EUROPEAN COMMISSION Brussels, 19.9.2022 SWD(2022) 289 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL for a Single Market Emergency Instrument



REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL



amending Regulations (EU) 2016/424, (EU) 2016/425, (EU) 2016/426, (EU) 2019/1009 and (EU) No 305/2011 as regards emergency procedures for the conformity assessment, adoption of common specifications and market surveillance due to a Single Market emergency



and DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL



amending Directives 2000/14/EC, 2006/42/EC, 2010/35/EU, 2013/29/EU, 2014/28/EU, 2014/29/EU, 2014/30/EU, 2014/31/EU, 2014/32/EU, 2014/33/EU, 2014/34/EU, 2014/35/EU, 2014/53/EU and 2014/68/EU as regard emergency procedures for the conformity assessment,adoption of common specifications and market surveillance due to a Single Market emergency {COM(2022) 459 final} - {SEC(2022) 323 final} - {SWD(2022) 288 final} - {SWD(2022) 290 final}



Table of contents 1.Introduction: Political and legal context 2.Problem definition 3.Why should the EU act? 4.Objectives: What is to be achieved? 5.What are the available policy options? 6.What are the impacts of the policy options? 6.1.Policy option 1 6.2.Policy option 2 6.3.Policy option 3 7.How do the options compare? 8.Preferred option 9.How will actual impacts be monitored and evaluated? Annex 1: Procedural information 1.Lead DG, Decide Planning/CWP references 2.Organisation and timing 3.Consultation of the RSB 4.Evidence, sources and quality Annex 2: Stakeholder consultation (Synopsis report)

Annex 3: Who is affected and how? 1.Summary of costs and benefits 2.Relevant sustainable development goals Annex 4: Analytical methods Annex 5: Detailed overview of policy approaches per building block Annex 6: Analysis of policy approaches per building block Annex 7: SME test Annex 8: Overview of Resilience Measures of Key International Partners



GLOSSARY Term or acronym Meaning or definition CFS Centre for Strategic Futures, Singapore CIFUS Committee on Foreign Investment in the United States, US CWP Commission Work Programme DPA Defense Production Act, US ECDC European Centre for Disease Prevention and Control EEN Enterprise Europe Network EFSCM European Food Security Crisis preparedness and response Mechanism ERCC Emergency Response Coordination Centre ESPA Economic Security Promotion Act, Japan FABS Facilitating American-Built Semiconductors Act, US FEPO Future Economy Planning Office, Singapore FIRB Foreign Investment Review Board GPA Government Procurement Agreement, US HERA Health Emergency Preparedness and Response IIJA Infrastructure Investment and Jobs Act, US IMCO European Parliament's Committee on Internal Market and Consumer Protection IPCEI Important Project of Common European Interest, EU IPCR Integrated Political Crisis Response IPI International Procurement Instrument JOGMEC State owned Japan Oil, Gas and Metals National Corporation, Japan NDICI Neighbourhood, Development, and International Cooperation Instrument - Global Europe, EU NDS National Defense Stockpile, US NLF New Legislative Framework NSIA National Security and Investment Act, UK PPE Personal Protective Equipment RIE2025 Research Innovation Entrepreneurship Programme, Singapore RSB Regulatory Scrutiny Board SCRI Supply Chain Resilience Initiative, Australia SMA Southeast Asia Manufacturing Alliance, Singapore SMET Single Market Enforcement Task Force SMIT Single Market Information Tool SMTD Single Market Transparency Directive TFEU Treaty on the Functioning of the European Union TRIS Technical Regulation Information System UCPM Union Civil Protection Mechanism



1.Introduction: Political and legal context A look back in history reveals that crises may pave the way to expeditious innovation, rapid advances in technology, policy, and/or procedures that in turn may offer benefits for societies, countries, and humanity . However, crises by their very nature disrupt citizens’ lives as well as markets and the overall economy. The Single Market is one of the EU’s greatest assets and provides the backbone for the EU’s economic growth and wellbeing. For this reason, the functioning of the Single Market needs to be guaranteed in times of emergency and crisis. While resilience of the Single Market is the prime responsibility of the European businesses, the free movement of goods, services and persons is the foundation of the Single Market and underpins a smooth functioning of supply chains, including the availability of services and goods. In recent years, the world has been witnessing a sequence of crises from the COVID-19 pandemic to Russia’s invasion of Ukraine. These will not be the last crises that the world will have to weather. In addition to geopolitical instability, climate change and resulting natural disasters, biodiversity loss, and global economic instability may lead to other, new emergency situations. Unfortunately, there is no crystal ball at hand to predict the exact time and form of the next crisis. As recent crises have shown, a fully-operational Single Market and smooth cooperation of Member States on Single Market issues can considerably strengthen the EU’s resilience and crisis response. Therefore, the Single Market Emergency Instrument, for which this Impact Assessment analyses different policy options, should provide a blueprint for an EU reaction on Single Market matters in a future crisis. It should take into account the lessons learned from past emergencies and extrapolate them to possible future emergencies. This initiative will neither prevent nor solve any upcoming crises. Its aim is to act as a safety net for the functioning of the Single Market. It should provide a governance structure for the occasion that the smooth functioning of the Single Market is in jeopardy. In close cooperation with all Member States and other existing EU crisis instruments, SMEI should provide a targeted toolbox to ensure the functioning of the Single Market in any type of future crisis. It is likely that not all of the tools assessed in this Impact Assessment will be needed simultaneously. The idea is rather to brace the EU for the future and equip it with what may prove to be necessary in a given crisis situation affecting the Single Market.

The European Council in its Conclusions of 1-2 October 2020 stated that the EU will draw the lessons from the COVID-19 pandemic and address remaining fragmentation, barriers and weaknesses of the Single Market in facing emergency situations. In the Update of the Industrial Strategy Communication , the Commission announced an instrument to ensure the free movement of persons, goods and services, as well as greater transparency and coordination in times of crisis. The initiative forms part of the Commission Work Programme for 2022 . The European Parliament welcomed the Commission’s plan to present a Single Market Emergency Instrument and called on the Commission to develop it as a legally binding structural tool to ensure the free movement of persons, goods and services in case of future crises . The initiative is expected to contribute to the achievement of the United Nations Sustainable Development Goals (SDGs), in particular SDG #1 No poverty, SDG #8 Decent work and economic growth, SDG #9 Industry, innovation and infrastructure, SDG #10 Reduced inequalities and SDG #16 Peace, justice and strong institutions (see Annex 3 for more details). Legal context A number of EU legal instruments lay down provisions which are relevant for the management of crises in general. On the other hand, certain EU frameworks and recently adopted Commission proposals lay down more targeted measures which focus on certain aspects of crisis management or are relevant for specific sectors. The Single Market Emergency Instrument will apply without prejudice to the provisions put forward by these targeted crisis management instruments, which are to be considered as lex specialis. A detailed overview of relevant existing and forthcoming instruments is included in Annex 9 (see part 2 of this Impact Assessment file). Financial services in particular are excluded from the scope of the initiative due to the existence of a dedicated crisis-relevant framework in this area. This also notably concerns the Commission Decision establishing the European Health Emergency Preparedness and Response Authority (HERA) and the Commission Proposal for a Regulation on serious cross-border threats to health . The Single Market Emergency Instrument is thus intended to apply to non-medical goods and services which do not fall within the scope of the above-mentioned Proposals, which will be further elaborated below. ·Interplay with horizontal crisis response mechanisms The integrated political crisis response mechanism (IPCR) is among the horizontal crisis response mechanisms . The Presidency of the Council of the EU uses the IPCR to facilitate information sharing and political coordination among the Member States in responding to complex crises. The IPCR was activated for the first time in October 2015 for the refugee and migration crisis. Since its activation, it has been instrumental in monitoring and supporting the response to the crisis, reporting to Coreper, the Council and the European Council. The IPCR has also been used to exercise the Union response to major crises caused by cyber-attacks, natural disasters, or hybrid threats. More recently, the IPCR mechanism has also been convened after the outbreak of the COVID-19 pandemic. Another EU mechanism for general crisis response is the Union Civil Protection Mechanism and its Emergency Response Coordination Centre (ERCC) . The ERCC is the Commission’s central operational 24/7 hub for first emergency response, the establishment of strategic stockpiles at the EU level for emergency response (“rescEU”), disaster risk assessments, scenario building, disaster resilience goals, EU wide overview of natural and man-made disaster risks, other prevention and preparedness measures, such as training and exercises. ·Interplay with measures targeting specific aspects of crisis management The above-mentioned horizontal crisis response mechanisms are supplemented by other more targeted measures, focusing on specific aspects of the Single Market such as the free movement of goods, common rules on exports or public procurement. One such framework is the Regulation (EC) No. 2679/98 setting up a response mechanism to address obstacles to the free movement of goods attributable to a Member State leading to serious disruptions and requiring immediate action (‘The Strawberry Regulation’) . This Regulation provides for a mechanism of notification as well as a system of information exchange between the Member States and the Commission. (See sections 8.1 and 8.2 for more details.) The Regulation on common rules for exports allows the Commission to subject certain categories of products to an extra-EU export surveillance or to an extra-EU export authorisation. The Commission was subjecting certain vaccines and active substances used for the manufacture of such vaccines to export surveillance on this basis. Other economic measures include negotiated procedure and occasional joint procurement by the Commission on behalf of the Member States . ·Interplay with sector-specific crisis measures Certain EU frameworks lay down more targeted measures which focus only on certain specific aspects of crisis management or only concern certain specific sectors. The Commission communication “Contingency plan for ensuring food supply and food security” draws lessons learnt during the COVID-19 pandemic and previous crises with the objective to step up coordination and crisis management including preparedness. To this end, the contingency plan puts forward key principles to be followed to ensure food supply and food security in the event of future crises. To ensure the implementation of the contingency plan and the key principles therein, the Commission in parallel established the European Food Security Crisis preparedness and response Mechanism (EFSCM), a group composed of Member States and non-EU countries representatives as well as of food supply chain stakeholders chaired by the Commission to strengthen coordination, exchange data and practices. The EFSCM was convened for the first time in March 2022 to discuss the impacts of the energy and input price increases and the consequences of Russia’s invasion of Ukraine for food security and supply. The market observatories and the civil dialogue groups are other fora that ensure transparency and the flow of information in the agri-food sector. The Commission communication “Contingency plan for transport” has the objective to ensure crisis preparedness and business continuity in the transport sector. The plan establishes a “crisis manual” that includes a toolbox consisting of 10 actions aimed at mitigating any negative impact on the transport sector, passengers and the internal market in the event of a crisis. These include among others measures rendering EU transport laws fit for crisis situations, ensuring adequate support for the transport sector, ensuring free movement of goods, services and people, sharing of transport information, testing transport contingency in real-life situations etc. Regulation (EU) No 1308/2013 establishing a common organisation of the markets in agricultural products (CMO Regulation) as well as the sister CMO Regulation for fisheries provide the legal basis for collecting relevant information from Member States to improve market transparency . Regulation (EU) 2021/953 establishing the EU Digital COVID Certificate sets out a common framework for the issuance, verification and acceptance of interoperable certificates for COVID-19 vaccination, test or recovery certificates to facilitate free movement of EU citizens and their family members during the COVID-19 pandemic. Furthermore, based on a Commission proposal, the Council adopted specific recommendations on the coordinated approach to the restriction of free movement in response to COVID-19 pandemic . Finally, the Commission Decision of 16 September 2021 established the Health Emergency Preparedness and Response Authority for coordinated action at Union level to respond to health emergencies, including monitoring the needs, swift development, manufacturing, procurement and equitable distribution of medical countermeasures. ·Interplay with ongoing initiatives

In parallel, a number of initiatives, which have been recently proposed and are currently being discussed, concern aspects relevant for the crisis response and preparedness. These initiatives however have a limited scope covering specific types of crisis scenarios and are not intended to set up a general horizontal crisis-management framework. To the extent these initiatives include a sectoral crisis response and preparedness framework, that framework will take precedence over the Single Market Emergency Instrument as lex specialis. The Commission proposal for a Regulation on serious cross-border threats to health, repealing Decision No 1082/2013/EU (the 'Cross-border Health Threats Decision') aims at strengthening the EU's health security framework, and reinforcing the crisis preparedness and response role of key EU agencies with respect to serious cross-border health threats. It would strengthen the preparedness and response planning and reinforce epidemiological surveillance and monitoring, improve data reporting, strengthen EU interventions. The Commission proposal for a Council Regulation on a framework of measures for ensuring the supply of crisis-relevant medical countermeasures in the event of a public health emergency at Union level provides for crisis response tools such as joint procurement, mandatory information requests for businesses about their production capacities, and repurposing production lines in case of public health crises once a public health emergency would be declared. The declaration of an EU emergency situation would trigger increased coordination and allow for the development, stockpiling and procurement of crisis-relevant products. The proposal covers medical countermeasures and medicinal products for human use but not medical services. The Commission proposal for the European Chips Act aims to strengthen Europe’s semiconductor ecosystem. One important pillar of this strategy is to set up a mechanism for coordinated monitoring and response to shortages in the supply of semiconductors, aiming to anticipate and swiftly respond to any future supply chain disruptions, through a dedicated emergency toolbox, together with Member States and international partners. The Commission proposal for a Data Act will allow public sector bodies to access data held by the private sector that is necessary for exceptional circumstances, particularly to implement a legal mandate if data are not otherwise available or in case of a public emergency (i.e. exceptional situation negatively affecting the population of the Union, a Member State or part of it, with a risk of serious and lasting repercussions on living conditions or economic stability, or the substantial degradation of economic assets in the Union or the relevant Member State(s)). The Commission proposal to amend the Schengen Borders Code aims to provide a common response at the internal borders in situations of threats affecting a majority of Member States. The proposal will also put in place procedural safeguards in case of unilateral reintroductions of internal border controls and provide for the application of mitigating measures and specific safeguards for cross-border regions in cases where internal border controls are reintroduced. The proposal promotes increased use of effective alternative measures to address the identified threats to internal security or public policy instead of internal border controls, for instance increased checks by police or other authorities in border regions, subject to certain conditions. The proposal also includes the possibility for the Council to quickly adopt binding rules setting out temporary travel restrictions for third country nationals at the external borders in case of a threat to public health. It also clarifies which measures Member States can take to manage the EU's external borders effectively in a situation where migrants are instrumentalised by third countries for political purposes. The Commission proposal for a revision of the Financial Regulation, scheduled for adoption by the Commission in the course of 2022, adapts the applicable procurement rules in crisis management situations to allow an EU institution or body to procure on behalf of Member States or to act as a central purchasing body in order to donate or resell supplies and services to Member States, as well as to launch joint procurement procedures despite the EU institutions not acquiring services and supplies for themselves. It also updates the definition of a crisis to include public health emergency situations and provides for triggering the crisis provisions in line with applicable internal procedures. The proposal for a Directive on the resilience of critical entities adopted by the Commission in December 2020 has the objective to enhance the resilience of entities providing services that are essential for the maintenance of vital societal functions or economic activities the EU. With this initiative, the aim is to create a comprehensive framework to support Member States in ensuring that critical entities providing essential services are able to prevent, protect against, respond to, resist, mitigate, absorb, accommodate and recover from disruptive incidents such as natural hazards, accidents or terrorism. The Directive will cover eleven key sectors, including energy, transport, banking and health. 2.Problem definition 2.1 What is/are the problems? The purpose of the initiative is to provide immediate solutions to ensure that the Single Market works as it should during crises. Recent crises have demonstrated how fragile the Single Market can be in case of unforeseen disruptions and at the same time, how much the European economy and all its stakeholders rely on a well-functioning Single Market. The impact of a crisis on the Single Market can be two-fold. On the one hand, a crisis can lead to the appearance of obstacles to free movement within the Single Market, thus disrupting its normal functioning. On the other hand, a crisis can amplify the shortages of crisis-relevant goods and services if the Single Market is fragmented and is not functioning. This is why this Impact Assessment focusses on two separate but interrelated problems: obstacles to free movement and shortages of crisis-relevant goods and services. While this problem definition draws a great deal upon the lessons learnt from the COVID-19 crisis, it is only one example highlighting the possible negative consequences for the Single Market that may arise in case of crisis situations. The scope of this initiative is not to provide solutions to overcome a future crisis as a whole, but rather to enable a swift and flexible response to Single Market impacts of a crisis. Against this background, the main problems identified and addressed by this Impact Assessment are described below. 2.1.1 Obstacles to free movement of goods, services and persons in times of crisis The proper functioning of the Single Market can be disrupted in a crisis situation, either by forces of nature or by national regulatory responses such as restrictions on free movement of goods, services and persons, which can have legitimate objectives such as protecting public health. Supply chains can swiftly become interrupted, companies face difficulties in sourcing, supplying or selling goods and services. The access of consumers to key products and services then becomes disrupted. Additionally to public health and security risks, citizens, and in particular vulnerable groups, are also confronted with strong negative economic impacts. On what concerns the free movement of goods, cross-border delivery of goods was typically permitted during the COVID-19 crisis. Nonetheless, the increased border checks created delays and costs for cross-border transport of goods. Cross-border intra-EU trade in goods declined substantially during the first wave of the pandemic, contracting by a third in April 2020, but then recovered to nearly normal levels over the summer of 2020 . More specifically, during the COVID-19 crisis, the vast majority of Member States (amounting to 19 Member States) introduced different types of export restrictions and other restrictions distorting the Single Market for goods. Examples of such measures included suspension of exports of agricultural and food products and export bans for COVID-related material including personal protective equipment. A new intra-EU export restriction on agricultural products of strategic importance was introduced by Hungary in the context of Russia’s invasion of Ukraine. These obstacles to the free movement of goods have also contributed to the problem of supply shortages, as discussed in the following sub-section. Most restrictions of the free movement of goods were lifted, often following bilateral contacts between the Commission and the Member States in question. However, addressing the patchwork of restrictions required a lot of ad hoc solutions including political level intervention and was lengthy due to a lack of transparency, cooperation and solidarity between Member States. For what concerns free movement of services and persons, the key relevant restrictive measures adopted by some Member States to protect public health and on the basis of the precautionary principle were: 1) intra-EU travel bans (including entry and exit bans and bans on non-essential travel) , 2) temporary reintroduction of border controls in order to better enforce travel restrictions, and 3) the requirements for certain cross-border travellers to undergo quarantine and/or testing when crossing the borders. Following the introduction of entry/exit bans and related travel restrictions and the reintroduction of internal border controls, there was a strong negative effect on free movement of goods, services and persons. There were significant truck build-ups and long waiting times on a number of internal borders. For example, after the introduction of new restrictions by Germany on 14 February 2021 including testing requirements for truck drivers, there were traffic jams of up to 25 km on the Czech-German border and there were queues of up to 40 km long in Italy ahead of the Brenner pass into Austria .

Measures applicable at the internal borders have severely disrupted labour mobility in the Single Market. This has particularly affected almost 2 million cross-border workers . Consequently, there has been a shortage of seasonal agriculture sector workers in many Member States, including Italy, Spain and Germany, whose economic model depend on such labour. Engineers could not service breakdowns in industrial machines across the border due to quarantine requirements . Many countries are heavily reliant on cross-border workforce, e.g. in Luxembourg 45% of the work force was commuting from neighbouring countries across the border in 2019 . Barriers affecting transport workers/transport service providers also have a major impact on the flow of goods across the Single Market. Restrictions on free movement of persons coupled with the reintroduction of internal border controls led to disruptions of movement of trucks across borders and therefore posed risks of disruption in manufacturing supply chains, in addition to direct costs due to perishable fresh food being stuck in traffic. Overall, these events have exposed the EU’s economy to an unprecedented and sustained shock, with the EU economy contracting by 6.3% over the course of 2020 . The impact is further demonstrated by intra-EU trade falling by 24% during the second and third quarter of 2020 . While a large part of the contraction in GDP was due to local restrictions, the contraction in the intra-EU trade was likely in substantial part caused by the obstacles to free movement. In the context of global megatrends such as climate change and pressure on democratic models of governance and values as identified by Strategic Foresight reports, other potential crises could also lead to Member States introducing restrictions on free movement. Such crises could include natural disasters, technological disasters, geopolitical threats, migration crises, terrorist attacks, financial crises, another pandemic, or a crisis of a completely unpredictable nature. In the case of a natural disaster, such as a volcano eruption, a flood or an earthquake, items needed in the first response could be of particular necessity and export restrictions could be introduced by Member States for such items. In the case of a technological disaster, such as a nuclear accident, export restrictions could similarly be introduced by Member States for items needed in the first response or helpful to mitigate the effects of the disaster. Furthermore, it is possible that restrictions on free movement of persons could be introduced in order to cordon off the area of disaster. In such a case, ensuring the freedom of movement for key personnel in managing the disaster at stake would be of particular importance. In the case of terrorist attack, for example an attack on a major port, the most important consequence could be the introduction of restrictions on free movement of persons. As a second order effect, an interruption in the functioning of a major port could lead to supply chain bottlenecks, which could amplify any existing shortages. A migration crisis in itself is unlikely to lead to restrictions to free movement, as in recent experience the actions taken by Member States in this context focused on the reintroduction of border controls. Another pandemic could likely lead to similar effects on the Single Market in the absence of a solution, i.e. reappearance of restrictions for free movement of persons and of export restrictions. Effects of geopolitical instability could include trade sanctions and other disruptions of supply which may result in shortages of specific products, which could lead to export restrictions in the Single Market. Financial crises are unlikely by themselves leading to restrictions of free movement, as financial services are outside of the scope of the initiative. There could be other crises of completely unpredictable nature that could lead to appearance of free movement restrictions and the need to coordinate. The two problems considered by this Impact Assessment are interrelated, as obstacles to free movement can lead to or exacerbate shortages of crisis-relevant products and vice versa. However, as shortages of crisis-relevant products can also have a number of other drivers, we consider the two problems separately. 2.1.2 Shortages of crisis-relevant goods and services Shortages of crisis-relevant goods and services in times of crisis A shortage could be defined as an imbalance between supply and demand affecting not only prices but also quantities . While structural problems require long-term structural solutions, the focus of this initiative is on the shortages of crisis-relevant goods and services in situations of emergency, which can be severely amplified during a crisis by a non-functioning Single Market. This could be due to Member States competing against each other in securing the availability of such products in separate and uncoordinated public procurement procedures. This could also be due to the Member States imposing uncoordinated and contradictory national measures such as export restrictions. Or this could be because the relevant Single Market legislation does not allow to place crisis-relevant products on the market with the appropriate urgency. During the COVID-19 crisis, while most companies and supply chains showed a high degree of resilience and adaptability, sudden supply and demand shocks for crisis-relevant products have led to acute shortages of such products. There was an unprecedented surge in demand for certain types of personal protective equipment (PPE), especially during the first wave of the pandemic. With the exception of a few specific legal frameworks, the New Legal Framework does not foresee any emergency procedures for placing products on the market. Tremendous ad hoc efforts by the Commission, the Member States and industry eventually led to a significant increase in production capacity for PPE in the EU. Shortages of crisis-relevant products can also lead to degraded quality of products. According to the market surveillance authorities for PPE, due to a surge of deployment of masks on the market to meet the high demand during the first wave of the pandemic, between 60 and 80% of face masks checked by them failed their test . The data recorded in the Safety Gate/RAPEX Rapid Alert System for dangerous non-food products confirms this: in 2020, 171 measures were reported against face masks that did not fulfil the minimum health and safety requirements. For the year 2021 this amounted to 147 cases (in 2020, 7% of the alerts on Safety Gate concerned protective masks, in 2021 this was 6%). Yet, low quality products, especially for PPE, defeat their purpose because they put people at risk rather than protecting them. Additionally, in the context of a crisis response, intra-EU export restrictions can have the effect of limiting supplies and disrupting supply chains of goods that are critical for the crisis response, thereby having a detrimental effect not only on the functioning of the Single Market but also on the well-being of citizens and the effectiveness of the overall EU crisis response. During the COVID-19 crisis, there was a risk of Member States competing against each other by launching separate public procurement procedures for the same crisis-relevant products. The Commission together with the Member States launched joint public procurement for various medical goods relying on the Emergency Support Instrument. At the moment of drafting this Impact Assessment, outside of the field of civil protection, there is no structured framework for making use of joint public procurement allowing the Commission or other EU institutions to procure goods on behalf of the Member States on its own, or to procure flexibly at the time of crisis. In the context of global megatrends such as climate change or geopolitical instability, a number of different types of crisis can lead to the situations where shortages of crisis-relevant products are amplified by the non-functioning Single Market. In the case of a natural disaster, for example an earthquake, joint procurement and accelerated placing of products on the market could be needed for ensuring the availability of products and services needed in the first response, in addition to ensuring free movement. Similarly, in the case of a nuclear accident or another technological disaster, there could be shortages of items needed to respond to the disaster, in which case joint procurement and/or accelerated placing of products on the market could be needed, as well as potentially more far-reaching solutions on ensuring the availability of supply of such products. In the case of a terrorist attack on a key transportation route the result could be a significant transportation bottleneck, leading to a critical shortage of products. While specific medical countermeasures would be covered by the relevant instruments, another pandemic could lead to an unpredictable shortage of products needed to combat that specific pandemic, which could require solutions to tackle such a shortage. Effects of geopolitical instability could include disastrous disruptions of supply of crisis-relevant products and services, which may require very far-reaching solutions to ensure the availability of supply. There could be other crises of completely unpredictable nature resulting in deep shortages of crisis-relevant products.

Structural supply chain constraints that could lead to or aggravate shortages during a given crisis The EU gains resilience from world markets being open and integrated in global value chains. The ongoing monitoring of Critical Raw Materials and two rounds of In-depth Reviews of Strategic Dependencies have substantially contributed to a deeper understanding of the EU’s supply chains vulnerabilities that could entail shortages of goods or services in a crisis situation. Such structural issues require more long-term solutions reinforcing the EU open strategic autonomy, for example in fields such as raw materials, semiconductors and energy. Yet, disruptions can affect specific crisis-relevant products and inputs that are particularly critical for the good functioning of society and the EU economy during an emergency. While an emergency by itself can lead to a shortage of crisis-relevant goods and services, in an emergency any existing structural problem is likely to be amplified – as it happened during the COVID-19 crisis for semiconductors, and with Russia’s invasion of Ukraine for energy and a number of raw materials. Russia’s invasion of Ukraine and the related sanctions and countersanctions have put pressure on global supply chains, including in the agri-food sector and inputs such as fertilisers, animal feed and energy, with farmers being confronted with higher prices for basic inputs. This has also led to restrictions affecting the functioning of the Single Market. Some of these vulnerabilities have de facto shown their ability to affect the Single Market. Overall, in the course of 2021 and 2022, there has been mounting evidence across countries and industrial ecosystems about supply chains distress, and in particular about specific supply shortages. For instance, the share of firms reporting shortages in equipment in the third quarter of 2021 was 57.8% in the motor industry and 52.2% for electrical equipment . Respondents to the public consultation pointed to difficulties when wishing to purchase goods, such as the product not being available for purchase, the product being available with a very high price increase or with a very high delay in delivery time. This has moreover led to upward pressure on prices, mainly observed in industry sectors, but also in certain services sectors. Many of these shortages have structural origins, yet the impacts of such shortages during an emergency might have severe disruptive effects on the availability of crisis-relevant products and might require quick corrective actions to support the functioning of the Single Market. 2.2 What are the problem drivers? The links between problems, problem drivers and consequences are illustrated in the problem tree graph above. The drivers and consequences related to problem 1 are marked in pink, those related to problem 2 are marked in light yellow and those related to both are in light blue. As explained in Section 2.1, the two problems are interrelated as obstacles to free movement in times of crisis can in themselves lead to or exacerbate shortages of crisis-relevant goods and services and vice versa. 1.Dedicated fora do not exist or the existing fora are unable to deal with Single Market vigilance and crisis response (communication, coordination, decisions) There are various mechanisms and groups at the EU level dealing with crisis vigilance and response; from the Integrated Political Crisis Response (IPCR) mechanism for crisis coordination in the Council, the Union Civil Protection Mechanism (UCPM) and its Emergency Response Coordination Centre (ERCC) for first emergency response coordination with Member States and other Participating States in the UCPM to sector specific expert bodies such as the European Food Security Crisis preparedness and response Mechanism (EFSCM) or other sectoral expert groups, such as for example the national transport contact points network, which discuss crisis-related matters when warranted. However, the existing fora either have not been designed for information sharing, coordination and cooperation on the Single Market impacts of crises or do not allow discussing cross-cutting or interconnected Single Market impacts of the crises in several areas together. Under the currently applicable EU legal frameworks, the Member States are obliged to exchange crisis-relevant information between themselves only in the area of civil protection. The COVID-19 pandemic, in particular during its early stages, showed that Member States are prone to act on their own, although confronted with the same threat. There is no explicit legal obligation for Member States to consult or inform each other about their crisis measures in general . IPCR focused at the start of its activation under the Croatian Presidency on the health aspects, and only later started to take into account the effects of COVID-19 on other policy areas, such as border management and transport. Whereas the IPCR is providing for communication and coordination between the Member States at the times of crisis, assisted by the Commission, it has not been designed to address and resolve the impacts of the crises on the Single Market, such as availability of crisis-relevant goods and services. This follows in part from Article 222 TFEU, the legal basis for the Council Implementing Decision on IPCR, which focuses on humanitarian, civil protection and defence matters. Also, although allowed to intervene in the event of natural and man-made disasters, such interventions are limited to the Member States whose political authorities have requested the involvement of the IPCR. The requirement of request by the political authorities of all concerned Member States before being able to discuss the crisis concerned in the IPCR is not likely to allow the IPCR in its current form to get involved in a timely manner, where a Single Market emergency would occur. Due to its high level of political representation, it is also not able to go into much technical detail in its discussions and does not allow for live coordination at a technical level. Therefore, while IPCR proved to be a useful tool that contributed to the EU’s crisis response during COVID-19, the existing EU emergency instruments/mechanisms overall do not have the Single Market in their focus and do not represent a pre-agreed and formalised institutional answer to a health crisis or another crisis involving cross-cutting restrictions of free movement and/or shortages of crisis-relevant goods and services. Finally, there would also be instances of bilateral or regional cooperation between the Member States aiming at coordination and cooperation between the participating Member States, but they would not cover the whole Single Market. 2.Lack of preventive measures at EU and national level such as forecasting, emergency trainings, mitigations measures for crisis situations such as stockpiling Several Member States operate a specific monitoring system used through their own crisis management tools/contingency plans to gather information from economic operators and assess the situation to reduce negative impacts of a crisis on businesses. Crisis management systems at Member State level are setting up monitoring systems targeting vital service providers and strategic supply chains for crisis-relevant products. Member States have designated critical sectors and industrial ecosystems (such as energy, health, transport, agri-food, cybersecurity) that require a more acute monitoring. Such sectors must be involved in the collection of targeted information and develop strategic plans in order to avoid supply chain disruptions. Data are collected through business associations to identify, to the extent possible, interruptions in the free movement of goods, services and people and shortages of crisis-relevant goods and services affecting the Single Market thanks to a better knowledge of the market. For example, the current market information systems in Spain have made it possible to detect market crisis situations caused by high market availabilities (stocks and/or productions) together with significant price reductions. Business associations gather information from companies on a sectoral basis, for sharing information with and having a dialogue with public authorities. SMEs and micro-enterprises also participate in the monitoring system as well as economic observatories. Spain develops a system of declarations of stock levels for certain agricultural goods. However, only several Member States confirmed the existence of such monitoring, which is scattered across the EU and lacks coherence. Furthermore, the findings stemming from monitoring at national level may not reach the Commission and/or other Member States and may not be collectively discussed with a view to inform possible action. At the EU level, there is a lack of formal preventive tools such as forecasting or strategic reserves in view of addressing possible supply chain shortages in the Single Market during crises. Before the COVID-19 pandemic, there was no structured monitoring tool that could provide reliable, up-to-date quantitative information on the situation of supply chains (in particular the balance between demand and supply) for critical equipment during the pandemic. The Clearing House for medical equipment was therefore created as an ad hoc solution. The Commission has thereafter sought to address the lack of reliable and standardised data, intelligence gathering and monitoring of medical countermeasures specifically in the framework of proposed instruments linked to HERA. In certain areas including agricultural products, EU legislation provides the legal basis for collecting relevant information from Member States to ensure market transparency. This monitoring supports forecasting and serves to inform possible mitigation measures. Measures to improve the EU’s ability to anticipate or prevent shortages are or may be discussed in formal and/or informal fora such as sectoral expert groups or ad hoc work streams. For instance, the Chief Economist Network working group recently set up by the Commission’s Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs with the Member States has been discussing analytical methods useful for detecting and analysing supply chain disruptions, as well as a Shortages Alert System based on official statistics concerning the price evolution for goods and stakeholders’ expectations about factors affecting the supply and demand of products. However, while these discussions are extremely valuable to build a common understanding of the relevant market developments and to fine-tune the methodology for assessing these developments, they can hardly go beyond an informal exchange of information and cannot trigger a coordination of the possible policy responses. In addition, the Commission has been regularly monitoring relevant developments in the area of critical raw materials specifically , which could provide inspiration for monitoring also beyond the raw materials area. There is no appropriate Early Warning System whereby the Member States could notify information to the Commission on shortages of goods or services that result from Single Market impacts of an emergency situation or about any developments that would lead to those. The Early Warning System of the Strawberry Regulation allows for notification of free movement obstacles between two Member States to the Commission but is rarely used. Member States may in principle raise any free movement obstacles for discussion in the Single Market Enforcement Task Force. However, its’ scope is not focused on enforcement matters for crisis management. The Early Warning and Response System operated by DG ECHO is designated for early warning concerning natural disasters that might need to be followed up by humanitarian assistance and civil protection measures. The mechanism for early warnings proposed in Article 15 of the Chips Act for Europe proposal concerns semiconductors, their parts and the raw materials that are needed for their production. The Early Warning System contained in the proposal for the Cross-border health threats Regulation proposal concerns threats to public health, not shortages of goods and services at the time of public health emergencies. As far as stockpiling or strategic reserves are concerned, apart from emergency oil/gas reserves and reserves in the field of civil protection , there are currently no EU-level measures or initiatives. While strategic reserves are a way to address short-term supply chain disruptions or imbalances, the interest in strategic reserves has increased due to the unstable geopolitical situation brought forward by Russia’s invasion of Ukraine as well as other factors including Europe’s dependency on third countries for certain goods. For example, in the area of security of supply for energy, Russia's invasion of Ukraine has aggravated the situation and driven energy prices to unprecedented levels. This situation prompted the Commission to present a legislative proposal requiring underground gas storage across the EU to be filled in at least 80% of their storage capacity by 1 November 2022 (rising to 90% in subsequent years) . By way of example, international like-minded partners including USA, Japan and Switzerland already dispose of strategic reserves arrangements and can rely on legal instruments allowing for the adoption of additional measures in this respect (e.g. the US Defense Production Act or Japan’s JOGMEC, see Annex 8 for an overview).

When it comes to preventive measures by the industry, many companies have adapted their supply chain “thinking” and introduced mitigating measures following Russia’s invasion of Ukraine. For instance, according to a survey of its members carried out by VDMA, the German umbrella association representing the mechanical engineering industry, more than 80% of respondents have changed or considered changing their procurement principles or opted for increased stockholding further to Russia’s invasion . According to a survey of Member States carried out by the Commission in May 2022, the picture is mixed when it comes to preventive measures in place at national level. The survey looked at crisis preparedness measures already in place in the Member States and in particular, the presence (or absence) of national monitoring systems and strategic storage or stockpiling systems of goods of key importance. As regards monitoring, several Member States have implemented risk assessment mechanisms in designated critical sectors and strengthened the exchange of information between stakeholders in such sectors and national competent authorities. Regarding strategic reserves, most Member States do not have stockpiling systems in place. However, certain Member States have established systems, such as Finland and specifically it’s National Emergency Supply Agency. Recent initiatives or fora in this area include Estonia’s Stockpiling Agency, operating since July 2021, the creation by the Spanish National Security Council of the Strategic Reserve based on Industrial Production Capacities in October 2020, and the Polish Government Programme of Strategic Reserves created in December 2020. Other Member States have set up strategic stocks for specific products (e.g. gas, basic food and drinking water, protective equipment or medicinal products). Russia’s invasion of Ukraine, meanwhile, has prompted more Member States to initiate plans including dedicated task forces to manage supply chain disruptions through similar measures. 3.Divergent and not well targeted Single Market restrictions by Member States during crisis situations Neither primary EU law, nor any of the secondary EU law instruments with the exception of the legislation concerning financial services, lay down crisis-specific provisions for the purpose of ensuing coordination of the measures that the Member States may adopt in response to the disruptions to the functioning of the Single Market. Over the course of recent crises, Member States have been introducing restrictions affecting the functioning of the Single Market that were not well targeted to the issues. The approach taken by Member States in terms of restrictions was also often heterogeneous and uncoordinated. Specifically during the COVID-19 pandemic, restrictions on free movement and internal border controls have been reintroduced repeatedly to protect public health and on the basis of the precautionary principle, while at the same time having a negative impact on the economy. On several occasions, Member States acted on their own without consulting or even, in some cases, informing other Member States, even when confronted with the same threat . In the public consultation, 23 of 24 respondents, the majority being business associations, stated that they were negatively affected by the restrictions on free movement of persons, cross-border service provision or export of goods, with many affected to a great extent. Stakeholders repeatedly explained the difficulties resulting from uncoordinated and not well targeted restrictions. The biggest issue put forward as problematic by the stakeholders in the area of transport was the uncoordinated response as well as frequent changing of rules . A number of Chambers of Commerce reported difficulties faced by cross-border businesses due to the differences in duration of quarantines, frequency of tests and definitions of key categories of persons benefiting from facilitating measures between Member States. They called for a unified and coordinated approach. Recommendations adopted at EU level may be used to incite the emergence of a coordinated approach among the Member States regarding restrictive measures adopted in response to crisis situations. However, the effectiveness of such recommendations is limited due to the fact that they are non-binding legal instruments and there are no legal means to enforce them. 4.Lack of information from public authorities on Member States’ restrictions Stakeholders and Member States can receive some information on draft crisis measures of other Member States via the TRIS system that is operated under the Single Market Transparency Directive . The Directive provides also for an urgency procedure according to which in urgent situations, due to serious and unforeseeable circumstances, an EU country may adopt a technical regulation without respecting the standstill period. Member States are obliged under the Schengen Borders Code to notify the reintroduction of internal border controls. Whilst the Commission cannot veto any such decision of the Member States, it may issue an opinion on the necessity and proportionality of such checks. The adoption of such an opinion is without prejudice to the powers of the Commission to launch infringement procedures. The European Court of Auditors stated that the Commission did not sufficiently monitor Member States who did not comply with the existing notification obligations , did not issue opinions on disproportionality of the national measures on the reintroduction of internal border controls and did not start infringement proceedings even if the information received from the Member States on the reintroduction of such border controls was not sufficient to demonstrate proportionality of the taken measures for the fight against COVID-19 . Regarding restrictions to the free movement of persons, Member States are not obliged to notify to the Commission measures affecting the free movement of persons under Directive 2004/38/EC (the Free Movement Directive). According to the functioning of the Directive, restrictions to free movement for reasons of public policy, public security or public health apply based on an individual assessment and are subject to judicial control. Administrative assistance including points of contact that provide information and assistance to citizens and businesses is provided by national authorities based on differing national legislation implementing the Services Directive and on the Single Digital Gateway Regulation . However, the provision of crisis-specific administrative assistance with fulfilment of additional formalities and procedures is not guaranteed by one single contact point in each of the Member States. There are also linguistic barriers for the economic operators for accessing information from each of the host Member States where they carry out their economic activities and this brings an additional administrative burden. In the experience of the COVID-19 crisis, the repeated lifting and reintroduction of free movement restrictions and of internal border controls led to a situation where, despite the Commission’s efforts to coordinate Member States measures, the rules were not known in a timely manner, were sometimes difficult to access or unclear (see also problem driver 3). The lack of reliable, timely and widely accessible information about national restrictions during the COVID-19 pandemic has been repeatedly highlighted by business representatives as a key challenge affecting economic activities . A number of Chambers of Commerce reported difficulties to find information on the different measures affecting free movement put in place in different Member States , lack of clarity of rules and lack of legal certainty, administrative and practical burden to comply with the rules and the need to ensure mutual recognition of tests . The cross-border regions also experienced many difficulties related to constant changes. In 2020, the Euregio Meuse-Rhine region alone received 416,000 questions from citizens and businesses . According to Eurostar ‘The clarity and reciprocity of border restrictions, and their joint implementation, is essential [...] [B]order restriction rules have been changing and updating on a virtually daily basis. The result has been confusion for passengers, staff and within governments. Frequently governments’ own information (e.g. embassy websites) has failed to keep up and had been partial, inaccurate or missing entirely. The overwhelming majority of passengers are trying to be responsible but if the rules are not clear and simple, they struggle to comply. Eurostar staff and border forces are put in the difficult position to have to interpret rules and regularly fail to provide answers with confidence.’ The stakeholders in the area of transport, especially businesses, experienced problems with cross-border operations due to lack of clear and up-to-date information on the national measures as well as due to regular testing requirements imposed on transport workers without easy access to testing facilities, or specific language requirements for tests, as well as unavailability of auxiliary services due to closures or lack of personnel . This challenge was mitigated by the implementation of the Green Lanes system, which recommended exempting transport workers from all restrictions and facilitating the movement of goods and the border crossing thereof. The ensuing legal uncertainty has been particularly problematic for SMEs, who may not have the resources to source relevant information quickly. SMEs have reported difficulties keeping track of fragmented and constantly changing rules and restrictions, such as those impacting service provision, for which relevant information has been hard to find for non-national service providers . 5.Procedures for placing harmonized products on the market are not sufficiently fast for deploying critical goods on the market for crisis response EU product safety rules, especially those aligned to the so-called New Legislative Framework , are aimed at ensuring the safety of products that are placed on the Single Market by laying down a harmonised set of requirements, conformity assessment procedures and market surveillance procedures for each respective product category. The vast majority of industrial products in the EU are subject to harmonised rules provided by the New Legislative Framework (NLF). The NLF sets out the essential requirements products have to follow, formulated in a general manner to ensure that legislation remains technology neutral and fosters innovation. It is up to manufacturers to ensure that their products comply with the essential requirements. Harmonised standards are intended to facilitate this process and provide a presumption of conformity with the essential requirements. The NLF also foresees horizontal rules on market surveillance. Currently about 40 pieces of sectoral product legislation follow this regulatory model. The aim of these rules is to ensure the free movement of goods on the Single Market while ensuring a high level of protection. In particular, many products that proved to be essential during the Covid-19 pandemic, such as Personal Protective Equipment (PPE), are regulated according to these rules. Other potentially critical products such as machinery, radio equipment or pressure equipment are equally governed by frameworks aligned to this regulatory model.

With the exception of a few specific legal frameworks such as the new Regulation on Medical devices , the NLF does not foresee any emergency procedures for placing products on the market. This is why during the pandemic, the Commission adopted the Recommendation on PPE and Medical Devices in order to provide with the possibility for the national authorities to rely on specific derogatory procedures for the conformity assessment of crisis-relevant products and therefore ensuring the swifter placing of such products on the market. The evaluation study of the NLF has found that the basic principles of the NLF have proven to function well during the COVID-19 pandemic. Yet, especially business stakeholders involved with PPE and medical devices noted that “it took too long for new market entrants to familiarise themselves with the legislation and go through the procedures necessary to place products important in the fight against COVID-19, such as PPE and medical devices, on the Union market”. One national authority highlighted the need to “to establish procedures for any crisis, urgency or other special situations” within the conformity assessment system . While the issues could be eventually resolved, much time was lost trying to find ad hoc solutions. In addition, for some legal frameworks (e.g. Machinery, Radio Equipment Directive) the use of a harmonised standard may imply that a manufacturer can do a self-declaration of conformity without having to have recourse to third party conformity assessment body. In some cases, the overall time to conduct the full procedure involving a third party conformity assessment body may be several weeks or months. In cases where the relevant harmonised standards are not available, manufacturers would not be able to use this possibility and would have to undergo the lengthier third party assessment by a notified body. This can delay market access for critical products in times of crisis. Furthermore, as the experience has shown during the COVID-19 pandemic, restrictive measures taken at national level such as lockdowns could have an impact on the availability of such third party assessment bodies. In those cases where the testing facilities had to remain closed due to pandemic-related restrictions, the immediate result was that significant backlogs in the conformity assessment of products were accumulating. These backlogs concerned also the crisis-relevant products, which added additional strain on the already strained supply chains. 6.Insufficient legal certainty in relation to existing emergency provisions in public procurement and lack of rules on coordinated and joint procurement for single market emergencies specifically The EU legal framework for public procurement by individual Member States contains a number of provisions that foresee flexibilities for emergencies when there is an urgent need to procure goods or services quickly. In case of urgency, public buyers have several possibilities, such as substantially reducing deadlines to accelerate open or restricted procedures, or if necessary opting for negotiated procedures without publication. In case of extreme urgency, direct awards to preselected economic operators might be allowed. Public buyers may have to look for alternative and possibly innovative solutions. However, while the overall legal framework therefore appears fit for purpose, Member States may be hesitant to use the flexibilities provided for, out of concerns for possible non-compliance with the applicable rules and potential court cases challenging the use of emergency procurement rules. To complement public procurement by national level buyers, during the COVID-19 crisis, the Commission together with the Member States launched joint public procurement for various medical goods relying on the Emergency Support Instrument. This proved an effective way to procure necessary products, needed for preserving life, health and human dignity during natural or man-made disasters. In addition, the possibility to procure goods for the needs of civil protection exists under the rescEU mechanism. However, there is currently no structured framework for making use of joint public procurement outside of the field of civil protection or medical countermeasures, allowing the Commission or other EU institutions to procure goods on behalf of the Member States on its own, or to procure flexibly at the time of crisis substantially reducing deadlines to accelerate open or restricted procedures, or if necessary opting for negotiated procedures without publication where necessary. Member States may procure any crisis-relevant goods or services individually, without any obligation to coordinate such procurement procedures between themselves and with the Commission. Several Member States observed in their replies to the Member States questionnaire administrative obstacles to public procurement that constrained a rapid and flexible process of crisis measures. Latvia noted in its reply that this had a limiting effect on compiling national strategic reserves. The upcoming revision of the Financial Regulation is intended to introduce crisis procurement provisions to the Financial Regulation. The proposal is expected to become applicable in four years’ time and its emergency procurement provisions will apply only in case of declaration of crisis under the Financial Regulation. The crisis definition of the draft revision of the Financial Regulation as it stands is not adapted to Single Market emergency situations, therefore the proposed emergency procurement provisions cannot provide a solution for the purposes of the Single Market emergencies even after their entry into force. 7.Supply chain disruptions that amplify shortages of crisis-relevant products during emergency and the lack of the ability to anticipate them Supply chain disruptions can stem from a wide variety of causes. Some of these causes are structural and therefore require more long-term solutions reinforcing the EU open strategic autonomy, for example in fields such as raw materials, semiconductors and energy. However supply chain disruptions can lead to or amplify shortages of crisis-relevant products. The COVID-19 pandemic disrupted global supply chains in unprecedented ways, inter alia by fundamentally changing consumption patterns during the lockdown thereby impacting demand, or by forcing shutdowns of factories in manufacturing hubs globally. Further to a sharp increase in global demand in the second half of 2020, supply side bottlenecks became evident, most notably: (i) logistic disruptions in the transport sector (mainly container shipping) that struggled to cater for the surge in merchandise trade in post-lockdown reopening, thus exacerbating pre-existing challenges in this regard (ii) microprocessors, a highly cyclical industry faced with a surge in demand, and (iii) a host of commodities, such as metals, wood, energy and others, where a combination of supply disruptions and spiralling demand pushed up prices to all-time highs. Backlogs continued to drag on or even exacerbate throughout 2021 and beyond, leading to shortages especially in the manufacturing sector, with negative effects (on production capacity and consequently, outputs) across various industrial ecosystems . The supply disruptions disproportionately impacted insular regions that are heavily dependent on imports (including basic goods) and limited connectivity modes (air and maritime). Supply chains have become increasingly complex as they span across a variety of suppliers and geographical areas, in an attempt to maximise the comparative advantage at each stage of the production process. These business models or practices, which are highly efficient in normal times, may be vulnerable in times of unexpected events, since any unexpected pressure can paralyse entire supply chains. They have exacerbated shortages further during the COVID-19 pandemic . Russia’s invasion of Ukraine and resulting sanctions and trade restrictions have put further strain on supply chains. This is having an impact on the supply of food products (including animal food) in the Single Market that has led to price increases and to sudden changes in product composition (e.g. to replace sunflower oil), which also triggered the need for emergency amendment to legal provisions on labelling in the Single Market. Even before the invasion, commodity markets displayed significant price increases, affecting agricultural markets due to higher fertiliser and energy costs. In addition to driving up prices and leading to possible shortages in the medium and longer term, this situation also affects how Member States operate within the EU Single Market: in March 2022, Hungary notified to the Commission measures concerning the intra-EU export of agricultural products of strategic importance for feed and food security of supply. The Hungarian measures include a notification obligation concerning exports, giving the State the right to pre-empt exports or purchase such products. Furthermore, there is a high reliance on Russia and (to a lesser extent) Belarus and Ukraine for a range of other products including raw materials, such as wood, rare earths and noble gases, as well as fertilisers and related inputs and rubber. Imports have been severely affected, not the least in view of import bans in relation to Russia. While alternative sources generally exist, those may not be available, or are available at higher prices. China’s recent zero-Covid policy that imposed a lockdown on millions of workers across the country brings about additional disruptions, notably as regards logistics. These measures are expected to translate into further challenges (delays in deliveries, higher prices and risk of shortages) for global supply chains and with major spill over effects on the availability of goods in the Single Market. In response to these challenges, industry has been forced to look for alternative sources of supply. For instance, according to VDMA’s survey in April 2022, following Russia’s invasion of Ukraine, 82% of respondents have implemented or considered a broader supplier network and 42% have implemented or considered alternative routes or logistics . There is a lack of EU-level measures to identify, anticipate and monitor such supply chain disruptions that can have an impact on the availability of crisis-relevant products during an emergency. There are also no effective measures to tackle such shortages during an emergency. This can lead to or amplify further the shortages of crisis-relevant products during an emergency, thus hampering the EU-level crisis response. 8.Lack of information from economic operators Data is essential for driving better delivery of policy and for improving the quality of policy outcomes. Increasingly, the data used in evidence-based policymaking is held by companies, often very large ones but also smaller ones active in specific supply chains. Public sector bodies typically acquire such data from the private sector by setting reporting obligations, launching public procurement, or encouraging voluntary data-sharing collaborations. In some cases, national authorities may not possess relevant firm-level information, or their national rules on information collection may prevent them from sharing it with the Commission or with other Member States (either at all or in a sufficiently timely/disaggregated fashion). Another factor limiting the availability of information is the challenge faced by economic operators themselves to obtain relevant data within their supply chains e.g. in case problems arise that would require accessing information from suppliers further down in the supply chain, in view of developing solutions within the industry. This is typically observed in increasingly complex and globalised supply chains, with business models relying on multiple suppliers along the chain from production to delivery to end consumers. All in all, existing mechanisms for obtaining and sharing information from economic operators show limitations, such as being incomplete or too slow. This concerns in the first place emergency situations and the products deemed essential for such situations. The COVID-19 pandemic has confirmed the difficulties in the timely acquisition of data necessary for crisis management by governments at national, regional, and local levels as well as by European institutions. These were not able to obtain the necessary information from economic operators for taking optimal crisis response measures to respond to shortages of crisis-relevant goods. In particular, economic operators refused to provide information on their production capacities, number of manufacturing facilities and their stocks of crisis-relevant goods, consumables, intermediate products and raw materials, which are necessary for the production of such goods, referring to business secrets and contractual terms that prohibit them to reveal such information. The example of vaccines production during the COVID‑19 pandemic is a case in point: the Commission compiled data on production capacity (by adding up notified exports to third countries and EU deliveries) based on a proxy assuming that companies were producing vaccines at full capacity during the crisis, which did not reflect the actual potential.

None of the recently proposed initiatives, such as the proposals for the Council Regulation on the emergency framework regarding medical countermeasures, the Data Act and the Chips Act, which contain provisions on mandatory information requests, provide for targeted information requests for emergencies where the functioning of the Single Market is severely disrupted (outside of specifically on medical countermeasures and semiconductors). Furthermore, when such mechanisms exist at national level, they are not coordinated with the other Member States nor mirrored at EU level. However, it is difficult for the EU and Member State level authorities to take fully targeted action, such as procurement action, at the time of crisis to remedy shortages of crisis-relevant goods or their components, without having accurate information at their disposal. For example such information could point to specific additional sources of disruptions of the supply of crisis-relevant goods (e.g. availability of testing services, of packaging etc.) or to the potential risk of spillover effects to other sectors/goods/services (e.g. if the raw materials used for the manufacturing of product A are also used in product B, an increase in the demand and the production of product A has the potential to put the production of product B under strain). Similar challenges are observed when it comes to obtaining necessary information for the purpose of ensuring correct application and enforcement of Single Market rules, including in times of crisis. 2.3 How likely is the problem to persist? Recent experience has shown that in a tightly interconnected global economy certain disruptions in some parts of the world can quickly spread and produce spill over-effects, including in the Single Market. Furthermore, such crisis could be of different nature, thus requiring a more nuanced response, tailored to the specificities of each scenario. Currently there is no horizontal framework allowing to cater for the possible disruptions to the proper functioning of the Single Market that might arise during a crisis, no matter its nature. Even if a number of ongoing initiatives aim to lay down such crisis-relevant provisions and mechanisms in certain specific sectors, those initiatives would not be able to capture crisis scenarios, which fall beyond their scope or would not be able to fully capture in a comprehensive manner disruptions, which even partly fall outside their scope. This in turn will likely hamper EU’s ability to anticipate and to address fragmentation in the Single Market and to remedy the disruptions in the supply chains of critical goods and services. Notwithstanding the ongoing initiatives laying down certain sectorial crisis relevant provisions, if and when a new crisis strikes, the EU will still lack dedicated fora where all the cross-sectorial issues affecting the Single Market can be discussed and coordinated in a coherent and holistic manner. If such a mechanism continues to lack, Member States are likely to introduce heterogeneous restrictions again. In the absence of transparency of such measures, problems related to lack of timely and clear information are likely to reoccur. Inability to anticipate supply shortages as well as a lack of information from economic operators and a lack of vigilance measures would kneecap the EU’s response. The EU crisis response itself could be hindered by a lack of streamlined rules on the availability of critical products as well as by an insufficient legal certainty and a lack of provisions on joint or coordinated procurement. 3.Why should the EU act? 3.1 Legal basis Within the context of a crisis, the Single Market can be impacted both by the appearance of the specific disruptions and shortages inherent to the said crisis, as well as by the possible intra-EU restrictions to the free movement of goods, services and persons, which may emerge in an attempt to address the said crisis. The general objective of the initiative is to lay down the mechanisms and procedures, which would allow to prepare for and to address potential crises and disruptions to the proper functioning of the Single Market. Such measures are also aimed to minimise the intra-EU obstacles to the free movement in times of crisis. More specifically, in the case of a crisis, the measures have to be taken to address any identified shortages and to safeguard the availability of crisis-critical goods and services across the entire EU. A number of measures, considered within the context of this initiative (e.g. derogation to certain notification procedures or for procedures on the conformity assessment of certain products) derogate or complement existing EU harmonisation legislation, based on the general internal market legal basis (Article 114 of the Treaty on the Functioning of the European Union (TFEU)). In addition, other measures which are considered, such as the ramping up of production capacities, the speeding up of permitting, priority rated orders as well as the accumulation and distribution of strategic reserves also aim to ensure a coherent response to future crises and to avoid the fragmentation of the Single Market. In cases where there are substantial risks to the functioning of the Single Market or in cases of severe shortages or an exceptionally high demand of goods of strategic importance, measures at EU level aimed to ensure the availability of crisis-relevant products, such as strategic reserves or priority rated orders, may prove to be indispensable for the restauration of the normal functioning of the Single Market. Pursuant to Article 4(2) of the Treaty on European Union (TFEU), the Member States retain the competence to take all measures within the context of “their essential State functions, including ensuring the territorial integrity of the State, maintaining law and order and safeguarding national security… [And]… national security remains the sole responsibility of each Member State.” It is an article of last resort that can be used by Member States in a crisis. In principle, uncoordinated individual crisis response measures have the potential to further exacerbate the crisis if they were to add additional obstacles to the smooth functioning of the Single Market and may in those circumstances put additional strain on the supply chains of crisis-relevant goods and services. However, it is likely that there could be only limited overlap between the measures which can be adopted under the Single Market Emergency Instrument and the measures adopted by the Members States pursuant to Article 4(2) TFEU due to the fact that the two mechanisms have a different material scope with Article 4(2) TFEU focused on the preservation of the territorial integrity, the maintenance of law and order and safeguarding the national security, while the Single Market Emergency Instrument primarily concerns restrictions to free movement with impact on the Single Market. Nevertheless, potential conflicts between safeguarding national security and supporting the proper functioning of the Single Market cannot be excluded in the future. In order to establish a clear delineation between Article 4(2) TFEU and other instruments, in recent legislative procedures, e.g. Revised Directive on Security of Network and Information Systems (NIS2), in the context of inter-institutional negotiations a specific caveat has been included to ensure that the specific instrument concerned is without prejudice to the Member States’ rights and responsibilities stemming from this Article. Therefore, an analogous provision will be included in SMEI which will act as a general framework without prejudice to specific rights and responsibilities of Member States in the context of Article 4(2), which will take precedence. Furthermore, while Member States could potentially take measures pursuant Article 4(2) that could have an impact on the Single Market, an effective Single Market Emergency Instrument with full Member States’ participation would ensure a coordinated crisis response and mutual trust and would therefore diminish the effects of a crisis, which could decrease the need for the potential introduction of last resort measures under this Article. 3.2 Subsidiarity: Necessity of EU action The economic activities across the Single Market are deeply integrated. Interaction between companies, service providers, clients, consumers and workers located in different Member States that rely on their free movement rights, is increasingly common. The experience of the past crisis has shown that often the distribution of production capacities across the EU is uneven (e.g. with the production lines of certain products primarily located in a few Member States such as PPE). In parallel, in the case of a crisis, the demand for crisis-relevant goods or services across the EU territory may also be uneven. The objective of ensuring the smooth and undisrupted functioning of the Single Market cannot be achieved by means of unilateral national measures. Moreover, even if measures adopted by the Member States individually may be able to address to a certain extent the deficiencies resulting from a crisis at the national level, they are in fact more likely to further exacerbate the said crisis across the EU by adding further obstacles to the free movement and/or additional strain on products already impacted by shortages. 3.3 Subsidiarity: Added value of EU action The introduction of rules which govern the functioning of the Single Market is a competence shared between the EU and the Member States. A significant number of EU frameworks governing various aspects are already in place and they contribute to the smooth operation of the Single Market by laying down coherent sets of rules which apply across all the territories of the Member States. However, the existing EU frameworks generally lay down rules concerning the day-to-day functioning of the Single Market, outside of any specific crisis scenarios. This being said, some proposals which have been recently adopted by the Commission contain certain crisis-relevant provisions. However, there is currently no horizontal set of rules and mechanisms which address aspects such as the contingency planning, the crisis monitoring and the crisis response measures, which would apply in a coherent manner across economic sectors and across the entire Single Market. The emergency instrument would only be deployed with the objective of ensuring a coordinated approach to respond to crises that have important cross-border effects and threaten the functioning of the Single Market, and where no EU instrument already exists or where the existing instruments do not lay down crisis-relevant provisions. Putting in place contingency and vigilance measures across the Single Market can facilitate the coordination of the response measures in the case of a crisis. Furthermore, such measures can be complemented by effective and efficient coordination and cooperation amongst the Commission and Member States during the crisis in order to ensure that the most appropriate measures to address the crisis are taken. The options below foresee a toolbox of targeted EU-level measures that would be proportionately used in response to a specific crisis. Prior risk assessment, based on a well-defined set of criteria and involving closely the Member States, will be systematically conducted before specific measures are deployed at EU level. The various tools may be activated and deployed by themselves or in different combinations depending on the specific emergency circumstances.

The Single Market Emergency Instrument is not intended to lay down a detailed set of EU level provisions which should be exclusively relied upon in the case of crisis. Instead, the instrument is intended to lay down and ensure the coherent application of possible combinations between provisions taken at EU level together with rules on the coordination of the measures taken at the level of the Member States. In this respect, the emergency measures which may be taken at EU level on the basis of the Single Market Emergency Instrument would be coordinated with and complement the emergency response measures adopted by the Member States. In order to allow for such coordination and complementarity, the Single Market Emergency Instrument would set out specific measures which the Member States should refrain from imposing once a Single Market emergency has been activated at EU level. In this context, the EU added value of this instrument would be to lay down the mechanisms for a swift and structured way of communication between the Commission and Member States, coordination and information exchange when the Single Market is put under strain, and to be able to take necessary measures in a transparent way – speeding up existing mechanisms as well as adding new targeted tools for emergency situations. It would also ensure transparency across the internal market, ensuring that businesses and citizens that rely on their free movement rights have at their disposal appropriate information about the applicable measures across all the Member States. This will increase legal certainty allowing them to take informed decisions. A further advantage of action in this domain would be to equip the EU with the resilience tools needed to sustain the competitiveness of the EU industry in a geopolitical context in which our international competitors can already rely on legal instruments allowing for a structured monitoring of supply chain disruptions and for the adoption of possible response measures such as strategic reserves (e.g. the US Defense Production Act or Japan’s JOGMEC, see Annex 8 for an overview). 4.Objectives: What is to be achieved? 4.1 General objective The general objective of SMEI is to enhance the Single Market’s vigilance for, response to and its smooth functioning in times of crisis. To this end, SMEI will equip the EU with a well-calibrated crisis toolbox that permits a rapid and effective response to any future crisis that threatens to hamper the functioning of the Single Market, complementing other existing EU mechanisms, including through better coordination, transparency and speed. The objective is to strengthen the functioning of the Single Market and provide quick and practical solutions to issues of free movement of goods, services and persons and of supply in times of crisis. 4.2 Specific objectives This initiative pursues two specific objectives (SOs). SO1: Minimise obstacles to free movement of goods, services and persons in times of crisis The specific objective 1 is to minimise obstacles to free movement of goods, services and persons in times of crisis by providing a toolbox of solutions to ensure a well-coordinated EU-level vigilance and response to crises affecting the Single Market. To this end, it is expected to provide a toolbox of solutions consisting of vigilance, coordination and transparency measures assuring more aligned and targeted Member State responses and providing needed transparency when it comes to obstacles to free movement. SO2: Address shortages and safeguard availability of crisis-relevant goods and services This specific objective aims at facilitating quick and practical solutions to issues of supply in times of crisis. To this end, it is expected to provide adequate vigilance, coordination and transparency mechanisms for a targeted policy response and for all Single Market players by enabling information exchange and close cooperation with industry/stakeholders for identifying crisis-relevant supply chain bottlenecks and capacity needs and taking further action when necessary to ensure the availability of crisis-relevant goods and services in an emergency. 5.What are the available policy options? 5.1 What is the baseline from which options are assessed? The potential impacts of the policy options are measured against the current dynamic baseline scenario that consists of no additional EU actions, meaning no change to the currently existing or proposed regulatory framework and existing mechanisms and tools for crisis management. The baseline scenario is not the current state but the state that would dynamically develop without any additional EU action. Currently, there is no single forum, with a horizontal mandate and a clearly defined role, which would gather and discuss the cross-sectorial concerns, disruptions and crisis-response measures. Several Member States operate public information systems on the market situation (production, stocks, exports, prices, etc.) that enables the effects of possible crises in the markets to be analysed and quantified, and have organised meetings with sectoral representative organisations. However existing examples bilateral or regional cooperation between the Member States do not cover the whole Single Market neither geographically, nor in terms of the sectors covered. In terms of communication of crisis-response measures, at EU level the Commission put in place the interactive tool Re-open EU which aims to provide the information that citizens need to plan their travel. Member States’ competent authorities inform citizens and businesses generally about their crisis measures via official websites of institutions, media (press conferences) and social networks. Dedicated web pages were created to provide detailed information about specific sectors to inform about measures by ecosystems and upcoming meetings within the EU institutions. Some Member States have also set up information hotlines to provide business with administrative assistance in view of implemented measures such as loans guaranteed by the state. In the case of technical regulations, stakeholders and Member States would be able to receive some information on draft crisis measures of (other) Member States via the TRIS system that is operated under the Single Market Transparency Directive. The Member States are obliged to notify the reintroduction of internal border controls under the Schengen Borders Code, but the follow-up is limited. As regards free movement of persons, there is no notification obligation for measures such as entry and exit bans. There is currently no obligation for the Member States to establish single contact points for the provision of crisis-specific administrative assistance with fulfilment of additional formalities and procedures. Furthermore, there are no specific provisions addressing the language regime for contacts with the national contact points, which may be already set up or which alleviate the administrative burden for requestors. There is currently no obligation for the Member States to exchange crisis-relevant information outside the areas of civil protection and medical countermeasures. The Member States could exchange some crisis-relevant information on ad hoc basis via the IPCR and the Single Market Enforcement Task Force. Some regions would hold at the crisis time regular meetings between the crisis management authorities to share challenges and best practices and there would also be some instances of bilateral exchange of information between the Member States. Their obligations of exchanging information with the Commission, would be limited to the fragmented notification obligations under the Single Market Transparency Directive, Services Directive and the Schengen Borders Code. With respect to specific monitoring systems for crisis management purposes, several Member States operate specific monitoring systems used through their own crisis management tools/contingency plans to gather information from economic operators and assess the situation to reduce negative impacts of a crisis on businesses. However, such monitoring is not systematically done across all the Member States and there are no provisions at EU level rendering such monitoring mandatory. Furthermore, the Member States, which perform such monitoring are not required to inform the Commission and the other Member States.

There is no horizontal Early Warning System whereby the Member States could notify information to the Commission on identified shortages of goods or services that result from Single Market impacts of an emergency situation or about any developments that would lead to those. Preparatory actions exist in specific areas such as civil protection or specific sectors, depending on national practices and/or EU level initiatives. However, there are no tailored preparatory tools in view of the broader Single Market impacts of possible future crises. There are no EU-level mechanisms organising the collaboration with private sector stakeholders for the purposes of information gathering in view of the anticipation of future crises. When such mechanisms exist at national level they are not coordinated nor mirrored at EU level. With the exception of the legislation concerning financial services, neither primary, nor secondary EU law contain crisis-specific provisions specifically targeting emergencies affective the proper functioning of the Single Market. The standard rules for placing products on the market embedded in the EU harmonised product framework do not provide for crisis-response procedures. More specifically, the sectorial harmonised product legislations in general do not provide for the possibilities to use fast-track conformity assessment procedures for crisis-relevant products. Additionally, the sectorial legal frameworks for harmonised products generally do not provide the possibility for the Commission to adopt technical specifications in cases where no harmonised standards are available, which has the potential to accelerate the placing on the market of products by providing the manufacturers with the possibility to rely on simplified and swifter conformity assessment procedures. For public procurement the baseline scenario consists of the inability of the Commission, outside the areas of civil protection and medical counter-measures, to procure on behalf of the Member States during the crisis or otherwise. The Joint procurement provision of the Public Procurement Directive requires the Member States to negotiate between themselves what the procedure of such joint procurement by the Member States would be and to put in place a joint undertaking or a joint purchasing body for each instance of joint procurement. There are no specific arrangements for distribution of crisis-relevant goods at the time of dire shortages, ramping up the production lines of crisis-relevant products, speeding up permitting procedures and accepting and prioritising orders of crisis-relevant products by economic operators, apart from the potential rescEU strategic reserves in the area of civil protection/emergency response. The Commission currently does not have a possibility to oblige the economic operators or their representatives to reply to targeted crisis-related information requests. It may, however, rely on the EEN/cluster survey on the impact of supply chain disruptions and the information received by the Industrial Forum or from other sources. It appears from the study carried out by DG CNECT for the impact assessment of the Data Act that the legal possibilities of the Member States authorities to issue such information requests during the crisis and to share the received information with other Member States and the Commission differ largely and the overall legal framework is fragmented. 5.2 Setup of the instrument The policy options described below provide a flexible toolbox of measures which allows the selection of the most appropriate measures depending on the type and nature of the crisis. The toolbox is built around eight building blocks which are described in detail in Section 5.3. The building blocks were identified on the basis of the mapping of problem drivers as well as the analysis of the gaps in terms of coverage of the relevant sector-specific crisis legislation with the objective to address all the problem drivers and all the identified gaps (see Table 1 in section 5.3). All building blocks are necessary in order to ensure the coverage of all problem drivers. The options establish: 1) a governance body and a framework for 2) contingency planning, 3) Single Market vigilance and 4) Single Market emergency measures that would function along a gradual approach, which can be illustrated by a “traffic lights approach” presented below. The definition of a Single Market emergency at the moment of drafting this Impact Assessment is foreseen as follows: ‘Single Market emergency’ means a wide-ranging impact on the Single Market in at least two Member States of a natural or man-made crisis taking place inside or outside the Single Market, that severely disrupts or threatens to severely disrupt the functioning of the Single Market or puts its supply chains that are indispensable for the normal functioning of society and have a limited substitution and diversification potential at risk.’ This definition caters for any future emergency while putting a clear focus on its effects on the Single Market and it is wide enough to cover “any” product and service since future crises are unknown today. In practice the instrument will not deal with “every” product and service, but only with those relevant for the crisis. Other relevant definitions for the purpose of the instrument may be: ▪‘goods and services of strategic importance’ means goods and services are necessary for maintaining economic activities in the Single Market in strategically important areas of the economy and are considered as reference during the vigilance mode; ▪‘strategically important areas of the economy’ means those areas with critical importance to the EU and its Member States’ strategic interests such as security, safety, public order, health and the green and digital transformation, including critical infrastructure, critical technologies and inputs which are essential for safeguarding such interests, the disruption, failure, loss or destruction of which would have a significant impact in a Member State or the Union; ▪‘crisis-relevant goods and services’ means goods and services that are indispensable to safeguard or restore the functioning of the Single Market during a Single Market emergency or for responding to such emergency;

1)Governance body A central governance body observes the state of the Single Market along a traffic light approach to ensure adequate coordination and advises the Commission on the appropriate measures for preventing or addressing the impact of a crisis on the Single Market. It is composed of the Commission and one representative from each Member State and is chaired by the Commission. The governance body has as observers representatives of other crisis-relevant instruments. Industry is consulted on a need basis with the possibility to set up ad hoc industry subgroups depending on the products/services/supply chains identified. It will propose the activation and the scope of the Single Market vigilance and emergency modes and analyse the relevant information gathered by the Member States or the Commission by voluntary or mandatory means, including from the economic op