EUROPEAN COMMISSION

Brussels, 5.5.2021

SWD(2021) 351 final

COMMISSION STAFF WORKING DOCUMENT

Annual Single Market Report 2021

Accompanying the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe's recovery

{COM(2021) 350 final} - {SWD(2021) 352 final} - {SWD(2021) 353 final}

COMMISSION STAFF WORKING DOCUMENT

Annual Single Market Report 2021

Accompanying the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe's recovery

Executive Summary

The COVID-19 crisis has highlighted the importance of looking at the EU’s industrial policy and the Single Market together, to better take into account the economic and social impact that disruptions to the free flow of goods, services and people - regardless of whether they are longstanding or crisis-related - have on our companies and to better understand the complex interlinkages among them across regions and sectors.

This report provides the analytical elements underpinning the Communication in its response to calls from the Competitiveness Council for the Commission to assess the resilience of the Single Market by drawing lessons from the COVID-19 crisis; define and report regularly on key performance indicators on industrial strategy and competitiveness; and take stock of implementation of the March 2020 Single Market Enforcement Action Plan (SMEAP). It is the first of a planned series of yearly reports.

The events of the past year have exposed the EU’s economy to an unprecedented and sustained shock, with the EU economy contracting by 6.3%. Small and medium-sized enterprises (SMEs) were especially affected. This was also caused – and aggravated - by the unilateral introduction of a number of restrictions to the free movement of goods and people, which led to severe supply chain disruptions. These came on top of existing barriers identified in the March 2020 Single Market Barriers report and the SMEAP. The crisis also confirmed the interdependence of global value chains and demonstrated the importance of a globally integrated and well-functioning Single Market.

The impact of the crisis has been felt differently across the fourteen industrial ecosystems identified by Commission services. During the first three quarters of 2020, the “Tourism” ecosystem lost one fourth of its turnover while that of the “Digital” ecosystem was 5% higher.

Recovering fully and sustainably means implementing a large number of initiatives at EU, national, regional and local level. Many of these were already identified in the March 2020 Industrial Strategy package but their importance and the need to deliver on them fast has increased, as has the importance of an open, integrated, competitive and fully functioning Single Market.

There has been quick and substantial progress in addressing the impact of the crisis and in implementing the measures announced in the March 2020 Industry Package by deepening the Single Market; upholding a global level playing field; supporting companies and the economy in the transition towards climate-neutrality and a circular economy; helping the digital transition; supporting innovation; placing skills at the heart of the EU policy agenda; assisting investment and financing; reinforcing industrial and open strategic autonomy; and taking a new partnership approach to governance.

Contents

1.    Why this report is needed    

2.    The impact of the crisis on the Single Market Economy    

3.    Delivering on the ground: the implementation of the 2020 Single Market Enforcement Action Plan, Industrial and SME Strategies    

4.    Conclusion    

Annex 1 State of play of the implementation of the Single Market Enforcement Action Plan     41

Stocktaking of the implementation of the 2020 Single Market Enforcement Action Plan    

Annex 2 Overview of the implementation of the 2020 Industrial Policy Package    

Stocktaking of the implementation of the 2020 Industrial Strategy    

Stocktaking of the implementation of the 2020 SME Strategy    

Annex 3: 14 industrial ecosystem fiches    

1. Aerospace and Defence Ecosystem    

2. Agri-Food Ecosystem    

3.    Construction Ecosystem    

4.    Cultural and Creative Industries Ecosystem    

5.    Digital Ecosystem    

6.    Electronics Ecosystem    

7.    Energy-Intensive Industries Ecosystem    

8.    Energy – Renewables Ecosystem    

9.    Health Ecosystem    

10. Mobility – Transport – Automotive Ecosystem    

11.    Proximity, Social Economy and Civil Security Ecosystem    

12.    Retail Ecosystem    

13.    Textile Ecosystem    

14.    Tourism Ecosystem    

Annex 4: Monitoring the implementation of Industrial Policy    

Structure of the document    

Headline indicators    

Value added in industry and services    

GDP per person employed    

Employment    

EU global market share    

Short-term indicators    

Turnover    

Industrial production    

Declarations of bankruptcies and Registration of businesses    

Permanent, temporary and self-employment    

Gross fixed capital formation    

Economic confidence indicator    

Economic Resilience    

Net public investments    

Net private investments    

R&D expenditures    

STEM graduates    

Digital Transition    

Digital Economic and Society Index and its sub components    

Digital skills    

Climate neutrality and Circular Economy    

GHG emission intensity    

Electricity prices    

Circular material use rate    

Recycling rate of municipal waste    

Single Market Integration    

Intra-EU trade    

Price convergence    

SMEs    

Employment in SMEs    

Value added in SMEs    

International dimension    

Extra-EU trade    

Key Performance Indicators for EU Industrial Ecosystems    

Headline indicators: the size and performance of ecosystems    

Green transition: GHG emissions    

Short-term indicators: Economic confidence    

International dimension: Trade    

Resilience: the dynamism of ecosystems    

Resilience: Investments in tangibles    

Methodology for constructing the data used for the analysis of industrial ecosystems    

1.Why this report is needed 

The events of the past year have exposed the EU’s economy to an unprecedented and sustained shock, with the EU economy contracting by 6.3%.

This shock was not only caused by national public health measures to limit social contact: it was also caused – and aggravated – by the unilateral introduction of a number of restrictions to the free movement of goods and workers by Member States, with intra-EU trade falling by 24% alone in May-June 2020.

This not only limited the ability of businesses to supply their goods and services, but also led to severe supply chain disruptions. Compounding the issue, the restrictions were adjusted frequently and unpredictably, triggering national stockpiling. And these restrictions came on top of existing barriers to businesses within the Single Market as detailed in the Commission’s Staff Working Document of 10th March 2020 on addressing barriers to the Single Market 1 .

All businesses suffered, but smaller ones most of all. Preliminary estimates show that the number of small and medium-sized enterprises (SMEs) fell by 1.3% with over 60% of SMEs reporting a fall in turnover.

The impact of the crisis varied across regions and Member States, and most of all across ecosystems, with tourism suffering the most.

Swift action was taken and is being taken by the EU – both the Commission and Member States – to address these negative socio-economic impacts and to put Europe’s businesses and wider economy on a more stable and sustainable footing. Investments and reforms under the Recovery and Resilience Facility (RRF) and Next Generation EU will most notably provide key support for the recovery. The State Aid Temporary Framework has also helped.

Many of the reforms needed had already been identified in the March 2020 Single Market Enforcement Action Plan, Industrial Strategy and SME Strategy adopted before the full impact of the crisis was felt. Rather than being made redundant, their importance and the need for a twin transition to environmental sustainability including climate neutrality and digital leadership has been increased.

But more fundamentally, the crisis has underlined that the Single Market does not stand in isolation. It is the basis of all the EU’s efforts to support the recovery of its industry, make it more resilient, and facilitate the green and digital transitions. It has underlined the importance of an open, competitive and fully functioning Single Market to enable businesses to grow to the scale needed to compete globally. This can only be achieved through effective implementation and enforcement. In this context, competition rules have an essential role to play. Competitive markets improve conditions for companies of all sizes to have a level playing field and unlock their full potential. This also contributes to a quicker, stronger and more sustainable recovery and increased resilience of Europe’s industry.

This report therefore looks at these two dimensions – Single Market and industry – together.

Both the Council and the European Parliament have recognised that it is not enough to commit to a seamless Single Market and twin transition: it must be followed up with specific actions and actively monitored. This will allow the EU to identify and tackle remaining barriers and shortcomings.

Specifically, in September 2020, the Competitiveness Council called on the Commission to:

·“take stock of the state of implementation of the 2020 Enforcement Action Plan and progress in addressing barriers in the Single Market, including through measures of the recovery plan, taking into account the work of [the Single Market Enforcement Taskforce] (SMET);

·assess the resilience of the Single Market, by first drawing lessons from the COVID-19 crisis and evaluating the robustness of existing procedures; and

·analyse on this basis the need for further regulatory and non-regulatory actions.

Moreover, the Competitiveness Council conclusions from 16 November 2020 that:

·call on the Commission to define key performance indicators for monitoring the industrial strategy and competitiveness by the end of March 2021 […] including taking into account investment trends, and comparing those to other world regions;

·Ask for a regular reporting on the key performance indicators in the form of a brief written report and a statement for discussion in the Competitiveness Council;

·Call also for the objectives of the EU's industrial policy to be reflected in sound indicators, in particular concerning industrial competitiveness, industry's contribution to the green and digital transition and the Union's resilience and strategic autonomy while preserving an open economy;” 2 .

This report provides the analytical elements underpinning the Commission response to these requests presented in the Communication “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery” (“the Industrial Strategy Update Communication” 3 .

Section 2 of this report assesses the impact of the crisis on the Single Market and on European companies, including as part of industrial ecosystems and SMEs. Together with the analysis of key persistent obstacles in the Single Market, it will allow lessons to be drawn from the crisis and assess the resilience of the Single Market

Section 3 presents progress in the implementation of the 2020 Industrial Policy Package, including the Single Market Enforcement Action Plan, the Industrial Strategy, and the SME Strategy.

2.The impact of the crisis on the Single Market Economy 

Key messages

The impact on businesses and the economy of national public health measures to limit social contact was aggravated by new unilateral restrictions on the Single Market, often subject to frequent adjustments exacerbating legal uncertainty and triggering national stockpiling. These also affected the mobility of workers and service providers.

These restrictions caused major disruptions to the free flow of goods, services and people, profoundly affecting value chains, economic activity and employment. Despite the actions of the European Commission, the ability of industry to quickly introduce and scale up production in critical areas was seriously constrained.

As a result, the EU economy contracted by 6.3% in 2020, with major turnover losses and decline in employment, and investment. The economy is expected to start recovering in 2021 and grow by 3.7%.

The Commission services have further developed the ‘industrial ecosystems approach’ set out in the 2020 Industrial Strategy as a lens to look at Europe’s economy. This analysis shows that the impact of the crisis was uneven among ecosystems with tourism, cultural and creative industries, textiles and mobility-automotive all among the worst hit. Other ecosystems were less heavily hit, or even experienced a turnover increase during the crisis, such as the digital ecosystem.

SMEs were especially affected with over 60% of SMEs reporting a fall in turnover and two thirds reporting that they have delayed investment decisions or downsized investments 4 . They were particularly affected by supply chain disruptions, employee absences and temporary shutdowns.

These new barriers came on top of a number of existing barriers to companies operating within the Single Market.

The crisis has underlined not only the fundamental importance of the Single Market but also the need to make it more resilient and create appropriate tools to face future crises.

1.

2.

2.1.Impact of the COVID-19 crisis and restrictions to the Single Market

The containment measures applied by national authorities to limit social contact and the spread of the COVID-19 virus inevitably caused an economic contraction and hit a large number of businesses.

The measures led to physical constraints on economic activity and a sudden stop of production. First, the partial or full shut down of entire sectors severely disrupted domestic production in most countries. Second, the propagation of such disruptions along global value chains weakened the functioning of the Single Market and of extra-EU supply chains.

As a result, during the second and third quarter of 2020, intra-EU trade fell by 24%, while GDP by 7% (see Figure 1).

This contraction was aggravated by new restrictions on the Single Market. 5 Soon after the start of the outbreak in the EU, a number of Member States unilaterally introduced a number of restrictions that they justified by a need to protect public health. Whilst some of these have subsequently been relaxed or ended, a number of new restrictions have been introduced in some Member States.

Businesses, notably SMEs, have complained about a number of practical problems, notably the perceived lack of clarity regarding applicable national measures. Information was often hard to find, complex and only available in the national language of the Member State concerned. In addition, companies highlighted the large degree of divergence and fragmentation between national approaches even in cases of similar epidemiological situations. This is particularly difficult for those businesses being active or having to transit across several Member States.

Furthermore, the intra-EU export restrictions on products were subject to frequent adjustments exacerbating legal uncertainty and triggering national stockpiling responses with further negative effects. In the area of medicinal products, for example, economic operators had stocks close to expiry date, which were not in shortage nor in demand at national level but were still blocked on the national territory. In addition, many measures were not notified or only notified after they had been adopted, preventing the Commission and other authorities from raising potential concerns and weakening the ability of the EU to coordinate its response.

In addition, overly cumbersome border controls restricting the free movement of persons caused serious delays in freight traffic and even blocked the delivery of goods to other Member States, leading to major disruptions to supply chains in many industrial ecosystems, including retail 6 and automotive 7 .

The free movement of services was affected strongly, including by forced temporary closures of non-essential businesses, travel restrictions, and a lack of clarity on applicable rules on movement across borders.

Furthermore, border restrictions reduced the mobility of workers and service providers. The number of postings dropped dramatically in the second half of March and in April and May. Stakeholders repeatedly complained of 8 problems in construction (e.g. posting workers), retail (e.g. difficulties of frontier workers to reach the workplace), agri-food (e.g. lack of seasonal workers or difficulties in manning of fishing vessels), health (e.g. hospitals in border regions having staff from across the border) and energy-intensive (e.g. engineers unable to carry out urgent cross-border maintenance services on industrial equipment). Irrespective of the employment situation, this remains very difficult for some service providers and workers, mostly on short-term contracts, without decent accommodation at the place of work.

The accumulation of these restrictions caused major disruptions in many of the EU’s industrial ecosystems, especially given the close links between activities within them. Some restrictions were particularly harmful to the functioning of the Single Market and even counter-productive. Bans or other restrictions on intra-EU exports of products raise serious doubts about their suitability and proportionality. They also undermine the principle of European solidarity and create a domino effect across the Single Market.

Businesses (mainly in the health ecosystem) underlined the negative impact on their supply chains of such new export restrictions, in particular during the first wave of the pandemic.

Commission services worked to lift around 30 export restrictions within the Single Market during the first wave 9 , recommending instead a system of prior notification of exports allowing authorities to refuse these on a case-by-case basis and for a limited time, based on clearly identified risks of shortages.

Since then, Commission services have monitored national measures to prevent that new bans or other trade restrictive measures and has challenged unjustified or disproportionate measures using all available tools, including infringement procedures. The Single Market Task Force (SMET) set up following the adoption of the Long-term action plan for better implementation and enforcement, is proving an effective tool.

Guidelines on border management 10 allowed for improvements to the free flow of goods and essential services. The “Green lanes” system based on the principles set out in the “Green Lanes” Communication 11 has significantly alleviated the serious delays faced by freight traffic but remains voluntary. The recent reintroduction by some Member States of checks on transport workers, in particular at or behind the border is causing significant social and economic disruption and resulting in substantial challenges for freight and logistics, as well as for the movement of goods and people. This highlighted that the “Green Lanes” principles for freight transport must also continue to be applied in full in any circumstances when internal border controls are temporarily reintroduced as a measure of last resort 12 .

Furthermore, in the last year, discriminatory practices have emerged in the agri-food sector, favouring national products over products originating from other Member States, and so fragmenting the Single Market. Measures such as calls on “naming and shaming” of firms importing goods, obligations on retailers to advertise or source a certain percentage of food products from national producers; giving preference to national food in public procurements; or promoting national food products with state or EU funds, may breach the Single Market. 13  The Commission has used infringement proceedings against such measures 14 . These issues are being discussed with Member States in the SMET together with alternative means to support farmers and short-supply chains in line with EU rules.

Public buyers had to deal with an immense increase of demand for similar goods and services. They had to ensure the availability of personal protective equipment such as face masks and protective gloves, medical devices, notably ventilators, other medical supplies, but also hospital and IT infrastructure, to name only a few. They were able benefit from the use of electronic procurement tools for their emergency purchases, facilitating the implementation and monitoring of the contracts.

In addition, the risk of shortages of essential products protected by intellectual property rights has also triggered debates in relation to compulsory licensing 15 of patents both at Member State and EU levels 16 . This mechanism based on the WTO TRIPS Agreement and implemented in the EU mainly at Member State level provides for a safety net, if voluntary solutions to make intellectual property available fail or are not available. Steps have been taken to facilitate the availability of results of publicly funded Research & Innovation programmes in the EU and its Member States to address shortages and ramp up production of critical materials.

Due to the commitment and close co-operation between public and private players to boost availability of essential products across the EU, the need to resort to compulsory licensing has been largely mitigated. Unexpected and uncoordinated use of compulsory licensing by one Member State in an EU-wide emergency situation can distort trade, innovation, exacerbate product shortages in other Member States, and more generally weaken the collective bargaining power of the EU, e.g. in the context of joint procurement, 17 and also negatively affect ongoing negotiations with patent holders.

The result of all these restrictions and disruptions was that the ability of industry to quickly introduce and scale up production in critical areas was seriously constrained as certain products (e.g. cloth-face masks) lacked harmonised standards under the existing EU product acquis. In addition, testing facilities for essential products were closed in some Member States, putting further pressure on the ability of industry to quickly respond to emerging needs. Furthermore, market surveillance authorities faced a high number of non-compliant products shipped from third countries. As a result, shipments were blocked by customs in their transit to final destination in one Member State leading to further delays in the free movement of goods across the Single Market.

2.2.The impact of the crisis on the economy and the industrial ecosystems perspective 

The pandemic has hit the European economy harder than any other economic shock in the history of the EU. The drop in economic activity has translated into significant reductions in the number of hours worked, while employment losses have so far been more contained in part because of the widespread use of short-time work schemes, supported at EU-level by the SURE instrument. Employment strongly declined in the second quarter 2020 before rebounding in the third quarter of 2020. The impact on young people has been particularly harsh, with the number of young people neither in employment nor in education and training (NEETs) on the rise, in particular in Mediterranean and Central European Member States 18 .Despite important downside risks, economic recovery is within sight: according to the latest Commission Forecast, the EU economy is expected to grow by 3.7% in 2021 and 3.9% in 2022 (See Figure 2). Moreover, it is expected to reach the pre-crisis GDP level earlier than expected in the Autumn 2020 Economic Forecast.

Economic activity can also be analysed through the lens of industrial ecosystems. This approach aims at capturing the interlinkages and interdependencies occurring between different economic actors.

The contraction of economic activity is uneven across economic activities, and the protracted nature of the pandemic tends to deepen these sectoral differences in impact. Contact-intensive services, which tend to be relatively insensitive to the economic cycle, have been affected the most. The sectoral variation in the containment measures largely explains differences in impact. Moreover, where contact is easier to avoid or teleworking is possible, economic activity has been more resilient. Similarly, in industries producing essential goods such as food, the reduction in turnover was rather modest. On the other hand, businesses relying on close physical interactions have experienced significant adverse shocks to turnover as they were forced to shut down or change the nature of their operations (e.g. tourism, food services, cultural and creative activities). Moreover, demand-sensitive sectors like the automotive industry experienced strong reductions in sales.

Nonetheless, the lockdown has hit all ecosystems. Divergences started to emerge during summer, due to the dynamics discussed above. In the second quarter of 2020, the lockdown triggered sizeable losses for all ecosystems, with the exception of “Digital”. The figure below shows that “Tourism”, “Textile” and “Automotive” have suffer the most in terms of turnover (See figure 3). The average losses reported in the figure hide significant heterogeneity within some ecosystems. For instance, travel agencies and tour operators faced turnover losses of roughly 80% in the last three quarters of 2020. In the same period, air transport also lost between 60% and 70% of their revenues. Moreover, the data significantly underestimate the impact for ecosystems as Cultural and Creative and Proximity, Social Economy and Civil Security, which are underrepresented in data. 19 In the third quarter, most ecosystems returned close to 2019 levels, but divergences started to emerge. In the fourth quarter of 2020, such divergences became more apparent: Turnover in the “Tourism” ecosystem has further contracted significantly, pointing to a worrying situation, as this ecosystem did not recover even in the most favourable period of the year. The “Digital” and “Energy Intensive Industries” ecosystem, instead, increased their turnover, with respect to the previous year.

To provide a better picture of the impact of the crisis for the ecosystems not fully covered by data on turnover, Commission services use quarterly data on Value Added. 20 The data show that in 2020, the arts, entertainment and recreation activities experienced the largest percentage drop compared to 2019 (see Figure 4). The impact was particularly strong in the second and fourth quarters, corresponding to the most relevant waves of the pandemic. A large share of these activities are part of the Cultural and Creative industries as well as of the Proximity, Social Economy and Civil Security ecosystem.

Studies on different components of the CCI ecosystem also show severe disruptions, potentially comparable to the Tourism sector. This is particularly the case for activities based on venues and visits: performing arts and ‘heritage’ sectors (e.g. live music, theatres, circus, festivals, cinema, museums and heritage sites). For example, cinema operators in the EU report a 70% 21 drop in box office sales in 2020, music venues report a 76% drop in attendance (64% in revenues) 22 and museums lost revenues up to 75-80% (in popular touristic regions). Outside of venue-based activities, news publishing saw its advertising revenues drop between 30% and 80% 23 . Revenues in the audiovisual sector (including remotely accessible services like broadcasting or streaming besides cinema), are estimated to have decreased by 15% in 2020 24 . TV advertising revenues are estimated to have dropped by 15-20% in 2020. The increase in the uptake of streaming and gaming services cannot alone compensate for the severe losses suffered elsewhere in the ecosystem.

The drop in turnover across ecosystems is mirrored by a drop in volume of hours worked. In some ecosystems, such as “Aerospace & Defence”, “Retail”, and “Digital”, the drop in total hours worked is considerably larger than the drop in turnover: this signals important productivity gains in these ecosystems. In the “Energy-Renewables” ecosystem, instead, despite a relevant loss in turnover, the volume of hours worked and the level of employment have remained constant, leading to some fall in productivity (see Figure 5). As above, data for Cultural and Creative Industries and Proximity, Social Economy and Civil Security significantly underestimate the impact of the crisis, as data for some relevant sectors is not available. In particular, given the high share of self-employed and non-standard employment in these ecosystems, the impact has certainly been very severe.

Surveys data can be used to build an economic sentiment indicator for each ecosystem, which is a good proxy of the actual economic impact. 25 This complements the analysis for the most recent months, for which official data is not yet available, and points to an improving, though heterogeneous, situation across the board (see Figure 6). 26  Services sectors are clearly the most affected, as well as retail, while manufacturing and construction seem to have better absorbed the second round of containment measures. Consequently, in April 2021, the economic sentiment turned positive for most ecosystems, but remains negative in Textiles and Tourism, despite a significant improvement.. As above, Data for Cultural and Creative Industries and Proximity, Social Economy and Civil Security may underestimate the impact of the crisis, as data for some relevant sectors is not available.

Overall, this evidence suggests that the prospects for a quick and strong recovery differ across ecosystems. As seen in the third quarter of 2020, demand can quickly rebound if the health impact of the pandemic is contained. Nonetheless, the sheer size and the persistence of the shock are likely to spur business failures and a fall in employment in the future, leading to reallocation of resources both within and across ecosystems.

Swift and large-scale policy support programmes rolled out by governments in response to the unfolding of the pandemic cushioned the adverse effect on employment, bankruptcies and household income, and avoided the destruction of viable businesses. Beyond their macro-stabilisation effect, the measures will foster a faster recovery. In particular, a pandemic-driven surge in bankruptcies could have severe macroeconomic effects, as the exit of businesses would translate into losses of employment, higher unemployment benefit expenses and reduced private consumption, possibly resulting in a downward spiralling of aggregate demand. Moreover, the potential concentration of insolvencies in specific sectors could lead to more persistent unemployment if labour reallocation is made more difficult by the specificity of human capital and skills of the workers affected.

Government policies have effectively staved off the surge in bankruptcies so far. As the emergency support measures are gradually phased out, firms’ ability to repay debt will be a function of firm characteristics pre-crisis, the magnitude and duration of the sectoral shock, as well as the sectoral recovery prospects. The share of Euro Area corporate non-performing loans (NPLs) stood at 5.2% of total loans in Q2-2020, marginally lower than in the previous quarter (5.3%) and down from 6.3% in Q2-2019. While it is clear that the debt-servicing capacity of the private sector has been adversely affected by the pandemic, government credit guarantees and loan repayment moratoria have prevented so far a rise in loan defaults. The most recent evidence shows that the characteristics of firms filing for bankruptcy in the course of 2020 is similar to pre-crisis patterns. These findings support the hypothesis that policies have been effective in avoiding a COVID-driven wave of bankruptcies. As illustrated in Figure 7 below, the number of bankruptcies in 2020 decreased compared to 2019, owing to administrative delays and, in some countries, loan repayment moratoria and the temporary relaxation of bankruptcy regulations. Thus, the headline NPL ratios – based on a rather stable NPL stock and the increasing loan denominator – do not yet reflect the underlying deterioration in the credit profile of borrowers. The stronger capital position of banks compared to the financial crisis should help them better absorb the shock.

While the policy response has prevented a wave of bankruptcies, it has not eliminated financial distress. Rather, the protracted nature of the pandemic has deepened the sectoral heterogeneity of its impact. Whether one uses the sectoral or the ecosystem grouping of economic activity, the stark finding is that firms which were perfectly healthy before the crisis have also been significantly affected by the crisis. Simulations based on the income statements and balance sheets of initially solvent firms show that the trajectories of firms operating in different sectors have gradually diverged. These simulations take into account a subset of government support measures such as short-term work schemes, loan moratoriums, and tax deferrals. As shown in Figure 8 below, corporate financial distress differs strongly across all sectors of the economy, with the largest share of distressed firms in the automotive and hospitality industries. 27  

The same heterogeneity is visible when replicating the analysis by ecosystem. This complementary approach allows to better take into account the interlinkages across sectors. By the end of March 2021, the fraction of illiquid firms is estimated to range between 18% in the digital and 74% in the tourism ecosystem (see Figure 9). Data representing SMEs has been reweighted for this analysis in order to correct for the underrepresentation of SMEs and microenterprises in firm-level data. Nonetheless, results should be interpreted with caution for ecosystems as Cultural and Creative Industries and Proximity, Social Economy and Civil Security, characterised by the presence of many self-employed, associations and microenterprises, which may have suffered disproportionally from the lockdown measures.

Less performant firms in terms of economic characteristics as productivity are more likely to become illiquid within each sector or ecosystem. Yet, a significant fraction of the total liquidity shortfall is attributable to large and highly productive firms (see Figure 10). This finding indicates that financial distress may not be tightly connected with pre-COVID productivity.

In terms of financial characteristics, firms that were already financially vulnerable before the crisis are more likely to face financial distress. Some pre-crisis characteristics of firms can affect their ability to absorb repeated adverse shocks to revenue. In particular, less profitable and more leveraged firms tend to have smaller liquid asset buffers and face more difficulty in absorbing the adverse shock. Data shows that firms with relatively high ratio of equity to assets (solvency ratio) tend to become illiquid only as the crisis protracts. Specifically, among firms that became illiquid by the end of March 2020, 80% had a solvency ratio below the median level in pre-crisis times. However, just half of firms that become illiquid by the end of March 2021 (but were not illiquid previously) have a pre-crisis solvency ratio below the median (See Figure 11).

Financial distress is more likely to translate into solvency concerns for firms that were already at a high risk of default at the onset of the crisis. The likelihood of default pre-crisis is assessed using firms’ liquidity, leverage, and profitability characteristics. It is expected that firms at a high risk of default pre-crisis and illiquid in its aftermath may face greater difficulties in accessing credit. For the EU economy as a whole, about one third of all firms were estimated to be illiquid at the end of 2020. About one third of these illiquid firms were also at a high risk of default pre-crisis, implying that about 11.4% of all firms in the EU economy are likely to exit as support dries up, as they may fail to get access to fresh sources of credit. This share is estimated to increase to 12.3% by the end of 2021 in the scenario that incorporates the ongoing third wave of the pandemic. There is strong variation in expected exit depending on the economic activity. The percentage of firms expected to exit by the end of 2021 on the basis of this estimation varies between 7% in construction and 27% of in the accommodation and food services sector. This quantification is most likely a lower bound as it does not include viable firms pre-crisis that might become insolvent following the pandemic shock. This could have negative effects on employment in the coming months and bear negatively on the job-creation potential of the forecasted recovery.

2.3.The impact of the crisis on SMEs 

SMEs are particularly vulnerable in the context of the pandemic. Preliminary estimates from the SME Performance Review suggest that across the EU, the number of SMEs fell by -1.3% in 2020, employment in SMEs by -1.7% in 2020 (representing 1.4 million jobs) and SME value added by -7.6%. SME value added is unlikely to reach 2019 levels even by the end of 2021. 28 According to SME associations, more than 60% of SMEs have reported a fall in turnover and about two-thirds of SMEs report that they have delayed investment decisions or downsized investments.  29  

Seventy-two percent of respondents to a recent SME survey 30  indicated that the crisis affected them strongly or moderately because of supply chain disruptions, employee absences and temporary shutdowns. SMEs were not well prepared: almost two thirds of respondents had no plan in place to handle supply chain disruptions. One third created such a plan during the pandemic. The main reactions of companies to supply chain disruptions were looking for alternative suppliers and drawing up a plan to increase resilience to such disruptions (see Figure 12).

While bankruptcies among SMEs have so far not increased compared to 2019, within this group, this is also likely due to various government support measures and moratoria on insolvencies.

However, financial pressure is likely to increase in 2021 with insolvencies expected to rise as various forms of relief are phased out. As most Member States focus their support schemes on debt solutions, the risk of over-leverage and the need for recapitalisation will be severe for SMEs, especially smaller ones. According to an AFME report 31 , there is a shortfall of between EUR 450 billion to EUR 600 billion in public and private sector equity at an EU-level over an assumed two-year period. Closing this gap will be a challenge that will have to be addressed at both EU and MS level.

As SMEs are deeply integrated into supply chains and comprise about 99% of companies in every industrial ecosystem, a rise in bankruptcies could significantly impact supply chains and jobs. In addition, late payments, which have long been an issue for SMEs, could exacerbate as since March 2020, payment delays have gone up rapidly knock-on effects throughout supply chains.

2.4.Progress on addressing key Single Market obstacles 

The new Single Market restrictions detailed above came on top of a number of existing barriers to companies operating within the Single Market. These were detailed in the 2020 Staff Working Document of 10 March 2020 on addressing barriers to the Single Market referred to above.

These barriers are a mixture of horizontal barriers across all industrial ecosystems and specific barriers within individual ecosystems.

Horizontal barriers remain for example, for the free movement of products. To address these, Commission services are working in close cooperation with Member States to ensure the full implementation of the new EU Regulation 2019/515 on mutual recognition 32 . In addition, work is ongoing with interested Member States’ representatives in the context of an “Accelerated Mutual Recognition” project. The aim is to come to an arrangement for specific sectors (e.g. precious metals, construction). The objective of this project for interested Member States is to facilitate a common understanding of their respective national rules to ensure that if a good is considered compliant in one participating Member State, it will automatically and without detailed assessment be recognized as compliant in another participating Member State. Such an arrangement would facilitate the work of national competent authorities and provide more certainty to economic operators when they decide to enter other Member States’ markets.

In addition, inadequate market surveillance may also endanger a well-functioning Single Market for products that are safe and compliant with EU high standards and technical regulations, distorting competition and a level playing field for EU companies. Stepping up coordination, investment, resources and digitalisation of market surveillance authorities is therefore a high priority of the Commission and the EUPCN (EU Product compliance network), which has been recently set up as foreseen in the new Market Surveillance Regulation 33 . Moreover, resources are available under the Recovery and Resilience Fund for Member States to build or upgrade their market surveillance systems. For instance, the RRF could support the consolidation of national market surveillance authorities, the establishment of new accredited public laboratories, or the digitalisation of product inspections and data collection. 

But such horizontal barriers are particularly prevalent for services, with a significant impact on the EU economy: the Services Directive alone covers service activities that account for 46.4% of EU GDP. 34 Full implementation of the Directive could potentially increase the level of EU GDP by 1.7%. 35 Indeed, the entry into force and implementation of the Services Directive brought clear economic benefits (see Figure 13 below).

However reform progress has been slow and in some cases has been reversed. To address this, Commission services prepared a comprehensive review of its most pertinent rules in all Member States 36 . Inter alia, this shows that regulation of services markets remains complex and the Single Market in services remains fragmented. While, for example, most authorisation schemes applicable to service providers have remained in place, some of the key restrictions accompanying and underlying the authorisation schemes have been removed. In many cases, only a few Member States retain a certain type of restriction.

Making progress here is all the more important because of the increasingly strong interaction between goods and services, often referred to as ‘servitisation’. 37  In 2011, the value-added by services in EU manufacturing output and exports (at an aggregated level) already amounted to 40%; 38 an estimated 25-60% of employment in manufacturing firms relates to service. 39  

Service activities in turn have much to gain from further digitalisation, which could contribute to lift the comparatively low productivity of the European services sector. Digitalisation is important for European companies’ capacity to grow, innovate and go international, but requires significant investment. Nevertheless, this is held back by the existing regulatory set-up. For example, the business services sector is of crucial economic importance for the EU (representing 13% of total value added) and provides key inputs into many ecosystems, yet is held back by restrictive national rules such as strict requirements as regards who can hold equity of business service providers or manage them, which legal form they can take and how they can team up with other service providers to offer joint services.

Finally, preventing new regulatory barriers from being put into place is much more effective than seeking to address barriers once in place, particularly for services. Whilst regulation must keep up with developments in services markets, the Proportionality Test Directive and existing notification procedures provide a comprehensive framework for ensuring that measures made by Member States are justified and proportionate.

The ability of companies to send their workers temporarily to another Member State (i.e. posting of workers) is key for manufacturing and service activities. Complex and costly administrative formalities linked to the posting of workers are a leading obstacle across ecosystems, 40 in particular for SMEs. Recently revised EU rules regulating the posting of workers ensure the mobility of posted workers and must be implemented correctly by Member States. The European Labour Authority has been set up inter alia to assist Member States and the Commission in their effective application and enforcement of the relevant EU rules related to labour mobility across the EU.

Specific obstacles to the functioning of the Single Market persist across all industrial ecosystems. An analysis in Annex A3 shows that some ecosystems are characterised by particularly high levels of regulatory and administrative complexity that hinder their transformation.

Two examples are the construction ecosystem and retail ecosystem.

The transition to a greener European economy in no small part depends on the performance of the construction ecosystem and its ability to renovate Europe’s existing building stock, accounting for approximately 40% of EU energy consumption and emissions. The efficiency of construction services is, however, held back by a number of Single Market barriers. They include compulsory certification schemes based on national standards and regulation without functioning mutual recognition schemes, as well as difficulties for companies to obtain the insurance coverage they need to offer their construction services in other Member States.

In addition, the environmental performance of the retail ecosystem (e.g. green transport and deliveries, low-emission stores, green product design) is essential for Europe’s green transition. Nevertheless, national restrictions to establishment and operations deter innovation and affect the ability of retailers to invest in digital and green infrastructure and services. 41  Ongoing actions to eliminate barriers in the retail ecosystem include the identification of best practices that are tried and tested and could provide inspiration for reforms in other Member States.

Underpinning all this work on removing Single Market barriers is work on standardisation. For several years now, standardisation work has been supporting EU legislation on eco-design for a wide range of products. It is also crucial in implementing recent initiatives aimed at “greening” of critical sectors (such as the Plastics Strategy, sustainable fertilisers and “green” construction products). In the digital transition, standardisation will support the implementation of new technologies like Artificial Intelligence, whilst ensuring protection of citizens’ rights in terms of privacy, personal data accessibility 42 and non-discrimination.

Administrative burden is often flagged as one of the key obstacles to doing business, 43 especially cross-border. Ensuring a smooth functioning and further implementation of the Single Digital Gateway will help overcome language barriers, introduce the once-only principle, increase transparency of rules and accelerate the digitalisation of procedures. In addition, the possibility to set up companies on-line and the cross-border co-operation and exchange of information between business registers (BRIS) will make the creation of new companies quicker and help overcome administrative barriers 44 .

As a first step, in accordance with the Single Digital Gateway regulation, Member States are publishing online and making accessible through the gateway the national rules applying to citizens and businesses who want to make use of their Single Market rights. Thanks to the gateway, SMEs can be better informed about the applicable rules and they can more easily get relevant assistance. It also allows EU citizens and businesses to report any obstacle they still encounter in the Single Market.

2.5.Lessons learnt to increase the resilience of the Single Market 

The crisis has underlined the fundamental importance of the Single Market. Particularly in the early days, businesses and citizens suffered from border closures, supply disruptions, lack of clarity and predictability, and fragmentation.

The Commission adopted a number of recommendations to provide swift and practical solutions to concrete obstacles on the ground:

-Guidelines on border management 45 allowed for improvements as regards the free flow of goods and essential services. The establishment of “green lanes” 46 in particular led to a quick and marked reduction of delays faced by freight transport at border crossings. Data from the green lanes reporting portal indicates that already in April 2020 there was a roughly 85% compliance rate with the green lanes recommendations. 47 In subsequent months, compliance rates further increased to around 95%. The Commission also issued Guidelines on air cargo 48  and seafarer mobility 49  to ensure uninterrupted cargo transport and taken several other measures 50 .

-On the basis of a Commission proposal, Council Recommendation (EU) 2020/1475 fostered a coordinated approach to the restriction of free movement in response to the pandemic 51 basing restrictions such as quarantine and testing on the epidemiological situation in other Member States. The Council Recommendation was amended on 1 February 2021 to take into account the challenging epidemiological situation 52 . The Council Recommendation provides relevant exemptions for essential travellers such as transport workers.

-The Commission ensured the mobility of workers and service providers including through practical advice on the free movement of essential workers 53 , urging Member States to establish specific burden free and fast procedures to ensure a smooth passage for critical cross-border workers, including proportionate health screening. In addition, specific guidance was provided in the area of professional qualifications to support the free movement of health professionals. 54 Furthermore, the Commission presented on 16 July 2020 Guidelines on Protecting Seasonal Workers in the context of the COVID-19 outbreak 55 , to strengthen the protection of this particularly vulnerable group of workers;

-The Commission also adopted guidelines 56 presenting general principles for the safe and gradual restoration of passenger transport by air, rail, road and waterways. The guidelines put forth a series of recommendations, such as the need to limit contact between passengers and transport workers, and passengers themselves, reducing, where feasible, the density of passengers.

-Commission guidelines also boosted Europe’s efforts to fight the pandemic. For example, recommendations to testing bodies and market surveillance authorities facilitated the supply of personal protective equipment and medical devices 57 and guidance to public authorities enabled purchasing urgently needed supplies and services under the EU’s public procurement framework. In addition, guidance on national measures relating to medical products and devices and of personal protective equipment 58 aimed to address the proliferation of export restrictions.

In addition, different efforts made it possible to maximise the availability of medical supplies on the Single Market. The Commission coordinated a number of joint procurement actions, where Member States joined forces in negotiating purchases. In addition, the strategic rescEU stockpile and the COVID-19 Clearing House for medical equipment were established, the latter accelerating matchmaking for needed medical equipment. Furthermore, European standardisation bodies made 21 harmonised European standards for personal protective equipment and medical devices freely available, facilitating the conversion of production lines (and the creation of new ones) to respond to shortages. A specific European standardisation document for generic fabric facemasks was also developed and made freely available.

Secondly, existing Single Market tools and instruments have proven valuable:

-The Single Market Transparency Directive ensured transparency of measures restricting the free movement of goods. Altogether, Member States used the urgency procedure under that Directive 85 times during the first wave of the pandemic to notify COVID-19 related legislation to the Commission. The notifications of the draft technical regulations allowed the Commission to identify barriers to the free movement of goods, in particular concerning medicines and medical equipment most needed during the crisis, and address them in a timely and efficient manner. The measures most commonly notified during the first wave of the pandemic related to export restrictions for medicines as well as export bans on protective equipment, medical devices and in vitro medical devices needed in hospitals. Export bans for disinfectants and alcohols needed for their production were also frequently notified.

-Assistance tools such as SOLVIT and YourEurope Advice have received and dealt with a large number of enquiries and requests from businesses and workers to solve COVID-19 related problems. Business cases dealt with by SOLVIT include problems on free movement of goods (e.g. export restrictions on disinfectant and its ingredients, complaints about rules for CE labelling of masks) and on free movement of services (e.g. problems posting workers to another Member State, issues accessing COVID-19 crisis assistance for self-employed). In addition, SOLVIT received many cases involving mobile workers. In particular, certain enforcement models, like the Consumer Protection Cooperation (CPC) Network, proved to be very efficient in addressing the surge of online consumer scams linked to the pandemic. The EU Rapid Alert System for dangerous non-food products was a very efficient tool to speedily exchange information on unsafe COVID-19 related products.

-The Commission also facilitated and encouraged the action of market surveillance authorities against illicit and non-compliant personal protective equipment and medical devices and fake certificates.

-Member States also took action, accelerating public purchases of goods and services needed to fight the pandemic. For example, during the first wave, 11 Member States used the options provided in the EU public procurement directives to adopt temporary derogations to national public procurement rules in order to streamline the purchase of health products and services. Some Member States also addressed possible shortages in healthcare professionals by relaxing access requirements and enabling accelerated and less burdensome recognition procedures for professionals from other Member States.

Below are key observations based on the assessment presented in the subsections above 59 , and informing the lessons learnt presented in the Communication 60 :

·Existing EU crisis governance mechanisms are not fully effective at coordinating national responses in times of emergency while protecting the Single Market;

·In several instances, better ex ante assessment by Member States on planned restrictions would have helped them to understand whether these measures would be effective and justifiable restrictions to Single Market freedoms 61 ;

·Insufficient notification by Member States at EU level for national measures that introduced restrictions both for goods and services created uncertainty;

·Member States could have made available more clear, comprehensive and stable information on applicable national restrictions for businesses;

·The administrative capacity to fully implement and apply Single Market rules including during crises times, including the notification of national measures, was often insufficient 62 ;

·Measures such as “green lanes” coupled with digital solutions were able to facilitate the free movement of goods, services providers and their workers during crises.

·Faster and more effective purchases of urgently needed goods and services through stronger cooperation among public buyers across the EU and the use of digital solutions, together with new mechanisms to ensure and speed up the availability of essential products in the EU and a common approach on stockpiling measures for products that are vital during crises would have helped 63 .

·Manufacturers should have been granted better access to the necessary product testing facilities and market surveillance authorities should have had the means to control that products entering the Single Market met the necessary requirements.

·Building skills that increase workers resilience and digital competences would have contributed to maintaining production and service lines.

Despite the usefulness of existing Single Market tools, the crisis showed that not all of them are suitable for emergency situations. The Commission was forced to take a large number of ad hoc actions 64 to safeguard the functioning of the Single Market.

Gaps in existing legislation and practices hindered industry and SMEs, highlighting the need for tools to meet the specific needs that arise in the context of a severe crisis, ensure the free movement of goods and services and support efforts to enable and speed up the availability of essential products. The Single Market needs to be better prepared to face a future crisis, based on forward looking and structural solutions that allow for predictability and legal certainty.

3.Delivering on the ground: the implementation of the 2020 Single Market Enforcement Action Plan, Industrial and SME Strategies

Key messages

Good progress was made in implementing the measures announced in the March 2020 Single Market Enforcement Action Plan, Industrial Strategy and SME Strategies.

The implementation of the Single Market Enforcement Action Plan (SMEAP), the creation of the joint Single Market Enforcement Task-Force (SMET) will contribute to the deepening of the Single Market. A number of actions to help SMEs grow within the Single Market have been put in place and the review of the EU competition framework is ongoing. 

A global level playing field has been upheld, by prioritizing WTO reform, following up on the White Paper on foreign subsidies, and thanks to actions aimed at improving SMEs’ access to global markets, as well as the new Customs Union Action Plan.

Companies and the economy have been supported in the transition towards environmental sustainability including climate-neutrality and a circular economy, in particular through the New Circular Economy Action Plan. Good progress was made on energy with the Clean Energy and Hydrogen strategies, on mobility and construction with the Sustainable and Smart Mobility Strategy and Renovation Wave. The Commission is also paying special focus to products and their components, for example by publishing a Chemicals strategy and working for a Clean Steel partnership under Horizon Europe. It is moving to empower consumers under the Circular Economy Action Plan and New Consumer Agenda.

Action has helped the digital transition, by proposing the Digital Services Act (DSA) and the Digital Markets Act (DMA) as well as the Data Governance Act. The development and deployment of next generation cloud technologies as well as a high common level of cybersecurity have been promoted. Innovation is being supported through the Intellectual Property Action Plan and a communication on “A new ERA for Research and Innovation” as well as through a more strategic approach to partnerships.

Skills are at the heart of the EU policy agenda and their development is being promoted thanks to initiatives like the European Skills Agenda and the Pact for Skills. The first European skills partnerships in key industrial ecosystems have been announced as well as a vision for achieving the European Education Area and a new Digital Education Action Plan (2021-2027). This will contribute to addressing the gender gap in STEM 65 as announced in the Gender Equality Strategy 2020-2025.

The agreement on the Multiannual Financial Framework and Next Generation EU will support investment and financing and private finance will be leveraged through the new Capital Market Union action plan as well as a number of actions to help Europe’s SMEs. Member States can design Important Projects of Common European Interest (IPCEI) in line with State aid rules and new ones have been put in place.

The new Pharmaceutical Strategy, R&I partnership on pandemic preparedness, Action Plan on Critical Raw Materials, and Cybersecurity Strategy are reinforcing Europe’s industrial open strategic autonomy.

Finally, a new partnership approach to governance has been promoted. In particular, the Commission has continued to promote the development of industrial alliances to bring stakeholders together to contribute to the delivery of EU policy objectives. Commission services have also moved to promote wider partnership in industry, most notably through the Industrial Forum.

In March 2020, just before the crisis fully hit all parts of the EU, the Commission adopted a package of measures including a new Industrial Strategy 66 and SME Strategy. 67 Over the past year, the Commission services have started to implement these measures, updating them as necessary in the light of the crisis. Adopting these measures, will help businesses and economy to recover from the crisis but also to move to a more stable and sustainable long-term footing.

In particular and as promised in the Industrial Strategy, good progress has been made towards:

·Moving to a deeper Single Market;

·Upholding a global level playing field;

·Supporting companies and the economy in the transition towards environmental sustainability;

·Boosting the digital transition and innovation;

·Promoting skilling and reskilling;

·Assisting investment and financing for the transition;

·Reinforcing Europe’s strategic autonomy;

·Taking a new partnership approach to governance.

3.

3.1.A deeper Single Market

To allow the Single Market to work for all, common rules must be implemented and enforced across the EU. Based on a renewed partnership between Member States and the Commission, the “Long term action plan for better implementation and enforcement of the Single Market rules” 68  (SMEAP) sets out horizontal measures and 22 specific actions to maximise the effectiveness and efficiency of compliance and enforcement across the EU. 69

The joint Single Market Enforcement Task Force (SMET), set up in April 2020, plays an essential facilitating role as a high-level forum where Commission services and Member States work together to assess the state of compliance of national law with single market rules, discuss the most pressing single market barriers needing to be addressed, as well as horizontal enforcement issues. 70 Barriers will also be addressed through the National Recovery Plans, currently under preparation by Member States as part of the Recovery and Resilience Facility. 71

SMEs have the highest potential to benefit from the Single Market so the SME Strategy announced a number of measures including an EU Startup Nations Standard launched earlier this year 72 . Commission services are also setting up an EU Observatory on payment performance in commercial transactions to ensure a more regular monitoring for the payment behaviour by public authorities and businesses. The Fit for Future (F4F) platform 73  - a high-level expert group to help simplify existing EU laws will advise the Commission on how to step up the application of the Late Payment Directive to ensure results for small businesses.

The Commission also acted to review the EU competition framework. Between September 2020 and March 2021, three Staff Working Documents were published: one that summarises the findings of the evaluation of procedural and jurisdictional aspects of EU merger control, one summarising the results of the Fitness Check of the State Aid control system and one on the evaluation of the Vertical Block Exemption Regulation. In December 2020, the Commission proposed a Digital Markets Act that builds on the antitrust enforcement practice in the digital sector.

3.2.A global level playing field

The 2020 Industrial Strategy noted that while the openness of Europe’s economy is at the source of its prosperity and competitiveness, the EU should not be naive about threats to fair competition and trade. The EU supported global efforts in the G20, the WTO and bilaterally to monitor critical supply chains and address disruptions throughout the crisis, and set the direction for an open, sustainable and assertive trade policy in the Trade Policy Review Communication adopted in February 2021. 74

In June, the Commission therefore published a White Paper on foreign subsidies 75  and is currently working on a legislative proposal. Given its essential role for a stable trading environment, the EU is prioritising reform within the WTO later across its functions. Discussions in Council on the International Procurement Instrument are also progressing.

Attention is also being paid to improving SMEs’ access to global markets, launching the information portal ‘Access2Markets’ 76 in October and including SME chapters or provisions in all new trade or partnership agreements. For entrepreneurs, the extended Erasmus for Young Entrepreneurs Global programme started in March 2021.

Beyond this, the new Customs Union Action Plan 77 sets out a series of measures to make EU customs smarter, more innovative and more efficient over the next four years. The proposal for the ‘EU Single Window Environment for Customs’ 78 was also adopted to enhance cooperation and coordination between different authorities.

3.3.Climate neutrality and a circular economy

The Commission has adopted a number of measures to promote the transition towards increased environmental sustainability including social aspects in global supply chains. At the heart of these are the Green Deal and New Circular Economy Action Plan adopted in March 2020..

Within this, the Commission is paying special focus to sustainable production and consumption, in particular on designing greener products and their components, and harmonising rules for them, and has published a Chemicals strategy for sustainability to better protect citizens and the environment and boost innovation for safe and sustainable chemicals. Work on a Sustainable Product Initiative is underway together with sectoral initiatives on electronics, batteries, construction, textile, plastic and packaging. The Commission adopted a proposal for a new regulation on batteries and waste batteries 79 to modernise EU legislation on batteries to make them more sustainable throughout their lifecycle. In addition, to promote the circular economy transition across Europe, the Circular Economy Stakeholders Platform continues to gather industry, businesses, think thanks, non-governmental organisations, innovation communities and public authorities 80 .

The Clean Steel partnership is advancing successfully to be approved as one of the proposed partnerships under Horizon Europe. The steel industry is responsible for about 20% to 25% of industrial CO2 emissions 81 . The partnership aims to align the public and private sector on alternative pathways 82 towards CO2 reductions to of up to 95% by 2050 compared to 1990 levels.

Energy is a particular concern, so in July 2020, the Commission adopted the Energy System Integration Strategy 83 to achieve a cost-effective decarbonisation of the EU economy, involving technologies such as ICT and digitalisation, smart grids and meters and flexibility markets. Such a Strategy lays the foundation for the decarbonised European energy system of the future in synergy with the dedicated Hydrogen strategy 84  to support the production and use of clean hydrogen.

Energy is identified as one of the strategic areas for setting up a data space. Common European Energy data spaces are being put in place to exploit the potential of data to achieve the Green Deal Objectives, to support data exchange which helps the integration of renewables in the energy system. The enabling instruments will be the Delegated Acts on data sharing and Horizon Europe. The EU Strategy on Offshore Renewable Energy proposes to increase Europe’s offshore wind capacity to at least 60 gigawatts (GW_ by 2030 and to 300 GW by 2050. Underpinning all this, the Just Transition Platform provides technical and advisory support towards the green transition for public and private stakeholders in coal and other carbon-intensive regions. The Emissions Trading System and the Energy Taxation Directive are being revised to better align them with the increased climate and environmental ambitions.

Mobility and construction are also central. In December 2020, the Commission adopted the Sustainable and Smart Mobility Strategy 85 to ensure that the EU transport sector is fit for a clean, digital and modern economy. In October, it launched the Renovation Wave. 86

Consumers have a key role to play. Among the priorities of the Circular Economy Action Plan and the New Consumer Agenda 87 is to ensure that sustainable products are available to consumers on the EU market, that consumers have better information to be able to make an informed choice, and better information on the durability and reparability of products.

It also means empowering SMEs and consumers to drive the transition, so as part of an upgrade of the Enterprise Europe Network, Commission services are finalising the setting up of dedicated Sustainability Advisors to advise SMEs. In November, the Commission launched the New Consumer Agenda. The Commission services are considering the introduction, for selected sectors, of a Carbon Border Adjustment Mechanism (CBAM) should differences in levels of ambition worldwide persist.

3.4.Digital transition and innovation

Digital technologies are profoundly changing our industry, business and societies. The Commission has already taken significant steps to invest in them, provide workers with new skills, reduce administrative burden for businesses, and set clear rules for their uptake.

In December, the Commission proposed the Digital Services Act (DSA) 88 and the Digital Markets Act (DMA). 89 The new rules will better protect all users of digital services and their fundamental rights online, and will lead to fairer and more open digital markets for everyone. A modern rulebook across the Single Market will foster innovation, growth, and competitiveness and will provide users with new, better and reliable online services.

The efficient and ethical use of data will be central to Europe’s future competitiveness. The European data strategy aims to create a single European data space where personal as well as non-personal data are secure and businesses also have easy access to high-quality industrial data. The recently adopted Data Governance Act 90 will improve access to data and increase trust in sharing personal and non-personal data and lower transaction costs linked to data sharing. And from this year on, the Commission will co-invest in a High Impact Project on European data spaces and next generation federated cloud infrastructures and services. 91 The development and deployment of next generation cloud technologies will be co-financed under the new long-term EU budget and complemented by private and national co-investment.

The Communication on the Digital Decade 92 will act as a compass to steer the digital advances to be reached by 2030, including the digital transformation of industry.

Underpinning the safety and security of all this, in December the Commission proposed a revised Directive on measures for a high common level of cybersecurity across the Union 93 . The proposal will increase information sharing and cooperation on cyber crisis management at national and EU level.

The IP Action Plan 94 adopted in November 2020 sets out key steps to improve the protection of Intellectual Property, boost its uptake by SMEs and facilitate the sharing of IP, so as to increase the technological uptake in the industry.

The Industrial Strategy noted that if the EU wanted to lead this transition and that to sustainability, its strategy needed to have an industrial innovation strategy at heart. The Commission therefore created the Advanced Technologies for Industry (ATI) 95  monitor, providing qualitative and quantitative data on technological development and trends. The communication on A new ERA for Research and Innovation 96 was adopted in September, proposing a revitalised European Research Area (ERA) with a forward-looking agenda.

Horizon Europe introduces a more strategic approach to partnerships and ensures that these partnerships are aligned with EU priorities and inter alia key drivers for industrial innovation and competitiveness [1] . In September, the Commission proposed a new regulation, providing a substantially larger budget for the EuroHPC JU (high performance computing Joint Undertaking). The recently formed Quantum Industry Consortium (QuIC) will be the voice of the quantum industry in Europe ensuring a sustainable and competitive business environment. In February 2021, the Commission proposed to set up another ten institutionalised partnerships under Horizon Europe 97 , aiming to improve EU preparedness and response to infectious diseases, develop efficient low-carbon aircraft for clean aviation, support the use of renewable biological raw materials in energy production, or make rail transport more competitive. This list included the Key Digital Technologies JU will consolidate European companies present at different levels of the semiconductor value chain.

Administrative burden for businesses has been reduced with the implementation of the Single Digital Gateway Regulation.

3.5.Skilling and reskilling

The Commission is placing skills at the heart of the EU policy agenda, steering investment in people and their skills for a sustainable recovery. The European Skills Agenda 98 adopted in July 2020 sets ambitious objectives for upskilling and reskilling for the next 5 years including for skills needed for the green and digital transitions. This was followed by the Pact for Skills in November and building on the Blueprint for Sectoral Cooperation on Skills, the Digital Skills and Jobs Coalition, and the European Alliance for Apprentice­ships. The Pact supports the setting-up of large-scale partnerships in strategic industrial ecosystems and value chains and the priority areas identified in the European Green Deal to achieve ambitious commitments. The first European skills partnerships in key industrial ecosystems were announced.

The Commission also adopted two important initiatives in September. The vision for a European Education Area to be achieved by 2025, 99 sets out actions for quality, inclusion and gender equality, green and digital transitions, teachers, higher education, and a stronger Europe in the world. It also promotes quality investment in education and training as well as stronger cooperation among Member States. The new Digital Education Action Plan presents a plan for a high-performing digital education ecosystem with enhanced digital competences for the digital transformation. The Commission has also launched a pilot digital volunteers’ programme promoting the transfer of knowledge between high-tech experts and SMEs. The renewed European Alliance for Apprenticeships 100 was launched in July, helping SMEs by providing a stable supply of quality and effective apprenticeships and mobilising local and regional authorities.

Gender equality must be a common principle of all our actions. The Gender Equality Strategy 2020-2025 101  delivers on a number of crucial issues to advance gender equality in the EU. One of them is promoting gender balance in ICT studies and careers. 

3.6.Investment and financing

Investment and finance were already critical for Europe’s companies. But the crisis has made this all the more critical. The EU has responded, most notably with agreement on the Multiannual Financial Framework (MFF) for 2021-2027 in December, providing a long-term EU budget of EUR1 074.3 billion. Together with the Next Generation EU recovery instrument 102 of EUR750 billion, it will allow the EU to provide an unprecedented EUR1.8 trillion of funding over the coming years to support recovery and the EU's long-term priorities across different policy areas. At the heart of Next Generation EU, the Recovery and Resilience Facility will help Member States address their structural challenges, as well as accelerate a just transition towards a greener, digital and more resilient economy.

To support the transitions to sustainability and digitalisation, the Commission is also putting forward a renewed Sustainable Finance action plan and is delivering on its Digital Finance strategy launched in September 2020. The EU Taxonomy Regulation 103 was published on 22 June 2020 and entered into force on 12 July 2020. The Taxonomy Regulation establishes six environmental objectives on which delegated acts will set out the criteria of significant contribution, do no significant harm and other requirements. 104

At the same time, the new Capital Market Union action plan 105 proposed 16 legislative and non-legislative actions to make financing more accessible to European companies and create a true single market for capital.

Finance will be particularly important for Europe’s SMEs. The Commission has advanced on the implementation of ESCALAR, a first of a kind risk/reward mechanism to boost the size of venture capital funds and crowd in private investments for scaling up. The Commission is also working on the products of the InvestEU’s SME window including a single integrated guarantee facility and will support equity financing for SMEs and small midcaps. In this context, the Commission is working on establishing a public-private SME IPO fund to help SMEs grow and access further sources of financing through public listings, in order to complement the range of already-existing public support measures at earlier funding stages and strengthen SMEs’ growth pipeline.

To support top-class innovators, entrepreneurs, small companies and researchers, the Commission has launched a European Innovation Council (EIC) to provide funding and opportunities for ideas that are radically different from existing products, services or business models, are highly risky and have the potential to scale up internationally. The budget is over EUR10 billion for 2021-27 of which over EUR 1.5 billion is available for breakthrough technologies and innovative start-ups in 2021 with targeted funding for Green Deal innovations and strategic digital and health technologies. The Innovation Fund under the EU Emissions Trading System was also launched in 2020, providing more than EUR 14 billion 106 by 2030 for low-carbon innovative clean-tech investments in energy intensive industries, renewable energy, energy storage and carbon capture, use and storage applications over this decade. The EU ETS Modernisation Fund with more than EUR 16 billion 107 is already available to support its ten beneficiary Member States to modernise their energy and industrial systems.

Pooling resources towards identified common priorities is equally essential. Important Projects of Common European Interest (IPCEI) provided for by Article 107(3)(b) TFEU help to catalyse investment in ground breaking innovation. Three IPCEIs have been put in place on batteries and microelectronics, the most recent one being the ‘European Battery Innovation’, 108 the second IPCEI on innovations in the battery value chain which brings together 12 Member States that will provide up to EUR2.9 billion in funding in the coming years. This is expected to unlock an additional EUR9 billion in private investments.

22 Member States signed a manifesto to collaborate for the development of the European hydrogen value chain, including with one or more possible IPCEIs. In addition, in December, 19 Member States signed a declaration agreeing to work together towards a forward-looking IPCEI on microelectronics which also seeks to develop innovative and sustainable chips in Europe.

3.7.Reinforcing Europe’s industrial and strategic autonomy

The Industrial Strategy committed the Commission to a reinforced industrial and open strategic autonomy. The Commission adopted a Pharmaceutical strategy for Europe 109 . The aim is to better identify the challenges and assess the need for measures and actions aimed at strengthening the resilience of pharmaceutical supply chains and ensure the security of supply of medicines 110 .

The Commission has also launched an R&I partnership on Pandemic preparedness under Horizon Europe.

The Action Plan on Critical Raw Materials 111 and the 2020 List of Critical Raw Materials were adopted in September, setting out the challenges for a secure and sustainable supply of critical raw materials and actions to increase EU resilience and open strategic autonomy. In July, the Commission published a Report on Member States’ Progress in Implementing the EU Toolbox on 5G Cybersecurity. The Commission also addressed the status of implementation and next steps as part of the Cybersecurity Strategy adopted in December. An Action Plan on synergies between civil, defence and space industries was adopted in early 2021.

3.8.A new governance approach

Since the adoption of the Industrial Strategy, the Commission has reinforced its partnership approach to industrial policy. In particular, it has continued to promote the development of industrial alliances to bring stakeholders together to contribute to the delivery of the twin transitions and open strategic autonomy in an open, transparent, diverse and inclusive way. Stakeholder collaboration in targeted industrial alliances may be helpful to address strategic dependencies (e.g. batteries), build a value chain in future growth markets (e.g. clean hydrogen), jointly develop research and innovation or change business models from supply and demand perspective (e.g. circular plastics).

This experience builds notably on the success of the Batteries Alliance. The European Battery Alliance has helped to support manufacturing projects along the battery value chain at scale - some €100 billion in investment has been committed. It has also facilitated the design by several Member States of two Important Projects of Common European Interest (IPCEI) with in total EUR 6 billion approved State aid for research and innovation in the battery value chain, unlocking an additional EUR 14 billion in private investments. It has also led to a Blueprint Skills Programme for Batteries to develop a highly skilled workforce along the value chain and an interregional cooperation on advanced batteries materials involving 28 regions. Battery cell production in the EU is estimated to lead to 60 – 90,000 direct jobs and around 180,000 upstream jobs by 2030. If electric vehicles are taken into account as well, the most optimistic assessment estimates that the transition to electric mobility could create about 800,000 new jobs by 2025. In July, the Commission launched the European Clean Hydrogen Alliance, aiming at scaling up clean hydrogen production to 40 GW by 2030 and boosting demand for clean hydrogen in industry and mobility to achieve climate-neutrality. The European Clean Hydrogen Alliance has brought together more than 1,000 stakeholders along the value chain and is developing a pipeline of investment projects to deliver on the objectives of the hydrogen strategy for a climate-neutral economy.

In September, it launched the European Raw Materials Alliance in September 2020 to secure access to critical and strategic raw materials.

But the Commission has also moved to promote wider partnership in industry, most notably through the Industrial Forum established in December and composed by representatives from all Member States and a wide range of stakeholders to support the Commission in the systematic analysis of problems faced by industrial ecosystems and areas for cross-ecosystem and cross-border collaboration. The EU Industry Days most recently held on 23-26 February 2021 as well as the reinforced SME envoy network 112

4.Conclusion 

The COVID-19 crisis has been an acid test of European businesses, European and national public authorities and above all, the commitment to the Single Market.

The unilateral restrictions put in place caused major disruptions, causing as yet unquantifiable damage to European businesses, and severely impaired the ability of the EU to respond. Individual ‘industrial ecosystems’ such as tourism and mobility were particularly badly affected. And this came on top of a number of existing barriers to companies operating within the Single Market.

The EU and the Member States must draw the lessons from the crisis. Despite extensive action to address its consequences, the crisis highlighted the importance of keeping a fully functioning Single Market and of European solidarity. This reminder would be expected to continue to guide the EU’s actions in the coming years, be it to remove remaining obstacles to the Single Market or by working together at all levels to deliver on the EU’s green and digital ambitions, ensure Europe’s resilience and increase its long term competitiveness, as highlighted in the linked Communication “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery” (“the Industrial Strategy Update Communication” 113 .

The strategies set out in the March 2020 Single Market Enforcement Action Plan, Industrial Strategy and SME Strategy remain valid. Considerable progress was achieved in their implementation, but it is important to now build on the successes of the first year of implementation, support the recovery and accelerate the twin transition towards digitalisation and sustainability.

This Report is offers an analytical underpinning to those efforts as presented in the Industrial Strategy Update Communication. Commission services will therefore provide annual updates.

Annexes

A1. State of play of the implementation of the Single Market Enforcement Action Plan

A2. Overview of the implementation of the Industrial Strategy and the SME Strategy

A3. Industrial ecosystems fiches

A4. Key Performance indicators – Methodology and Overview

Annex 1 State of play of the implementation of the Single Market Enforcement Action Plan

To allow the Single Market to work for all and to drive our industry forward, common rules must be implemented and enforced across the EU. Based on a renewed partnership between Member States and the Commission and taking into account the findings of the Communication on barriers to the single market 114 , the Single Market Enforcement Action Plan 115 presents some horizontal measures and 22 specific actions, with the objective to maximise the effectiveness and efficiency of compliance and enforcement across the EU. In the first year of implementation of the Action Plan, the Commission, in close collaboration with the Member States, completed a number of actions to strengthen joint efforts in this area.

Since the adoption of the Single Market Enforcement Action Plan on 10 March 2020, there has been progress on:

1.promoting increased knowledge and awareness of Single Market rules among national authorities, courts, citizens and businesses;

2.remedying incorrect transposition, implementation and application of EU rules;

3.preventing national measures in Member States from going against EU law;

4.preserving the smooth functioning of the Single Market by detecting non-compliance;

5.strengthening enforcement and

6.improving the handling of infringement cases.

The joint Single Market Enforcement Task-Force (SMET), set up by the Single Market Enforcement Action Plan, plays an essential facilitating role as a high-level forum where the Commission and Member States collaboratively seek solutions for addressing Single Market obstacles rooted in enforcement or implementation deficiencies 116 . SMET is an important new tool with a significant role to ensure that the Single Market works properly and to continue reducing regulatory burdens. In this context, SMET prioritises and addresses barriers that hamper the full functioning of the Single Market for all key ecosystems, notably when their root causes lie in incorrect or incomplete implementation and enforcement as identified in the Single Market Enforcement Action Plan and the Single Market Barriers Report. SMET can also be convened when needed to address single market issues that call for rapid action, as was, for instance, the case with the emergency SMET meeting 117 , called to discuss and assess Member States’ newly introduced controls of internal borders and measures on travel restrictions that restrict the free movement within the EU 118 .

SMET’s inaugural meeting took place on 7 April 2020 at the outbreak of the COVID-19 crisis to ensure the good functioning of the Single Market and allow the free flow of goods across EU borders. At this ad hoc meeting, SMET successfully addressed issues hampering the correct functioning of the Single Market due to COVID-19, such as intra-EU export restrictions of vital protective, medical and medicinal supplies, border controls and the need to increase production of essential equipment. The discussions in SMET showed a strong collective awareness that national intra-EU export bans or restrictions in one Member State risked creating shortages in other Member States. Since then, SMET had four formal meetings 119 .

Member States started by identifying the five most pressing obstacles to the well-functioning of the Single Market and, with the Commission, discussed actions that can help tackling a number of the top barriers indicated in the Single Market Barriers Report, matching those that were raised by Member States.

To address such barriers, SMET set out a prioritised work plan in order to deliver clear results in a short time. The Task Force agreed to work on a three pillar work plan: 1) abolishing the remaining COVID-19 related barriers, notably in the agri-food sector; 2) addressing priority barriers identified by Member States and the Commission regarding national enforcement and implementation issues, such as insufficient information, complex administrative procedures, lack of digitalised procedures and barriers in professional services; and 3) reinforcing the Single Market to support the recovery.

According to the agreed work plan, SMET discussed five pilot projects with concrete actions addressing concrete barriers in the agri-food sector, the free movement of professionals, the construction sector and the posting of workers. More specifically, these proposed projects will address: 1) protectionist measures in the agri-food sector; 2) certification schemes in construction services and non-harmonised construction products; 3) cross-border restrictions for professionals; 4) elimination of document requirements in relation to the recognition of professional qualifications; and 5) administrative burdens associated to the Posting of Workers. The objective of these concrete projects is to deliver tangible results with quick effect. SMET concluded that the barriers presented and discussed are a priority and should be eliminated. SMET, therefore, mandated the ‘SMET Sherpa Group’ to put in place the necessary steps with the administrations of each Member State and to report to SMET on the progress of their work.

On 19 February 2021, an emergency SMET meeting took place to address a large number of travel restrictions and newly introduced controls of internal borders that Member States put in place in the context of increasingly tense situations and the new COVID-19 variants in most areas across Europe. SMET agreed on the need to ensure the good functioning of the Single Market, especially as regards the transport of goods and the cross-border economic activities in coherence with the measures agreed in coherence with the COVID-19 related guidance and recommendations. Furthermore, SMET agreed on the importance to preserve the functioning of the “Green Lanes” and the close coordination among Member States and the Commission in line with the revised Council Recommendations 2020/1475.

Together with the network of national SME envoys and the EU SME Envoy, the SMET will also address gold-plating in the transposition process of EU directives to keep the regulatory burden on SMEs to a minimum. To promote the enforcement of a Single Market in a bottom-up approach, the Commission has launched a call for pioneer partnerships among border regions at the end of 2020, encouraging regional authorities to cooperate in addressing market barriers.

The SMET complements the Cooperation network between national enforcement coordinators. Making use of the existing Internal Market Advisory Committee (IMAC), the cooperation network held its first meeting on 24 November 2020. It allows the Commission and Member States to exchange information and best practices and explore possibilities to improve coordination and communication on specific enforcement matters amongst Member States’ authorities. For general issues relating to the transposition and implementation of EU law by Member States and to the broader enforcement policy of the Commission, the services of the Member States and the Commission regularly meet in the EU Law Network, an expert group dedicated to sharing knowledge and exchanging best practices in this area.

To reflect better the needs of the end users in the Single Market and to support the European Semester, the Single Market Scoreboard is being upgraded. As to the content of this update, following the recommendations of the study published in May 2020 120 , consultations were carried out with stakeholders and with Member States, focusing on the expansion of the scope and the selection of new policy areas and indicators. As to the IT system, a new system is being upgraded, which would address the policy and user needs. The database and data visualisation tool enables users, for their own research and policy needs, to access the wealth of data and to compare thematic datasets and performances across time and Member States 121 .

1.Increasing knowledge and awareness of Single Market rules

A first series of actions of the Single Market Action Plan aims to increase knowledge and awareness of Single Market rules among national authorities and courts as well as citizens and businesses.
Firstly, guidance helps to improve the application and enforcement of EU principles and rules. The Commission, therefore, adopted a number of guidance documents to increase knowledge of Single Market rules. In the area of goods, the Guidance on the application of Regulation (EU) 2019/515 of the European Parliament and of the Council of 19 March 2019 on the mutual recognition of goods lawfully marketed in another Member State 122  is to help both, businesses and authorities in the application of Regulation (EU) 2019/515. The Commission presented and explained these rules to many business associations and maintained close contacts with the national competent authorities responsible for the application of this regulation.

The Guidance document on Article 4 of the Market Surveillance Regulation 123 sets out practical guidelines for the implementation of Article 4 of Regulation 2019/1020 that requires that an economic operator in the EU should provide for certain product categories information to and cooperate with the market surveillance authorities. This helps market surveillance authorities in checking compliance of products of manufacturers of third countries, particularly when addressing online sales.

Also, the Guidance on the application of Articles 34-36 TFEU 124 includes the most relevant jurisprudence of the EU Court of Justice on obstacles such as registrations, certifications, authorisations, and other product requirements including selling arrangements. The guidance covers identified obstacles in the main EU ecosystems and sectors e.g. pharma, veterinary and blood products, gas and electricity, construction, precious metals, automobiles and car registrations, agricultural products. The Commission launched a broad consultation of interested parties on the update of the Blue Guide on the implementation of EU product rules. The review of the updated Blue Guide is foreseen in 2021 and will also include guidance on the Product liability Directive 85/374/EEC that follows the work of the Expert Group on liability and new technologies. By absorbing the guidance for Directive 85/374/EEC, the Blue Guide will help enhancing legal clarity on liability claims for consumers and producers in the area of new, smart technologies.

In the area of audiovisual services, two new guidelines were issued by the Commission on the 7th of July 2020 under the revised Audiovisual Media Services Directive: one on video sharing platforms 125  clarifying to which extent social media actors will be covered by the new rules, paying due regard to the objectives of public interest to be achieved by the new rules and to the right to freedom of expression; and the other one on the promotion of European works 126 , including a methodology for the calculation of the 30% share of European works in Video on Demand (VOD) catalogues and clarifying the definition of low audience and low turnover exemptions. 

Secondly, to improve access to information on rules and requirements for users the ‘Your Europe’ portal was upgraded in December 2020, hence meeting the requirements of the single digital gateway Regulation 127[1]. In line with this regulation , ‘Your Europe’ is now the hub to access information published  on dozens of national websites, and can thus assist citizens and businesses in finding and understanding applicable Single Market-related rights and rules both at EU and national level, and in receiving assistance where needed. The assistance service finder has been designed to direct citizens and businesses to the most appropriate assistance and problem-solving service. As of December 2023, citizens and businesses will be able to access cross-border and complete online key administrative procedures and access other online procedures which are as yet accessible online for national users. Under Article 14 of the Single Digital Gateway Regulation, all Member States need to connect, by December 2023, to a European Once-Only-Principle Technical System for the automatic exchange of evidence between public authorities in Europe. This exchange of evidence will prevent businesses from having to provide the same documents repeatedly, thus reducing administrative burden on businesses. Member States have started a reflection with the Commission on how to connect their services to provide businesses with answers to questions on several areas (e.g. taxation, social security, sectoral requirements) through a one-stop-shop. Moreover, it is important for the Single Market for goods that businesses, in particular SMEs, can rely on the Product Contact Points to obtain reliable and specific information about the applicable law in a given Member State.

To counter systemic obstacles in the area of the free movement of goods related to a deficient application of the mutual recognition principle, the Commission services have engaged with the EU Product Contact Points in providing better and faster information to businesses about mutual recognition and the technical rules that apply at national level to non-harmonized products. Product Contact Points will also start informing businesses, at their request, on other EU rules on non-food products. The new module of the Information and Communication System on Market Surveillance (ICSMS) used for the purposes of mutual recognition has been deployed in stages since April 2020 and fully supports the enhanced role of the Product Contact Points. The Commission adopted a Commission implementing regulation specifying the details and functionalities of the ICSMS to be used for the purposes of Regulation (EU) 2019/515 128 . 

It is also foreseen that an updated technical environment would be provided for Member States to comply with the Professional Qualifications Directive and the Proportionality Test Directive by integrating the Regulated Professions Database to the Internal Market Information System.

Thirdly, product sellers on e-commerce platforms must be aware of EU product rules and ensure that no illegal and unsafe products are placed on the EU market. Since 2018, eleven major online marketplaces already signed voluntary commitments that go beyond the EU legislation, called ‘Product Safety Pledges’, to improve the safety of non-food consumer products sold online.

The Commission has recently adopted a proposal for a Digital Services Act, which would set out general obligations for e-commerce platforms concerning illegal content, including unsafe products. The Commission is examining whether the revision of the General Product safety Directive planned for the second quarter of 2021 should further spell out the specific product safety obligations for online marketplaces.

The protection of rights of EU citizens and businesses is primarily the responsibility of national courts in the Member States. It is therefore important to strengthen the capacity of national judges and legal practitioners to enable citizens and businesses to assert their Single Market rights effectively. In this context, the Single Market dimension is reflected in the European judicial training strategy for 2021-2024 adopted on 2 December 2020 129 .

Lastly, the Network of the First Instance public procurement Review Bodies provides a forum to share with Member States and the Commission best practices and contribute to the development of the public procurement review indicators, a set of data that helps Member States to measure the effectiveness of their review systems. The members of the Network also share their knowledge and questions through the online platform set up by the Commission’s services. To improve the administrative capacity of staff working in Central Purchasing Bodies and facilitate SMEs’ access to public procurement markets, the Commission funds a high level training programme. In addition to the flexibility offered by the new EU’s procurement framework, a study on SMEs’ participation in public procurement has been published. 130  . The study aims at developing data for policy making and at analysing ways in which Member States may use such flexibility and put in place additional support for SMEs. Furthermore, in mid-2020 a call for proposals was launched to promote SME participation in public procurement outside the EU.

2.Improving the transposition, implementation and application of EU rules

The second pillar of the Single Market Action Plan aims to remedy incorrect transposition, implementation and application of EU rules that create barriers and obstacles to the Single Market.
Therefore, to improve the overall timely and correct transposition of directives, a ‘structured dialogue’ with the Member States is in place during the transposition period. For instance, to ensure the correct implementation from the date of application, the Commission services have been monitoring the transposition process of the European Electronic Communication Code (EECC) and has been providing Member States with extensive technical guidance and legal assistance, including through the Communications Committee. On 4 February 2021 the Commission sent letters of formal notice under an empowerment procedure (‘mise en demeure par habilitation’, MDH exercise) to the 24 Member States that failed to notify or partially notified national measures transposing the Directive. The Commission will then carry out its detailed assessment of the Member States’ replies and decide on any further action in line with the Treaties.

In addition to issuing the guidances on video sharing platforms 131 and on European works 132 mentioned above, the Commission services supported Member States authorities in particular through bilateral exchanges and through discussions within the Contact Committee.

The implementation of the revised AVMSD is also addressed by the European Regulators Group for Audiovisual Media Services (ERGA), which is composed of the media regulators. As regards the Geo-blocking Regulation 133 , the Commission services have published in 2018 an extensive Q&A document to facilitate implementation by traders and Member States, and regularly cooperate with the competent authorities in the context of the CPC network, while in November 2020 the Commission adopted its first short-term review of the Regulation, reporting also on the first year of implementation of the Regulation and its initial effects 134 . In a similar vein, a comprehensive Q&A document 135 was published at the time of the adoption of the platforms-to-business (P2B regulation) 136  containing the first-ever set of rules creating a fair, transparent and predictable business environment for smaller businesses and traders on online platforms. These Q&A were later updated, and guidelines for ranking transparency 137  have been published on 8 December 2020, which support the adequate and effective enforcement of the ranking transparency requirements in the P2B Regulation. The Commission services have supported Member State authorities, in particular through bilateral exchanges and discussions within the Contact Committee.

For the copyright directives, regular meetings of the Copyright Contact Committee ensured a coordinated exchange of views with Member States. The Commission completed extensive consultations to gather relevant stakeholders’ views on the main topics related to the application of the new regime for the use of copyright-protected content on online content sharing platforms introduced by the Directive on Copyright in the Digital Single Market 138 . Regular workshops with Member States in the Company Law Expert Group supported the transposition of the 2019 Company Law package (Directive 2019/1151 on digital tools in company law and Directive 2019/2121 on cross-border conversions, mergers and divisions).

3.Making the best use of preventive mechanisms

To help to ensure a level playing field for citizens and businesses in the Single Market, under the third pillar of the Action Plan, there a number of actions designed to prevent national measures in Member States going against EU law. In the course of 2020, the Commission has moved ahead with streamlining the operation of the Single Market Transparency directive (SMTD) 139 , and the development of its implementation. Steps have been taken to develop a methodology to identify areas susceptible of increased regulatory convergence, or harmonisation. Moreover, the strategic importance of the SMTD was evidenced during the COVID-19 crisis, when it constituted an entry point for urgent measures adopted by Member States to tackle the crisis aspects, which had an impact on the free movement of medical equipment, medicinal products and medical information society services. However, not all measures were systematically notified and some were only notified after their adoption. Also, to prevent unjustified barriers in the Single Market for services, the Commission has taken a number of measures to improve compliance with the existing services notification procedure established under the Services Directive and to improve the functioning of the existing notification system. It has offered, guidance and training to Member States, provided an annual report, improved the Internal Market Information system (IMI) module used for implementation of the existing notification mechanism and identified examples of newly introduced regulation that Member States failed to notify, thereby ensuring their notification.

4.Detecting non-compliance inside the Single Market and at the external borders

The fourth pillar of the Single Market Action Plan aims at preserving the smooth functioning of the Single Market by detecting non-compliance. To this end, national authorities and the Commission services need to have the appropriate tools such as up to date IT systems. In view of reinforcing and rationalising IT systems, the Commission services have launched preparatory work for the development of the digital interface between national customs systems and the EU Information and Communication system for Market Surveillance (ICSMS) via the EU Single Window Environment for Customs. This provides for a number of new functionalities and tasks for ICSMS, making it the digital backbone of the cooperation between market surveillance and customs authorities.

To ensure that the Internal Market Information system (IMI) becomes the default tool for administrative cooperation within the Single Market, the Commission services continue to identify legislation that may require administrative cooperation between Member States, which could be supported by IMI. Currently IMI supports 17 different Single Market related areas and continues to expand to new ones. In 2020, co-legislators adopted the Mobility Package, which foresees the use of IMI regarding posting declarations for road transport operators, and thereby ensuring better enforcement and a digitalised, green solution for cross border procedures. The Commission adopted an implementing act 140 to use IMI on a pilot basis in the context of the Regulation (EU) 2018/1807 on a framework for the free flow of non-personal data in the European Union.

To improve enforcement in relation to EU agri-food legislation, progress has been made to make full use of the information management system for official controls (IMSOC). To monitor Member States’ official controls the AROC (Annual Report Official Controls) electronic version of the standard model form has been developed in IMSOC allowing the submission of Member States’ annual reports. In Multi-annual National Control Plans (MANCPs) Network meetings, the Commission services engage with Member States in discussing, among others, the use of the pilot AROC, the submission of annual reports and the preparedness for the compulsory use of AROC by 31 August 2021. The Commission services provide trainings to Member States on how to use AROC (webinars, videos, guidance) and helpdesk support.

To improve enforcement in relation to EU agri-food legislation, the Commission and the Member States together made progress to make full use of the information management system for official controls (IMSOC). To monitor Member States’ official controls, the electronic version of the standard model form for annual reports - AROC (Annual Report Official Controls) - has been developed in IMSOC for the submission of Member States’ annual reports. In Multi-annual National Control Plans (MANCPs) Network meetings, the Commission engages with Member States in discussing, among others, the preparation of the MANCPs, the use of the pilot AROC, the submission of annual reports and the preparedness for the compulsory use of AROC by 31 August 2021. The Commission provides training to Member States on how to use AROC (webinars, videos, guidance) and helpdesk support.

To improve Member States and Commission controls in the area of fraud in the agri-food chain, a project has started in 2020 to collect information on the implementation of the new arrangements put in place by Member States concerning controls and other official activities aimed at identifying and following-up fraudulent or deceptive practices (as laid down by Article 9(2) of Regulation (EU) 2017/625 141 ). A strong enforcement of EU law in the agri-food chain is essential to guarantee safe, sustainable food and its free movement in the Single Market. To verify that Member States address shortcomings in the application of EU law, a systematic follow-up of audit recommendations is ensured, mainly through general follow-up audits (GFAs) over a three-year cycle, with interim targeted reviews. This ensures that non-compliances are handled in a coherent manner across control areas and across Member States. It also provides an efficient means of identifying horizontal and systemic issues, and a platform for bilateral dialogue. The publication of the results in country profiles ensures transparency. 142

In addition, in October 2020 work started on the Impact Assessment of the review of the geographical indications (GIs) policy, including enforcement measures, with the publication of the Inception Impact Assessment on 28 October 2020. The on-line Conference “Strengthening geographical indications” on 25-26 November 2020 served as the focal point for stakeholders to make their views known on the reform process. The ‘GIview’ database was launched on 25 November 2020 providing transparency to enforcement bodies and producer groups responsible for each GI. ‘GIview’, like its homologue ‘TMView’, will – when fully operational – give GI producer groups access to the IP Enforcement Portal allowing for confidential communication between GI producer groups and anti-fraud authorities, customs and police agencies.

Since the adoption of the New Legislative Framework (NLF) for EU product legislation, industry and products have transformed radically, in particular due to the digital aspects. Hence, the Commission services have launched an evaluation 143 of the NLF 144 to reassess not only aspects related to labelling and traceability but also, more generally, whether the NLF continues to be fit for purpose in the current economic reality. Nowadays, products are increasingly digital and being frequently updated or upgraded after they have been put into service. The conformity assessment procedures must ensure that products placed on the Single Market are safe and compliant with the applicable legislation. In addition, the recent COVID-19 crisis has put to test the resilience of Union product legislation based on the provisions of the NLF, in particular as to whether they could adequately cope with a crisis. The evaluation is a first step towards ensuring that harmonised product legislation is fit, and can continue contributing to address possible obstacles while building a strong and resilient Single Market for goods.

Moreover, as announced in the new EU’s Cybersecurity Strategy from December 2020, the Commission will consider a comprehensive approach, including possible new horizontal rules to improve the cybersecurity of all connected products and associated services placed on the Single Market. To that end, the Commission contracted an external study whose main objectives are to explore the current state of cybersecurity in broad categories of connected products and to identify the reasons for lack of sufficient security. The study will assist the Commission in analysing the current regulatory landscape with regard to cybersecurity requirements for connected products.

5.Strengthening enforcement on the ground

The fifth pillar of the Action Plan aims at strengthening enforcement. Effective enforcement of EU product rules, regardless of the origin of the product or the sales channel, requires a well-equipped, digitalised, efficient and well-coordinated market surveillance policy. As foreseen in Action 17 of the Enforcement Action Plan, the Commission services have worked in close coordination with Member States to launch, from January 2021, the new EU Product Compliance Network. In addition, as set out in Article 21 of the new Market Surveillance Regulation, the Commission could designate European Union Testing Facilities (EUTFs) to complement and expand market surveillance testing capacity in the EU. The Network will notably identify common priorities for market surveillance activities and testing. It will also propose their financing, based on the budget available from the Single Market Programme. In addition, as identified in the Guidelines to Member States on the recovery and resilience funds 145 , market surveillance projects can be included as part of the national investment plans to reinforce the EU resilience and as cross-border projects financed by such recovery and resilience funds. This will help ensuring a level playing field in the EU and a dynamic and competitive EU Single Market with compliant products only.

The Commission launched a study to assess the impacts of new technologies and digital supply chains on market surveillance. In addition, the Commission continued its financial support to joint actions between market surveillance authorities on compliance, safety and horizontal issues. These types of actions foster cooperation, the sharing of best practices and the harmonisation of methodologies. The Commission also launched a call for proposals to finance horizontal actions and product testing activities. To cope with the impacts of new technologies, a digitisation task force was set up of volunteering authorities that will aim to upgrade current systems used for market surveillance and to anticipate and adapt to new technologies that affect market surveillance activities.

In parallel, the implementation of joint activities to promote compliance between market surveillance authorities and other relevant authorities or organisations representing economic operators or end users is being prepared. To further deepen the cooperation with Member States on the implementation of the new Market Surveillance regulation, the Commission hosted, together with the German Presidency, an online conference looking at how market surveillance will become more digital, cooperative and resilient.

To raise the profile of SOLVIT as an across-the board problem-solving tool for the Single Market, the Commission services and Member States authorities continue to strengthen the collaboration between SOLVIT and different bodies and networks at national and EU level, for example by being part of the assistance service finder of the single digital gateway and reinforcing cooperation with the Enterprise Europe Network and Product Contact Points. SOLVIT will continue to raise awareness of the new SOLVIT Mutual Recognition problem solving procedure, which is operational from the date of entry into application of Regulation 2019/515 146 on 19 April 2020. The Commission services will continue to explore the use of the SOLVIT model to meet the requirements of new initiatives.

6.Improving handling of infringement cases

In its last pillar, the Action Plan aims to better prioritise enforcement action. The “Single Market Economy Report 2021” integrates the single market Enforcement Strategic Report referred to in action 19 of the Action Plan. SMET identified, as work that it should focus on, the abolition of the remaining COVID-19 related barriers, a number of priority obstacles to national enforcement and implementation issues as well as the reinforcement of the Single Market to support the recovery.

Specific actions aim to improve the handling of infringement cases. As a rule, complaints addressed to the Commission that are better fit for SOLVIT will be referred to SOLVIT. Conversely, the Commission will continue to identify structural issues detected through the SOLVIT application, which could potentially be better addressed through infringement procedures through a streamlined process within the Commission.

In order to better target and structure the EU Pilot system as a rapid and effective tool supporting the solution-oriented dialogue with the Member States at the pre-infringement stage, the Commission issued new EU Pilot guidelines in July 2020. 147 The new guidelines are to ensure more clarity, consistency and flexibility in the dialogue between Commission services and Member States. The new EU Pilot guidelines were presented to the Member States’ representatives in the EU Law Network in December 2020.

To complement the formal exchanges in infringement procedures with direct contacts, the Commission services have started in July 2020 to organise package meetings with individual Member States dedicated to specific policy areas. Package meetings on infringement cases and other horizontal enforcement issues, both at technical and political level, will continue to be scheduled with all Member States in 2021.    

Stocktaking of the implementation of the 2020 Single Market Enforcement Action Plan

Colour-coding

Annex 2
Overview of the implementation of the 2020 Industrial Policy Package

Stocktaking of the implementation of the 2020 Industrial Strategy

Colour-coding

Stocktaking of the implementation of the 2020 SME Strategy

Colour-coding

Annex 3: 14 industrial ecosystem fiches

Industrial ecosystems encompass all players involved in the achievement of a certain socio-economic goal: from the smallest start-ups and the largest companies cooperating to satisfy a new market need, the research activities supporting industrial innovation, the regulators steering economic activity through conducive policies, to the services providers and suppliers.

As presented in the March 2020 Industrial Strategy 150 , this approach incorporates the systemic importance of all the horizontal and vertical links among economic actors. It recognises the importance of those activities often considered as ancillary to industry, such as supply of raw material, research and innovation, the provision of business services, or access to distribution networks. While each ecosystem has its own characteristics, they all evolve against the same background: an integrated Single Market. The ecosystem lens enables a bottom-up analysis of, and exchange on, the opportunities and challenges in the EU economy as the EU embarks on the twin green and digital transition, as well as on boosting its resilience.

The diverging impact of the COVID-19 crisis across the European economy, and the disruptions experienced in spring 2020, confirmed the need for an ecosystem approach 151 . Further, it is also the approach followed to implement the Pact for Skills.

So far, 14 industrial ecosystems spanning across the EU have been identified based on their economic and technological relevance, and for their expected contribution to the decarbonisation, digitalisation and resilience of the EU economy. They represent approximately 70% of the EU economy and 80% of the business economy (as a share of value added).

These 14 industrial ecosystems are:

1.Aerospace and Defence

2.Agri-food

3.Construction

4.Cultural and Creative Industries

5.Digital

6.Electronics

7.Energy Intensive Industries

8.Energy-Renewables

9.Health

10.Mobility-Transport-Automotive

11.Proximity, Social Economy and Civil Security

12.Retail

13.Textiles

14.Tourism

The boundaries and scope of the ecosystems are dynamic. For each ecosystem, the Commission has identified core activities, i.e. those that more than the others characterise each ecosystem 152 . These activities have been mapped into a widely used statistical classification (NACE). While the match between the sectors as per NACE classification and the concept of ecosystem is not perfect and requires some approximation, the mapping allows for a good representation of the ecosystems.

Ecosystems are also linked to each other. For instance, the Retail ecosystem provides (downstream) services to virtually all other ecosystems. Similarly, the Energy Intensive Industry ecosystem supplies inputs to many other ecosystems. Moreover, ecosystems overlap with each other, as some activities are relevant for more than one. For instance, several professional services are used by all ecosystems. In other cases, e.g. for industries providing products and services for a safer and more secure society, these are captured in more than one ecosystem. Similarly, activities related to waste management, which are so important for the circular economy, are instrumental for the green transition of all ecosystems. A share of these ‘horizontal’ activities is attributed to all ecosystems based on their specific contribution to the core activities of the ecosystems (see Annex 4 for detailed methodology).

This annex presents, for each ecosystem, an assessment of the relevance and contribution of the industrial policy toolkit from the perspective of the different ecosystems. The individual Ecosystem Fiches zoom into the specificities of each industrial ecosystem. The fiches are structured as follows:

·Transformative initiatives: these are the main areas for action expected to have a major impact on the sustainability, digitalisation and resilience of the ecosystem. Ongoing or announced actions in the accompanying Communication or in recent Commission Communications are highlighted.

·Towards an EU policy toolbox fit for purpose: a short description of 3-5 of the most relevant ecosystem-specific actions/tools which complement the transformative initiatives above.

·The ecosystem at a glance: this section describes the ecosystem and its main components, the cyclical and structural trends affecting the performance of each ecosystem, its position in the global context, and provides a forward-looking assessment of the key opportunities and challenges faced by the ecosystem.

·Mapping policy tools in more detail. The last section provides a synthetic description of how policy tools contribute to the objectives of the ecosystem, highlighting examples of good practice and opportunities offered by these tools. The overview of the tools and instruments highlighted in each ecosystem fiche is not exhaustive, but focuses on the most important levers for change.

The Single Market is the common background of all ecosystems, thanks to which research, engineering, production, assembly and service activities can support and integrate each other across borders in a flexible and dynamic manner. An open, integrated and undistorted Single Market is a driver for improving the competitiveness of EU businesses. EU competition policy has an important role to play, given its main objective of preventing and removing distortions of competition by ensuring a strict enforcement of antitrust, mergers and State aid rules. Competition policy is horizontal in nature, cutting across economic sectors and industrial ecosystems. It is therefore relevant in all markets and for all businesses. Competition policy can contribute in many ways to creating conditions for achieving existing and/or future development goals. In a business environment where competition is preserved and promoted, businesses are incentivised to enhance their efficiency, innovate, seize new opportunities and allocate their resources in a more efficient way, boosting thus the economy and increasing Europe’s competitiveness on global markets. Finally, competition also brings benefits to downstream users and consumers, in terms of lower prices, better quality and more choice. The ongoing review of EU competition rules will ensure that they are fit for purpose for an economy that is changing fast, increasingly digital and must become greener and more circular.

Similarly, trade policy also drives the EU’s growth and competitiveness across all ecosystems. The EU is an open economy benefiting from vibrant trade and investment links that enhance resilience and support the recovery and the green and digital transformation of the EU economy. Trade policy benefits EU industry, workers and citizens by providing a stable rules-based environment, creating opportunities, safeguarding a level playing field and protecting EU industry from unfair trade by means of existing rules (as well as new tools now being elaborated), promoting EU standards and developing frameworks for cooperation and dialogue. The Commission set out the direction for an open, sustainable and assertive trade policy in the Trade Policy Review Communication adopted in February 2021.

As such, the industrial policy toolkit highlighted in each fiche is not exhaustive, but focuses on the most important levers for change. In cases where certain tools featured in the table below do not directly contribute to the main challenges of each ecosystem, they have not been included in the specific fiche. For example, the Proximity, Social Economy and Civil Security; Construction; Cultural and Creative Industries ecosystems do not feature an assessment of the tools relating to ‘international partnerships and dialogue’.

The overview of the tools considered for each ecosystem is summarised in the table below.

Table 1: List of industrial policy tools assessed and other specific tools per ecosystem

The Ecosystem Fiches provide a basis for informed and structured dialogue with public institutions and stakeholders, to generate a more granular understanding of the complex and interdependent economic fabric of the EU. Through a joint effort of evidence-gathering, these fiches can enrich our understanding of the current and future determinants of the performance of ecosystems, and of the policy levers which can affect it. As such, the ecosystem fiches could contribute to transition pathways to be co-created for relevant ecosystems.

 1. Aerospace and Defence Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and budgetary programmes

RRF Depending on national priorities, the RRF can be an important tool for enhancing the resilience of EU strategic industrial value chains, as well as their digitalisation. National Recovery and Resilience Plans can support the investments required to develop green aircraft technologies. Member States could include investments in their Recovery and Resilience Plans commensurate with their country recommendations and challenge.

CRII+/ERDF/ESF/CEF There is a need to communicate on funding and investments opportunities into aerospace and defence industry, for example for smart specialisation. The Connecting Europe Facility can finance (i) the uptake of space services and applications relevant for energy, transport, smart cities, protecting climate and environment; and (ii) the initial phase of the EuroQCI (Quantum Communication Infrastructure) system, contributing to the development of the secure connectivity initiative.

The existing synergies between border management and civil protection and the Aerospace and Defence Ecosystem will continue to increase. Those are EU-level procurements of assets and services (see also section on Strategic Procurement). There is a need to ensure that for security-related aspects a capability–pull relationship is developed with EU industry, so that EU standards can be set and maintained.

Horizon Europe (including European Partnerships) Under Cluster 4 ‘Digital, Industry and Space’, topics on space can contribute to reducing strategic dependencies for strategic value chains; enhance the competitiveness of the EU space sector in fostering innovation and new technologies (New Space), and support start-ups (Cassini). The climate-neutral aviation objectives in Cluster 5 ‘Climate, Energy and Mobility’ will support the development of a next generation of clean aircraft (ultra-high efficient, hybrid-electric or hydrogen-powered aircraft). This will enable the European aeronautics industry to significantly contribute not only to achievement of the European Green Deal objectives but also to the greening of air transport worldwide. Institutionalised European Partnerships (e.g. in Clean Aviation, Integrated Air Traffic Management and Clean Hydrogen) will play a prominent role, supporting the integration and demonstration of disruptive technological innovations. In particular, the Clean Aviation partnership will ensure technological and industrial readiness of innovations to support the launch of disruptive new products by 2035.

Digital Europe Programme The Digital Europe Programme will support the testing of the interface between the EuroQCI space and terrestrial components, including support for the validation of systems and components, and test the technology in ground and lower-altitude experiments. This action will also benefit the secure connectivity initiative as it should also feature the innovative quantum technology built through the EuroQCI initiative 159 , and improve quality control. It will support European Digital Innovation Hubs to stimulate SMEs and a broad, EU-wide uptake of space services and applications.

InvestEU CASSINI Space Entrepreneurship Initiative 160 will set up a dedicated space investment facility under InvestEU to increase the number of space companies raising VC significantly over the next seven years. It will channel investment guarantees via EIF to Europe-based Venture Capital Funds focusing on space-related investments. The EIB’s lending policy currently largely precludes the financing of defence-related and carbon-intensive industries, including aeronautics. Aviation-related activities, defence/dual-use and space services, data and applications could benefit from inclusion under the Taxonomy Regulation. Adaptation of the EIB lending criteria would be needed to be inclusive for the defence sector within the limits of the Treaties. A joint SME/RID equity product implemented by the EIF will support equity funds investing in strategic technologies in the area of space and defence.

Access to Finance Aerospace and defence industries face increasing difficulty to access public and commercial loans as well as venture capital investment, hindering their potential for innovation, scaling-up and integration in supply chains. The main problem is a reputational issue for investors, though there is an increasing requirement to the transition towards carbon-neutrality. At the same time, several funding schemes already exist at the EU level that can fund dual-use (e.g. ESIF) and defence applications (e.g. EDF). The CASSINI Space Entrepreneurship Initiative will improve access to venture and growth capital through a dedicated space investment facility under InvestEU, and in addition launch matchmaking activities with potential customers and VC investors. The possible inclusion of economic activities related to aviation and space – including the construction and entry into service of new generation aircraft and space services, data and applications – in the EU Taxonomy could benefit the ecosystem.

EU Space Programme and European Defence Fund The EU space programme will implement its different space components (Galileo, EGNOS, Copernicus, SSA and GOVSATCOM) to provide secure space-related data, information and services without interruption. It will reinforce the EU supply chain autonomy and resilience for the space sector. A new EU flagship for Secure Space Based Connectivity 161 will be developed to strengthen EU’s open strategic autonomy, resilience and technological non-dependence by (i) providing ubiquitous high speed broadband coverage in Europe, and (ii) secure, cost-effective, reliable connectivity for governmental and commercial services to address identified market failures. The European Defence Fund will support collaborative defence R&D projects between legal entities to foster the competitiveness, innovative capacity and efficiency of the defence industrial base; will open up national defence supply chains and ensure greater involvement of SMEs and start-ups; and will fund disruptive technologies.

Supportive regulatory environment

Single Market Surveillance The revised market surveillance regulation (EU) 2019/1020 will enable a considerable improvement in efficiency of the market surveillance of online sales and imports of consumer drones. It will contribute to ensure the compliance of consumer drones with the requirements of the existing legislation 162 , while ensuring that the EU drone sector remains competitive on the global market.

Main Single Market barriers within the ecosystem  In support of reducing the main Single Market barriers within the ecosystem, the Directives on Defence and Sensitive Security Procurement (Directive 2009/81/EC) and on intra-EU transfers of defence-related products (Directive 2009/43/EC) have not yet reached their full potential to open up defence supply chains that remain fragmented along national borders. Enhanced efforts by all actors to be made to enforce the Defence Procurement Directive and to ensure a stronger and more harmonised uptake of the Directive on intra-EU transfers and facilitate the transfers of defence-related products within the EU.

Standardisation The development of hybrid civilian-military standards are important to reduce cost-burden for European industry. Relevant European standardisation bodies may need to assess and prepare for the standardisation requirements of future aircraft towards carbon-neutrality as standards on new technologies and products such as for LH2 tanks and distribution systems do not exist yet. Improvement of aircraft connectivity should also be supported. At the international level, EU engagement in the development of standards for a number of emerging key technologies (such as quantum communication) and policies (Space Traffic Management) 163 will be important. Key applications like Galileo, as well as Copernicus’s passive sensors, require protection from interference. This includes minimising interference from other radio services, which could be aided by harmonising spectrum use and applying appropriate specifications for radio receivers and transmitters.

Digital transformation The ecosystem is a major contributor to digital solutions and technologies, for example through satellite communications and services provided by the EU space programme and through the European Defence Fund priorities on digital transformation in defence.

Green transformation Space is a major contributor to the green transformation, for example through monitoring of greenhouse-gasses, and by services provided by the EU space programme that enable greener transport (e.g. shorter routing in marine transport) and support to greener agricultural production. As set out in the Commission’s Sustainable and Smart Mobility Strategy 164 , for aeronautics, the transition to carbon-free aviation will proceed along multiple paths, including the introduction of sustainable aviation fuels, efficiency gains, more flexible routing and the introduction of new propulsion technologies (notably electric, hydrogen or emerging new sources of energy). These measures require the mobilisation of large amounts of capital and a high degree of cross-sectoral coordination (aeronautics, airlines, airports, energy producers and distributors, certifying agencies, regulators, etc.). Strategic engagement of key actors in the ecosystem can increase awareness and knowledge-base, while also facilitating the implementation of green and circular practices, two of the aims of the new ‘incubation forum on circular Economy in European defence’ 165 , launched and managed by the European Defence Agency and co-funded by the Commission's managed LIFE Programme.

Strategic Public Procurement Public procurements from EU aerospace and defence industry are key industrial policy tools at EU and Member State level. Contrary to other major global industrial actors, the EU industry lacks a reliable and predictable home market for space and defence, in the form of large demanding anchor customers.

Intellectual Property The cost of patenting in EU is much higher than in USA, which may limit, especially by SMEs, the use of this protecting tool and/or their capability to monetise their know-how. The fragmented legal framework hampers the exploitation of industrial/commercial potential.

International partnerships and dialogue

Strategic Partnerships (Critical Materials and input) To ensure a global level playing field in space, Europe needs to engage in the debate on setting international rules and standards for using space.Establishing strategic partnerships will be an ongoing effort, including in areas such as raw materials in order to address dependencies on raw materials and to reinforce the resilience of the space value chains.

Regulatory dialogue / cooperation Many companies in this ecosystem can only survive if they have access to global markets. Economic diplomacy efforts can support making the most of the potential of the EU Space programmes (Galileo, EGNOS, Copernicus) as market openers to facilitate EU companies’ access to markets and procurements in third countries.

Networks and governance

Industrial Networks The aerospace and defence industry is represented in the recently launched European Raw Materials Alliance and it could benefit from the Industrial Alliance on Microelectronics 166 . Ensuring market readiness for disruptive zero emission aircraft (e.g. hydrogen-powered aircraft) will require a high degree of cross-sectoral coordination (aeronautics, airlines, airports, energy producers and distributors, certifying agencies, regulators, etc.). Coordination with Member States and industry will be important to support this transition 167 . In addition, working on the next generation of EU launchers and technologies would require a shared approach between the European Space Agency, EU Member States/Space Agencies, and industry (traditional and new space).

Clusters cooperation There is an active aerospace and defence cluster where work is ongoing with uneven progress so far. The European Aerospace Cluster Partnership gathering 42 aerospace clusters in 17 countries has strongly contributed to the competitiveness of the aeronautics supply chain by promoting collaboration between regions and industries. Moreover, the European Network of Defence-related Regionsbrings together various EU defence-related clusters and regional organisations to exchange best practices and information, in particular to the benefit of their client SMEs. Cooperation between research and development actors and the aerospace and defence industry would need to improve in order to produce innovative products and technologies. Clusters can play a key role by promoting collaboration between these main actors. Industry cooperation should neither result in delaying the introduction of new technologies nor in the crowding out of other innovative market players.

Pact for skills Aerospace and defence entered the Pact for Skills as pioneers in November 2020. A partnership between all stakeholders was formed to upskill 200,000 employees and reskill 300,000 people to enter the supply chain, a public and private investment of EUR 1 billion in the next 10 years 168 . Industry efforts to implement the ecosystem’s skill’s agenda should continue to be encouraged and supported, including through funding from the RRF, REACT-EU and EU programmes such as ERDF or ESF+.

Enterprise Europe Network Intensified efforts to rely on the EEN to disseminate awareness-raising materials on funding for defence SMEs as well as to facilitate matchmaking/B2B at defence-related events.

2. Agri-Food Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and Budgetary programmes 179

RRF Ensuring support for a green recovery through the RRF is essential to make sure both food service and production do not derail from sustainability plans and commitments and ensure that funds go to projects directly benefitting operators. The following flagship areas for investments are particularly relevant for the agri-food ecosystem: ‘Power up’ (foster clean technologies and renewables) and ‘Reskill and upskill’ (urgent for food workers). Support for food service could be envisaged as a priority to allow operators to re-open, recover and adapt their model to the ‘next normal’. Investment is needed in green technologies and equipment, digitalisation (smart farming and food factories), public services in rural areas etc. Key areas of interventions for agriculture cover digitalising agriculture and rural areas, carbon sinks, bio-economy and renewable energy, organic sector etc.

CRII+/ERDF/ESF/CEF/EAFRD 180 & EAGF 181   The ERDF is an important source of funding for agri-food, which is a priority in three in four EU regions (strong link to territory). The Common Agricultural Policy’s EAFRD and, for certain sectoral interventions, the EAGF, also provide crucial investment funding to agri-food, with a specific focus on rural development and COVID-19 crisis recovery. The European Maritime and Fisheries Fund is the main supporting instrument to the new Common Fisheries Policy, which will seek to support the fisheries and aquaculture sectors. The Agri-Food Smart Specialisation Platform supports joint investment projects on technology and digital. ESF is important for food workers (ageing workforce, need for new skills) and for vulnerable, food-insecure people. CRII+ offered some support for farmers and fishers. It shows potential to be further deployed for crisis-related measures and projects for food service operators and their suppliers (possibly support schemes via vouchers, promotion campaigns etc.).

Horizon Europe (including European Partnerships) Research and innovation (R&I) are key drivers in accelerating the transition to sustainable, healthy and inclusive food systems from primary production to consumption. R&I can help develop and test solutions, overcome barriers and uncover new market opportunities. Yet, innovation levels in food manufacturing and processing are uneven and often lower than in other sectors 182 . The Commission has already invested under Horizon 2020 into R&I projects to boost innovation in the agri-food ecosystem, including through EIT Food 183 . Under Horizon Europe Cluster 6 ’Food, Bioeconomy, Natural Resources, Agriculture and Environment’ 184 further EUR 9 billion will be invested in R&I on food, bio-economy, natural resources, agriculture, fisheries, aquaculture and the environment, including the use of digital technologies and nature-based solutions for the agri-food ecosystem. Under the European Innovation Council, EUR 300 million have been allocated to encourage breakthrough innovations 185 delivering Green Deal objectives to high potential start-ups and SMEs. In the agri-food sector, for example, these innovations can answer the need to upgrade the production methods.

Digital Europe Programme A testing and experimentation facility on agri-food will allow the ecosystem to test advanced AI-based and robotics technologies for precision farming, food processing, wholesale, retail, hospitality and food services. The programme also proposes to develop a Common European Agriculture Data Space, which will facilitate trustworthy sharing of agricultural data, thus enabling an increased and more effective use of data and digital technologies, and subsequently increasing the environmental and economic performance of the ecosystem. The programme complements actions under the Connecting Europe Facility, ERDF and EAFRD towards rural broadband and digitalisation.

InvestEU Under the SME window, debt financing will be available not only to sustain general agri-food SMEs competitiveness, but also to help them digitalise, innovate and become more sustainable.

EU Space Programme and European Defence Fund Copernicus helps assess agricultural land use and trends, crop conditions and yield forecasts. It supports input management, farm management recording, irrigation and precision farming. Smart agriculture has a long-term positive impact on the entire ecosystem.

Supportive regulatory environment

Single Market Surveillance Measures (presented as COVID-19-related) by Member States (a minimum share of national food products in stores, reserved space for local producers and national calls to buy domestic) or agreements by domestic firms excluding EU competitors need to be closely monitored to avoid negative impacts on the Single Market. Measures need to be proportionate to their legitimate objectives (and not merely protectionist). Existing tools such as infringement proceedings, competition law enforcement, the Single Market Transparency Directive  and Single Market Enforcement Task Force continue to play an important role for the ecosystem.

Main Single Market barriers within the ecosystem Although the majority of EU food regulation is harmonised, national measures have been on the increase in particular on labelling (e.g. several Member States introduced national rules for mandatory origin labelling of certain food products and diverging schemes of front-of-pack nutritional labelling - FOP). As part of the Farm to Fork strategy (F2F), the Commission is set to propose harmonised mandatory FOP requirements and consider the extension of mandatory origin indications to additional products. These initiatives need to fully take into account impacts on the Single Market. Removing obstacles for retailers and suppliers to enter in mutually beneficial contractual practices beyond a pure selling and purchasing relationship would be beneficial for the ecosystem (e.g. collaborative product launches). Agri-food enterprises are amongst those experiencing the longest payment durations, especially SMEs. A closer monitoring and reporting of payment behaviours, accompanied by potential sanctions, seem to be an effective mechanism to tackle late payments and ensure enforcement of the EU Late Payment Directive. The provisions of the Directive on Unfair Trading Practices in the agricultural and food supply chain will enter into force this year (on 1 November 2021) and will also contribute to afford protection along the entire agri-food supply chain.

Standardisation EU marketing standards for agricultural and fishery and aquaculture products are important to guarantee uniform quality to consumers and common criteria in the SM. As part of F2F, review is underway for 2022, among others to reinforce the role of sustainability criteria and leverage impact on food loss and waste and healthier diets. Standards will also underpin future food sustainability and animal welfare labels. The food industry sees further EU level standardisation as a constructive opportunity for the ecosystem.

Digital transformation Advanced technologies such as AI, robotics, block chain, high performance computing or the Internet of Things have potential to make farming and food processing more efficient and sustainable. More clarity on data ownership and governance would support the digital transformation of the ecosystem. The lack of digital skills of the workforce is also one of the main barriers for digitalisations of the agri-food ecosystem. To this regard, two programmes proposed by the SME strategy 186 are also relevant to support SMEs in the digital transition, the ‘digital volunteers’ programme will promote the transfer of expertise from high-tech businesses to more traditional SMEs, and the Digital Crash Courses will help SME employees to become proficient in areas like AI, cybersecurity or blockchain.

Green transformation The F2F strategy foresees the adoption of a Legislative Framework for sustainable food systems by 2023, sets sustainability targets for primary producers and outlines related legislative initiatives 187 . Higher ambition on climate/environment is part of the EU agri-food promotion policy 188 and of the new CAP proposal and reflected in Member State specific recommendations adopted by the Commission concerning future CAP strategic plans 189 . The food industry and retail are covered by horizontal environmental legislation and the Circular Economy Action Plan and will be concerned by new labelling requirements under F2F. The Commission is developing with stakeholders a Code of Conduct 190 to foster sustainable practices by food business operators 191 . The Commission is also working on a proposal for a legislative initiative on sustainable corporate governance for Q2 2021, to foster long-term sustainable and responsible corporate behaviour, including requirements to include sustainability into corporate strategies. Future measures will continue to guarantee the integrity of the Single Market, avoiding disproportionate SME burden and the erosion of the level playing field.

Strategic Public Procurement Food procurement can make a major contribution to a healthier and more sustainable (yet affordable) food offer, especially to vulnerable groups (children, patients and the elderly). The F2F foresees finding the best modalities to set minimum mandatory criteria for sustainable food procurement in Q3 2021.

Intellectual Property Geographical Indications (GIs - PDOs, PGIs 192 ) create important value, especially for small producers (overall GI sales value est. EUR 74.76 billion). GI products can have sales value that are twice as high compared to similar non-protected products. Many are internationally competitive exports and require protection internationally. As announced in the F2F, the European Commission has launched a GI reform, for better enforcement and sustainability 193 . F2F will help the scaling of EU action against food fraud, e.g. by improving import controls (for protecting EU food and drink geographical indications e.g. spirits from counterfeited goods).

International partnerships and dialogue

Strategic Partnerships (Critical Materials and input) The EU imports significant quantities of agricultural raw materials from third countries, when EU production is insufficient or inexistent such as in the case of vegetable oils, soya beans, rice, maize or fish. The EU is also dependant on imports of tropical products (e.g. coffee, cocoa, palm oil) and soya for feed, where sustainability can be an issue. The Commission is now developing in the meantime a contingency plan under F2F to ensure food supply and security in the EU in times of crises, and is developing a legislative proposal to minimise the risk of deforestation and forest degradation associated with products placed on the EU market. In the same vein, free trade agreements negotiated by the EU contain a trade and sustainable development chapter and sustainable food system requirements covering animal welfare, limited use of pesticides and antimicrobial resistance. Where possible organic equivalence arrangements have been negotiated e.g.: USA, Canada, Japan, etc.

Regulatory dialogue / cooperation The EU has pre-existing regulatory dialogues under Free Trade Agreements (FTA) (e.g. Canada, Japan, UK) and outside FTA frameworks (e.g. China, Korea, Ukraine, Taiwan). Regulatory cooperation is particularly useful in the areas of Technical Barriers to Trade, labelling and market surveillance and are therefore beneficial for EU exports of food products.

Networks and governance

Clusters cooperation EU agri-food clusters have a key role in supporting food SMEs in innovation and digitalisation 194 , as they capture important linkages in uptake of technologies, skills, infrastructure, business development and research. The co-operation with the EU Clusters Alliance has been very beneficial in providing real-time information on developments, opportunities and needs of agro-food companies.

Pact for skills The agri-food ecosystem faces a challenge in attracting staff with high-level skills not typical in the food area (digital skills, behavioural science, genetics, etc.), and in transferring skills as existing workers move to retirement. Food companies experience shortage of first line supervisors and managers. Hence, action under the Pact can be beneficial for food workers and overall performance. The ecosystem is characterised by part-time and self-employment (especially in SMEs/agricultural sector) 195 . ) 196 . A Roundtable for skills for the agri-food ecosystem took place on 18 February 2021 197 . It is expected to lead to the creation of a partnership for skills for the sectors concerned with participation of frontrunners who will have an impact on reskilling or upskilling needs in the ecosystem. Work is also ongoing under the ‘Blueprint on sectoral cooperation on skills for bio-economy, new technologies and innovation in agriculture’.

Enterprise Europe Network As 99% of food producers are SMEs (78% micro enterprises) the EEN can benefit even more the ecosystem (including via its agri-food group) to provide advisory services for the sustainability/digital transition and specifically to enable food companies to adhere to the new requirements foreseen under the Farm to Fork strategy. Targeted information on access to finance and to the (new and existing) financial instruments with a focus on green funding can be helpful in this respect.

Digital innovation Hubs Several of the Digital Innovation Hubs support agri-food companies in their digital transformation, and are also involved in the Agricultural Innovation Partnership (EIP AGRI), or based on an existing Food innovation pole. Digital Innovation Hubs in agri-food will speed up the uptake of innovative digital solutions.

Thematic Smart Specialisation Interregional Partnerships The Smart Specialisation (S3) Interregional Partnerships on high tech farming, consumer involvement, nutritional ingredients, traceability and big data, and smart sensors for agri-food can play a key role in this ecosystem 198 .

3.Construction Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and Budgetary Programmes

RRF The flagship ‘Renovate’ provides a unique opportunity for Member States to use their national recovery and resilience plans to boost renovation efforts, as proposed by the Renovation Wave. It chould also help to improve the green and digital capacity of the construction ecosystem to increase its competitiveness and resilience. . Note that a significant portion of RRF funding will be also going towards infrastructure projects.

CRII+/ERDF/ESF/CEF ERDF and ESF can support investment in digital technologies, adapting skills and recycling infrastructure platform for construction and demolition waste. CEF is very important for Trans-European Transport infrastructure projects and the construction of sustainable transport infrastructure. The ongoing negotiation of the Operational Programmes of the European Structural and Investment Funds is expected to secure adequate budget allocation to the green and digital transition of construction and the built environment.

Horizon Europe (including European Partnerships) Horizon Europe could cover different R&I needs of the ecosystem to address the twin transition. Under Pillar II ‘Global Challenges and European Industrial Competitiveness’, cluster 4 “Digital, industry and space” could accelerate the digitalisation of the sector, such as the broader use of robotics, industrial data platforms and AI as well as the development of digital permits and digital building logbooks. At the same time, R&I partnerships developing circular industrial technologies can provide a basis for increased circularity in construction processes. The Built4People Partnership under Cluster 5 “Climate, Energy and Mobility focuses on R&I needs to improve the carbon emissions along the whole life-cycle of buildings (including the embodied carbon of construction materials), and activities funded under Cluster 6 “Food, Bioeconomy, Natural Resources, Agriculture and Environment” focus on integrated solutions for circularity in the construction and buildings sector.

Just Transition Fund Potential areas of interest for construction are: (a) energy and transport infrastructure; (b) decarbonisation projects, economic diversification of the regions and social infrastructure; (c) circular economy and (d) re-skilling, upskilling of workers.

Digital Europe Programme In Digital Europe programme the support to industrial data spaces will allow the construction sector to tap into the large potential of new data driven business models. Under the Digital Europe Programme, the Commission is supporting the reskilling and upskilling of workers through short-term courses in advanced digital skills.

InvestEU Financing under the SME window will be available not only to sustain generally construction SMEs competitiveness, but also to help them to digitalise and contribute to the construction of more sustainable buildings. InvestEU will support energy and resource efficiency investments. 

Access to Finance The Sustainable Finance EU Taxonomy is expected to foster the finance of sustainable activities in companies themselves and of individual construction projects (construction of transport infrastructure; water projects; new buildings; renovation of existing buildings; individual renovation measures, installation of renewables on-site and professional, scientific and technical activities, acquisition of buildings).

Supportive regulatory environment

Main Single Market barriers within the ecosystem Obstacles to the internal market of construction products remain in the form of national marks and certification, in conjunction with insufficient and uneven market surveillance. The revision of the Construction Product Regulation will address these deficiencies. Regarding restrictions for construction services with market access and exercise requirements (e.g. insurance requirements and professional qualifications), infringement action and where appropriate ‘softer’ solutions based on guidance / recommendations towards Member States could be made. Regarding the posting of workers, a more active enforcement policy may be applied where Member States are in clear violation of applicable EU law to ensure that there are no unnecessary administrative barriers to cross-border provision of construction services. The European Labour Authority could also possibly look at ways to assist the Commission and the Member States regarding the promotion of cross-border service provision in relation to better enforcement of the rules in place for posting of workers.

Member States often add additional national requirements for CE-marked construction products, mostly in conflict with the current Construction Products Regulation (CPR). In addition, there is an uneven application of the CPR by the different authorities, magnified by unequal and generally too weak market surveillance. The EU acquis is incomplete and partly obsolete with regard to harmonised standards.

Construction enterprises are amongst those experiencing the longest payment durations, especially SMEs. 211 A closer monitoring and reporting of payment behaviour in the construction sector, accompanied by potential sanctions, seem to be an effective mechanism to tackle late payments and ensure enforcement of the EU Late Payment Directive. As announced in the SME Strategy 212 , this could include a virtual observatory for monitoring payment delays, clarifying unfair payment practices, and exploring the feasibility of alternative resolution/mediation mechanisms for SMEs for a fast resolution of payment disputes in commercial transactions.

Standardisation There are concerns about the slow delivery and non-compliance of the candidate standards proposed for harmonisation for construction products with the legal requirements, whereas these are at the core of the system and of mandatory use under the Construction Products Regulation. This prevents the system from meeting Member States and industry’s needs. The ongoing revision will address environmental impacts, circularity, safety of construction products and adaptation to innovation and digitisation. It will also consider harmonised rules for new areas such as 3D printing, prefabricated construction elements or houses, and building integrated PV products. Second generation of Eurocodes 213 , to be published in 2026, will enhance safety, sustainability and climate resilience of built environment. As mentioned in the circular economy action plan, the revision of harmonised standards could consider, where appropriate, circularity requirements.

eGovernment Online information on applicable formalities or building permit rules and procedures is often scarce, hard-to-find and predominantly in the local language. Only nine Member States have a fully digital buildings permit system in place. E-procedures are only available to a very limited extent. The Single Digital Gateway should improve this situation. Further transition to business models based on digital technologies is needed. 

Green transformation Proposed revisions of energy legislation (Energy Efficiency, Energy Performance of Buildings and Renewable Energy Directives) would support the implementation of the Renovation wave and will offer new opportunities to the construction ecosystem. Modality for an extension of ETS to buildings is under scrutiny 214 . Targeted financial support would help to accelerate the deployment of low carbon solutions, especially for households at risk of energy poverty. Action supporting skills development (e.g. training, certification) in the construction sector would be important to support renovation efforts and the availably of skilled labour professionals in the construction sector. An EU roadmap to reduce the whole life carbon of buildings 215 would provide a common understanding of the issue and inspire additional actions toward net-zero emissions in the construction sector and national authorities to design their own roadmap.

Digital transformation More harmonisation on data standardisation and rules regarding permitting and logbooks would further support the digital transformation of the ecosystem. The Data Governance Act sets out a new legal framework to foster the availability of data for use by increasing trust in data intermediaries and by strengthening data-sharing mechanisms across the EU, which is a foundation for the development of data spaces for the sector. Technologies such as AI, robotics, high performance computing, the Internet of Things, Digital Twins and 3D mapping of built environments have potential to make construction more efficient and sustainable.

Strategic Public Procurement Need to boost green procurement and shift to life-cycle costing approach. Further development of the green public procurement criteria would help to uptake a more life cycle approach and circularity principles 216 . The Big Buyers for Climate and Environment initiative helps to drive market demand for innovative and sustainable products and services 217 . Guidance on how to procure ‘green’ from the definition of the project to the implementation will help public investors 218 . There has been significant progress in the use of digital tools (Building Information Modelling) in the public procurement for construction, but still only 11 Member States have made its use obligatory and further guidance is needed.

Networks and governance

Clusters cooperation The European Cluster Collaboration Platform is the EU hub for industrial clusters, of which 83 clusters are working directly on construction. Many other clusters like digital or renewables are also important for the construction ecosystem. Their mobilisation is very important to ensure the transition of the ecosystem as a whole.

Pact for skills 219  As construction is a highly labour intensive industry, the human capital is a critical factor in the green and digital transition of the construction ecosystem. Companies are reporting a lack of workers and skills mismatches, therefore attracting new workforce and providing it with appropriate skills is crucial. The Blueprint for Sectoral Cooperation on Skills project addresses short and medium-term skills needs. The construction industry and the unions are also willing to be part of the Pact for Skills initiative, to foster further the sectoral collaborative approach in the skills development. A roundtable took place between stakeholders and the Commission on November 2020. Discussion is ongoing to formalise commitments. Furthermore, the SME strategy supports the ‘digital volunteers’ programme to promote the transfer of expertise in digitalisation from high-tech businesses to more traditional SMEs.

Enterprise Europe Network  The EEN has a ‘Sustainable Construction Sector Group’ which will need to continue to evolve to help relevant SMEs address the triple transition to sustainability, digitalisation and resilience, in particular using the forthcoming EEN Sustainability Advisors.

Digital Innovation Hubs Several European Digital Innovation Hubs (EDIHs) are specialised in construction across Member States. Together with the EEN and the EU hub for industrial clusters, the network of European Digital Innovation Hubs (EDIHs) offers with a seamless service to every company to take advantage of digital opportunities to optimise their production processes and to innovate their products and business models.

4.Cultural and Creative Industries Ecosystem

Transformative Initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and budgetary programmes

RRF Significant investment is needed for the ecosystem’s recovery. Strengthening skills and capacity building is essential to face and drive the green and digital transitions, across Europe. In particular, the production and distribution of digital content is included within the 20% digital target. The Member States can decide to co-fund the pan-EU projects like the audiovisual equity platform. Under the flagship initiative ‘Renovate’ targeted investments could make cultural infrastructure more sustainable, accessible to broader audiences and adapted/adaptable to the evolving needs of contemporary society. In line with the New European Bauhaus quality architecture and participatory design principles will need to be applied to adapt and upgrade infrastructure in/for the cultural sector in a sustainable way. Engagement with Member States on the CCIs needs to be pursued to ensure that the Recovery Plans address the CCIs, as they are amongst the worst affected ecosystems.

CRII+/ERDF/ESF/CEF These funds support adaptation of skills, creation of new jobs and uptake of advanced technologies. CCIs can also directly and indirectly contribute to five proposed Policy Objectives of the future Cohesion Policy 2021-2027. Regional/ local development strategies could promote cultural assets and creative businesses, support investment in infrastructure and in human capital. However, more take up is necessary, including in countries with low audiovisual capacity.

Creative Europe This Programme is dedicated specifically to the European CCIs and will be crucial for supporting recovery. The Programme has the general objectives of strengthening competitiveness and protecting and promoting cultural diversity. It aims at helping European organisations from of the cultural and creative sectors to scale-up, collaborate across borders, produce high quality content and reach European-wide audiences. The budget for 2021-2027 was increased 80% on an EU27 basis and encompasses audiovisual, cultural and cross-sectoral strands.

Horizon Europe (including European Partnerships) Under Cluster 2, R&I funding will be dedicated to cultural heritage and CCIs, focusing on deepening knowledge of CCIs and their role as driver for innovation, the interactions and spill-overs to other sectors, on how to devise efficient ways to strengthen the industries, as well as deeper research into specific sectors such as filmmaking and music. Furthermore, several R&I topics will require a deep involvement from the sector, such as for instance the New European Bauhaus. Under Cluster 4, support will be given to applications of a Media Data Space and a Virtual Reality (VR) Media Lab and Extended Reality (XR) technologies and applications. The European Institute of Innovation and Technology (EIT) plans to establish a new Knowledge and Innovation Community (KIC) for the CCSIs. A European-wide support structure will be created, with the mission to boost innovation and competitiveness of Europe’s CCIs.

Digital Europe Programme The ecosystem needs to accelerate digitisation. In line with the MAAP support will be given to (i) deployment of a media data space infrastructure and (ii) a European Digital Media Observatory – to tackle disinformation. The programme will also support SME to reskill and upskill employees to strengthen their digital skills e.g. through digital crash courses, and the deployment of a cultural heritage data space. The Dataspace for Cultural Heritage will aim at creating a common data Space to support to the digital transformation of Europe’s cultural heritage sector. It will build on the current Europeana platform and will vastly expand the current functionalities, in particular in relation to 3D digitisation, re-use of digitised cultural resources by different sectors.

InvestEU The ecosystem needs market instruments to tap into private investors and avoid dependence on public subsidies. Building on the successful CCIs Guarantee Facility 2014-2020 (over EUR 2 billion in lending mobilised), InvestEU will fund specific products: continue loan guarantees to CCIs; establish an audiovisual equity platform; support pilot equity for news media. More broadly, CCIs are eligible for general products under four windows of InvestEU. However, funding levels remains a challenge because of severe budget cuts to InvestEU.

Supportive regulatory environment

Single Market Surveillance The Commission monitors implementation of the Copyright and Audiovisual Media Services (AVMS) Directives, as well as the EU legislation on Design. Stakeholder dialogue and further studies are conducted where necessary. The MAAP foresees that the cooperation of the European Group of Audiovisual Regulators (ERGA) will be strengthened to better implement AVMSD. A voluntary cooperation mechanism (Memorandum of Understanding) was put in place at the end of 2020 by ERGA. The Commission will monitor its performance and propose improvements if necessary.

Main Single Market barriers within the ecosystem Establishing a true level playing field for all audiovisual media players and a fair environment for creators and those investing in content have been the central goals of the revised AVMSD and the modernised copyright framework (which is relevant also for other CCIs). The effective and consistent implementation of the revised AVMSD and copyright rules at national level will be key in order to make sure that they deliver. As regards the revised AVMSD, Member States must ensure full transposition while their media regulators must implement the new rules in practice, and enforce them where necessary. Access to and exercise of certain cultural and creative professional activities in a Member State are made conditional upon possession of qualifications and/or other national requirements (e.g. restorer of fine arts, dance teacher, archivist, etc.) These can lead to unjustified barriers to the free movement of persons and workers and can hamper the single market.

Standardisation Standard setting by the EU, i.e. instead of the Motion Picture Association from US, can contribute to avoiding  dependence on non-EU technology. The interoperability of data will be tackled as part of the Media Data Space project in the MAAP. In addition, as a follow up to the IP Action Plan, work will be undertaken as regards rights metadata. The issue of standards for archives could also be considered. Also, many hardware platform suppliers signed the Open XR standard, but there is still a need to set frameworks on a global level. The same applies to eBook and digitisation of cultural assets for which standardisation and interoperability would facilitate growth.

Digital transformation  The most pressing issues arising in the digital transition, such as the level playing field with platforms and the remuneration of creators, have been addressed in the new AVMSD and Copyright Directives. The Digital Markets Act and the Digital Services Act will complement the Copyright Reform and the revision of the AVMSD to ensure a fair online environment for the creative sectors and promote a level playing field that is crucial to strengthen European content and support essential values such as cultural diversity and media pluralism in the digital context.  More broadly, the majority of internet traffic is around video and creative content, so that cultural and creative industries are key to generating user profiles and economic value of online players. In order to become more innovative and competitive, European media companies could be empowered to make better decisions and deploy more advanced solutions based on insights gleaned from data. The Commission proposes to bring this about by fostering the creation of a European ‘media data space’, building on the European Data Strategy (see sections on Horizon Europe/Digital Europe).

Green transformation In line with the MAAP, the Commission will collaborate closely with the industry and Member States on sharing existing best practices and agree on common tools and green standards. The Commission will also be working on a best practice guide for green production and provision of services 231 .  These actions will complement the Digital Strategy on making infrastructure such as data centres climate neutral. In addition, the Commission is collaborating closely with EU Member States on the adaptation of cultural heritage to climate change impacts. The New European Bauhaus initiative is also relevant for green design and architecture.

Intellectual Property The full transposition and effective implementation by Member States of the 2019 Directive on Copyright in the Digital Single Market and the AVMSD can ensure copyright rules fit for the digital age. Once implemented, the new rules will facilitate licencing and ensure a fairer market place for rights holders when negotiating with online platforms and remuneration of authors and performers. As outlined in the IP Action Plan and the Media Action Plan, more effective enforcement of IP rights in the digital environment is key to support the competitiveness of CCIs. The Commission will reinforce cooperation with all involved players to ensure existing remedies to fight against piracy are more efficient. Particular attention could be paid to fostering the cooperation amongst national enforcement authorities and cross-border enforcement.

Networks and governance

Industrial Networks The promotion of collaboration is being pursued in the ecosystem. The Media and Audiovisual Action Plan foresees the creation of a European News Media Forum to develop an innovation agenda as well as a European Virtual Reality/Augmented Reality industrial coalition to stimulate cooperation across industry sectors. The Coalition will be based on a broad, cross-sectorial approach involving industries, technology providers and creatives. The Coalition would present, by end 2021, a strategic paper setting out a) the extent to which VR/AR/XR are deployed in the media sector; b) objectives for optimum deployment of VR/AR/XR in the media sector to be reached by 2026; c) concrete commitments on how the industry will contribute to meet these objectives.

Pact for skills Digital skills need to be developed in the CCIs, both for creative and for technical workers. Entrepreneurial and managerial skills are also key for professionalisation. The component dedicated to SMEs makes a contribution to boosting the skills of professionals in the CCIs ecosystem. Particular activities are also being carried out on cultural heritage skills by the Commission under the Blueprint for Sectoral Cooperation on Skills 232 . Sector-specific skills challenges are addressed by the Creative Europe Programme (training, mobility and experience-exchange schemes), including in synergy with Erasmus+. Furthermore, the SME strategy supports the ‘digital volunteers’ programme to promote the transfer of expertise in digitalisation from high-tech businesses to more traditional SMEs.

Enterprise Europe Network The Enterprise Europe Network (EEN) sector group on cultural and creative industries helps creative businesses innovate and grow on an international scale. It could also use the forthcoming Sustainability Advisors to ensure that SMEs in this ecosystem are able to make the transition to sustainability. The MAAP builds on the experience of EEN to develop a tailor-made online tool guiding media companies through the relevant EU support instruments.

Digital innovation hubs Several of the European digital innovation hubs are specialised in media. They will be complemented by the Creative Europe support for Creative Innovation Labs focusing on content and cross-sectoral collaboration. The ecosystem is encouraged to make the most of the network of EDIHs, which offer a seamless service with the EEN and Clusters.

5.Digital Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and budgetary Programmes

RRF 20% of RRF funding (up to EUR 134 billion in 2018 prices) will be invested in digital, which may significantly strengthen the European digital ecosystem and the ICT sector. In particular, investments in high-impact multi-country projects in critical technological areas will enable the deployment of large digital infrastructures, capabilities and production capacities that will enhance European digital sovereignty and underpin the digital transformation of all sectors, with important spill-overs for the EU economy It is important to ensure that national Recovery Plans have a strategic approach towards the digital transition, combining both reforms and investments with a lasting positive impact on the future of Member States, and timely and effective implementation. 

CRII+/ERDF/ESF/CEF These programmes provide resources for the deployment of connectivity networks, the digitalisation of businesses and the public sector and digital re- and upskilling. Communication infrastructure, including very high-capacity networks are crucial for the development of the whole economy. Additionally, ESF supports more and better digital skills training to make the labour force ready for the digital transition.

Horizon Europe (including European Partnerships) The second pillar in Horizon Europe will support R&D in ICT technologies mainly in the Cluster 4: Digital, Industry and Space. The following public-private partnerships in preparation. (i) The EuroHPC Joint Undertaking (JU) aims to support R&D&I in high performance computing (HPC), including quantum computing resources, and seeks to provide computing solutions, improving cooperation in advanced scientific research, boosting industrial competitiveness, and ensuring European technological and digital autonomy. (ii) The JU on Smart Networks and Services, which aims to strengthen the position of the European towards next generation ‘6G’ network systems, devices and associated service infrastructures is being prepared. (iii) The JU on Key Digital Technologies (KDT) will reinforce Europe’s technology sovereignty in electronic components and systems to support future needs of vertical industries and the economy at large. Furthermore breakthrough innovation, market deployment and innovative solutions will be supported in the third pillar of Horizon Europe, including by EIT DIGITAL 249 .

Just Transition Fund To invest in digitalisation and in digital connectivity in regions facing particular challenges deriving from the green transition.

Digital Europe Programme Deployment of advanced technologies such as supercomputing and artificial intelligence and quantum computing presents unparalleled opportunities for growth, competitiveness and technological autonomy of the European economy. The effect of deployment of these technologies will affect virtually all sectors of the economy. Challenges related to cybersecurity and threats arising from an increasingly digitalised economy as well as lack of advanced digital skills needed to develop and deploy these technologies will be addressed by the programme. The programme will also support the deployment of European Data Spaces in nine sectors (as announced in the European Data Strategy), AI Testing and Experimentation Facilities, and the Cybersecurity Competence Centre and Network, enhancing the EU's open strategic autonomy.

InvestEU Three InvestEU windows (out of total four): sustainable infrastructure (including very-high capacity connectivity and cloud computing); research, innovation and digital; and social investment and skills (including digital skills and capabilities) are closely linked with the development of the digital ecosystem. In addition, the SME window will stimulate debt and equity financing for digitalisation projects of SMEs and small mid-caps.

Access to Finance SMEs and start-ups face a major finance gap in Europe of EUR 20-35 billion despite substantial support programmes at EU and national level, and in some Member States, access to finance remains one of the key problems they face. There is a need to diversify sources of finance, enhance venture capital invested in European SMEs, start-ups, and address geographical imbalances within the EU (with Central and South-Eastern Europe facing particular challenges). The Commission is working closely with Member States, notably through the Digital Innovation and Scale-up Initiative.

EU Space Programme and European Defence Fund Space Programme will implement an autonomous civil global navigation satellite system (Galileo), a civil regional satellite navigation system (EGNOS), an autonomous civil Earth observation system (Copernicus), space situational awareness (SSA) and a satellite communications service (GOVSATCOM). Uninterrupted, up-to-data and secure space-related data, information and services delivered by the EU space programme are enablers for developing new applications. Additionally, space technologies in relation to geolocalisation, quantum communications and imaging are enablers for new ICT services, start-ups and innovative products and services.

Supportive regulatory environment

Main Single Market barriers within the ecosystem A substantial body of legislation has been put forward or was reviewed over the last years (e.g. electronic communications regulation, copyright, data protection, digital public services, cybersecurity) and its transposition, implementation and enforcement are closely monitored. Where gaps have been identified, the Commission has tabled relevant proposals or is in the process of doing so (please see the point below on ‘Digital transformation’). Some important barriers were identified such as: Inefficiencies in the deployments of electronic communications networks, mainly due to legal and administrative burdens (burdensome permit granting, high fees, problems to access to physical infrastructure, lack of information on existing infrastructure, etc.). Inconsistent regulatory approaches by national authorities which might create disincentives for investments into new very high capacity networks (VHCN). Fragmented approach to spectrum assignments, which does not promote wireless connectivity investment, in a coordinated fashion, for the benefit of internal market, (in particular market shaping license conditions, or setting asides spectrum for new entrants, as well as different types of authorisation types regimes applicable in to a specific band). Lack of reliable, energy-efficient, trusted, secure, interoperable and decentralised cloud and edge infrastructure and service providers (dominance of non-EU players with limited European presence). Lack of genuine single market for data, lack of data sharing within/across sectoral and national borders, lack of high-quality and high-volume data processing capacities. Digital divide and insufficient sustainable take-up of advanced technologies (in particular by SMEs and public entities).

Standardisation In the digital area, there is a need for global standards providing for interoperability. Europe needs to mobilise resources and reinforce the European players with coordinated positions with Member States and industry in global standard organisations to drive technology leadership, values and ethics.

Digital transformation  Regulatory obstacles remain in several areas, e.g. diverging national rules in the area of online platforms; risk of inconsistent regulatory frameworks among the Member States on advanced technologies (e.g. AI); data sharing across the Member States and across businesses etc. A number of legislative revisions to improve the current framework are already ongoing or planned (e.g. proposal for review of Directive on security of network and information systems (NIS Directive); Data governance Act, Data Act (proposal planned for Q3 2021); review of the Broadband Cost Reduction Directive, review of the Roaming Regulation; review of the eIDAS Regulation; follow-up to the White Paper on Artificial Intelligence, including on safety, liability, fundamental rights and data). Moreover, the Commission adopted in September 2020 a Connectivity Toolbox Recommendation, and recently proposed for two legislative initiatives - the Digital Services Act (DSA) and the Digital Markets Act (DMA) – with the objective of creating a a level playing field for digital businesses, as well as a safer digital space for users of digital services.

eGovernment There is significant gap between frontrunners and laggards – for example, while 94% of Finnish internet users use the digital public services, whereas only 32% of Italians do. 250  The performance across Member States has converged in the last years, but there is still room for improvement. European countries could improve the implementation of digital enablers in eGovernment service delivery. In particular, some areas require attention: promotion of cross-border and interoperable public services (EU e-identification, the Once Only Principle, Blockchain), inclusiveness and accessibility, and strengthen cybersecurity 251 .

Green transformation The green and digital transitions are complementary goals. Digital solutions have a critical role to play in supporting Europe’s transition to a more sustainable economy and society. The green transformation can boost the future of digital technologies, with reduced resource usage, waste and greenhouse gas emissions. In parallel, the digital ecosystem itself (networks, data centres, and connected objects) will need to become more energy and resource efficient, reuse waste energy, and use more renewable energy sources. Numerous EU initiatives will address this – including climate neutral data centres and electronic communications networks by 2030, the Circular Economy Action Plan and the Circular electronics initiative 252 . These will be supported by specific data spaces enabling the needed data collection and data sharing.

Strategic Public Procurement Innovation procurement (public procurement that buy the development and/or adoption of new innovative solutions) supports reinforcing industrial competitiveness and increases private sector investments in strategic digital and green technologies. It is an underused instrument in Europe in key digital areas (e.g. AI, robotics, Blockchain, advanced computing etc.) and compared to other parts of the world 253 .Sustainable public procurement (green and socially responsible) can speed up the transition of ICT towards contributing to the Green Deal climate and environmental objectives. The integration of environmental requirement in public procurement is essential to reduce the impact of public authorities and to promote eco-innovation. It promotes fully circular and fair ICT infrastructure and products, maximising their lifetime, closing material chains where possible, minimising carbon emissions and the impact on the environment, and minimizing any impact on human rights and labour rights.

Intellectual Property Regarding Standards Essential Patents (SEPs), the IPR framework can be improved to ensure a balanced, smooth and predictable environment that supports a sustainable and efficient standardisation ecosystem and SEP licensing environment so that contributors to the standards are fairly rewarded whilst implementers can access the patented technologies on reasonable terms. This is crucial for the rapid take up of IoT in Europe.

International partnerships and dialogue

Strategic Partnerships (Critical Materials and input) Implementation of the Critical Raw Materials Action Plan is key to secure access to primary and secondary raw materials necessary for the development of digital technologies. Strengthening cooperation with like-minded third countries, including on trade, to support safe global supply chains with interdependencies complement the strategic partnerships.

Networks and governance

Industrial Networks Raw materials are a critical input to digital technologies. The Industrial Alliance on Raw Materials will address the raw material dependencies and reinforce resilience of supply chains. The Alliance on Data, Edge and Cloud would aim to foster joint development and deployment of next generation European cloud and edge technologies for businesses and the public sector in the EU. Several declarations relevant to the digital ecosystem have been signed by Member States. While such declarations in themselves do not amount the creation or a launch of industrial alliances, such declarations state the intention to join forces and collaborate on common projects and priorities, e.g. on: Processors and semiconductor technologies 254 ; Quantum Communication Infrastructure 255 ; Cooperation on Artificial Intelligence 256 ; Access to at least 1 million sequenced genomes in the European Union by 2022, e.g. European Blockchain Partnership 257 ; Letter of intent on the testing and large scale demonstrations of Connected and Automated Driving 258 .

Clusters cooperation There are 1,214 clusters registered on the European Cluster Collaboration Platform out of which 274 contribute to Digital. As part of the European recovery plan, clusters could help industrial ecosystems to develop a robust digital industry and facilitate the deployment of new technological solutions, particularly in businesses with a low degree of digital technology uptake such as SMEs.

Pact for skills European skills partnerships 259 in key industrial ecosystems, involving a wide range of actors, that will promote joint actions for reskilling and upskilling and investment in training. In this context, the existing Digital Skills and Jobs Coalition will canvass pledges related to the development of digital skills in different sectors. Activities will be showcased and disseminated through the European Digital Skills and Jobs Platform.

Enterprise Europe Network The Enterprise Europe Network (EEN) has an ‘ICT Industry and Service Sector Group’, which will help SMEs with their digital transformation, adapting their business processes and improving their IT readiness. EEN will help the SMEs make use of the EU Digital Innovation Hubs (EDIH) services and carry out basic digital assessments for SMEs. It needs to continue to evolve to help relevant SMEs become more resilient and ensure that digitalisation and sustainability go hand in hand.

Digital Innovation Hubs Acceleration of the uptake of digital technologies (such as robotics, Artificial Intelligence and data platforms) by SMEs will improve the capabilities of the ecosystem. The network of Digital Innovation Hubs (DIHs) will help ensure that every company, small or large, high-tech or not, can take advantage of digital opportunities to optimise their production processes, and to innovate their products and business models. The geographical spread of the network covering all regions of Europe is key to offer services at working distance to all companies and public administrations. DIHs will offer a seamless service with the EEN and Clusters.

6.Electronics Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and budgetary Programmes

RRF In the Annual Sustainable Growth Strategy 2021, the Commission encourages Member States to invest in specific areas, among these the Scale Up flagship focusing on digital processors and cloud. Several Member States already plan reforms and investments for microelectronics to be supported by RRF. Part of these national investments can contribute to a multi-country project on processors and semiconductor chips, which has the potential to boost highly innovative design and fundamentally innovative process technology production capabilities in Europe.

IPCEIs The first IPCEI on Microelectronics approved in December 2018 under State aid rules allows France, Italy, Germany, the UK and Austria 267 to jointly advance innovation in microelectronics up to the first industrial deployment through transnational cooperation projects with major synergies across industry. The total national funding of EUR 1.9 billion unlocks EUR 6.53 billion investment from 30 companies and 2 research organisations, including three SMEs. A large number of Member States 268 have signed a declaration expressing their interest to work together in order to bolster Europe’s electronics and embedded systems value chain with a strong focus on processors and semiconductor chips, through development of a proposal for a possible new IPCEI.

Horizon Europe (including European Partnerships) The Key Digital Technologies (KDT) Joint Undertaking (JU) under Horizon Europe aims at reinforcing Europe's potential to innovate through robust electronics value chains providing secure and trusted technologies tailored to the needs of user industries. It will contribute to boosting the EU’s competitiveness and technological sovereignty through support for R&D into essential electronic components and related manufacturing equipment. The R&I Programme also fosters the use of advanced electronics in other digital and non-digital priorities, often in partnership with industry and academia, such as R&I in Artificial Intelligence, High-Performance Computing and mobility.

Digital Europe Programme Testing and Experimentation Facilities for Edge AI under Digital Europe will support market development of Edge AI, of high strategic relevance for Europe. The proposed platform is meant to provide the opportunity for EU enterprises, large and small, to test prototypes with the most advanced AI computing technologies.

InvestEU The InvestEU programme identifies processors design, edge AI and semiconductor manufacturing among the areas of strategic relevance for investments particularly in the Research, Innovation and Digitalisation Window.

Access to Finance As the electronics ecosystem is highly capital intensive, SMEs and Start-ups face major hurdles in accessing adequate source of finance to upscale their technology developments. In addition, technology development entails high financial risks due to inherent long learning cycles. Sources of finance need to be diversified, to significantly complement funding of European programmes

EU Space Programme and European Defence Fund Synergies with the space programme and the European Defence Fund could be further explored to tackle specific secure critical dependencies on sourcing electronic components from outside the EU, and demand for state-of-the-art technology, which is more prevalent than in the past.

Supportive regulatory environment

Standardisation Standardisation needs and opportunities are in emerging markets and applications enabled by semiconductor technologies, namely autonomous driving, future connectivity for 6G, edge AI and security. On automotive, as the technology for highly automated vehicles and electric vehicles continues to develop at global level, in addition to EU legislation, setting and /or updating safety standards for electronics in vehicles, and connectivity with the infrastructure, other vehicles and humans would be crucial for Europe to maintain industrial competiveness in the field. On connectivity and 6G, setting specification standards on next generation 6G core technology early ahead would be important in order to re-build a position in a strategic field interlinked with automotive, in particular highly automated driving, and with interoperability and security of critical infrastructure.

Green transformation Energy-efficient electronics are at the heart of the green and digital transformation contributing to optimisation of resource usage, reduction of greenhouse gas emissions, environmental monitoring and protection, etc. Numerous EU initiatives address this – including the target on climate neutral data centres by 2030 and the Circular Economy Action Plan. The Circular Electronics Initiative will contribute to the green transformation of electronics and the reduction of emissions by making the life of devices longer, tackling waste, increasing the circularity of value chains and encouraging and enabling users to use their devices for longer (right to repair). Significant research efforts will be devoted to designing and developing highly efficient processor chips.

Strategic Public Procurement There is scope to exploit European industry’s strengths in secure and low-power technologies. Development of standards for green and/or circular electronics and cybersecurity, and eventual certification schemes could facilitate strategic public procurement, which in turn would stimulate standardisation activities.

Intellectual Property Intellectual Property and patents are a key ingredient of the electronics ecosystem. An additional element in the electronics ecosystem are de-facto standards established by market leaders or ad-hoc cross-industry collaborations. A significant number of EU companies with relevant intellectual property (IP) have been acquired by foreign groups, which has created critical dependencies for the ecosystem. Moreover, as in most other ecosystems, the transfer of IP developed in academic R&D to the market remains a weakness in Europe compared to other areas of the world. Regarding foreign acquisitions, the recent EU foreign direct investment (FDI) screening regulation that became operational on 11th October 2020 will provide the Commission the possibility to assess the risks of foreign investments for companies active in the semi-conductor sector, among others, in terms of impact on security and public order from a European perspective.

Networks and governance

Industrial Networks On 7 December 2020, a large number of Member States 269 signed a declaration expressing their interest to work together in order to bolster Europe’s electronics and embedded systems value chain with a strong focus on processors and semiconductor chips. In this joint declaration, Member States put forwards a possible industrial alliance on microelectronics and processors, which could mobilise industrial partners, as well as possibly designing a proposal for a new IPCEI.

Pact for skills Microelectronics is one of the sectors included in the launch of the Pact for Skills. The shared engagement and approach to skills development, pooling efforts from public and private stakeholders, are the right ingredients to address the critical skills gap in the field of electronics components and systems. The implementation, supported by networking, knowledge and resource hubs, also requires an active collaboration of MSs to achieve the common objectives. Skills partnership for microelectronics requiring overall public and private investment of EUR 2 billion providing upskilling and reskilling opportunities for 250,000 people (2021-2025) in Europe’s electronics clusters 270 .

Enterprise Europe Network The Enterprise Europe Networks (EEN) has a well-functioning Sector Group on the ICT Industry & Services. The Group and EEN as a whole could look to cooperate more closely with the Digital Innovation Hubs and cluster organisations to promote the sector. It could also use the forthcoming Sustainability Advisors to ensure that SMEs in this ecosystem are able to make the transition to sustainability.

Digital Innovation Hubs Several of the European Digital Innovation Hubs are specialised in electronics and are well-placed to support SMEs to include advanced chips in their products and services. The network of European Digital Innovation Hubs (EDIHs) can help ensure that every company, small or large, high-tech or not, can take advantage of digital opportunities to optimise their production processes, and to innovate their products and business models. The geographical spread of the network covering all regions of Europe is key to offer services at working distance to all companies and public administrations.

7.Energy-Intensive Industries Ecosystem

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance

Mapping of policy tools in more detail

Funding and budgetary programmes

RRF The RRF provides an unprecedented opportunity for cooperation between Member States to coordinate investment efforts on common challenges including the green transition of EIIs and industry and national recovery and resilient plans need to reflect this appropriately. Projects related to demonstration and first deployment of new technologies, such as hydrogen-based steelmaking, carbon capture, utilisation and storage, sustainable chemical recycling technologies for plastic waste and system integration for circularity, development of infrastructure relevant for twin transition (hydrogen, CO2 transport) as well as projects in line with the EU’s Action Plan on Critical Raw Materials 273 could be prioritised. The Member States are encouraged to invest in common flagship areas like ‘Power Up’ which stated ambition is to support the building and sector integration of almost 40% of the 500 GW of renewable power generation needed by 2030, support the instalment of 6 GW of electrolyser capacity and the production and transportation of 1 million tonnes of renewable hydrogen across the EU by 2025.

CRII+/ERDF/ESF/CEF The twin transition of EIIs calls for up-skilling and re-skilling. ERDF and ESF supports the adaptation of skills, creation of new jobs as well as smart specialisation, the uptake of advanced technologies and industrial transition. Building cross-border infrastructure links (CEF) is important for the industry's transition to climate-neutrality and circularity (Hydrogen infrastructure, CO2 transport). Ongoing efforts will be needed to direct investments into the priority areas based on pathways or sectoral roadmaps that are being implemented by the EIIs and to secure adequate budget allocation.

Horizon Europe (including European Partnerships) New technological solutions and their uptake are at the core of Processes4Planet 274 , Clean Steel 275 and Clean Hydrogen 276 partnerships in Horizon Europe. Some of the destinations under Clusters 4, 5 and 6 are highly relevant for further development and demonstration at industrial scale, including hydrogen-based steelmaking, carbon capture, utilisation and storage, safe and sustainable by design chemicals, decontamination of waste streams, and system integration for circularity as well as innovation for safety, sustainability and circularity of plastics, including bio-based and biodegradable plastics. The Research Fund for Coal and Steel Modernisation Package revising the legal bases of the RFCS Research Programme aligns the research objectives in Steel to the Green Deal objectives. It will also allow for the use of ECSC assets to fund breakthrough technologies under the Clean Steel partnership in combination with Horizon Europe funding.

EU ETS Innovation Fund It supports low-carbon innovation in energy intensive industries. The Fund supports both the decarbonisation of industrial processes and substitute products which deliver low-carbon alternatives to the carbon-intensive ones. The support also includes carbon capture, use and storage in the sectors covered by Annex 1 to the EU ETS Directive 277 .

EU ETS Modernisation Fund The Modernisation Fund supports the decarbonisation of energy and industrial sectors in its ten beneficiary Member States. Energy efficiency investment or renewable electricity generation in energy intensive industries are among its priority areas.

Digital Europe Programme It will support the setup of Manufacturing Data Spaces, which integrates material and semi-finished products data into the supply chain of the Manufacturing sector. Data and material flows will also be relevant for the Green Deal Data Spaces that can contribute qualified information to product passports and support the reuse of material and energy. The Digital Europe Programme, will fund the design and delivery of specialised programmes in key capacity areas like data and AI, cybersecurity, quantum and HPC and support the reskilling and upskilling of workers through short-term courses in advanced digital skills.

Just Transition Fund EIIs are interlinked between themselves and often operate in a form of EIIs’ clusters, the Just Transition Fund will address the needs of carbon-dependent regions related to the transition. Eligibility criteria for projects in areas covered by the Emission Trading System (like EIIs) could allow investments in sectors with great investment needs but insufficient supply of robust clean solutions available on the market, provided that they lead to sufficient levels of greenhouse gas emission reduction 278 .

InvestEU The SME window will provide enhanced condition to implementing partners/financial intermediaries in order to stimulate them to finance SMEs in transition towards sustainability and climate-neutrality. Investments in Raw Materials and EIIs under the Sustainable Infrastructure Window, in particular in view of the need for resilient EU value chains, are envisaged. InvestEU will contribute to the Just Transition Mechanism by deploying an InvestEU Just Transition Scheme, aiming to support economically viable investments by private and public sector entities aligned to Just Transition objectives. Actual investments will be followed in the course of the InvestEU implementation.

Access to Finance De-risking of initial investments into industrial scale demonstrators of green technologies and launch of markets for green and circular products is needed. EU ETS Innovation Fund and EU ETS Modernisation Fund support respectively low-carbon innovation and decarbonisation in the EIIs. Further analysis on de-risking measures (e.g. carbon contracts-for-difference, insurance schemes and special purpose vehicles for off balance sheet financing) is needed to support the uptake of new low carbon technologies at industrial scale. The Green Tech Investment Initiative, as mentioned in the SME strategy, is also relevant to increase the access to equity finance for innovative SMEs and start-ups that develop and adopt green tech solutions. Green tech investment could encourage the development of innovative solutions that will help the energy intensive industries to achieve the green transition.

The sustainable finance taxonomy will be essential to achieve the goals of the European Green Deal. Taxonomy criteria reflect best performance levels in terms of greenhouse gas emissions and will be regularly reviewed to ensure they chart a credible pathway toward decarbonisation. 

Supportive regulatory environment

Main Single Market barriers within the ecosystem A truly Single Market for goods and movement of workers provides the scale and business environment needed for EIIs’ global competitiveness and transition to climate-neutrality. Enhanced use of the SMTD (Directive (EU) 2015/1535 addressing the prevention of technical barriers in the internal market) and enforcing Single Market rules, can support the removal of barriers in this ecosystem. A disparity between Member State regulation can be observed, for instance in how some of them transpose EU chemical legislation, air and water quality rules and the consequences for basic industries or mining and extractive activities. National gold plating regulation hinders cross border activities and creates fragmentation in the Single Market. Fragmented definition and regulation of these industries can be addressed by means of encouraging cooperation and best practice exchange among the regulators.

Standardisation Standardisation is instrumental for creation of markets for green and circular products within the EU and internationally. They facilitate the uptake and consolidation of mature green solutions. This work needs to advance and EU could aim to keep leadership in green standard setting as new players intensify their activity in global fora. 

Green transformation For green transformation at a largescale, the policy framework could further support the business case for private investments. Breakthrough technologies for deep decarbonisation require substantial upfront investments and higher operational costs to produce green products in the business environment where prices are set internationally and differentiation between green and conventional products is currently lacking. The EU ETS and many environmental regulations, e.g. Extractive Waste Directive, Industrial Emissions Directive and Environmental Impact Assessment Directive, are crucial in defining the operating environment for EIIs. While markets for climate-neutral and circular products are scarce, different levels of environmental regulation can affect the competitiveness of energy-intensive industries. A level playing field, an effective carbon leakage prevention framework and measures to create markets for sustainable products (including through the EU’s Sustainable Products Initiative) are required to address these concerns. All relevant policy tools could be used to create lead markets for green and circular products. In most of cases there is still no business case for transformative investments, all available tools could be used to adjust policy framework, including (1) Sustainable Product Policy, allowing to distinguish clean and circular products on the market; (2) competition policy and public procurement, allowing necessary cooperation between market players and launch of the new markets for green and circular products 279 ; (3) availability of financial instruments allowing to de-risk initial investments that are too risky for individual companies; (4) development of relevant infrastructures and supply of large quantities of renewable energy and internationally competitive prices. Furthermore, the regulatory framework has the potential to encourage the use of energy management systems and better process controls to reduce energy use, support industry to make cost-effective energy efficiency investments, invest in cogeneration, favour industrial symbiosis, encourage sharing of information about waste heat and finding economically attractive uses for it.

Digital transformation Digital technologies and better use of data will act as crosscutting enablers for industrial transformation. The Commission’s proposal for a Data Governance Act 280 aims to respond to the lack of clear rules/mechanisms for secure data sharing.

Strategic Public Procurement Public procurement is an important tool for creating markets for green and circular products. There is a need to boost green procurement and shift to life-cycle costing approach, including trade-offs between production and use-phase emissions. The importance of public procurement is not fully reflected in public policies, and low-carbon and circular products public procurement strategies are insufficiently implemented in practice. Development of Sustainable Product Policy and its reflection in public procurement strategies will allow to use public procurement as an effective tool to launch and develop the markets for green and circular products. Guidance on how to procure ‘green’ from the definition of the project to the implementation would help public investors.

Intellectual Property Intellectual Property will remain very important for maintaining and strengthening the leadership in green and digital economy and to prevent innovation leakage.

International partnerships and dialogue

Strategic Partnerships (Critical Materials and input) Raw materials are at the core of the green and digital transition. Securing supply of raw materials is particularly relevant for all sectors in the EIIs ecosystem. The EU needs to boost extraction and/or production of key raw materials in the EU and complement it with undistorted and sustainable supply of raw materials from global markets. The implementation of the Critical Raw Materials Action Plan is a key task for the coming years. Continued efforts to diversify supplies, establishing strategic partnerships and securing of adequate financial tools for their implementation will be an ongoing work.

Networks and governance

Industrial Networks  These are very important for enabling transition, pooling resources and sharing risks. The already launched alliances (on Batteries, Plastics, Clean Hydrogen and Raw Materials) are relevant for EIIs. Reflections whether to launch a Renewable and Low-Carbon Fuels Value Chain Alliance have been announced in the sustainable and smart mobility strategy 281 . 

Clusters cooperation The European Cluster Collaboration Platform (EU hub for industry clusters) has validated 42 clusters on plastics, 7 in iron and steel, 21 clusters on paper and packaging, 8 in mining and quarrying (with a European Cluster Partnerships on Geo-Energy 282 with clusters from 5 Member States + Turkey), 2 on non-ferrous metals, 2 on ceramic materials and powders. Their mobilisation would be very important to ensure the transition of the ecosystem as a whole.

Pact for skills Development of skills is needed to support green transition in line with EU Skills Blueprints and other European programmes 283 . The green transition will require major and quick transition. It is unclear whether activities related to the Pact for skills will be fully solve the skill mismatch fast enough. Furthermore, the SME strategy supports the ‘digital volunteers’ programme to promote the transfer of expertise in digitalisation from high-tech businesses to more traditional SMEs.

Digital Innovation Hubs They support the introduction of data-driven business models based on new technologies such as blockchain, Artificial Intelligence (AI) and High Performance Computing, to substantially increase the competitiveness of SMEs in the Energy-Intensive Industries with process optimisations and new instruments for circularity. They will offer a seamless service with the Enterprise Europe Network partners and the cluster organisations.

8.Energy – Renewables Ecosystem 

Transformative initiatives

Towards an EU policy toolbox fit for purpose

The ecosystem at a glance