EU-Australia negotiations for a trade agreement crashed at the finish line, with no progress on the ongoing economic irritancies with the US either. A setback in the EU trade agenda, although there is some consolation in the progress of digital trade talks with Japan and South Korea. Meantime, the European Commission selects 4 key technology areas to protect and promote, with loads of trade implications.
This and more in the latest TradeViews, which celebrates its 1st birthday.
P.S. Don’t forget to check out our report, in collaboration with our partners in Mexico City, on the business opportunities arising from the trade talks between the EU and Latin America.
One Big Thing.
St(e)akes too high: Australia, see you in 2025
Gathering in Japan in late October, EU Trade Commissioner Dombrovskis and Australian Trade Minister Don Farrell were expected to announce a major step towards the conclusion of a trade agreement, crowning 5 years of discussions. Yet, the meeting resulted in a failure, ostensibly because of beef and sheepmeat.
The marriage seemed to be a sure thing, as the EU and the Australian economies are complementary. The former mainly exports manufacturing products, while the latter excels in agriculture and raw materials. Perfectly fitting in Ricardo’s theory on comparative advantage, right?
Let’s take a step back. After clashing in July(Minister Farrell walked away from Brussels with dissatisfaction), the parties seemed to be getting closer. According to Euractiv, Canberra was considering reducing tariffs on luxury cars and granting more protection to EU’s geographical indications (like parmesan and prosecco), while Brussels was open to allowing access to €600 million of Australian agri-food products.
However, in Japan, talks crashed, apparently, on quotas for Australian exports of beef and sheepmeat. Probably, the Commission considered the Australian proposal as unacceptable for the French and Irish government, where the livestock sector is particularly vocal. Paris-Canberra spats are not new – you may remember the Élysée’s annoyance after Australia cancelled its order for a supply of French submarines two years ago. Moreover, the EU probably didn’t want to make more concessions to Australia, as it is also negotiating a trade deal with Mercosur, where exports of South American agri-food products are a thorny issue as well. Even more so if Canberra, feeling encouraged by the high quotas it gained in the deal with the UK, made similar demands to Brussels. But the full story has yet to emerge.
That said, EU and Australian leaders remain committed to trying again. Both powers want to reduce dependencies on China and to maximise their comparative advantages. This can give export-oriented businesses in both the EU and Australia further time to prepare – and see whether a new Commission and Parliament would make any difference.
Zoom in: It seems that negotiating rounds will remain frozen until 2025. The idea, probably, is to shelter them from the next electoral appointments(EU in 2024, Australia in 2025), and the anti-trade sentiments that typically come with them.
Zoom out: The story is a proof that “like-mindedness” and geopolitical alignment are not enough to strike trade deals. That’s a warning to the Commission, which can find some consolation in the upcoming ratification of the FTA with New Zealand, although that is a much smaller agreement.
The plus: Among the pull factors, there’s Australia’s abundance in critical raw materials, like lithium, which the EU desperately needs for its green transition.
Second in line.
A tale of 4 technologies – EU’s economic security strategy in motion
The EU is moving forward with its economic security strategy. On October 3, the Commission published a list of technology areas that are critical for the EU’s economic security and selected four priority areas: microelectronics, AI, quantum and biotechnologies. Such technologies are now going through a risk assessment carried out by the Commission and Member States. The Commission will then decide specific actions for the technology areas: promoting the development internally, partnering with allies or protecting them from leakage against rivals.
What will be interesting is whether the reaction will lean more towards the “protect” or the “promote” angle, mostly depending on positioning of the Member States. Protecting can mean more export control and investment screening (both on inbound and outbound FDI). The EU is then following the US approach – which has already started assessing key technologies in 2018 – and the target will be China. The risk of China’s retaliation against these measures is then worrying some Member States, which are calling for a cautious and targeted approach. On the other hand, promoting can imply a relaxation of state aid rules or the introduction of economic security-related state aids in the next EU’s long-term budget. Similar to the debate on an EU reaction to the IRA, France and Germany would favour this approach, while smaller countries with less fiscal strength are against it, since they would lose in state aid competition.
Message for businesses: if your operations involve these technology areas, both risks (more red tape for your export and foreign investments) and opportunities (like funding) lie ahead. Bottom line, it’s time for companies start taking into account the EU’s push for de-risking.
Metals generate black fog at the EU-US summit
October 20 was probably marked red on the calendar of EU officials. With Presidents Ursula von der Leyen and Charles Michel in Washington touching base with US President Joe Biden on transatlantic relations, expectations were high on some solutions to main trade irritancies: a deal on critical minerals or, at least, one on steel and aluminium. And yet, nothing came of it, much to the disappointment of EU businesses and MEPs. EU and US leaders simply committed to continue discussions on both issues.
The stakes are high, particularly for the EU. As you may remember from our previous editions, Brussels has been trying to persuade Washington to soften the “buy American” rules in the IRA. In an October report, the Commission notes that, while the effect of IRA on the European economy has so far been limited, the long-term impact is still hard to assess, and there is already clear evidence in the battery sector of growth in investments in the US and a stalemate in the EU. To that end, the parties are negotiating a “mini deal” on critical minerals used in electric vehicles, which would allow certain EU manufacturers to access to a part of the new US environmental tax credits. However, Brussels wants to include all 50 critical minerals covered under the IRA, while Washington sticks to 5.
Talks for sustainable trade of steel and aluminium are no less thorny. The main US goal is to tackle oversupply by China by agreeing with the EU on a common external tariff against high-emission exporters and non-market economies. The EU wants a deal that would bind the US not to adopt duties for national security (as happened in 2018).
Negotiations on both dossiers will continue, with transatlantic stakeholders hoping for a solution by the end of 2023. Both EU and US diplomats are aware that, although political relations remain positive, it’s good to solve as many trade issues as possible… in case of turbulent electoral campaigns on both sides of the Atlantic.
Digital consolation prize
With no wins for the EU-Australia deal – and a risk for the G7 in Osaka to become a complete trade flop – the Commission still managed to get something from its Japan trip. Back in June, the representatives concluded EU-Japan Digital Trade Principles, opening the way to negotiations on cross-border data flows and establishing a common understanding on key issues for the digital economy. In Osaka, Dombrovskis and his Japanese counterparts were able to nail down the deal, complementing the four-year-old EU-Japan Economic Partnership Agreement. This is good news for companies transferring data between EU and Japan: thanks to the removal of data localisation requirements, they will not be required to physically store data in both places, easing costs. With data economy projected to triple by 2025, reaching 5.8% of EU GDP, it’s a space worth watching. There are also other deals on the horizon – the EU and South Korea just launched digital trade negotiations and similar ones are ongoing with Singapore.
Kicking the can on GSP
Procrastination can sometimes be a healthy choice, especially if it helps avoid trade and diplomatic turmoil. The point of contention was the Generalised Scheme of Preferences (GSP), the EU regulation that offers trade preferences (like lower tariffs) to developing countries to support their economy, provided that they comply with main labour and environmental conventions. Over 60 countries and 2 billion people benefit from such trade preferences with Brussels.
The Council and the Parliament have been discussing a reform to the regulation, which was set to expire by the end of 2023. In June, it was clear that the positions were still too far, notably on two issues: Member States wanted to link trade preferences with obligations for beneficiary countries to re-admit failed asylum seekers; secondly, some EU countries (especially those with big agricultural interests) wanted automatic barriers in case of a sudden increase in imports of rice and sugar from developing countries. Negotiators then realised it was better to postpone the expiration of the regulation to 2027, probably relaunching the discussion for a proper reform after the elections. In the October plenary, the Parliament approved the postponement, with some reluctance from progressive lawmakers. EU Ministers are expected to do the same this month.
EU-US Data Privacy Framework – see you in Court
Shortly after the adoption of EU’s adequacy decision on the EU-US Data Privacy Framework on July 10, the fight before the General Court of the EU began. On October 30, the Court published the action Latombe v. Commission presented by French MP Philippe Latombe to challenge the adequacy decision. Some of the framework’s critical aspects are under the magnifying glass, from bulk collection of personal data to the independence of the Data Protection Review Court established by the US Executive Order. While we don’t know whether this initiative will lead to a “Schrems III” ruling, the General Court has also recently rejected Latombe’s request to suspend the execution of the challenged adequacy decision. Data is free to flow, for now.
Over on X: Head of the EU Mission to the WTO & UN shares ominous sentiments regarding the EU-Australia deal that fell through.
On the radar.
15 Nov I A working breakfast at the Parliament will be hosted by the MEP Jörgen Warborn, focusing on internationalisation of SMEs.
15 Nov I MEP Salvatore De Meo hosts an event at the Parliament to discuss the role of trade for the competitiveness in the EU agri-food sector and stability of value chains. Pekka Pessonen of COPA COGECA and Elodie Clerc of DG AGRIare in the panel.
15 Nov I ECIPE hosts a webinar on the evergreen topic of “Open Strategic Autonomy” and economic interdependency.
21 Nov I The European Parliament is set to give consent to the EU-New Zealand FTA at the Strasbourg Plenary. After Wellington’s ratification, it can enter into force.
27 Nov IForeign Affairs Council on the horizon with a strong trade focus, including discussions on EU-US economic relations and the signature of the interim trade agreement with Chile.
29 Nov I For our next #BrusselsCalling media panel, European Ombudsman Emily O’Reilly. She will moderate a debate on the changing of the EU institutional guard in 2024, starring Henry Foy (Financial Times), Lisa O’Carroll (Guardian), Stanley Pignal (Economist) and Aoife White (POLITICO).
29 Nov I Our UK and US partners, are a hosting webinar on the upcoming US Elections. Join to understand how the key campaign sticking points can affect your business.
What we’re reading.
“De-risking” is now on the mouth of every EU trade official. But what does this actually mean for businesses? The Financial Times dives deep into the moves by multinationals to “insulate” their China operations and shield them from the current geopolitical tensions.
Lucien Cernat, Head of Unit and DG TRADE and author at ECIPE, worked on an analysis on the so-called mini-deals. While literature mostly focuses on broad FTAs, agreements with a more limited scope can still have an impact, he argues.
If transatlantic trade is your thing, this recent conference can interest you. Bruegel tries to look into the crystal ball of the current talks on steel and aluminium and the TTC.
Is EU industry in decline? The European Round Table for Industry thinks so. Their recent paperstresses the smaller spending in R&D and weaker GDP growth than other global players. Solutions for competitiveness? More internal market integration, starting with establishing a proper capital market.
World Trade Organization Chief Economist Ralph Ossa talks about the prospects for global trade in the upcoming months. WTO downgraded forecasts for 2023, amid rising interest rates and Chinese slowdown. While there are signs of near-shoring, it’s too early to talk about de-globalisation.
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