From Canada to Cambodia, two Court rulings put a spoke in EU trade policy’s wheels: a CJEU ruling hinders rice imports from the Asian kingdom, as the Irish Supreme Court further endangers the sluggish CETA ratification. The EU continues its trade arms race, with regulations against economic coercion and foreign subsidies proceeding swiftly. Meanwhile, the geopolitical Commission danced alone at G20 and COP27, but signed partnerships on raw materials. Welcome back to Trade Views, your guide to Brussels’ trade policy.

One Big Thing.

Objection – to trade – Your Honour!

From Canada to Cambodia, Justice’s gavel has delivered two blows to EU trade policy, raising the eyebrows of European policymakers and businesses alike.

On 9 November, the Court of Justice of the EU (CJEU) annulled the 2019 implementing regulation that applied safeguard measures against Cambodia and Myanmar in the form of duties on rice imports. The CJEU’s General Court ruled for the Kingdom of Cambodia and its Rice Federation (CRF) against the European Commission, supported by Italy and its “Ente Nazionale Risi”, finding shortcomings in the EU investigation underpinning the measure, which thus violated the Generalised Scheme of Preferences (GSP) benefitting Cambodia.

The judgment already spurred the European farmers’ reaction, and more importantly may inform the ongoing revision of the EU’s GSP system. A constitutional uppercut followed this slap, as only two days later the Irish Supreme Court ruled that Dublin cannot ratify CETA unless it amends its own legislation. The reason: according to the judges the (in)famous Investment Court System – left out from provisional application of the EU-Canada agreement after prompting a CJEU judgment and forcing the Commission to split following agreements – would “breach the judicial sovereignty of the State”.  

The judgment puts the Irish government on the spot. The case was brought by a member of the ruling coalition, a Green MP. And it may force Dublin to navigate uncharted waters, choosing between an undesired legislative quest to amend Ireland’s Arbitration Act and an even less predictable referendum on the matter.  

The Take: The EU is – perhaps first and foremost – a creature of law. As such, Courts will often have the last word on what the EU and its institutions can or should do. Policymakers and business should thus never forget how litigation can (re)shape trade policy.  

The Next: The Council, who is lagging Parliament and struggling to find a position on GSP reform (mainly as some wish to tie tariff preferences to migration), may want to use the judgment to ensure the renewed system works for EU businesses and international partners alike. 

The Plus: The Council has recently called on the European Commission to step up its game on FTA’s conclusion and ratification – but the Irish judgment is a reminder that Member States and their politics are the real Western Front of trade liberalisation.   

Second in line.  

A defensive autumn for EU trade

November is crunch time for the EU’s trade defence legislation, as anti-coercion heads towards trialogues and foreign subsidies towards approval. On 16 November, Member States found an agreement on the Council position on the anti-coercion instrument (our recap), the regulation that will empower the Commission to react to economic bullying from third countries (read China). Now negotiations with the Parliament will start. Member States have long debated how much power the Commission should be allowed to have. Pro-trade capitals, fearing that a broad instrument could lead to trade escalations,  wanted to narrow down the range of countermeasures the EU can take to react to coercion – although the list remains long, from duties to investment and procurement restrictions. As part of this same effort to level the playing field (read: counter China), on 10 November the Parliament approved the foreign subsidies regulation. Have you received a subsidy from a third country? Are you involved in M&A or a joint venture? Participating in public procurement? You need to follow this. Approval by Member States is expected before the end of the year. Prepare for notification obligations, tracking your suppliers’ relations with the public sector and more treats. Also, watch out for the Commission: unprecedented enforcement powers, starting from a big implementing act coming in early 2023. 

High-Energy kids require effort

The Commission may feel frustrated by its disobedient members. Several EU signatories signalled that they might prefer to leave the Energy Charter Treaty (ECT) rather than renew it, thus depriving the Commission of a mandate to negotiate the ECT renewal. Why does this matter? The ECT provides a legal framework for cross-border energy investments and is the world’s most frequently used investment treaty. Members include countries from all over the world, but the primary focus is on East-West energy cooperation on fossil fuels. The Commission had long wanted to reform the ECT to escape its investment dispute resolution system. And back in June 2022, signatories decided to update rules to reflect climate goals and the commitment to the green transition. A provisionalagreement on a modernised ECT, including new energy sources such as hydrogen or synthetic fuels as well as more flexible provisions, was meant to be adopted on 22 November. But the Commission plans to drop the renewal and let the treaty fight another day. Meanwhile, signatories who want to pull out will have to reckon with a 20-year sunset clause, ensuring protection for investment for twenty years after withdrawal.

Dancing with wolves: EU climate waltz 

Last week, global leaders had a chance to fill their vitamin D reserves in Egypt and Bali, as they attended the COP27 and G20 summits respectively. Everyone did what they do best: the WTO and the IMF spearheaded the message of free trade, while COP27 attendees took naps. While a snooze fest for some, European Commission EVP Frans Timmermans was very much awake and reeling at a deal to fund climate damages suffered by vulnerable nations. The agreement does not seek to push China and other emerging markets to cut their emission reductions, nor will it include them in the funder base scope. The EU’s failure to engage the rising powers has been a red thread connecting COP27 and the G20.The faltering relationship between the EU and China was on full display, crumbling under the pressure of President Xi’s 1:1 manoeuvring with France, Spain, the Netherlands and Italy, and scrapping his meeting with European Council President Charles Michel. Michel and Commission President von der Leyen had more luck with Australia, at the meeting with PM Anthony Albanese at the margins of G20. The EU and Australia are not in the ‘making friendship bracelets’ territory just yet, but the conclusion of trade agreement is high on the agenda, alongside common ground on climate change, the Indo-Pacific and of course Ukraine. For the EU’s allies, there may be light at the end of the tunnel of open strategic autonomy.

More raw materials on the EU trade menu

The Commission was working its magic on the sidelines of COP27, though not exactly on the greenest of topics, as President von der Leyen signed cooperation deals with Kazakhstan and Namibia for the supply of raw materials and hydrogen. In exchange, the EU offers investments and closer trade ties via their inclusion in the Global Gateway, the EU infrastructure plan for Africa and Asia. This fits into the EU’s attempts to secure inputs for its energy transition, as well as to find new partners and distance itself from Russia and China. It is no accident that High Representative for Foreign Affairs Borrell travelled to Central Asia on 17 and 18 November, making little reference to the political situation of either country (not even a congratulation for Kazakh President’s re-election with over 80% of the vote – no, it’s not a typo). Borrell stressed instead the opportunities that would stem from higher engagement in the region. Australia might be next in the list – its FTA negotiations are proceeding and Canberra’s position as mineral powerhouse is appealing to Brussels. Can we expect some stabilisation of supply chains for European business in the medium term, after a year of endless inflation and disruptions? Time will tell.

On our radar.

24 Nov I In September, the Commission presented the outcomes of the trade defence instruments adopted in 2021. Now, DG TRADE will explain the impact on businesses.    

24 Nov I Interested in policy cooperation between the EU and Gulf countries? The Commission will present the latest initiatives in the framework of the GCC.

24 Nov I 7th Regional Forum of the Union for the Mediterranean in Barcelona, gathering EU Foreign Ministers and Borrell.

25 Nov I Foreign Affairs Council on Trade focuses on WTO reform and preparations for its MC13.

28 Nov I Trilogues on the Anti-Coercion Instrument set to kick-off. 

30 Nov I INTA meeting has a dense agenda, featuring points on the EU-US TTC, the business environment for European companies in China, raw materials, Chips Act, Taiwan and more.

What we’re reading.

The FT’s Alan Beattie calls on free trade to do more on climate and how a more functional relations of environmentalists and free-traders could help the planet.

The EU-US quarrel over EV subsidies remains heated, as we explained in the last weeks. The FT shows the EU concerns of a green “investment exodus” in favour of the US.

ECIPE reflects on the EU’s pursuit of “open strategic autonomy” and the related contradictions.

Business sentiment drops amid soaring energy costs and trade uncertainties, BusinessEurope warns.

More of a rival or partner? German Marshall Fund takes stock on Chancellor Scholz’s much debated visit to China. 

Still have questions? Drop a message.   

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