The Commission details the new rules on foreign subsidies, while LIBE committee raises obstacles to transatlantic data flows. At the same time, the EU mulls measures to support farmers facing a fertiliser shortage, while the antipodean trade agenda proceeds apace.  

Speaking of which, we start with an interview with Jason Collins, CEO of the European Australian Business Council. Stay tuned for future contributors to our Guest Spotlight!

One Big Thing.

EU-Australia FTA negotiations: what’s at stake? 

Jason Collins is CEO of the European Australian Business Council which advocates for increased trade and investment flows between Europe and Australia. Based in Sydney, Jason is no stranger to Brussels and key EU capitals, most recently hosting a lunch with Australian Energy and Climate Change Chris Bowen and often bringing over business delegations. 

How do you and your members view the EU as a trading partner? 

As a large high-income market, the EU offers significant growth potential with the guarantees arising out of a shared commitment to the rule of law, global norms, and open markets. In this era of escalating geostrategic competition, the EU market is more than ever a natural destination for Australian companies wishing to further diversify their operations. 

The EU is currently Australia’s 3rd largest two-way trading partner of goods and services and 4th largest source of FDI. The relationship presents major growth opportunities. For example, the two-way investment partnership has trebled in the last 15 years to more than € 0.7 trillion in 2021 driven by European investment in Australia in energy, infrastructure, and defence – but in these last few years we have seen more and more Australian investment to Europe through pension funds and other institutional investors. To successfully unlock further commercial and investment opportunities, we strongly support the conclusion of an ambitious and comprehensive EU-Australia FTA

What are the main challenges for Australian companies operating in the EU market? 

The challenges are varied. Key concerns for our members are the free movement of workforce, the recognition of qualifications, technical barriers to trade as well as the lack of market access for Australian agricultural exports to the EU. Substantial new access for key agri-food products such as beef and sheep meat will determine whether Australia accepts a deal or not

Though the EU offers companies the opportunity to operate in a Single Market, regulations remain complex to navigate and track, which limits Australian SMEs’ ability to permeate the EU market. The recent Foreign Subsidies Regulation also adds additional red tape for business in the bloc. Finally, another key challenge is digital trade. Though the pandemic has reduced the tyranny of distance via the digitalisation of our economies, digital trade between the EU and Australia remains constrained by a lack of policy alignment

Has the shift in the geopolitical environment impacted the negotiations?  

Due to the war in Ukraine, the EU has been looking at diversifying its supply chain of critical raw materials essential to improve its energy security. As announced in the Green Deal Industrial Plan, sealing a deal with Australia by the 2023 European summer suddenly became a top priority. A trusted and reliable partner, Australia holds the second largest global reserves of cobalt and lithium from which batteries are made as well as other rare earths key for the net-zero economy

Australia’s change in internal policies have also impacted the negotiations positively, helping the negotiators to find common ground on sustainability issues – the new Labor Government elected in May 2022 has taken action with the strong backing of Australian business and industry by enshrining into law an emissions reduction target of 43 per cent from 2005 levels by 2030 and net zero emissions by 2050 as well as embedding the Paris Agreement into legislation. 

Second in line.  

Transatlantic data shall not pass, says LIBE 

While some go for chocolates and flowers on Valentine’s Day, European Parliament’s Civil Liberties, Justice and Home Affairs (LIBE) committee decided to push out a draft opinion on the EU-US Data Privacy Framework. Causing a mini storm in the world of international data flows, the draft motion for a resolution discourages the Commission from pursuing the framework in its current shape due to insufficient protections for EU citizens under GDPR

While the contents of the draft were not a shock, it is the first formal parliamentary response since Joe Biden published his Executive Order on the matter, followed by the Commission launching a process to adopt a data adequacy decision. The previous iterations of the EU-US data flows agreement, aka the Privacy Shield, were overturned by the ECJ courtesy of privacy activist Max Schrems, who argued that EU citizens’ data is not protected against US authorities’ access. 

This has real consequences for businesses operating across the Atlantic, with one of the most prominent cases being Meta. The company is awaiting a decision by the European Data Protection Board (EDPB) by April 14, which will determine if the legal basis for Facebook and Instagram data transfers is illegal. If so, the company has threatened to cease its services in Europe – the new EU-US data deal is unlikely to be its knight in shining armour, either, as the deadline for the new iteration of Privacy Shield is still vague. With more opinions like that of LIBE committee, even more delays might be on the horizon. 

Trading with kiwis: FTA advances

Things are moving forward on the ratification of the trade agreement with New Zealand, which was concluded on June 30, 2022. On Friday February 17, the Commission officially passed the text to the Council for its approval. Next, the EU and New Zealand can sign and send it to the European Parliament. The goal is to have the agreement ready and in force before the end of the legislature in 2024. Now the ball passes to MEPs and Member States. Although there is general favour for the deal, lobbying efforts against it could intensify, particularly from European farmer associations, which complain  about what they see as  competition from New Zealand’s agri-food sector. On the other hand, the Commission foresees  €4.5 billion growth of EU exports through a cut in New Zealand duties, as well as a potential 80% increase in EU investments in the country. This means new business opportunities. But the FTA was also hailed for its record-high sustainability provisions – both environmental and social  – which companies have to keep in mind.The parties can even potentially sanction each other, in case either violates sustainability requirements. What is sure is that this is the most advanced FTA in the Commission agenda. 

The Energy Charter Treaty – Brussels’ new escape room

If in November, the question was whether the EU would follow six of its member states inwithdrawing from the Energy Charter Treaty, the question on everyone’s minds now is when and how. Two weeks ago, a non-paper from the Commission’s internal legal services described the EU exit as “unavoidable”. When signed in 1994, the ECT was seen as a tool to promote investments by providing energy companies with an uncommon legal protection: the right to sue governments for compensation whenever policies affect their profits. Almost 30 years later, sustainability is leading the EU’s agenda as showed by the Green Deal. As a result, the ECT is now in violation of the bloc’s climate targets. Leaving the ECT however, raises important questions: whether to try to modernise the ECT before the ”unavoidable” withdrawal and what to do with the controversial sunset clause, which is meant to shield fossil fuel investments for 20 years after withdrawal. On the former, agreeing on a reform has already proven to be a challenge, as the secretary-general of the ECT stressed the importance of a revision of the Treaty before leaving it. Regarding the sunset clause, the clause could be left unapplied between EU member states, but a solution would have to be found for any investor in countries that are still part of the ECT, most likely in the form of bilateral agreements.  

Fertile ground for trade? Asia 

Last week, the European Parliament adopted a resolution on the availability of fertilisers. It isn’t news that the EU fertiliser industry has been at a crossroads since Russia’s invasion of Ukraine. EU farmers were reliant on importing essential materials to  manufacture fertilisers. A few angles to that. First, what of imports? In the short term, the Parliament calls for a reduction in administrative burden for importers in line with a Commission proposal from November 2022. Not something that industry stakeholders might like. And in the medium to long terms: avoid dependencies. This seems to be the major lesson learned from the invasion of Ukraine. But that’s not exactly what the Commission thinks. In its communication on the issue, the Commission advocates for an import diversification policy to steer markets away from Russian inputs. Second, the Carbon Border Adjustment Mechanism (CBAM). The fertiliser sector is highly exposed to carbon leakage because of its high emissions. The Parliament resolution calls for measures to address this, such as using CBAM revenue to support the agricultural sector. So far, this seems to also be what industry stakeholders want. Clearly, discussions are far from over. A space to watch.   

How to implement rules on foreign subsidies? The Commission publishes its manual 

On February 6 the Commission published the long-awaited implementing act for the Foreign Subsidies Regulation. As we have explained, the legislation has a huge impact on enterprises that receive contributions from third countries and operate in the EU market, adding red tape on M&A and procurement bids. It also gives big powers to the Commission, hence the need to clarify the application of the new rules. This implementing act details how companies will have to notify their participation in concentrations and public tenders, as well as how the Commission’s investigations will work. You have concerns about these new requirements? You have until March 6 to provide your feedback. Entry into force is planned for mid-year. Better to be aware in these times of a potential global subsidy race.  

On our radar.

20-24 Feb I Foreign affairs MEPs are travelling to Indonesia and Vietnam to strengthen EU-ASEAN relations. Possible link to the ongoing FTA negotiations with Indonesia?  

1-2 Mars I INTA meeting with Green deal industrial plan on the menu

2 Mars I INTA hearing on supply chains for critical raw materials. Business executives will present an overview of the European industry perspective

7 March I Parliament’s event on the good old Open Strategic Autonomy  

ASAP I Global water technology company’s Xylem is looking for a Communication Manager to support their business objectives in Europe

What we’re reading.

As the Commission is about to present the Critical Raw Materials Act, the French think tank Iris analyses how the EU is doing on its dependences. Are times mature for a strategy in this field? [tag the author?]  

Bruegel takes a deep dive into global environmental subsidies… and the frictions they are causing. Any international forum could be used to set the parameters of net global-welfare enhancing subsidies.  

Missing the IRA debate? BusinessEurope released a statement calling on the EU to improving its investment conditions as the best way to preserve competitiveness. They also stress the importance of the negotiations to mitigate the US discriminatory provisions.  

Some trade talks took place at the Munich Security Conference last weekend. In spite of the ongoing disputes, US trade boss Katherine Tai shared optimism on transatlantic trade for 2023.  

Onboard the team.

Want to work with us? SEC Newgate EU is looking for a senior consultant for government relations and, of course, trade policy. Here for more information. 

Still have questions? Drop a message.   

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