Welcome back from the Winter break! With this TradeViews, we recap the news of the holidays and take a look at what 2023 has in store. First up, Sweden takes over the Council presidency with some free trade resolutions for the new year. Just before Christmas, Member States found an agreement on a key regulation for trade with developing countries. Meanwhile, the EU and the US put a little patch on their fracturing positions on green subsidies. Bonus track: a calendar on EU and global trade milestones for 2023.
One Big Thing.
A Swedish opportunity for trade
With new year comes new Council Presidency and this time, Sweden is taking the reins over the legislative work of the Member States. Trade will be a big policy priority for the government of Ulf Kristersson (or at least they’ll try). Sweden has traditionally been the pro-trade voice in the EU – a pro-trade country in an increasingly protectionist world. 88% of its GDP depends on trade and it has several internationalised companies (like Ikea, H&M or Volvo).
Stockholm has always made it clear it wants progress on FTAs, so it will try to advance negotiations with Australia, India and Indonesia, conclude the deal with Mercosur, and ratify the ones with Chile, Mexico and New Zealand. Plus, they advocate tariff cuts on imports from Ukraine, which matches with Stockholm’s clear line of support to Kiev and opposition to Moscow. While teaming up with the other Nordic countries, this pro-trade enthusiasm can conflict with France, Ireland, Italy and Spain, which traditionally try to protect their agriculture sector. Indeed, given that the Swedish presidency program cryptically states that they will handle the trade dimension of agriculture, this will be a space to watch during their presidency.
Trade 1: A bellwether will be how Sweden handles the green subsidies dispute with the US (we spoke about it here and here). Kristersson’s government stressed the need for good transatlantic relations, but it will have to strike a balance with the countries which want a reaction (France, Germany and even the main Commissioners).
Trade 2: Sweden is committed to completing the update of the Generalised Scheme of Preferences(GSP), the regulation that grants low tariffs for developing countries if they comply with human rights and environmental standards (see below). Again, they’ll have to navigate through the usual suspects’ opposition.
Trade 3: Sweden will have to reluctantly lead the interinstitutional negotiations on the main trade defence tool, the anti-coercionregulation (our recap). They have always been critical, considering it an excessive instrument, while France and the Commission are big supporters
Second in line.
Rules on trade with developing countries could change soon: trialogue on the GSP to start
On December 20, Member States agreed on their position on a key regulation that disciplines trade with developing countries. Since 1971, the EU offers trade preferences (e.g. lower tarrifs) to developing countries around the world in order to help their economies. This system, called the Generalised Scheme of Preferences (GSP), covers 67 countries and is divided into three strands based on the countries’ level of development. The deal is that the beneficiary country should in exchange respect fundamental rights and freedoms, which are listed in specific UN and ILO conventions. If that’s not the case, the EU reserves the right to partially or totally withdraw these preferences (e.g., Cambodia in 2020, where 20% of the country’s exports were affected).
As Brussels seeks to make the scheme more effective and push sustainability on its trade agenda, a revision of the framework has been increasingly seen as necessary. Just before Christmas, Member States agreed to includestronger requirements on respect for human rights and the environment as well as a better monitoring and transparency of the scheme. There will also be new ties between trade preferences and cooperation on migration and the readmission of own nationals illegally present in the EU. Last but not least, EU countries recognised the need to strengthen dialogue with a country’s civil society. All eyes are now on the upcoming inter-institutional negotiations with the Parliament (which had agreed its positionin May). If approved, the new rules will enter into force in January 2024, covering the next decade.
China takes the mask off
As China begins to reopen after the pandemic, it is important to consider the potential consequences for the EU. On the positive side, the return to full trade rhythms with China could lead to increased demand for EU goods and services, in a much needed help for the EU economy. But this also means the return of a major competitor to the global stage. In particular, this could fuel the competition over supplies of liquefied natural gas (LNG): as China’s economy recovers, its energy consumption is likely to increase, leading to higher demand for LNG. This could put the EU in a difficult position, as it relies on LNG imports to meet its own energy needs. It is crucial for policymakers to consider these consequences as the EU navigates its relationship with China in the coming years. By being proactive and prepared, the EU can work to mitigate any potential negative effects and take advantage of the opportunities presented by the reopening of China’s economy.
A little patch on an EV-shaped hole
The transatlantic saga – previous instalment of which we covered here – continues. After France and Germany coined an unlikely allyship against Biden administration’s green subsidy rules, the US Treasury Department waved a white flag. In a statement issued right in time for the new year, the body hinted at plans to expand its definition of FTA, which could provide a loophole for EU carmakers to receive subsidies from the US government. On top of that, the more liberal tax credit for clean commercial vehicles is also on the table. Despite the EU acknowledging the gesture, it has signalled that it will not be won over by the bare minimum. The Commission has maintained a critical line on Biden’s EV subsidies and the Inflation Reduction Act at large. With grumbles of discontent from both the EU and the Congress, the balancing act on EVs is not yet over for Biden.
On our radar.
12 Jan I EU-China Business Association, the European Chamber and BusinessEurope are holding a conference to take stock of a turbulent 2022 for EU-China relations and discuss the way forward.
10-16 Jan I Annual World Economic Forum in Davos. “Cooperation in a fragmented world” is the topic of the year.
23-24 Jan I INTA meeting. Big picture topics on the agenda are set to be discussed during the first meeting of the year, with EVP Dombrovskis on the next steps for EU trade policy and Swedish priorities on trade.
25 Jan I EURACTIV is hosting an event on the chances for the ratification of the FTA with Mercosur this year. All eyes on the beginning of Lula’s Presidency.
What to look forward to in 2023.
19-21 May I G7 Summit could usher in notable trade developments given US-Japan alignment on global trade issues
June-July I Change of Council presidency: Spain will follow who will want to speed up work on Mercosur
28-29 Oct I G7 Trade Ministers in Sakai City, Japan
What we’re reading.
High Representative Borrell sent his congratulations for Lula’s inauguration as President of Brazil. He called for “reenergising” the Brasilia-Brussels partnership – needless to say, the FTA with Mercosur is seen as essential for that.
Back in December, the WTO judged Trump’s duties on steel as a violation on trade rules. Washington’s reaction shows a certain continuity between Biden and Trump trade policies.
A Carnegie article offers an outlook on the ongoing economic divergences between the EU and the US: “Working together on security while fending off for themselves economically is not viable.”
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