Felbe may , Gab iel; Janeba, Eckha d
A icle
Imp o ing supply secu i y: Guidelines and policy
p oposals
In e economics
Sugges ed Ci a ion: Felbe may , Gab iel; Janeba, Eckha d (2024) : Imp o ing supply secu i y:
Guidelines and policy p oposals, In e economics, ISSN 1613-964X, Sciendo, Wa saw, Vol. 59, Iss. 3,
pp. 146-153,
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In e economics 2024 | 3
146
In e na ional T ade DOI: 10.2478/ie-2024-0031
In e economics, 2024, 59(3), 146-153
JEL: F13, F51, L5
Gab iel Felbe may and Eckha d Janeba
Imp o ing Supply Secu i y: Guidelines and
Policy P oposals
Supply secu i y is h ea ened by echnical, business, na u al and policy shocks, as well as
geopoli ical ensions. Is he e a a ionale o policy in e en ion? I yes, wha a e e icien
and e ec i e measu es ha achie e de- isking? This a icle i s explains why p i a e
incen i es do no gene ally lead o an op imal di e si ica ion o supply sou ces, and hen
discusses measu es ha s eng hen p o ec ion agains and esilience in he ace o shocks.
Go e nmen s should e ain om policies ha u he disincen i ise di e si ica ion such as
he ex pos skimming o excess p o i s when ad e se shocks o ce he hal o p oduc ion
and should wo k on amewo k condi ions ha acili a e di e si ica ion. Impo an ly, mos
measu es a e bes aken a he EU le el.
Gab iel Felbe may , Aus ian Ins i u e o Econom-
ic Resea ch (WIFO), Vienna; and Aus ian Supply
Chain In elligence Ins i u e (ASCII), Vienna, Aus ia.
Eckha d Janeba, Uni e si y o Mannheim, Ge many.
© The Au ho (s) 2024. Open Access: This a icle is dis ibu ed unde he
e ms o he C ea i e Commons A ibu ion 4.0 In e na ional License
(h ps://c ea i ecommons.o g/licenses/by/4.0/).
Open Access unding p o ided by ZBW – Leibniz In o ma ion Cen e
o Economics.
In ecen yea s, a ious shocks, including pandemic-
ela ed p oduc ion in e up ions ab oad, dis up ions o
ma i ime anspo ou es caused by pi a es o ex eme
wea he as well as poli ically imposed sanc ions and
coun e -sanc ions, ha e led o bo lenecks in supply
chains. These ha e had a las ing impac on indus ial
p oduc ion and igge ed, a leas pa ly, highe p ices.
Inc easing geopoli ical ensions and highe clima e isks
make such dis up ions mo e likely.
The EU has a highe deg ee o openness han he US o
China. I is, he e o e, mo e exposed o ex e nal dis up-
ions o supply chains. Because o i s lack o a common
o eign policy and a mili a y, i is also mo e ulne able o
oppo unis ic beha iou o o eign powe s ha seek o
employ asymme ic economic in e dependence as a geo-
economic weapon. This dange became clea in 2021 and
2022, when Russia i s aised unce ain y abou gas sup-
plies o Eu ope and e en ually massi ely cu i s expo s.
A majo eason o he supply isks and o high p ocu emen
p ices o impo an aw ma e ials and in e media e p od-
uc s was and s ill is he pa ly low di e si ica ion o he sup-
plie po olio o Eu opean companies o he supply channels
h ough which hey ob ain hei impo s.
Agains his backg ound, many coun ies ha e begun o
undamen ally e hink hei o eign economic policies,
which ha e o en led o a much mo e ac i e indus ial
policy. Bo h he Uni ed S a es and he EU a e s epping up
e o s o secu e hei s a egic au onomy and o educe
blackmail oppo uni ies due o one-sided dependencies.
The ocus is on China and Russia, bu he lis o po en ial-
ly p oblema ic supplie s has g own longe in ecen yea s.
This pape p esen s he di icul ies a ising in he iden i-
ica ion o s a egic dependencies. I de i es wel a e-
economic jus i ica ions o go e nmen in e en ions in
supply chains. I elabo a es gene al egula o y p inciples
o supply chain egula ion. Finally, i discusses measu es
ha should lead o an imp o emen in he di e si ica ion
o he supplie po olio.
Iden i ying s a egic dependencies
How can s a egic dependencies be iden i ied? Objec-
i e answe s a e ha d o come by because he a ailable
da a a e incomple e and ci cums ances a e cons an ly
changing. The e o e, he e is a isk ha go e nmen in-
e en ions a e poo ly calib a ed. The ollowing passages
highligh some undamen al p emises o e idence-based
economic policy in he supply chain con ex .
The need o a Eu opean pe spec i e
The i s such p emise is ha s a egic dependencies and
c isis p epa edness need o be discussed a he EU le el.
ZBW – Leibniz In o ma ion Cen e o Economics 147
In e na ional T ade
Figu e 1
Supplie di e si ica ion o EU impo s
No e: The size o he bubbles is p opo ional o he impo alue. 280
p oduc s come om a single supplie , 779 p oduc s a e supplied by a
mos h ee coun ies.
Sou ce: Own elabo a ion based on Com ade Da a o 2019.
Numbe o supplying coun ies
050 100 150 200
-50
0
50
Numbe o p oduc s
100
150
200
250
350
300
Wi hin he EU single ma ke , p oduc ion ne wo ks a e
densely in e connec ed. Mo eo e , membe s a es ha e
ceded ade policy and o he ele an compe ences –
such as some egula ion o o eign in es men s – o he
EU.1 The e o e, in e dependencies should be examined
a he EU le el, no only a he na ional le el; econom-
ic policy esponses mus also be p ima ily sough and
ound a he EU le el.
Wha is conside ed sca ce depends on he con ex
The second p emise is ha he pe cep ion o sca ci y is
highly con ex dependen . Du ing he pandemic, a lack
o medical ace masks was epo ed; sho ly a e , he e
was alk o sho ages o eagen s and glass ials o he
manu ac u ing o es s and accina ions, leading o p ice
inc eases. Based on umou s, bank- un-like e ec s can
lead o sho ages, e en i he secu i y o supply is no ac-
ually a isk a all. In addi ion o sensi i e communica ion,
eliable, up- o-da e and eadily a ailable eal- ime da a
can help a oid such episodes.
Besides such a he anecdo al cases, supply p oblems
a e also discussed om an indus ial policy pe spec i e.
A ound he in oduc ion o elec ic ehicles, dependen-
cies on elec onic componen s such as chips ha e be-
come mo e appa en . Sho ages ha e weighed on he
ou pu o he Ge man mo o ehicle indus y in 2021 and
2022. Howe e , in he mean ime, he chip sho age has
eceded and he e a e al eady wa nings o o e supply.2
In he case o a e me als, which a e impo an o p oduce
ba e ies as well as wind u bines, he ocus also changes
cons an ly when new deposi s a e ound o de eloped,3
and when inno a ions make subs i u es possible o sa -
ings achie able. Especially in me als, boom and bus cy-
cles and high p ice ola ili y a e he ule a he han he
excep ion.
The e is a dange ha hec ic policy measu es ha cu b
hese luc ua ions a e coun e p oduc i e because in-
c easing supply ypically akes ime and he e o e hei
e ec o en only kicks in when sho ages a e al eady
dec easing. Ill-conside ed policies gea ed o sho - e m
needs also un he isk o ailing o keep u u e sho ages
in mind. Thus, a poo ly designed go e nmen commodi y
policy would no educe bu a he uel p ice ola ili y.
1 See, e.g. A icle 6 pa ag aph 9 las sen ence Regula ion (EU) 2019/452.
2 See, o example, he epo s in he F ank u e Allgemeine Zei ung
on 9.1.2023 (“Au ohe s elle leiden wei e un e Chipmangel”) and in
Neue Zü che Zei ung on 10.9.2022 (“Nach dem Chip-Mangel komm
das Übe angebo ”).
3 Fo example, on 16 Feb ua y 2023, he The Economis epo ed ha
he me al cobal was suddenly supe abundan .
In o ma ion: Incomple e and asymme ic
The mos impo an da a sou ce o iden i ying depend-
encies a he p oduc le el is ade s a is ics. They a e de-
ailed and compa a i ely imely, bu only e e o goods;
se ices da a a e much less comple e. Based on de ailed
p oduc -le el ade da a, a ious au ho s ha e analysed
he deg ee o di e si ica ion o EU impo s. Fo example,
in 2019, ou o 10,280 p oduc s impo ed by he EU, 779
p oduc s came om a maximum o h ee di e en sup-
plie coun ies (see Figu e 1).
Also, in 2019, China accoun ed o mo e han 50% o
global expo s o almos 600 o a ound 5,000 p oduc s
con ained in he globally ha monised ade s a is ics
(Jean e al., 2023).
Ala ming as hese numbe s may seem, on hei own, hey
a e no in o ma i e. They mus be complemen ed wi h
p oduc ion da a, which a e no a ailable a he same le el
o g anula i y as ade da a. Mo eo e , i no p oduc ion
o a ce ain p oduc in a ce ain coun y in a si ua ion o
ela i ely ee in e na ional ade is obse ed, one canno
in e any hing abou he capabili ies ha can be mobilised
in a si ua ion o c isis. Technological dependencies om
o eign coun ies, oo, a e a ely well obse ed, as hey
go beyond ma e ial inpu s bu could be c ucial in a si ua-
ion o con lic . Finally, elas ici ies o subs i u ion be ween
p oduc s o sou ces a e no o iously ha d o es ima e,
In e economics 2024 | 3
148
In e na ional T ade
because he e a e no eliable p ice da a. In o ma ion is,
he e o e, incomple e.
I would be naï e o belie e ha he missing da a could
be easily ob ained by su eying companies. Supply chain
da a a e sensi i e because hey allow o he d awing o
conclusions on i ms’ p oduc i i ies and ulne abili ies.
Hence, in o ma ion is also asymme ic.
Insigh s om mac o da a
Wha we know abou ulne abili ies is, he e o e, ei he
highly pa ial and hus p one o misin e p e a ion, o
based on ela i ely agg ega e da a.
One can ob ain a comp ehensi e pic u e abou agg ega e
dependencies om balance o paymen s (BoP) s a is ics,
whe e ade in se ices as well as p ima y and second-
a y incomes a e shown in addi ion o ade in goods.4 The
comp ehensi e BoP-pe spec i e e eals ha he EU’s
ex e nal economic ela ions a e ac ually qui e balanced.
This is highly ele an om a geo-economic pe spec i e
because asymme ical bila e al ela ions a e pa icula ly
ulne able o poli ical abuse (Ma oo and S aige , 2020).
A bila e ally balanced BoP-posi ion wi h a ade pa ne
does, howe e , no imply he absence o one-sided s a-
egic dependencies, because o eign goods can ha e
a highe c i icali y in domes ic alue ne wo ks han ice
e sa.
To con incingly iden i y s a egic dependencies, an ap-
p op ia e analy ical amewo k mus no only cap u e Eu-
opean ade and p oduc ion da a bu also inco po a e
global inpu /ou pu ela ionships and p oduc ion oppo -
uni ies. Fu he mo e, in o ma ion on he subs i u abili y
o goods and se ices by al e na i es in p oduc ion and
consump ion is needed. Felbe may and K ebs (2023)
ha e used such a model o s udy a ious dis up i e sce-
na ios o Ge many. The key insigh s, which also hold o
o he EU coun ies, a e
• The economy is dependen no only on impo s o aw
ma e ials and indus ial supplies, bu also on impo s
o se ices.
• Mo eo e , mac oeconomically ele an ulne abili ies
exis no only is-à- is China, bu also is-à- is o he
impo an ading pa ne s such as he USA, UK o
Swi ze land.
4 P ima y income e e s o income om all ypes o o eign in es men ;
i includes income om he pos ing o wo ke s. Seconda y incomes
a e paymen s wi hou ecip oca ion. They a e ela i ely insigni ican in
quan i a i e e ms.
E idence-based mic omanagemen is ha d
The e a e addi ional complica ions because i ms con-
inuously adjus o changing ci cums ances. They also
eac o public policy in e en ions, e.g. by edi ec ing
hei sou cing, by acqui ing o selling e ically in eg a ed
uni s, o by changing hei p icing policies. Hence, he
nodes in inpu /ou pu ne wo ks a he company le el a e
endogenous and changeable. A eliable and objec i e
iden i ica ion o s a egic goods (o se ices) is e y ha d.
Mo eo e , he e is a dange ha lis s o indus ies o
goods wo hy o p o ec ion a e d awn up based on spe-
cial in e es s a he han gene al wel a e and may be used
o subsidise domes ic p oduc ion, p ohibi akeo e s o
domes ic supplie s by o eign i als, o es ic expo s o
goods o echnologies.
Tha does no imply he comple e ejec ion o such lis s;
hey a e necessa y o many policies. Howe e , he e is
he need o clea ules and p ocesses ha se ou ans-
pa en ly how he lis en ies a e gene a ed. I is impo an
ha policies o secu e he supply o aw ma e ials and in-
dus ial inpu s a e based on p inciples ha do no ake
speci ic p oduc s o i ms as s a ing poin s, bu ins ead
se a egula o y amewo k ha is help ul o many con-
igu a ions o po en ial supply c ises.
Wel a e- heo e ic ounda ions
Do i ms op imally di e si y?
Do companies ha e he co ec incen i es o su icien ly
di e si y hei supply chains? Fi ms can insu e agains
supply shocks by di e si ying hei supplie base. How-
e e , including ac o s o he han he cos -minimal sup-
plie in he po olio aises cos s. Fi ms mus balance
supply isks agains cos s. Thei choice depends on many
ac o s: he na u e and s eng h o he co ela ion o he
shocks, he loss o p o i due o non-deli e y, he pos-
sibili y o a ying sou cing quan i ies a sho no ice, he
cos s o di e en supplie s o di e en quan i ies o in-
pu s, he ixed cos s ha a ise o each ac i e buye -selle
ela ionship,5 he cos s o al e na i e hedging op ions,
such as wa ehousing o adi ional insu ance.
In gene al, one canno expec he decen ally chosen
deg ee o di e si ica ion o co espond o he social op-
imum because o ex e nali ies, lack o ull in o ma ion,
absence o pe ec compe i ion and o he dis o ions.
Impo an ly, as shown by G ossman e al. (2023), when a
p oduce canno supply he ma ke anymo e, besides los
5 See, o example, he o e iew a icle by An as and Cho (2022).
ZBW – Leibniz In o ma ion Cen e o Economics 149
In e na ional T ade
p o i s, he e is also a loss o consume s which is no ully
inco po a ed in i m-le el decision-making (“consume
su plus ex e nali y”). Hence, i ms unde -di e si y, he e-
by jus i ying s a e in e en ion.6
The si ua ion is exace ba ed when dis o ions in e ac a
indi idual s ages o a supply chain, o example, when
incomple e in o ma ion hinde s he ope a ion o p ice
signals along he supply chain beyond he buye . Then,
he buye ’s beha iou gene a es a po en ially nega i e
ex e nali y on u he (downs eam) i ms ha canno be
( ully) in e nalised by con ac s (Liu, 2019). In o he wo ds,
in complex supply ne wo ks, sys emic isks can a ise ha
a e no add essed by ma ke ac i i y alone.
The secu i y ex e nali y
P ocu emen decisions o domes ic companies can ha e
an impac on a coun y’s secu i y: a s ong concen a-
ion o p ocu emen o an essen ial inpu on one supplie
coun y makes a go e nmen ulne able o blackmail by
ha supplie coun y.
Howe e , domes ic “s a egic au onomy” does no en-
e he decision-making calculus o companies because
i has cha ac e is ics o a public good: companies a e
no willing o incu highe cos s o imp o e hei go e n-
men s’ s a egic au onomy h ough be e di e si ica ion
because he espec i e con ibu ion o each company on
i s own has only a e y small e ec on i s own success.
The e o e, unde -di e si ica ion occu s.
In he p esence o such secu i y ex e nali ies, s a e in e -
en ion can be jus i ied by he di e gence o indi idual
economic and o al economy a ionali y.
Mo al haza d h ough escue policies
These p oblems a e exace ba ed i companies can coun
on go e nmen suppo measu es such as sho - ime al-
lowances, liquidi y assis ance o subsidies in he e en o
a supply dis up ion. All o hese educe he incen i es o
in es in hei own supply secu i y. To elimina e he p ob-
lem, go e nmen s would ha e o be able o commi ex
an e – i.e. be o e shocks occu – ha he e will be no sup-
po measu es, e en i his causes majo economic dis-
o ions. Howe e , such “no-bail-ou ” commi men s a e
a ely c edible. The esul ing “mo al haza d” ein o ces
he p oblems men ioned abo e and d i es an e en la ge
wedge be ween he socially op imal deg ee o di e si ica-
ion and he one esul ing om decen alised decisions.
6 The e is he heo e ical possibili y o o e -di e si ica ion, which is dis-
cussed in G ossman e al. (2023).
Excess p o i axa ion
I an indus y is hi by a supply chain c isis, i ms wi hin
ha indus y ha ha e di e si ied hei supply ela ion-
ships con inue p oduc ion o inal goods while i ms ha
ha e no will ha e o s op. Ou pu a ailable o consum-
e s alls, and he esul ing sca ci y d i es p ices up. Fi ms
unable o p oduce egis e losses, hose ha in es ed in
di e si ica ion bene i om high p ice and eco d bumpe
p o i s. In such an en i onmen , public opinion ends o
u n agains he i ms ha con inue p oducing and blames
hem o causing “g eed la ion”. In he ecen c isis, go -
e nmen s ha e esponded by inc easing p o i axes o
such i ms (e.g. in he elec ici y sec o ).
Such ex pos excess p o i axa ion is highly p oblema ic,
as he concep o excess p o i s is ill-de ined and he un-
ce ain y in ax policy esul ing om ad hoc adjus men s
o ax a es pu s o in es men . Mos impo an ly, i i ms
expec a skimming o p o i s in supply chain c ises, hey
lose any incen i es o incu he ex an e cos s o di e si y-
ing hei supply chains. The e o e, o encou age isk-con-
scious beha iou , go e nmen s should c edibly enounce
any o m o excess p o i axa ion.
Gene al policy p inciples
Because he u u e needs o Eu opean indus y and he
na u e o possible dis up ions a ec ing supply chains
a e unknown oday, he bes s a egy is o c ea e gene al
s uc u es ha inc ease secu i y o supply and imp o e
esilience o shocks. We will now u n ou a en ion o
go e nmen ins umen s, sa egua ds agains p o ec ion-
is abuse, and he need o a egula o y amewo k ha
a ge s he secu i y ex e nali y and mo al haza d p oblem.
Decoupling and iendsho ing a e no he solu ion
Eppinge e al. (2022) show ha a decoupling om indi-
idual supplie coun ies would no con ibu e o supply
secu i y. While Eu opean economies migh expe ience
less signi ican nega i e e ec s om dis up ions in o eign
supplies i hey elied less on impo s, he cos s o decou-
pling a e o de s o magni ude highe han he bene i s o
educed dependence. E en i one we e o allow secu i y
policy a gumen s o apply alongside economic consid-
e a ions, hese would ha e o be gi en an ex emely high
mone a y alua ion o he calcula ion o u n a ound. In
addi ion, i domes ic supply su e s an ad e se shock
while o eign supply is es ic ed, he damage would be
emendous.
S a ing om a si ua ion o well-di e si ied supply ne -
wo ks, i ob iously does no make sense o concen a e
In e economics 2024 | 3
150
In e na ional T ade
p ocu emen on iendly coun ies (“ iendsho ing”) be-
cause his educes he di e si y o domes ic supply e-
la ionships. Con e sely, expanding supply ne wo ks o
coun ies wi h which iendly ela ions exis may make
good sense om a secu i y pe spec i e i di e si ica ion
o c i ical p oduc s ha canno easily be subs i u ed is
imp o ed in his way.
Expand ecip oci y o bila e al dependencies
Ma oo and S aige (2020) show ha bila e al dependen-
cies can be abused o oppo unis ic deploymen . The
a ac i eness o such beha iou can be educed by he
( aci ) h ea o coun e measu es. Howe e , his equi es
he exis ence o a po en ial h ea . I is he e o e impo an
no only o ha e a good g asp and unde s anding o one’s
own dependencies, bu also o ading pa ne s’ depend-
encies on Eu opean inpu s and echnologies.
Geh ke and Ringho (2023) ecommend expanding ech-
nological leade ship posi ions in a a ge ed manne o
main ain sus ainable p essu e poin s is-à- is ading
pa ne s. The bes ins umen o his is a sma inno a-
ion and echnology p omo ion policy ha speci ically
seeks o s eng hen compa a i e ad an ages ins ead o
compensa ing o compa a i e disad an ages.
Coo dina ion o policy in e en ions
Policymake s should ensu e ha o he o eign policy
ini ia i es do no ha e coun e p oduc i e e ec s on se-
cu i y o supply. All measu es ele an o o eign ade
should be examined ega ding hei in ended and un-
in ended as well as di ec and indi ec e ec s on he
secu i y o supply, especially ega ding he ques ion
o whe he hey p omo e o impede di e si ica ion.7 All
measu es should be coo dina ed as a as possible wi h
pa ne coun ies.
Measu es o p omo e di e si ica ion
“B ea hing a i s”
“B ea hing a i s” a e impo du ies ha a y wi h global
ma ke condi ions o wi h impo sha es. They could be
used o discou age he excessi e dependence on ew
supply sou ces. Indeed, a a ge ed (second-bes ) policy
would be o design bila e al a i s ha inc ease in he
sha e o sou cing ob ained om he ade pa ne in
7 The p oposed EU Co po a e Sus ainabili y Due Diligence Di ec i e is
an in e es ing example. In i s design, he e ec s on di e si ica ion o
EU supply ela ionships do no seem o ha e ecei ed subs an ial a -
en ion by lawmake s.
ques ion. Such a quo a a i iola es he mos a ou ed
na ion p inciple o WTO law bu could possibly be de-
ended wi h he help o legi ima e na ional secu i y ob-
jec i es unde A icle XXI o he Gene al Ag eemen on
Ta i s and T ade (GATT, Na ional Secu i y Excep ion).
O cou se, whe e he EU s ill has ex e nal a i s on in-
pu s o aw ma e ials, i can a y hem wi hin he ame-
wo k ag eed unde WTO law, i.e. wi hou disc imina ing
agains ading pa ne s. This canno di ec ly p omo e
di e si ica ion, because he sys em would ha e o be ap-
plied equally o all ading pa ne s. Howe e , he p ice
e ec s o sho ages could be mi iga ed in his way. I
could also p o ide incen i es o de elop al e na i es o
he espec i e impo ed goods.
T ade ag eemen s
The EU should push o ade ag eemen s ha minimise
impo a i s o non- a i es ic ions on ade. Howe e ,
his equi es a s a egic shi : ins ead o ocusing p ima -
ily on opening new sales ma ke s o Eu opean goods
and se ices, he secu i y o supply o i s own economy
mus gain in impo ance as a s a egic goal o EU ade
policy. The EU mus conclude ag eemen s wi h coun ies
ha a e pa icula ly impo an o he p ocu emen o aw
ma e ials.
O en esou ce- ich coun ies ha e been g an ed uni-
la e al ade ad an ages by he EU in he con ex o he
Gene alised Sys em o P e e ences, making access o
he Eu opean ma ke condi ional on compliance wi h hu-
man o en i onmen al igh s. In imes o g ea e sca ci y
o aw ma e ials and high p ices, he condi ions o g an -
ing p e e ences should be e iewed and adjus ed i nec-
essa y. The nego ia ion and adop ion o ag eemen s on
c i ical mine als – a p ocess he EU has s a ed wi h he
USA o Chile, o example – is welcome e en i i is a s ep
away om comp ehensi e ee ade ag eemen s unde
A icle XXIV GATT.
In e na ional in es men ag eemen s
In many cases, i is no possible o di e si y he supplie
base because he e a e only a ew coun ies whe e ce -
ain aw ma e ials a e p oduced o because he p oduc-
ion capaci ies a e limi ed. I can he e o e make sense
o Eu opean companies o in es in coun ies ich in aw
ma e ials o ind al e na i e sou ces o supply. Because
legal ce ain y is o en no su icien ly gua an eed in hese
coun ies, in es men p omo ion and p o ec ion ag ee-
men s (in e na ional in es men ag eemen s, IIAs) ha e
been concluded in he pas . These ha e allen in o dis e-
pu e since he discussion abou he T ansa lan ic T ade
and In es men Pa ne ship ag eemen . Howe e , i o -
ZBW – Leibniz In o ma ion Cen e o Economics 151
In e na ional T ade
eign in es men s a e pe cei ed as oo isky and canno
be p ope ly insu ed, hey a e no made. The esul can be
ha he p ocu emen base o domes ic companies is no
su icien ly di e si ied.
T ade and in es men gua an ees
EU coun ies main ain well- unc ioning sys ems o expo
c edi insu ance. These can be adap ed o gi e compa-
nies incen i es o be e di e si y hei sales ma ke s, o
example by making he condi ions dependen on how
high he sha e o EU companies in he a ge ma ke s al-
eady is. Mo eo e , ins umen s o insu e impo ansac-
ions a e much less de eloped.
Many EU coun ies g an gua an ees o o eign in es -
men s, bu only unde ce ain condi ions and i an IIA
is a ailable. I would make sense o ake he c i e ion o
secu ing he supply o aw ma e ials in o accoun when
g an ing gua an ees.
Secu ing anspo co ido s
Fo aw ma e ials and indus ial p ima y p oduc s o
each Eu ope sa ely and a good p ices, e icien and se-
cu e anspo in as uc u e is needed. The Chinese Bel
and Road Ini ia i e is aimed p ecisely a opening p o-
cu emen and sales ma ke s o i s own bene i ; de elop-
men policy goals ake a back sea . In as uc u e such as
po s, oad o ail connec ions a e in p inciple a ailable
o all ading pa ne s o he coun ies in which hey a e
de eloped. In p ac ice, howe e , i o en u ns ou ha ac-
cess is no equal and Chinese companies a e a ou ed
(Bluhm e al., 2018). I is impo an ha Eu ope, e.g. in i s
Global Ga eway app oach,8 makes a ac i e o e s o
coun ies in he Global Sou h. In addi ion o he human
igh s si ua ion, a gumen s such as he coun y’s own se-
cu i y o supply o geos a egic in luence should ind hei
way in o in es men decisions made by publicly inanced
de elopmen banks. Fu he mo e, he p o ec ion o ans-
po ou es mus be gi en highe p io i y (see, o exam-
ple, Sandkamp e al., 2022). The ecen announcemen s
by he EU and he USA o push ahead wi h he de elop-
men o an India-Middle Eas -Eu ope Economic Co ido
and a T ans-A ican Co ido wi hin he amewo k o he
Pa ne ship o Global In as uc u e and In es men a e
he e o e o be welcomed.9
8 h ps://www.consilium.eu opa.eu/en/policies/global-ga eway/.
9 h ps://ec.eu opa.eu/commission/p essco ne /de ail/en/ip_23_4421.
When di e si ica ion is no possible: S a egic ese es,
u ban mining and R&D
I is a ely easible o desi able o ully con ol all supply
isks h ough di e si ica ion. In he case o p oduc s, he
manu ac u e o which is associa ed wi h s ong econo-
mies o scale (such as ba e y cells o compu e chips),
an inc ease in he global numbe o p oduc ion si es is as-
socia ed wi h subs an ial cos inc eases. In such ma ke s,
pu ely ma ke -based p ocesses lead o a sub-op imally
small numbe o p oduce s in he p esence o a secu i y
ex e nali y. The e o e, i may be jus i ied o p omo e he
loca ion, es ablishmen o scaling o p oduc ion acili ies
in he EU (o e en ab oad) wi h subsidies.10 Howe e , he
co ec calib a ion o subsidy policy is di icul . The isk o
subsidy aces is high and he e is a h ea o global o e -
capaci y.
Fo p oduc s whe e he e a e only a ew sou ces o supply
o whe e he isks o e he possible supplie s a e highly
co ela ed, he es ablishmen o s a egic s ocks may be
necessa y, as o example wi h mine al oil, p e e ably a
he EU le el. Howe e , because s ockpiling is expensi e
when in e es a es a e posi i e, he e a e limi s o his
s a egy. The go e nmen should conside p o iding ad-
di ional iscal incen i es o build su icien s ocks o c i i-
cal inpu s. I should ensu e ha companies can c ea e
s o age capaci ies, which equi es app op ia e zoning
and he app o al o s o age buildings.
A second means o imp o ing he secu i y o supply o
poo ly di e si iable p oduc s is h ough iscal and egula-
o y subsidies o ecycling. “U ban mining” is he ex ac-
ion o aluable aw ma e ials, such as coppe , sil e and
gold om was e, such as ha p oduced by sh edding old
ca s o ecycling wind u bines. This equi es sui able a-
cili ies in he EU and coope a ion among membe s a es.
Abo e all, i needs a minimum o planning ce ain y, be-
cause i commodi y p ices all on he wo ld ma ke s, he
p ocessing plan s will no longe be p o i able.
A hi d sensible app oach is o di ec esea ch policy o-
wa ds explo ing echnological subs i u es o aw ma e i-
als o in e media e p oduc s ha a e di icul o di e si y.
Go e nmen as buye
In many a eas, he s a e is i sel ac i e as a buye , albei
o en indi ec ly, e.g., he ma ke o medical p oduc s is
hea ily domina ed by demand om public heal h insu -
10 Mode n esea ch on he meaning ulness o indus ial policy is less
scep ical han olde esea ch, bo h in e ms o i s heo e ical ounda-
ion and empi ical e idence (see, o example, Liu, 2019).
In e economics 2024 | 3
152
In e na ional T ade
ance schemes. In he las ew decades, he e has been
a s ong ocus on educing he pecunia y cos s o he
heal h sys em, o example wi h manda o y discoun s o
he pha maceu ical indus y, which has eac ed by ou -
sou cing and concen a ing on he cheapes supplie s. A
he same ime, heal h insu ance au ho i ies do no seem
o ha e p io i ised secu i y o supply su icien ly, p esum-
ably because his would ha e en ailed addi ional cos s.
As a esul , bo lenecks a ose when shocks occu ed. In
such highly egula ed ma ke s, he lack o di e si ica ion
is no always a esul o ma ke ailu e, bu occasionally o
go e nmen o egula o y ailu e.
In hese ma ke s, i is necessa y o membe s a es o
conside and coo dina e he e ec s o one’s own meas-
u es on he in eg i y o he EU in e nal ma ke . In o he
EU s a es, he e is conce n ha Ge many is o e ing up o
50% highe p ices o he pha maceu ical indus y o se-
cu e i s own supply o medicines, which can endange he
secu i y o supply in o he coun ies.
New ma ke s o supply secu i y
Finally, newly c ea ed ma ke s can coun e ac he enden-
cies owa ds subop imal low di e si ica ion o s ockpiling
desc ibed abo e.11
Go e nmen s could commi in ad ance o he pu chase
o a p ede e mined quan i y o he espec i e p oduc
a a ce ain p ice. This ins umen is known as Ad ance
Ma ke Commi men (AMC). To use AMCs o p epa e o
c ises, he e should be a clea de ini ion o when he obli-
ga ion o pu chase by he public sec o akes e ec . The
igge could be, o example, ha he ma ke p ice o he
commodi y exceeds a ce ain le el.
When such AMCs a e in place, companies can be e plan
o c ises. This educes he conce n ha he go e nmen
will in e ene in ma ke p ices o ax (wind all) p o i s in
hese si ua ions, as hey ha e p e iously con ac ually
commi ed o hese AMCs. This makes in es men s in al-
e na i e supply channels and s ockpiling mo e a ac i e.
Ano he op ion comes in he o m o capaci y ma ke s,
which a e ound in he elec ici y ma ke and a e used in
he USA o F ance (C am on e al., 2013). Elec ici y p o-
duce s apply o con ac s on he capaci y ma ke , wi h
which hey en e in o he obliga ion o supply elec ici y
a a p ede e mined p ice a ce ain imes. In e u n, hey
ecei e paymen on he capaci y ma ke .
11 Inno a i e ma ke design can also con ibu e o easing he si ua ion
a e a c isis has occu ed, see, e.g. C am on e al. (2020).
A Eu opean supply secu i y o ice
Fo e ec i e and e icien supply secu i y managemen ,
he public sec o needs comp ehensi e and adequa e in-
o ma ion. In addi ion, compe ences a e needed o he
de elopmen and implemen a ion o p e en i e meas-
u es, which mus be synch onised and ha monised
ac oss he EU. Following he Scien i ic Ad iso y Boa d o
he Ge man Minis y o Economic A ai s and Clima e Ac-
ion, we he e o e p opose he es ablishmen o a Eu o-
pean supply secu i y o ice (ESSO).12
As we ha e a gued abo e, ex pos go e nmen suppo
measu es may comp omise i ms’ incen i es o di e si y.
Thus, go e nmen s should c ea e clea s uc u es and
ules o he insu ance o supply chain isks. Howe e ,
go e nmen s egula ly canno deny s a e suppo in he
e en o a isk ma e ialising. The e o e, i is app op ia e
o he go e nmen o be awa e o he isks and, unde
ce ain ci cums ances, o in e ene in a o wa d-looking
egula o y manne i high ulne abili ies build up in com-
panies o sec o s.
ESSO should collec , sys ema ise and p o ide quali y-
assu ed ele an in o ma ion and ca y ou co espond-
ing analyses.13 In addi ion o in e nalising c oss-bo de
e ec s wi hin he EU, an EU ins i u ion can use economies
o scale absen a he na ional le el.
ESSO should moni o and assess sys emic isks in Eu o-
pean supply ne wo ks and de elop measu es o limi sys-
emic isk and in oduce hem in o he poli ical p ocess.
I could assess and e alua e measu es aken by membe
s a es o hi d coun ies ega ding hei impac on Eu o-
pean secu i y o supply. I could design and supe ise
c isis esilience audi s (s ess es s) ecommended in he
EU’s d a Raw Ma e ials Ac and acc edi p i a e audi-
o s. Finally, i could be asked wi h coo dina ing join
s a egic ese es.
ESSO could p oduce o commission epo s on po en-
ial sys emic isks in supply ne wo ks and gi e speci ic
manda es o expe g oups o assess supply chain isks.
12 The p o isional deal on Eu ope’s c isis p epa edness in he IMERA/
SMEI dossie eached on 1 Feb ua y 2024 es ablishes an In e -
nal Ma ke Eme gency and Resilience Boa d. I emains o be seen
whe he his Boa d will es ablish i sel as a o um o ui ul discus-
sions on ma e s ela ing o supply secu i y om a Eu opean pe spec-
i e.
13 Expe ience wi h he Eu opean Sys emic Risk Boa d (ESRB) can be
used he e. The ESRB is esponsible o mac o-p uden ial o e sigh o
he EU inancial sys em and o he p e en ion and mi iga ion o sys-
emic isk. As pa o i s manda e, he ESRB moni o s and assesses
sys emic isks and issues wa nings and ecommenda ions as app o-
p ia e.
ZBW – Leibniz In o ma ion Cen e o Economics 153
In e na ional T ade
I could publish, like he ESRB isk dashboa d, a se o
quan i a i e and quali a i e indica o s o sys emic isk in
Eu opean supply ne wo ks.
ESSO should be in eg a ed in o he in e ac ion o na ion-
al and Eu opean ins i u ions in such a way ha edun-
dancies, unclea esponsibili ies and addi ional bu eau-
c acy a e a oided. Because ques ions o in e na ional
secu i y o supply a e inhe en ly connec ed wi h poli i-
cal, especially o eign policy, aspec s, o which he e-
sponsibili ies a e sha ed be ween he EU and he mem-
be s a es, a Eu opean supply secu i y o ice should no
be cons uc ed as an independen agency wi h i s own
decision-making powe s bu should wo k wi h he Eu o-
pean and na ional ins i u ions.
Conclusions
Ou economic model depends on secu e and la gely un-
hinde ed access o wo ld ma ke s. In ecen yea s, his
sys em has come unde h ea as a ious ading pa -
ne s ha e sough o exploi Eu ope’s dependence on
ce ain supplies om ab oad and on ce ain expo ma -
ke s o ob ain o eign policy concessions. A he same
ime, he COVID-19 pandemic has highligh ed how ul-
ne able domes ic supply chains and secu i y o supply
can be.
Gi en incomple e and asymme ic in o ma ion, i is im-
possible o d aw up lis s o c i ical goods, echnologies,
o sec o s acco ding o objec i e s anda ds o he pu -
pose o inancial suppo by he gene al go e nmen o
de i ing o eign ade policy measu es.
To a oid he eme gence o dependencies, an app op ia e
egula o y amewo k is needed ha can in e nalise he
exis ing secu i y ex e nali y. We ha e p oposed se e al
measu es ha make i easie o companies o di e si y
hei supply ne wo ks, such as ee ade ag eemen s,
and he p omo ion and acili a ion o o eign in es men o
de elop al e na i e sou ces o supply.
A Eu opean pe spec i e is cen al o bo h he assess-
men and he de elopmen o economic policy espons-
es. No only does compe ence o mos o eign eco-
nomic policy ields lie a he EU le el, he in eg i y o he
in e nal ma ke and i s dynamism a e he bes insu ance
agains a emp s om ab oad o ins umen alise any de-
pendencies. To ensu e ha na ional policies and ini ia-
i es a e op imally do e ailed wi h he Eu opean le el, a
Eu opean supply secu i y o ice should be es ablished
o ha monise he collec ion o da a on supply chains,
de elop uni o m s ess es s and moni o he impac o
na ional policies on he in e nal ma ke .
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