As we near the end of the legislature, Member States and – more often – MEPs rush to finalise open dossiers. Mixed results on sustainable trade files, with progress on forced labour and a big question mark for the due diligence directive. Meantime, at the WTO, no breakthrough on the big global trade question, but businesses can sigh with relief, as the threat of duties on digital trade has been avoided. For now.
From the Brussels corridors to Abu Dhabi palaces, here’s the latest on EU trade policy.
One Big Thing.
What you can do today, do at the next WTO Ministerial 📡
The proceedings of WTO’s 13th Ministerial Conference in Abu Dhabi are a tale familiar to any master procrastinator. After delaying the closing session five times in the interest of longer negotiations for world’s trade ministers, not much has been accomplished – except for a two-year extension of the contentious e-commerce moratorium. Although global businesses can sigh with relief, a permanent solution is still distant.
The moratorium stops countries from applying tariffs on “digitally traded goods and other electronic transmissions”, understood here as anything from software, digitalised music, movies and videogames, or any online-based border-crossing social media and business activity.
India, Indonesia and South Africa are key opponents of extending the moratorium, citing its negative impact on economic development. With most media moving online – like streaming instead of DVDs – countries lose out on tariff revenue that would be applied on their physical counterparts. Developed countries and companies counter that the moratorium provided a predictable environment for digital trade, instead of fragmented local taxation, also allowing SMEs in developing countries to access the digital economy. A recent study by the WTO and IMF also shows that tariffs on electronic transmission would bring little revenue to developing countries.
The Take: India was the main culprit behind the delays, as it is trying to advance its own trade agenda through withholding support. Namely, New Delhi is trying to protect its food stockholding programme – accused by the US of distorting international rice and wheat trade through sky-high farm subsidies.
The Next: With the moratorium out of the way, other casualties of the 13th Ministerial come to the fore: lack of agreement on fishing subsidies blocked by India and no movement on the appellate body, although members still plan on having a well-oiled dispute settlement system by the year end.
The Plus: The next WTO ministerial will take place in two years, signalling “time’s up” for the current moratorium. At this stage, Director-General Ngozi Okonjo-Iweala does not foresee a further extension, which means legal uncertainty for businesses operating online as it is not yet known whether individual countries plan to start applying tariffs once the moratorium is over.
Second in line.
Corporate Sustainability Triple Drama 🏢
verything indicated that the Corporate Sustainability Due Diligence Directive (CSDD) was finally going to see the light of day, after MEPs and Member States had reached a provisional agreement on 13 December 2023. However, on 28 February the vote in Coreper (EU ambassadors) failed to reach the qualified majority. The vote had already been postponed twice across the past weeks, after Germany and Italy announced they would abstain.
First train-ing on Foreign Subsidies 🚆
Everything indicated that the Corporate Sustainability Due Diligence Directive (CSDD) was finally going to see the light of day, after MEPs and Member States had reached a provisional agreement on 13 December 2023. However, on 28 February the vote in Coreper (EU ambassadors) failed to reach the qualified majority. The vote had already been postponed twice across the past weeks, after Germany and Italy announced they would abstain.
Germany turned against CSDD due to its expected impact on the many local multinationals, and because it had stricter rules than the new national law. The situation took a more intricate turn with allegations that Germany’s Finance Minister, the liberal Christian Lindner, had struck a deal with the Italian government to block negotiations on the EU Packaging Waste Rules in return for Italy’s help in blocking the Due Diligence Directive. On top of this, France at the last minute proposed to further cut the scope of the proposal, applying it to companies with at least 5,000 employees.
However, the Belgian Presidency of the Council hasn’t abandoned efforts to broker a deal, and it seems a new compromise text could be tabled for EU ambassadors as early as Friday 8 March. Under this compromise, the rules would apply only for companies with more than 1,000 employees(instead of 500) and annual sales of €300 million(instead of €150 million). In addition, any reference to high-risk sectors would be deleted.
What’s next? Either the Presidency can reach a deal within a very short timeframe, or the file will pass to the next legislature. The socialist rapporteur Lara Wolters, while disappointed, said the Parliament is open to examining new proposals. If the legislation is delayed, companies will have more time to get ready for the compliance test, to the disappointment – perhaps – of the ones that already did their compliance homework.
“Forcing” a deal on sustainable trade ⛏️
After the drama with CSDD, EU policymakers made progress on the other “sustainable trade” file. On 4 March, the European Parliament and the Member States agreed on a text for the “Forced labour ban” regulation. They will now speed up to approve the text before the elections. Under the regulation, customs authorities will confiscate products that are found as made with forced labour, whether manufactured in the EU or imported. The main target is China, especially considering the recent accusations regarding the Xinjiang region.
A point of controversy was the number of enforcement tasks assigned to Member States, particularly in handling investigations on suspected products. The compromise is that the Commission will check whether third countries are involved, otherwise the responsibility will be on national authorities. Another compromise regards goods of strategic importance for the Union. In that case, products will be withheld until the company addresses its violations.
The Parliament managed to pass its provision requiring the Commission to prepare a list of economic sectors and regions at high risk of forced labour. This will become a criterion to assess the need to open an investigation.
Trade in agri-food: what if we have 10 new partners? 🚜
The Commission just released a study on the impact of upcoming FTAs on EU agriculture. Quite timely, given the current European farmers’ anger, often directed at the bloc’s trade policy. They claim these agreements encourage unfair competition through the influx of low-priced products.
The study considers FTAs recently concluded by the EU, but which have not yet been adopted or entered into force, meaning Mercosur and New Zealand, the updated agreements with Chile and Mexico, and the deals under negotiation with Australia, India, Indonesia, Malaysia, the Philippines and Thailand.
Regarding these 10 new partners, the main benefits would be for EU producers of dairy, pork, processed food and beverages, while the EU sectors that would face most competition would be beef, sheep, poultry, sugar and rice sectors. With these 10 new partners, the agri-food trade balance would be negative, but, on a global level, EU agri-food exports will remain higher than imports, maintaining the trade balance solidly positive. Still, this report will hardly be enough to place farmers’ anger.
Tracking the economic security package 🔐
The Commission finally published the Economic Security Package on January 24th. Tracking the delivery wasn’t easy. In Brussels, talks about de-risking and critical technologies started right after the announcement of the Economic Security Strategy last June. But it wasn’t clear when the Commission would follow up, as Member States don’t like giving up competences in such a delicate area.
The Commission had already identified the critical technology areas to protect and promote: AI, semiconductors, quantum, and biotechnologies. With the Economic Security Package, the Commission outlined measures to prevent them from falling into the “wrong hands”. The focus is on risks linked to inbound and outbound investments, the export of dual-use goods, and to research security. It also deals with the promotion of R&D initiatives in dual-use technologies.
Out of 5 new initiatives, only one is a legislative proposal: the reform of the Foreign Direct Investment screening regulation. The Commission now wants to oblige EU capitals to have a screening mechanism in place and to screen investments, even intra-EU investments, if made by an EU-based subsidiary of a foreign company. On the rest, the Commission just commits to intensify discussion with the Council, before coming up with specific proposals. This reflects Member States’ hesitancy in giving up competences, especially on export control and outbound investments.
It remains to be seen whether further legislative proposals will follow in the next legislature. What is sure is that the debate on economic security is here to stay.
Over on X No settlement on dispute settlement yet – which is making the WTO membership unsettled, including INTA Committee Chair Bernd Lange.
On the radar.
12 Mar INeed to know more about the new economic security initiatives? What’s better than a Civil Society Dialogue with DG TRADE’s Peter Sandler, Director for Technology & Security.
12Mar I You didn’t have enough of the WTO MC13? The trade-focused think tank ECIPE discusses what’s next for multilateral trade talks.
19 Mar I It’s already time for the traditional transatlantic week at AmCham. Good chance to remain up to date on the latest cooperation initiatives – and frictions – between the EU and the US.
16 Mar I As trade policy gets so intertwined with critical minerals, this conference of the Belgian Presidency seems spot-on.
9 Apr I Mercosur and beyond: stakeholders will have the chance to exchange with the Commission about the state of play on trade negotiations with Latin America.
What we’re reading.
Good start but not enough. The Delors Institute analysed to the Commission’s economic security package. Lack of cohesive governance is the main issue, as they call for an Economic Security Commissioner.
Economic security was a thing well before the EU started talking about. China-experts of Merics made a series of publications on what China has been doing for its own de-risking in the past years, from semiconductors to green technologies.
With the EU and Canada announcing a new “interpretation” of their trade deal, to nudge the ratification, ECIPE analysed the impact of CETA on EU enterprises.
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