EU industrial policy and the liberal logic of economical integration
Industrial policy, in the general sense, is seen as a form of marketplace intervention which distorts competition by subsidising selected companies or industries. Therefore, the first EU treaties already provided for a general ban on State aid which could adversely affect trade between associate States and consequently hinder European economical integration.
In the European Union, any industrial intervention has a dual dimension – external to the planet and interior to the Union market. Industrial policy in the EU, therefore, had to balance the request for support and the rule of equal competition from the outset, while remaining rooted in the liberal logic of economical integration.
In view of the elimination of conventional trade instruments – not only customs and quantitative restrictions, but besides physical controls at the interior borders of the EU, method and fiscal barriers – which followed the creation of the Single European marketplace in 1993 and the adoption of the single currency by most associate States, state aid remained the last instrument of government intervention on the market.
The deficiency of exclusive competence in industrial policy has made the European Union based for decades on a decentralised and reactive approach – it is the associate States, not the European Commission, who have decided how to support their own manufacture within the Union market.
The consequences of the wide admission of public aid within the integrated area – first the European economical Community, and now the European Union would be negative. It should be stressed that, unlike interference with marketplace mechanisms in the framework of industrial policy in China or in the USA, specified action in the EU has not only an external but primarily an interior effect. The aid granted to an undertaking in 1 Union country, in the absence of any barriers to trade in goods and services and the free movement of factors of production, results in an immediate deterioration of the competitive position of operators located in another associate States.
This is essential to realize the problems of defining and implementing the interventional dimension of industrial policy in the EU – a substance that non-EU partners do not gotta consider at all. Consequently, industrial policy in the EU has been subject to liberal economical integration logic from the outset.
Decentralised and reactive industrial policy of EU associate States
Although the provisions on the prohibition of State aid (with many exceptions based on marketplace failures) have been in force since the beginning of the EEC, it was only in 1992 that soft provisions were introduced into the Treaty establishing the European Community to support manufacture and improve its competitiveness in the Union dimension.
While issues relating to another EU policies, specified as cohesion policy, have been covered by shared competences between the EU and the associate States, the European Commission has only been given the chance for supporting, coordinating or complementary initiatives by associate States for industry.
In practice, this meant leaving the competence to conduct industrial policy in the hands of national governments.
From the competition defender to the intervention coordinator
In the absence of competence to conduct industrial policy, the European Commission has for a long time limited itself to being a guardian of competition in the Single European Market. This approach has been maintained until fresh crises – the COVID-19 pandemic and the energy crisis caused by the war in Ukraine.
The crises of fresh years have shifted the European Commission from its function as a competition defender towards an intervention coordinator – the logic of the free marketplace has besides begun to take account of the request to stabilise and support national economies.
At that time, as expected by EU associate States, the Commission eased the rules on State aid, resulting in increased marketplace intervention by larger and richer associate States. This was a turning point where competition logic in the EU marketplace besides began to take into account the request to stabilise and support national economies.
Change in the paradigm of industrial policy in the EU
Only the mentioned phenomena and challenges – external (crisis) and interior (digital and energy transformation) – prompted the EU institutions to engage not only in discussions at European level but besides in concrete actions to improve the competitive position of European companies towards non-EU entities.
Now you can see a departure from reactive, stricte a competitive, open and horizontal EU industrial policy for a climate-friendly, partially protectionist and quasi-sectoral approach aimed at achieving circumstantial objectives in peculiar sectors.
Change the logic of the action
The EU's actions so far have been reactive, relying on responding to initiatives taken by 3rd countries. Although this approach is in rule inactive dominant, proactive action by the Union is increasingly being stressed in the sphere of narrative.
An example is the fund NextGenerationEU, hailed in consequence to the crisis caused by the COVID-19 pandemic, to which the consequence became American Inflation simplification Act (Act on inflation reduction).
New (wider) content of the intervention
In place of the others, stricte The promotion of digital and energy transformation through the decarbonisation of manufacture and agriculture is presently being promoted, straight under the Treaty provisions.
The fresh paradigm of EU industrial policy is based not only on improving the competitiveness of EU industry, but besides on taking into account the broadly understood pro-development and pro-social aspects. economical intervention is now becoming a tool for digital and climate transformation, not just protecting competitiveness, creating an impetus for innovation in line with the industrial revolution of the century.
In another words, the aim of the intervention is no longer simply to improve the competitiveness of the Union industry, but besides to take into account the broadly understood pro-development (and not only pro-growth) and pro-social aspects. This is not without economical justification, if you consider this transformation as an innovative flywheel for the improvement of fresh technologies – like almost 150 years ago, a combustion engine was used.
Risks and tensions
The openness of the EU economy has been clearly weakened by the request to apply protectionist instruments to the main trading partners that subsidise their own industry. This may indicate that the EU is seeking a fresh balance between openness and the protection of its own interests.
However, it seems that the biggest problem of EU industrial policy is the adoption of a sectoral approach, consisting in selecting manufacture sectors requiring or awaiting support. This can lead, due to the alleged failure of the government, to the selection of alleged winners (branch and circumstantial enterprises) and to the building of national or European champions, who will not necessarily guarantee economical improvement in the long word and at the same time can importantly distort competition in the EU.
Commission as an arbiter (and now a strategist?)
In this context, it is worth noting the scope of the European Commission's action, which, as has already been mentioned, does not, on the 1 hand, have the competence to conduct an industrial policy at EU level, on the another hand, has the power to approve state aid schemes for individual undertakings, as well as to establish indicators and mechanisms for coordinating associate States' activities.
In order to defend its own interests, the Union risks losing the balance between openness and intervention. Selective support for industries can make short-term winners, but in the long word threatens competition rules and the cohesion of the Union market.
This depends on the Commission's decision whether an entrepreneur or an full manufacture will receive public support in the form of grants, taxation credits or preferential credits. In addition, the European Commission, through its exemption system, is trying to steer associate States' interventions towards actions related to the implementation of EU priorities.
This situation creates a paradox: The Commission does not conduct an industrial policy explicitly, but actually sets it up through a strategy of acceptance and exclusion of aid measures.
However, the effects of this mechanics are not best, both across the EU and across associate States. In Poland, for example, although aid for environmental protection and energy dominates (46.2% of industrial state aid in 2023), it is mainly utilized for the current functioning of the energy sector. Simple investment regional aid (22%) inactive plays an crucial role, while R & D and innovation support is only 9.1%.
Soft coordination and fresh cooperation formats
The European Commission makes usage of its powers to coordinate action by EU associate States through an expanding set of legal acts, which, on the 1 hand, aim to build a common marketplace in production and consumption (including in the area of public procurement), and, on the another hand, to coordinate at EU level the actions of individual associate States in relation to strategical products.
Although the European Commission is not formally pursuing a common industrial policy, it is in practice shaping its direction by deciding who will receive support and on what principles. The marketplace arbitrator has thus become its silent strategy – setting priorities for EU economical intervention.
Thus, despite the deficiency of a clear legal basis in the Treaties, The Commission is building its strategical coordinating position. It establishes cooperation platforms for associate States, business and experts (under the alleged Industrial Forum), co-founds industrial alliances, whose establishment includes further strategies for individual industries and industrial and service ecosystems.
Without formal competence, the European Commission is gradually building soft power – becomes a coordinator of industrial improvement directions, combining states, business and experts around common objectives of dual transformation and economical security.
These forums are an instrument of a fresh industrial policy, which enables the Commission to focus both business and associate States on double transformation and economical security. At the same time, they have no legitimacy in EU law and so are simply a platform for exchanging opinions and experiences – without straight affecting EU government or the anticipation of national or European support.
New legal framework for selected sectors
Examples of a fresh legal framework supporting entrepreneurs and targeting associate States to circumstantial actions are late adopted government – in the form of straight applicable regulations – on chip production, emanation neutral technologies and the usage of critical natural materials.
They foresee both the anticipation of integrating into the process of building European production and business networks that meet the EU's digital and energy transformation objectives, and certain administrative and procedural facilitations on the part of associate States. This includes setting maximum time limits for issuing business permits, applying peculiar public procurement regimes and setting up single contact points for those curious in joining these support mechanisms.
The fresh EU sectoral regulation goes beyond the method support framework, becoming a tool for joint strategical management of the economy. In this way, the Union is gradually moving from coordinating national policies to building a European industrial community.
It besides deserves attention to the establishment, by virtue of each of these acts, of advisory groups composed of representatives of the associate States. In this way, a mechanics of soft cooperation between the Commission, the associate States and the companies afraid is being built.
While these solutions are mostly method and procedural, they actually form a fresh model of organization cooperation in the EU, which gradually shifts the burden of decision towards Joint management selected sectors.
IPCEI – Joint projects as a fresh format for intervention
It is worth noting the fresh mechanisms for public financing of projects implemented at EU level. An example of this approach is Important Projects of Common European Interest (Important Projects of Common European Interest – IPCEI). 1 of the criteria for their launch is the participation of at least 4 associate States, together with companies, to reduce the hazard of negative effects on competition in the Single European Market. At the same time, this solution can strengthen synergies between countries and stakeholders.
As suggested in Letty and Draghi's 2024 reports, IPCEI can become a format for competition with non-EU actors both in substance and financially, as part of the Union's fresh industrial policy. In practice IPCEI effort to pool national resources in a common European consequence to global competition.
IPCEI is an effort to make a common European consequence to global industrial competition. By pooling resources from many countries, this initiative strengthens cooperation and innovation, but, at the same time, in its current form, allows for an uneven financial capacity among EU associate States.
However, the fact that they are financed from national budgets remains an crucial flaw, which inactive favours more prosperous and more interventionable associate States.
Challenges for associate States – the position of Poland
New industrial policy solutions represent a major challenge for all EU associate States, including Poland. Firstly, it is about identifying national industrial policy objectives and promoting them at EU level. The Industrial Forum and various industrial alliances are excellent platforms for cooperation in this area. However, close cooperation with companies with innovative products or at least the possible to make and commercialise them is necessary.
The next step should be to guarantee adequate financing of marketplace interventions by targeting State aid, both from national and European resources, towards actions to accomplish EU objectives at national level. The joint action of all associate States, including Poland, is essential to meet interior challenges (maintaining competition in the Single European Market) and external ones (no country alone can defy the economical strength of China and the US).
Poland must actively co-create European industrial policy – combining administration, business and finance around common objectives of innovation. This is the only way to decision from the function of the beneficiary to the co-author of economical improvement in the Union.
Poland should so be actively active in the fresh formats of intergovernmental cooperation at EU level, as the existing national instrumentarium is besides weak to meet competition itself – both inside and outside the EU – and does not guarantee full participation in fresh initiatives specified as IPCEI.
It would so be essential to decision distant from the dominant, investment regional aid for more complex, risk-bearing but forward-looking support for research, improvement and innovation, including through consortia IPCEI. However, this requires stronger coordination between the administration, business and backing institutions, so that Poland does not just stay the beneficiary of EU initiatives but co-creates their direction.
