EU and US leaders gathered in Leuven for the TTC. Along with AI, 6G and legacy chips, the key discussion was probably how to make the TTC survive the upcoming electoral cycle. Meantime, the European Commission is starting to enjoy using the Foreign Subsidies Regulation, and restarts talking about an FTA with the Philippines. Critical minerals and a €6 billion trade boost are on the table.
One Big Thing.
A few Easter surprises at pre-electoral TTC 💻
Leuven, town of universities, startups, Stella Artois… and high-level ministerial summits. This time, the EU-US Trade and Technology Council, in its 6th ministerial edition, took place on our home turf on April 4-5. Consistently with the timing, a few surprises were delivered by the Easter meeting. Again, more in the tech than in trade space. The priority for EU-US official is to continue coordination on rule-making on critical technologies. On AI, there will be formal cooperation between the EU’s AI office and the US Safety Institute. Under a new “6G vision”, there will be a boost in joint R&D.
Semiconductors remained the main topic on the supply chain table. The EU and the US decided to extend the existing administrative arrangements to share information on supply chain disruptions and the respective subsidies. Legacy chips is the next trending topic, a sector where China holds 1/3 of global capacity. The EU and the US are surveying enterprises to assess their dependences, and could decide to join forces in the future.
Then, economic security. With the EU working on a review of FDI screening rules, the EU and the US will share best practices to help screening authorities. On outbound investment screening, an area the US is starting to regulate while in the EU this is a taboo. The parties will simply continue exchanging on security risks.
As the last TTC before elections in the EU and the US, there was much talk on how to pass this platform to the next political cycle. Transatlantic relations could be harder with Trump II, but workstream is likely to continue at least on technical level, especially on critical technologies.
The Take: As usual, China loomed large in the joint statement as the key trade and security challenge, and especially regarding the development of critical technologies and the deployment of infrastructures. It is worth noticing that the EU and the US praised decision of certain third countries “towards trusted ICT ecosystems,” like Costa Rica in cutting off Huawei.
The Next: Still no deal on critical minerals for electric vehicles – a priority for EU manufactures that hope to qualify for some of the IRA tax credits. Yet, the EU and US announced Mineral Security Partnership Forum to boost cooperation with mineral-rich countries.
The Plus: The location wasn’t an accident, as Leuven is the seat of imec, leading R&D centre for semiconductors – a quintessential TTC topic.
Second in line.
Gone with the (Foreign Subsidies) wind 🍃
Once it started using its brand new anti-subsidies tool, it’s hard for the Commission to stop. After a probe into Chinese train-makers in a Bulgarian tender (which resulted in the company’s withdrawal), the Commission announced further investigations in a week span under the Foreign Subsidies Regulation. The new Directorate in DG COMP will scrutinise one Romanian and one Chinese company that could have received financing from Beijing and are participating in a tender for a photovoltaic park in Romania. Then, EVP and Competition Commissioner Margrethe Vestager announced a wider probe into the wind sector, which it will deal with Chinese manufacturers of wind turbines in 5 countries, looking into procurement races and companies’ deals that could have been distorted by Chinese subsidies. Needless to say, the Chinese Chamber of Commerce reacted with outrage, while the European wind sector cheered.
Importantly, these operations differ from the one on Chinese electric vehicle, which is a classical investigation under standard trade defence rules. What they have in common is the Commission’s growing effort to the (not easy) goal to increase the EU’s manufacturing of green technologies.
New addition to the EU pipeline of Indo-Pacific trade talks 🇵🇭
Following the “scoping exercise” which started last summer, the EU and the Philippines have just reopened talks for an FTA. Negotiations had started in 2015 but they were frozen soon after because of the human rights situations in the archipelago. Another piece is added to the jigsaw of EU trade negotiations in the Indo-Pacific, further proving the importance of the region in Brussels’ trade diversification efforts. In particular, Manila has significant reserves of critical raw materials (mainly nickel and copper), which the EU needs for manufacturing green technologies. Investment promotion and digital trade are other spaces of interest.
The Commission estimates that the FTA would enhance bilateral trade by up to €6 billion. The Philippines is dynamic economy of 115 million people, and should soon reach the upper middle-income status. An FTA would be great news, but it would imply the loss of GSP+ benefits in exporting to the EU (we explained here). This makes it particularly important for Manila to reach a trade deal, in order to preserve low-tariff access to the EU market.
We could expect an easier track than negotiations with Indonesia or India, but nothing is certain in trade diplomacy. Sustainability standards and quotas for agri-food imports can be familiar stumbling blocks.
White flag on grain and not much else 🌾
Last week, the Council agreed to implement stricter EU import controls on Ukrainian agri-food products after significant efforts from a coalition of EU border countries (led by Poland, but also including non-frontline countries like France) to end trade liberalisation with Ukraine.
Good news: the rules allowing duty- and quota-free trade flows from Ukraine have been extended for another year (so called Trade Autonomous Measures). Caveat: the “reinforced safeguard measures” will take the shape of an emergency brake which will be automatically triggered for poultry, eggs, sugar, oats, groats, maize, and honey, but notably doesn’t cover grain.
In short, if imports of these products are larger than the average import volumes in the second half of 2021 and all of 2022 and 2023, tariffs will be re-imposed. This move has not been welcomed by Ukrainian farmers, who are looking at a potential €330 million cost to their economy under the new terms. Next steps – the agreement is to be ratified by the European Parliament plenary the week of April 22.
In the meantime, Poland, Slovakia and Hungary are not budging on their unilateral trade measures introduced last year. In fact, Budapest just announced tighter controls on agri-food imports to better uphold the ban on Ukrainian products. The WTO case put forward by Ukraine against the three rebel countries remains at a standstill, as well, but watch this space.
The twin sustainable trade files close to the finish line 🏭
The Belgian Presidency achieved what seemed to be impossible: a compromise between EU governments on the Corporate Sustainability Due Diligence Directive. To convince reluctant countries (like Germany, France, Italy and some of the Nordics), the scope of the legislation was narrowed. It will apply to companies of over 1000 employees, instead of the original 500, and with a turnover of more than €450 million, instead of the original €150 million.
The general text remained the same. Companies will have to implement due diligence policies to mitigate their social and environmental impacts, and to adopt a transition plan to make their business model compatible with the Paris Agreement of a global warming limit of 1.5°C.
After the Council agreement, the text was swiftly approved on March 19 by the Legal Affairs Committee of the European Parliament. In spite of the narrower scope of the Directive, the rapporteur Lara Wolters (S&D, Netherlands) showed enthusiasm, anticipating a swift adoption in the plenary of April 24. However, some NGOs have criticised the result, which in their view is a diluted compromise, while others reinforced that this agreement is better than none. This latter consideration will probably be shared by MEPs in the plenary, rather than leaving the file to a potentially less favourable legislature.
The debate on Forced Labour Ban, the “twin sustainable trade file”, was instead easier. The plenary vote on the inter-institutional agreement (which we described here) is expected to take place on 22 April.
Despite many setbacks, the EU is setting the path towards a fairer trade. The challenge is now to ensure that regulatory burden will be proportional to these goals.
Over on X Among the many things going on, Chancellor Scholz is in China, walking the tightrope between business and security. Potential material for next TradeViews.
On the radar.
18 Apr IAmid the ongoing Commission’s evaluation of CETA, the EU-Canada trade agreement, DG TRADE will discuss with civil society its economic and sustainability impacts.
18-19 Apr I The German Marshall Fund hosts its annual Brussels Forum. Elections in the EU and the US, rebuilding of Ukraine, future of NATO, de-risking on the agenda.
24 Apr I CEPS and Antwerp University host a conference on the “politics” of trade, an area where civil society and politician’s involvement is increasing. We’ll be there. Reach us out for a chat.
What we’re reading.
The Commission updated its report on state distortions in the Chinese economy. It is of great importance, now that every other day there’s an investigation on Beijing’s trade practices. This study is meant to provide more accurate data EU companies in their complaints against Chinese dumping.
Still in the mood? Global-economy experts of the Kiel Institute published a study on China’s subsidies in green technologies. Chinese subsidies range between 3 to 9 times that of OECD countries. The study focuses mainly on the electric cars industry.
“De-risking” is nice, but it comes with costs. This seems to a central topic in recent debates among EU ministers, Euractiv reports. Some countries have a lot to lose in reducing trade with Beijing. Further integration in the single market becomes even more important to strengthen the EU against external shocks.
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