Davos mountains inspire talks on (green) industrial policy, as the European Commission reacts to US green subsidies. Unexpected boost to the EU digital and green transitions, as Sweden unearths rare earths. New rules on subsidies kick in, with big implications for businesses receiving any contribution from foreign governments. And Australia comes to Brussels, with its EU FTA talks entering the home straight (see ‘On our radar’ below).
One Big Thing.
State aid reform + EU sovereignty fund = net-zero industry
Davos. What better place to track economic and policy tendencies? And what better place to unveil the EU’s new thinking on subsidies and state aid? Commission President Ursula von der Leyen presented the Net-Zero Industry plan at Davos. It aims at facilitating climate tech investments, in particular wind, heat pumps, solar, clean hydrogen – all highly needed for the Next Generation EU. This would then require an adaptation of rules on state aid, to simplify subsidy procedures in the renewables sector. However, von der Leyen pledged this would be accompanied with common resources, in the form of the European Sovereignty Fund. Indeed, smaller states (but also France and Italy) rushed to stress that a relaxation of state aid rules, without common funds, would benefit whoever has the largest fiscal space, namely Germany (which, by contrast, has recently provided significant energy aids and is reluctant to see new EU facilities). Divergences emerge within the Commission as well: Competition Commissioner Vestager proposes a temporary framework, while Internal Market Chief Breton (echoing the traditional French position) wants a long-term industrial policy. Opening the Pandora’s box of competition rules is always highly controversial.
The Take: Simplification of state aid rules would be a bonanza for climate tech companies. Even more so if it went with a potential global “subsidy race” (take for example Vestager’s emphasis on “anti-relocation investment aid”)… as long as it doesn’t backfire in trade disputes.
The Next: It will be important to see Washington’s reaction, as the EU plan is also a response to the US green subsidies. So far, US Trade boss Katherine Tai seemed fine with the EU plan (she had previously invited Brussels to do the same and subsidise, instead of criticising the US).
Trade 3: von der Leyen added a few pro-trade inputs, stressing the importance of trade for strong supply chains. She showed commitment to concluding the FTAs with Mexico, Chile, New Zealand and Australia (relevant suppliers of critical materials, as we said). Not the case for China, with the EU familiar calls for a level playing field.
Second in line.
Still in subsidies mood: Regulation on foreign subsidies ready to strike
Have you received a subsidy from a third country? Are you involved in M&A or a joint venture? Participating in public procurement? The new rules on foreign subsidies are ready to bite, as of January 12. The regulation is meant to put restrictions on state-supported foreign companies which operate in the EU market (we already talked about it). It was designed with Beijing in mind, to prevent Chinese companies from buying or outbidding European ones, particularly in key infrastructures. But no country can feel safe: the US with their roaring green subsidies, or the UK as it relaxes state aid rules for its post-Brexit competitiveness.
Be prepared for new notification obligations: if you receive a foreign subsidy and participate in concentration with a turnover higher than €500 million, or if you bid for a procurement tender worth more than €250 million. Plus, the Commission is even allowed to launch investigations on its own. If it finds that a subsidy is distortive for the market, it can even stop an acquisition or the award of a procurement contract. So, huge enforcement powers for DG COMP, which will clarify these in a soon-to-come implementing act, to be published with an example of notification form. Have something to say to the Commission and its competition authorities? You’ll have the chance in a 4-weeks consultation. And we can support you in that.
Better than gold: rare earths in Sweden
Sweden has just discovered large reserves of rare earths, and it’s a big deal for Europe’s energy security. Rare earths are essential for producing tech such as wind turbines and electric cars and until now, Europe has been heavily dependent on imports, mainly from China. This discovery could reduce Europe’s dependence on foreign sources, but it could also shift the balance of power for rare earths – it’s no secret that China has been accused of using its dominant position in the market as a political tool. Others are less optimistic; Tobias Gehrke of European Council on Foreign Relations mentioned at an event on the geoeconomics of critical raw materials – we were there – that finding reserves is one thing, but getting them out of the ground amidst an ecologically conscious voter base and vocal NGOs is an uphill battle. In any case, exciting times are ahead, with an opportunity for Sweden to become a leader in clean energy production if it plays its cards right.
Northern Ireland Protocol in retrograde
Brexit will not go down in history as the most amicable of separations, and the ongoing negotiations over the Northern Ireland protocol are not an exception. Irish Minister for Foreign Affairs Micheál Martin recently remarked that both sides of the divorce (aka, the UK and EU negotiators) should be given more space to reach a deal, which would ideally come on 25 April – the anniversary of the Good Friday Agreement. With Irish Sinn Féin shunning a meeting with the UK over exclusion of its party leader and DUP refusing to enter power-sharing in NI over unmet protocol demands, this could prove challenging.
Trading for climate
Big things have small beginnings, to paraphrase the good book. Last week, in the margins of the WEF, trade ministers from the EU, New Zealand, Ecuador and Kenya launched the ‘Coalition of Trade Ministers on Climate‘ which is a ministerial discussion forum aimed at finding ways forward for sustainable trade. To the Brussels bubble, this shouldn’t be new. The Commission has long sought to place sustainable development at the heart of its trade policy, but the novelty here is that it is trying to form a global coalition in support of this approach. So far, 27 countries who contribute input across global supply chains have signed up. This development also signals the Commission’s intent to give further weight to the trade and sustainable development chapters possibly leading to an increased space for civil society organisations in the global supply chains. A space to watch going forward.
Spanish olives still off the US menu
Trump’s America First approach to trade is still making waves in 2023, with black olives as the centrepiece of EU-US discontent this time around. It’s been five years since the previous US administration imposed 35% tariffs on Spanish olives, quoting EU’s generous subsidies under CAP as a reason. However, a WTO ruling last year made it clear that the duties did not align with the rules of international trade – still, the US did not budge. Almost €70 million loss in black olive exports later, intense (and costly) litigation from Spanish farmers continues, but so do the fears that US dismissal of the WTO ruling can set a dangerous precedent for other top European exports, especially those supported by CAP.
On our radar.
25 Jan I Britcham hosts a conversation with Pascal Smet, State Secretary of Brussels Capital region, on how the city can be a hub for international business.
31 Jan I Interested in EU-Australia affairs? Follow this discussion between Penny Wong, Australian Foreign Minister, and Stefano Sannino, top diplomat at the EU diplomatic service. Keep in mind: trade negotiations are going on.
31 Jan I Still in Indo-Pacific mood? This CEPS event on EU – AU cooperation on climate and energy might suit you, with the keynote address by Chris Bowen , Australian Minister for Climate Change and Energy.
[Other Australians in town at the moment include Jason Collins, CEO at the European Australian Business Council, and Ryan Heath, the original Brussels Playbook pen and now Editorial Director, Global Growth at POLITICO in the US.]
31 Jan I Are you an agri-food company interested in exporting to Japan? That’s the deadline to apply to join the EU business delegation to Japan in July.
14 Feb I Bruegel discusses the future of supply chains.
May I David Taylor, New Zealand’s immediate past ambassador to the EU, who was known in Brussels for his fine kiwi hospitality, is returning to Europe as Wellington’s envoy to Sweden with accreditations to Norway, Finland, Denmark and Iceland.
What we’re reading.
High Representative Borrell sent his congratulations for Lula’s inauguration as President of Brazil. He called for “reenergising” the Brasilia-Brussels partnership – needless to say, the FTA with Mercosur is seen as essential for that.
Back in December, the WTO judged Trump’s duties on steel as a violation on trade rules. Washington’s reaction shows a certain continuity between Biden and Trump trade policies.
A Carnegie article offers an outlook on the ongoing economic divergences between the EU and the US: “Working together on security while fending off for themselves economically is not viable.”
Onboard the team.
Want to work with us? SEC Newgate EU is looking for a senior consultant for government relations and, of course, trade policy. Here for more information.
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