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Toward a new EU strategic dimension: common purchase and investment screening mechanisms as a means of crisis preparedness and management

Sara Pugliese

L’articolo analizza la complementarietà tra gli strumenti di acquisto/aggiudicazione congiunta e i meccanismi di controllo sugli investimenti per verificare la loro efficacia nella creazione di un set di strumenti di gestione delle crisi e nell’affermazione di un nuovo concetto di sicurezza. Nella prima parte, l’articolo analizza le procedure di aggiudicazione congiunta applicate durante la pandemia per assicurare agli Stati membri un’adeguata quantità di contromisure mediche e beni carenti, come i semiconduttori. L’analisi dimostra che i meccanismi di acquisto/aggiudicazione comuni elaborati durante la pandemia costituiscono un modello di efficacia, tempestività e solidarietà per reagire all’emergenza energetica generata dall’aggressione della Russia all’Ucraina, mettendo in evidenza il lor significativo contributo al mantenimento di controllo sulle catene di approvvigionamento critiche, specie quando accompagnato da attività di produzione gestite direttamente dalla Commissione. Nella seconda parte, il lavoro analizza il contributo del meccanismo di controllo sugli investimenti e degli altri strumenti di controllo sugli operatori stranieri per evitare operazioni predatorie in grado di pregiudicare l’efficacia delle catene di approvvigionamento sia durante la pandemia che durante la crisi energetica. La complementarietà tra strumenti di acquisto/aggiudicazione congiunta, produzione diretta e controllo sulle operazioni straniere è molto evidente nell’analisi delle recenti strategie adottate dalla Commissione nel settore della difesa. In conclusione, lo studio evidenzia che la Commissione sta mettendo in campo tutti gli strumenti elaborati durante le recenti emergenze per affermare un più ampio concetto di sicurezza, autonomo dalla sicurezza nazionale, che include problemi militari, economici, industriali, tecnologici, sanitari energetici ed anche sociali. Tuttavia, per proteggere la sicurezza in un’accezione così ampia, la Commissione deve rafforzare la propria accountability soprattutto nei confronti del Parlamento.

Verso una nuova dimensione strategica dell'UE: meccanismi comuni di controllo degli acquisti e degli investimenti come mezzo di preparazione e gestione delle crisi

The paper is devoted to analysing the complementary action of instruments of common purchase/procurement and foreign investment (FDI) screening mechanisms to assess their effectiveness in creating a EU crisis management toolbox and affirming of a new concept of EU security. In the first part, the paper analyses the joint procurement procedures applied during pandemic to assure the Member States the proper quantity of medical countermeasures and of lacking goods as semiconductors. The analysis demonstrates that the common purchase/procurement mechanisms elaborated during pandemic constituted a model of effectiveness, timeliness, and solidarity to promptly react to the energy emergency generated by the Russian aggression to Ukraine, putting in evidence their significant contribution to the maintenance of control on critical supply chains, mainly when they were accompanied by a production activity directly managed by the European Commission. In the second part, the paper analyses the contribution of FDI screening mechanism and of the other instruments of control on foreign operators to avoid creeping operations undermining the supply chain effectiveness both during the pandemic and during the energy crisis. The complementarity between common procurement/purchase instruments, direct production and foreign operation control is well-evident in the analysis of recent strategies adopted by the European Commission in the defence sector. In conclusion, the paper puts in evidence that the European Commission is using all the instruments elaborated during the recent emergencies to affirm a broader conception of EU security, autonomous from the national one, including military, economic, industrial, technological, sanitary, energetical and also social problems. Nevertheless, to protect this overall security conception, the European Commission needs to strengthen its accountability especially towards the European Parliament.

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I. Introduction. - II. Common purchase mechanisms during pandemic: Clearing house, Joint Procurement and Advance Purchase Agreements in health sector. - III. Common purchase and storage mechanisms in the “Chips Act”. - IV. Common purchase mechanisms in the energy crisis: platforms, storage, and burden sharing. - V. EU Investment screening during pandemic and energy crisis as a means of maintaining control on strategic supply chains: a) EU investment screening during the Covid-19 emergency; b) EU Investment Screening after the Russian aggression against Ukraine, between supply control and sanctioning effects. - VI. The evolving concept of common security: investment screening and joint procurement in the defence sector. - VII. Conclusions - NOTE

I. Introduction.

During the recent emergencies, the European Commission engaged in the effort to support the Member States (MS) with several instruments. Many of them were specifically devoted to addressing the first emergency phase and were temporary, as the Coronavirus Response Investment Initiatives (CRII I [1] and II [2]), the exportation restrictions [3] or the State aid temporary framework [4], other launched a medium-term financial assistance, as Next Generation [5], other ones are consolidating themselves as “permanent” instruments of crisis management. An example is constituted by the instruments of common purchase/procurements. Elaborated in reaction to the recent epidemics as swine flow, during the Covid-19 pandemic they imposed themselves as an innovative method to acquire or maintain control on the supply chains of medical countermeasures, including progressively other functions, as, for example, common stockpiling and storage. After the application to medical countermeasures, the mechanisms of common purchase/procurement were used in reference to other critical goods which became scarce during the pandemic, as the semiconductors (or “chips”), until they were applied, after the Russian aggression against Ukraine, to the energy sources and, more recently, to the defence products and technologies. Following this evolution, they have progressively increased their effectiveness and relevance. The present paper is devoted to analysing the instruments of common purchase/procurement to assess their effectiveness to assure a better control on critical supplies. In this perspective, they will be read in parallel with the initiatives aimed to strengthen the screening on risky foreign operations. The paper final objective is to verify how all these instruments, contributing to create a crisis management toolbox, are impacting on the EU governance, conferring it a pivotal role in preventing and reacting the emergencies and contributing to the affirmation of a new concept of EU security.

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II. Common purchase mechanisms during pandemic: Clearing house, Joint Procurement and Advance Purchase Agreements in health sector.

Since the first phase of the pandemic, the Commission adopted measures to facilitate the timely availability of medical supplies, both creating mechanisms of coordination between MS and adopting operative solutions that call the Commission to directly manage purchase procedures on behalf of MS. To foster coordination between MS, the Commission encouraged public buyers to launch joint procurement procedures for medical goods [6], applying the rules established by the Directive 2014/24 on public procurement [7]. At the same time, it activated the RESCEU reserve created in 2019 in the ambit of the Civil Protection Mechanism to collect basic medical equipment [8] and established the Covid-19 Clearing House for medical equipment [9], which started operating on 1 April 2020 for a period of six months. The Clearing House served as a platform for dialogue and sharing of information between Member States and industry representatives on the demand and supply of medical equipment at EU level and on means to overcome shortages and build capacity. It also monitored import and export restrictions put in place by third countries as well as export authorisation requirements introduced by the Commission and helped to foresee and resolve blockages due to regulatory or technical reasons [10]. As Clearing House final role was to provide support, tools, and critical information to facilitate, anticipate, and accelerate the availability of the medical supplies needed to tackle the virus, it did not organise directly procurement procedures nor does it directly match individual demand and supply but worked in a complementary way with other instruments as the already-mentioned ( and join procurement procedures. Employed in the health sector after the 2009 A/H1N1 pandemic (swine flu) [11], these procedures where formalized in the Decision No 1082/2013/EU on serious cross-border threats to health, article 5 [12]. To apply this disposal, in 2014, the Commission adopted the “Decision on approval of the Joint Procurement Agreement to procure medical countermeasures” [13] (JPA). As explained by the Commission in the document “Considerations on the legal basis and the legal nature of the Joint Procurement” [14], the JPA should be considered a budgetary implementing measure of Decision 1082/2013/EU whose unusual character is explained by the fact that it [continua ..]

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III. Common purchase and storage mechanisms in the “Chips Act”.

As is well-known, the pandemic determined the disruption of several supply and global value chains, due to the shortage of some raw materials and semi-products, the increased demand of some goods and changes in the consumption patterns, the fragmentation of the logistic lines. Choices of re-shoring, near-shoring, and regionalization was moved not only by business strategy decisions, but also by some decisions assumed by the Governments, concerned about national security [39]. An example is represented by semi-products. As is well-known, the EU is dependent from third countries, mainly from China, for the semi-conductors and, during the pandemic, the export restrictions and increased demand from the Innovation and Communication Technology (ICT) industries determined a shortage that generated great difficulties in several sectors critical for EU production, as for example automotive. Several EU MS adopted restrictive measures to maintain the control on semi-conductor domestic production [40]. To protect the MS interests, as well as the EU strategic interests, on 8 February 2022, the European Commission proposed the so called “Chips Act” [41]. According to the proposal, firstly, the EU Chip strategy is based on the creation of facilities providing semiconductor manufacturing capabilities contributing to the security of supply (the so called “Integrated Production Facilities/IPFs and Open EU Foundries/ OEFs) [42]. Secondly, the strategy prefigures the “Monitoring and Crisis Response”, a mechanism aiming to monitor the semiconductor value chain and respond to disruptions of the supply of semiconductors that have an impact on the proper functioning of the internal market. Thorough a regular monitoring of Member States’ activities, the European Commission should be able to identify a semiconductor crisis and prevent the supply, repair, and maintenance of essential products used by critical sectors. In these situations, the Commission could oblige IPFs, OEFs, or undertakings along the semiconductor supply chain to accept and prioritise the production of crisis-relevant goods for critical sectors. Furthermore, upon the request of two or more Member States, the Commission may, on their behalf, act as a central purchasing body to procure crisis relevant products for critical sectors. In these cases, the Commission may have the ability and responsibility, on behalf of all participating Member States, to enter [continua ..]

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IV. Common purchase mechanisms in the energy crisis: platforms, storage, and burden sharing.

In the light of the Russian aggression to Ukraine, on 8 March 2022 the European Commission adopted the Communication “REPowerEU: Joint European Action for more affordable, secure and sustainable energy” [45] aiming to accelerate the objective to reach independence from Russia by reducing energy consumption, diversifying supply, and rolling out green energy technologies. In this perspective, in the Communication “Security of supply and affordable energy prices: Options for immediate measures and preparing for next winter” [46], adopted on 23 March 2022, the European Commission elaborated a mechanism to ensure security of supply at reasonable prices based on two instruments: the Task Force for common gas purchasing and the common energy storage mechanism. As it concerns the Task Force, it has the aim of strengthening the EU bilateral relations in the energy field with key suppliers of LNG, gas and hydrogen (mainly African partners, Middle East countries, and US) to obtain better prices in short term. A joint negotiation team led by the Commission would hold talks with gas suppliers with the support of the Steering Board composed by MS representatives. On 8 April 2022 the Task Force has been replaced by the EU Energy Platform ensuing cooperation in demand pooling, efficient use of EU gas infrastructure, and international outreach. In the effort to attract supplies from global markets and at stable prices, the Platform could resort also to joint purchases. Due to the cut to supplies suffered by some EU Members and not EU members of the Southern eastern area, on 5 May 2022 a first part of the Platform was launched in the form of a “regional task force” (Bulgaria, Greece, North Macedonia, Romania, Serbia, Turkey, Ukraine, Azerbaijan) as an emergency measure. The Energy Platform Task Force, extended to all the MS, was formally established and started to work on 1 June 2022 [47]. As it concerns gas storage, on 29 June 2022 the Regulation 2022/1032 was adopted [48] aiming to assure security, solidarity between Member States, and risk preparedness. As for security perspective, a mandatory minimum level of gas in storage facilities is established [49] imposing that the existing storage infrastructures will be filled up to at least 90% of their capacity by 1 November of each year (so called “filling target”) [50]. To assure the implementation of filling targets, the MS shall take all [continua ..]

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V. EU Investment screening during pandemic and energy crisis as a means of maintaining control on strategic supply chains: a) EU investment screening during the Covid-19 emergency; b) EU Investment Screening after the Russian aggression against Ukraine, between supply control and sanctioning effects.

As is well-known, as an (almost tardive) reaction to the increasing foreign investors’ interest about the EU undertakings and infrastructures after financial crisis, Regulation 2019/452 established a framework for the screening of foreign direct investments [55]. It consists in a mechanism for cooperation between Member States, and between Member States and the Commission, with regard to foreign direct investments likely to affect security or public order [56], as well as the programs of EU interest [57]. The factors that should be taken in consideration are critical physical and virtual infrastructures [58], critical technologies and dual use items [59], supply of critical inputs [60], access to sensitive information [61], the freedom and pluralism of the media [62]. The screening mechanism established by Regulation 2019/452 applies as of 11 October 2020. Although significantly limiting the Member States’ discretion in decision concerning foreign investment attraction, the Regulation 2019/452 gave the Commission only the power to adopt unbinding opinions [63]. In every case, the Regulation 2019/452 aims to create a new conception of EU security that is not a simple “sum” of MS’s security but implies the protection of the strategic interests of EU in its complex. In the definition of the EU interest to be protected, the European Commission has great discretion, mainly as it concerns the selection of funding programs that justifies the FDI screening activation [64]. a) Nevertheless, after the outbreak of the Covid-19 emergency, due to prolonged lockdowns and consequent production stoppages and reduced sales, many EU undertakings significantly decreased their value[65]. As a consequence, the risk arose that several foreign investors could be interested in EU companies not only for merely financial speculative purposes, but also with the aim to assume control over supply chains necessary to overcome the crisis. To prevent this risk, on 25 March 2020, the European Commission adopted the “Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation)”[66] where it called upon MS to make full use of their FDI screening mechanisms to take fully into account the risks to critical [continua ..]

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VI. The evolving concept of common security: investment screening and joint procurement in the defence sector.

The proposed analyses, where the instruments of common purchase/procurement/storage and the mechanisms of foreign operation screening are considered as two sides of the same coin, shows the increasing sourcing of a new concept of MS and EU security, where geopolitical and economic dynamics as well as social considerations intertwine in a complex scenario characterized by natural and anthropic threats and needing a prompt and effective EU capacity of preparedness and reaction. This new concept of security emerges outside of the boundaries of the Common Foreign and Security/Common Security and Defence Policy (CFSP/CSDP), that should represent the natural policy to pursue the security objectives [79]. It could be explained, firstly, due to the circumscription of these two policies to a mere political and military concept of security, excluding a more broad and strategic perspective, that showed itself to be too restricted in the light of the recent emergencies. Indeed, before the financial crisis, and after the pandemic and energy crisis put in evidence the necessity to embrace a larger perspective where assuring MS security means not only creating a diplomatic and military capacity of reaction to attacks, but also protecting the capacity of EU industrial system to sustain Governments and citizens in the emergency situations warranting them the supply of indispensable goods and services. Willing to contrast the endemic exclusion from the CFSP/CSDP, in a first time the European Commission seemed to divert the security objectives on other grounds where it could exercise a role of protagonist, mainly the Commercial Policy, where it has not only a negotiating role, but also the responsibility to decide about the defence instruments [80]. In this perspective, the instruments recently elaborated in the ambit of the commercial policy to screen foreign investments and operations within the Single market pursue the objective to protect security in a very large optic. Indeed, the Regulation 2019/452 original version contained several references to the necessity to screen FDI investments in defence industries and infrastructures [81]. With Delegated Regulations, the European Commission added further CFSP/CSDP programmes to the lists of projects or programmes of Union interest on grounds of security or public order justifying FDI screening [82]. As it concerns the Proposal of Regulation on foreign subsidies, it explicitly excludes the application of [continua ..]

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VII. Conclusions

In the effort to support the Member States during the recent emergencies, the EU is significantly modifying its regulation and governance introducing new procedures, new acts, new bodies, and new forms of cooperation with Member State [95]. If the EU Civil Protection Mechanism limits itself to coordinate the domestic civil protection corps [96], the “EU Integrated Political Crisis Response Arrangements”, implementing the solidarity clause, have a mainly intergovernmental feature [97], and the measures appropriate to the economic situation to be adopted “in a spirit of solidarity” ex art. 122 TFEU consisted until now merely in financial assistance [98], the elaboration of common purchase and storage mechanisms allow the European Commission to play an operative role, engaging it directly within the actions aimed to contrast the crises. Furthermore, the establishment of bodies and services specifically charged with these tasks favours a transition from the mere reaction to the emergencies to the preparedness and – as possible – prevention, contributing to the full acknowledgment of crisis management as a phase of the EU ordinary decision and policy making. In this perspective, new forms of coordination between EU Institutions, bodies, and Member States are experimented, offering them the added value represented by the contracting power exercised by the EU on the global markets without overriding their autonomy in choosing the supply sources. Although not formally legitimated by the Treaty, the new typology of implementing acts having a “negotiated” form between the EU Institutions and MS authorities, implemented through the new “network” bodies, compose all together a multilevel administration system having its node in the European Commission. From its own, the European Commission leverages on the expertise acquired in the competition control to progressively centralize the investment screening on foreign operations with the aim to assure the protection of Member States’ national security and EU strategic interests, as well as the maintenance of control on critical supply chains and infrastructures. This strategy is limiting the excessive resorting by MS to restrictive measures (as golden power) although leaving them free in defining their choices about investment attraction. The European Commission’s final aim seems to gain credits as a point of reference in the [continua ..]

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