China is being de-risked but not de-coupled by the EU in the latest speech by VDL. Meanwhile, Ukrainian grain was taken on a roller coaster ride by Poland and frontline friendlies, much to the (contained) displeasure of the European Commission. While Dombrovskis calls for progress at the TTC, the EU institutions take one step forward, two steps back on the EU-US data flows agreement, as per LIBE’s latest position. Internationally, the ball keeps rolling regarding WTO and OECD green agendas – the fisheries subsidies agreement and green financing respectively.
One Big Thing.
Scaling the Great Wall
There has been a flurry of activity on China recently. Perhaps most markedly Commission President von der Leyen visited Beijing alongside President Macron on 6 April. Lots to discuss here: Taiwan, security in the context of Russia’s invasion of Ukraine, the environment, sustainability, human rights to mention but a few. But let’s stick to trade. While there, President von der Leyen outlined her vision for the future of EU-China relations: de-risk but don’t de-couple. What does this mean? Basically, the EU will look at those areas of trade with China that are more strategic and sensitive and put in place measures to prevent damage. This could not have made Beijing too chipper after Washington’s export controls on high-end semiconductors. President von der Leyen also spoke of levelling the playing field for EU companies exporting to or producing in China. She mentioned issues such as intellectual property or EU agri-food products facing trade hurdles. Sounds like the Comprehensive Agreement on Investment (CAI) – suspended in 2021 after Bejing’s sanctions on MEPs – would have come in handy. Later, MEPs broadly agreed with de-risking but wanted more clarity and called for EU unity on China. Ever the bad cop, they also mentioned China’s “oppression” of the Uyghurs.
The Take: Although the CAI is dead, the EU will continue to trade with China. At the same time, we will likely see the Commission continue to hint at its trade enforcement policies.
The Next: EU-China trade coordination will continue through the High-Level Economic and Trade Dialogue and through the High-Level Digital Dialogue. Agendas to be announced. The spirit of the CAI lives on, perhaps.
The Plus: Of course, in the backdrop of this discussion is the US which has its own trade dialogue with the EU through the Trade and Technology Council. Brussels has a delicate balancing act ahead of itself in defining its course on China.
Second in line.
Ganging up on Ukrainian grain
We previously talked about the drama surrounding Ukrainian grain when the Commission proposed to extend trade benefits for Ukraine for another year, but the last few days have been especially eventful. For a quick recap: Poland, Hungary, Slovakia and most recently Bulgaria banned tariff-free inflow of Ukrainian goods. First came the Poles, motivated by mass protests of domestic farmers against cheap grain flooding the market – not the best group to have revolting during an election year. Commission was not impressed; after all, trade is the sole competence of the EU. Still, the institutions didn’t take immediate action, as there was a chance that the measure is not unlawful if motivated, as in the Slovak case, by health and safety concerns (namely, high levels of unauthorised pesticides detected in Ukrainian grain). It seems that the rebellion has been nipped in a (also uniliteral) bud, as Poland has agreed to resume transit of Ukrainian goods following talks with Ukrainian officials. Meanwhile, EU trade chief Dombrovskis allegedly invited Polish, Hungarian, Slovak, Romanian and Bulgarian trade reps to discuss EU-level solutions to the problem, with rumors of Commission accommodating some of the frontline countries’ requests through reintroducing tariffs. Regardless of the outcome, trade benefits for Ukraine proposed by the Commission earlier this year are likely to be sustained, as a qualified majority of EU countries supports the proposal.
Dombrovskis in DC: please, TTC, make some progress
EU Trade Chief Dombrovskis was in Washington to discuss all the main trade issues on the transatlantic agenda. Main message: it’s time for the Trade and Technology Council to deliver, starting for the next ministerial in Sweden in late May. The TTC was established as a privileged forum to talk about transatlantic trade and global standards. And it is precisely was Dombrovskis is asking for, similarly to European and US businesses gathered under the Trade and Technology Dialogue. They recently called for progress on regulatory alignment – including “common public procurement rules” – supply chain resilience, standardisation of emergency technologies, cooperation on AI and 6G, and initiatives in sustainability.
Obviously, Dombrovskis also discussed with counterpart Katherine Tai about the ever-green frictions, meaning the IRA and Trump-era duties on steel and aluminium. On the former, he reiterated the EU’s determination in finding a deal on critical minerals, with the goal to include EU exports into the US’ tax credits. A tight deadline looms over the latter. Back in 2021, the EU and US started negotiations for a deal on sustainable trade of steel and aluminium. If they don’t make it by October 2023, tariffs from both sides will return. The topic is even hotter because of its intersections with the EU’s upcoming carbon border tax.
Transatlantic data flows: MEPs and data authorities anticipate Schrems
When President Biden published its executive order on EU-US data flows (aka the new Privacy Shield) some were already calling for a Schrems III – a recap here. We may not even get there, as last week, the European Parliament’s LIBE committee adopted a motion for resolution calling on the Commission not to adopt the EU-US Data Privacy Framework.
The issues were the same that Schrems’ non-profit flagged after the executive order came out: different definitions of necessity and proportionality in the EU and in the US, bulk collection still allowed under certain circumstances, the Data Protection Review Court (‘DPRC’) being part of the executive branch and not the judiciary, insufficient remedies for commercial matters and the US still not having a federal data protection law.
While the resolution is not binding, the Parliament’s position, combined with the recent and not-so-encouraging opinion from the European Data Protection Board, is likely to influence the overall debate and may eventually lead the Commission to re-draft its proposal. Still to wait for a smooth flow of transatlantic data?
WTO’s Agreement on Sustainable Fisheries Closer to Score Both Sides of The Atlantic
Yesterday, the European Parliament plenary voted in favour of its recommendation on the WTO Agreement on Fisheries Subsidies. Now it’s up to the Member States to complete the ratification. Last January, the EU already pledged €1 million for the recently created Fisheries Funding Mechanism, which forms part of the WTO agreement. The adoption reduce harmful activities in oceans, as well as provide a needed victory for the WTO hoping to wrap a multilateral agreement that has been 20 years in the making. The WTO Agreement on Fisheries Subsidies reached at the WTO’s 12th Ministerial Conference on June 2022 prohibits three types of subsidies: those contributing to Illegal, Unreported and Unregulated (IUU) fishing, subsidies regarding an overfished stock and subsidies to fisheries on the unregulated high seas. The agreement marked the first ever WTO multilateral agreement motivated by environmental sustainability. The Parliament vote comes only a week after the US Trade Representative Katherine Tai confirmed Washington’s signature to the official instrument of acceptance of the agreement. Despite the importance of the EU and US’ support and leadership, there is still a long way to go for the agreement to enter into force by WTO’s adoption target of February 2024, already pushed back from an optimistic initial deadline of June 2023. As of now, only four countries have signed the deal, which requires two-thirds of the WTO’s 164 members to approve it.
OECD agrees: easier access to export finance for green projects
OECD countries agreed on new rules to facilitate export credits for climate projects. Companies of the most industrialised nations will have easier access to finance when engaging in such activities. The deal expands the range of green projects eligible for longer repayment terms, which will include sustainable energy production, CO2 capture, clean hydrogen, and clean energy minerals. The Commission, whose negotiations contributed to this initiative, immediately welcomed the agreement. The final text is expected to come into force later this year, after the participants approve it internally. Export credit agencies (ECA) of OECD will be key in the process. ECAs are the national institutions that support companies’ exports and internationalisation (like German’s Euler Hermes, France’s Coface and Italy’s SACE).
On the other hand, climate activists want a clearer definition of what type of projects will have favourable treatment. They also demand the end of public export finance for fossil fuel projects, saying that they already receive significant state support. What is sure is that this OECD initiative a must-watch for EU companies with export ambitions in the climate sector.
On our radar.
24 April I The multilateral trading system, open strategic economy, geopolitical volatility… Get your trade policy jargon bingo sheets ready for this topical discussion at Bruegel.
26 April I INTA Committee is holding a public hearing to reflect on the trade ties between EU and Latin America: from investment, sustainable development to where the relationship is going.
27 April I Swedish Presidency’s capacity for boosting Europe’s competitiveness in trade and digital matters will be discussed at the EURACTIV-hosted debate.
4 May I EU and US join forces to talk about transatlantic cooperation on digital initiatives to facilitate trade under the guise of Trade and Technology Dialogue.
15 – 17 May I For the fifth time, EIT RawMaterials is hosting its annual summit for representatives from industry, policymakers, academia, investors and civil society to chat all things raw materials.
What we’re reading.
Foreign subsidies regulation, Due Diligence Directive, Cyber Resilience Act… What do they have in common? That’s right, more and more reporting obligations for enterprises, as BusinessEurope flagged to the Commission. If you want help face this tsunami of requirements, you know where to find us.
Latest WTO data show a slowdown in trade, which is growing by 1.7% (1 percentage point less than in 2022). Needless to say, war in Ukraine and inflation remain the main burden on trade recovery.
On a similar note, the IMF warns that geopolitics and fragmentation are threatening financial stability can damage global investments. Particular risks on emerging markets.
In the midst of the WTO settlement dispute reform, DG Okonjo-Iweala hinted that the Appellate Body might remain a thing of the past, despite most members rooting for a strong two-tiered system. Whether the dream becomes reality will likely be revealed at the next ministerial in February 2024.
Onboard the team.
Brussels veterans looking to make a move would be happy to know that we are still on a hunt for a Government Relations Consultant to deal with all things trade, customs and external relations.
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