What would you give up to get emergency protections?

The members of the European Commission are currently reviewing a proposal for a “Single Market Emergency Instrument.” The instrument, which is effectively a toolbox of options that can be leveraged during future supply chain disruptions, is a direct response to the pandemic.

I’ve read parts of the proposal, and the language includes phrases like “unity and solidarity” and “cooperation and cohesion.” The question is whether those sentiments will survive another macro emergency - or the provisions of the emergency instrument should they need to be invoked.

Listen to this week’s episode of Dial P: Can the EU Function as a Single Market in an Emergency?

What is the Single Market Emergency Instrument?

The proposal is a response to the border closures that took place during the early days of the pandemic. 17 of the 27 member states closed their borders to travel from neighboring countries, which left trucks transporting food and medical supplies stuck in traffic jams. ??

The Single Market Emergency Instrument would allow the European Commission’s advisory group (made up of one member from each of the 27 EU countries) to order all of the states to reorganize their supply chains, require production of some goods and stockpile other goods, and mandate the sharing of specific information for the sake of improved, centralized decision making.

Objections Have Already Surfaced

As you might expect with something this wide-ranging, objections have already surfaced. Different states have different interests and resources at their disposal.

• Nine countries, including Belgium, Denmark, the Netherlands and Slovenia, have already warned the Commission not to go too far with the emergency instrument.
• Companies may be forced to produce certain goods or required to sell them inside the bloc as opposed to selling them to customers beyond it.
• The business activity compelled by the emergency instrument may breach contractual obligations, for instance by prioritizing certain orders to guarantee that products get to where they are needed most urgently from a European perspective… which might not align with the company’s plans or commitments to their customers.
• The speed intentions described in the proposal would require real time information, which would need to be accessible in advance of the emergency to have actionable value.
• And there are fines for non-compliance. Businesses that provide incorrect or misleading information risk fines up to 300,000 Euros and could be fined up to 1.5 percent of their average daily turnover for failing to fulfill priority orders.?

Some of the commentary describes supply chains as entities that cannot be allowed to operate in isolation from the public need or the public good. How would this play out in practice?

Fortunately, current circumstances provide us with a near-perfect test case: the Nord Stream pipeline.

Test Case: The Nord Stream Pipeline

EU energy prices have been soaring because of the bloc’s dependence on Russia for fuel and the desire to break ties over Russia’s invasion of Ukraine. And that was BEFORE the 'leaks.'

Leaks have recently formed in the Baltic Sea, leading many to speculate about sabotage. Investigations are ongoing… but investigations won’t fill gas tanks or provide electricity. Germany is turning to France for help with energy, but France is dependent on nuclear for most of its energy production – which is not exactly the look Europe wants, given their emphasis on sustainability and renewable energy

The EU is weighing potential intervention in energy markets – capping the price of the gas used to make electricity. There are several pending proposals for ways to cap prices . Italy, France, Spain, and 12 others are calling for an EU-wide cap on wholesale gas prices, but Germany opposes a rigid cap because they are worried about the availability of supply at that price point, and with Germany serving as the industrial and economic engine of the EU… they need a lot of energy.

Unanswered questions are making it difficult to reach the right decision:

• What if companies redirect their gas elsewhere because of the price cap?
• How will limited supplies be divided?
• Will the interconnected electricity system lead to some members ‘subsidizing’ others?

As of writing this ProcurementBuzz, the bloc-wide cap on natural gas import prices has not been resolved … because the member states can not reach an agreement.

To state the obvious… Winter is Coming.

That is not an example of “unity and solidarity” or “cooperation and cohesion”

If invoked, the Single Market Emergency Instrument will put pressure on the same fractures and trust issues as this price cap discussion.?

What would you be willing to trade for emergency protections?

The discussion about the EU’s proposed Single Market Emergency Instrument ultimately comes down to a tradeoff between what single market protections are worth to you. What ‘price’ is your company or country willing to pay?

Who wants someone else making decisions like:

• What constitutes an emergency?
• When will the instrument go into effect?
• When is the emergency over?
• Who should win and who should lose? Because collective benefit is not the same as everyone winning.

In order for control to be centralized, it has to sit pretty far away from some interest groups in a bloc the size of the European Union. This means giving up considerable data and decision-making authority to a government that had nothing to do with creating either.

I can see why the European Commission would want the Single Market Emergency Instrument, but I don’t understand why individual countries and the private companies located there would support the proposal. Even if it passes, can the good intentions of unity hold together when faced with real world challenges? Time will tell.

Other Content Released This Week

? The Supply Chain Buzz for October 17, 2022 - Digital Transformers Edition

?? ProcureTech Podcast?Ep. 10: The View on tech from Both Sides with Kelly Barner

?? The Sourcing Hero podcast Episode 87: Leveraging the Power of the Total Commercial Value Chain with Sachin Kasture

? Dial P for Procurement: Can the EU Function as a Single Market in an Emergency?