Between the elections and the EURO Cup, trade policy may have fallen off the radar. We don’t know yet who’ll be the next Trade Commissioner, but we can be sure it’ll remain a palatable portfolio. Maybe not for FTAs, as much as for trade defence responsibilities, where the new duties on Chinese electric cars stand out. As the dispute unfolds, we take a look at German Minister Habeck’s trip to Beijing.
Meanwhile, as the EU’s anti-deforestation rules loom, industries and governments are intensifying their lobbying. Finally, some barriers fall on trade in critical minerals, and rise on frozen fries.
One Big Thing.
Habeck on peace mission in China
De-escalating a looming trade war over the European Commission’s decision to impose tariffs on Chinese electric cars was high on the agenda of the German vice-chancellor’s first trip to China. And for good reason: Berlin fears reprisals for its automakers which are heavily invested in China and hence a further deterioration of its economy.
Robert Habeck’s conciliatory tone fell on fertile ground: while Beijing called the Commission’s measure “punitive tariffs” and “absurd”, he explained that these are necessary to compensate for China’s subsidies. At the same time, Habeck emphasised that the EU’s approach opens the possibility of defusing the situation through negotiations.
While the mandate to conduct negotiations lays with the Commission, Habeck clearly knew how to leverage his role as the economy minister of Europe’s largest economy – and prevent trade tensions from escalating further. This approach made the breakthrough possible: during his trip, China and the Commission agreed to start consultations on the problematic duties. Asked about the possible compromises in the upcoming negotiations, Habeck expressed optimism, provided that China makes proposals to address the EU’s concerns in the coming weeks.
Meanwhile, BYD, the leading Chinese EV producer, continues to demonstrate its European ambitions as official partner of EUFA EURO 2024. One can even say that they are the winners of the Euros as searches of its cars are soaring.
The Take: The story tells a lot about the EU conundrum. The duties on EVs can support the domestic industry, but will drive up prices on a key ingredient for the green transition… while EU countries provide incentives for their purchase.
The Next: Two things to watch: the new EU-China consultations to see if an accommodation is possible and the preparation to the Council vote in November to decide whether the duties will be permanent.
The Plus: Regardless of the outcome of the tariffs dispute, Europe will remain a key market for Chinese e-cars or at least of their investments in the sector. Hungary, already the top EU destination of Chinese FDI in EVs, could be an entry for China to continue selling in the EU without paying duties.
Second in line.
Dear Commission, can we talk about the Deforestation Regulation?
Not a day passes without an industry, a third country, or even a Member State writing to the Commission to reconsider the anti-deforestation regulation (EUDR). Recap: the regulation aims at preventing deforestation-related products from accessing the EU. It covers seven commodities – cattle, wood, cocoa, soy, palm oil, coffee and rubber – as well as some of their derived products – such as leather, chocolate, tyres and furniture. Companies placing such goods on the EU market must demonstrate, through comprehensive tracking of their source, that the goods did not originate from deforestation.
The EUDR becomes applicable from January 2025, but essential ingredients for implementation and compliance are still missing. The Commission has yet to adopt: classification of countries by their risks of deforestation, guidance to clarify compliance, an information system for the upload of companies’ due diligence statements. Dozens of business associations, from agri-food to wood industry, are alarmed by the delay. On the other side, environmental NGOs wants the regulation to maintain its integrity.
Lobbying is also intense from Member States and third countries. Pressed by their farmers, agriculture ministers of 20 EU countries are even asking to postpone the application of the regulation, although environment ministers within the same governments are not of the same view. Criticism of the legislation is also strong in commodity-rich countries, like Indonesia and the Mercosur countries, adding to the stalemate of certain FTA negotiations. Now the US joined these calls for postponement, as it is worried about national producers of timber, pulp and cocoa. The Commission has always ruled out this scenario, but will it resist?
Frozen fry tariffs freezing out EU-Colombia trade relations
The Commission is not digesting Colombian tariffs on Belgian, German, and Dutch frozen fry imports easily. It is now putting a formal compliance request to the WTO, arguing that Colombia did not conform to the rulings by the WTO Panel and Appeal Arbitrators in November 2023. More specifically, Brussels is claiming that Bogota made up the dumping margins by using methodologies not compliant with the WTO standards.
The beef between the EU and Colombia dates back to 2018, when the latter slammed the three Member States with anti-dumping duties of 3% to 8%, which affected 85% of EU frozen fry exports to Colombia. The exports, valued at €23 million in 2016, remained stable and even later increased, as other EU countries not subjected to duties stepped in.
Now, the parties have 15 days to talk it out – if the discussions leave a bad taste in the negotiators’ mouths, the EU may ask to set up a WTO compliance panel. This is not the Commission’s first rodeo – the EU has previously challenged US anti-dumping measures against Spanish olives at the WTO.
EU-Australia on critical minerals: mini-deal is better than no deal
Shortly before the finish line of this Commission, the EU signed a Memorandum of Understanding with Australia for cooperation on strategic minerals. The partnership involves integration of supply chains, R&D projects, and standards convergence. This responds to the EU’s hunger for these minerals for the green and digital transitions, and Australia’s need for investment to boost its sector. Over the next six months, Brussels and Canberra will outline concrete actions to operationalise this partnership.
Companies invested in EU-Australia business can have some consolation, after the failure of negotiations for a comprehensive trade agreement. This follows the trend of so-called “mini-deals”. Where a comprehensive, classical FTA is too hard to reach, an ad-hoc partnership on specific areas, typically related to the twin transitions, becomes more practical. During this mandate, the Commission has signed similar arrangements with countries with high reserves of minerals or clean energy potential, like Canada, Ukraine, Kazakhstan, Namibia, Argentina, Chile.
14th sanctions package: what’s new for EU companies’ compliance
This week Member States approved the 14th package of sanctions against Russia, following over a month of intense debates and the opposition of Germany and Hungary. The package tightens export controls to additional 61 entities, responsible for supporting Russia’s military, including some in China, Kazakhstan, Kyrgyzstan, Türkiye, and the UAE. First the first time, there are measures against Russian LNG, as EU ports will be forbidden from re-exporting it to third countries.
New restrictions cover items aiding Russia’s defense, such as machine tools and all-terrain vehicles, and goods supporting its industrial capabilities, like chemicals, plastics, and electrical equipment. EU import limits on Russian helium, a significant revenue source for Moscow, are also tightened.
To prevent circumvention, EU parent companies will have to ensure subsidiaries comply. EU operators must implement due diligence to prevent the re-export of battlefield goods to Russia and include clauses in contracts to prevent third-country partners from using industrial know-how for Russian military purposes.
Over on X: We co-hosted a panel with the European Australian Business Council and our SEC Newgate Australia partners on the EU elections.
On our radar.
26-28 June | The WTO is hosting 2024 Global Review of Aid for Trade to discuss what more can be done to support the greater integration of developing economies into global trade. The discussions will focus on three main themes – food security, digital connectivity and mainstreaming trade.
16 July | In the framework of the Italian G7 Presidency, B7 Italy is organising a stakeholder conference to address rising protectionism, discuss how to enhance the resilience of global value chains and restore a positive multilateral agenda by prioritising cooperation.
16-19 July | Fresh batch of MEPs will join the first Plenary session of the new mandate, when they will elect a President, vice-presidents and quaestors, as well as decide on how many Members will sit in each committee.
What we’re reading.
While we scratch our heads about the identity of the next Trade Commissioner, Chancellor Scholz has a clear idea of the direction the next Commission should take: FTAs, FTAs, FTAs. Speaking at BDI, the German business association, he said the Commission should shift to trade deals that only require the vote of the EU institutions, instead of the one of the 27 national parliaments.
With EU-Indonesia FTA talks proceeding, you may want to take a look at this European Parliament’s infographic on bilateral trade flows. EU’s main exports are mechanical appliances and electrical equipment, while for Indonesia is agri-food.
Not protectionism, but partnership and promotion are the ingredients for the EU to close the gap in critical technologies. DigitalEurope’s new study recommends more dialogue with partner countries, common EU procurement, and tax incentives to boost technologies like AI and microelectronics, while trade defence only as last resort.
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