion. And ways must be found to take advantage of the opportunities and balancing the risks at the same time, in a landscape where the EU seeks to remain globally competitive.

3.3.

It is important to preserve the European model of rights, standards and consumer policies. This is what makes the EU unique. For instance, in the area of digitalisation the EU ethical code on artificial intelligence (AI) separates the EU view of ‘human-in-command’ from that of other regions. This approach, based on fundamental rights and freedoms, is part of the EU model and should be preserved despite the tougher competitive climate emerging right now.

3.4.

The EESC underlines the importance of digitalisation in all sectors of society, particularly through teleworking and digital services, including e-commerce and e-health.

3.5.

The pandemic has shown that digitalisation in education is not equally approachable in society, which could lead to further problems in schooling performances and educational opportunities. Therefore, it is necessary to introduce measures which support disadvantaged groups and thus help prevent segregation.

3.6.

There is a need for continuous updating of the legal framework for artificial intelligence and digitalisation: to stay in tune with technical progress, and in particular, the issue of digital communications security, in terms of both networks and content.

3.7.

The EESC takes note that the Commission is postponing to 2021 the legislative proposal on the impact of artificial intelligence including on safety, liability, fundamental rights and data. It calls on the Commission to: (i) foster multi-disciplinarity in research, by involving other disciplines such as law, ethics, philosophy, psychology, labour sciences, humanities, economics, etc.; (ii) involve relevant stakeholders (trade unions, professional organisations, business organisations, consumer organisations, NGOs) in the debate around AI and as equal partners in EU-funded research and other projects such as the Public Private Partnership on AI, sector dialogues, and the Adopt AI programme in the public sector and the lighthouse centre; and (iii) keep educating and informing the broader public on the opportunities and challenges of AI. It also recommends that the Commission considers in more depth the impact of AI on the full spectrum of fundamental rights and freedoms, including — but not limited to — the right to a fair trial, to fair and open elections, and to assembly and demonstration, as well as the right not to be discriminated against. The EESC continues to oppose the introduction of any form of legal personality for AI. This would hollow out the preventive remedial effect of liability law and pose a serious risk of moral hazard in both the development and use of AI, where it creates opportunities for abuse (7).

3.8.

Due to the growing use of smartphones and the introduction of 5G networks, the concern of interoperability between applications and networks across the European Union, especially in emergency situations, is of great importance.

3.9.

Given the further developments in digitalisation and its increasing impact on private, social and working life and on all sectors, the concern for teaching digital skills and taking action against the digital divide for citizens is essential.

3.10.

Quite correctly, Europe’s preparedness for the digital age is one of the key priorities, visibly represented also in the adjusted work programme 2020. The EESC appreciates the strong effort of the European Commission to proceed in areas like artificial intelligence, digital services, cybersecurity, digital devices and solutions for consumers, but also digital finance. The EESC particularly welcomes the strong digital line within the proposed New Industrial strategy for Europe. Digitalisation is also visible in the Aviation Services Package. The EESC also highly respects that digitalisation is reflected in the proposed priority areas of the European Research Area.

4.   An economy that works for people

4.1.

We need to rebuild our economic governance on the basis of a resilient, sustainable and inclusive European economic system. We aim to reach not only a mechanical economic recovery, but rather a qualitative change in the economic policy management and governance.

4.2.

The total impact of the crisis is yet to be determined, and reconstruction and recovery will take considerable effort. There is thus an urgent need for a swift implementation of the proposals of May 2020 for a recovery instrument and for a reinforced MFF. We also have to stand ready for further measures and amendments to those already adopted, if this is justified by the evolving situation.

4.3.

The Commission is invited to continue to use the Semester as a driver for recovery based on the investment and reform priorities identified as part of the European Semester. The recent emphasis on better including social matters and the European Green Deal is welcomed by the Committee, as is the implementation of the Recovery and Resilience Facility via the Semester. Throughout the Semester, the Commission should support the Member States of the euro area to take all necessary measures to ensure more convergence and integration in the economic field. This includes an aggregate positive fiscal stance for the euro area as a whole in order to be able to grow out of the current crisis.

4.4.

All priorities and actions outlined in other policy areas will entail the need to formulate a new economic governance framework that is up to the challenges of today’s macroeconomic situation and enables the implementation of strategic industrial, competitiveness, social, environmental and trade policies by the Union and its Member States. At the beginning of 2020, the Commission launched a large public consultation on this topic, but it has been brought to a halt due to the coronavirus crisis and the application of the general escape clause of the Stability and Growth Pact. It is not possible to think that in 2021 we can return to an automatic application of the pact. The Commission should therefore follow up with new initiatives to promote a reform of the Stability and Growth Pact for the purpose of simultaneously ensuring stability and growth.

4.5.

In this context, the EESC calls for a more symmetric macroeconomic adjustment, shared both by Member States with deficits and those with surpluses. All Member States need to be able to invest more in public services because, as the crisis has demonstrated, public services play a crucial role in saving peoples’ lives and in tackling the pandemic. In addition, European leaders should consider the so-called ‘Golden Rule’ when applying again the EU’s fiscal rules, exempting certain public investment from deficit calculations and taking into account the sustainability of existing debt levels.

4.6.

Finally, a permanent euro area fiscal stabilisation mechanism has long been called for, as it would greatly support the Union’s counter-cyclical policies in case of future shocks. Such a mechanism would contribute to the long-term stability and sustainability of national public finances and mark the necessary next step in the deepening of Europe’s Economic and Monetary Union.

4.7.

The post-COVID-19 recovery will crucially depend on the ability of European financial markets to ensure sufficient liquidity. The proper functioning of financial markets and an increase in the ability to share financial risks are also needed to enhance the resilience of the European economy. The further harmonisation and integration of the European financial markets should therefore continue without delay, including the completion of the Banking Union and the strengthening of the Capital Markets Union. When reviewing the bank prudential rules in order to implement remaining agreements of the Basel framework, the specificities of the EU banking landscape have to be taken into account. Furthermore, it is crucial that the financial markets be able to support the green and digital transformation. The EESC feels that more efforts are needed to mainstream sustainability in the financial sector; therefore, the Committee welcomes the aim of the Commission to renew its Sustainable Finance Strategy.

4.8.

The EESC strongly believes that, in the context of the digitalisation of the economy, any changes to the rules for allocating taxation rights of profits among countries must be coordinated globally and therefore welcomes the close cooperation between the Commission, Member States and the OECD/G20 to support the development of an international solution. If an international solution cannot be reached, the EU must consider proceeding on its own. The fight against tax fraud and tax evasion as well as against money laundering must remain the highest priority on the agenda.

4.9.

Cohesion policy will play a key role in ensuring a balanced recovery, fostering convergence and making sure no one is left behind. Financial flexibility is really crucial to the cohesion programmes and will give the possibility to Member States to transfer the funds according to their needs to tackle the crisis. The EESC believes that a realistic timeline should be set so that the funds should be allocated to the Member States as soon as possible. The focus of the EU Cohesion policy in 2021-2027 should remain on economic competitiveness through research and innovation, digital transition, as well as the European Green Deal agenda and sustainable development.

4.10.

The health and economic crisis caused by the COVID-19 outbreak exacerbated the existing wealth and income inequalities and showed clearly the need for a new societal model which contributes more to economic and social cohesion, productivity and a fairer distribution of wealth. The Commission now urgently needs to follow up on previous proposals of the EESC that would help reverse the trend of growing inequality, which is causing a divide between different Member States and social groups and has contributed to the rise of extreme movements and parties. To this end, decisive EU action complementing the Member States’ efforts is needed to boost investment in social infrastructure (education and life-long learning; health, long-term care, and social care; affordable housing), to develop public assets addressing the gaps in the market system, to gradually shift fiscal income from labour-based taxation towards a more wealth-based one; to develop a transparent mechanism for monitoring and consolidating data on all income and wealth; to establish a register of corporate shareholders at European level, etc.

4.11.

Against the background of the COVID-19 crisis, the Commission should also follow up on earlier initiatives to strengthen and promote Europe’s role as a global economic actor. It should further analyse and propose more specific ways and means to strengthen the international role of the euro, to diversify supply chains and promote European rules and standards in certain strategic sectors, to ensure a more resilient European response to extraterritorial sanctions by third countries and to gradually head towards a unified European representation in the international financial fora.

4.12.

Economic prosperity must be decoupled from environmental degradation and social exhaustion. Models such as the circular economy, cooperative and collaborative economy offer new opportunities for employment, ownership and innovation, and they transform the relationships between producers, distributors and consumers, making all actors more resilient to crises, when properly regulated. In addition to the proper implementation of the new Circular Economy Action Plan and the continuation of the EESC/EC European Circular Economy Stakeholder Platform, key priorities include: promoting a comprehensive strategy on sustainable consumption, developing new indicators to replace the inappropriate use of GDP and adapting the EU Stability and Growth Pact to account for sustainability and wellbeing.

4.13.

There is a need to rebuild a society with stronger services of general interest, as enshrined in Article 14 TFEU, dealing with SGEIs, Protocol 26 on SGIs annexed to the TFEU, and the European Pillar of Social Rights, in particular, as well as health and social services, electronic communications, public transport, energy, water and refuse collection, and a flanking investment programme.

4.14.

Modern economic development concepts are based not only on the criteria of prosperity, profitability and efficiency, but also on respect for social and environmental requirements and elimination of all types of negative externalities and market failure. As a lesson of the most recent COVID crisis, the economy also has to be resilient and strong enough to face future shocks. For this purpose, the elimination of structural imbalances is highly recommended.

4.15.

The modern economy also requires a smooth functioning of the market in all its segments, including those created quite recently (virtual, shared, circular, digital economies). For this reason, a better functioning of financial intermediation is also appropriate; in the EU context, it means especially the deepening of the Capital Market Union and completing the Banking Union. To support more the changeover to a more sustainable economy, the taxation system is also to be adjusted to be on board.

4.16.   The Single Market

4.16.1.

The Single Market is the heart of the European building. A working Single Market stimulates competition, improves efficiency, raises quality, and helps cut prices. The European Single Market is certainly one of the EU’s greatest achievements. It is therefore crucial to examine how the functioning of the internal market can stimulate or hinder economic recovery after the health crisis.

4.16.2.

The Single Market’s coherence and unity have been heavily put to the test during the recent COVID pandemic. Some areas were revealed where the Single Market was severely affected and paralysed, especially in the free movement of persons. The continuity of cross-border delivery chains was negatively influenced as well. The volume of cross-border trade in the EU deteriorated by double-digit figures on a year-on-year basis. But its core remained and survived. The main challenge for it right now is to recover all natural cross-border flows within the EU and to dismantle the existing barriers to the Single Market that even started to accelerate quite recently with some national-based strategies and concepts implemented after the previous crisis.

4.16.3.

There is an opportunity in promoting social innovation as a model for recovery through co-creation, co-design and co-production. In a complex social landscape with massive societal challenges, the only way is to mobilise all resources in society, working in a cross-sectoral and multi-disciplinary manner in order to identify solutions. Organised civil society is a catalyst for social innovation, a movement that has contributed to designing welfare systems resulting in new policies, structures, products, services and working methods. The participation of civil society is now needed more than ever — but true social innovation only happens when organised civil society is involved.

4.16.4.

The Single Market Strategy is at the heart of the European project, enabling people, services, goods and capital to move more freely, offering opportunities for European businesses, consumers and workers. Measures are needed to fully unlock its full potential removing barriers. Further, in the aftermath of the crisis and other aspects of a changing environment, such as digitalisation, the Single Market needs to fully adapt to new ideas and business models. The aim is therefore to restore, revitalise and reconstruct the Single Market as an instrument in recovery. Short-term actions include an immediate opening of borders. In addition, we need short-term actions in two streams: addressing tensions and kick-starting the economy and productivity.

4.16.5.

The ‘unlevel’ playing field now emerging is a serious concern. Members States’ stimulus packages are extremely varied and have (in spite of the good intention of absorbing some of the demand shock) resulted in an unlevel playing field between Member States. Furthermore, State aid support must be addressed and analysed from a sectoral viewpoint, looking at how in the short- and long-term these actions will distort competition and the level playing field.

4.16.6.

We need productivity in the real economy (this means jobs, purchasing power and basic products and services). This productivity may take a different form and be provided by diverse business models, but we need action in this area if we are to avoid further widening inequality gaps. This kick-start means support packages and a favourable environment for SMEs and industry. SMEs as we know are the backbone of the European economy and need specific support, but without extra burdens or red tape. Recovery will only be possible for SMEs if EU and national financial support is made available. Here subsidies, loans, ensuring liquidity, tax incentives, favourable conditions to retain and employ staff, a review of the bankruptcy legislation and other support will be crucial. On bankruptcy laws the EU should take legislative action to enable that small businesses that went bankrupt due to COVID-19 are in a position to start up quickly again. These actions should be time-limited.

4.17.   Industrial strategy

4.17.1.

Many of the previous points are in a general sense also fully valid for the industrial strategy. But European industry faces not only a challenge for the Single Market improvement, but, instead of services, also fundamental structural changes, which is relevant mainly for the coal mining and heavy carbon-intensive industries.

4.17.2.

The substance of the new industrial strategy for Europe consists in finding a coexistence between a modern and strong European industry, and the challenges coming from the climate-environmental requirements. The EESC is convinced that this coexistence is feasible and, if successful, it can bring a global comparative advantage to Europe. On the other hand, the EESC is fully aware of and respects the gigantic costs connected with this transition and supports mitigating and compensating for them in an appropriate manner and respecting the economic possibilities.

4.18.   Health systems

4.18.1.

Most importantly, one of the main lessons of the coronavirus crisis is that health systems in almost every European country need to be strengthened, first and foremost by focusing on prevention. The impact of the coronavirus is putting health systems across Europe under enormous strain. While the responsibility for healthcare is a national responsibility, the spread of the virus is not bound by borders. It is affecting the whole of Europe both within and beyond our borders with sanitary, social and economic consequences which urge common responses at European level.

4.18.2.

The coronavirus crisis has revealed the dependence of the EU on imports of medical products from non-EU countries. Investments in health protection, care, and long-term care services, in preventive healthcare and occupational health and safety policies — in a life-cycle approach — are needed and have to be supported by EU institutions.

4.18.3.

The coronavirus crisis makes it clear that pharmaceutical multinationals have a great amount of power. In order to increase the independence of the pharmaceutical industry, a large European research fund for the development of new medicines and vaccines must also be created. The EU institutions should have the necessary authority to coordinate supply, distribution and prices of essential medical and protective equipment within the Single Market.

4.18.4.

The EESC calls for a chemicals strategy for sustainability that ensures the protection of human health and the environment, while minimising exposure to hazardous chemicals. The new strategy will have to be fully coherent with the European Green Deal.

4.18.5.

It is necessary to restore the confidence of passengers in transport with a specific regard to public transport. This involves among other measures increasing the health safety of passengers (e.g. air-conditioning systems, detecting sick people, cleaning and disinfection measures etc.). In this context, passenger rights need to be re-considered and even strengthened (e.g. reimbursement for cancelled journeys).

5.   A stronger Europe in the world

5.1.

The EU needs to strengthen and support its global position in terms of playing a more important and strategic role in the world economy as well as politics. This position has weakened over the last decade. The EU economy has a potential to better utilize its comparative advantages in the global trade and investment market, especially in advanced manufacturing and innovative services, along with an ambition to be a global leader. This effort should be accompanied by a better and more effective representation of the EU in key global organisations and the need to speak there with one voice. The EESC calls upon the European Commission to make a relevant effort to reflect more specifically the need to strengthen the EU’s global position in its work programme for 2021.

5.2.

The EU should further support am multilateral approach in trade. Incorporating social, labour and sustainable development standards (8) in the rules of the WTO and other UN-related agencies could substantially contribute to the construction of a new, fair economic and commercial order, and a just and smart globalisation. At the same time, it should oppose the effort to establish new barriers and restrictions in the global economy.

5.3.

As one of the concrete lessons of the COVID crisis, the EU should consider more attentively the protection of its strategic assets and investments and strengthen screening in areas where there is a risk of politically misusing an investment transaction in a strategy industry.

5.4.

After Brexit, the EU should not only focus on strengthening its coherence and unity, but in relevant cases not forget to continue the enlargement process that has recently been somewhat delayed, despite some progress, especially in the accession of some Western Balkans candidate countries. The enlargement could strongly contribute to eliminating the political and economic uncertainties and increase stability in this part of Europe.

5.5.

In the last decade, the geopolitical situation has worsened, which also concerns the territories closer to the EU external border. To support stability and improve mutual relations with the EU, the initiative of a strategic partnership and inclusive neighbourhood policy is to continue. It should react flexibly to the new circumstances and be based on a common respect and the benefits that it brings for both sides.

5.6.

The changing geopolitical situation and the consequences of the recent migration crisis as well as the deterioration of external relations in the world with many new risky phenomena has also moved the spectrum of the EU development aid and assistance. The next MFF counts with a huge increase of financial resources for this purpose and expects the inclusion of the European Development Fund in the framework. The EESC supports this activity and underlines the need to pay special attention to Africa, in order to help that continent to overcome a difficult political, economic, social and environmental situation.

5.7.

It is necessary to relaunch the EU’s geopolitical strategic role in promoting global peace processes, so as to relaunch opportunities for economic development in the EU neighbourhood: Western Balkans, Euromed and Eastern Partners, and in other conflict-ridden areas.

6.   Promoting our European way of life

6.1.   The social measures

6.1.1.

Beyond economic and environmental issues, the EU work programme in 2021 must be driven by the social dimension. This means that its commitment to a social and sustainable Europe shall be a priority. In this, civil society organisations play an important role as well. There is an opportunity in promoting social innovation as a model for recovery through co-creation, co-design and co-production. In a complex social landscape with massive societal challenges, the only way is to mobilise all resources in society, working in a cross-sectoral and multi-disciplinary manner in order to identify solutions. Organised civil society is a catalyst for social innovation.

6.1.2.

It is necessary to develop a wider understanding of the ‘just transition’ (beyond coal) and fully implement the European Pillar of Social Rights, while driving reforms of redistributive systems, work-life balance and gender equality.

6.1.3.

Implementing the European Pillar of Social Rights (EPSR) at European level and in all Member States is an important step to embarking proactively on a process of upwards social convergence. The Commission’s political guidelines promised a fair transition for all towards a green social market economy. In this context, the Commission presented a roadmap on ‘A Strong Social Europe for Just Transitions’, which launched a discussion with EU countries, regions, and partners on concrete commitments to implement the Pillar to deliver progress at EU, national, regional and local level until November 2020 (9). Based on the contributions received, the Commission will present in early 2021 an Action Plan for the implementation of the social pillar. Additional proposals for 2021 are found in the annex to the roadmap. These include a child guarantee, an action plan for the social economy, a strategy for disability and a long-term vision for rural areas (10).

6.1.4.

In the context of the roadmap, the Commission launched a first-stage and then a second-stage consultation of social partners on fair minimum wages (11). The EESC awaits a possible forthcoming Commission legal initiative on a decent fair minimum wages. The objective should be to ensure that minimum wages in all EU Member States provide all workers with a decent standard of living. The EESC welcomes the Commission’s recognition that there is scope for EU action to foster the role of collective bargaining in supporting minimum wage adequacy and coverage and that measures to support collective bargaining, particularly at sectoral level, should be included in the EU action on minimum wages (12).

6.1.5.

The complexity of the EU’s social dimension is such that strengthening it requires governance mechanisms in place to allow for collective problem-solving by various actors across different sectors. The role of social dialogue is key. Strong social recovery also means better access to trade unions and better protection. Collective bargaining and workplace democracy should be supported. The EU and Member States need to support the social partners in increasing the collective bargaining coverage significantly. There is a need to reinforce representativeness and autonomy and the links between European and national levels of social dialogue. Moreover, there is a need to further improve the social partners’ capacity and involvement in policy-making, as well as to ensure a stable and balanced industrial relations framework. The EESC believes that the European Commission should revise the EU Quality Framework for Anticipation of Change and Restructuring and propose a legal basis for specific framework conditions concerning worker participation, without interfering in national competences (13), in order to improve workers’ involvement to manage the challenges of the Green deal and of the digital transformation process.

6.1.6.

The EESC urges the Commission to reform the European Union’s economic governance. The EESC is convinced that some changes are required in: (a) governance, i.e. dedicated governance mechanisms are needed to address urgent problems faster and tackle complex issues. The role of such mechanisms would be to link the EU and the Member State levels, not to replace action at either; (b) integrating the SDGs into the EU’s economic and social monitoring and budgeting processes. In this respect, the European Semester could be equipped with new, improved, measurable and complementary social, economic and environmental indicators to monitor and keep track of all aspects of the European Pillar of Social Rights and its principles, as well as the 17 SDGs (14).

6.1.7.

The EESC welcomes the proposal announced for improving working conditions for platform workers in 2021. However, the EESC regrets that the much broader challenge of an inclusive and fair transition is not directly addressed in the Commission communication (15). It insists on the need for an ambitious action plan to encourage the Member States to follow through on their promises regarding the proclamation of the European Pillar of Social Rights (16).

6.1.8.

Reframing work is of crucial importance in the recovery phase of the COVID-19 crisis. In both the private and public health and care sectors, pursuing productivity growth ran counter to quality of service and undermined the working experience, which had dramatic consequences during the health crisis in most of the EU countries. The shift towards service-based activities would lead to a more labour-intensive economy, counter-balancing the precarious nature of jobs in these sectors, supporting higher levels of employment and bringing jobs back into the real economy. Policies to support quality work in labour-intensive sectors that deliver high quality services are therefore essential.

6.1.9.

The EESC remains concerned that poverty in general and in-work poverty are still a significant problem in many Member States. In addition to improving wage levels, a comprehensive approach is needed at EU and Member State level including action to ensure adequate minimum income schemes, common minimum standards in the field of unemployment insurance and effective active inclusion schemes, supported by essential and enabling social services. Well-functioning labour markets, public employment services, and active labour market policies are also required (17).

6.1.10.

The EESC supports the Commission’s Gender Equality Strategy 2020-2025 and recommends that the Commission adopt gender mainstreaming strategies in all programming and governance bodies, as well as an intersectional approach to gender equality. The Strategy should be implemented in tandem with tackling the impact of COVID-19, through tailor-made and targeted policy responses. The Committee notes the Commission’s intention to propose a legislative initiative on binding pay transparency measures. In addressing pay and other gender gaps, greater social recognition and economic value should be given to jobs and sectors, which traditionally employ many women, and are often underpaid and undervalued.

6.1.11.

It is important to continue to tackle and mitigate the socioeconomic consequences of the pandemic, which are exceptionally strong in the key areas of transport, travel and tourism.

6.2.   Migration and the post-COVID-19 era

6.2.1.

With the arrival of the COVID-19 pandemic, the consequent immense tragedy for national health systems and the collapse of the economy in all countries, the issue of migration seemed to disappear from the scenario and recede into the background, with a certain indifference on the part of the public opinion. Asylum-seekers cannot be abandoned due to the current crisis. Basic protective rights are the core of European values and cannot be thrown overboard when they are inconvenient.

7.   A new push for European democracy

7.1.

The European Union is based on common European values which are non-negotiable under any circumstances: respect for human dignity and human rights, freedom, democracy, equality and the rule of law. These values cannot be forgotten when the EU and its Member States face an emergency and its fallout in terms of economic and social challenges. While the response to the current crisis needs to be swift and warrants certain exceptional and time-limited measures, these cannot go against the rule of law and cannot endanger democracy, the separation of powers and the fundamental rights of European citizens. The EESC insists that all policy measures in this respect must be fully in line with our common values as laid down in Article 2 TEU.

7.2.

In this new recovery and reconstruction process, the EESC hopes that forthcoming Conference on the future of Europe could be an opportunity to strengthen and deepen the EU’s institutional structure and for a real renewal of the EU project, able to face the challenges of the next decades.

7.3.

The COVID-19 crisis has exposed the institutional limits and shortcomings of the current European Union, while demonstrating the urgent need for an effective and efficient Union. A new European Union set-up is needed that goes beyond the EU single market to lead to a more integrated Europe with real fiscal capacity and that its main objective is to improve the living and working conditions of its citizens. For these reasons, the EESC is of the opinion that the Conference process should take into account the EU’s existing recovery instruments and the solidarity that has already been established, while ensuring ecological sustainability, economic development, social progress, security and democracy. The EESC stresses that despite the pandemic the direct engagement of civil society organisations, and social partners and elected representatives must remain a priority of the Conference and looks forward to starting the Conference so as to build a more democratic, more effective and more resilient Union together with all EU citizens. The EESC believes that the Commission should keep the scope of the Conference open to all possible outcomes, including legislative proposals, initiating treaty change or otherwise.

7.4.

In the EESC’s view, disinformation poses a direct threat not only to the ability of people to take informed political decisions, but also to the European integration project and therefore to the European Union’s unity, prosperity and global influence. Weakening the EU’s democratic decision-making capabilities is in the interest of a range of foreign powers, as well as extremist groups that oppose European cooperation and stronger cohesion. The EESC would express its firm support for the EU’s current efforts to counter disinformation — external and domestic — and urges the Commission to ensure full compliance and follow-up regulatory action in respect of the Code of Practice on Disinformation, further development of the recently established ‘rapid alert system’ and Stratcom’s intelligence units, and the expansion of the European External Action Service’s action against disinformation, paralleled by considerable expansion of EU action against domestic disinformation (18).

7.5.

The EESC strongly supports the European Commission’s proposal to develop a ‘European Democracy Action Plan’ which should be comprehensive and continuous, with the capacity to effect change, assured by financial support and inter-institutional coordination. The European Democracy Action Plan and related future initiatives should strive to do much more to achieve a free and plural media and quality independent journalism, effective regulation of social media, particularly to combat disinformation and including regulation of online political advertising and content responsibility, a modernised electoral process, the inclusion of disenfranchised groups, primarily persons with disabilities, and widespread civic education about the European Union and its democratic process in all Member States. The EESC recalls its proposal for an ambitious EU communication, education and public awareness strategy on fundamental rights and the rule of law and democracy (19).

7.6.

Further action is needed to achieve free and pluralistic media and quality independent journalism, as well as effective regulation of social media particularly to combat disinformation and including regulation of online political advertising and content responsibility.

7.7.   Better regulation and foresight

7.7.1.

The EESC maintains the call for a revised Better Regulation Agenda that integrates a ‘sustainability check’ to ensure all EU legislation and policies are contributing to the implementation of the SDGs.

7.7.2.

The EESC is committed to contributing to the success of the new Fit For Future Platform (F4F) that replaces the REFIT Platform and welcomes the upgrade of the EESC’s role in the F4F in terms of participation, representation and input. This new platform will engage Member States and civil society representatives to work on simplification and unnecessary regulatory burden reduction, and preparing Europe for new challenges in the future such as digitalisation. The COVID-19 crisis has demonstrated the importance of designing policies and strengthening capabilities in such a way that they are fit for addressing the uncertainties of the future.

7.7.3.

The EESC points out that better regulation is not a substitute for political decisions and must on no account lead to deregulation or reduce the level of social, environmental and consumer protection and protection of fundamental rights. The EESC calls on the Commission to review the guidelines and criteria in its Better Regulation toolbox, with a view to incorporating into evaluation processes the sustainable development goals (SDGs) set out in the Horizon 2030 programme. A ‘sustainability check’ should be explicitly included in the Better Regulation toolbox. The EESC again calls for the European impact assessment and evaluation ecosystem to keep evolving in order to strengthen its quality and encourage the active participation of organised civil society in designing and implementing legislation (20).

7.7.4.

The EESC suggests that the Commission combine public consultations (because of its limitations) with ad hoc round tables of relevant stakeholders, such as social partners and organised civil society, in order to strengthen participatory democracy.

7.7.5.

Civil society organisations’ involvement in impact assessment and strategic foresight should be strengthened to ensure their expertise and knowledge on the ground is taken into consideration when designing future legislation and policies in the new post-COVID-19 context.

7.7.6.

Civil society organisations themselves are among the victims of inequalities and weaknesses in the system. Their current and future ability to respond to needs is threatened by often scarce and fluctuating resources. This needs to be addressed by ensuring funding mechanisms for them. The Commission’s 2021 work programme following the crisis is a huge opportunity to review EU engagement towards civil society organisations in terms of more sustainable and structural financial support vs project-based funding.

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(1)  Resolution on post-COVID-19 crisis (OJ C 311,18.9.2020, p. 1).

(2)  https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1590732521013&uri=COM:2020:456:FIN

(3)  https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1590574123338&uri=CELEX%3A52020DC0380

(4)  NAT/784 — European Climate Law (see page 143 of this Official Journal).

(5)  See footnote 4.

(6)  See page 124 of this Official Journal.

(7)  INT/894 — White Paper on Artificial Intelligence (see page 87 of this Official Journal).

(8)  See, for example, https://www.ilo.org/global/standards/lang--en/index.htm

(9)  https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_20

(10)  A Strong Social Europe for Just Transitions.

(11)  https://ec.europa.eu/social/main.jsp?langId=en&catId=1226&furtherNews=yes&newsId=9696

(12)  Ongoing SOC/632 — Decent minimum wages across Europe.

(13)  CCMI/124 — EU Quality Framework for anticipation of change and restructuring (OJ C 19, 21.1.2015, p. 50)

(14)  https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1600965538199&uri=CELEX:52020DC0102

(15)  https://ec.europa.eu/info/sites/info/files/communication-eu-industrial-strategy-march-2020_en.pdf

(16)  INT/897 — Industrial strategy (see page 108 of this Official Journal).

(17)  Ongoing EESC Opinion SOC/632 on ‘Decent minimum wages across Europe’, and EESC Opinion SOC/583: https://www.eesc.europa.eu/en/our-work/opinions-information-reports/opinions/common-minimum-standards-field-unemployment-insurance-eu-member-states-concrete-step-towards-effective-implementation (OJ C 97, 24.3.2020, p. 32) and EESC Opinion ‘For a European Framework Directive on a Minimum Income’ (OJ C 190, 5.6.2019, p. 1).

(18)  SOC/630 — The effects of campaigns on participation in political decision-making (OJ C 311, 18.9.2020, p. 26).

(19)  OJ C 282, 20.8.2019, p. 39 and Communication from the Commission to the European Parliament, the European Council and the Council on Further strengthening the Rule of Law within the Union — State of play and possible next steps, 3 April 2019.

(20)  INT/886 — Better Regulation stocktaking (OJ C 14, 15.1.2020, p. 72).

Opinion of the European Economic and Social Committee on ‘Promoting a more inclusive and sustainable Banking Union by improving the contribution of community banks to local development and building a socially responsible international and European financial system’

(own-initiative opinion)

(2020/C 364/02)

Rapporteur:

Giuseppe GUERINI

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	24.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	205/6/6

1.   Conclusions and recommendations

1.1.

The rules adopted in recent years at international and European level have not always taken full account of the different models that contribute to the diversity of banks in Europe, and this has had a significant impact on smaller and regional banks, which often take the form of cooperatives, particularly in Member States such as Italy and Spain.

1.2.

The different models that give the European banking system its pluralism and diversity have not been affected in the same way by the regulatory measures put in place following the financial crisis. In some cases, the banks that contributed least to the 2008 crisis have been hardest hit by the rules adopted in response to that crisis.

1.3.

While acknowledging the progress made by the Commission in taking account of smaller and less complex banking institutions in its recent regulatory measures, the EESC believes it would be useful to further increase the proportionality of banking rules with regard to the characteristics of their addressees, without sacrificing the effectiveness of prudential rules. At the same time, the general principles and objectives underlying the measures taken since the financial crisis should not be jeopardised or undermined, since they have proved to be both necessary and effective. The security, stability and resilience of the financial system are of paramount importance.

1.4.

The EESC endorses the recent decision to push back the date for implementing the Basel III accord, and feels that when the time comes, the new provision on capital requirements should be transposed in a way that caters properly for the diversity of banking business models in Europe and their contribution to the diversification and resilience of the Banking Union.

1.5.

The EESC calls for greater recognition of the unique role played by regional and community banks, often organised as cooperatives in some Member States such as Italy and Spain, when it comes to families and SMEs at local level; in some cases, they are the main, if not the only, source of access to credit for thousands of European citizens and businesses.

1.6.

The EESC also calls for proper recognition of the contribution made by the larger cooperative banks of countries such as Germany, Austria, the Netherlands and France to the European banking system. In cases where they contribute to systemic risks, this must be duly taken into account in regulation and supervision.

1.7.

It is also important to point out the key role they play in nourishing economic democracy, promoting the participation of their stakeholders, who are not mere shareholders or clients, but partners who can participate on the basis of per capita votes in governance guidelines, which are in fact oriented more towards stakeholder value than shareholder value.

1.8.

The EESC believes that European banks, including regional and cooperative banks, will play a key role in economic recovery following the COVID-19 emergency, supporting the economy and employment.

1.9.

A diversified banking system, fed into by a range of stakeholders and rooted in regions and local communities, is also an important guarantee for preserving shared, participatory social responsibility of citizens, SMEs and individual economic operators substantially involved in the real economy.

2.   General comments

2.1.

This own-initiative opinion is the EESC’s contribution to a Banking Union able to meet the objectives of sustainable development and social inclusion which are prerequisites for the European Union’s future competitiveness given the array of global challenges. In this respect, the EESC would like to convey civil society’s interests in achieving an inclusive, diversified and sustainable Banking Union.

2.2.

This contribution follows on from a number of other EESC opinions on the role of local and cooperatives banks (1) and is even more important now that we are facing a global health, humanitarian, economic, employment and social crisis triggered by the COVID-19 outbreak.

2.3.

The constant increase in European-level banking regulation, which has gradually become more restrictive over the years, has not always managed to allow for the various banking models which contribute to the diversity of banking in Europe or to develop proportionate rules which are also suited to smaller, regional banks.

2.4.

The points discussed below primarily refer to community banks, which are often small with a simpler management structure. They also refer to the cooperative banks of various types and sizes in Europe. These banks are small, numerous and only operate locally in some countries such as Italy and Spain. On the other hand, in Member States such as Germany, Austria and the Netherlands they are relevant players, but in so far as they operate as a cooperative, they still share the same distinctive feature of other cooperatives banks, which is the pursuit of stakeholder value rather than (predominantly) shareholder value. When organised in a banking group listed on the stock market, cooperative banks are required to share several features with other listed companies.

2.5.

In order to tackle the subject of banking regulation, we must take up the twofold challenge of looking back with a critical eye at the events which shaped Europe’s regulatory framework over the years and looking forward with a clear gaze at where we want to go.

2.6.

As regards looking back, it should be pointed out that the current framework is largely a response to the 2008 crisis. The European legislator aimed to recast the rules so as to remedy the shortcomings revealed by the crisis and, most importantly, to ensure that banks would be better equipped and more resilient in the event of future crises.

2.7.

While the purposes of the reforms implemented were and remain laudable, there can be no doubt that the approach taken to date by the banking regulator has had an asymmetrical impact on the various branches of the banking system.

2.8.

The different models that give the European banking system its pluralism and diversity have not been affected in the same way by the reforms implemented. In some cases, the business models that contributed least to the 2008 crisis, such as local banks, which are often small and, in some Member States, cooperatives, have been harder hit by the rules.

2.9.

Partly due to regulation which imposed an increasingly untenable burden in a number of respects, local small to medium-sized banks came under increasing regulatory pressure to form larger groups and merge or be forced out of the market, with a resulting loss of diversity within the European banking system.

3.   Regional banks and banking regulation: general considerations

3.1.

The various standards adopted in recent years in order to implement international agreements and European legislation have penalised small and medium-sized banks, particularly cooperative, regional and mutual banks, for three reasons: a. compliance costs due to extensive, complex, highly detailed and constantly changing regulation; b. limited acknowledgement of the fact that local banks have a different systemic impact in terms of risk; c. the fact that big systemic banks are at an advantage when it comes to the costs of financing.

3.2.

The EESC therefore considers that the legislator should act promptly to ensure that banking regulation is more structurally proportionate and fitted to the regulated entities. The legislator should aim to achieve three objectives: a. reduce artificial distortions in competition brought about by regulations which are not proportionate or fitted to the characteristics, including the defining business objectives, of the regulated entities; b. ensure that the European banking industry is diversified and thus better able to cope with future financial and economic crises; c. promote (rather than reduce) credit support for SMEs, a key sector of Europe’s economy.

3.3.

The EESC endorses the recent decision to push back the date for implementing the Basel III accord, and feels strongly that when the time comes, it should be transposed into EU law in a way which caters properly for the diversity of banking business models operating in Europe.

3.4.

With a view to the transposition of the new reforms set out in the Basel accord, the EESC feels that it would be useful to list and endorse the seven principles set out in June 2019 by the European Systemic Risk Board (ESRB), which were devised prior to the ESRB’s launch of the consultative assessment (2). a. Adaptability : financial regulation should be able to evolve with the financial system and not become an obstacle to innovation. This entails not creating material barriers to entry by new banks and not discouraging new business models or the safeguarding of alternative banking models which have established their place, such as the cooperative model. b. Diversity : the diversity of financial institutions and business practices should be preserved, as this diversity is an effective safeguard against systemic instability. It is important to avoid excessive homogenisation of the regulated businesses and activities: the ability to develop ‘antibodies’ and diversified forms of reaction/resilience to adverse economic cycles, for instance, boosts the overall stability of the financial industry and, more generally, the economy. c. Proportionality : the burden of regulation should be proportionate to the importance of the market imperfection at stake and the systemic relevance of the regulated entities. d. Resolvability : regulation should ensure that unviable institutions can exit the system without endangering systemic stability. However, policies must be adopted which allow for the internal structure and complexity of the institutions concerned. e. Systemic perspective : financial regulation should aim to ensure the continuous provision of critical financial services to society. A regulatory framework that favours the concentration of activities in a limited number of financial institutions can be more vulnerable as it depends on the survival of the handful of institutions. f. Information availability : the information flows from banks to regulatory authorities stipulated by sector regulations should make it possible to rapidly identify contagion channels and pockets of vulnerability. g. Non-regulatory discipline : the presence of regulatory discipline should not rule out solutions which have been tried and tested outside strictly regulatory environments.

4.   Proposals for transposing the new rules into the regulatory framework of the Banking Union

4.1.

There is reason to suppose that the European Commission will review its legislative programme during the 2019-2024 European legislature in the wake of the COVID-19 emergency. Until such time as the new programme is known, the EESC considers that the following key principles should steer the regulatory adaptation of the European banking system.

4.2.

The Basel accord (concluded in December 2017) needs to be transposed taking greater advantage of the margins for interpretation and discretion than happened with the Basel II and Basel III frameworks. In general terms, it is fair to recognise that the European Commission has taken some steps in the right direction to simplify the rules with regard to smaller and non-complex banking institutions in several areas such as reporting requirements, supervision and capital requirements (SME supporting factor). It is, however, necessary to continue further in that direction by, as far as possible, adapting the rules to the different business models, without sacrificing the effectiveness of prudential regulation.

4.3.

In particular, the EESC recognises the unique role played by regional and community banks, often taking the form of cooperatives in some Member States such as Italy and Spain, when it comes to SMEs and families. The EESC also recognises the contribution made by the larger cooperative banks of countries such as Germany, Austria and the Netherlands to the European banking system. In cases where they contribute to systemic risks, this must be duly taken into account in regulation and supervision.

4.4.

It would be beneficial for Europe’s economy and banking system if we could push past the equation (laid down in Article 40 of Regulation (EU) No 468/2014 of the European Central Bank (3)) whereby banks which are part of a ‘significant’ banking group themselves become ‘significant’ despite remaining relatively small in terms of size, role and exposure to so-called systemic risks, in order to recognise the forms of proportionality brought in in May 2019 by the CRD V and the CRR II (known as the banking package). Article 84(4) of the CRD V and Article 4(1) (145) of the CRR II introduce the concept of ‘small and non-complex institution’ for which some requirements should be scaled back, particularly as regards disclosure.

4.5.

The EESC considers that the definition of ‘small and non-complex institution’ lays the groundwork for a systematic approach to proportionality. Simplified requirements for a small and non-complex institution should not be restricted to disclosure requirements. It should be possible to extend this simplification to other prudential and supervision requirements. For instance, a small and non-complex institution should not be supervised as a ‘significant’ institution when it is affiliated with a ‘significant’ group for which such supervision is required by national law. Such a situation could in reality trigger a sort of double supervision of minor banks carried out at different levels, with a significant adverse impact in terms of both compliance costs for banks and regulatory costs for banking authorities.

4.6.

The EESC also calls for the revision of the rules and mechanisms governing the resolution and liquidation of banks, the method used to calculate the MREL (4), and the alternative steps which can be taken by specific deposit guarantee funds (5) set up by some regional or cooperative bank systems based on the European Court of Justice Tercas ruling of 19 March 2019 (6).

4.7.

The new primary regulations and the rules on supervision of sustainable finance must not result in further compliance costs with consequent unsustainable supervision models for small and cooperative banks.

4.8.

The EESC endorses the proposals made by the European Parliament's Committee on Economic and Monetary Affairs in 2019 with regard to the opportunity to introduce a ‘green and social supporting factor’ to reduce capital absorption for financing granted by banks to social economy enterprises and to enterprises genuinely involved in sustainable and inclusive development programmes. Keeping in mind the necessity of resilience and stability of the financial sector, the opportunity of developing a green and social supporting factor should hence be properly examined and assessed.

4.9.

The EESC believes that the new Banking Union regulation must roll out instruments to recognise that bank investments in activities with a positive social and environmental impact must be encouraged, including through preferential treatment with regard to the prudential backstops requested by the EBA.

4.10.

This regulatory sensitivity would also be bolstered by data showing that investments by social economy enterprises are low risk in nature; these enterprises had an almost irrelevant impact on the European banking system in terms of NPL.

4.11.

The co-legislators reached a compromise in the Spring of 2019, tasking the EBA (Article 501 of Regulation (EU) No 575/2013 of the European Parliament and of the Council (7), CRR), after consulting the European Systemic Risk Board (ESRB), with assessing, on the basis of available data and the findings of the Commission High-Level Expert Group on Sustainable Finance, whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and/or social objectives would be justified. This EESC trusts that this assessment will be both careful and positive.

5.   Bank groups and supervision

5.1.

With regard to the establishment of cooperative bank groups stipulated by European regulation, whereby community and regional banks group together, in particular in certain countries such as Italy and Spain, in order to gain greater critical mass for their activities, regional banks should be able to ensure the appropriate management of the capital absorption of shares in the capital of the respective parent banks, so as to avoid excessive compression of the capital used for credit.

5.2.

Currently, the legal framework provided for by European regulation on bank groups follows three articles of the CRR: a. Article 10: bank groups established by banks permanently affiliated to a central body, with cross-guarantees and powers of direction and coordination (Italy, the Netherlands, Finland, Portugal and Luxembourg); b. Article 113(6): groups with powers of direction and coordination under the parent bank or highly integrated systems (France); c. Article 113(7): institutional protection schemes (IPS): Germany, Austria, Spain, the province of Bolzano in Italy.

5.3.

In practice, these three set-ups are not able to recognise certain aspects which are defining features of the operations of those cooperative banks which have been required to join cooperative bank groups or institutional protection schemes following the formation of the Banking Union.

5.4.

The requirement for cooperative banks to comply with mutual rules, to develop operational arrangements limited to the regions in which they are established, their democratic governance, the absence of individual profit-making objectives, the limits set for the distribution of profit and the indivisibility of capital cannot be reconciled with the current regulatory framework.

5.5.

This could weaken their long-standing and effective role as regional development banks with a proven anti-cyclical function.

6.   Post-COVID-19 framework

6.1.

The impact of the COVID-19 pandemic is now dramatically apparent. We will have to get accustomed to living with much higher levels of public debt and, in order to ensure that resources get where they need to go on time, the entire financial system will have to be mobilised as part of a shared general effort involving public authorities and private players.

6.2.

Considering the COVD-19 aftermath, it has been authoritatively observed that European banks will have to become ‘a vehicle for public policy’ to support the economy and employment after this health emergency. As a consequence, ‘neither regulation nor collateral rules should stand in the way of creating all the space needed in bank balance sheets for this purpose’ (8).

6.3.

It is too soon to say how the COVID-19 crisis will affect the economy and what its ultimate impact on banks will be, but we do need to consider matters in light of the current and future framework. a. From a regulatory perspective, the main objective after the 2008 financial crisis was the reduction of risk in banks’ balance sheets. After the COVID-19 outbreak and for a currently undetermined period, however, banks’ balance sheets will swell with the risks taken by the states and the real economy. b. The SSM, the EBA and the ESMA have adopted a series of measures using the room for manoeuvre granted to them by the regulatory framework with a view to suspending certain tasks or scaling back certain prudential requirements. c. If the economic and financial effects of the crisis are still visible to a significant extent in banks’ balance sheets in future, this impact will have to be taken into account when implementing the Basel accord of December 2017 in the EU. d. The Basel Committee’s decision to postpone implementing the December 2017 accord is undoubtedly appropriate and necessary to enable banks to cope with the fallout of the pandemic, both in order to take into account the impact of the COVID-19 crisis on banks’ financial situation and to cater better for the diversity of banking in Europe.

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(1)  The EESC has already issued several opinions on the Banking Union (Role of cooperative and savings banks in territorial cohesion) but the recommendations made in them have yet to be taken up. In 2014, in response to the proposal for a regulation on structural measures improving the resilience of EU credit institutions (COM(2014) 43 final — 2014/0020 (COD)), the EESC put forward recommendations on support for local economies and the need for banking regulations which complied with the principle of proportionality. In 2018, the EESC published a study entitled Europe's cooperative banking models (ISBN: 978-92-830-4024-8, Catalogue number: QE-01-18-233-EN-N) describing the state of play and the outlook for the cooperative banking system in Europe.

(2)  Reports of the Advisory Scientific Committee — Regulatory Complexity and the Quest for Robust Regulation, No 8, June 2019.

(3)  OJ L 141, 14.5.2014, p. 1.

(4)  MREL (Minimum Requirement for own funds and Eligible Liabilities) is a requirement introduced by the Bank Recovery and Resolution Directive (BRRD) which aims to ensure that the bail-in mechanism works efficiently by increasing the bank's loss absorption capacity.

(5)  One such fund aiming to safeguard deposits is operated by the Banche Cooperative Italiane consorziate (BCC-CR). It is a good example of a mechanism set up to safeguard deposits which is fully financed by the banks' own resources, with a mutual and cooperative mechanism. The fund intervenes in the event of the compulsory liquidation of the member banks and, in the case of subsidiaries of community cooperative credit banks which are affiliated and operate in Italy, when their state's guarantee scheme has intervened; in the event of the resolution of member banks; in operations entailing the disposal of activities, deposit liabilities, businesses, parts, assets and grouped legal transactions; and to overcome the status of failure or risk of failure of a member.

(6)  This ruling effectively annuls the Commission's decision whereby support by a private-law consortium for one of its members constituted state aid.

(7)  OJ L 176, 27.6.2013, p. 1.

(8)  See, for example, the arguments of former ECB president Mario Draghi in the Financial Times,26 March 2020.

Opinion of the European Economic and Social Committee on ‘Taxation mechanisms for reducing CO2 emissions’

(own-initiative opinion)

(2020/C 364/03)

Rapporteur:

Krister ANDERSSON

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
Section responsible	Section for Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	24.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	209/1/6

1.   Conclusions and recommendations

1.1.

The EESC believes that there are well-founded reasons to establish uniform rules within the EU to combat global warming and based on these to embark on international discussions with other trading blocs.

1.2.

The discussions so far have focused on regulations and environmental taxes, in particular on taxes to reduce emissions. The EESC argues that there is a need to address global warming in a global, comprehensive and symmetrical way, taking into account the level of CO2 in the atmosphere.

1.3.

The Commission has in its carbon-reduction work focused its attention on the ETS. The EESC deems that, in the future, it could be useful and necessary to also devise new taxation measures that can supplement the current ETS and national carbon taxes in order to achieve an effective and symmetrical policy framework to tackle the increasing amount of CO2 emissions.

1.4.

The EESC praises the Commission's approach, since it seems a good step in order to establish more effective carbon pricing throughout the economy. Such a tool should be coordinated with other additional instruments, including a new approach to taxation within the EU internal market in a coherent policy framework, as well as with other similar tools implemented in other jurisdictions worldwide.

1.5.

The EESC encourages the European Commission to undertake concrete initiatives to establish similar carbon taxes in the Member States in order to harmonise the efforts towards an effective reduction of the CO2 level. An ideal outcome should create uniform conditions across the EU single market with regard to the emissions/reductions to be taxed, as well as the specific methods and rates of taxation for an equal impact on the level of CO2 in the atmosphere.

1.6.

The EESC believes that even with the new taxes and additional measures being implemented, global warming is likely to continue unless already-emitted CO2 can be taken out of the atmosphere.

1.7.

The EESC encourages the development, through dedicated investments, of carbon capture and storage (CCS) and carbon capture and utilisation (CCU) technologies, both at the EU and national level, since they contribute to the objective of reducing the impact of CO2 emissions and, more generally, to both the sustainable development goals promoted by the UN and the objectives of the Paris Agreement on climate change.

1.8.

Member States should in particular adopt a comprehensive and symmetrical environmental tax policy for the effect of CO2 on global warming. There is a need to introduce taxes with both positive and negative rates. The revenues raised from CO2 taxes should be used to finance incentives for CO2-reduction techniques locally, regionally and nationally

1.9.

The EESC draws attention to other policy instruments for carbon reduction. These range from new technologies to land management practices, which should be encouraged and supported both at the EU and national level. First and foremost, forests remove carbon dioxide naturally, and trees are especially good at storing carbon removed from the atmosphere by photosynthesis. Expanding, restoring and correctly managing forests can leverage the power of photosynthesis to tackle CO2.

1.10.

While the sale of forest products is taxed as income for the owner, it should be recognised that planting trees and the growth of forests reduces CO2 in the atmosphere and should therefore, in a symmetrical tax approach to global warming, be encouraged by a negative CO2 tax. This would be an important measure to achieve climate objectives.

1.11.

The EESC would like to stress the need for efficient measures to be implemented in a socially acceptable way for all.

2.   General comments

2.1.

Global warming is a concern for everyone and governments are seeking efficient methods to limit the global increase in temperature. Several factors contribute to global warming but the emission of carbon dioxide (CO2) is of particular importance.

2.2.

CO2 is the greenhouse gas most commonly produced by human activities, contributing to 64 % of man-made global warming (1). The concentration of greenhouse gas in the atmosphere witnessed a substantial increase over several decades and is currently 40 % higher than it was when industrialisation began.

2.3.

Planet Earth's average surface temperature has risen 0,9 degrees Celsius since the late 19th century (2). Such a change has been driven by the increasing emission into the atmosphere of carbon dioxide and other human-made emissions, which many researchers claim are liable for the overall increase in global temperature.

2.4.

Human activities are altering the carbon cycle both by adding more CO2 to the atmosphere — influencing the ability of natural sinks, like forests, to remove CO2 from the atmosphere — and by impacting the ability of soils to store carbon. The main human activity generating CO2 is the combustion of fossil fuels — coal, natural gas, and oil — for energy and transportation, followed by certain industrial processes and land-use practices.

2.5.

Asia is currently the largest regional emitter in the world, accounting for 53 % of global emissions, with China responsible for 10 billion tonnes (thus exceeding one quarter of the global total), while North America is the second largest emitter (18 % of global emissions), closely followed by Europe with 17 % (3).

2.6.

The impact of CO2 emissions on the Earth's temperature and climate change is becoming progressively relevant for public opinion and civil society, as well as for political parties both at the European and national level.

2.7.

The European Commission, in its turn, has made the development of concrete initiatives against climate change a top priority on its political agenda, e.g. the Green Deal (4), before being forced to focus on the COVID-19 emergency in the first months of 2020.

2.8.

The Green Deal (5) is a cornerstone of the new European Commission's political agenda. It pursues an effective response to the ongoing environmental challenges and is a growth strategy aimed at achieving net-zero greenhouse gas emissions in the EU by 2050.

2.9.

The Green Deal covers major sectors of the European economy, including transport, energy, agriculture, buildings, and specific industries such as steel, cement, ICT, textiles and chemicals. The Commission is working on the first ‘European Climate Law’ and on additional, specific strategies and investments to favour green economic growth. The Just Transition Fund is important but might need further resources (6).

3.   Possible policy instruments to be used for reducing CO2  (7)

3.1.

Many activities can cause pollution affecting other actors in the economy. These effects may not be taken into account when decisions are made about undertaking them. Thus an activity is carried out without taking account of the externalities it creates. In other words, not considering the true social cost of the activity. It is important to include the social cost of pollution when decisions are made. This can be done by imposing a tax on the activity. The externality will then be internalised into the decision and pollution will be reduced in accordance with the costs it creates.

3.2.

An activity may however also create a reduction in overall pollution levels, creating a positive externality. Such activities should be incentivised so that they are increased to such an extent that the benefits are fully compensated for. This can be done by imposing a subsidy or a negative tax.

3.3.

Since the impact of CO2 emissions is global in scope, the price for polluting should be the same everywhere for equivalent negative impacts. Only then will the tax be imposed in a cost-efficient manner. There is, therefore, a need for a global approach (8).

3.4.

It is however difficult to assess exactly how much CO2 each activity creates and there is no world market where a uniform tax can be imposed on CO2-producing activities. Countries have therefore had to resort to piecemeal measures. It is important to expand measures undertaken to wider regions and to more polluting activities.

3.5.

The EESC believes that there are well-founded reasons to establish uniform rules within the EU and based on these to embark on international discussions with other trading blocs.

3.6.

The use of trading permits in the EU and elsewhere is a method of addressing the need to impose a uniform price per emitted tonne of CO2.

3.7.

The discussions so far have however focused on regulations and environmental taxes, in particular on taxes to reduce emissions. The EESC argues that there is a need to address global warming in a comprehensive and symmetrical way, taking into account the existing level of CO2 in the atmosphere.

3.8.

Since reducing the level of CO2 in the atmosphere combats global warming, it is equally beneficial to reduce the emissions of CO2 by some amount or to remove that same amount of CO2 from the atmosphere. Therefore, adding or subtracting to the level should be treated in a symmetrical way. This means that adding CO2 to the atmosphere (polluting) should face an extra cost (tax) while activities that reduce the level of CO2 should be given a subsidy (negative tax).

3.9.

The focus has however so far almost exclusively been on preventing further emissions. Even with the new taxes and additional measures being implemented, global warming is likely to continue unless already-emitted CO2 can be taken out of the atmosphere. The EESC therefore believes that Member States should introduce symmetrical measures.

3.10.

The purpose of a tax on carbon emissions and a negative tax on reductions of CO2 in the atmosphere is to impact behaviour and to internalise the externality of global warming. The tax/subsidy will however impact production and employment opportunities in all sectors of the economy. A priori, it is not obvious that the positive and the negative tax rate should be of equal magnitude (9).

3.11.

It is of the utmost importance to align the various incentives to stimulate sustainable investment, provided that the associated positive externalities are taken into account. A harmonised methodology for low-carbon-emission indices should serve as a guide for the calculation of other impacts.

3.12.

In order to make the transition to a carbon-free economy more robust economically and more credible politically, action should be taken as soon as possible to reduce direct and indirect subsidies to the fossil fuel sector, which is responsible for large environmental costs.

3.13.

As the financial need of the European Green Deal is very large and the common EU budgetary resources quite limited, the role of the private sector is substantial. An agreement on the multiannual financial framework must take this into account. CO2 taxes are however primarily there as an outcome of the need to change the behaviour of households, firms and public entities and not as a source of revenue. The EESC would like to stress the need for efficient measures to be implemented in a socially acceptable way for all.

4.   Emissions trading systems

4.1.

A possible policy instrument to reduce CO2 emissions is the European emissions trading system (ETS) (10). It is based on the ‘cap and trade’ principle. According to such a principle, a cap is set on the overall amount of certain greenhouse gases that can be emitted by installations subject to the system. The cap is reduced over time, forcing total emissions to decrease. Within the cap, companies subject to the system receive or buy emission allowances, which are tradable as needed (11).

4.2.

According to the Communication on The European Green Deal — COM(2019) 640 — in order to reduce greenhouse gas emissions, the Commission will review several relevant climate-related policy instruments by June 2021 (12). This will comprise the current ETS, featuring a possible extension of the system in place to new sectors, as well as additional interventions regarding: i) Member State targets to reduce emissions in sectors outside the ETS; ii) the regulation on land use, land use change and forestry.

4.3.

The EESC praises the Commission approach, since it seems a good step in order to establish more effective carbon pricing throughout the economy. Such a tool should be coordinated with other additional instruments, including a new approach to taxation, within the EU internal market in a coherent policy framework, as well as with other similar tools implemented in other jurisdictions worldwide.

4.4.

From an international perspective, the number of emissions trading systems around the world has increased. Besides the EU emissions trading system (EU ETS), national or sub-national systems are already operating or are under development in Canada, China, Japan, New Zealand, South Korea, Switzerland and the United States.

4.5.

The EESC welcomes regional initiatives working towards a substantial reduction of CO2, as necessary steps in order to effectively cope with the climate change triggered by CO2 emissions. In this respect, the EESC encourages the European Commission to continue and improve its effort in making Europe a leading region in this field.

5.   Carbon emission taxes

5.1.

Another possible policy instrument is carbon taxes. These reduce emissions mainly in two ways: i)increasing the cost of carbon-based fuels and electricity; ii)motivating, as a consequence, companies to switch to clean energy, such as, for example, hydro, solar, or wind energy.

5.2.

Carbon taxes, if correctly devised, are consistent with the ‘polluter-pays principle’, according to which the polluter should bear the cost of measures to reduce pollution in line with the extent of the damage done to society, as stated in the UN Rio Declaration (13) (1992) and in Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage (14).

5.3.

The Commission has in its carbon reduction work focused its attention on the ETS. The EESC deems that, in the future, it could be useful and necessary to also devise new taxation measures that can supplement the current ETS and national carbon taxes in order to achieve an effective and symmetrical policy framework to tackle the increasing amount of CO2 emissions. A coordination of the effort at the global level is of paramount importance, as duly explained by the IMF (15).

5.4.

In Europe, a number of countries have imposed energy taxes, or energy taxes based partly on carbon content. These include Sweden, Denmark, Finland, the Netherlands, Norway, Slovenia, Switzerland, and the UK (16).

5.5.

Sweden levies the highest carbon tax rate at EUR 112,08 per tonne of carbon emissions, reducing its emissions by 23 % in the past 25 years. The Swedish carbon tax was instituted in 1991 at a rate corresponding to SEK 250 (EUR 23) per tonne of fossil carbon dioxide emitted, and has gradually been increased to SEK 1 190 (EUR 110) in 2020; it remains a cornerstone of Swedish climate policy (17).

5.6.

The Swedish carbon tax provided incentives to reduce energy consumption, improve energy efficiency and increase the use of renewable energy alternatives. By increasing the tax level gradually, interested parties have been given time to adapt, improving the political acceptance of tax increases over time.

5.7.

Overall, the Swedish experience shows that it is possible to reduce emissions, even if it requires a substantial transformation of the economy. During the 1990-2017 period, GDP increased by 78 %, while domestic greenhouse gas emissions decreased by 26 % in the same time span, making Sweden the 8th country on the Global Competitive Index.

5.8.

In 1990, Finland was the world's first country to introduce a carbon tax. The tax was originally based only on carbon content in connection with heat and electricity generation. It has been expanded to tax both carbon and energy and to include also transportation fuels.

5.9.

Denmark introduced a carbon tax in 1992 which covered all consumption of fossil fuels (natural gas, crude oil and coal). In Norway, up to 55 % of all emissions are covered by the carbon tax; the remaining emissions are covered by the domestic system of emissions trading (18).

5.10.

The EESC encourages the European Commission to undertake concrete initiatives to establish similar carbon taxes in Member States in order to harmonise the efforts towards an effective reduction of the CO2 level. An ideal outcome should create uniform conditions across the EU single market with regard to the emissions/reductions to be taxed, as well as the specific methods and rates of taxation for an equal impact on the level of CO2 in the atmosphere. Such an outcome may, however, take time, given country-specific needs.

5.11.

The adoption of similar CO2 taxes among Member States should be used to influence trading partners to take similar steps, thereby extending the efforts globally and limiting the impact on European competitiveness. A global solution is required to prevent complicated compensatory rules.

5.12.

Moreover, if correctly designed, taxes could contribute to economic growth by generating, inter alia, productive investments in new technologies. This is particularly the case for developing technologies to reduce existing levels of CO2 in the atmosphere.

6.   CCS and CCU technologies

6.1.

Yet another possible policy instrument is the use of techniques reducing existing levels of CO2 in the atmosphere. Such techniques are likely to be needed in addition to the ETS and CO2 taxes. A symmetrical approach is needed. Activities reducing the level of CO2 already in the atmosphere are as beneficial for limiting global warming as the reduction of CO2-emitting activities.

6.2.

The two main technologies aimed at reducing CO2 levels are carbon capture and storage technology (CCS) and carbon capture and utilisation (CCU) (19). Both technologies extract CO2 from the atmosphere, compress the CO2 and transport it to a storage location. The technologies have significant potential to mitigate climate change (20). There are also other technologies and many more are expected to be developed in the near future.

6.3.

The difference between CCS and CCU is in the final destination of the captured CO2. In CCS, captured CO2 is transferred to a suitable site for long-term storage, while in CCU the captured CO2 is turned into commercial products.

6.4.

CCU refers to the capture and use of CO2 as a feedstock in the production of minerals, chemical building blocks, synthetic fuels and building materials. It can be used to limit CO2 emissions by recycling CO2 into products, permanently sequestering CO2 in building materials such as concrete, as well as recirculating CO2 with direct air capture. It can also offer electricity storage options through the production of synthetic methane.

6.5.

The EU has set up a regulatory framework to commercialise and subsidise this new technology, even though the cost of capture and storage is still a significant adverse factor. Currently, the capture component is the most expensive part of the process.

6.6.

Today, the largest CCS and CCU facilities are in the United States.

6.7.

In Europe, Norway has been using CCS and CCU techniques since 1996 (21). Millions of tonnes of CO2 per year from natural gas production in several dedicated facilities have been captured and stored in appropriate sites, establishing the most successful European experience in utilising CCS to date. In recent years, other additional forms of CCS and CCU technology have been developed in Sweden, the Netherlands, Belgium, France, and Ireland (22).

6.8.

The EESC encourages the development, through dedicated investments, of CCS and CCU technologies both at the EU and national level, since they contribute to the objective of reducing the impact of CO2 emissions and, more generally, to both the sustainable development goals promoted by the UN and the objectives of the Paris Agreement on climate change.

6.9.

If global warming is to be reduced in an efficient and cost-effective manner, CCS and CCU technologies need to be promoted (23). In particular, national budgets should play a crucial role towards an enhanced use of such technologies, promoting public investments as well as tax incentives. In this respect, the European Commission is considering revising the relevant State aid guidelines including the environmental and energy guidelines, which will be amended by 2021 to allow more flexibility to Member States.

6.10.

Member States should in particular adopt a comprehensive and symmetrical environmental tax policy for the effect of CO2 on global warming. There is a need to introduce taxes with both positive and negative rates. The revenues raised from CO2 taxes could preferably be used to finance incentives for CO2-reduction techniques.

6.11.

European funds devoted to research in the field of CCS and CCU could be financially reinforced and strategically targeted to deliver better, concrete results in terms of CO2-capturing capacity and storage alternatives.

6.12.

The role of public procurement rules should not be underestimated (24). The green objectives and specific environmental tools enshrined in Directiveo2014/24/EU (25), Directive 2014/25/EU (26) and Directive 2014/23/EU (27) on public procurement and concessions should be further and better exploited by national governments and local public administrations. Thus, national investments and public expenditure, on the one side, could work in synergy with the measures envisaged by the European Green Deal, on the other side.

7.   Additional tools to reduce emissions

7.1.

Finally, the EESC draws attention to other policy instruments for carbon reduction. These range from new technologies to land management practices, that should be encouraged and supported both at the EU and national level. First and foremost, forests remove carbon dioxide naturally, and trees are especially good at storing carbon removed from the atmosphere by photosynthesis. Expanding, restoring and correctly managing forests can leverage the power of photosynthesis to tackle CO2.

7.2.

While the sale of forest products is taxed as income for the owner, it should be recognised that planting trees and the growth of forests reduces CO2 in the atmosphere and should therefore, in a symmetrical tax approach to global warming, be encouraged by a negative CO2 tax. This would be an important measure to achieve climate objectives.

7.3.

Furthermore, soils naturally store carbon. The last CAP has introduced some greening measures aimed at increasing the contribution of European agriculture to green growth in Europe. Such measures should be encouraged insofar as they are compatible with the increasing necessity of food production and the fulfilment of environmental objectives. The circular economy may also entail increased possibilities in terms of reaching environmental and climate objectives.

---

(1)  Causes of climate change, European Commission (Energy, Climate Change, Environment) — https://ec.europa.eu/clima/change/causes_en

(2)  Global Climate Change, NASA — https://climate.nasa.gov/evidence/

(3)  Global Carbon Project, CO2 emissions — http://www.globalcarbonatlas.org/en/CO2-emissions

(4)  Please see EC Communication A European Green Deal — Striving to be the first climate-neutral continent.

(5)  Please see EESC opinion European Green Deal Investment Plan (ongoing) and EESC opinion (OJ C 282, 20.8.2019, p. 51).

(6)  Please see EESC opinion Just Transition Fund and amendments to the Common Provisions Regulation (OJ C 311, 18.9.2020, p. 55).

(7)  Please see Emissions Gap Report 2019 from UNEP regarding global efforts.

(8)  If a truly global solution is not found, the issue of how to handle products from outside countries becomes an issue and the need for and consequences of a border tax adjustment mechanism arise.

(9)  It could be argued that the subsidy per tonne of CO2 reduction should be higher than the tax rate on CO2 emissions since the effect on employment from reduced production of CO2-emitting activities is likely to cause some persistent unemployment. It is furthermore probably easier to get public support for a structural change in the economy leading to the development of new technology rather than cutting back on existing production methods.

(10)  Please see EESC opinion Revision of the EU emissions trading system (ETS) (OJ C 71, 24.2.2016, p. 57).

(11)  The ETS and the pricing of permits have triggered many debates. The number of permits and the economic business cycle tend to heavily influence the price of permits. The present economic situation, in the wake of the COVID-19 crisis, is also likely to result in renewed discussions on the ETS.

(12)  Please see EESC opinion European Green Deal Investment Plan (OJ C 311, 18.9.2020, p. 63).

(13)  Report of The United Nations Conference on Environment and Development.

(14)  OJ L 143, 30.4.2004, p. 56.

(15)  IMF Fiscal Monitor, How to Mitigate Climate Change, 2019, according to which ‘different policy tools have pros and cons, but the climate crisis is urgent and existential, calling on key stakeholders to deploy all appropriate policy measures. Finance ministers can confront this crisis by undertaking carbon taxation or similar policies, making climate change mitigation more acceptable through complementary tax or expenditure measures, ensuring adequate budgeting for clean technology investment, and coordinating strategies internationally’, p. IX.

(16)  The introduction or increase of carbon emission taxes often involve difficult trade-offs. The taxes trigger a need to reform production techniques and means of transportation. It may lead to unemployment in some sectors and the need for a transition to other types of work. For those affected, the social costs may be high. Countries have different possibilities when it comes to providing social protection and this needs to be taken into account in order to make any implementation socially acceptable.

(17)  Sweden's carbon tax, Government Offices of Sweden — https://www.government.se/government-policy/taxes-and-tariffs/swedens-carbon-tax/

(18)  Putting a Price on Carbon with a Tax, World Bank Group — https://www.worldbank.org/content/dam/Worldbank/document/SDN/ background-note_carbon-tax.pdf

(19)  The potential for CCS and CCU in Europe, European Commission https://ec.europa.eu/info/sites/info/files/iogp_-_report_-_ccs_ccu.pdf

(20)  Please see EESC opinion (OJ C 341, 21.11.2013, p. 82).

(21)  CCS, Norwegian Petroleum — https://www.norskpetroleum.no/en/environment-and-technology/carbon-capture-and-storage/

(22)  How European CO2 Transport and Storage Infrastructure can enable an Innovative Industrial Transition, European Parliament — https://zeroemissionsplatform.eu/wp-content/uploads/ZEP-Conference-Presentations.pdf

(23)  A Swedish governmental committee concluded in 2020 that Sweden could achieve a carbon-neutral outcome by 2045, if the revenues from CO2 taxes were used to subsidise removal of CO2 in the atmosphere. The positive and the negative tax rates would be of equal magnitudes. See SOU 2020:4, Swedish government public investigations.

(24)  This has been stressed in the publication Public Procurement for a Circular Economy by the European Commission, October 2017, https://ec.europa.eu/environment/gpp/circular_procurement_en.htm. The World Bank has also stressed the role of public procurement rules in its own procurement; https://www.worldbank.org/en/about/corporate-procurement/vendors

(25)  OJ L 94, 28.3.2014, p. 65.

(26)  OJ L 94, 28.3.2014, p. 243.

(27)  OJ L 94, 28.3.2014, p. 1.

Opinion of the European Economic and Social Committee on ‘Enhancing sustainable economic growth across the EU’

(own-initiative opinion)

(2020/C 364/04)

Rapporteur:

Philip VON BROCKDORFF

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
Section responsible	Section for Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	24.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	194/11/12

1.   Conclusions and recommendations

1.1.

The COVID-19 pandemic has impacted the European Union, along with other countries around the world. The European Commission responded to this crisis with a wide-ranging package of instruments aimed at softening the blow of this exogenous shock. This included a Pandemic Crisis Support instrument via the European Stability Mechanism (ESM), temporary loans to fund national short-term work schemes and similar measures in order to safeguard jobs within EU Member States, as part of the SURE initiative. For its part, the European Investment Bank (EIB) provided liquidity support to businesses. More recently, the European Commission proposed a new EUR 750 billion instrument called Next Generation EU, intended to assist Member States to recover from the economic crisis.

1.2.

Against this background, the EESC is of the view that the COVID-19 crisis should not steer the EU away from its medium and long-term objectives, as outlined in the European Green Deal, 2020 Sustainable Growth Strategy, and the European Pillar for Social Rights. If anything, these aims recognise the need to re-jig the European economy to ensure sustainable growth in the years to come, built on the pillars of environmental sustainability, productivity gains, fairness and social progress, and macroeconomic stability.

1.3.

To secure supply chains, which have proved vulnerable during the crisis, the EESC believes that EU operators need to rethink supply-chain strategies, including diversification, as well as the realignment of supply chains across multiple sectors. Equally important, the EU needs to play a more prominent role in world trade, which is vital for EU companies and their business prospects. The EESC also believes that a level playing field in a wide range of aspects (not least international labour standards, fair competition and compliance with climate change targets) for global firms operating in a global marketplace should apply. EU companies relocating their manufacturing plants (at least for essential products) within the EU to avoid supply-chain problems, cannot be excluded.

1.4.

Globalisation, with all its side-effects, has resulted in investments across countries but these are not always necessarily being made so much to build up capital investment as they are to seek countries with the lowest taxes. The EESC is of the view that the economic problems and other consequences created by the COVID-19 crisis suggest that a change in the modus operandi of businesses within the EU and across the globe is necessary. The EESC’s recommendations to accelerate timelines to tackle tax avoidance and tax evasion have now assumed greater relevance, and the same is true about the discussion between Member States on a gradual shift to qualified majority voting and the ordinary legislative procedure in tax matters.

1.5.

Government policy and support has assumed greater significance during the crisis. Fiscal policy, especially, is crucial not just for economic stability but equally to enable governments to support businesses by way of incentives, as allowed under EU legislation. Hence, the EESC believes that any attempt to achieve and enhance sustainable growth requires government direction and regulation in all areas of economic activity and environmental protection, with an emphasis on mainstreaming environmental protection into economic activity. Of course, open dialogue with social partners and civil society remains key to setting the economic direction.

1.6.

The huge borrowing requirement to provide income support and loan guarantees to businesses frozen during the crisis by restrictions will no doubt limit the extent to which governments can provide incentives to re-ignite economic activity. It would also limit the amount of funding needed to support both environmental protection and productive investment. Governments will therefore need to find creative ways of supporting expenditure aimed at sustainable economic growth, while also ensuring long-term fiscal sustainability.

1.7.

The transition towards a more sustainable economic path needs to involve both the development of green sectors but also the ‘greening’ of existing business models and sectors beyond the traditional ‘green’ ones to the extent possible. Thus, the EESC believes that aid offered to businesses, both at the national and EU level, must be conditional on attaining the goals set out in the European Green Deal and the 2020 Sustainable Growth Strategy, and on evidence of social progress.

1.8.

In determining strategies required for economic recovery, investment and sustainability, the Commission’s activation of the general escape clause within the Stability and Growth Pact, allowing euro area countries to temporarily suspend any adjustments required to meet medium-term fiscal targets, is a step in the right direction. However, the EESC believes that a revision of existing rules may be deemed necessary as we enter the post-COVID recovery phase.

1.9.

The EESC is of the view that a cornerstone of sustainable economic growth in the EU must be the creation and development of a truly circular economy that maximises and maintains value across entire value chains, while minimising waste and pursuing resource efficiency. Circular economy business models offer significant potential for fostering European competitiveness, not only in terms of safeguarding the natural environment, but also in the creation of high-quality jobs and the development of ancillary industries.

1.10.

The role of innovation and digitalisation and investing continuously in human capital in facilitating the transition towards sustainable growth cannot be overstated. However, the current pandemic has also served to re-emphasise the importance of focusing on individual health and well-being, as opposed to merely on productivity and economic growth. Productivity plays a key role in achieving sustainable economic growth. The EESC believes that for an economy to continue to grow sustainably in the future, it needs to increase its capacity to grow, but only to the point where such growth adds value to the economy by increasing both wages and surpluses, thereby increasing demand in the Single Market, and without infringing on acquired rights such as social protection and collective bargaining.

2.   Resilience to economic shocks (the COVID-19 experience)

2.1.

In the conclusions of its opinion on the European Investment Stabilisation Function (1), the EESC noted that that the European Investment Stabilisation Function (EISF), which aims to make national fiscal policies more stabilising with respect to economic shocks, would not be effective enough, given the size of the fund, in the event of an economic crisis affecting several Member States. Although the EISF was considered a step towards closer euro area integration, the EESC considered that a well-crafted, Union-wide insurance scheme that acted as an automatic stabiliser amidst macroeconomic shocks would be more effective than the proposed EISF.

2.2.

In recent months, the European Union, along with other countries worldwide, has been impacted negatively by the outbreak of COVID-19. This crisis revealed inherent weaknesses in the EU: its leadership, initially at least, appeared unable to respond effectively and in a coordinated fashion in the face of serious economic and social consequences arising from the COVID-19 crisis. Healthcare systems, especially in Italy and Spain, struggled to cope with the number of infected people and the general response ironically smacked of the ‘every nation for itself’ recipe championed by the far right and nationalists.

2.3.

One could argue that the recent crisis was the greatest test for the EU project, its institutions and the very architecture that props up the euro. Back in 2008, the banking sector was the centre of the crisis. The European Central Bank (ECB) provided liquidity to financial markets and supported the banks. Monetary tools were crucial back then, but the recent crisis was an altogether different challenge, with the onus on fiscal measures to ensure the robustness of public healthcare systems, while providing income support for vulnerable businesses and their employees. For its part, the ECB provided indirect support to governments’ abilities to issue debt and borrow to fund spending, including spending aimed at social development and welfare programmes.

2.4.

The economic fallout of COVID-19 hit all the members of the currency bloc. However, no mechanism exists that allows the governments of the euro area to respond jointly to such a shock. The result is that policy reactions to the pandemic were overwhelmingly national — accentuating differences rather than bringing Europe together in a time of crisis. In the face of a symmetric shock, the euro area responded asymmetrically. The differences between each Member State’s fiscal conditions caused sharp differences in policy responses. The EESC has in several of its opinions outlined the relevance of greater convergence in both economic and social policy and a coordinated approach in fiscal policy, including in taxation, but the current crisis has demonstrated yet again that there is a substantial disparity in fiscal policy response caused by differences in each country’s fiscal condition. Stronger euro area economies reacted forcefully to COVID-19 by increasing borrowing to finance rescue packages. The more vulnerable economies do not have the same financial leeway and responded with a more modest rescue package. That shows the extent of divergence between economies in the euro area. The longer the crisis, the more visible these differences became.

2.5.

Responding to the crisis the ECB announced an extraordinary new asset purchase programme to stabilise European markets. The initial reaction in European capitals was predictable: once the markets calmed down and bond spreads narrowed between countries, the perceived need for joint fiscal action evaporated. Each country turned its attention back to national rescue packages. However, the subsequent work by the Commission, Eurogroup and European Council on the recovery plan provided a much-needed boost to Member States. Still, much more needed to be done to respond effectively to this crisis, including forging ahead with a common debt instrument aimed at pooling the investment needed to revive the economy and averting millions of job losses across the EU.

2.6.

This brings us to the European Stability Mechanism (ESM) and its lending capacity of EUR 410 billion. Member States have typically been somewhat reticent to resort to the ESM, given that all lending comes with conditions. Secondly, even when these conditions are waived or adjusted, as was the outcome of the Eurogroup meeting on 9 April 2020, the ESM’s ‘synthetic’ bonds can only perpetuate the fragmented nature of the euro area. Fragmentation has not been addressed by the current framework for economic and fiscal surveillance, especially the six-pack and two-pack reforms, and constitute the main reason for a recent European Commission Communication (2). The objective of this review is essentially focused on what is required to achieve economic growth whilst maintaining sustainable government finances and avoiding macroeconomic imbalances through closer coordination of economic policies and convergence in Member States’ economic performance. This could be an important step in the right direction as long as the root causes for the imbalances are identified via either the Macroeconomic Imbalance Procedure or the European Semester, with a focus on more effective policies, including those aimed at improved systems of social protection.

2.7.

On 9 April 2020, the European Commission announced a wide-ranging package of instruments aimed at softening the blow of the COVID-19 crisis, to the tune of EUR 540 billion. This includes a new Pandemic Crisis Support instrument via the ESM of up to EUR 240 billion, aimed at supporting euro-area Member States in the domestic financing of direct and indirect healthcare, cure and prevention-related costs due to the COVID-19 crisis, capped at 2 % of each country’s 2019 GDP. The package also includes EUR 100 billion in temporary loans to fund national short-time work schemes and similar measures in order to safeguard jobs within EU member states as part of the SURE initiative, with guarantees provided by EU countries. In addition, the European Investment Bank (EIB) will provide liquidity support of up to EUR 200 billion to businesses across Europe, with a focus on SMEs. Furthermore, on 27 April 2020 the European Council agreed in principle to the establishment of a recovery fund for the EU, totalling at least EUR 1 trillion, and called on the Commission to develop a proposal on how such a fund would be developed and utilised.

2.8.

A month later, on 27 May 2020, the Commission proposed a new EUR 750 billion instrument called Next Generation EU, intended to assist Member States to recover from the economic crisis precipitated by the COVID-19 crisis. The new package, embedded within the next long-term EU budget for 2021-2027, includes EUR 500 billion in grants and EUR 250 billion in loans, and will be financed via borrowing on the financial markets, necessitating a temporary increase of the Commission’s own resources ceiling to 2 % of EU Gross National Income. The recovery programme includes EUR 560 billion to support investments and reforms by Member States in relation to the green economy, digitisation and economic resilience (EUR 310 billion in grants and EUR 250 billion in loans), an additional EUR 55 billion to boost existing cohesion policy programmes and a EUR 40 billion top-up of the Just Transition Fund, as well as a further EURo15obillion investment in the European Agricultural Fund for Rural Development. The fund is also aimed at reigniting private investment, with a new Solvency Support Instrument for European businesses, budgeted at EUR 31 billion, together with a EUR 15,3 billion upgrade to the EU’s investment programme InvestEU and an additional EUR 15 billion Strategic Investment Facility (part of InvestEU) aimed at generating investment in strategic sectors within the EU, particularly in relation to resilience building, green and digital transformation and key value chains.

2.9.

In view of these developments, the recent crisis should not steer the EU off its long-term objectives, as outlined in the European Green Deal and 2020 Sustainable Growth Strategy. If anything, these aims are oddly prescient, in that they recognise the need to re-jig the European economy to ensure sustainable growth in the years to come, built on the pillars of environmental sustainability, productivity gains, fairness and social progress, and macroeconomic stability.

3.   Global interdependence, the EU’s international dimension and the future of globalisation

3.1.

Although globalisation has led to an increase in Foreign Direct Investment (FDI), with FDI increasing at an average annual rate of approximately 10 % since 1990 (3), relative to 5 % average growth in world trade (4), one needs to recognise its side-effects, particularly with regards to working and social conditions. While it is true that globalisation has boosted technology transfer, industrial restructuring and the growth of global companies, this has often happened at the expense of social rights and collective bargaining. Again, though globalisation has enabled large companies to realise economies of scale that reduce costs and prices, this has hurt many small EU businesses that compete domestically.

3.2.

As regards trade between nations, the increased interdependence has had a number of positive effects, not least the realisation that conflicts between nations would spell the end of the world as we know it, with the military firepower that nations like China, the USA and Russia possess. However, this does not tell the whole story. The negative consequences of globalisation, such as excess pollution and unfair working conditions, are often ignored. Also, when a crisis hits economies like China and the USA, this affects a large number of countries, creating both regional and global instabilities. There are a number of other pitfalls caused by globalisation, not least the fact that multinational or global firms are often regarded as a threat to a nation’s sovereignty due to their domestic clout.

3.3.

The relevant question to ask at this stage is the extent to which COVID-19 will change the modus operandi of companies operating in cross-border trade or services with certain sectors — most notably travel and tourism/aviation — bearing the brunt of the economic crisis. The financial implications of this crisis are huge, with companies — including those in the manufacturing sector — being affected by supply chain and export restrictions as well as the fall-away in customer business driving what might be termed as an inverted multiplier effect, or the propagation of (negative) shocks within production networks. The crisis has served to remind us of the mesh of supply agreements that underpin the globalised economy.

3.4.

The expansion of global trade in the last quarter of the 20th century was made possible by two unrelated factors: the rise of intermodal freight transport (i.e. containerisation) and the widespread abandonment of capital controls in the early 1980s. Whereas capital flows are now more regulated, they remain the lifeblood for investment and trade flows across the globe. A third reason behind the expansion of global trade was trade liberalisation and related trade agreements, perhaps most notably China joining the WTO. Trade is hugely important for the EU in any effort aimed at enhancing sustainable economic growth and there are obvious advantages to the increase in trade flows between the EU and its trading partners, but the COVID-19 crisis has highlighted the vulnerability of global supply chains. A disruption in trade can affect sustainable economic growth. With this in mind, the EU has to do more through its international agreements to secure supply chains to minimise the disruptions caused by economic shocks. This would involve a rethink of supply-chain strategies, including diversification, but also a realignment of supply chains across multiple sectors. It would also mean some form of sectoral de-globalisation with EU companies relocating their manufacturing plants (at least for essential products) within the EU to avoid supply-chain problems.

3.5.

Of relevance to the theme in question is the EU’s international dimension and its relations with global players, particularly China, the USA and Russia. Whereas international diplomacy is critical for the future economic prospects of the EU and its currency, the EU needs to play a much more forward-looking and prominent role in international affairs, including trade negotiations with competitor nations. The EESC still favours multi-lateral trade negotiations and should continue to do so, but it is evident that the EU’s position on multi-lateral trade is being ignored by China, the USA and Russia. If the EU is to play a more prominent role in world trade, which is vital for EU companies and their business prospects, then it has to do much more to bring other nations back round the multi-lateral negotiations table, failing which bilateral trade will need to assume greater importance. Globalisation in a post-crisis future, has to have a level playing field in a wide range of aspects (including tax competition, compliance with labour standards, and meeting climate change targets) for global firms operating in a global marketplace. If not, then the EU risks becoming more and more vulnerable and dependent on trade skirmishes between the USA and China.

3.6.

Insofar as cross-border investments are concerned, it is quite apparent that investments are not always being made so much to build up capital investment as they are to seek countries with the lowest taxes (5). Some form of globalisation may be inevitable after the crisis is over, but the economic problems and other consequences created by the crisis suggest that a change in the modus operandi of businesses within the EU and across the globe is necessary. The EESC’s recommendations to Member States to accelerate timelines to tackle tax avoidance and tax evasion have now assumed greater relevance, and the same is true when it comes to qualified majority voting (QMV). Indeed, already last year the Committee fully supported the kick-start of the discussions on a gradual shift to QMV and the ordinary legislative procedure in tax matters, while recognising that all Member States must at all times have sufficient possibilities to participate in the decision-making process.

4.   Revisiting the role of government

4.1.

There is no question that the COVID-19 crisis has brought to light the significance of the role of governments in tackling health and economic crises. This too is particularly relevant to the objective of achieving sustainable economic growth. Nobody in the EU now questions the role of governments in the provision of effective health systems and programmes which indirectly support economic activity. Nor do we question the role of governments in enforcing banking and financial regulations in the aftermath of the financial crisis in 2008. However, it is increasingly evident that governments still play a key role in setting economic direction, more so in a crisis. This should also be the case where multi-level governance applies, where the involvement of local and regional authorities in central government economic policy is critical. Fiscal policy, as explained earlier, is vital not just for economic stability but equally to enable governments to support businesses by way of incentives, as allowed under EU legislation. Any attempt to achieve and enhance sustainable growth requires government direction and regulation in all areas of economic activity and environmental protection, with an emphasis on mainstreaming environmental protection into economic activity. Of course, open dialogue with social partners and civil society remains key to setting the economic direction.

4.2.

In a post-crisis scenario, fiscal policy will assume greater importance, not least because of the massive amount borrowed over and above what was projected prior to the crisis. The huge borrowing requirement to provide income support and loan guarantees to businesses frozen by COVID-19 restrictions will no doubt limit the extent to which governments can provide incentives to re-ignite economic activity. It would also limit the amount of funding needed to support both environmental protection and productive investment. Governments will therefore need to find creative ways of supporting expenditure aimed at sustainable economic growth, while also ensuring long-term fiscal sustainability. The Commission’s position that the recovery should be aligned with the Green Deal is a step in the right direction as it provides evidence that the crisis response itself needs to have a sustainable character.

4.3.

An example of an extra-budgetary source of infrastructure finance involves international financial institutions and private firms and manifests itself in what are called Public-private partnership (PPPs). Assuming they are managed transparently and subject to democratic scrutiny, PPPs could be considered as an option. in a post-crisis scenario to support the financing of infrastructure and environmental projects, because they offer solutions to problems of financing, job completion, and investing in large projects, without sacrificing government finances for key policies.

4.4.

The EU should also seek more rapid deployment of the tools and initiatives proposed under the European Green Deal, which explicitly recognises the central role that must be played by the EU and national governments, in tandem with the private sector, in pursuance of this transformation into a truly sustainable Europe. These include the various financing tools included as part of the Just Transition Mechanism, with a focus on SMEs and vulnerable industries, in order to both assist in their economic recovery and improve their sustainability and resilience to future shocks, with some leeway allowed on a case-by-case basis in terms of collateral and joint-financing requirements, given current circumstances. In light of the current COVID-19 crisis, this sentiment assumes even greater resonance, and must be seen as an opportunity to reignite social and economic development with the tenets of the Green Deal in mind. In the current context, the concept of pan-European solidarity has never been more pertinent.

5.   Strategies for economic recovery, investment and sustainability

5.1.

This brings us to identifying the strategies required for economic recovery, investment and sustainability. With economies contracting because of COVID-19 restrictions, expecting economies to recover to pre-COVID levels is a huge ask. It will take several months to get anywhere close to where the euro area and EU economies were prior to the crisis. Moreover, with governments borrowing from various sources to cover the unexpected and monumental hike in public spending, they are likely to cut spending and possibly re-introduce austerity measures, leading to depressed consumption and output. The experience of austerity measures in Greece, for example, brought the country to its knees with a quarter of its gross domestic product (GDP) evaporating over eight years and unemployment soaring to more than 27 % (6). A repeat of austerity measures would be counterproductive. The Commission’s activation of the general escape clause within the Stability and Growth Pact (SGP), allowing euro-area countries to temporarily suspend any adjustments required to meet medium-term fiscal targets, is a step in the right direction. However, a revision of SGP rules may be necessary as we enter the post-COVID recovery phase.

5.2.

Whereas the overall objectives as outlined in the European Commission’s Communication in its Annual Sustainable Growth Strategy (7) are considered crucial in achieving sustainable economic growth, this cannot be attained by applying austerity measures that hurt the most vulnerable socio-economic groups within our communities.

5.3.

Instead, EU governments need to develop economic recovery strategies that support more productive and sustainable economic activities. The post COVID-19 scenario presents an opportunity to revisit key economic sectors which have proved especially non-resilient. The economy will still rely extensively on small and medium-sized enterprises, but it may be opportune to further encourage start-up businesses and revisit the role of social economy enterprises as a relevant part of the social economy. Although profits are not the primary motivation behind a social enterprise, revenue still plays an essential role in the sustainability of such a venture. All social economy enterprises can still be highly profitable and one of their priorities is the reinvestment of profits in their enterprise rather than in payouts to shareholders. A social economy enterprise can above all balance the tension between upholding the social mission of their organisation and maximising the productivity of their business venture to ensure sustainability. Hence such structures are ideally suited to an economy that aims to achieve and enhance sustainable economic growth.

5.4.

Governments will be looking for rapid recovery after the crisis, and some sectors that have proved resilient would be expected to bounce back, but the temptation will be for governments to incentivise sectors that prior to the crisis had been deemed unsustainable or that went against climate change and environmental objectives, as outlined in the European Green Deal. Instead, governments should look at investing further in projects aimed at the efficient use of energy and alternative energy via the funding models mentioned earlier, hence creating business opportunities for large companies, SMEs and social economy enterprises. The green transition needs to involve not just the development of green sectors but also the ‘greening’ of existing business models and sectors beyond the traditional ‘green’ ones to the extent possible. Thus, aid offered to businesses, both at the national and EU level, must be conditional on attaining the goals set out in the European Green Deal and the 2020 Sustainable Growth Strategy.

5.5.

A cornerstone of sustainable economic growth in the EU must be the creation and development of a truly circular economy that maximises and maintains value across entire value chains, while minimising waste and pursuing resource efficiency. Circular economy business models offer significant potential for fostering European competitiveness, not only in terms of safeguarding the natural environment, but also in the creation of high-quality jobs and the development of ancillary industries. In addition, circular economy business models assist in developing more resilience to the kind of supply-chain shocks experienced as a result of the COVID-19 pandemic, while mitigating against the volatility in raw material prices and availability resulting from environmental and geopolitical developments, including the impact of climate change and trade disputes. The role of innovation and digitalisation and investing continuously in human capital in facilitating this transition cannot be overstated, and must be pursued with renewed vigour through support for research and development, and with more emphasis on commercialisation. However, the impact of digitalisation on the labour market needs to be fully evaluated to minimise as much as possible job losses and assist those affected in terms of re-skilling and redeployment.

5.6.

The current pandemic has served to re-emphasise the importance of focusing on individual health and well-being, as opposed to merely on economic growth which, as stated in the 2020 Sustainable Growth Strategy, is not an end in itself. Improving both the quality and accessibility of public healthcare systems across countries should be a top priority for the EU, whilst tackling inequalities in healthcare access and large out-of-pocket expenditure which only serves to perpetuate these disparities. In line with other sectors, investment in digitalisation and artificial intelligence for public healthcare systems should also be pursued. The onset of large-scale economic shocks also underscores the crucial role played by good governance in building resilience and formulating appropriate responses to deal with the fallout. The pursuit of sustainable and equitable economic growth thus hinges on the quality of national and local institutions across Member States, and it is incumbent on the EU to actively ensure that countries safeguard and nurture the principles of democracy, tolerance and respect for the rule of law. It is positive to note that the European Semester now treats the quality of public administration and governance in a much more systematic manner.

5.7.

The final point concerns the role of productivity in achieving sustainable economic growth. For an economy to continue to grow sustainably in the future, it needs to increase its capacity to grow, but to the point where such growth adds value to the economy and its people. This includes improved wages and working conditions especially via collective bargaining, and certainly not at the expense of a more equitable distribution of income. Hence strategies aimed at enhanced economic sustainability need to be developed around productivity, but they cannot be allowed to happen at the expense of workers’ rights and social development. Higher productivity, therefore, is not an end in itself but the means for improving wages, increasing overall demand in EU economies, and thus improving standards of living. Higher productivity will also lead to the development of new and better products and services, thereby enabling firms to move to higher value chains of goods and services, and allowing the EU to have a competitive edge in the global market. Again, and as stated above, higher productivity should be strictly related to the goal of achieving sustainable economic growth and not be achieved at the expense of working conditions, social development or environmental policies. On the contrary, the overall aims, as stated in the European Pillar of Social Rights (EPSR), in particular social protection and the strengthening of the collective bargaining process ought to be upheld. The same applies in the case of the objectives as set out in the Green Deal and the EU’s climate change targets. Also, a truly European response to the current COVID-19 crisis and any unified attempts at fostering sustainable growth across the bloc should eschew the ‘race to the bottom’ mentality of cross-country tax competition, which only serves to deter cooperation across Member States, fomenting nationalistic tendencies. Rather, the focus should be on assisting countries to develop their human capital and boost productivity, while addressing regional disparities in growth and job opportunities through targeted investment, all while addressing key structural shortcomings that create obstacles to doing business.

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(1)  OJ C 62, 15.2.2019, p. 126.

(2)  Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions — Economic governance review report on the application of Regulations (EU) No 1173/2011, 1174/2011, 1175/2011, 1176/2011, 1177/2011, 472/2013 and 473/2013 and on the suitability of Council Directive 2011/85/EU.

(3)  UNCTAD (2019). World Investment Report 2019.

(4)  World Bank (2020). Exports of goods and services (annual % growth). World Development Indicators.

(5)  Bénassy-Quéré, A., Fontagné, L., & Lahrèche-Révil, A. (2005). How does FDI react to corporate taxation? International Tax and Public Finance, 12(5), 583-603.

(6)  https://www.theguardian.com/world/2018/aug/20/greece-emerges-from-eurozone-bailout-after-years-of-austerity

(7)  Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, The Committee of the Regions and the European Investment Bank — Annual Sustainable Growth Strategy 2020, COM(2019) 650 final.

Opinion of the European Economic and Social Committee on ‘Fostering competitiveness, innovation, growth and job creation by advancing in global regulatory cooperation, by supporting a renewed multilateral trading scheme and by reducing market-distorting subsidies’

(own-initiative opinion)

(2020/C 364/05)

Rapporteur:	Georgi STOEV
Co-rapporteur:	Thomas STUDENT

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	CCMI
Adopted in section	26.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	211/1/3

1.   Conclusions and recommendations

1.1.

Disruptions like coronavirus (COVID-19) threaten to bring the world economy and social life to a standstill. Its impacts include recessions in the USA, the EU, Japan and other regions of the world, extremely slow growth in China and huge losses in terms of output. Governments have to offset economic damage with fiscal and monetary policies and cope with the expected changes of the economic paradigm. The EESC stresses the need for efficient business models and trade defence mechanisms, in particular with regard to Asia, and notes that 36 million jobs in the EU depend on the EU’s exporting potential, and that the share of EU employment supported by sales of goods and services to the rest of the world in relation to total employment increased from 10,1 % in 2000 to 15,3 % in 2017 (1). The fiscal, economic and social response to the crisis is necessary for preventing its negative impact on these and other sectors.

1.2.

The coronavirus crisis should lead the EU, as part of the general reformulation of industrial policy imposed by environmental sustainability and digitalisation, to boost the health equipment and pharmaceutical sectors, with a view to ensuring the EU’s shared sovereignty and self-sufficiency in these sectors. The drafting of this opinion started before the outbreak of an unpredictable health and economic crisis bound to change our economies and globalisation patterns in the short- medium- and long-term. While this crisis is not the core topic of the opinion, it has and will have a huge impact on the sectors and topics discussed in the next points. It is already evident that this crisis is pushing some areas of the planet towards a new wave of protectionism and economic nationalism, both worldwide and inside the EU. All these factors are taken into account, as much as possible to the present date, in a horizontal manner within this opinion.

1.3.

The EESC shares the view that international businesses and trade have the potential to contribute to global growth, resulting from a higher degree of specialisation, economies of scale, advanced global value chains and the spread of research and technologies. The shift from value chains to value creation networks, from linear to circular and from tangible to intangible, which will require agility from the industry to adapt, should be also indicated.

1.4.

The EESC stresses that EU policy has to ensure that participants in industrial development do not become victims of unfair economic, social and environmental dumping. Regarding the urgent policies to be enacted, the EU faces the following challenges: the USA’s market for EU exports, potential collaboration between the EU and the USA, the future role of China, and the need to reshape the WTO. Industries should become a solution enabler for societal and environmental challenges, creating new value for society.

1.5.

The EESC agrees that globalisation without regulation leads to increased inequality, downward pressure on companies, wages and labour conditions and weakened social security. This could become a real threat for the European social models. Unregulated globalisation also has negative effects on environmental standards. The EESC is concerned that European companies and jobs are coming under pressure from unfair non-market trading practices that do not respect international social and environmental agreements. EU industry should build on its unique advantage by combining European values, new technologies and a future-oriented approach. The Single Market is crucial for European industry and for diffusing innovation — not only with regard to digital technologies, but also other Key Enabling Technologies, such as biotech. The role of social and regional cohesion and social dialogue in ensuring social acceptance of industrial transformation can be also underlined.

1.6.

The EU’s industrial strategy and trade policy should not undermine its efforts to provide development assistance to third countries, and the EESC recommends adopting a balanced approach, better coordinating and combining national development aid, when it comes to more fragile economies. The EESC is concerned that the escalation of WTO non-compliance measures and new discriminatory non-tariff arrangements risk imposing excessive reciprocal regulatory burdens in a way that is becoming the new norm in global trade. The existing EU support programmes and monitoring should be re-evaluated, in line with EU competition rules, to support EU Member States, partners, companies and employees adversely affected by the economic crisis and trade wars and to reduce the burden on them.

1.7.

The EESC believes that in order to deal with external challenges, the EU’s internal market should become ‘the best place to invest in’. The new industrial strategy and all other leverages should be assessed with regard to their capacity to promote and support investments in industrial, energy, transport and digital infrastructure through an enlarged connectivity approach. Reviewing mergers and acquisitions and State aid rules could place the EU on a more equal footing vis-à-vis global competition. All levels of governance should ensure that the benefits of globalisation are fairly distributed and negative impacts at global, regional and local level are mitigated

A common foreign direct investment scheme would help ensure that interests could be seized in strategic assets, such as critical infrastructure, critical technologies and security of supply of critical inputs. Making use of the procurement directives, effective trade defence instruments and a sound network of free trade agreements (FTAs) are needed more than ever to counter illicit practices, deepen regulatory convergence and promote sustainability standards, thus reducing market distortions.

1.8.

The EESC is concerned about the recent negativity regarding international trade and globalisation, and the rise of populist movements that call for increased nationalism. It feels that protectionism and nationalism cannot provide the right answers to economic and social problems. Medium-term reform and investment priorities are necessary to put economies back on track to sustainable and inclusive growth, integrating the green transition and the digital transformation. The EU should take all possible measures to preserve full democracy despite pandemic circumstances.

1.9.

The EESC believes that the Green Deal should integrate new industrial strategy and trade policy together with economic, regulatory and competition policy in a comprehensive effort to help the environment, without creating a threat to the single market and European companies and jobs, and should set high environmental ambitions for industry as a whole.

1.10.

The EESC shares the view that one of the key messages on economic stability is that Member States should pay appropriate attention to the quality of public finances, promoting necessary and future-oriented investments.

2.   General comments

2.1.

With the multilateral system under constant pressure, EU companies operating globally face increasing friction and uncertainty along with rising protectionism and the ongoing tensions between the EU’s trading partners. Global value chains are shrinking and a generalised trend towards a return to regionalisation is occurring worldwide. The EU, together with the US and China, is at the centre of such dynamics and a number of key industry sectors are under considerable pressure. Fundamental decisions have to be taken to increase the possibility of avoiding the risk of marginalisation, and to preserve the global role of the EU. There is an urgent need to reconsider investments in the EU’s territory and focus on supporting businesses, especially SMEs, ensuring liquidity provision and stability in the financial sector, preserving the Single Market and ensuring the flow of critical goods. Such an objective can only be achieved through a mix of measures such as: regulations and policies applicable also to third country companies when working in the EU, infrastructure, investment in public goods (inter alia health, education, digital infrastructure), reciprocity in public procurement, effective trade policy, digital independence.

2.2.

EU industry’s global competitiveness is hindered by the return to unilateralism and by the lack of effective global governance on economic and trade issues, as well as market asymmetries and disruptions caused by subsidised competitors in particular state-owned enterprises and by the crisis. EU companies’ investments in research and innovation aim to combine competitiveness and sustainability, but these investments and bold risks could be rendered ineffective by the reduced access to international markets and by unfair competition. In this framework, SMEs are more vulnerable than ever.

2.3.

Under these circumstances, the alliances that the EU fosters could help to promote its interests in multilateral organisations, such as the World Trade Organization (WTO) and the United Nations (UN). Therefore, the recently adopted industrial strategy and the Commission’s annual report on the implementation of FTAs represent a move towards increased transparency, but also provide an effective instrument for supplying objective background information to civil society about trade agreements negotiated by the EU. Despite containing some positive elements, the overall package of the recently adopted industrial strategy has not yet convinced everyone that it will make a perceptible difference for businesses, labour and civil society, which are striving to increase Europe’s competitiveness and economic growth.

2.4.

The adoption of a strong European industrial policy and the defence of the EU’s commercial interests are compatible with the priority objective of its foreign policy: strengthening multilateralism around the institutions of the UN system. Their necessary reforms should make it possible to move towards a world governed by fair rules with democratic principles.

3.   Realising the potential of business perspectives

3.1.

The EESC agrees with the Commission’s view that EU companies can only benefit from the EU’s industrial strategy and trade agreements if they have pertinent information on the contents of these strategies and agreements and understand how they function in practice.

3.2.

The EESC notes with concern that the complexity of rules of origin and of administrative forms required by EU trade partners for granting preferences to EU companies, as well as the efforts involved in proving preferential origin, seem to be disproportionate for EU SMEs as compared to the size of their concluded contracts.

3.3.

The EESC proposes that in the event of countries engaging in unfair competition, labour conditions or sustainability standards, provisions should also be made for exploring key issues on the development of alternative dispute settlements and implementing UN online dispute resolution mechanisms. The EESC welcomes the Multi-Party Interim Arbitration Arrangement recently announced by the EC as a stopgap to maintaining an independent, two-step dispute settlement function.

3.4.

The EESC recalls that most SMEs’ business activity takes place primarily within the Single Market (2), with only about half of SMEs selling their goods outside the EU-28 (3) and also notes that SMEs’ exporting activity is highly concentrated in some Member States and regions, with six Member States (4) accounting for more than two thirds of total SME business and trade in the EU.

3.5.

The EESC welcomes the Commission’s advanced work on the online portal that will integrate two databases, the Market Access Database and the Trade Helpdesk, and which is addressing the complexity and lack of coherence of the rules of origin and customs procedures and implementing a free, online rules of origin calculator to provide additional support for EU SMEs.

3.6.

The EESC believes that the Commission and the European External Action Service as well as the Member States’ diplomatic and consular representations, could play an important role in promoting EU strategy, services and trade with third countries to facilitate both inward investment and export opportunities for European businesses and labour.

3.7.

The EESC furthermore welcomes the initiatives of the European Commission to promote and support EU SMEs in their internationalisation efforts so that they become competitive globally, and highlights the need to ensure that these initiatives are also bottom-up in their application. Along with these initiatives, the new paradigm may bring more opportunities for SMEs and other regional players.

3.8.

The EESC regards with concern the outstanding issues with the EU’s trading partners as presented in the Commission’s report, notably the fact that EU products continue to face barriers to accessing markets in partner countries. Non-bureaucratic mutual recognition of technical standards should be given high priority.

3.9.

The EESC emphasises that, as underscored by an EPRS study (5) based on an analysis of trade flows in some Member States, the export performance of the EU is positively and strongly correlated with GDP and trade is highly concentrated in a few Member States.

3.10.

The EESC recalls that the territorially uneven impact of globalisation was recognised by the Commission in its Reflection Papers on Harnessing Globalisation and The Future of EU Finances, underlining that while the benefits of globalisation are widespread, the costs are often localised.

3.11.

The EESC places particular emphasis on the role of cohesion policy in improving the competitiveness of the EU through targeted investments in key sectors such as network infrastructures, research and innovation, IT services, environmental and climate action, quality employment and social inclusion.

3.12.

The EESC highlights the role that the European Globalisation Adjustment Fund (EGAF) can play in helping people who are unemployed as a result of structural changes due to globalisation, digitisation, migration and climate change. In view of the enormous scale of the looming economic and employment crisis, the EGAF should be financially strengthened, its rules made more flexible to suit the nature and size of the crisis, and linked to the Just Transition Fund.

3.13.

The EESC agrees that flexible working arrangements and tele-working play an important role in preserving jobs and production, but despite efforts to mitigate its social impact, the crisis is expected to significantly increase unemployment and income inequalities. EU’s revised Green Deal policy could play an important role in ensuring that globalisation results in positive economic, social, territorial and environmental effects for business, employees and civil society and contribute to reducing market distortion.

3.14.

The EESC believes that a mechanism tackling the ‘carbon footprint’ in manufacturing and efforts to decarbonise industries could be used to level the competitive playing field; it notes, however, that such a measure must balance environmental, trade and fairness concerns to avoid market distortions, triggering retaliation against EU countries and thus damaging EU industry and industrial jobs.

3.15.

The EESC shares the view that reducing the gap in productivity performance between highly productive economies, regions and firms and all others is crucial, and that effective institutions and efficient tax systems could support productivity.

3.16.

A new industrial policy is needed to focus on boosting activities with a higher innovation content and generating greater added value, which is inseparable from the promotion of quality and new jobs. Such a policy, if wisely conceived and correctly executed, would contribute to avoiding the negative influence of further drops in GDP, the fragmentation of the Single Market and the disruption of value chains.

4.   Mitigating the negative impact of unique developments

4.1.

The EESC calls on all key institutional players to reconsider the links between the EU-27 and the UK, which will largely define the impact of the UK’s withdrawal on their respective economies; appropriate measures must be devised for sectors that would suffer a particularly adverse impact.

4.2.

The EESC regrets the fact that the USA’s decision to introduce additional tariffs on European products, as a countermeasure to the aid granted by the EU to the manufacturer of Airbus, will mainly impact agricultural and agri-food products produced in EU Member States. The effectiveness of the EU’s safeguard measures for steel, which are traditionally in the focus of the CCMI’s attention, should be reassessed in light of the troubled economic environment for the steel industry, in order to avoid further damage to domestic steel companies and to ensure a level playing field for EU businesses and labour. The EESC stresses that US steel tariffs have led to significant trade diversion of steel products from third countries, which are entering the European market in increasing quantities, in particular being used in public infrastructure construction contracts.

4.3.

The EESC notes that although no country can isolate itself from globalisation without incurring enormous costs, the risk of a collapse of the multilateral trading system is real and the EU therefore has to reflect upon this. It welcomes, in this regard, the Commission’s Work Programme for 2020, which sets out an initiative for WTO reform by the end of 2020 as well as the proposed Recovery Plan.

4.4.

The EESC shares the view that the EU needs to change into a more decisive approach to ensure real reciprocity in practice and tackle protectionism in access to procurement markets in third countries. The Chinese public procurement market and protection of intellectual property rights are notable for their divergences from international standards and, despite joining the WTO, China is still a largely protected marketplace. Furthermore, China has not yet joined the WTO Government Procurement Agreement (GPA), despite its promise when been accepted in the WTO. The debate on China has become more sensitive in the EU. Ambitious programmes such as the Belt and Road Initiative, Made in China 2025 and the ‘16+1 Guidelines (2017 Budapest, 2018 Sofia, 2019 Dubrovnik)’ (6) have caught the attention of a number of private and public actors including the EU institutions. The 5G issue has brought digital security into the picture, providing fertile ground for advancing towards EU digital independence. Boosting EU programmes for investment in research and innovation appears to be the most rational and rewarding approach in this regard.

4.5.

Policy recommendations and concrete measures should take into account two strategic features. The first is that the G20, which could have become a global political forum, complementary to the United Nations system, to also address global imbalances and inequalities has lost much of its weight. The second, closely linked, is that the EU lacks an effective ‘foreign economic policy’. Industrial policy and other EU policies affecting factors relating to production, energy, internal market, research and innovation, transport, etc. are being disconnected from, or only partially mirrored in, the external projection of the EU trade and external services, as well as the Member States’ export credit agencies which should combine forces. This absence makes it harder to confront major international players, and decreases the role of the EU in multilateral and international fora and in preventing market distortions.

5.   The impact of the crisis generated by the coronavirus (COVID-19) pandemic

5.1.

The outbreak of COVID-19 has had an extraordinary macroeconomic and fiscal impact, which is still unfolding. The EESC shares the view that there was no alternative to the recently announced financial and expansive monetary policies in the EU and around the world. The key challenges include an incomplete and uneven recovery and an increase in unemployment. Although policy measures should limit the rise of the latter, the necessary policy measures will cause public deficits and increase public debt.

5.2.

The EESC stresses that this crisis has serious long-term implications for the EU. Due to the fact that politics delayed the EU’s coordinated engagement in fighting the pandemic, there might be a loss of confidence in politics in general.

5.3.

Other risks include a longer lasting pandemic than assumed, financial instability both globally and in the EU, a rise in protectionism, the fragmentation of the Single Market and entrenched structural divergencies.

5.4.

The EESC believes that Europe urgently needs a new project for internal integration, a common economic, social, (including public heath coordination), fiscal, energy and environmental strategy and a coherent trade policy. The absence of an effective European strategy has been alarming and it has to be reversed towards a new collective European approach.

5.5.

A massive recovery and reconstruction package for investment is needed to support the EU economy after the crisis as part of the new multiannual financial framework, in addition to what the European Stability Mechanism, the European Investment Bank and the European Central Bank are already doing. The necessary investment recovery plan would be further financed through existing EU funds, financial instruments and recovery bonds, clear defined in terms of problems resulting from the coronavirus crisis, guaranteed by the EU budget. In this context the EESC sees the Recovery Plan recently presented by the European Commission as a concrete first step in this direction.

5.6.

The EESC stresses that rules-based trade is also essential in times of crisis and as part of the EU strategy to exit the crisis. The EU Member States must respect the Single Market and ensure that there are no internal barriers to EU trade by launching a more comprehensive negotiation on a plurilateral agreement that would lead to a level playing field, including the possible permanent liberalisation of tariffs on medical equipment, and help to ensure that global supply chains can operate freely in this critical sector. Along with these measures, tariff liberalisation and export finance, well coordinated between the respective bodies of the EU and the Member States, could ease the pressure on businesses and prevent market distortions.

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(1)  http://trade.ec.europa.eu/doclib/docs/2018/november/tradoc_157516.pdf

(2)  EPRS, CETA implementation: SMEs and regions in focus, study conducted at the request of the CoR, 18 November 2019, available at http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_IDA(2019)644179

(3)  Flash Eurobarometer 42, Internationalisation of Small and Medium-sized Enterprises, October 2015.

(4)  Belgium, Germany, Spain, Italy, the Netherlands and the UK.

(5)  EPRS, Interactions between trade, investment and trends in EU industry: EU regions and international trade, study conducted at the request of the CoR, 27 October 2017, available at http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_STU(2017)608695

(6)  2017: https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/t1514534.shtml;

2018: https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/t1577455.shtml;

2019: https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/t1655224.shtml.

Opinion of the European Economic and Social Committee ‘The industrial dimension of the Security Union’

(own-initiative opinion)

(2020/C 364/06)

Rapporteur:	José CUSTÓDIO LEIRIÃO
Co-rapporteur:	Jan PIE

Plenary Assembly decision	20.2.2020
Legal basis	Rule 29(2) of the Rules of Procedure
	Own-initiative opinion
Body responsible	Consultative Commission on Industrial Change (CCMI)
Adopted in CCMI	26.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	209/3/4

1.   Conclusions and recommendations

1.1.

We welcome the determination of the new European Commission to enhance the Union’s technological sovereignty, and stress the importance of the security sector in this respect. There is no security without technology, and Europe must master the technologies that are crucial for its security.

1.2.

To achieve this objective, we call upon the European Commission to launch a strategy that strengthens Europe’s industrial and technological capabilities in the field of security. This is much needed in particular in sensitive areas where dependence on non-European suppliers may become a security risk in itself. The strategy has to support the objectives of the new Internal Security Strategy and complement it with an industrial dimension. It should help meet the current and future capability needs of European end-users and address the key challenges that the sector faces in Europe: market fragmentation, lack of long-term capability and technology planning, and incoherence of EU policies and funding instruments.

1.3.

The security industrial strategy should be based on the following principles: (a) the existence of an innovative security industry is crucial for Europe’s technological sovereignty and strategic autonomy; (b) security is a sovereignty issue, which cannot be left to market forces alone. Political will and action are needed to maintain the capacity to develop complex hi-tech security solutions; (c) in light of the COVID-19 pandemic, resilience to large-scale natural and man-made disasters must become a top political priority for the Union and can only be achieved with the support of the European security industry. The strategy should be developed as part of the Security Union and make security-related EU policies more effective. It should follow a holistic approach and include the following objectives:

—	assessment of Europe’s vulnerabilities and critical dependence on non-military security,

—	screening of emerging technologies for potential security implications,

—	definition of critical ‘must-have’ technologies for which Europe should, for security reasons, not depend on third-country suppliers,

—	identification of strategic value chains in the security sector,

—	use of EU agencies as drivers for capability planning and harmonisation of national requirements,

—	use of security-related EU instruments (ISF, IBMF, Digital Europe, Horizon Europe, RescEU) for targeted investment in critical security technologies and applications,

—	use of other EU instruments (Structural Funds, InvestEU, etc.) for security-relevant investments (infrastructure), ideally through the creation of a Securing Europe Facility (analogous to the CEF),

—	use of European procurement and coordination of national procurement to support the relevant industrial base,

—	use of capability-oriented funding instruments (such as ISF and IBMF) to foster market uptake of EU security research beyond Horizon Europe,

—	identification of possible new legislative initiatives, such as a revision of the CIP directive or a possible instrument on urban security,

—	coordination of relevant EU programmes (defence, security, space, cyber).

Introduction

1.4.

Europe’s security environment is highly complex. Today’s security threats are often multi-faceted, transnational, rapidly evolving and difficult to predict. They can hit a broad variety of targets throughout the Union (e.g. mass events, transport, critical infrastructures, institutions) and come from an equally broad variety of threat actors (e.g. individual perpetrators, criminal organisations, terrorist groups, nation states) that may have very different motivations (such as geopolitics, religious or political extremism, economic or financial interests, or mental disorder) and use all kinds of means to carry out their malicious intent (such as firearms, Improvised Explosive Devises, CBRN materials, cyberattacks or disinformation).

1.5.

In addition to man-made security threats there are natural disasters such as floods, droughts, storms or pandemics that pose an increasing risk due to climate change, environmental pollution and overexploitation of natural resources. Natural disasters are normally even more devastating than man-made disasters and threaten security directly and indirectly.

1.6.

Security threats differ, and so do security forces and their capability needs. At the same time, security forces often cooperate, for example as first responders during a disaster, and need interoperable equipment that is up to the challenge of the threat they face.

1.7.

Despite their diversity, today’s security threats have one thing in common: they cannot be tackled without technological support. Technology itself cannot provide security, but in our complex and connected societies, it is an indispensable enabler in all security areas and in all phases of the security cycle (prevent, prepare, respond and recover). The rapid evolution and proliferation of new digital technologies, such as artificial intelligence, quantum computing and blockchain, will reinforce the importance of technology for security even more, as they not only create new opportunities, but also multiply both vulnerabilities and capacities to do harm.

1.8.

Without the expertise of a specialised security industry, it is impossible to develop the state-of-the-art technologies that are needed to cope with current and future security threats. The security industry is a vital partner, particularly for complex security systems and protection against sophisticated threat actors.

1.9.

The security industrial and technological base in Europe is as diverse as the security needs of modern societies and economies. It includes companies of all sizes from across the Union with different portfolios and specialisations. Many of them also have defence, aerospace or commercial IT activities or are subsidiaries of bigger groups from these sectors. They all develop and produce hi-tech systems and provide services that are needed to protect our societies, companies, institutions and citizens against all kinds of security threats and disasters. The most recent comprehensive study estimates that the security industry in the EU generates a turnover of close to EUR 200 billion and creates employment for 4,7 million people (1).

2.   General comments

2.1.

The Union has an economic, but also a strategic interest in fostering a vibrant European security industrial base. The more critical a security area is, the more dependence on third-country suppliers can itself become a security risk. It is crucial to use technologies, services and equipment developed from trustworthy sources, particularly when critical infrastructures and state institutions need to be protected against threats from state or state-supported actors.

2.2.

The course of the COVID-19 pandemic and its direct and indirect consequences have also demonstrated the need for a strong European-based security industry. The massive recourse to digital tools, for example, has triggered a dramatic increase in cyber-attacks from both non-state and state actors against firms and operators of essential services. Enhancement of cyber-resilience and cybersecurity in all digital-based processes of companies and institutions should therefore be a key lesson to be learned from the pandemic. Since the outbreak of the virus, we have again witnessed disinformation campaigns, which are often sponsored by foreign governments and cannot be countered effectively without the use of sophisticated technological tools. COVID-19 has also revealed huge shortfalls in the EU’s Crisis Management capabilities, such as the absence of a common pool of CBRN equipment. In short, a multitude of measures are required to make Europe more resilient to large-scale disasters. Given the sensitivity of most of these measures, it is imperative to implement them with the support of suppliers that are trustworthy and ensure security of supply in times of crisis.

2.3.

The Union therefore has a strategic interest to sustain in Europe the industrial capabilities that are needed to ensure an appropriate level of autonomy and technological sovereignty in critical security areas. At the same time, current market conditions unfortunately make it hard to satisfy this strategic interest. On the contrary, the specific features of the security market in Europe often make it difficult for companies to build viable business cases for the technologies concerned.

2.4.

On the commercial side, there is only limited demand for cost-intensive state-of-the-art security products. Since private market operators constantly seek cost reductions, they normally limit investments in security to what is strictly necessary and give preference to the cheapest off-the-shelf product (often from third-country suppliers).

2.5.

On the public demand side of the security market, there is a broad variety of buyers and end users, most of them with limited procurement budgets and small orders, and legally bound to purchase at the lowest price. What is more, the vast majority of public security customers have no capability development planning. They buy off the shelf to satisfy their immediate needs, without any long-term thinking about how threats and technologies may evolve in the future, let alone any investments to prepare for that.

2.6.

Given the specificities of both sides of the security demand, there is only a small market for critical technologies and applications. Complex security solutions are often tailor-made for a single or very few customers, which limits production volumes and economies of scale to a minimum. At best, the technologies used for such systems can be used for other, less sensitive applications for a broader commercial customer market. Thus, current market conditions make it impossible to sustain in the EU a technological and industrial base that can develop the security capabilities that Europe needs to protect its external borders, territory and citizens. This undermines the credibility of the Security Union and calls for enhanced EU action.

State of play of EU security policies

2.7.

Since the launch of the European Agenda on Security in April 2015, the EU has been striving for a genuine Security Union that provides the tools, infrastructure and environment in which national and EU authorities work effectively together to tackle shared challenges, whilst at the same time protecting the rights and freedoms of citizens (2). The sheer number of initiatives in this context demonstrates that security has definitely become one of the key policy priorities of the Union: — Directive on combating terrorism (3), — revised rules on anti-money laundering (4), — creation of the Schengen Information System (SIS) (5), — interoperability of EU information systems for security, border and migration (6), — creation of the European Union Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security and Justice (eu-LISA) (7), — Cybersecurity Act (8), — reinforced European border and coast guard (‘Frontex’) (9), — European Travel Information and Authorisation System (ETIAS) (10). These initiatives come on top of already established programmes and funding instruments, like the Internal Security Fund.

2.8.

The Commission’s proposal for the next multiannual financial framework included a considerable increase of the main relevant budget lines (e.g. EUR 35,3 billion for border and migration management, EUR 4 billion for internal security, EUR 15,6 billion for resilience and crisis response) in comparison to the previous MFF (11). The Union will also fund another security research programme under Horizon Europe, which has already made an important contribution to the design and development of future security capabilities under Horizon 2020.

2.9.

With respect to digital technologies, the European Commission also proposes to significantly augment spending (e.g. Horizon Europe or the Digital Europe Programme) to enhance Europe’s technological sovereignty in areas of strategic importance. In this regard, the Commission also declared its intention of fostering synergies between the space, defence and security sectors.

2.10.

Technological sovereignty is also a key term in the ‘New Industrial Strategy for Europe’, where the Commission underlines that Europe’s ‘digital transformation, security and future technological sovereignty depends on our strategic digital infrastructures’ and announces that it will ‘support the development of key enabling technologies that are strategically important for Europe’s industrial future’ (12).

Specific comments

2.11.

The EU’s competence in the area of security remains limited and very often entails nothing more than a coordinating role between national authorities. Therefore, security policies remain fragmented and often ineffective. The same is true in other security-relevant sectors like public health.

2.12.

Security in the EU is a political priority without an industrial dimension. There are an impressive number of security-related policies and funding instruments with considerable budgets. However, there is neither a coordination of capability needs, nor a coherent policy to support the relevant industrial and technological base. Concepts like industrial competitiveness, strategic autonomy, capability planning and critical technologies have been absent from the debate on the Security Union and never considered as objectives of security-related funding programmes.

2.13.

The Commission’s Action Plan for an innovative and competitive Security Industry from 2012 lacked ambition, was limited in scope and therefore remained without notable impact.

2.14.

The EU security research programme mobilises considerable resources, but suffers from severe weaknesses. Market uptake of research results remains a major challenge because there is neither a common capability planning process for security that would help consolidate the demand of public end-users, nor a systematic use of other EU capability-oriented funding instruments as a means to support the deployment of security solutions.

2.15.

The new Internal Security Strategy guides the EU’s security policies and should therefore seek to resolve these deficits. It should address the rapid evolution of technology and its implications for security, push for a common definition of security capability needs and foster European cooperation to satisfy these needs. This would strengthen the Security Union, contribute considerably to the creation of a genuine internal market for security and help sustain a competitive security industry in Europe.

2.16.

Industry is indispensable to translate technologies into solutions. An ambitious industrial policy for core areas of sovereignty should therefore be a political priority for the Union. The development of such a policy is particularly urgent for the security sector, which currently suffers from severe market failures that make it very hard to sustain critical industrial and technological capacities.

2.17.

We therefore call upon the European Commission to develop a specific security industrial strategy to support the new Internal Security Strategy and make the Security Union more effective. This industrial strategy should be ambitious and comprehensive, ensuring that all pertinent policies and instruments contribute to the Union’s technological sovereignty in critical security areas. It should also ensure that all security-related EU instruments (ISF, IBMF, RescEU) include an industrial dimension, and all technology-related programmes (Digital Europe, Horizon Europe) include a security dimension. This would help to satisfy the security needs of public customers, offer new opportunities for European industry, and make it easier to cope in good time with the security implications of emerging technologies.

2.18.

For this purpose, the concept of technological sovereignty needs to be further defined and operationalised. The Commission’s current focus on digital technologies is welcome but should not be exclusive. Priority should be given to all critical technologies in core areas of sovereignty, namely security, defence and space. The concept should also be revisited in the light of the COVID-19 pandemic and include resilience as a strategic objective.

2.19.

The Commission’s ‘New Industrial Strategy for Europe’ includes elements important for fostering technological sovereignty in critical security areas. The concept of strategic value chains in particular should be used as the framework for a comprehensive approach that covers the whole industrial cycle from supply of critical materials to industrialisation and maintenance, and that coordinates the use of all suitable policy instruments, including the control of Foreign Direct Investments.

2.20.

The next Multiannual Financial Framework will have to be adapted to the needs of the (post-) COVID-19 era, and so must the policies that the MFF supports and the programmes it funds. Previously defined priorities and instruments must be revisited and take into account lessons from Europe’s difficulties in coping with the pandemic. This also applies to the Security Union and the new Internal Security Strategy, which should emphasise the need for greater technological sovereignty and resilience.

2.21.

To overcome the recession triggered by the pandemic, during the next budget cycle the EU should focus investments on hi-tech sectors, as they have the biggest added value and multiplier effects for the economy as a whole (13). An EU security industrial strategy that helps to make Europe more autonomous and resilient would fit perfectly into this approach and should therefore be initiated as a matter of urgency under the Union’s COVID-19 recovery plan.

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(1)  Given the diversity of the sector, there is currently no clear definition of the security industry and only rough estimates of the market size. A methodological classification of this industry is hindered by a number of factors: 1) the security industry is not covered as such by the main statistical nomenclatures (NACE, Prodcom, etc.); 2) the production of security-related items is hidden under a wide range of headings, and statistics for these headings do not distinguish between security and non-security related activities; 3) there is no statistical data source available at European level from the industry itself. See study on the development of statistical data on the European security technological and industrial base, Ecorys Final Report for the European Commission, DG Migration and Home Affairs, June 2015.

(2)  Communication from the Commission on Delivering on the European Agenda on Security to fight against terrorism and pave the way towards an effective and genuine Security Union, Brussels, 20.4.2016 COM(2016) 230 final: https://eur-lex.europa.eu/resource.html?uri=cellar:9aeae420-0797-11e6-b713-01aa75ed71a1.0022.02/DOC_1&format=PDF

(3)  Directive on combating terrorism (OJ L 88, 31.3.2017, p. 6).

(4)  Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (OJ L 141, 5.6.2015, p. 73).

(5)  Regulation on the establishment, operation and use of the Schengen Information System (SIS) in the field of border checks (OJ L 312, 7.12.2018, p. 14) and Regulation on the establishment, operation and use of the Schengen Information System (SIS) in the field of police cooperation and judicial cooperation in criminal matters (OJ L 312, 7.12.2018, p. 56).

(6)  Regulation on interoperability (borders and visa (OJ L 135, 22.5.2019, p. 27) and Regulation on interoperability (police and judicial cooperation, asylum and migration) (OJ L 135, 22.5.2019, p. 85).

(7)  Regulation on the European Union Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security and Justice (eu-LISA) (OJ L 295, 21.11.2018, p. 99).

(8)  Regulation on ENISA (the European Union Agency for Cybersecurity) and on information and communications technology cybersecurity certification (OJ L 151, 7.6.2019, p. 15).

(9)  Regulation on the European Border and Coast Guard (OJ L 295, 14.11.2019, p. 1).

(10)  Regulation on establishing a European Travel Information and Authorisation System (ETIAS) (OJ L 236, 19.9.2018, p. 1).

(11)  In current prices. See Communication from the Commission on the EU budget powering the recovery plan for Europe, Brussels, 27.5.2020 COM (2020) 442, final: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1601035899164&uri=CELEX:52020DC0442

(12)  Commission Communication on A new Industrial Strategy for Europe, Brussels, 10.3.2020, COM (2020) 102 final: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102&from=ES

(13)  See for example ‘Il ruolo dell’innovazione et dell’alta technologia in Italia nel confronto con il contesta internazionale’, Centro economia digitale, Rome, October 2019.

Opinion of the European Economic and Social Committee on ‘Introduction of safeguard measures for agricultural products in trade agreements’

(own-initiative opinion)

(2020/C 364/07)

Rapporteur:

Arnold PUECH D'ALISSAC

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Agriculture, Rural Development and the Environment
Adopted in section	29.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	204/2/3

1.   Conclusions and recommendations

1.1.

Enhanced international cooperation is a prerequisite for effective safeguard clauses.

1.1.1.

The EESC stresses that the food supply for the global population will continue to be a major challenge until at least 2050. In order to feed nine to ten billion people, we will need all the farmers in the world. The FAO estimates that global production will need to increase by 70 % between 2007 and 2050. It is therefore necessary to protect the production capacity of each country by promoting agricultural and trade policies adapted for this purpose, while guaranteeing international trade that can cope both with production fluctuations and with the perennial shortcomings of certain geographical areas.

1.1.2.

The EESC feels that it is essential to harmonise production standards to avoid distortions of competition and to enable each country to produce staple foods.

1.2.

Market transparency must still be improved.

1.2.1.

Launched in 2011 by the G20 Agriculture Ministers' meeting, the AMIS (Agricultural Market Information System) initiative, which brings together the main global producers and importers of cereal crops and oilseeds, makes it possible to understand the actual situation of the markets and is also a forum for dialogue and coordination between government officials in times of considerable volatility on agricultural markets. This initiative has proven to be valuable, but needs to be developed further in terms of the number of participating countries and its scope to also cover other products traded on world markets.

1.3.

The WTO's agricultural safeguard clauses, both the general clauses and those in bilateral agreements, must be improved according to various criteria, which the EESC lists in this opinion. The aim is to ensure fair competition and the sustainability of European agri-food sectors, guaranteeing food sovereignty for everyone — producers and consumers alike. The COVID-19 pandemic has shone a light on the need for food sovereignty.

1.3.1.   A rapid response

The current clauses are ineffective because the time needed to implement them is too long. However, thanks to the digitalisation of the economy, data can be available within a few hours. Volumes and prices can now be monitored effectively, allowing for a rapid response.

1.3.2.   An automatic response

Trade flows can be regulated easily with a solid knowledge of trade. Coordinated implementation by exporters and importers could be done automatically as soon as a 10 % increase in trade volume is recorded for a set period, for example, one year. If the increase is justified on the basis of an unforeseen event which has led to lower production, the clause would not be activated. On the other hand, if the increase is not justified, an additional customs duty would be applied to limit this increase.

1.3.3.   A proportionate response

Depending on the nature and origin of the increase in trade flows, the response must be proportionate so as to reduce this increase or ensure effective suspension of destabilising flows for the sectors affected.

1.3.4.   A comprehensive response

All import flows must be taken into account, regardless of their status and without prior notification. It is precisely for sensitive products that reduced rate quotas are granted in free trade agreements (FTA), and these are the sectors that are most rapidly destabilised. They must therefore also be subject to the safeguard clauses.

1.3.5.   Mirror measures

The introduction of mirror measures in EU rules on imports should, on the one hand, ensure the same protection for consumers regardless of the origin of the products and, on the other hand, limit economic distortions for European operators.

1.3.6.   Taking the implementation of the Paris Agreement into account

Commitments to reducing greenhouse gas emissions are a major international challenge. If some countries do not respect them, they should not benefit from them in terms of trade. A carbon border adjustment mechanism should be put in place in the agri-food sector. Due to its complexity, and pending its approval, safeguard clauses specific to the Paris Agreement should be obtained from the WTO and included in all free trade agreements negotiated by the European Commission.

1.3.7.   Taking Sustainable Development Goals into account

As in the case of the Paris Agreement, safeguard clauses must be obtained from the WTO and included in all agreements signed by the European Union.

2.   Concept and history of safeguard clauses

2.1.

The WTO provides for specific clauses for the agricultural sector, but limits their use.

2.1.1.

Safeguard measures are defined as ‘emergency measures’ relating to the increase of imports of specific products, where such imports cause or threaten to cause serious damage to the domestic industry of the importing country. These measures, which broadly take the form of suspension of concessions or obligations, may consist of applying quantitative restrictions on imports or increasing customs duties on imports.

2.1.2.

In agriculture, the application of higher safeguard tariffs can be triggered automatically when the volume of imports exceeds a certain level or prices fall below a certain level, without having to demonstrate that serious damage has been caused to national industry.

2.1.3.

However, the special safeguard clause for agriculture can only be invoked for products for which rates have been fixed and on the condition that the government has reserved the right to do so in its schedule of commitments relating to agriculture. In addition, it cannot be invoked for imports that fall under tariff quotas.

2.2.

Bilateral free trade agreements make it possible to go further.

2.2.1.

FTAs must cover the bulk of trade flows and they need to foster the liberalisation of trade between signatory countries without creating barriers to trade with the rest of the world. In view of the difficulties of the multilateral negotiation process with the WTO, many FTAs have been negotiated in recent years.

2.2.2.

The European Union promotes this option to provide an impetus for trade liberalisation and move forward on issues where an agreement has not been reached, such as the sustainable development chapters. However, the latest agreements have revealed the limitations of this system and the difficulties in having a common approach or taking other international agreements such as the Paris Agreement into account.

2.3.

International agri-food trade is still essential.

2.3.1.

The quest for food self-sufficiency faces many obstacles, starting with demographic expansion, which often makes it essential to use imports. Trade therefore makes a crucial contribution to global food security. The challenge for countries is to find the right balance between development of their own agricultural production and openness to trade. However, it is also necessary to ensure, where possible and under conditions that do not unduly distort competition, that their agriculture is able to meet international demand and export food to countries that are unable to produce enough to meet their needs.

2.3.2.

A prospective study by the National Research Institute for Agriculture, Food and Environment shows that by 2050 the concentration of global agricultural exports could increase even further. This would mainly benefit a small number of countries or regions where climate change would have a positive impact on agriculture and could thus increase the amount of land cultivated, as well as crop yields.

2.4.

Agricultural trade is not used for good in diplomacy. The agricultural sector is the victim of unrelated political negotiations: whether it is the conflict between China and America, between Boeing and Airbus or in the final phase of trade negotiations, the agricultural sector is regularly subject to retaliatory measures and bargaining in negotiations.

3.   Shortcomings in the current safeguard clauses

3.1.

The safeguard procedures are too long and cumbersome.

3.1.1.

Implementation of safeguard clauses has been long and cumbersome in the past, thus rendering them inefficient. If the European Union is one of the members of the WTO that has reserved the right to invoke this clause on many projects, it almost never applies them in practice. Thus, in the case of ‘mishandling’ by Brazil of frozen-brined chicken (if it is brined, it does not have to be frozen), the lower customs duty applied allowed for very significant increases in the import of poultry meat between 1996 and 2001, without the safeguard clauses being applied.

3.2.

The current procedures do not guarantee fair competition.

3.2.1.

The competitive advantage of third country producers which are not required to comply strictly with European standards is significant. Thus, in the last agreement signed with Canada, the Canadian producers had the possibility to apply a quarantine for phytosanitary products banned in the EU, such as atrazine, which significantly reduces their production cost. Countries in North and South America use genetically modified seeds authorised for marketing in the EU but not for production, particularly for vegetable proteins such as soya.

3.2.2.

The consequence of these shortcomings is an increase in imports of agricultural products, particularly raw agricultural goods. This can call Europe's food sovereignty into question. According to the latest publication from the European Commission, Agri-food trade statistical factsheet (1), the EU's trade balance deficit for raw agricultural goods in 2019 exceeded EUR 20 billion.

3.3.

These shortcomings also negatively affect consumers. The lack of regulation leads to excessive price volatility, which has increased in recent years. Speculation on agricultural markets further increases this volatility, making access to food difficult for many low-income consumers. Furthermore, destabilisation of the supply chain leads to a reduction in production capacity, which makes supply less secure for consumers.

3.4.

COVID-19 has tragically highlighted that agricultural trade is necessary and food sovereignty is essential. In terms of international trade, the European Union must therefore equip itself to increase its resilience towards economic shocks in order to restore confidence, stability and shared prosperity for all Europeans.

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(1)  European Commission: Agri-food trade statistical factsheet.

Opinion of the European Economic and Social Committee on ‘A post-COVID-19 emergency: the design of a New Multilateral Matrix’

(own-initiative opinion)

(2020/C 364/08)

Rapporteur:

Emmanuelle BUTAUD-STUBBS

Plenary Assembly decision	20.2.2020
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	External relations
Adopted in section	16.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	213/3/3

1.   Conclusions and recommendations

COVID-19 and multilateralism

1.1.

The profound and unprecedented economic, social and financial impact of the COVID-19 health crisis requires an unprecedented, long-term and unequivocal response. The EU needs to support the economy and international trade to prevent world trade from having to catch up, as in 1929, and to finance the recovery, while protecting businesses, workers of all kinds (including people with disabilities), vulnerable groups and citizens, in a spirit of solidarity and responsibility, leaving no one behind. All businesses, including social economy enterprises, as essential components of the solution, need full access to recovery measures.

1.2.

Recovery after the ‘Great Lockdown’ must be based on sustainability, and inclusive and green growth. Green Deal measures are therefore more relevant than ever (industrial strategy, carbon border adjustment and carbon neutrality by 2050).

1.3.

The COVID-19 crisis has dealt a hard blow to a multilateralism already undermined by structural weaknesses such as overlapping organisations, an ageing functioning, and a unanimous decision-making process coupled with a large number of members, which was embodied in the demise of the Appellate Body of the Dispute settlement mechanism of the WTO and the frozen financial contribution and subsequent withdrawal of the United States (US) from the World Health Organization (WHO). In addition, national export restrictions on essential medical supplies and personal protective equipment, including from EU Member States, national egoism and some failures in solidarity and international cooperation negatively affect the most vulnerable countries, and delay the global economy’s recovery.

A more holistic vision required

1.4.

The European Economic and Social Committee (EESC) wishes to share its reflections on a ‘New Multilateral Matrix’, building on the extensive list of former proposals (on WTO reform, the role of the International Labour Organisation (ILO) …), and to present new solutions for the post-COVID-19 era (1).

1.5.

Conducted during the crisis, this reflection aims to inspire new cooperation and more consistency in decisions taken by international, supranational and intergovernmental organisations, in matters of trade and investment, decent work, social and human rights, and climate change. It encourages countries to abide by the principle of loyal cooperation in these organisations and to boost synergies, rather than exploiting loopholes.

1.6.

After each World War, people turned to international organisations to keep peace and prosperity. This global sanitary crisis is precisely the moment to rethink global governance rules and to incorporate part of the spirit of innovation that manifests itself in the face of unprecedented situations.

A set of concrete proposals

1.7.

Several stakeholders from a wide range of backgrounds (see Appendix 1) assisted the rapporteur in identifying suggestions, taking into account legal, political and organisational constraints.

1.8.

These proposals aim to ensure better coordination between: — global social standards and climate change and environmental protection commitments, — trade-related rules and climate change and environmental protection treaties, and — trade-related rules and global social standards.

1.9.

They include greater access to observer status, funding for the promotion of studies, creation of new working groups, enhanced inter-secretariat coordination, common policies in the field of research, interpretation of some existing legal provisions and political commitments.

1.10.

The EESC is aware that the changes must be initiated at a political level, and firmly believes that the EU, as one of the few global actors with a constitutional duty and mandate for good global governance, has a crucial role to play in shaping a more efficient multilateral matrix from within.

2.   The timid results of our long-standing call for coherence in multilateral rules

2.1.    A plea from key actors of civil society

2.1.1.

Many stakeholders have asked repeatedly for more coherence in policy-making by international, supranational and intergovernmental organisations.

2.1.2.

For the business community, the International Chamber of Commerce (ICC) notably pointed out that ‘one of the underlying tension points in the current debate on globalisation is the perceived dissonance between trade, labour and environmental standards’ (2).

2.1.3.

The G7-L7 summit in 2019 also declared that ‘The global governance should better take into consideration current social challenges, including the need for new skills, to ensure decent work according to international standards and the conditions for business to support productivity, higher wages, and create good jobs’ (paragraph 3).

2.2.    A bird’s eye view of former steps

2.2.1.   Understanding the complexity of globalisation

2.2.1.1.

The United Nations (UN) plays a major role as the overarching international organisation able to produce rules and standards with the widest geographical coverage. That is the reason why the EESC supports UN reform that must lead from a procedurally-centred approach to a results-based approach. In September 2015, the UN adopted 17 Sustainable Development Goals (SDGs) capturing humanity’s most universal challenges. While the SDGs are not legally binding, governments, including EU institutions, are expected to take ownership and establish domestic frameworks for their achievement.

2.2.1.2.

In 2017, the Organisation for Economic Cooperation and Development (OECD) flagged that we ‘need[ed] to fix globalisation but we [didn’t] fully know how to do so’ (3). The policy paper listed accompanying policies (social and labour market, education and skills, social and environmental responsibility of firms), and referred to ‘the urgent need to increase public consultation and civil society stakeholders’ engagement‘in international organisations’ standard-setting activities.

2.2.2.   Global social standards and multilateral trade rules: the story of a missed opportunity

2.2.2.1.

Right after the failed attempt at inserting a social clause in its rules, in 1996 (4) the WTO clarified that the ILO was the ‘competent body to set and deal with [core labour] standards’. Since then, the ILO has adopted several keynote instruments. Section 5 of the ILO’s 1998 Declaration recognised ‘that labour standards should not be used for protectionist trade purposes, and that nothing in this Declaration and its follow-up shall be invoked or otherwise used for such purposes; in addition, the comparative advantage of any country should in no way be called into question by this Declaration and its follow-up.’

2.2.2.2.

In its 2019 Centenary declaration, the ILO leads the way, committing to ‘reinforcing its cooperation and developing institutional arrangements with other organisations to promote policy coherence in pursuit of its human-centred approach to the future of work, recognizing the strong, complex and crucial links between social, trade, financial, economic and environmental policies’ (Section IV, paragraph F).

2.2.2.3.

While living separate lives, the ILO and WTO nonetheless collaborate in a number of areas, and notably produce interesting joint publications on trade and employment, trade and informal employment, making globalisation socially sustainable and the importance of skills development policies in helping workers and firms harness the benefits of trade.

2.2.2.4.

This cooperation policy never crossed the red line of the 1996 Singapore WTO Ministerial Declaration that stated: ‘We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration’.

2.2.3.   The gradual integration of climate and environment commitments in the multilateral landscape

2.2.3.1.

Since 1994, when the UN Framework Convention on Climate Change (UNFCCC) entered into force, governments have gathered regularly to monitor progress via a robust transparency and accountability system. It was however only in late 2015 when the Paris Agreement, the first universal, legally binding climate change agreement, was adopted, prescribing a system of nationally determined contributions that are to be monitored.

2.2.3.2.

With its observer status in UNFCCC and a mandate to advance on decent work and just transition, the ILO made substantial contributions to the work of the Improved Forum on the impacts of the implementation of response measures (2015-2018). The Forum notably investigated ‘the effects arising from the implementation of mitigation policies, programmes and actions, “in-jurisdiction” and “out-of-jurisdiction” or cross-border impacts, taken by Parties under the Convention, the Kyoto Protocol and the Paris Agreement to combat climate change’.

2.2.3.3.

Following a 2016 Memorandum of Understanding, the ILO worked closely with UNFCCC staff and experts to increase mutual understanding: training on the role of social actors, capacity-building to measure the impact of climate change measures, regional workshops on Just Transition and a biannual global forum.

2.2.3.4.

The ILO’s main channel of action on environment is a joint consortium with UNEP, UNDP, UNIDO and UNITAR, called Partnership for Action on Green Economy (PAGE).

2.2.3.5.

A variety of Multilateral Environment Agreements (MEA) adds to the picture. Predominantly used by the UN, they cover a wide range of environmental themes under Biodiversity, Land, Seas, Chemicals and Hazardous Waste or Atmosphere. The EU is party to around 30 such agreements.

2.2.3.6.

Aside from the UN network, the WTO Trade and Environment Committee provides a forum for information-sharing, events and exchange of views on trade and sustainability (i.e. circular economy, voluntary initiatives in standards, reform of fossil-fuel subsidies, plastic, etc.).

2.2.3.7.

According to WTO case law, members can put in place measures to improve citizens’ health, environment protection or biodiversity conservation as long as they comply with set criteria to ensure compliance with WTO rules and disciplines. These derogations, based on GATT Article XX, are considered as compatible if they are proportionate and non-discriminatory. The application of such measures must not constitute a ‘means of arbitrary or unjustifiable discrimination’ or a ‘disguised restriction on international trade’.

2.2.3.8.

Renato Ruggiero, WTO Director-General, stated very clearly in a conference in Bonn (9 December 1997) the limits of what a government may or may not do: ‘Governments can use any type of trade restriction, including import and export quotas and prohibitions, or the imposition of taxes or other charges at the border, for the purpose of environmental protection or resource conservation within their jurisdiction — as long as basic requirements relating to non-discrimination and least-trade- restrictiveness are met. […] What a country cannot do under WTO rules, however, is apply trade restrictions to attempt to change the process and production methods — or other policies — of its trading partners. Why? Basically because the issue of production and process methods lies within the sovereign jurisdiction of each country’.

2.2.3.9.

This limit, which prevents interference with process and production methods (PPMs), is a clear obstacle to the establishment of incentives for the production and the trade of durable goods.

2.2.4.   Bilateral remedies for greater coherence between economic, social and environmental rules

2.2.5.   Merits and limits of the Trade and Sustainable Development chapters (TSD)

2.2.5.1.

The EU created TSD chapters in Free Trade Agreements (FTAs) to ensure that trade and investment liberalisation would not lead to a deterioration in environmental and labour conditions.

2.2.5.2.

In 2017, the European Court of Justice (ECJ) recognised the ‘essential role’ of sustainable development provisions in an agreement (5).

2.2.5.3.

In 2018 (6), the EESC called for greater ambition and increased enforceability of TSD chapters, which ought to carry equal weight to those covering commercial, technical or tariff issues.

2.2.5.4.

In 2016, the ILO (7) reported that 63 % of agreements with labour provisions were adopted after 2008, indicating an acceleration, and 46,8 % of FTAs with labour provisions involved the EU, the US or Canada. The reference texts are, in descending order, the 1998 Declaration on principles and fundamental rights, Convention No 182 (Child Labour), the Decent Work Agenda, and the Declaration on Social Justice.

3.   New thinking to design a New Multilateral Matrix

3.1.    General premises

3.1.1.

Any new proposals for greater cohesion should respect four principles: — specialisation: ‘International organisations only have competences in so far as these have been conferred upon them by their Member-States’ (8), — decision-making capacity: organisations have clear internal rules and processes allowing governance bodies (technical committees or general assemblies) to act, — transparency: any functional change such as introducing joint groups, new statutes or common declarations must be communicated transparently both internally and externally, — evaluation: the establishment of an evaluation culture on internal functioning should be encouraged.

3.1.2.

The EESC inherently supports more open communication and consultation with civil society on international organisations’ policies, and calls for the gradual setting-up of permanent dialogue processes. In view of its experience, the EESC is ready to play a pilot role as a facilitator in setting up such procedures. Much like the UNFCCC and the OECD who nurture a rich dialogue with a wide range of partners, the WTO has recently boosted its engagement with civil society, beyond its annual public forum. These contacts can contribute significantly towards greater effectiveness and democracy in the multilateral trade system. The EESC is grateful for the EC’s support in increasing the voice of civil society at multilateral level, and welcomes Action 6 of the recent Ottawa Group 6-point action plan (9).

3.1.3.

The social partners’ negotiating capacity also calls for greater recognition. The tripartite declaration of social partners at international level and the array of multinational framework agreements contain useful practical rules and tools (social standards, relationships with suppliers, social dialogue, fight against child and forced labour).

3.2.    The multilateral tool box

Integrate the WTO into the UN system from a functional point of view

3.2.1.

The UN system is the pillar of the international order with its network of specialised agencies such as the ILO, UNESCO, the WHO, the IMF, the World Bank and regional development banks. While trade rules must contribute to achieving the SDGs, the WTO has been set up as a ‘stand-alone’ organisation and remains outside the UN system. The WTO director-general (DG) does, however, take part in the UN Chief Executives Board (CEB) with all the directors-general of the specialised agencies and other main UN bodies. The EESC suggests that the CEB be kept informed by the WTO on any trade rules system achievement that would help deliver on the SDGs.

3.2.2.

The explicit reference to ‘sustainable development’ in the Preamble of the 1994 WTO Agreement must be construed as covering the SDGs, which are the new universally agreed embodiment of sustainability in international law. The WTO seems to accept it already as it proclaims itself on its website as ‘central to achieving the SDGs’.

Further connecting separate sets of rules

3.2.3.   Tighter social and environmental rules

3.2.3.1.

In 2018, the ILO produced several studies on the overall potential impact of the Paris Agreement, on the issue of ecological transition and skills (10) or on skills for a greener future and the impact of warming on working conditions (11).

3.2.3.2.

The EESC asks for a wider dissemination of these reports and favours the organisation of EC funded regional workshops in developing countries, notably Least Developed Countries and insular and vulnerable economies that are the most impacted socially by the brutal effects of global warming.

3.2.3.3.

In 2015, ILO published Guidelines for a just transition towards environmentally sustainable economies and societies for all. The EESC suggests greater use of these Guidelines across Commission services in their standards-setting activities. In addition, the updating of these Guidelines should be on the agenda of the ILO Governing Body.

3.2.4.   Further links between trade rules and social standards

3.2.4.1.

As a matter of reciprocity, the EESC would like the WTO to grant the ILO formal observer status at the meetings of its main bodies and committees. Beyond official ILO participation in the WTO ministerial conferences (MC), it would boost ILO involvement in internal WTO bodies and could contribute to integrating as part of the WTO Trade Policy Review Mechanism (TPRM) respect for international labour standards. The EESC suggests that a dedicated temporary working group between WTO and ILO secretariats be set up to develop and present guidelines by June 2021.

3.2.4.2.

In addition, the ILO World Commission on the social dimension of globalisation should be reinvigorated in light of the impact of COVID-19 on Global Value Chains (GVCs). Building on its opinion on the UN Binding treaty (12) , the EESC advocates during the German presidency of the EU for an effective regulatory framework to ensure respect for human rights and decent work in GVCs that would include a European Action Plan with legislative instruments and tangible achievements, and ambitious and effective normative actions at global level. Both the ILO and the WTO need to contribute in their respective roles.

3.2.4.3.

In the process of examining regional and bilateral trade arrangements, the number and geographical coverage of which are constantly increasing, the WTO must play a new role in the field of labour provisions. Because a majority of new FTAs contain labour provisions, the WTO secretariat should collect, compare and monitor this new corpus. Such monitoring work could be shared with the ILO, in the framework of the ILO Action Plan on decent work in global supply chains, and lead to further cooperation between the ILO and WTO.

3.2.5.   Further links between trade and climate rules and policies

3.2.5.1.

A WTO climate waiver, already debated in academic and business circles, could define ‘climate measures’: characteristics, general interest goals and criteria for compatibility with WTO rules. Such a waiver would enable WTO members to introduce climate measures domestically (Emission Trading System) or at their borders ensuring that these measures will not constitute disguised protectionist measures.

3.2.5.2.

A WTO ministerial declaration on trade and environment recognising the role of trade, trade policy and the multilateral trading system in supporting the international community’s efforts towards achieving the SDGs and other shared international environmental commitments such as the Paris Agreement should be prepared for MC 12 in 2021 by an informal WTO Working Group. The EESC encourages the Commission to continue its efforts to this effect.

3.2.5.3.

The EESC asks the European Commission to clarify its position on the phasing out of fossil-fuel subsidies in the EU and to support fully any emerging initiative at plurilateral level within the WTO.

3.2.5.4.

The EESC calls for a swift relaunch of WTO plurilateral negotiations on an Environmental Goods Agreement. This should be more directly linked to the Paris Agreement, e.g. the Chinese Taipei 2019 proposal for a Paris Accord-Related Environmental Goods and Services Agreement relying on the elimination of tariffs on goods and services related to carbon reduction. ‘Initiation of a brand new negotiation like the PAEGSA, aimed at tackling such topically relevant issues as climate change and international trade liberalisation, will be a key achievement for the multilateral trading system’ (13).

3.2.5.5.

For greater coherence, MEA secretariats should have observer status in a wide range of WTO committees, not just the Trade and Environment Committee (the committees dealing with Technical Barriers and Sanitary and Phytosanitary Measures, for instance).

3.2.5.6.

The EESC recommends the creation of a joint working group for the UN Environment Programme, UNFCCC and WTO. It would deal with greenhouse gas emissions and international trade issues and deliver measurement methodologies or compensation systems within FTAs (by reforestation, for example). Nationally Determined Contributions under the Paris Agreement should take into account such compensation systems agreed with third countries.

4.   EU contribution to a new model of sustainable multilateralism

4.1.

To fight carbon leakage, the EESC supports a WTO-compatible carbon adjustment mechanism at the EU borders, levelling the playing field for CO2-intensive sectors (14). The EESC asks the European Commission to adhere to its original timetable with a legislative proposal in Spring 2021. The recent inception impact assessment (roadmap) demonstrated support, in particular from sectors such as steel, cement, chemicals and electricity.

4.2.

The EESC stresses the importance of having a comprehensive social and environmental conditionality for recipient countries in the next Generalised System of Preferences (GSP) (Regulation (EU) No 978/2012 (15)).

4.3.    Stronger sustainable development provisions in FTAs

4.3.1.

Trade and Sustainable Development (TSD) chapters in EU trade and investment agreements should be strengthened: — As recommend by the European Parliament, TSD chapters should require both partners to ratify and implement core international instruments on human rights (i.e. the International Bill of Rights), ILO core conventions, including the Occupational Safety and Health Convention, and the Paris Agreement and other international environmental agreements. — The EESC Follow-up Committee on International Trade considers that Sustainable Impact Assessments should review the ‘computable general equilibrium (CGE) model […] against alternative models and include a broader set of indicators measuring impacts on human and labour rights, climate change, biodiversity, consumers and FDI. A broader set of indicators, with an open-minded look into alternative models, is required’. — The EESC calls for a revamping of the panel mechanisms where trade lawyers, but also labour, climate or human rights experts, could investigate complaints under TSD chapters. Should such panels find violations, it should trigger a treaty State-to-State dispute settlement mechanism, with possibilities for financial penalties or sanctions, and remedies for the aggrieved party.

4.3.2.

Future EU FTAs should include a reference to the Paris Agreement and must provide incentives such as zero duty for environmental goods or services. CETA Article 22.3, where parties undertake to promote economic and trade flows that will help to foster decent work and environmental protection, should be used with other trading partners (New Zealand, Australia). Future EU FTAs should also expand the Domestic Advisory Groups’ monitoring role beyond environmental, employment and social fields.

4.3.3.

Any investment treaty negotiated by the EU, notably with China, must contain comprehensive provisions on: — sustainable use of natural resources, — the precautionary principle approach to human health, natural resources and ecosystems, — the principle of public participation and access to information and justice, and — the principle of integration and interrelationship, in particular in relation to human rights and social, economic and environmental objectives.

4.3.4.

The upcoming appointment of a EU Chief Trade Enforcement Officer will help to ensure effective implementation of trade agreements including labour rights, environmental commitments and the role of civil society.

4.4.    A leading role for the EU in the design of a New Multilateral Matrix

4.4.1.

The Union is one of the few global actors with a constitutional duty and mandate to ‘promote an international system based on stronger multilateral cooperation and good global governance’ (Article 21(2)(h) of the Treaty on European Union (TEU)).

4.4.2.

As a regional integration organisation, however, the EU has not been able to participate fully in the work of many bodies, organs and organisations of the United Nations (UN) system, because it must rely on Member States to defend Union positions and interests. More than ten years after the entry into force of the Lisbon Treaty, which committed the EU to ‘promote multilateral solutions to common problems, in particular in the framework of the United Nations’ (Articleo21(1) TEU), it is high time that the Union, together with its Member States, develops an integrated strategy for obtaining a more enhanced position within the UN system.

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(1)  EESC opinions REX/509 — Reforming the WTO to adapt to developments in world trade (OJ C 159, 10.5.2019), REX/486 — The role of the EU’s trade and investment policies in enhancing the EU's economic performance (OJ C 47, 11.2.2020), REX/500 — Trade and sustainable development chapters (TSD) in EU Free Trade Agreements (FTA) (OJ C 227, 28.6.2018), NAT/760 Reflection Paper — Towards a Sustainable Europe by 2030 (OJ C 14, 15.1.2020).

(2)  ICC WTO reform, October 2019.

(3)  http://www.oecd.org/about/sge/fixing-globalisation-time-to-make-it-work-for-all-9789264275096-en.htm, p. 9.

(4)  WTO Singapore Ministerial Declaration 1996, paragraph 4.

(5)  Opinion 2/15 of 16 May 2017, EU:C:2017:376.

(6)  EESC opinion REX 500 — Trade and sustainable development chapters (TSD) in EU Free Trade Agreements (FTA) (OJ C 227, 28.6.2018), point 2.4.

(7)  ILO Labour-related provisions in trade agreements: Recent trends and relevance to the ILO, GB.328/POL/3, paragraph 9.

(8)  Jan Wouters, Cedric Ryngaert, Tom Ruys and Geert De Baere, International Law: A European Perspective (Oxford, Hart Publishing, 2018), p. 259.

(9)  Canada leads a group of WTO members, known as the Ottawa Group, in order to address specific challenges to the multilateral trading system. June 2020 Statement of the Ottawa Group: Focusing Action on Covid-19, June 2020.

(10)  World employment social outlook 2018 — Greening with jobs, Geneva ILO, 2018.

(11)  Working on a warmer planet: The impact of heat stress on labour productivity and decent work, Geneva, ILO, 2019.

(12)  EESC opinion REX 518 — Binding UN treaty on business and human rights (OJ C 97, 24.3.2020, p. 9)

(13)  Non Paper JOB/TE/19 19 January 2018.

(14)  EESC opinion CCMI/167 — The sectoral industrial perspective of reconciling climate and energy policies (OJ C 353, 18.10.2019, p. 59).

(15)  OJ L 303, 31.10.2012, p. 1.

Opinion of the European Economic and Social Committee on ‘Taxation of the collaborative economy — reporting requirements’

(additional opinion)

(2020/C 364/09)

Rapporteur:

Ester VITALE

Bureau decision	18.6.2019
Legal basis	Rule 29 of the Implementing Provisions (2010)
	Additional opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	24.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	210/1/6

1.   Conclusions and recommendations

1.1.

Taxation and tax policies must adapt to constant developments in the collaborative economy. In this respect, new or special tax regimes should not be developed and the EESC considers that it would be more appropriate to adapt current tax rules and models to the new economic situation, maintaining a level playing field for the various stakeholders.

1.2.

The EESC asks that national tax systems take account of the collaborative economy and digital platforms, upholding the principles of a fair tax system (i.e. consistency, predictability and neutrality) in this sector, while at the same time guaranteeing the public interest of all relevant parties’ discharging their tax obligations.

1.3.

The EESC believes that both tax policies applicable to the digitalisation of the economy and the devising of instruments and working solutions must be coordinated at international level. The EESC is therefore very pleased that the Commission, the Member States and the OECD/G20 are working together, recognising that the types of cooperation already in place have already produced tangible results and may produce further, more significant ones in future.

1.4.

International, European and national institutions must act effectively and rapidly in order to deal with the questions raised by the digital and collaborative economy, taking a proactive rather than a merely reactive approach to the emergence of specific issues.

1.5.

One issue crucial for the tax systems applicable to the collaborative economy is the obligations incumbent on digital platforms with regard to collecting, communicating to tax authorities and keeping information on transactions (reporting obligations). These obligations should not constitute an excessive administrative burden for platforms.

1.6.

Sharing information properly within a functional and proportionate system for collecting and exchanging data could make the work of tax authorities easier and establish a reliable and predictable system for businesses, which would be beneficial for the entire collaborative economy.

1.7.

The EESC calls for the development of a European standard for collecting the data and information on their own users that platforms will have to communicate to the tax authorities and keep. Reporting obligations should be clear and harmonised across the Member States. A European standard could limit unilateral action by Member States which creates a counterproductive patchwork of rules and uncertainty as to which rules apply in the internal market.

1.8.

As regards the broad principles which should steer regulatory action on reporting, the EESC considers that the approach adopted must abide by the proportionality principle, in accordance with EU Court of Justice case law, and thus make it possible to achieve the purpose of the regulation, i.e. gathering clear information which is useful for tax authorities, without excessive, undue sacrificing of the private interests of platforms and final users.

1.9.

The EESC considers that the tax rules relevant to the collaborative economy, including rules on reporting requirements, should constantly adapt to the various sectors and often differing activities of that economy.

1.10.

The EESC believes that it is important to consider whether the imminent implementation of the directive on certain requirements for payment service providers regarding requests for information with a view to identifying VAT fraud can also be used for the purposes of direct taxation in the context of reporting obligations.

1.11.

The exchange of information between private parties and public authorities must naturally comply with European legislation on the protection of privacy and the processing of individuals’ personal data, and meet the criteria of need, proportionality and strict interpretation of any waivers granted from the broad principles in the field of privacy for the purpose of enforcing tax rules.

2.   Introduction and broad principles

2.1.

Framing effective tax policies for the collaborative economy is a challenge both for European and national institutions and for operators in this sector. In this respect, it is vital to guarantee a level playing field between the various collaborative economy operators as well as between these operators and traditional operators active in the same sectors.

2.2.

The EESC considers that the collaborative economy has enjoyed continuous and strong growth in recent years and that it offers EU countries an opportunity for further development in the future as well, as it allows untapped resources to be mobilised and gives the initiative to individual people. At the same time, it recognises the need for regulation in order to protect consumers and safeguard workers’ rights, tax obligations and fair competition.

2.3.

The term ‘collaborative economy’ as used in this opinion refers to business models supported by collaborative platforms allowing the temporary use of goods or services which are often provided by private individuals. On this point, and with regard to methodology, a minimum consensus should be reached between the European Union and the Member States regarding the concept of ‘collaborative economy’, with a view to preventing significant disparities between the various definitions applied in the internal market.

2.4.

The collaborative economy is a complex economic entity which needs to be regulated as a whole, as it covers a range of social sectors and many different legal entities which have traditionally dealt with diverse, separate fields. For instance, the constant developments in the collaborative economy have an impact on the rules in the areas of consumer law, labour law, social security, contract law, the right to privacy and the law on public services.

2.5.

The EESC points out that national tax systems, coordinating effectively at European level, must take account of new models linked to the collaborative economy. The principles of a fair tax system (i.e. consistency, predictability and neutrality) for these new models need to be upheld in everyone’s interest: public authorities, businesses and consumers.

2.6.

However, traditional tax rules are struggling to adapt to the constant changes in technology, and tax rules often lag behind the digital economy, which is developing extremely quickly. Action by the European legislator and the various national legislators therefore needs to be coordinated to achieve specific and appropriate adaptation of the conventional rules and principles to these changes.

2.7.

International, European and national institutions must act in a timely, effective and coordinated manner in order to deal with the new questions raised by the digital and collaborative economy, taking a proactive rather than a merely reactive approach to the emergence of specific issues.

2.8.

The EESC firmly believes that with the digitalisation of the economy, tax policies and the devising of instruments and specific solutions must be coordinated at international or even global level. The EESC is therefore very pleased that the Commission, the Member States and the OECD/G20 are working together closely, recognising that this cooperation has already produced tangible results and may produce further, more significant results in future.

3.   Reporting obligations

3.1.

One issue crucial for the tax systems applicable to the collaborative economy is the obligations incumbent on digital platforms with regard to collecting, communicating to tax authorities and keeping information on transactions. Sharing information properly within a functional and proportionate system for collecting and exchanging data could make the work of tax authorities easier, as they would have quick and easy access to data, and establish a predictable system for platforms and their users. Reporting obligations should not constitute an excessive administrative burden on platforms and operators in this sector.

3.2.

There are already a number of examples of effective cooperation between platforms and tax authorities in the transport sector; Estonia, for instance, has adopted provisions to make it easier for drivers belonging to car pooling platforms to fill out their tax declarations. Estonia has also come up with another innovative solution: identifying a minimal and proportionate amount of data which has to be communicated to the authorities and enabling platform operators to have a dedicated current account for paying taxes. This current account promotes direct and rapid communication between operators, their banks and the tax authorities. On the other hand, in some regions online platforms have demonstrated a lack of willingness to work with the financial authorities.

3.3.

In this respect, the EESC calls for the development of a European standard for collecting the data and information that platforms will have to communicate to the tax authorities and keep. A plethora of unilateral action by Member States and a patchwork of regimes across the internal market — which is already happening to some extent — will create operational difficulties and a loss of efficiency for the whole collaborative economy sector.

3.4.

A harmonised European reporting model needs to be developed, drawing on practical experience and feedback. There are various reporting systems in place across the Member States which differ in terms of organisational arrangements and the quality and type of data collected and forwarded. In some Member States, these systems are very burdensome and the platforms have to go to considerable efforts, while other Member States have more flexible systems which have less impact on day-to-day operations. Experience in some Member States shows that optional, voluntary reporting systems which do not entail specific legal requirements do not work effectively.

3.5.

The EESC is of the view that the current fragmentation is not sustainable in the long term, as it could lead to excessive compliance costs and inefficiency linked to the patchwork of rules in place across the internal market. A balanced and proportionate approach to reporting must therefore be identified, guaranteeing a streamlined and functional system. Simplified reporting obligations could be an incentive for digital platforms to comply with the rules.

3.6.

As regards the broad principles which should steer regulatory action on taxation of the collaborative economy in general and reporting obligations in particular, the EESC considers that the approach adopted must abide by the proportionality principle, in accordance with EU Court of Justice case law. It will therefore be necessary to make it possible to achieve the purpose of the regulation, i.e. gathering clear information which is useful for tax authorities in the public interest, without excessive sacrificing of the private interests of platforms and final users.

3.7.

This approach should guarantee clear, predictable rules for sector operators, avoiding generating excessive compliance costs (for instance through unnecessary and disproportionate requests for data) while ensuring that tax authorities can collect information efficiently.

3.8.

A proportionate, reasonable reporting system should also identify which data, in terms of quality, are absolutely necessary and need to be collected in order to enforce tax rules, without placing excessive burdens on platforms and their professional users or final users. A proportionate approach should also make a distinction between professionals active in the collaborative economy and non-professional service-providers, adjusting the reporting obligations applicable to each category.

3.9.

Further aspects which should be subject to harmonised EU-wide regulation are: (i) the general conditions governing the lawfulness of processing by the data processor; (ii) the persons concerned by the processing; (iii) the entities involved and the purposes for which personal data may be disclosed; (iv) the specific methods of processing; (v) the limits on the purposes of processing; and (vi) how long data are kept.

3.10.

The exchange of information between private parties and public authorities must naturally comply with European legislation on the protection of privacy and the processing of individuals’ personal data, and meet the criteria of need, proportionality and strict interpretation of any waivers granted from the broad principles in the field of privacy for the purpose of enforcing tax rules.

3.11.

In this respect, it might also be useful to improve and encourage the exchange of information between national tax authorities as well, with a view to setting up effective forms of cooperation intended to prevent fraud and tax avoidance as well as to harmonise the working practices of the various authorities.

3.12.

Tax rules in the collaborative economy, including as regards reporting systems, should anyway be geared to the various sectors of the collaborative economy: the various activities involved in this sector are often varied and specific and so require specific, targeted rules.

3.13.

The EESC recommends that a level playing field be guaranteed anyway as regards taxation of activities carried out by means of the collaborative economy and similar traditional activities, in accordance with the principle of fiscal neutrality. The aim here is to avoid distortions in the operation of markets which combine conventional forms of activities and those performed via the collaborative economy.

3.14.

Lastly, identifying minimum thresholds below which certain activities are deemed not to be professional or not to be economically relevant and for which specific tax exemptions can therefore be granted might be useful for stimulating the growth of the collaborative economy. However, these thresholds must be reasonable, following an accurate legislative impact assessment.

4.   VAT and the collaborative economy

4.1.

For VAT purposes, it is crucial to define the concept of ‘taxable person’ precisely and understand whether the person in question is performing an economic activity. Furthermore, there is still no easy way to establish how to tax collaborative economy transactions in which remuneration is not made in money but which do involve some form of return, for instance based on the use of the users’ personal data and the mining of that data.

4.2.

More specifically, for VAT purposes, a distinction must be made between different situations concerning remuneration for services: (i) situations where services are rendered against payment of a sum of money; (ii) situations in which remuneration is provided not in money but in the form of another service or non-monetary remuneration; and (iii) situations in which the service is rendered freely with no return (1).

4.3.

As regards instances which could come under point (ii), the EESC calls for clarification on whether activities carried out by collaborative platforms are subject to VAT.

4.4.

On this subject, the EESC considers the European Commission’s VAT expert group’s work on VAT treatment of the sharing economy to be very useful and trusts that this issue will be developed further.

4.5.

The Commission and national tax administrations should also promote appropriate cooperation and mutual coordination with regard to applying VAT rules to the collaborative economy, with a view to developing harmonised working practices, exchanging information useful for enforcement procedures and preventing fraud and tax avoidance.

4.6.

The EESC believes that it is important to consider whether the imminent implementation of the directive on certain requirements for payment service providers regarding VAT fraud can also be used, in the context of reporting obligations, for the purposes of direct taxation either with regard to online credit card payments or to payments made by direct bank transfer and other forms of rapid payment.

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(1)  VAT expert group, meeting — 1 April 2019 taxud.c.1(2019)2026442 — EN, VAT Treatment of the sharing economy, VEG 081.

Opinion of the European Economic and Social Committee on ‘European Climate Pact’

(Exploratory opinion)

(2020/C 364/10)

Rapporteur:	Dimitris DIMITRIADIS
Co-rapporteur:	Peter SCHMIDT

Referral	European Commission, 11.3.2020
Legal basis	Article 304 of the Treaty on the Functioning of the European Union
Section responsible	Section for Agriculture, Rural Development and the Environment
Adopted in section	29.6.2020
Adopted at plenary	16.7.2020
Plenary session No	553
Outcome of vote (for/against/abstentions)	206/4/2

1.   Conclusions and recommendations

1.1.

We are in a climate emergency. At the time of the global health and impending economic crises caused by the COVID-19 pandemic, the EU’s commitment to the transition to a sustainable, resilient, climate-neutral and resource-efficient wellbeing economy must be reaffirmed. What we need now are transformational shifts in culture, infrastructure, behaviour, participation and livelihoods that will impact on, but also empower, citizens in multiple ways.

1.2.

Climate change threatens us all, but, as with the pandemic, it has the most damaging effect on the most vulnerable and marginalised people. It is vital that the transition leaves no one behind.

1.3.

The EESC underlines that the active participation of all parts of society — enterprises, workers, researchers, consumers, communities and citizens and their organisations — is crucial for mobilising the transition to climate neutrality.

1.4.

The EESC thus supports the call for the European Union to commit to achieving carbon neutrality by 2050, and accordingly adjust its greenhouse gas reduction target for 2030. The UN Environment Programme (UNEP) Emissions Gap Report 2019 indicates that global emissions need to be cut by 7,6 % per year, starting now, in order to limit global warming to 1,5 oC. Calculated, this means a reduction target of at least 68 % by 2030.

1.5.

A shift to a participatory model is required at all levels of scale and, in implementing the Climate Pact, the Commission has an important opportunity and obligation to model an innovative approach which will mirror, support and inspire action already happening in civil society, within communities, cities and regions.

1.6.

Participatory models which are too narrowly focused, or framed in ways which limit the scale of the changes explored, or which are capable of being ignored by the institution that has established them, will serve only to distract and disillusion those that engage.

1.7.

Europe needs to catalyse systemic change for climate action through innovation (technological and social) by connecting the supply of innovation with demand-side actors, problem owners and those with a high ambition for change. The digital transformation should be guided by the SDGs to avoid risks, including those relating to workers’ rights (1). The implementation of the European Pillar of Social Rights, in tandem with the EGD, provides an opportunity to ensure a just transition focused on the objective of quality jobs for all.

1.8.

The overall challenges identified most by civil society actors engaging in climate action are a lack of access to finance, a lack of expertise, a lack of staff and a lack of recognition, as well as the lack of a consistent narrative from the EU and the national governments.

1.9.

Achieving EU and international climate goals will require significant financial resources. The European Green Deal (EGD) budget (public and private funds), the EUR 750 billion of the recovery fund, including the allocation of funds for the EU semester process, should be focused on sustainable recovery, including climate action.

1.10.

Funding conditionality on sustainable practices in all sectors should be the norm for designing post-COVID recovery plans geared towards the UN 2030 Sustainable Development Agenda and the Paris Agreement. The COVID-19 recovery response should not be to ‘bounce back’ to where we were before, but rather to ‘bounce forward’ to something new and better.

1.11.

Capacity building and technical support are necessary for all stakeholders to make the transition to a more resilient and sustainable future. Setting up an EU Climate Finance Forum would stimulate access to finance and remove barriers.

1.12.

The EESC proposes a European Climate Pact Stakeholder Platform based on the principles of inclusiveness, transparency and genuine participation and ownership by climate actors at all levels.

1.13.

The Climate Pact should be focused on empowering people to change systems — through exploration, experimentation and demonstration. Multi-level perspectives, visioning, story-telling and backcasting will all be crucial. A wide variety of climate initiatives should be fostered and facilitated.

2.   Introduction

2.1.

Tackling climate and environmental challenges has become an increasingly urgent task and requires a drastic revision of current unsustainable socio-economic approaches. The COVID-19 global pandemic has demonstrated that simple adjustments of our lifestyles and systems will not be enough. Fundamental changes in production methods, affecting businesses, workers and the organisation of work, were already taking place before the pandemic and may be accelerated as a result. The European Commission adopted a European Green Deal as the new strategy for the EU’s socio-economic and financial models that are sustainable, cleaner, safer and healthier.

2.2.

In the aftermath of the COVID-19 crisis, climate action and sustainability commitments must be put at the forefront of recovery and reconstruction policy, and of the corresponding budgets, in order not to lock the EU further into a high-carbon future. Post-crisis measures must be designed in a way that creates system resilience, protects and restores biodiversity, prioritises public health, while leaving no-one behind and paving the way for a wellbeing economy. In this context, the EGD should not be abandoned or delayed, but strengthened.

2.3.

The success of the EGD will to a large extent depend on the EU’s capacity to engage with its citizens. With this in mind, the Commission is preparing a European Climate Pact to bring together various actors, including regions, local authorities, local communities, civil society, schools, businesses and individuals.

3.   The need to engage with civil society and citizens on climate

3.1.

We are facing a global climate emergency. The response of governments to the climate crisis thus far has not been sufficient and the world is not on track to meet the objective of the Paris Agreement and the SDGs. Youth climate strikers and others across civil society have been calling forcefully for much more ambitious and urgent climate action. The decision-makers, who have signed up to the 2030 Agenda and the Paris Agreement, have the responsibility to urgently address these demands, take decisive and ambitious policy decisions and move towards a new model of inclusive climate action, where all stakeholders are actively engaged.

3.2.

The EESC thus supports the call for the European Union to commit to achieving carbon neutrality by 2050, and accordingly adjust its greenhouse gas reduction target for 2030 (2). The EESC expects that the new 2030 emissions target will be based on a broad review and proper impact assessment. The EESC also argues that there are decisive arguments for the aim of a minimum reduction of 55 % by 2030, in order for the EU to respond for its part to the massive global need for decreasing emissions. For example, the UN Environment Programme (UNEP) Emissions Gap Report 2019 (3) indicates that an even more ambitious 2030 emission reduction target is needed globally to achieve the 1,5 oC target set in the Paris Agreement (4).

3.3.

The 2019 Eurobarometer finds that 93 % of EU citizens see climate change as a serious problem; 79 % see it as a very serious problem. The vast majority of respondents think it is important their national government sets ambitious targets to increase renewable energy (92 %) and improve energy efficiency (89 %).

3.4.

The Climate Pact needs to leverage the power of Europeans to achieve the EGD’s vision of a prosperous, inclusive, climate resilient society with a circular, net-zero emissions economy by 2050. The IPCC report explicitly refers to the need for ‘rapid, far-reaching and unprecedented changes in all aspects of society’. Incremental changes will not be enough. A narrow focus on CO2 reduction is counter-productive at the grassroots level — limiting the engagement and the thinking and significantly limiting the changes that are imagined and implemented. What is needed now is a fundamental transformation of economic, social and financial systems that will trigger exponential change in decarbonisation rates and strengthen climate resilience. For this to happen, inspiring, broad and diverse narratives are needed, communicating why the world has to change.

3.5.

The current global crisis caused by the COVID-19 pandemic has proven the ability of governments to take dramatic measures to mitigate an existential threat, as well as people’s ability, at least in the short run, to adapt to new restricted lifestyles imposed by these measures. Importantly, communities, enterprises, social partners and other non-state actors are playing a critical role in the response to the pandemic, often identifying needs, designing and implementing context-appropriate interventions more quickly, effectively and creatively than has proven possible through top-down direction.

3.6.

There is a huge opportunity and a huge risk as we move to the next phase of responding to COVID-19. The economic measures and fiscal packages that are being designed to sustain and restart the European economy must embrace EU taxonomy for sustainable investments and direct finance to those who are sustainable or have the potential to become sustainable and will make commitments — subject to monitoring — to identifying and making the necessary changes as a matter of urgency.

3.7.

The tragic disruption caused by COVID-19, which has led to the suspension of fiscal rules, has shown that another vision is possible when people’s lives, our economies and the survival of life on Earth as we know it are at stake. A vision of social progress which relies only on the pursuit of growth in Gross Domestic Product (GDP) ignores fundamental elements of individual and social well-being and fails to account properly for environmental and social considerations. It is therefore necessary to make the leap from the GDP-based to the wellbeing economy (5) (6).

3.8.

One way of enhancing climate ambition is to create enabling environments for more action from non-state actors, including various types of business, including small, medium-sized and micro-enterprises; investors; social partners; cooperatives; cities and regions; trade unions; local communities and citizen groups; farmers; schools; faith-based organisations; youth groups; and other non-governmental organisations.

3.9.

An enabling environment requires a key shift from consultation and top-down engagement to co-design, co-creation and empowerment. Standard consultation models rarely reach beyond very narrow, well-resourced sectors of society. Individuals, organisations and enterprises with the most to gain from and contribute to transformational change need to be offered genuine opportunities to participate in decision-making if they are to commit time and energy to the process.

3.10.

In 2018 the EESC called for a ‘European Dialogue on Non-State Climate Action’ (7). The purpose of the dialogue should be not only to highlight and showcase actions, but also to respond to the needs of non-state actors by inspiring new partnerships between them and different levels of government; facilitating peer learning, training and advice sharing, and facilitating access to finance.

3.11.

The EESC proposed (8) that a permanent citizens’ dialogue be set up as a compulsory preparatory element of all major political decisions and all pertinent initiatives at all levels.

3.12.

Until now, the Commission has not followed these recommendations (9). The Climate Pact provides an opportunity for the institutions to work closely together for an enabling framework for civil society and citizens’ involvement, building on but going beyond the existing consultation processes.

4.   Learning from existing practices on civil society and citizen engagement

4.1.

Existing national, regional and municipal level examples of citizens’ assemblies, citizens’ dialogues and similar deliberative engagement processes (10) demonstrate the capacity and desire of citizens to take responsibility for climate crisis solutions. It is often the case that broader participatory approaches, when carefully framed, generate significant sustainability gains without being explicitly focused on the climate crisis. They testify not only to the strong need and appetite for participatory democracy, but also to governments’ capacity to create such spaces and to follow up on their proposals politically.

4.1.1

In 2019, 150 randomly selected French citizens started deliberating on a question ‘how can we reduce greenhouse gas emissions by at least 40 % by 2030, in a spirit of social justice?’. Sessions of this Citizens’ Convention are held at the French Economic and Social Council. The Government plans to publicly address the proposals and publish a provisional timetable for their implementation (11).

4.1.2

The Irish Citizens’ Assembly established in 2016 consisted of 100 citizens, randomly selected to be representative of the Irish electorate. They were tasked with deliberating on topics ranging from the constitutional ban on abortion to making Ireland a leader in tackling climate change. The parliamentary committee established to take forward the Assembly’s recommendations on climate change shaped to a significant degree Ireland’s landmark Climate Action Plan published in June 2019.

4.1.3

In Spain’s two major cities, citizens’ dialogues and local forums have been established to promote broader participation of citizens and civil society organisations (CSOs) in deciding on parts of the local budget and brainstorming about the future of the city.

4.1.4

The Youth Climate Council at the Ministry of Energy, Supply and Climate in Denmark aims to bring new thinking into climate policy and provide input to the minister on future climate solutions.

4.1.5

The city of Gdansk in Poland has organised three citizens’ assemblies on adapting to extreme weather events, reducing air pollution and improving civic engagement.

4.1.6

In Finland, the first Citizens’ Panel on sustainable development brought together about 500 Finns to assess the state of sustainable development. The results will be used to promote the work on sustainable development by the Finnish Government and Parliament.

4.1.7

In Italy, after COP 25, a legislative proposal was made by civil society representatives to set up a Citizens’ Assembly on the model of the French one. A similar process was launched in the UK, with ‘Climate Assembly UK: the path to net zero’.

4.1.8

In Bologna, Italy, the municipality created a ‘Civic Imagination Office’ as part of its wider work to re-engage citizens. It created six ‘laboratories’ which run regular visioning events, using Open Space and other tools. When strong ideas for projects emerge, the municipality creates ‘pacts’ with the community to ensure they become a reality. Over 500 pacts have been agreed in the last five years, ranging from new benches on streets to far larger and more ambitious projects. It has also become the channel through which participatory budgeting is organised.

4.2.

Many other community-led initiatives (CLIs) mobilise local action to create a more sustainable future with remarkable and inspiring successes. Among others, ‘Sustainable Neighbourhoods’ in Brussels, the Scottish Communities Climate Action Network grassroots network of around 120 community groups, Coopérnico — a renewable energy co-operative (RESCoop) in Portugal, the Transition movement, now active in community-scale resilience-building efforts in over 50 countries, inspiring people to transform their ways of thinking, acting and being in the world. The ‘Communities for Future’ Action Programme, which will be launched this summer, can help provide the institutional setting for public participation.

4.3.

At the European level, structured involvement of civil society is necessary and a clear mandate for civil society’s participation in the development, implementation and monitoring of policies and strategies aiming to achieve climate neutrality should be provided.

4.3.1

The Multi-stakeholder platform (MSP) on Sustainable Development Goals played an important role, but also left room for improvement in terms of resourcing, frequency of meetings, ownership of the agenda setting, opportunities for extended debate and engagement and facilitation of more regular, transparent and accessible public consultations.

4.3.2

The European Circular Economy Stakeholder Platform, run jointly by the EESC and the Commission, provides a space for a wide-ranging group of stakeholders to exchange good practices and ideas, and create valuable networks. Giving the ownership of the platform to the stakeholders represents the main difference with the MSP on SDGs and is a good practice to follow.

4.4.

The Paris targets will not be met without strong engagement of the social partners at all levels and particularly in industries and sectors that are heavily affected by decarbonisation and digitalisation. The implementation of the European Pillar of Social Rights, in tandem with the EGD, provides an opportunity to ensure a just transition, focusing on the objective of quality jobs for all. The social dialogue led by trade unions and employers is one of the best places to raise awareness of the climate crisis. They are the key protagonists if we are to realise a socially fair, productive and commercial transformation that the EGD brings. These scenarios range from Social Dialogue Summits at European level, through cross-border dialogue, which is essential to give muscle to European social integration, and to sectoral and company level collective agreements. Workers’ involvement forms an integral part of democracy in the workplace and gives working people an opportunity to play an active part in workplace decisions that can make a positive contribution to climate action.

4.5.

Climate-KIC of the European Institute of Innovation and Technology focuses on designing, executing and connecting entrepreneurial experiments and deep demonstration effects on levers of systemic change. EIT Climate-KIC has a portfolio composed of experiments focused on triggering new ways of thinking, leveraging exponential effects of new technologies, networks and community forces, and seeking to learn faster than the pace of change (12).

5.   Learning from business responses

5.1.

Innovation refers to adding extra steps of developing new services and products in the marketplace or in the public that fulfil unaddressed needs or solve problems that were not in the past. Technological Innovation, focuses on the technological aspects of a product or service. Social innovation refers to new social practices that aim to meet social needs in a better way than the existing solutions, resulting from — for example — working conditions, education, community development or health. Digital Technology plays an important part in social innovation through the use of ICT such as online networks and other digital tools.

5.2.

The process of Systemic Innovation should be made available at an affordable cost for all stakeholders that need to be engaged in the co-design of the solutions that will drive the needed sustainability transition. Financial viability is a prerequisite for social cohesion and ‘leaving no one behind’ in the process of implementing the EGD. For this reason, aspects of systemic change that have public good characteristics should be funded or subsidised by public sources which will allow further leveraging of private funds for climate change investments.

5.3.

Communities that succeed in bringing about systems innovation are those that excel at understanding the problem, at gathering solutions, at allocating solutions according to specific needs and resources of different places and contexts. We need to empower European communities with these skills and create the relevant enabling environments for more action from the non-state actors.

5.4.

There is an urgent need for innovative funding mechanisms, which recognise and respond to the potential and challenges of community-led system innovation, which requires flexible, core support in order to be established and sustained, and at-risk start-up capital for bigger projects, as well as professional mentoring and support. The Climate Pact could create a hugely valuable route for social innovators to provide feedback on the policy and economic barriers, which block and disadvantage them and frequently render much-needed transformational projects unviable.

5.5.

The responses of companies are a very important reference, as illustrated by these examples: — Multinational corporations producing clothing to use and throw away, promoting a second-hand sales line, as a recycling strategy, — The mentoring of large oil producers and insurance companies, which will have to reorient their businesses.

5.6.

Examples of significant responses from the financial sector include: — Investment funds’ decision not to invest in projects that do not consider the climate variable, — The Network for Greening the Financial System, founded by eight central banks and supervisors, for green finance.

6.   Information sharing and public understanding of climate action

6.1.

Direct dialogues with citizens to raise awareness of the importance of a transition to more sustainable societies and healthier local communities are needed. Such dialogues have most added value when organised at local, regional or national level. Nevertheless, guidance, coordination and support from the EU level would be essential.

6.2.

It should be primarily incumbent on individual countries to develop a system of environmental regulation that is based on their local environment and its needs, and adjusted to the sustainable development of that country. Recognition of the rights of nature would be an important element of this (13).

6.3.

Any EU level intervention should be co-designed with the users, learning from, modelling and inspiring the participatory approach required at other levels of scale. There is a need to bring in expertise and resources to support the design and facilitation of innovative collaborative spaces, compelling story-telling and the use of innovative technology. Fundamental to the success of the Climate Pact will be the ability of the communities involved to become the best story-tellers they can be, bringing to life the transformed future they are advocating, exploring and connecting with existing needs and desires, and empowering people to act.

6.4.

A network environment that is conducive to encouraging and supporting climate action requires an online platform for exchanging practices and lessons learned from projects and approaches. Such a participatory platform could facilitate peer learning and advice sharing among actors by helping them to overcome regulatory obstacles. It could stimulate education and innovation by providing online courses, webinars and workshops.

6.5.

Recognition, and credible communication of existing actions may be strong stimuli to take climate action. Funding and other resources, specialist support and the power to help shape decisions that impact on their work will enable the wider application of proven approaches.

6.6.

Ambassadors for climate action could be tasked with facilitating cooperation between multiple actors; setting strategic/thematic priorities; convening events; and incentivising new climate actions.

6.7.

Such Climate Pact Ambassadors could serve as focal points for different sectors of the economy. Specific ambassadors for youth, local communities, cities and regions should also be appointed. Ambassadors at EU level would have a different role from ambassadors at national/regional/local level. Coordination between various levels would need to be ensured.

6.8.

Appointing members of the EESC and the CoR as EU-level ambassadors for the constituencies they represent would build on their extensive networks among civil society and local and regional authorities, as well as reinforce cooperation between the advisory bodies and the Commission.

6.9.

For instance, trade unions and business organisations have an on the ground perspective, and democratically represent workers in various sectors. They are key in shaping the different measures so as to accommodate the needs of workers and businesses and in identifying the challenges. Climate ambassadors at different levels in the trade union and business environment could build on the strengths of social dialogue, effectively boost information sharing and stimulate climate action. This work requires an institutional environment favourable to rights at work.

6.10.

The digital transformation changes the organisation and the way of producing of companies, and many SMEs are struggling with very serious shortcomings in digitalisation. The concerns of many workers are about the impact of digitalisation on their jobs, which could lead to rising unemployment and inequalities.

6.11.

In order to ‘promote financing and green investment and ensure a just transition’ in the EGD, the Commission has developed a taxonomy to incentivise investments in 8 large economic groups and 70 activity sectors, which will radically transform their production and the quantity and quality of their jobs. In this document, the cornerstone of the Investment Plan for the EGD, there is only one reference to labour rights of the fundamental ILO standards.

7.   Creating real and virtual spaces for exchange on climate

7.1.

The Climate Pact should be focused on empowering people to change systems — through exploration, experimentation and demonstration. Education and training programmes covering the whole spectrum of civil society, and other non-state actors, are needed. Improving the knowledge and understanding of the climate challenge by going deeper and broader and by improving the quality of the discussions and conversations around the problem among stakeholders is crucial.

7.2.

Ready-to-implement tools to structure and manage the challenges and exploit opportunities of sustainability innovations and transitions will be needed. The EC Horizon 2020 programme has produced and pilot many of these tools. In multidisciplinary settings the approach should be to follow ‘learning by doing through the application of tools on the users’ cases’.

7.3.

Stakeholder management, multi-level perspective, visioning and backcasting, and niche management will be crucial in mobilising the Climate Pact. This structure is meant to facilitate the problem-solving process by setting out a pathway for system innovation for climate change and EGD implementation.

7.4.

The success of the Climate Pact will be partly defined by the ability of entrepreneurship and businesses to attract grant funding from public, philanthropic and private sources. Such funding should have the ambition of addressing the market failures that have caused climate change, has the appetite for disruptive change and can reach a significant scale. The EU Multilateral Funding Framework, mission-driven European and international public and private funds with an appetite to drive systemic change in the areas of climate mitigation and adaptation can be used to leverage billions of innovative climate action. The overall aim should be to generate resources, experience and capability around purposeful outcomes on emission reductions and increased climate resilience that can be multiplied to accelerate change and generate hope. The Climate Pact should welcome the engagement of the national and international financial sector, including the relevant multilateral and private funds. Moreover, the tax system should reflect the principle of maximising and sustaining the well-being economy.

7.5.

Incorporating physical and virtual spaces for climate exchanges into existing civil society associations, which would interact through the Climate Pact Stakeholder Platform, should also be considered.

7.5.1

In the field of work, the constitution of Observatories of Foresight, Analysis and Interpretation of labour, organisational and technological changes, covering the eight taxonomy groups, with the participation of trade unions, employers and administrations, at European and Member State level, would be appropriate, with material support from the Commission.

8.   Building capacity to facilitate grassroots initiatives

8.1.

The general framework should be clearly defined, in order to avoid inconsistencies with the EGD.

8.2.

The overall challenges identified most by civil society actors for engaging in climate action are a lack of access to finance; a lack of expertise; a lack of staff; and a lack of recognition (14), as well as the lack of a consistent narrative from the EU and the national governments.

8.3.

Multiple stakeholders have been pointing out complex regulatory and administrative environments as obstacles to climate action. CSOs, and CLIs, could benefit from capacity-building efforts that help them navigate regulatory and administrative environments.

8.4.

Providing both material (technical assistance, capacity building, funding, etc.) and non-material (recognition, greater visibility, etc.) support, as well as facilitating networking and connections to specific policy areas and processes, should be essential elements of a European Climate Pact Stakeholder Platform that aims to stimulate climate action on the ground.

8.5.

Non-state actors might face various challenges in accessing finance for their climate initiatives, including: prohibitive project size requirements, reluctance of private investors to finance projects, complicated processes and requirements for applying for and accessing funds (15). Other barriers include a lack of awareness about climate financing options, insufficient administrative capacity and technical knowledge in securing financing, budgetary and regulatory constraints, ensuring the bankability of potential investments, political constraints, and difficulties in meeting overly prescriptive eligibility criteria for EU and international funds (16).

8.6.

The EESC has proposed the establishment of a Climate Finance Forum, which would bring together key stakeholders to address the main issues, identify barriers, design solutions, and identify the most efficient mechanisms for improved distribution of finance in line with the principle of subsidiarity. A study (17) is being carried out in order to propose an action plan and ultimately to improve the access of non-state climate actors to finance.

9.   Towards a European Climate Pact Stakeholder Platform

9.1.

In view of the positive experiences with the European Circular Economy Stakeholder Platform, the EESC proposes to set up a similar European Climate Pact Stakeholder Platform.

9.2.

Inclusiveness, transparency and genuine participation and ownership by local climate actors should be the guiding principles for the Platform.

9.3.

The EESC has called for the transition to a sustainable, carbon-neutral and resource-efficient economy to be just and leave no households, communities, regions, sectors and minorities behind (18). The European Climate Pact Stakeholder Platform should entail an Observatory of the transition to climate neutrality to monitor implementation of EU climate policy at national and regional level and gather data in support of policy-making at all levels.

9.4.

The EESC supports organisation of Citizens’ Assemblies in Member States to inform, inspire and foster understanding and to advise all levels of governance on climate policies. The European Climate Pact Stakeholder Platform could promote existing successful experiences and disseminate guidance and best practices to countries, regions and cities interested in hosting similar assemblies.

9.5.

The European Climate Pact Stakeholder Platform could be tasked with organisation of a Citizens’ Assembly at EU level co-hosted by the EESC, CoR and EP with the Commission’s support.

9.6.

An essential element of the Platform would be a capacity-building and finance hub, providing guidance, information and education on climate policies and strategies as well as to facilitate access to finance for small-scale projects. The EU hub as well as national hubs could be set up in cooperation with local and regional authorities.

9.7.

The European Climate Pact Stakeholder Platform’s online platform would serve to create spaces for sharing information and knowledge, facilitating networking and building commitments.

9.8.

The European Climate Pact Stakeholder Platform would require setting up a coordination group composed of representatives of various actors. Selection of coordination group members will require transparent and clear criteria in order to ensure inclusiveness and representativeness, while maintaining efficient governance of the structure. The following stakeholders should be represented: EU institutions, civil society, including business, trade unions, local and regional authorities, science community, finance community and youth. Stakeholders from institutions and sectors with fewer resources should be provided with sufficient resources to participate and have a decision-making role.

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(1)  UN SDSN Six Transformations to achieve the Sustainable Development Goals.

(2)  The European Parliament rapporteur on the European Climate Law (COM(2020) 0080), Jytte Guteland, is proposing ‘that the Union 2030 climate target is raised to a reduction in emissions of 65 % compared with 1990 levels. Consequently, the Commission should, by 30 June 2021, assess how the Union legislation implementing that higher target would need to be amended accordingly’.

(3)  Emissions Gap Report 2019.

(4)  The UN Environment Programme (UNEP) Emissions Gap Report 2019 indicates that global emissions need to be cut by 7,6 % per year, starting now, in order to limit global warming to 1,5 oC. Calculated for the EU, this means a reduction target of at least 68 % by 2030.

(5)  EESC opinion on ‘The sustainable economy we need’ (OJ C 106, 31.3.2020, p. 1).

(6)  Welfare economics — branch of economics that seeks to evaluate economic policies in terms of their effects on the well-being of the community. It became established as a well-defined branch of economic theory during the 20th century.

(7)  EESC opinion on ‘Boosting climate actions by non-state actors’ (OJ C 227, 28.6.2018, p. 35).

(8)  EESC opinion on ‘Strategy for long-term EU greenhouse gas emissions reduction’ (OJ C 282, 20.8.2019, p. 51).

(9)  Proposed already in EESC opinion ‘Building a coalition of civil society and subnational authorities to deliver commitments of the Paris Agreement’ (OJ C 389, 21.10.2016, p. 20).

(10)  https://www.thersa.org/discover/publications-and-articles/rsa-blogs/2018/07/our-call-for-action-on-deliberative-democracy

(11)  https://www.conventioncitoyennepourleclimat.fr/en/

(12)  EIT C-KIC ‘Deep Demonstrations’ represent a potential economic ‘growth edge’ from Europe's most ambitious ‘challenge owners’ to understand their ‘problem space’ and ‘designers’ to map the system and create a portfolio of intervention positions.

(13)  EESC opinion Reflection Paper on ‘Towards a Sustainable Europe by 2030’; EESC opinion on ‘Climate Justice’ (OJ C 81, 2.3.2018, p. 22).

(14)  EESC study.

(15)  EESC opinion on ‘Facilitating access to climate finance for non-state actors’ (OJ C 110, 22.3.2019, p. 14).

(16)  Rossi, L., Gancheva, M. and O’Brien, S., 2017.

(17)  Climate Finance Forum — modalities and first tasks, Study for the EESC by Milieu Consulting SPRL.

(18)  EESC opinion on ‘Leaving no one behind when implementing the 2030 Sustainable Development Agenda’ (OJ C 47, 11.2.2020, p. 30).