No month seems as intense on the trade news front as this one is proving to be. First, we had the set-up of the new European Commission, and we know now who we will have to watch for the trade (and economic security) agenda of the next 5 years. Then, in the span of a couple of days, we had the decision to delay the Deforestation Regulation and the Council’s approval on the duties on Chinese electric cars. In the background: the new tit-for-tat between China and the EU on dairy products, brandy, and vehicle data.
This and more in the latest #TradeViews.
One Big Thing.
More time to study: deforestation exam is delayed
The debate about the kick-off of the new EU anti-deforestation rules is what happens when a professor schedules an exam with an unrealistic timeline and the students beg for more time. The new obligations were supposed to take effect this December, but secondary legislation and guidelines, essential for companies’ compliance, were still missing. Eventually, after months of requests from potential stakeholders (EU governments, non-EU governments, manufacturers, traders, farmers, MEPs, passers-by…), the Commission eventually budged.
On October 2, the Commission announced a one-year postponement, while also publishing the long-awaited guidelines. The proposal will have to be approved by the Council and the Parliament, but this looks a foregone conclusion. Many EU governments, or at least their agriculture ministers (in an interesting convergence between pro-trade and pro-farmer countries) had been asking for a delay. In the Parliament, the EPP and the right will give a certain yes, the Greens and the Left a certain no. S&D and Renew also wanted the Commission to stick to the original timeline, but some MEPs could soften their positions – after all, a socialist premier, German Chancellor Olaf Scholz, is in the postponement camp.
If the delay is approved, the big question is whether there will be appetite to also rediscuss the regulation’s most problematic provisions in the coming year. The Commission will also have more time to talk to stakeholders on the country-risk benchmarking system, with adoption pushed back to June 2025.
Therefore, the delay gives relief to companies that operate across the seven commodities covered by the regulation, especially those that source their inputs from countries where forest traceability is hard. On the other hand, companies that had already started complying are protesting, as they had already made investments to source compliant raw materials. Moreover, environmental NGOs will re-intensify their lobbying to keep the legislation’s stringent obligations.
Zoom in: EUDR’s complex traceability requirements, especially for small farmers in developing countries and the lack of recognition of third countries’ anti-deforestation rules are the main concerns for businesses and farmers, European and third-country.
Zoom out: The postponement can reduce tensions with the countries that would have been most affected by EUDR, especially Brazil and Indonesia, possibly also facilitating the ongoing trade negotiations.
The Plus: The Commission also came forward with a new plan for international cooperation, centered around support for smallholders towards deforestation-free agriculture.
Second in line.
What questions for Maroš?
The configuration of the new Commission, with enigmatic and overlapping portfolios, probably left you scratching your heads. Luckily, the go-to trade person is clear: Slovakia’s Maroš Šefčovič. In his portfolio, Trade and Economic Security are on equal footing, which says a lot about the new Commission mandate. President von Ursula der Leyen is calling for a new economic security doctrine, where protecting the EU economy and critical technologies come before “classical trade”.
The veteran Šefčovič will handle the reform of the FDI screening regulation, promote better coordination with Member States on export control, and, further down the line, open discussions on the screening of outbound investments. Regarding China, the task is (as you know) to de-risk critical supply chains, while Beijing’s growing industrial overcapacity will likely lead to more trade defence investigations. In the scope of “classical trade”, he is tasked with finalising the FTAs under negotiations and exploring the scope for negotiations with new partners. He is also likely to tour the world for deals on raw materials and clean energy, rather than traditional FTAs… too hard to conclude in these times.
The MEPs’ draft questions for the hearings give an idea of the many interests he will have to juggle. Foster trade and investments while tackling unfair competition; revitalise the WTO while strengthening EU strategic autonomy; improve sustainability in supply chains without damaging trade partners; promote relations with the US but stay on an equal footing; defend the Commission’s competences on trade without irritating EU countries.
Unsurprisingly, this requires experience. Formally, Šefčovič loses the Executive Vice-Presidency, which he currently holds as chief of the Green Deal, and will have to report to Industrial Strategy EVP Séjourné – sadly for trade followers, trade is also “downgraded” to a normal portfolio. However, as the most senior Commissioner (15 years in the job) with close contact with President von der Leyen, Šefčovič will have a larger room for manoeuvre than what formality suggests.
Mark your diaries: the EU wastes no time complaining about China’s dairy probe
The EU-China trade relationship has been living in the shadows of the Brussels probe into Chinese electric vehicles (EVs) for a while now. With each new development, more retaliatory measures are brought forward by China – there was cognac and brandy, pork, and in late August Beijing started looking into European dairy, including cheese, milk and cream products. Targeted are EU subsidies in dairy production across Austria, Belgium, Croatia, Czechia, Finland, Ireland, Italy and Romania.
China took action less than 24 hours after the Commission went ahead with its proposal for duties of up to 36.3% on Chinese EVs, on top of the current 10%. This was solidified when, a few weeks later, Commission EVP Valdis Dombrovskis did not budge on the tariffs despite Chinese Commerce Minister Wentao’s hopes for a compromise. Just like with brandy, China is threatening tariffs to find leverage in negotiations, saying yes or no to duties depending on the temperature of the parallel EV talks.
The EU is not out of options, though, as on September 23 it launched a lawsuit against China’s dairy retaliation at the WTO. This is a first for Brussels, which usually waits for the result of an anti-subsidy investigation before taking matters to Geneva. While this takes ages to resolve – or, at least, more than a year – the Member States have already approved the EV duties and are waiting for the Commission’s final adoption on October 30.
Cars have ears – at least the Chinese ones
Spying, surveillance and sabotage: three words that will get any economic-security-crazed EU official excited, and also the reason why Brussels is looking into following Washington’s lead on banning Chinese car tech. The recently announced US block would cover both software and hardware in cars with internet connection, after concerns that Chinese and Russian companies are collecting information on American infrastructure and drivers through exported vehicles.
The Commission is now investigating the risks for Europe – not a new trend if we consider the ongoing fears over Chinese supremacy on key tech like 5G, microchips or EVs. This is not the first time vehicle data is on Commission’s radar, either. Access to vehicle data, functions and resources was proposed in the context of the Data Act as complimentary, sector-specific legislation. Despite progress, the expected adoption in 2023 didn’t happen, with the Commission citing complex legislative process as the reason.
Still, the car data bans (like the US one) can prove to be a double-edged sword for the EU. European carmakers could face issues finding new suppliers for parts used in cars exported to the US – not to mention how big the Chinese market is for European brands. For now, we can expect increased coordination between Brussels and Washington on the matter.
Barriers up, barriers down
As is usual at this time of the year, the Commission showcases what it’s doing to protect the EU market and promote the bloc’s companies on the global trade arena. DG TRADE recently shared the annual reports on Trade Defence Activities and Implementation of Trade Policy.
In 2023, 182 trade defence measures (anti-dumping, anti-subsidy, safeguards) were in place, resulting in the protection of half a million EU jobs. The number of measures increased by a whopping 40% from 2018, which tells a lot about the growing concerns from foreign competition. Unsurprisingly, China remains the primary target of EU trade defence actions, notably in green industries. The Commission also highlights greater attention on tackling cases of circumvention of existing anti-subsidy or anti-dumping duties.
As the other side of the same coin, in its second report, the Commission underlines the removal of 140 trade barriers in third countries in the past five years. More broadly, the volume of EU trade covered by its network of FTAs has grown by 30% since 2018. Unsurprisingly, EU exports to countries with whom there is an FTA in place has increased more than those to other markets.
Over on X: In the last five years, the EU has been trying to win the trade game – and now it turned Valdis Dombrovskis into the main character, it seems.
On our radar.
14 Oct | AmCham and POLITICO Europe are hosting an event on the importance of US elections for Europe.
16 Oct | After Draghi shouted out mid-caps in his report, the EPC will explore how to unlock competitiveness and economic security in line with their full potential.
17 Oct | EURACTIV is holding a conference about Schrödinger’s transatlantic relations ahead of the tight US presidential election.
4-12 Nov | Commission candidates will be grilled by MEPs to reveal the final shape of President von der Leyen’s second College of Commissioners. Survival of the (politically) fittest!
7 Nov | What’s next for the European raw materials industry? Join this EURACTIV stakeholder workshop to find out.
12 Nov | European Parliament Think Tank will gather experts for a policy roundtable to unpack the results of the US elections.
21 Nov | Friends of Europe is organising Europe-China Forum ahead of next year’s 50th anniversary of EU-China diplomatic relations.
What we’re reading.
It is never too late to talk about the Draghi report on EU competitiveness, if it is really going to be the compass for the next Commission. Give a look at our recap on Super Mario’s recipe for trade or, rather, economic security. In this unstable world, EU trade policy needs to keep up by focusing on securing raw materials and reducing technological dependencies.
What is going on with the Chinese economy? The Hinrich foundation provides a great recap of Beijing’s recent policies that are affecting trade and investment. Industrial subsidies, data sovereignty measures, penalties to multinationals are now the key waves for businesses to navigate.
What if Trump is the pro-trade candidate? An out of the chorus article on POLITICO US reminds that most of the former President’s hostile economic actions were eventually meant to strike new deals, like with the update of the US-Mexico-Canada agreement, while for the Biden administration, opening new markets (or allowing access to the US one) couldn’t have been lower on the agenda.
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