As we recently passed the third anniversary of Russia’s invasion of Ukraine, the now explicit US disengagement from the Old Continent’s security is making Europeans cooperate like never before – even alongside the Brits. The upcoming wave of Member States’ defence investments, whether under European Commission initiatives or as a “coalition of the willing”, marks an unprecedented shift in the EU. This can also affect trade policy, which we will talk about in future editions.
A trade war has been added on top of the actual one. Yesterday, the Commission announced its reaction to the US tariffs on steel and aluminium. Signature US whisky and motorcycles are in the line of fire again, along with an additional list of US exports worth €18 billion.
While we wait for the fog of the trade war to lift, we talk about digital trade agreements, a “Buy European” retrenchment in procurement, trade talks with India, and auto value chains.
Physical barriers, digital liberalisation
With EU tangible goods set to face significant duties, those that are digitally delivered might be going towards safer waters. The EU and other tech-driven economies are proving serious in concluding Digital Trade Agreements (DTA). Notably, the EU is moving forward with tech-savvy Singapore and South Korea. On Monday, Trade Commissioner Sefcovic announced a DTA with the country of Samsung and LG, which follows that reached with Singapore last July.
There is a strong business case for DTAs, as the EU is the world’s main importer and exporter of digital services, and EU-Singapore trade in digital services amounts to €43 billion. Under a DTA, countries commit to ensure free data flows, and facilitate the provision of digital services and the sales of goods via digital platforms, for example by recognising the validity of electronic contracts and signatures. Of course, the EU also puts a certain emphasis on data privacy and consumer protection, for instance against spam. Crucially, these deals forbid duties on electronic transmissions (like streaming of movies and music, or e-books) and provide protection to source code which is essential for tech multinationals as it constitute their core intellectual property.
This is indeed where EU consumer and privacy associations raise criticism. They argue that DTAs would limit the EU’s “policy space”, namely the chance to enforce the new digital regulations. Adequacy decisions are enough to protect companies’ trade secrets, BEUC claims.
The next: Much like any other trade agreement, DTAs have to be ratified by both the Council and the Parliament. For Singapore, the text could be passed to MEPs in April. Then the European Data Protection Supervisor will give its opinion which could influence decision-making.
Zoom in: EPP, Renew and S&D are generally supportive of DTAs, underlining the business case, while the Greens and the Left are voicing the NGOs concerns.
Zoom out: The EU already has digital provisions in the FTAs with the UK and New Zealand, but they are not as far-reaching as the ones with the two Asian nations. Thailand and the Philippines could be next in the pipeline.
Zero-mile bidders
The EU has recently announced it will introduce a “European preference” criterion for public procurement in strategic sectors. The proposal promises to deliver a concrete advantage to European companies against more competitive companies from third countries (China being the usual suspect). Although no definition for strategic sectors in its new Clean Industrial Deal has been provided, the measure is likely to mainly target the manufacturing of clean technologies.
However, the concrete development of a European preference might be easier said than done. The measure does not appear compliant with the WTO Agreement on Government Procurement (GPA). Under the Agreement, the EU has basically granted companies from the other 21 parties unrestricted access to EU public procurement procedures covering all goods and several services. Moreover, the Union has extended the GPA regime to several non-signatory parties through the conclusion of FTAs, which mirror the agreement’s wording in their text. China will remain the main industrial power to not be covered by either the GPA or an FTA with the EU, as negotiations for FTAs with India and Indonesia have recently resumed.
The Commission will now have to juggle between the need to give EU companies preferential access to public procurement and the GPA provisions. At the moment, the inclusion of objective “resilience” criteria in public procurement procedures to ensure the EU economy’s overall stability seems to be the preferred pick, as underlined by Executive Vice-President Stéphane Séjourné. It remains to be seen, though, how these criteria could be developed to prevent tensions with GPA parties. The announced revision of the Public Procurement Directive will hopefully shed some light on this topic.
Forging a way out: von der Leyen’s steel trilemma
President von der Leyen finds herself caught up in the middle of a tense geopolitical triangle, and must find her way out. After President Trump proposed a 25% tariffs on European steel, among other goods, the Commission President set out to make new friends. On February 28, she met with Indian Prime Minister Narendra Modi to discuss the possibility of signing an FTA within the end of 2025.
But this exotic liaison angered European steel producers, who fear increased competition from Indian imports. To calm things down, von der Leyen met with European steel industry stakeholders and announced that she has tasked EVP Séjourné with presenting an Action Plan by March 19.
Caution will also be needed in finalising the FTA with New Delhi, which has repeatedly expressed its hostility towards certain EU climate policies notably the Carbon Border Adjustment Mechanism (CBAM), aimed at protecting EU energy-intensive industries, like steel, from competition with countries without a carbon tax.
Meantime, the Action Plan will deal with key issues in the €80 billion worth sector, such as promoting clean steel’s competitiveness, tackling unfair trading practices and proposing alternatives to current safeguard measures.
Battered auto industry turns to batteries
Last week, the Commission proposed its Automotive Action Plan, which is supposed to bring European car sector back to life. For now, it’s struggling with competition from China, low demand and a stagnant EV transition (not to mention Trump taking the European car industry hostage in his trade wars with the rest of the world). While the relaxed emissions ban is hogging the headlines, the real star of the show was the initiative to limit the exports of critical raw material waste from batteries outside of Europe for environmental reasons. Indeed, the battery waste – also known as “black mass” – is a treasure trove of secondary raw materials, including copper, nickel, lithium and manganese.
China currently dominates the battery industry, which is crucial for EV production, and the EU is intent on becoming a worthy competitor – starting with €362 million for the EU battery value chain, reformed state aid rules for clean tech manufacturing and minimum local content requirements on battery cells and EV parts. The document teases even more levelling of the playing field with trade instruments – we already wrote about the duties on Chinese EVs last year, and it seems that more is to come. The proposals come just a little late, however, as Swedish battery-maker Northvolt – once the golden standard for the sector – just filed for bankruptcy.
Over on X.
https://x.com/KarinKarlsbro/status/1899717154288611573
The EU is not idle on tariffs – or on X. If even normally pro-trade Swedish MEPs are saying this, something is really shifting.
On our radar.
14 Mar I The European Policy Centre looks into the future of EU-UK relations, in this critical time of trade and security turmoil.
19-20 Mar I Much is on the agenda for the upcoming INTA meetings. Commission officials will discuss the state of play of EU-India trade talks and the trade aspects of the Vision for Agriculture. On top of that, Sefcovic will illustrate the EU response to the US’ trade policy
20 Mar I Great occasion for EU industries to get to know more about the ongoing FTA talks with Indonesia, Thailand and Philippines at this Civil Society Dialogue with DG TRADE’s Indo-Pacific officials.
21 Mar I With all that’s happening with the US, it’s important not to lose track of EU-China relations. BusinessEurope will hold an event to take stock of that.
2 Apr I Deadline to provide feedback on the Foreign Subsidies Regulation, as the Commission is working on critical guidelines. If the FSR is still a compliance nightmare for you, it’s your occasion to ask for clearer rules. BusinessEurope already did that.
What we’re reading.
Sipri report on global arms trade – A new report of the Stockholm International Peace Research Institute, leading organisation in tracking weapon trade, highlights an increase in European imports from the US. Despite the EU’s efforts to reduce dependencies, this won’t happen anytime soon. On the other hand, higher purchases of US military kits is one of the offerings the Commission could make to defuse bilateral trade tensions.
The Participation of Foreign Bidders in EU Public Procurement: Too Much or Too Little? –Crucial question raised by Lucien Cernat, Head of Unit at DG TRADE, as the EU increasingly considers “non-price criteria” in its public procurement to foster decarbonisation and reduce technological dependences. This new report shows an increase in foreign participation in public contracts, but it’s still relatively modest mainly due to low participation rates by foreign bidders, rather than discriminatory practices.
Antonio Pilati, Public Affairs Consultant