Halloween is behind us, but politics keep knocking at trade’s door. Amidst several global pressures, EU-US trade relations remain electric, with French President Macron and German Chancellor Scholz threatening retaliation against the US subsidies on EVs. Lula da Silva’s election in Brazil could finally deliver the EU-Mercosur FTA, but solid hurdles won’t collapseeasily. And the latest UK Prime Minister could bring yet another twist in trade relations with the EU. Welcome to SEC Newgate EU’s Trade Views, your compass in the maze of EU trade policy.
One Big Thing.
Thunder follows lightning in the EU-US EV dilemma
The EU-US quarrel over electric car subsidies continues – and the timing is not great. Less than a month from the Trade and Technology Council (TTC), the EU is pushing back against the US Inflation Reduction Act, accusing Washington of discriminating against European producers and even considering action at the WTO.
Quick recap: Washington adopted a $370 bn package of climate investments including tax credits for purchases of electric cars produced in North America. This angered the EU, which tries to promote its own green car industry but fears losing green tech investments to the US.
Macron and Scholz are thus threatening similar incentives to “buy European”. US Trade Representative Katherine Tai travelled across the Atlantic to participate in the EU trade ministers meeting in Prague on 31 October. She and EU trade supremo Dombrovskis discussed next steps for the TTC, in particular on sustainable trade, and established a Taskforce dedicated to the car dispute. Meanwhile, Brussels might find support from Japan and South Korea, which have also voiced criticism of the US initiative. Top EU and US trade actors have been dialoguing, and should keep doing so: few want a trade spat between allies while the West is decoupling from China and Russia… right? It may be showers before rainbows or full-blown thunderstorms, but dear businesses, there are transatlantic clouds on the horizon.
The Take: The transatlantic business community is in the crossfire of the respective EU and US green transitions. Similar divergences in industrial policy have led to duties and disruptions in the past (like the Airbus-Boeing dispute).Will it be any different this time?
The Next: The issue is likely to dominate discussions ahead of the TTC on 5 December. That’s a pity as businesses keep stressing that it’s crunch time for the forum, which now needs to deliver concrete results.
The Plus: Biden is likely to lose his legislative majority after the midterm elections. EU relations with Biden haven’t always been idyllic, but a republican Congress (or even just the House) could make transatlantic dialogue harder on shared priorities like climate and favour more unilateralism in trade.
Second in line.
Mercosur: Where’s the beef?
Apparently not between Brazil and the EU anymore. The election of Lula da Silva as Brazil’s president could breathe new life into the EU-Mercosur agreement. On the campaign trail, the president-elect said he expects to have the deal in the bag within the first six months of his presidency. Not only that. He wants improved terms from the EU on environmental protection, human rights and technology, according to one senior aide. Looks like they are finally speaking the same language. Maybe. Obstacles remain: beef exports and soybeans remain a problem for the EU and the bloc’s deforestation legislation could hit Brazilian farmers. Is the Mercosur agreement enough of a priority to overcome them? In a recent speech to the European Council, EVP Dombrovskis did not include it among the European Commission priorities for 2023. With the Commission trying to split the approval process to get a quicker ratification in Brussels and let capitals have their word at a later point, Mercosur could however turn out to be one of 2023’s understated success stories.
Ris(h)ing hopes with the UK?
The UK has yet another PM since we last met, drawing unfavourable comparisons with Italy in terms of political stability. What can Brussels expect from Rishi Sunak on trade? Brexiteer from day one, insiders consider him a pragmatist who doesn’t want trade relations to turn sour. The big question remains the Northern Ireland Protocol , the EU-UK agreement preventing a hard border with the Republic of Ireland and setting one between Britain and Northern Ireland. Two cabinets ago, then Prime Minister Boris Johnson had tabled a bill that would unilaterally override the Protocol, much to the EU’s fury. In retaliation, the EU is blocking the UK’s participation in the Horizon Europe research programme, and rubbing salt in the wound, it is even mulling a sanction system in case the UK breaches parts of the post-Brexit deals. Sunak’s approach to this tangle is must-watch viewing for businesses operating across the English Channel – or countries striking international agreements with the UK.
Positive trade news: data with Japan and booming exports under FTAs
While disruptions seem to pop up anywhere and everywhere on the EU radar these days, Japan might have trade opportunities to offer. On 25 October, Brussels and Tokyo held their second High-Level Economic Dialogue to coordinate on key economic issues, including cooperation on sustainable finance, connectivity and energy. This follows the recent launch of negotiations to include data flows in the EU-Japan economic partnership. There is also good news for EU farmers, who managed to export €127 billion worldwide between January and July 2022, a 14% jump to 2021. The increases was registered in mature markets such as the US, Japan and the UK, as well as up-and-coming ones such as Morocco – although trading giant China placed fewer orders for EU agri-food products. There’s more for European exporters and trade buffs: EU exports under Free Trade Agreements (FTAs) reached a record €1 trillion in 2021, while 39 trade barriers were removed, the Commission tells us. Even amid current turmoil, opportunities remain for EU businesses with a global view. Think of how FTAs are facilitating imports of raw materials, essential for the green and digital transitions –and which the EU is currently negotiating with Chile and Australia.
On our radar.
8 Nov I A joint AFET-INTA debate at the European Parliament discusses how to achieve the strategic autonomy and how “open” this should be.
10 Nov I European Parliament vote on the foreign subsidies regulation – stay tuned for all you need to know on this new EU tool.
10 Nov I DG TRADE will host a civil society meeting to provide updates on the October round of EU-Australia FTA talks – looks like things are getting ripe with our antipodean friends.
14 Nov I INTA meeting. On the menu: Corporate Sustainability Due Diligence Directive and DG Sabine Weyand giving the state of play of ongoing trade negotiations.
7-19 Nov I Several conferences organised by DG MOVE are taking place during COP27. Shipping and hydrogen as main interests.
What we’re reading.
Are we in the “de-globalisation” era? Not really: DG TRADE’s Head of Global Regulatory Cooperation and International Procurement Negotiations, the brilliant Lucian Cernat, argues that the numbers tell another story, amid intangible globalisation and growth of European companies engaging in trade.
Relations between Scholz and Macron have been lukewarm, but they seem to be bonding in their criticism of the US incentives on EVs. German Chancellor Scholz justified his trip to Beijing with an oped on the virtue of balancing business with strategic needs. As Romans used to say, excusatio non petita, accusatio manifesta.
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