July was a summit-intensive month for Brussels trade observers. Von der Leyen & Co. hosted Japanese and Latin American leaders all in one week, signing numerous deals in energy and raw materials in the process – see what this means for business below. Although the FTA with Mercosur still requires patience, the EU signed the deal with New Zealand and achieved some digital détente with the US.
We wish you a great summer and see you back in September with the next TradeViews.
One Big Thing.
LACk of trade progress at the EU-LatAm summit
The EU-Latin America dialogue made little progress on the trade side. On July 17 and 18, European Commissioners and Latin American leaders gathered for a long-awaited EU-CELAC summit. This annual appointment was of particular interest because of the multiple trade talks the EU is conducting in the region, notably with Mercosur, Mexico and Chile.
Nice talkfest but no progress on the salient point: the negotiations on the FTA between the EU and Mercosur (a recap on what’s at stake here). The only achievement was the commitment by Trade Commissioner Dombrovskis and Mercosur Foreign Ministers to conclude it before the end of 2023.
Progress was more visible on bilateral relations. The EU signed deals on renewable energy and critical minerals with Chile and Argentina, who are respectively rich in lithium and copper and have have hydrogen and gas potential. Equally, several common projects are in the pipeline for the region as a whole, as the European Commission committed €45 billion of green and digital investments under the Global Gateway. Amid lots of diplomatic uncertainty, what’s sure is that the road for the green transition also runs through Latin America.
Zoom In: The stumbling block is still the protocol on sustainability, as Brazil remains reluctant on additional binding climate commitments. A Mercosur counterproposal has yet to come. In Europe, support for the deal by Germany and BusinessEurope faces the opposition of farmers and NGOs.
Zoom Out: The ball is now in the hands of Spain, which holds the Council Presidency until December. Sealing the deal with Latin America is a priority for Madrid, whether the socialists or the Popular Party will be in charge following the inconclusive election.
The Next: Talks weren’t great even on the more political level, with several Latin American countries diverging from the EU’s condemnation of Russia for the war in Ukraine.
Second in line.
The gall of China’s gallium (and germanium) restrictions
China strikes again, this time as a response to the Dutch government’s decision to limit exports of ASML advanced microchip machines. Although the Netherlands slapped a “country-neutral” disclaimer on the measures, China promptly retaliated with restrictions on exports of gallium and germanium to Europe.
The two minerals are crucial for chipmaking, 5G stations and solar panels, among other industrial applications. With China the primary source of production for both, serious concerns on access to those strategic raw materials for both EU and its allies arise. Together with Japan, Canada, South Korea, Australia, the UK and Switzerland, the EU raised the issue during a WTO Goods Council. Internal Market Commissioner Breton also called for better EU coordination on handling export of critical technologies to China.
Commission President von der Leyen even referred to China’s measure as coercion, thus potentially falling under the scope of the anti-coercion instrument – a measure you should be familiar with. However, one of the lead lawmakers on the file dismissed the idea of deploying the anti-coercion tool, considering China’s actions as purely retaliatory as opposed to coercive.
The proof is in the pudding and the dispute can certainly be viewed as a test for the Commission’s economic security strategy announced on June 20. Meanwhile, the Commission is asking EU-based aluminium and zinc producers to come up with a way to make gallium and germanium in their refineries, with Greece being the first in line.
De-risking with Japan: critical materials, chips and technology
Big moment for EU-Japan relations: across July, EU and Japanese leaders and diplomats held talks on everything from technology to security and trade. Perfect climate for businesses to look for opportunities!
On July 13, President von der Leyen and PM Kishida met in Brussels for the annual bilateral summit. Economic security was the central topic. It couldn’t have been otherwise, given the Commission’s strategy launched last month. De-risking China was the obvious topic, even more with the current spat on its critical minerals restrictions. Brussels and Tokyo concluded a cooperation arrangement on raw materials and one on semiconductors, based on monitoring to prevent supply chain disruptions and exchanges of researchers and engineers. In his visit to Japan earlier this month, Commissioner Breton even said that Brussels would support Japanese chip manufactures that would operate in the EU bloc.
And obviously, technology: the EU and Japan will further cooperate on submarine cable connectivity, cybersecurity, 5G and, needless to say, AI. Also, a deal to facilitate data flows is expected in autumn, to complement the existing FTA. “More traditional” sectors are not forgotten, though. Agriculture Commissioner Wojciechowski was in Japan to promote EU agri-food exports, accompanied by some of the main European companies in the sector. Regardless of the business you’re in, EU relations with the Rising Sun are a space to watch.
Privacy Shield Chapter 2
Chapter 2 of the EU-US Privacy Shield has finally gone live. This time, we’re hoping for a different, more positive outcome. The EU-US Data Privacy Framework is now in place, promising a seamless flow of data across the Atlantic.
On July 10, the Commission made its crucial adequacy decision, recognising the US as one of the countries with adequate data protection for Europeans. Plus, the effort the US government took ahead of the decision did not go unnoticed. In particular: the publication of updated intelligence community policies and procedures; the designation of the EU and three additional countries in the European Economic Area (EEA) as “qualifying states” needed to implement key features of President Biden’s October 2022 Executive Order.
Industry associations like DIGITALEUROPE, AmCham EU, and ITI have applauded this move. The EU countries are on board too, with 24 capitals in favour. More details can be found in this concise info note by the European Data Protection Board, covering the impact on transfers, redress mechanisms, and the new security redress system. Isl it finally be time for stability and trust in EU-US data transfers? Companies like Meta would surely want to think so, considering the recent €1.2 billion fine over its data transfer practices, which we wrote about here.
The EU can still strike (and approve) trade deals. New Zealand signed
The EU found a new partner in the trade playground after the signing the FTA with New Zealand on July 9. Bilateral trade is currently worth €9.1 billion, and the deal should boost it by 30%, while EU investment into New Zealand has a potential to grow by up to 80%. EU manufacturers stand to gain from the elimination of tariffs, and farmers, while critical of foreign competition, should benefit from more protection of geographical indications.
We’re not talking about a massive trade deal, but you have to start somewhere after years of stalemate in the EU’s FTA talks and ratifications. This deal also reflects the EU ambition of “greening” trade, as it contemplates sanctions in case one of the parties doesn’t comply with the new sustainability standards.
And there’s more: New Zealand entered Horizon Europe, the EU’s €95.5 billion programme for R&D. New Zealand’s researchers and organisations can now access projects and funds in areas like climate, mobility and health on equal footing with EU entities.
Now, the FTA has to be ratified by the European Parliament and EU Member States in order to enter into force, a process that shouldn’t raise too much controversy. However, the road remains steeper with countries that have different views on sustainability or a bigger negotiating weight, as we’re seeing with Mercosur and Australia. But let’s parkthat until after the summer.
Summer break on the Horizon
Contradicting reports swirl around the long-awaited agreement on the UK’s participation in Horizon Europe. PM Sunak and President von der Leyen were allegedly close to clinching the deal after resuming the talks post-Windsor framework, but these slowed down because of contentious British contributions.
As one of top collaborators in the previous Horizon scheme, the UK was set to become an associate member of the Horizon Europe programme back in 2020. The £2 billion annual contribution was negotiated as part of the Brexit deal, but the ratification never came to fruition due to squabbles over Northern Ireland.
Since the programme is budgeted at €95.5 billion for 2021-2027 period and the UK would join with a three-year delay, PM Sunak is trying to secure rebates. But the scientific community is tired of the “good value for money” conversation; the prolonged uncertainty is a much bigger problem considering the long-drawn-out nature of research projects.
Even with Pioneer, its £14.6 billion alternative domestic research scheme, the UK is making little headway. But the EU-UK tensions pale in comparison to what’s on the horizon – Europe’s struggle to keep up with the US and China on innovation. The finish line looks as long as the summer vacation for now.
Mitigating the IRA: EU-US talks on critical minerals
EU-US negotiations on critical raw materials (CRM) are officially about to start. On July 20, the Member States gave a green light to the Commission’s mandate. As you may remember (here), it all started with the Inflation Reduction Act (IRA). If the EU secures this mini-deal, it would be recognised as a US trade partner for the purpose of the green tax credits. EU mining and chemicals companies supplying US battery manufacturers would then qualify for a part of the IRA incentives.
More in detail, these negotiations aim at strengthening trade flows of CRM, as well as to improve sustainability standards. However, EU diplomats don’t expect a quick conclusion. Brussels wants to include all 50 minerals covered under the IRA, while the US wants a more limited scope, ever mindful of privileging domestic production. Furthermore, the EU is dissatisfied with how Washington wants to interpret the national security exception, as it could lead to trade restrictions.
On our radar.
13 Jul I Dear Commission, please don’t keep us out of the Trade and Technology Council. The European Ombudsman Emily O’Reilly sent a letter to President von der Leyen asking for more transparency on the works of the EU-US TTC. Higher involvement of private actors is also much needed.
7 Sep I BritCham is hosting a discussion with Gareth Davies, Permanent Secretary of the UK Department for Business and Trade on the priorities of the department and UK trade policy following the February government reshuffle.
19-20 Sep I The Economist will bring its Global Trade and Supply Chains Summit to Dubai, which will cover anything from diversifying supply chains away from China, to managing data in digital trade.
4 Oct I Back to school trade conversation with Trade Commissioner Dombrovskis at Friends of Europe.
25 Oct I European Ombudsman Emily O’Reilly will moderate #BrusselsCalling debate on changing of the EU institutional guard, starring Henry Foy (Financial Times), Lisa O’Carroll (Guardian) and Stanley Pignal (Economist).
What we’re reading.
Former White House adviser Jennifer Harris gives her insights on critical minerals supplies. Much needed and much scarce. Buyers (US, EU, Japan) should provide concrete incentives to exporting countries to boost their mining sectors. Everything from EVs to solar panels depends from international cooperation.
Do you want to bring back production from China and ensure well-paid jobs in the West? Nice idea, but you have to know that we simply don’t have enough workers. This editorial explains labour shortages in the West and the difficulties to achieve economic security.
Global subsidies races may be just at the beginning. And they won’t be nice for the global economy. WTO Deputy Director-General Anabel González explains why.
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