How to Protect Europe’s Industrial Base
How can European policymakers craft an industrial strategy which safeguards the continent’s manufacturing base and addresses the main threats to the “industrial renaissance” which outgoing President of the European Commission Jean-Claude Juncker has advocated for? This was the question panellists wrestled with at a POLITICO event last week in Brussels, organised by the Federation of Aluminium Consumers in Europe (FACE), a Brussels-based association bringing together a number of the key stakeholders in the European downstream aluminium industry.
FACE’s Head of EU & WTO Affairs, Roger Bertozzi, delivered the panel’s opening remarks, focusing on an industry that perfectly illustrates the tension between Europe’s trade and industrial policies: aluminium.
Tariffs undercutting competitiveness of downstream aluminium sector
As expressed during the event, the downstream aluminium sector’s concern is understandable given the alarming results of a recent study, commissioned by FACE and carried out by the LUISS Guido Carli University in Rome. According to the study, not only have the import tariffs (between 3 and 6%) which the EU has applied on raw aluminium failed to preserve EU smelters—Europe has lost 30% of its aluminium production capacity since 2008—the duties have slapped consumers of raw aluminium in the downstream sector with significant extra costs.
The LUISS researchers estimated this additional financial burden on the downstream aluminium sector, responsible for 92% of the jobs and 70% of the turnover of the entire industry, at €18 billion since 2000. A low-margin industry like the aluminium downstream, where raw material can even make up 60% of the cost of semi-finished products, simply can’t afford to pay an extra 6% for aluminium. With the European aluminium downstream increasingly lagging behind global growth, it’s no wonder that FACE Secretary-General Mario Conserva warned that the industry’s very survival could be at risk unless the EU suspends the tariffs.
The downstream aluminium sector may be particularly vulnerable on account of the deficits in the EU’s current industrial policy, but speakers at the panel also shone a spotlight on a number of other issues plaguing European manufacturing. The Alstom and Siemens merger blocked earlier this year, which would have created the world’s second largest rail company, was repeatedly brought up as the panellists debated whether the EU’s competition law is still fit for a digitalised market dominated by American conglomerates and Chinese state-owned enterprises (SOEs).
German MEP Reinhard Bütikofer argued that the Alstom and Siemens merger should have been allowed to go ahead, echoing arguments put forth by the French and German governments: namely, that the strict EU antitrust safeguards which nixed the Siemens-Alstom merger are preventing the development of large European “champions” which could compete with American and Chinese titans.
Failed merger turns up the heat on ailing European steel industry
The issue of whether the EU needs to reassess its antitrust policies has been a hot-button one in Brussels this week as, European antitrust authorities officially blocked a proposed merger—between India’s Tata Steel and Germany’s Thyssenkrupp—which would have created the second largest European steel company behind ArcelorMittal. The announcement hardly came as a surprise—Thyssenkrupp had already proactively abandoned the merger plans last month in the face of pressure from the European institutions.
The rare veto nevertheless raised questions over whether or not the EU’s process for approving such mergers needs to be overhauled. While the European competition authority had expressed concerns that fusing Tata and Thyssenkrupp would raise prices for certain types of steel—such as that used in the auto industry—steel industry insiders have indicated that consolidation in the sector is essential to manage challenges ranging from global overcapacity to cheap imports.
As ArcelorMittal boss Lakshmi Mittal emphasized this week, as much as 500 to 550 million tonnes of surplus steel, principally thanks to state subsidies in China, is on the market—a full quarter of the world’s steel production. With the ripples still spreading from the collapse of British Steel, it’s clear that the European steel industry is severely strained. Many had hoped that the Thyssenkrupp-Tata merger would alleviate some of this pressure, hence why the fusion’s failure has sparked fresh discussions over whether the EU’s competition law framework is safeguarding the Union’s best interests.
A renewed, nuanced industrial policy for Europe
The official rejection of the Tata-Thyssenkrupp merger is likely to renew the calls for a holistic industrial policy which spread throughout the European policy sphere following the blocked Alstom-Siemens merger. This March, Magdalena Senn, an economist and assistant to MEP Sven Giegold, argued that current European competition policy operates through “a narrow, consumer-price lens” which does not serve the wider public interest, and that it needs to evolve to take into consideration a broader set of treaty principles. The European Political Strategy Centre, a division of the European Commission, acknowledged that the European bloc needs to develop a “new balance between openness and protection” and do more to protect essential value chains, particularly for European businesses dependent on importing critical raw materials.
Manufacturing will remain the bedrock of the European economy. EU policymakers have recognised this repeatedly, even setting an ambitious goal of boosting its share of the Union’s GDP to 20% by 2020. Last week’s panel, as well as the high-profile mergers which have been vetoed in recent months, has made it clear that a comprehensive industrial policy must be developed to support this pillar of the European bloc.