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But let’s talk about the news. The G7 delivered a fireworks show of unity against economic coercion at the Hiroshima summit. Next week’s EU-US TTC is fast approaching with AI, chips and green vehicles on the agenda. But the real elephant in the room is the issue of EU-US data flows denounced earlier this month by the European Parliament… much to Meta’s alarm and a €1.2bn fine.
Finally, FTAs are in focus: Australia, India, Indonesia and Mercosur are keeping negotiators busy with mixed results. This and more on the May TradeViews edition.
One Big Thing.
Call me by no name
Last week, the G7 met for its 49th summit in Hiroshima, with discussions about AI ethics and a surprise appearance by Ukrainian President Zelensky spicing up the regular economy- and geopolitics-filled agenda. The real twist, however, was the group’s united front on economic coercion, which materialised as a communiqué on Economic Resilience and Economic Security. Without naming Beijing once, it delivered a pointed message, enough to trigger the Chinese Ministry of Foreign Affairs to brand the US as “the real coercer”. The topic should resonate in the EU bubble, as policy-makers have been working on a proposal to strengthen the Commission’s powers in case of economic bullying (more below).
Zoom In: The G7 conceptualised a Coordination Platform on Economic Coercion, meant as an aid for ”collective assessment, preparedness, deterrence and response” to bad economic behaviour. The shape and remit of the body is still hazy though and might need to rely on aggregating existing anti-coercion tools. The G7 countries realise they can’t go at it alone either – the ‘debt trap diplomacy’ that China has subjected the Global South to has popped up as a theme, with European Commission President von der Leyen recognising the need to partner with emerging economies as a way of countering Russia and China.
Zoom Out: Lack of details aside, the strong statement is still considered a watershed moment in the China vs Almost-Everyone-Else debate. The EU and its members have historically trodden carefully around Beijing (though less so after the Lithuania/China spat over Taiwan last year), and the communiqué puts the bloc firmly in the same camp as the US and Japan. This follows a trend set by the EU-US enhanced cooperation on sanctions announced in March, but might draw a lukewarm response from a more China-friendly French President Emmanuel Macron.
The Next: While next steps from the G7 could take a while, the EU is working on its own anti-coercion instrument (to be finalised by the European institutions on June 6), as well as a strategy for economic security to be presented the same month. Both would give the bloc more actionable trade power – think: sanctions, duties and restrictions – against any country guilty of economic meddling. Yet, it’s another sign of fragmentation in global trade, with security considerations gaining the upper hand.
Second in line.
More Tech than Trade in the northern most EU-US Summit
The long-awaited fourth EU-US Trade and Technology Council is just around the corner. What to expect from the tech-trade gathering in Sweden on May 30 and 31? Accordingly to a leaked draft joint statement, there’ll be no be shortage of hot topics. The spotlight will be on AI, especially foundational models like ChatGPT and the potential impact of the EU’s AI Act. The EU and US are also expected to improve coordination to prevent a subsidy race by chip manufacturers. On the other hand, an agreement on green vehicles supposed to mitigate the effect of the IRA looks like a mission impossible. However, it’ll be an occasion to further discuss cooperation on critical raw materials, especially after von der Leyen’s G7 appeal for fair competition on the clean tech race, in which the EU is lagging behind.
Finally, the elephant in the room: data flows. On May 11, the European Parliament approved a nonbinding resolution calling the Commission not to go forward with the EU-US data privacy framework, echoing LIBE’s February sentiments. This is not just a theoretical issue, as demonstrated by the largest fine ever on Meta imposed by the Irish DPC. As the company was found to have violated GDPR during EU-US data transfers, it’ll be forced to suspend those from September. Some questions arise: what will be the consequences for other companies? How will this impact the adequacy decision for the EU-US data framework?
Businesses from both sides of the Atlantic have been asking for concrete results from the TTC. The upcoming ministerial most likely won’t live up to their hopes, but EU-US tech and trade gurus are still in dialogue – and that’s a result in and of itself.
An Indo-Pacific trade look: Australia…
In fits and starts, the EU is continuing its Indo-Pacific trade tour. Next stops, Australia and Indonesia (+ India). EU and Australian diplomats made significant progress at the latest negotiating round in late April. They managed to find an agreement on technical barriers and conformity assessments, digital trade, sanitary and phytosanitary measures. This adds to the chapters that were already closed, including government procurement, competition, telecommunication and professional services. However, the familiar stumbling blocks remain. EU farmers oppose to liberalisation of agri-food trade, while Australian counterparts want to increase their market access (they expect more than their New Zealand colleagues got). Sugar, beef and sheep are the main sensitive sectors and, in parallel that, EU animal welfare groups are pushing for high standards. Geographical Indications (GIs) also loom over negotiations, as EU producers demand that Australia recognises regional products like Prosecco and Parmigiano. That said, optimism remains about the conclusion of the FTA in the summer. The Commission looks at Canberra for support on the EU green transition, both as an energy provider and for its raw material production (especially rare earths and lithium). The EU is trying to find a balance between its energy needs and the push for sustainability in FTAs.
…and Indonesia
Moving westward, the EU and Indonesia have just concluded their 14th round of FTA negotiations. They found an agreement on trade remedies and SMEs, also making progress on intellectual property and investments, but remain divided on core issues. Indonesia has several protectionist measures and is reluctant to open its procurement market to EU companies or to limit state subsidies. Jakarta finds the Commission’s sustainability demands too stringent for Jakarta, with the EU’s new deforestation legislation posing additional concerns for both the FTA and Indonesian palm oil exports at large (we talked about it here). European businesses and NGOs will know more about the state of play of the negotiations after a DG TRADE’s workshop on June 6th. In any case, an FTA under this Commission’s mandate looks highly unlikely.
New episodes in the EU-Mercosur soap opera
The path for the ratification of the EU-Mercosur FTA has hit new obstacles. First, a step back. The parties agreed on the trade deal in 2019, but concerns remained on the European side regarding sustainability standards. The Commission then proposed an additional protocol to address these issues, which hadn’t been welcomed by Mercosur. Further challenges emerged recently. First, the EU institutions are proceeding with the deforestation legislation, which would significantly impact Latin America’s chances of exporting to the EU. Secondly, opposition from NGOs remains staunch, and not just for environmental arguments, but also democratic ones. Criticism emerged against the Commission’s intention to split the deal to facilitate the approval of the pure trade part.
FTA supporters have a couple of reasons to cheer, though. We’re only one month away from the Spanish Presidency of the Council, and Madrid has always been the main advocate for trade relations with Latin America. Secondly, EPP, the largest group in the Parliament recently called for quick ratification of the deal. The German Chancellor, Olaf Scholz, has also renewed the push of Europe’s biggest economy for a swift ratification. The story is tangled, but the chance to create the EU’s largest trade zone makes it worth following.
Protectionist Free Trade Talks
The first EU-India Trade and Technology Council (TTC) took place on 16 May. The talks centered mostly on green and innovative technologies and resilient supply chains. One interesting fact was the EU’s announcement that a focus of the talks was on “global and multilateral issues, with a particular emphasis on the World Trade Organization”. Code for India’s concerns over the Carbon Border Adjustment Mechanism (CBAM). Earlier this year, New Delhi raised the issue of CBAM at the WTO by presenting a paper on non-tariff trade measures. Moreover, they emphasised that minimum residue limits for pesticides in fruit and vegetables also impeded global trade. There is little wonder that the EU business community insists on keeping TTC talks separate from the EU-India Free Trade negotiations. A space to watch as the EU moves to implement its sustainability agenda.
On our radar.
25 May I Big discussions planned for Trade Ministers at tomorrow’s Foreign Affairs Council, with the menu featuring nothing less than trade relations with the US and China.
30 May I EU foreign affairs chief Josep Borrell will take part in a CERRE-hosted discussion on the interplay of digital regulation and geopolitics.
31 May I The EU and US are teaming up for a stakeholder event ahead of the fourth TTC Ministerial Meeting in Luleå, Sweden. EVPs Vestager and Dombrovskis, with Commissioner Breton will bring star power on the EU side, with Blinken, Raimondo and Tai staffing the US side.
7 June I INTA Chair Bernd Lange will share his expertise in a Bruegel talk on the future of EU trade policy in the era of global fragmentation.
14 June I Bruegel stays busy, this time with a chat on EU’s critical raw materials supply – and the trade policy that should follow in order to secure it.
15 June I POLITICO Europe will gather trade experts from its newsroom for a roundtable to discuss, you guessed it, trade.
22 June I The anti-coercion instrument is about to be finalised by the institutions and voted by Parliament and Member States on June 6, with DG TRADE hosting an explanatory workshop on the trade defence tool.
What we’re reading.
Please, EU, trade more – that was a message reiterated by BusinessEurope in its latest policy paper. The EU should progress on the current trade negotiations, promote the WTO multilateral trading system and not abuse export controls for security reasons.
Procurement opportunities from the Commission: DG TRADE opened a tender in the field of sustainable trade policies. The winner will carry out an ex-post evaluation of the impact of EU FTAs on key environmental aspect.
Critical raw materials are everywhere in the public debate, but what are they exactly needed for? Bruegel takes a deep dive into the sector. Conclusion? The EU has several dependencies, but it should tackle them through international partnerships, as domestic measures are not enough.
Nostalgic on the IRA debate? The Peterson Institute recaps this EU-US clash of industrial policies, illustrating the difficulties to cooperate on energy transitions.
Onboard the team.
Brussels veterans looking to make a move will be happy to know that we are still on a hunt for a Government Relations Consultant to deal with all things trade, customs and external relations.
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