While Qatargate is still simmering, there’s much trade policy going on. The European Council and Parliament are wrapping a CBAM deal under their Christmas trees, and a glimmer of hope appears for EU-US data flows(Schrems permitting). However, the IRA spat continues, with the European Commission calling for subsidies in response to the US initiative. Meanwhile, the EU has concluded a deal with Chile and is intensifying dialogue with South-East Asia. This is our trade brief to leave you with the Christmas break. Happy holidays and see you on 10 January.

P.S. The bonus track: a few reading suggestions if you are still hungry for trade and geopolitical specialities.

One Big Thing.

The EU’s climate ABC(BAM)

CBAM, ETS, IED. The list could go on. Lost in the EU’s climate alphabet soup? Don’t worry, it’s complicated for everyone. A little recap. MEPs and the Council reached a ‘provisional and conditional’ agreement on the Carbon Border Adjustment Mechanism (CBAM). It is a levy on carbon-intensive products to ensure that the EU’s energy transition will not increase carbon emissions outside the EU through ‘carbon leakage’. Basically, this will apply to producers relocating to non-EU countries with lower environmental standards. If producers relocate, then they have to pay the CBAM to export to the EU. Initially, the CBAM will cover cement, iron and steel, fertilisers, aluminium, electricity, hydrogen as well as indirect emissions. On the whole, it is yet another tool that the EU is using to green global trade.

Zoom in: The deal wasn’t easy to reach. One obstacle was the question of whether or not to include indirect emissions. EU industry says no – or at least to do so step-by-step – warning of further increases of input costs. But lawmakers promise that this will happen only ‘in a well-circumscribed manner’.

Zoom out: So far so simple? Not so fast. The CBAM depends on the implementation of the reformed EU Emissions Trading System (ETS), the EU’s carbon market. The Council and the Parliament reached a separate agreement on this after negotiations at the weekend. 

The Next: The CBAM will kick in as of October 2023 but only for the reporting obligation part. After that, a full version of the legislation will be applied, tax and all.

Second in line.  

All I Want for Christmas Is… stability in EU-US data flows

The next iteration of Privacy Shield is slowly approaching, as the Commission released its latest Christmas hit — a draft adequacy decision for EU-US data flows. This comes after Biden’s Executive Order, in October, which promised improved safeguards for EU citizens’ personal data, including the ability to challenge US agencies’ surveillance. This is significant for businesses from both sides of the Atlantic, as data transfers are a cornerstone of the €5.5 trillion annual EU-US economic relationship. While companies are rejoicing at the prospect of a stable data flows agreement, Austrian activist Max Schrems may have other ideas. Channelling his inner Grinch, he is ready to launch a legal objection to this latest pact, after striking two previous ones down due to data protection and privacy concerns relating to the way US is handling Europeans’ data.

Next steps: the draft will be reviewed by the European Parliament and European Data Protection Board, before Commission is able to put its final stamp of approval. This could take up to six months — only time will tell if the Christmas tune still tops the Transatlantic charts in June.

The EU tries to follow US environmental sovereignity?

A new debate on a common industrial policy has started in the EU, triggered by the ongoing dispute with the US over its controversial green subsidies (a recap here). Commission President von der Leyen is calling for a relaxation of rules on state aid coupled with new joint European funds for the green and digital transitions: a European Sovereignty Fund to be proposed in the summer. Naturally, France is enthusiastic, and even Competition Commissioner Vestager is open to the idea, while for Germany it’s a nein. In parallel, the Commission is negotiating with the US over extending the benefits provided by the Inflation Reduction Act to European companies. Will stick and carrot work? Meanwhile, it’s worth reminding that state aid rules have been the very basis of the single market, necessary to guarantee the internal level playing field. Could their relaxation backfire for the EU?

Sustainability for lithium & cobalt: a deal between Brussels and Santiago

As the EU seeks to diversify the supplies of materials necessary to implement its climate policies, Brussels concluded a trade deal with Chile, to give it easier access to lithium and copper. This is a much-needed move given that an exponential increase in demand is expected – +3,500% for lithium and +300% for cobalt –  according to Kerstin Jorna, Director General at DG GROW. For the first time in an EU deal, there is also a dedicated “trade and gender chapter”.

More on raw

At an European Parliament eventGuillaume Pitron – author of the book “The rare metals war: the hidden face of the energy and digital transition”- declared that there were plenty of raw materials in the earth’s core and crust. One of the issues, however, was the cost of extraction which is becoming increasingly expensive. To extract 1 kg of cobalt in 2022, 16 kilos of rocks must be dug from the ground, representing a 16-fold increase compared to a century ago (where the ratio was 1-1). On a more positive note, the event also highlighted the recent launch of the Observatory of Mineral Resources for Industrial Sectors (OFREMI) in France. It aims to provide strategic monitoring on global supply chains and the future needs of the industrial sector to support any investment decision. Speakers highlighted the opportunity to create a network of EU agencies that monitor raw materials supply chains.

EU-ASEAN: more cooperation (and some obstacles) in the Indo-Pacific

To celebrate 45 years of diplomatic relations, the EU-ASEAN Commemorative Summit was organised on 14 December. The aim was to rethink cooperation on issues such as climate change, environmental protection and sustainable development, as well as the promotion of stability in the region.  With the Indo-Pacific region growing in importance, the EU is aware that it must foster bilateral investments with ASEAN. However, the thornier issues seem to be relegated to other fora. One major example is the EU’s Corporate Sustainability Due Diligence Directive, which will bring a renewed focus on human rights and environmental issues in companies’ supply chains. It will have a massive impact on ASEAN economies and risks increasing tensions if not properly handled. Will the EU manage to navigate the murky waters of geopolitics or let the opportunity slip due to its kafkaesque bureaucracy?

China’s coercion brought at the WTO

On 7 December the EU asked the World Trade Organization to establish a panel against China. Since late 2021, Beijing has adopted trade restrictions on Lithuania for opening a Taiwanese office (instead of using the formula “Chinese Taipei”). This episode fuelled the debate over the anti-coercion instrument (we spoke about it here), legislation that will give big powers to the Commission during trade disputes. Bringing the case to the WTO seemed the natural prosecution of the EU action although, as usual, its effectiveness is uncertain.

On our radar.

19-21 Dec I INTA delegation to Taiwan, led by Vice-chair Asimakopoulou. Worth monitoring discussions on a key actor on global trade and chip production.

1 Jan I Beginning of the Swedish Presidency of the Council. Pro-trade stances are expected. Will they make progress on FTA negotiations and ratifications?

23-24 Jan I INTA meeting. Big picture topics on the agenda – as suitable for the first meeting of the year: EVP Dombrovskis on the next steps for EU trade policy and Swedish priorities on trade.

25 Jan I Victoria Main, director of our media relations team, will be moderating an event organised by Women In Trade.

What we’re reading.

Christmas trade book wishlist

With Christmas at our doorstep, it’s the perfect time to buy your trade nerd friends (or treat yourself!) one of our expert recommendations for some end-of-the-year reading.

Emmanuelle Pouget, our energy expert, recommends “The Rare Metals War: The Dark Side of Clean Energy and Digital Economies” by Guillaume Pitron. With everyone focusing on the green transition, this book shines a light on the often overlooked darker side of what it actually entails, in particular on overconsumption.

Adam Bouzi, our geopolitics nerd, found great inspiration in “Unlocking Africa’s Business Potential: Trends, Opportunities, Risks, and Strategies” by Landry Signé. Africa is set up to play a major role as the green transition leads to a new gold rush to critical minerals. But with its markets growing attractiveness, we’re bound to see the African continent become a treasure trove for anyone with a good idea and ambition. This is the handbook for anyone seeking to start a new adventure in Africa.

Patricia Alonso Castellano, our go-to sustainability reference, found timeless insights in Peter Frankopan’s “The Silk Roads”. To quote Mark Twain, history doesn’t repeat itself, but it rhymes. A solid foundation on how trade and politics have been intertwined throughout history is a necessity for anyone wanting to make sense of our current situation.

Still have questions? Drop a message.   

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