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EBMA Brussels

Monthly Newsletter on Trade:
February 2021

9th March 2021
Update: You can find all EBMA newsletters on our webpage at www.ebma-brussels.eu 
Negotiate, adjudicate, rejuvenate: the challenge for the WTO

That’s one hell of an in-tray. Ngozi Okonjo-Iweala on Monday took over as director-general of the World Trade Organization and was almost immediately confronted by what seems to have been a somewhat fractious general council of ambassadors, underlining the depth of divisions within the WTO’s membership.

Trade Secrets will today and next Monday be looking at what she and the members might do to drag the institution back towards relevance. Here in Brussels there’s more EU-UK argy-bargy over the post-Brexit trading arrangements. Anyone thinking that Brexit was going to be a short sharp conflict followed by a lasting peace might perhaps read up on the hundred years’ war, including who eventually lost. Charted Waters looks at a surprising aspect of the pandemic — a near-record number of new businesses. 

Confronting China and the awkward squad
The World Trade Organization has been in trouble for so long that the WTO-reform industry is now a major producer interest in its own right, which will no doubt soon hire some expensive lobbyists and set about negotiating itself preferential treatment in trade deals. 

The action-forcing, or at least communiqué-forcing, event concentrating minds is the full meeting of ministers from the WTO’s 164 member countries, which has just been set for late November/early December in Geneva. Usually biennial, the ministerial was originally planned for Nur-Sultan in Kazakhstan last year, postponed to this summer because of Covid-19 and now postponed again. The Kazakhs were still keen on hosting it there in November, apparently, but average temperatures in Nur-Sultan then are minus 0C: too many metaphors present themselves about the WTO in the deep freeze, the biting winds of protectionism and so on.

The institution has its best chance for a while to claw its way back. Joe Biden’s administration has signalled its willingness to engage with the WTO, first off by unblocking Okonjo-Iweala’s appointment. But it’s only one of the tools it wants to use for its most important trade task of reining in China — clearly explained here last year by Mark Wu, then at Harvard Law School and now a senior official in the office of Biden’s US Trade Representative.

The WTO basically doesn’t have executive powers: the director-general chairs meetings and has a secretariat of clever but underused bureaucrats, and beyond that it’s just about their diplomatic skills in corralling governments towards consensus. The substantive functions it does have are legislative (negotiations) and judicial (dispute settlement). 

Looking today at negotiations (we’ll leave dispute settlement till next week), it’s depressing to remember that in the WTO’s 25-year existence, its members have concluded essentially one multilateral agreement, a minor deal on trade facilitation. It has membership-wide talks on the go on fisheries subsidies, plus plurilaterals among smaller groups of countries on various subjects including ecommerce (in fact covering digital trade more broadly), domestic regulation in services and making investment easier (“investment facilitation”).

Of those, only fisheries has any real chance of producing something substantive by the ministerial. The ecommerce agreement is addressing the right issues but is forced to dance around the huge question of cross-border data flow because a big ideologically driven regulatory power obsessed with strategic influence doesn’t want to make liberalising commitments. We refer, of course, to the EU — though China’s not keen either.

There’s also a more general problem with plurilaterals. Governments have turned to smaller-group deals because unwieldy and conflict-ridden membership-wide deals just weren’t happening. But India and South Africa, the WTO’s awkward squad, argue that plurilaterals undermine the principle of treating all members equally, even if all WTO members get the benefits. (For the complex legal technicalities, see former WTO official Peter Ungphakorn’s exposition here.)

Few other big countries seem to think that makes much sense — hence the tension in this week’s general council — and think it’s largely about gaining leverage. India and South Africa are trying to force changes in agricultural subsidy and tariff rules of the kind that triggered the collapse of the Doha round of multilateral trade talks in 2008 and have zero chance of being resurrected.

At its worst, this leads straight back to negotiating impasse. Coalitions of the willing could agree plurilaterals outside the WTO, but then the institution would be further undermined.

Another big issue in negotiations is, if anything, trickier, since it involves convincing a much bigger and tougher customer: China. The WTO rules constraining state subsidies are OK as far as they go, but they don’t go anything like far enough for the EU, US and Japan in constraining China’s state-led growth model. The three powers in 2017 set up a trilateral initiative to write new rules to discipline subsidies, state-owned enterprises and forced technology transfer. But to get those adopted at the WTO will require Beijing’s acquiescence. It’s very hard to think of anything that the trilateral members and the rest of the membership could offer China in return, except an investment facilitation agreement it doesn’t urgently need and a vague warm glow of satisfaction from keeping the multilateral show on the road.

In other words, getting anything done in negotiations is going to need those director-general diplomatic skills practised at an extraordinarily high level to overcome deep-seated differences and resentments. We’ll be watching with interest but not with a great deal of confidence that much will get done in the short term.

Charted waters
Some things — such as supply chain bottlenecks — you would expect to see during a pandemic. Others, such as near-record openings of US businesses, less so. However, it appears the pandemic has inspired a wave of innovation here, with the number of new companies opening in January the second-highest on record.

Source: Financial Times, 04/03/2021

US vs China: Biden bets on alliances to push back against Beijing

In his first weeks as president Joe Biden has been focused on the Covid-19 vaccine rollout and trying to pass a $1.9tn stimulus package. But he has been eager to deliver another central message — when it comes to China, he will not be a pushover. 

Speaking to the online Munich security conference last month, Biden said the US and its allies faced “long-term strategic competition” with China and had to “push back” against Beijing’s “economic abuses and coercion that undercut the foundations of the international economic system”.

“We are in the midst of a fundamental debate about the future and direction of our world,” he said, a choice between those who argue that “autocracy is the best way forward and those who understand that democracy is essential.”

Since Biden’s inauguration, Antony Blinken, his secretary of state, has described the detention of 1m Uighurs in Xinjiang’s labour camps as “genocide”. And Jake Sullivan, the national security adviser who had slammed China’s “assault” on freedoms in Hong Kong, has said the US would “impose costs” on China over any abuses.

While the Biden administration has tried to signal a clean break with its predecessor on most issues, the stance on China has often sounded similar. Biden has even signalled that he has no immediate plan to remove the tariffs Donald Trump imposed on imports from China during his trade war.

“People thought there was going to be a huge difference between the Trump and Biden administrations,” says Nadège Rolland, a China expert at The National Bureau of Asian Research. “But from the first few weeks, it seems there’s going to be a lot of continuity, not in style and tone but in the awareness of the challenges posed by China.”


There is one big difference, however. Biden believes he can craft a much more effective strategy for dealing with Beijing by forging common ground with US allies and partners. In interviews with a series of senior officials who are leading the administration’s dealings with China, they describe a strategy that can be summarised as — tough, but with alliance backing.

Biden officials believe Trump was correct to take a harsher stance towards China. But they did not support his methods, saying the former president, who criticised the amount the US spent defending allies in Europe and Asia, had created power vacuums and weakened alliances.

One senior official told reporters that Biden wants to create what Dean Acheson, postwar US secretary of state, called “situations of strength” where like-minded nations co-operated to tackle threats.

But the question he is grappling with is how much partners, especially in Europe, are willing to take part in these plans. While opinion towards Beijing has hardened in many countries, European allies in particular are reluctant to get drawn into a cold war-style confrontation with China. 

“There’s a broad desire for dialogue and discussion, but no illusion that many EU countries are careful and want to take a step-by-step manner,” a senior official says.

Deep sharing
When Barack Obama took office amid the global financial crisis in 2009, the priority with China in his first year was to avoid unnecessary confrontation. The Biden administration, which operates with many of the same officials, is not ruling out co-operation with China — it says the US will engage on urgent issues such as Iran, North Korea and climate change. But the new president, they say, is more focused on rebuilding alliances.

“They’ve clearly signalled that they’re not in a rush to pursue dialogue for the sake of dialogue,” says Evan Medeiros, former top Asia adviser to Obama.

The senior official, however, stresses that the US was “not preventing dialogue in any way” with Beijing, but wanted to first explore areas of common ground with its allies. “We are putting a premium on a deep sharing of views with partners and allies to help arm us with strategic perspectives,” he says.

Biden on Wednesday issued his “interim national security strategic guidance”, which said China was “the only competitor potentially capable of combining its economic, diplomatic, military, and technological power to mount a sustained challenge to a stable and open international system”.

In Asia, Biden wants to strengthen the “Quad”, a group that includes Japan, Australia and India, to counter China. The Financial Times reported this week that the White House is spearheading an initiative with Japan, Australia and India that would use vaccine diplomacy in Asia to counter China’s influence.

In Europe, his team has been engaging with officials in an effort to find areas where they can co-operate on China.

But US officials say they recognise that while the US and Europe share many values, there is different risk appetite across the Atlantic. After Biden spoke to the Munich conference, Chancellor Angela Merkel and President Emmanuel Macron both gave remarks with more emphasis on the need to co-operate with China.

European and US officials say they are about to hold a series of discussions in the coming weeks over everything from strategic approaches to specific issues such as how to work together to stop China from securing sensitive technologies.

A third senior US official says the talks will focus on finding areas of convergence and building “interlocking and overlapping” coalitions, as opposed to a big united front against China, in order to generate “the greatest wingspan”.

Medeiros adds that while Merkel and Macron have been “very clear that alignment against China isn’t on the cards”, the US can build coalitions for specific issues.

“There’s a real geopolitical play to leverage Europe to shape China. But that is different from some kind of Kissingerian approach to get Europe to align with the US against China,” he says. “We shouldn’t expect to see Biden, Merkel and Macron standing up and saying, ‘We will work together Yalta-style to balance Chinese power’.”

US officials are confident they can find common cause with Europe on issues such as the Uighurs and Hong Kong and on economic issues involving access to China’s market. But they say it will be harder to agree on technology issues, such as the 5G debate that strained transatlantic relations during the Trump administration.

One challenge for Washington is the different political calculations that have to be made when balancing competing economic and security considerations.

Nathan Sheets, a former top Treasury official, says Biden’s tougher stance reflects bipartisan congressional pressure which is amplified by the fact that looking weak on China would hurt the Democrats in the 2022 midterm elections.

“The zeitgeist right now demands a policy that is tough on China,” says Sheets, who is now chief economist at PGIM Fixed Income. “Everyone in Washington, on both sides of the aisle, is in broad agreement that China is a strategic competitor.”

Across the Atlantic, however, the picture is more mixed, partly because some politicians put a higher premium on ensuring good trade relations with Beijing.

“When I discussed the threat of China’s strategy and the necessity of a competitive response with foreign ministry and security officials in Europe, they were in complete agreement,” says Alex Wong, a former Trump official now at the Hudson Institute. “The question was always whether they could convince their politicians.”

But Wong adds that European lawmakers seem more willing to adopt a more hawkish stance after seeing the lack of transparency from China surrounding the pandemic.

Pre-emptive deal
In another example of the challenge, the Biden team was frustrated that Europe signed an investment treaty with China just before the new president took office, even after Sullivan had signalled they would prefer Europe to confer before proceeding.

“US-EU co-operation is going to be harder than anybody likes to admit. It is easy to say, but harder to do as evidenced by the EU-China investment agreement,” says Anja Manuel, director of the Aspen Security Forum. “It wasn’t really the ideal way to go out of the gate.”

The first US official told the Financial Times that they had assumed China had put such an “enticing” deal on the table that the EU felt compelled to move quickly. But he says US officials who have since reviewed the text were very “underwhelmed” about concessions China made.

“We are concerned that these kinds of deals or arrangements don’t push China to move away and abandon certain elements of their economic practices,” he says.

While trade concerns may influence some European politicians to hold back on attacking China, one problem for the US is that the perception in Europe about the security and economic threats from China is nowhere near as strong as it is in Washington.

“Europeans have finally come to realise that China is not going to liberalise politically under President Xi Jinping but they’re still clinging to the hope that they can shape Chinese behaviour on economic issues,” says Rolland, a former French defence ministry official.

Susan Thornton, a former senior state department Asia official now at Yale Law School, adds that while Europeans share concerns about Chinese state capitalism and economic rule-breaking, they view the rise of China in a less threatening way than Americans.

“European officials who work on Asia policy say they’re used to seeing powers rise and fall and are comfortable with China’s rise, and don’t see things as a Manichean struggle,” she says. “There’s a structural power shift that is driving a lot of the US narrative about China, and the US tends toward overconcern about decline.”

Signs of caution
While the US focuses on finding agreement with allies, its actions in the Pacific indicate that Biden will maintain a tough stance on China. The US navy has conducted freedom of navigation operations in the Taiwan Strait and held dual aircraft carrier exercises in the South China Sea — only the third time that has occurred since 2012.

But the Biden administration has yet to take any big decisions that would indicate whether its harsh rhetoric will be matched by equally tough action.

Mike Gallagher, a Wisconsin Republican lawmaker and leading China critic, says he has seen encouraging signs, but is taking a “wait and see” attitude. “The good news is that many of Biden’s advisers have demonstrated a growing awareness of the threat from the Chinese Communist party.”

In addition to Blinken and Sullivan, Biden has installed Kurt Campbell to be his Indo-Pacific co-ordinator and Laura Rosenberger as his top NSC China official. Meanwhile at the Pentagon, Ely Ratner, another more hawkish official, has been asked to head a new task force focused on China policy.

But one early litmus test may be how Biden responds to the situation in Xinjiang. In his first call with Xi last month, Biden said there would be “repercussions” for the persecution of Uighurs in China’s northwestern province. But he later said he understood that there were “different norms that each country and their leaders are expected to follow”.

While defenders say he was just explaining why China might view the situation differently, critics questioned whether he would actually take meaningful action.

“It is increasingly clear that Biden himself is not as hawkish as his advisers,” says Gallagher, who worries that he will ignore his more hawkish officials.

Another measure of Biden’s approach will be how aggressively he tries to prevent China from obtaining sensitive US technology — an area where Trump was assertive with export bans on companies from Huawei to DJI, the drone maker, and SMIC, China’s biggest semiconductor maker.

While Trump faced a tough time convincing European nations to exclude Huawei from their networks, Biden’s nominee for commerce secretary, Gina Raimondo, was criticised for refusing during her nomination hearing to commit to keeping Huawei on an export blacklist, before later clarifying her position.

Sarah Bauerle Danzman, an expert on the security implications of investment decisions at Indiana University, says the Biden team shares the same view about technology risks as the Trump team, but the key question is how they would evaluate the level of risk and the ability to mitigate threats in crafting policies.

“They’re going to have to think about the trade-offs in terms of when maximum pressure works and when it does not. A lot of this is about slowing the People’s Republic of China. Nobody thinks we can keep this technology from the PRC forever.”

Another indication will be how Biden handles an order that Trump signed to bar Americans from investing in Chinese companies with alleged ties to the People’s Liberation Army. The Treasury recently pushed back the implementation deadline by several months, as part of a broader review of many of the sanction-related actions taken by Trump.

“That will be a litmus test. If Treasury secretary Janet Yellen goes soft on that, they will lose a lot of goodwill in Congress,” says one former top Trump administration official.

John Smith, former head of the US Treasury’s Office of Foreign Assets Control, says Biden is unlikely to ease up on this matter. “There is bipartisan support in Congress that will press him on China,” says Smith, a partner at Morrison & Foerster. “And his own team will want him to take a tougher approach on China, but with allies.”

While Biden sizes up China with a harsher eye, Beijing has also taken a more jaundiced view of Washington, suggesting that relations will remain choppy.

“China is under no illusions about how the US is looking at the relationship,” says Jude Blanchette of the Center for Strategic and International Studies. “Beijing has also undergone a shift. There is now a more open discussion of longer-term rivalry with the US which was always there, but was buried.”


Source: Financial Times, 04/03/2021

Missing: Has anyone seen Europe's China plan?

Two years after the European Union simultaneously declared China an “economic competitor,” “a systemic rival” and “a cooperation partner with whom the EU has closely aligned objectives,” the bloc still hasn’t figured out what it thinks of Beijing.

Even as China — led in person by President Xi Jinping — presses forward in Europe with a strategy intended to peel the Continent away from the United States, the messaging from European leaders remains muddled.

Germany is sending mixed messages on whether to work with the new U.S. administration to tackle an aggressive China. Hungary and Poland are turning to Beijing for vaccines that have not been approved by the European Medicines Agency. In the Czech Republic, the president and the senate speaker are split between backing Beijing or standing behind Taiwan. Italy and Luxembourg are proud members of Xi’s Belt and Road initiative.

Meanwhile, the European call for “strategic autonomy,” which gained momentum when Donald Trump occupied the White House, has largely remained in place even as U.S. President Joe Biden casts around for allies to rein in Beijing.

“Europeans are sleepwalking on the many urgent challenges posed by China and daydreaming about a strategic autonomy they fail to materialize,” said Antoine Bondaz, research fellow at the Foundation for Strategic Research, a Paris-based think tank.

“Currently, there’s a complete lack of concrete measures, as well as a complete lack of serious assessments, on our vulnerabilities in cooperating with China,” he added.

For Beijing, the economic and strategic goal is simple: to fend off the possibility of united transatlantic opposition as it charts its way toward surpassing the U.S. as the world’s biggest economy — and establishing itself as a powerful hegemon.

“China has a plan and tells us where it’s going to go, so we’d better get our act together,” said Jörg Wuttke, who leads the EU Chamber of Commerce in China. “Time is not going to wait for us.”

Strategic challenge

Critics say the EU’s China policy remains unsophisticated and inadequate. Rather than drafting a goal-oriented policy on China, the bloc has been reacting passively to Beijing’s assertive economic, diplomatic and military provocations — not to mention its treatment of its Uighur minority.

When the European Commission turned down the Franco-German proposal of merging rail giants Alstom and Siemens in March 2019, on the grounds of competition, the biggest cheerleader came from the largest market player, China’s CRRC. As a state-owned behemoth, whose overseas orders in 2019 jumped by 60 percent year-on-year, it operates with a national mission to acquire more assets globally and “export the Chinese model.”

“The political side of our relationship with China is always a bit neglected,” said Hans Dietmar Schweisgut, who was the EU’s ambassador to China until 2019.

The EU’s China policy has a predominantly economic focus, with political issues like forced labor left to the Commission’s trade bureaucrats to tackle via the investment pact the EU signed with China in December. In that case, the EU was satisfied enough with China’s pledge to “make continued and sustained efforts” to eventually ratify International Labour Organization conventions on forced labor, despite reports — dismissed by Beijing — that up to 1 million Uighur Muslims have undergone “re-education” in internment camps. Few believe China will actually take action on this.

Brussels may have declared Beijing a systemic rival, but it hasn’t followed that up with concrete countermeasures. Commission officials have stressed that the investment deal would only be “one of the toolboxes” on China, but many of the other toolboxes — such as due diligence for goods coming from areas with forced labor, a carbon border tax, or rules against foreign subsidies — are not yet in place.

“Over the past few years, Europe has woken up to the strategic challenge posed by the rise of China,” said Boris Ruge, vice chairman of the Munich Security Conference. “But the EU and its member states still have a long way to go in terms of developing a sophisticated understanding of China and coming together to formulate a response that can be described as strategic.”

“The EU is playing catch-up, not least with regard to Beijing’s projection of power and influence all the way to Europe.”

The little red playbook

The projection of power comes from the very top, with Xi having taken the unusual step of leading the charge.

After years in which the Chinese president relegated relations with Brussels to his prime minister, Xi has taken over the file. In 2020, he chaired three virtual meetings with Council President Charles Michel and Commission President Ursula von der Leyen. The meetings also included German Chancellor Angela Merkel, who not only led the EU Council presidency in the second half of last year, but has also been directing the course of EU-China relations.

Diplomatically, there are signs Xi’s first-hand approach seems to be paying off. Resisting calls for decoupling, the EU has shown itself in lockstep with Beijing’s preference for active engagement, opening three new sets of high-level dialogue with Xi’s top aides last year on trade, climate change and digital policies. An attempted intervention by the then-incoming Biden administration in December failed to stop the EU from signing the investment pact with China.

Economically, Xi has made it clear that it is Beijing’s goal to deepen foreign countries’ dependency on the Chinese supply chain.

“We need to tighten the relationship of dependency that the international supply chain [has developed] on our country, thereby creating a strong and powerful retaliatory and deterrent capability in the event of artificial suspension of supply by outside parties,” Xi said in April last year, in an internal speech at the CCP’s finance committee meeting that was published seven months later on Qiushi, the CCP’s theory journal.

He called on party cadres to focus on developing “killer technologies” in areas like high-speed trains, power equipment, new energies and telecommunication equipment. Indeed, China is expected to focus on “dual circulation” in the upcoming five-year plan, focusing more on the internal circular economy and relying less on foreign supplies, especially in technology.

“China will definitely do what they always try to do: To be as self-sustaining as possible, and try to be not vulnerable,” said Wuttke, of the EU Chamber of Commerce in China.

Shaping the future

There are signs that the mood music in Europe may be changing.

Diplomats say EU leaders have been left befuddled by a lack of a concrete response from Washington to the European Commission’s proposal for a transatlantic agenda on China.

Nonetheless, as the Biden administration stakes out a more assertive stance toward China, some European leaders have started to put some space between themselves and Beijing.

In late January, Merkel rejected calls for Europe to pick sides between Washington and Beijing, saying she didn’t think “it would do justice to many societies if we were to say this is the United States and over there is China and we are grouping around either the one or the other.”

It took her just a few weeks to move her goalpost. Alongside Biden at the Munich Security Conference, she proclaimed that the transatlantic alliance would need “a joint agenda with regard to China” and that democratic countries should “react to” the increasing power Beijing has amassed on the international stage.

Von der Leyen went even further, saying last month: “Those that write global rules are the ones who are shaping the future of their societies … None of us wants China to do that for us.”

On that, the Commission president is likely to have transatlantic agreement.

“If Europeans weren’t aware already, Washington is happy to remind them of the importance of the issue” of a long-term strategic competition with China, said Ruge of the Munich Security Conference.


Source: Politico, 03/03/2021

EU wants permanent border check sites in Northern Ireland by mid-2021

LONDON — The European Commission said it still expects permanent post-Brexit border control posts to be up and running in Northern Ireland by the middle of this year, despite a recent order by a Northern Irish politician to halt the building of border infrastructure.

Commission spokesman Daniel Ferrie said Monday that the U.K. must meet its obligations under the Northern Ireland protocol, a key part of the Brexit agreement aimed at avoiding a hard border between Northern Ireland and the Republic of Ireland and preserving the Good Friday peace agreement.

His comments come after Gordon Lyons, Northern Ireland’s minister for agriculture and a Democratic Unionist Party (DUP) politician, issued a controversial order Friday evening to halt works on permanent facilities to check goods arriving from Great Britain, and put a stop to the recruitment of inspectors.

Permanent facilities are due to be built at Belfast, Larne, Warrenpoint and Foyle ports in Northern Ireland, but these projects are still in the design and preparatory phases. The DUP has been fiercely critical of the protocol.

But the Commission said it had been assured last week that Lyons’ decision will not affect post-Brexit checks already happening in Northern Ireland, which are taking place at repurposed port buildings and other temporary facilities.

“We expect the same commitment when it comes to the U.K. government’s obligations under the protocol regarding the permanent facilities that need to be put in place … by the middle of 2021, in line with the protocol and also in line with the Joint Committee decisions from last December,” Ferrie said, referring to the body overseeing implementation of the Brexit divorce deal.

Lyons’ move, which also put a stop to the levying of charges on traders bringing goods from the rest of the U.K., is popular among other unionist politicians, who want the protocol scrapped and replaced with arrangements allowing “unfettered” trade with Great Britain.

But the decision has infuriated rival politicians in Stormont, who accuse Lyons of heightening tensions in the region. Sinn Féin, the Social Democratic and Labour Party and the Alliance Party, have all criticized the announcement.

Lyons on Monday faced a grilling in the Northern Ireland assembly over the move, which he said was “a result of the practical barriers and the legal uncertainties that currently exist” over the protocol.

Stormont’s legal advisers have been asked to provide an opinion on the decision, and Lyons may be asked to present his proposals to the wider devolved power-sharing government, the Northern Ireland Executive.

Lyons said he wanted to see what could be agreed by the U.K. and EU at the next meeting of the Joint Committee. He argued it was “entirely sensible” as talks continue to “wait and we see what comes out of discussions rather than do work which then might never be needed or required.” His move, he argued, would allow Northern Ireland’s government to “protect the public purse.”

A senior DUP politician said they expected the British government, which last week restated its commitment to the protocol, to encourage civil servants to sidestep Lyons’ instruction. “I am sure the ever cautious civil servants will try to find ways to ignore his instruction, but he does have good arguments for the decision he made, so I think he can make them stand,” the DUP politician said.

U.K. Prime Minister Boris Johnson’s official spokesman insisted Monday the issue is “a matter for the Northern Ireland Executive and we obviously remain in close contact with them.” He added: “Goods, including food, continue to flow through ports in Northern Ireland with the existing, interim agri-foods facilities in place.”


Source: Politico, 01/03/2021

The shifting fronts in the battle over EU trade policy

There is, I wrote a few weeks ago, a battle going on for the soul of EU trade policy. It pits liberal free traders against protectionists, as both sides try to come to terms with Europe’s growing strategic vulnerability. The European Commission has now set out a platform for how trade policy should be updated for the new realities, and this week the bloc’s trade ministers discussed it.

It is a good paper, which sets out the essential elements of a strong trade policy for the EU. It acknowledges that the ambition of a carbon-neutral economy has geostrategic implications through its impact on trade — a point recently explained at length in the excellent policy brief from the think-tanks Bruegel and the European Council on Foreign Relations. It calls for the bloc to develop avenues for deeper economic integration with neighbouring countries, especially in Africa. It even gives a sensible account of the newish buzzword of “open strategic autonomy”: promoting an open international order is a strategic imperative for the EU, and doing so both requires autonomous policy development and protects such autonomy from an excessive one-way dependence on the other two global economic powers.

But where the document is most revealing on how the thinking about trade policy is evolving in the European political class is how freely it speaks of “assertiveness”. The sense that the EU should be politically more assertive in its trade policy could potentially bridge the divide between countries more willing to protect their own producers, such as France, and evangelists of free trade, which, since Brexit, have been most vocally led by Sweden.

I talked to Sweden’s trade minister, Anna Hallberg, to understand both the divisions and agreements better. She warned that reacting to Europe’s shrinking share of the global economy by wishing to protect existing companies and production methods was “absolutely the wrong way to go” — instead “we need to be brave enough to open up”. She thinks the commission’s approach recognises this: it contains “a number of very positive proposals”, she said.

But assertiveness is clearly not a problem in itself. “We have commitments to sustainability” and trade policy needed to accommodate that, said Hallberg. Her worry is rather that the non-trade concerns become so demanding as to make it impossible to conclude trade agreements at all. The question, then, is how to balance being both a “demanding” and an “attractive” trading partner.

Many share this concern. Among Europe’s traditional northern free traders, I frequently note appreciative nods to how some southern EU countries are moving in their direction on trade. A case in point: Portugal, which at present holds the presidency of the EU Council, is pushing for ratification of the free trade agreement with the Mercosur bloc, as the country’s foreign minister told my Brussels colleagues in an FT interview. He, too, emphasises that pushing for climate policy and deforestation is important but must not be allowed to scupper the deal altogether.

But “balance” is a far cry from a purist free trade position. And interestingly enough, businesses wanted to strike a balance too between trade expansion and other considerations, said Hallberg. Indeed an “assertive” trade policy can be seen as a competitive advantage for companies that are ahead of the curve on social and environmental issues.

For example, Hallberg welcomed the commission’s work on EU-wide rules requiring companies to do more to protect human rights in their supply chains. This was not just “very positive for society”, but also a “competitive issue” for large Swedish companies that already take responsibility for their supply chain.

Hallberg was also cautiously positive about plans for carbon border taxes, for similar reasons, which could be “interesting to look into”, again for reasons of industrial and climate policy. “If we see that EU companies invest a lot in sustainable production methods and solutions”, then there must be “payback” for those investments.

She pointed to Swedish investments in fossil-free steel production as an example: “If that is met by cheap and dirty steel coming into EU, produced in a much less environmentally friendly way . . . we must look into how we can have a level playing field.” (Indeed, H2 Green Steel and Hybrit, two new Swedish ventures planning to use green hydrogen instead of coking coal, stand in stark contrast to how the UK justifies new coal mining to support British steel production.) In the Netherlands, similar arguments can be heard about the chemical industry, concerns about which was one reason for the EU’s insistence on “level playing field” requirements in its trade deal with the UK.

What all this suggests is that the free-traders-vs-protectionists divide is becoming an incomplete guide to understanding the political dynamics around EU trade policy. Not that it has gone away: the traditional free traders still want to strike more deals and increase and deepen business and trade ties with the rest of the world, and Hallberg said “we need to be realistic” about how much the EU could demand from others.

But the new development to follow is how the liberals are embracing a more strategic role for trade policy precisely to convince the more protectionist-minded that their objectives can be met with continued — but more “assertive” — openness. It is in that light we should see the unusual matchup between France and the Netherlands when they issued a joint position paper on trade policy last year, in which the countries called for greater demands and stronger enforcement in the social and environmental dimensions of trade relationships.

The same perspective can be gleaned in this week’s letter from the leaders of Germany, Finland, Denmark and Estonia to the commission president on digital policy. While not primarily about trade, it has a clear emphasis on assertive trade policy precisely as a way to make protectionism less attractive. As the four leaders write: “In order to avoid dependencies, open markets and open supply chains shall be ensured. If this is not possible, then mutual interdependencies shall be established (i.e. no one-sided dependencies on monopolies or countries). As a last resort, European competences and capabilities shall be actively promoted and expanded.”

The thing to avoid, said one official familiar with the drafting of the letter, was that the “master switch is placed at somebody else’s hand”. That is something France would have no problem agreeing with.

Source: Financial Times, 04/02/2021

EU Court of Auditors:
Measures on Bicycles & E-bikes are positive examples of TDI use

The European Court of Auditors concluded in its special report on the use of Trade Defence Instruments (TDI) that the EU COM has been successful in enforcing the EU trade policy and SMEs should make more use of Trade Defense https://www.eca.europa.eu/Lists/ECADocuments/SR20_17/SR_trade_defence_instruments_EN.pdf

The European Court of Auditors brings as a positive example of TDI use by the EU COM the EU Bicycle, E-bike and Bike Components Industry:

A clearly positive impact for the e-bikes sector. Without the measures, production in Europe would probably have ceased. Furthermore, TDI measures on normal bikes and bike parts have been vital in enabling EU bike producers to invest in and develop their e-bike production.

The report also mentions that "The products concerned are usually industrial (rather than consumer) products, with bicycles being a notable exception."

The Court further referred to the high investigation and legal costs: "Given the extent of the information required and the need for most parties to hire lawyers, the cost of filing a complaint can be very high. While companies and associations – in particular, inexperienced users of TDIs and fragmented industries – have problems gathering some of the requested information, our audit work confirmed that DG TRADE needs that information."

 
Further, our Industry is shown in the European Court of Auditors’ video on LinkedIn:  “TDI supported the EU e-bike production

https://www.linkedin.com/posts/evangelia-anevlavi-862313123_eutrade-trade-activity-6694137885836361728-M6wo

 EU PROTECTS
AN EQUAL FOOTING:
HOW THE EU KEEPS THE WHEELS OF FAIR TRADE TURNING

An equal footing: How the EU keeps the wheels of fair trade turning
 

Europe is open for business, but everyone must play fair. EU trade rules stop artificially cheap imports from flooding the EU market and pushing European companies out of business. When European bicycle manufacturers suspected that some of these rules had been broken, EU trade investigators and customs officers jumped into gear to protect the future of a whole sector.

You can see the full publication here:
http://https://europa.eu/euprotects/our-society/equal-footing-how-eu-keeps-wheels-fair-trade-turning_en
and the relevant video here: 
https://youtu.be/uN4j4GxUjPA

 


Monika Božíková

 

Electric bicycles (e-bikes) are a faster and greener mode of transport for people of all ages. From 2016, bicycle companies across Europe began to struggle to compete with massive e-bike imports from China. These cheaper e-bikes, arriving on the EU market en masse, threatened to wipe out 90,000 jobs in Europe in just a few years.

Alerted by European bicycle manufacturers, the European Commission investigated the exports from China and the state of the industry in Europe. In the space of a few months, the EU’s investigation teams had collected enough evidence to prove that imported e-bikes were being sold at an unfair price on the EU market. Meet the EU trade investigators, customs officers and companies that made sure Chinese e-bike importers played by the rules.

Moreno Fioravanti

Italian, European Bicycle Manufacturers Association

Belgium

“I received calls from bicycle companies all over Europe. They couldn’t compete with an influx in imported e-bikes at what appeared to be unfair prices.”

 

“Electric bikes are popular, and they appeal to everyone. But this invention counts for nothing if the rules of fair trade are not respected. If we hadn’t got EU trade investigators involved, there wouldn’t be a European e-bike industry today.”

"We alerted the European Commission to protect our sector's 800 small businesses and 90,000 jobs"
- Moreno Fioravanti

Michał Struk

Polish, Trade department, European Commission

Belgium

“The European Bicycle Manufacturers Association asked us to investigate the possible dumping of e-bike imports onto the EU market. My team visited 5 e-bike manufacturers in Europe to verify whether their complaints about unfair competition were founded. We also visited 5 European importers of Chinese e-bikes to see how our measures would affect their businesses.”

“After one year, we had enough evidence that European bike producers had experienced decreases in market share. But our investigation into the unfair trading of e-bikes didn’t end there.”

"We confirmed the negative effect on the European bike industry. But we needed to know more about the cause."
 - Michał Struk

Arto Leppilahti

Finnish, Trade department, European Commission

Belgium

“While our colleagues investigated in Europe, we had just a few months to visit several e-bike manufacturers in China, as well as a supplier of e-bike engines. We found out that these companies got support from the Chinese government in the form of cheap loans, bicycle parts and even land to build factories and expand their business for exports. This explained how these e-bikes could be sold at prices much lower than EU prices.”

“To do our job properly we had to investigate the activities of Chinese companies and look into the role of the Chinese economic and trade authorities. Back in Brussels, based on all the evidence collected in Europe and in China, we decided to impose special taxes on these e-bike imports. This helped restore fair trade in the EU.”

"We make sure EU trade rules are respected. We won't allow unfair price advantages to change the game."
- Arto Leppilahti

Oliver Christ

Customs, Port of Hamburg

Germany

“We complete up to 500 checks a day. If somebody declares a container of e-bikes, for example, we’ll cross-check them in an electronic database. We make sure they comply with EU trade rules or, if they don’t stick to them, pay anti-dumping duties.”

“We deal with a range of businesses and products. Over the years, I’ve developed an eye for identifying and stopping imports that break the rules and threaten the European market.”

"After a trade investigation is successfully completed, we step in to makes sure extra import duties are paid."
- Oliver Christ

 

Monika Božíková
Kenzel bicycle company

Slovakia

"My brother and I grew up surrounded by bicycles. To this day, we're a family-run business and we see suppliers from Europe and beyond."

"We employ 80 people and recently invested in a new production site. But we could never compete against unfairly priced imports. EU trade rules protect our future and allow our community to thrive."

 

"Europe has really played an important role in giving small businesses like mine a voice. When we join forces, we can better protect our industry."
Monika Božíková

 

Did you know?      

Pedal to the metal

Electric bicycles (e-bikes) come in different sizes, styles and their battery-powered electric systems relieve the burden, whether you're pedaling up or across any terrain. Newer models can even communicate with other vehicles, alerting them when they get too close.

E-fficiency

E-bike manufacturers in Europe pride themselves on reducing their carbon footprint. If all e-bikes sold in the EU were imported from China, C02 and other dangerous emissions could increase by 2 million tonnes.

800

The number of innovative European SMEs that make up the European bike manufacturing industry, which employs some 90,000 workers.

1 million

The number of e-bikes produced by European manufacturers every year.

Electric services

The EU-funded project Pro E-Bike promotes the public use of electric bikes and scooters as an attractive alternative to conventional (fossil-fueled) vehicles. The project is underway in Italy, Sweden, Croatia, Spain, The Netherlands, Portugal and other countries.

AEGIS Europe News wrap-up

www.aegiseurope.eu
The Industry Alliance AEGIS Europe promotes sustainable manufacturing, investment, employment, growth & innovation in Europe
AEGIS Europe brings together nearly 30 European associations representing a broad variety of industries including traditional industries, consumer branches, SMEs and renewable energy sectors, accounting for more than €500 billion in annual turnover and millions of jobs across the EU. This industry alliance, made up of leaders in sustainable manufacturing and social and environmental responsibility, is committed to European manufacturing as the fundamental driver of innovation, growth and jobs in Europe.
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