The von der Leyen-Michel tandem was in Beijing to discuss the evergreen trade divergences. Reciprocal criticism still undermines EU-Mercosur talks, which conclusion is put off for the umpteenth time, and the EU faces a setback in raw mineral diplomacy at COP28. In Brussels, MEPs and Member States are trying square the circle on the due diligence directive.  

Find the trade news you need to know ahead of the Christmas break.  

Also, don’t forget to check out last month’s special: an interview with the Brazilian Ambassador to the EU. 

One Big Thing.

EU and China keep talking the talk 

The backdrop to last week’s 24th EU-China summit was definitely more substantial than the conclusions drawn. There was no particular optimism about the first in-person reunion since pre-pandemic times – this time, it was all about balance and “managing differences. Those expectations were certainly satisfied by the President von der Leyen/Michel duo squaring against President Xi Jinping and premier Li Qiang. Walking the tightrope could be one way to describe it as trade troubles abound: a €400 billion trade deficit with Beijing, the EU’s subsidy probe against electric vehicles and the European Economic Security Strategy (EESS) that calls for “de-risking”, mainly from China, of critical productions. 

Zoom out: The nature of EU and China’s convoluted relationship is amplified by overarching geopolitical complications. On one hand, there are US and Dutch export controls and restrictions on high-tech investments to China. On the other, concerns about Beijing’s Russia-friendly approach leading to the circumvention of Western sanctions, as well as rising tensions in Taiwan ahead of its elections. 

Zoom in: Clarifying restrictions on cross-border data flows was touted by the Commission President as one of the areas of progress, which is good news for EU companies operating in China. Medical devices, cosmetics and geographical indicators for agricultural products also found their way to the negotiating table in the interest of decreasing the trade deficit.

The plus: The leaders agreed to disagree for now, with more conversations planned for the future, starting from the relaunch of the High-Level People-to-People Dialogue in 2024. Yet, the EESS implementation, under the watchful eye of EU capitals, can be a source of future frictions. 

Second in line.  

EU-Mercosur: Uncertainty with Argentina and Brazil’s frustration with Macron.

Brazil’s President Luiz Inácio Lula originally wanted to announce a breakthrough in the negotiations at the summit of the Mercosur countries in Rio last Thursday. However, the long-awaited announcement of a happy ending after 23 years of negotiations was left for a next chapter. Lula was quick to find a culprit: French counterpart Emmanuel Macron. “I asked him to stop being so protectionist”, the Brazilian President said. A few days earlier, Macron criticised the free trade agreement for being “old-fashioned” and “incoherent” due to domestic pressures, mainly from farmers, to reject the deal.  

In a surprising move, the acting Argentinian President also withdrew its support to sign the agreement before the new President Javier Milei took office, prompting  EU Trade Commissioner Valdis Dombrovskis to cancel his planned trip to the Mercosur summit. Brazil and the EU hope that the new Argentinian President, an ultra-liberal, will continue the trade negotiations, but uncertainties remain due to his criticism of the Mercosur bloc (he described it as a “customs union of poor quality”).   

After months of intense talks, the agreement is now off the table for the foreseeable future. This is a major defeat both for Lula and Spanish Prime Minister Pedro Sanchez, who is holding the rotating presidency of the Council, as they hoped to clinch a deal before the end of the year. The window of opportunity is closing and the ratification by the European Parliament faces the hurdle of next year’s elections in Europe. Politicians are disappointed, EU farmers and environmental NGOs relieved. 

Will the Due Diligence Directive Come in Due Time?  

The saga of the Corporate Sustainability Due Diligence Directive continues, as the third inter-institutional negotiations took place on 22 November, with many key points left unresolved. Pressure is on, since an agreement is required at the latest by February. After that, the Parliament electoral campaign will intensify, leaving the Belgian Council Presidency with limited room for action. After Belgium, it will be the turn of Hungary and Poland, which are not enthusiastic on the file. 

MEPs and Member States are converging on some provisions. They agreed on allowing parent companies to fulfil the due diligence obligations of their subsidiaries, on condition that subsidiaries remain liable for their own adverse impacts, and on the removal of the duties of company directors to oversee the implementation of due diligence procedures. This is positive news for businesses and a disappointment for progressive MEPs.   

However, no agreement has yet been found on which company actions constitute adverse impacts and the definition of value chain. Regarding the third-party verification, the Parliament had clear limitations on who could conduct the audit, but the Council seems to have been able to loosen that approach. Additionally, the institutions remain divided on the scope of civil liability (the extent to whom stakeholders can sue companies) and the obligation for companies to monitor their supply chain for human rights and environmental damages. Lastly, the inclusion of the financial sector remains controversial. Some Member States want to exempt the entire sector from the scope, but a comprise might entail covering banks and insurers.  

Now, all that is left is to wait for this week’s round of negotiations, which given the key agreements still missing might not be the last. 

Half-baked raw materials club at COP 28 

Despite expectations, the launch of the EU-led Critical Raw Materials club, a platform to connect resource-hungry and resource-rich nations, did not materialise at COP28. The Commission first proposed the initiative in March, as the external dimension of the Critical Raw Materials Act. The Commission’s attempt to diversify its suppliers of the minerals necessary for the green transition is no mystery. In 2022, the EU obtained almost all of its heavy rare earth elements and magnesium from China. The concentration of critical mineral extraction in few countries makes the EU Green Deal vulnerable to external shocks, especially as demand is booming now that more countries are investing in net-zero industries. 

The EU was then trying to bring together ‘like-minded’ (or at least reliable) countries endowed with resource wealth to pool and enhance investments, but also to counter China’s dominance in the sector. Yet, key countries expressed reservations. The US advocates an even tougher approach on Beijing, while South Africa precisely wanted to keep ties with China. Indeed, the club could imply conflicts with existing partnerships. Notably, the club shares similarities with the Minerals Security Partnership, formed last year by the EU, the US and G7 nations, alongside key producers like Australia, Canada and Sweden. 

Asked by POLITICO, EU climate envoy Wopke Hoekstra said the initiative is still under consideration. Yet, the EU goes through a narrow path. Proposing binding commitments to ensure cooperation would make the initiatives less politically acceptable for countries that have a policy on neutrality on the US-EU-China triangle.  

New chip friendship for the EU 

In the global game for semiconductors, the EU can play with a new friend. In November, the EU and India signed an agreement to enhance cooperation in this crucial industry. It envisages collaboration on R&D among universities and businesses, and skills development through more workshops and direct investments. But the parties also commit to ensuring fair competition by sharing information on state subsidies. As the chip sector becomes the protégé for each government, preventing subsidy races and consequent friction is a precondition in any cooperation initiative.  

This deal is also important from a broader perspective. As Brussels tries to reduce its dependencies on China, the Indian market is a natural direction for companies pondering relocation. These kind of initiatives, in the framework of the new EU-India Trade and Technology Council, are also meant to accompany the bilateral negotiations for a trade agreement, which will require time to be finalised. But it’s not all light and sunshine, as the two powers diverge on big international issues, like relations with Russia, digital trade and WTO reform

Over on X: Head of the EU Mission to the WTO & UN shares ominous sentiments regarding the EU-Australia deal that fell through.

On the radar.

11-14 Dec ILast 2023 Parliament plenary. MEPs will discuss EU-Taiwan investment ties, but also the new AFET reports on EU relations with China, Japan and the US. 

11 Dec I Amid the pressing geopolitical issues, the Foreign Affairs Council going to discuss the “foreign policy dimension of economic security.”  

15 Dec I Join the online discussion on Industrial Policy, Green Subsidies, and the WTO organized by Bruegel. The panel, which includes Ignacio Garcia Bercero from DG Trade, will debate on whether the WTO rulebook needs to be adapted to this era of green industrial policy. 

1 Jan I New year new Council Presidency. The baton passes to Belgium. Time to get familiar with the frictions between protectionist Wallonia and liberal Flanders. 

10 Jan I Explore the impact of EU FTAs on the environment at the Civil Society Dialogue, featuring key speaker Dora Correia, Director at DG Trade. NGOs and business associations are invited to exchange views with the Commission on its new Inception Report.

30-31 Jane I Is the Trade and Technology Council sleeping? Maybe. But mark your calendar for the Crafting the Transatlantic Green Marketplace stakeholder event. In the absence of the semestral ministerial, transatlantic businesses can at least provide their input on this crucial TTC project.  

What we’re reading.

Many norms and few investments are costing EU competitiveness, as the gap with the IRA-fuelled US economy is widening. Read the latest remarks by Medef, the main French business association.  

Delors Institute analyses the new EU’s de-risking strategy, proposing different scenarios in EU-China relations until 2035. How will the pendulum swing between confrontation and cooperation?  

Are we in the era of de-globalisation? Maybe. But EU trade trends seem not to notice, as the value of trade flows through EU FTAs reached the record of €2 trillion in 2022. In a moment of optimism, an infographic by DG TRADE summarises the latest in terms of solution of trade barriers and export opportunities. 

Everything you wanted to know but you never dared to ask about trade in geographical indications. Take a look at this editorial by EU agri-food trade veteran John Clarke, freshly retired as Commission’s chief agricultural negotiator.  

Still have questions? Drop a message.   

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