Welcome to the first edition of 2024. Trade-complex Belgium started its Council Presidency, while top global politicians and businesses gather in Davos. Right before the holidays, European Parliament and Member States found a deal on the due diligence directive, with a wave of new rules coming for large companies. The EU-US negotiations on steel and aluminium weren’t so successful, but the risk of Trump-era tariffs was averted. Finally, low spirits for the EU alcohol industry as China opened an anti-dumping investigation on EU liquor.
Don’t forget to check out last week’s special: a chat with the UK Deputy Ambassador on EU-UK post-Brexit cooperation.
One Big Thing.
New year, New due diligence rules: large companies get ready for compliance
After four rounds of negotiations, the Due Diligence Directive saga is closer to an end. On 14 December, the Council and the European Parliament reached a provisional agreement on the new rules obliging companies to assess their global value chains for environmental or human rights damages. The compromise comes after months of negotiations between pro-business and pro-sustainability stances. While we wait for the official text, here’s what you need to know.
First, who’s in? The directive will cover companies with more than 500 employees and either a net worldwide turnover of EUR 150 million for EU companies or EUR 300 million generated in the EU for non-EU ones. The thresholds are lower for sectors considered as high-risk, like textiles, clothing and footwear, agriculture, mineral resources and construction. Business will have three years to prepare for compliance.
One of the main obligations for companies is to formulate and put into effect plans to comply with the Paris agreement to cut emissions. The agreement also clarifies the definition of environmental impacts as any measurable environmental degradation (such as harmful soil change, water or air pollution). Companies that identify adverse impacts, on environment or human rights, by their business partners will have to end those relationships, if these impacts cannot be prevented or ended.
A thorny issue was civil liability, namely the chance for stakeholders to sue companies if they cause adverse impact. The compromise text limits burdens for claimants, such as on disclosure of evidence and on proceeding costs, and it allows them to bring claims within a period of 5 years.
The Take: The agreement includes injunctive measures for companies which fail to pay fines for violations of the directive. Penalties may reach up to 5% of the company’s net turnover. In a carrot approach, compliance with the directive can be used as a criterion for awarding public contracts.
The Next: Member States and the Parliament will probably approve the directive in this quarter. Being a directive, Member States are responsible for the transposition into national law, having time until April 2026.
The Plus: After a long back and forth, banks sigh with relief. The financial sector was excluded from the scope, despite the strong push from the Parliament. Yet, a review clause leaves the door open to a possible inclusion in the future.
Second in line.
China driving trade defence under influence
The EU-China trade kerfuffle was shaken (not stirred) this month, when Beijing decided to take shots at the EU’s anti-subsidy probe into electric vehicles (EVs) by targeting European spirits. The anti-dumping investigation will prove whether the products have posed unfair competition to Chinese equivalents, responding to a complaint by a Chinese liquor association. This trade defence cocktail might cause EU businesses quite a headache, with the French cognac industry hit the hardest and shares of key alcohol companies affected. Notably, the probe feels targeted as President Macron was one of the main drivers behind a Commission investigation into Chinese EVs.
France is not the only EU country with a feisty spirit, though, with the Netherlands also in the mix. The Dutch government halted the chip equipment maker ASML’s shipments to China just a few days prior the anti-dumping probe had been launched. While Beijing seems to be giving Brussels a taste of its own medicine, the Chinese response can still be perceived as moderate when compared to the scale of the EV investigation. Remembering the cordial remarks made at the EU-China summit in December, there might still be reasons to keep spirits up – maybe it’ll all go down smoothly.
Net-Zero Industry: To be or not to be (protectionist)
With a war ongoing on the continent, growing competition with China, tension in the Middle East and US elections in November, self-reliance has never been higher on the Brussels agenda. The EU has been seeking to promote the manufacturing of clean technologies for some time now, but now the sense of urgency is clear.
Last March, the Commission tried to respond swiftly to the American IRA through the Net Zero Industry Act (NZIA), which aims at facilitating permitting for green investments. The ambition and reach of the file are yet to be determined. On Monday, policymakers from the three key institutions will sit down to hold their first trilogue. The key question is how open to third countries EU green procurement should be. The NZIA would require Member States to take into account the risk of dependencies on foreign providers when assessing bidders. The European Parliament has the tougher text, with provisions that would in effect prevent Chinese companies from competing for EU green tech contracts, while the Council has more moderate positions.
Defenders of free trade are concerned that the prioritisation of ”made in Europe” will simply end in slowing down the green transition by worsening red tape. Others, led by France, warn against involvement of Chinese companies in EU’s strategic infrastructure, but also against competing green policies from Washington. What is sure is that proposals like this would have been unthinkable 10 years ago. Be that as it may, Europe can be sure of one thing: after a crossroad it can always expect another crossroad.
Steel and aluminium: test on transatlantic relationship put off after the elections
EU-US negotiations on steel and aluminium will still accompany us at the next institutional mandate on both sides of the Atlantic. The Commission announced it won’t re-introduce the tariffs it adopted in 2018 in retaliation to then US President Trump’s duties on EU steel and aluminium. The commitment is until March 2025. In exchange, the US will extend the suspension of its tariffs up to a quota based on historical trade volumes.
The initial intentions were quite different. Washington and Brussels have been in talks since 2021 to find a structural agreement not only to solve the trade dispute, but also to reduce the sector’s emissions and tackle global subsidised oversupply (read China). They couldn’t agree on the method, tough (read why here). Interestingly, there’s some continuity between the Biden and Trump administrations, as US Trade Representative Katherine Tai has defended the national security reasons of the 2018 duties, aimed at maintaining some national production.
Positively, the risk of the return of reciprocal tariffs was averted. EU and US officials have been working to clinch as many economic deals as possible, to ensure a certain stability in case of a Trump second term. Yet, Biden’s mandate was also strongly criticised of trade unilateralism (IRA teaches). As the electoral campaign picks up in the US, protectionist tones, rather than trade-friendly ones, will be more frequent to lure voters in industrial swing states.
A grain that broke the EU’s back
Another year, another review of EU-Ukraine trade policy: as the Commission has been suspending all customs duties, and quotas against the war-stricken country, there is a sizeable group of countries not so keen on the idea. With the EU executive planning to extend these allowances until 2025, Poland emerged again as the main contrarian voice. The reason – flooding of domestic markets by Ukrainian grain and other agri-food products. Premier Donald Tusk has offered a glimmer of hope for improving trade relations between the neighbouring countries thanks to a breakthrough with Polish truckers who have been blocking the border with Ukraine. Despite this and his pro-EU credentials, Tusk maintains the previous government’s line against trade liberalisation with Ukraine.
This doesn’t come as a surprise – as we’ve mentioned before, the grain issue has been one of the few non-partisan topics of the last election, with politicians across the aisle largely agreeing with the strategy undertaken by PiS, previously in the government. While Poland is arguing against the extension, the decision has been postponed to next week after a College of Commissioners meeting was cancelled – more time for negotiations.
Over on X: EU-China trying to cool off trade frictions on Swiss mountains
On the radar.
22-23 Jan IStay tuned for insights from an informal meeting of trade ministers.
23 Jan I Join ITI’s in-person event, Resilient Europe: A Playbook for Future European Economic Competitiveness, exploring the transition to an innovative digital economy and strengthening open trade.
23 Jan I Bruegel will host a debate on whether the WTO rulebook needs to be adapted to this era of green industrial policy. Ignacio Garcia Bercero from DG Trade is in the panel.
24 Jan I Stay tuned: the much awaited “Economic security package” will eventually be delivered, at least according to latest Commission’s agendas.
24-25 Jan I The first INTA meeting of the year focuses on the Single Market’s future, the trade deal with Chile, multilateral negotiations ahead the WTO Ministerial Conference.
25 Jan I If you have business in China, this event organised by the Flanders-China Chamber of Commerce can interest you. Top EU-China trade professionals will share insights from both sides of the globe.
30 Jan I After being close to cancellation, it seems the 5th TTC will eventually happen. Don’t hold your breath, as deliverables for EU-US businesses will probably be limited.
What we’re reading.
You may remember that, among the measures to react to the IRA, the Commission relaxed state aid rules. Member States can even now match offers made by third countries to green tech companies to convince them to invest in the EU. This option has been used for the first time, unsurprisingly by Germany. It will provide €902 million to Swedish battery maker Northvolt, which could otherwise have opened a plant in the US.
Tariffs on electronic transmission is an appealing option for developing countries, but it’s actually not of much help for government revenues, according to a new study by IMF and OECD. The publication explains opportunities and challenges for developing countries from digital trade, in a crucial moment for WTO negotiations on a booming sector.
As tensions escalate in the Red Sea, damage on trade was immediate. The German Kiel Institute for the World Economy shows a 70% drop in trade volume of this route. Right when post-pandemic inflation was slowing down, new hikes in freight costs could revert this trend.
The world is hungry of critical minerals for the green transition. Unsurprisingly supply chains have a hard time keeping up. This WTO article shows the top importers and exporters of today’s much-wanted inputs.
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