The European Commission proposed its new initiative for the “twin” transitions (and to keep up with the US green subsidies). This could mean opportunities for green-tech businesses. Yet, the lack of new money and the risks for the internal playing field raise major concerns. Meanwhile, the EU-UK talks on Northern Ireland seem to be making progress, and the US secures a chip deal with major impact on geopolitics and tech market.
One Big Thing.
Better rules but no money. What’s the Deal with Green Industry?
Voilà. The European Commission unveiled its expected response to the US Inflation Reduction Act. It is called the Green Deal Industrial Plan. In simple terms, this means new rules to facilitate investments in clean energy. There would be two main tools: a simplification of regulations (like quicker permits) and more flexibility for state aids. For example, it could be the occasion for the long-awaited multi-country projects, promoting initiatives across the whole Union, and Member States would be allowed to adopt tax breaks to support their green-tech sectors. That’s where it gets tricky. Smaller states warn that this would disrupt competition in the internal market. The Commission insists that the relaxation of state aids will temporary. Moreover, to compensate with countries with higher fiscal power, Member States would be allowed to draw from existing funds (mainly the Next Generation and REPower EU). But that’s another critical point. How can the EU set ambitious goals without fresh resources? Even the upcoming EU Sovereignty Fund will likely be based on already approved funds. That said, what’s there for us trade observers? The Commission commits to advancing its free trade agenda – envisaging the conclusion of the FTA with Australia by the summer. But it voices the usual call for fair trade, hinting at its new “trade defence arsenal” (the legislations we explained here). Familiar warnings for US and China.
The Take: Less in red-tape and easier access to public funds would be good news for green and digital companies. In particular, tech companies can look at the upcoming EU Sovereignty Fund, which is specifically meant for emerging technologies (like AI, quantum, biotech…). The whole Commission proposal could also support businesses in projects for workers’ skills in the environmental and digital fields.
The Next: On February 9, President von der Leyen will discuss the initiative with EU heads of state and government. After that, there will be a proper legal proposal ahead of the European Council on March 23.
The Plus: A bumpy road is ahead, as a variety of caveats has been raised by Member States (more below).
Second in line.
Dear Dombrovskis, don’t forget about small states
Even before the launch of the Green Deal Industrial Plan, several states were concerned on the Commission’s flirt with more flexible state aid rules. On January 26, Czech Republic Denmark, Estonia, Ireland, Austria and Slovakia had written a letter of complaint to Trade Commissioner Dombrovskis. Separately, Netherlands, Sweden, Poland and Italy voiced concerns as well. They all fear that more flexible state aid rules would advantage German and France – also considering that they provided 77% of all state aid approved in the EU last year.
Moreover, the signatories of the letter advocate negotiations with the US for a compromise on the IRA, instead of fuelling a subsidy race. However, on new EU funding, symmetries are a bit different: “frugal” states, led by the Netherlands, radically oppose, while Italy would be in favour. This sounds like a good anticipation for the debate that we will see at this week’s European Council.
Brexit talks rumour mill up and running
Hollywood might have Brad and Angelina, but the hottest divorce on the other side of the pond is still Brexit. While paparazzi pictures are unlikely to surface in this case, news outlets are still anxious to break stories regarding the EU-UK negotiations, and reports on crucial parts of the agreement (such as involvement of the CJEU) are ricocheting all over the media. Despite rumours of an almost-finished deal, there is no consensus on where the talks stand, other than Northern Ireland protocol remains the most contentious issue.
Finalising the deal does not guarantee the end of Brexit troubles, either – not after Rishi Sunak’s push for the Retained EU Law Bill, which seeks to amend or get rid of EU-derived legislation altogether. As many of the rules relate to labour rights, data protection and the environment, the EU might seek retort through trade means. There are still other issues to be overcome before getting to the ‘starting a trade war’ stage of the breakup, even if the drama isn’t exciting for everyone. National agencies dealing with competition, for instance, are looking forward to less chaos in the EU-UK relationship in service of more efficient cross-border enforcement.
Another one bytes the dust
The US, the Netherlands and Japan have teamed up to block chip exports to China, leaving the EU in the dust. This move aims to restrict China’s tech growth and keep the US on top of the tech game. Despite still being a relevant in the chip market, the EU was left out of this deal, which has been met with mixed reactions. Some see it as a necessary step to protect US tech superiority, while others criticise it as a roadblock to free trade and global cooperation. Regardless, the absence of the EU (as a whole) – as the US worried about its Kafkaesque bureaucracy and the risk that the process could have been jeopardised by Member States at any moment – highlights its declining influence in shaping global tech policy. So, the US and Netherlands took the lead. It’s game on, folks! The tech industry is about to get real interesting.
Going digital in Asia
The EU and Singapore launched their joint digital partnership on 1 February. As this has been a growing marketspace for some time, multinational businesses could in the long run benefit from more digital trade integration. The partnership is meant to complete the FTA signed in 2018, outlining further discussions on the main tech issues like semiconductors, data flows and AI – all of that with a view towards expanding EU trade into Asia while keeping the GDPR standard intact. Singapore previously signed the Digital Economy Partnership Agreement (DEPA) with Chile and New Zealand back in June 2020. It’s not the first time the EU turns to Asia for digital talks, as discussions are ongoing with Japan and South Korea, as well as India, with whom the EU has just announced the establishment of a Trade and Technology Council. The Singapore development serves as a good reminder that the digital transition could potentially yield business opportunities on a global scale, not just at the domestic level.
On our radar.
9-10 Feb I As anticipated, a big debate on industrial policy is expected at the European Council
21 Feb I Trade, climate, and digital talks at Bruegel with Michael Froman of Strategic Growth for Mastercard (previously trade official for the Obama administration)
3 March I TTC due diligence roundtable comes at a time when the European Parliament’s Environment Committee wants to impose higher standards
What we’re reading.
The Financial Times breaks down the subsidies being provided internationally for the climate transition and it asks the crucial question. Can the EU keep up with the US?
On a similar angle, POLITICO focuses on the problem of the EU’s attempts of green industrial policy: ambitious targets with limited resources in a crucial competition challenge.
It takes more to permit a wind farm than to build it, Sandrine-Dixson-Declève, European Ambassador for the Energy Transitions Commission, argues. Will the new Commission’s plans do enough?
Onboard the team.
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