The French government has launched a complete overhaul of the European Union's (EU) approach to boosting its industry, offering a comprehensive "Made in Europe" strategy to curb the flood of American subsidies, according to documents seen by Politico.
In a letter dated January 9, the French government called on the EU to speed up production targets, loosen rules on state aid, establish an emergency fund and mobilize trade defense instruments - all in response to the US's $369 billion Inflation Reduction Act to support green industries.
The XNUMX-member bloc fears that the US plan, with its generous tax breaks, could draw away EU businesses and disadvantage European companies, from car makers to green technology producers.
European Commission President Ursula von der Leyen said in December that the EU would adjust state aid rules to prevent the US package from causing an investment exodus.
French President Emmanuel Macron earlier this month called for the bloc to make progress on the "Made in Europe" strategy. "Politico" states that this campaign has become a point of friction within the EU - while many countries in theory support France's effort, there is little agreement on how it should be achieved.
Production goals
The letter from the French General Secretariat for European Affairs states that the EU should devise new production targets "to reduce our dependence" in sensitive sectors.
"Very specifically, the Union should set itself production targets to be achieved by 2030," based on the model draft law on chips, the letter states.
The chip law is part of a wider EU effort to ensure that Europe does not have to rely on countries like China for products that power modern technology. The bloc is also rapidly rethinking the way it procures energy after Russia's war in Ukraine.
The letter states that the EU must embark on "reforms to simplify and speed up the procedures for issuing permits for setting up new production sites", as well as a complete reform of the energy market, which could help companies make production and investment decisions.
State aid
The European Commission is also currently in the process of revising the rules on emergency state aid, which have undergone a number of iterations since the start of the pandemic and the war in Ukraine.
"Politiko" writes that the EU is traditionally unwilling to offer state aid except in the most extreme circumstances. However, France states in the letter that the EU should engage in "targeted support - through subsidies or tax credits - in a limited number of sectors".
"These mechanisms can take the form of tax breaks (tax credits) or direct subsidies aimed at strategic sectors," the letter states.
The European Commission has asked the member states to submit proposals on easing the rules on state aid
Those sectors, the French say, could include photovoltaics, batteries, hydrogen and critical materials. The letter also proposes that the easing of these state aid rules only end in 2030. It adds that certain small and medium-sized enterprises should be exempted from state aid restrictions, especially if they are included as partners in the EU program Important Projects of Common European Interest (IPCEI).
On Friday, the European Commission asked the member states to submit proposals for easing the rules on state aid by January 25. EU Competition Commissioner Margret Vestager has proposed a new state aid framework to help counter the "urgent" challenges created by the surge in US green subsidies.
We need a strong European response," Vestager said in a letter to member states seen by Reuters.
EC chief Von der Leyen wants to collect proposals by the February summit.
Investment fund
France is also proposing the establishment of an emergency fund, backed by money from the EU's post-pandemic recovery package, as well as from REPowerEU - the bloc's financial framework for expanding investment beyond Russian fossil fuels.
The letter recommends redistributing the 365 billion euros "that have not yet been disbursed as a priority to sectors of strategic importance for European industry" and adds that of the 221 billion euros of loans that remain to be allocated, EU countries "should be able to prioritize strategic European industrial sectors".
The emergency fund should be operational before the end of 2023, according to the letter.
The French, however, are careful to ensure that the new influx of state aid does not break up the EU's single market. It is feared that easing state aid rules could offer an advantage to wealthier EU members. To prevent this, the letter proposes to repeat the pan-European instrument SURE, which offered countries favorable loans at the beginning of the pandemic.
Trade defense
In order to preserve the integrity of competition rules on the international level, the French letter concludes that "the EU's trade strategy should be more articulated around the defense of the European single market." To this end, the Commission should use trade defense instruments as specified in the rules of the World Trade Organization, according to the letter.
On February 1, Ursula von der Leyen is expected to present to EU states her thoughts on responding to US efforts. That issue should have a central place at the summit of EU leaders scheduled for February 9 and 10.
The key role of the EU "sheriff".
"Politico" announced this week that EU Internal Market Commissioner Thierry Breton is visiting EU capitals to gain support for plans to protect European industry from overpriced energy, American subsidies and "naive" supporters of free trade in the EU.
Breton is playing a key role in rallying industry and political support for sweeping plans to advance clean technology, secure key raw materials and overhaul EU rules on government support that he says are too slow to help companies.
"Of course there is resistance. My job is just to bring them all into line," he told French television this week of his January meetings with Spanish, Polish and Belgian leaders on an industrial policy initiative that could be a turning point in how much European governments finance companies.
"Thierry Breton does not like to be called a protectionist, but his latest mission is to protect Europe from its transatlantic ally," writes the Brussels portal.
The Frenchman even asserted himself as the "sheriff" of the anti-Silicon Valley giants bloc, warning billionaire Elon Musk that regulators would take a tough line against any relaxation of Twitter's policies.
"In Europe, the bird will fly according to our EU rules," Breton said when Musk took over Twitter.
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