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Hello from Brussels and welcome to Trade Secrets. Alan isn’t here, so I’m here to update you on what’s happening in the EU – still, as she likes to remind us, the largest trading bloc in the world with the most trade deals.
I will examine whether this number will increase and in what direction it will move as it continues to rely on trade defense instruments and economic security measures. Or to put it bluntly: become more French. (Or you could say: American and Chinese).
Get in touch. Email me at [email protected]
The EU is trying to get economic security under control
Over the next three months, the strategy outlined in the summer is likely to be strengthened as Brussels responds to the unilateralist US and tougher China. It is time to stop being naive, as the French put it.
The immediate reason for this was Washington putting pressure on the Netherlands and Japan to restrict sales of high-end chip-making technology to China. Fear of retaliation from Beijing has convinced The Hague to favor collective defense. It and other “like-minded” countries such as the Baltics and the Nordic countries have long fought against the French push for greater protectionism. But their alliance was hugely weakened when its largest member, the United Kingdom, left the union in 2020.
Russia’s invasion of Ukraine has persuaded its neighbors, typically free traders, to reduce their dependence on potentially hostile partners. Lithuania’s decision to strengthen ties with Taiwan and support Ukraine has led to the country simultaneously suspending almost all trade with Russia and China, a Brussels-based official noted.
The strategy is based on three pillars: tightening existing controls on inbound investments; shifting export control decisions from national governments to an EU-wide system; and, most controversially, the regulation of foreign investment.
Venture capital firms shouldn’t fund Chinese companies to develop AI, weapons-grade technology and the like, and manufacturers shouldn’t be able to circumvent export controls by producing the same parts in China, the logic goes.
The European Commission has pledged to present a list of sensitive technologies that could be subject to EU-wide export controls by the end of the month. It is likely to be short-lived because the issue is sensitive, officials say.
A proposal to tighten scrutiny of foreign investments is expected by the end of the year. Most countries now have some sort of national system in place and are more likely to have to turn to Brussels, which can recommend, but not enforce, rejection.
Outbound screening will take longer, but even Dutch Prime Minister Mark Rutte’s liberal VVD party has supported the idea in its manifesto for November’s elections.
The Chinese question
The buzz about action against China is getting louder and louder. President Emmanuel Macron addressed French ambassadors last week and railed against Beijing’s import tariffs on electric vehicles. He compared his 25 percent with the EU’s 10 percent.
He called for reciprocity and said: “We need a trade policy that defends Europe’s manufacturing base.” He added: “I don’t want a France and a Europe where we can only buy technologies made either in China or in the United States .”
Chinese imports are rapidly gaining market share in the EU and its overseas markets such as the UK. Meanwhile, EU car manufacturers are struggling.
Companies are reluctant to complain about Chinese behavior for fear of retaliation. It is therefore significant that the Trade Commissioner told the Financial Times last month that he was prepared to examine a case “ex officio” on his own initiative.
Many in Brussels suspect that DG Trade is investigating the subsidies that Chinese car manufacturers have received – but the fateful political decision to pull the trigger has not yet been made. It will only be implemented if there is significant support from Member States. Diplomats from countries calling for action say it is the last chance to preserve hundreds of thousands of auto industry jobs.
Brussels is also complaining loudly about the exclusion of European medical products from China on the grounds that they do not meet Beijing’s standards. This could also lead to EU barriers to Chinese imports of similar goods.
Valdis Dombrovskis will visit Beijing this month for the latest high-level economic and trade dialogue, hoping to make progress on these issues.
Progress on trade agreements
Mercosur – don’t hold your breath. On the EU side, green NGOs and farmers have formed an alliance to prevent this. Fears that Brazilian and Argentine farmers would cut down trees to grow cheap food that would have to be undercut led Brussels to call for an additional instrument to protect the Amazon. Mercosur is now preparing its counterproposal. The deal was agreed in 2019 by former presidents of Brazil and Argentina, and the clearest sign of desperation is the Eurocrats’ suggestion that Uruguay was really interested.
Mexico – waiting for Andrés Manuel López Obrador. The agreement is finalized, but Mexico has not yet decided whether to ratify it. EU officials say some members of the president’s left-wing government are nervous about labor and investor protections in the deal. The US has used the labor provisions of its own UMSCA agreement to bring lawsuits against Mexico City.
Australia – The Commission was surprised when Trade Minister Don Farrell abandoned talks in July rather than finalize the deal. As always, it’s beef on top of beef. Canberra is pushing to increase sheep and beef meat quotas after losing market share in recent years. After October 14th and a difficult referendum on Aboriginal rights, things could be moving again. If the government wins, it could feel able to oppose agricultural interests. If it loses, a possibility that grows larger by the day, it may be too weak to do so.
Mapped waters
China is following its usual industrial plan in the battery market. New analyzes show that thanks to government subsidies and low-interest bank loans, the company is building far more systems than it needs for electric cars and grid energy storage.
Production capacity at China’s battery factories is expected to reach 1,500 gigawatt hours this year – enough for 22 million electric vehicles – more than double forecast demand, according to data from research firm CRU Group.
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Battery manufacturers in the EU assume that the Chinese are aiming for “pump and dump” and sending cheap, subsidized batteries to the global market.
This has already happened with steel, aluminum and solar panels. There are no longer any EU producers for many critical raw materials such as magnesium, as cheap Chinese production floods the market.
After the EU imposed tariffs on Chinese steel production, it invested in factories in other countries and Brussels has now taken similar measures to hit Indonesian factories.
With battery and car manufacturers seen as essential industries by many Member States, renewed action is likely. (Please see above!)
Trade connections
The drug trade is booming. My Brussels-based colleagues Laura Dubois and Ian Johnston traveled to Antwerp, Europe’s second-largest port, to find out how cocaine smugglers are exploiting security gaps.
Chinese lenders are replacing Western banks in Russia, providing the country with billions of dollars in loans. The move is part of Beijing’s efforts to establish the renminbi as an alternative global currency to the dollar, write Owen Walker and Cheng Leng.
How can you reduce risk from China without facing consequences? Italy’s Foreign Minister Antonio Tajani is in Beijing to find out as Rome’s far-right government tries to extricate itself from the Belt and Road Initiative.
Politico has a profile of the EU’s top trade defense official, Denis Redonnet, who will be at the center of any action against China. It features former trade commissioner Pascal Lamy and other former colleagues.
Trade Secrets is published by Jonathan Moules
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Source : www.ft.com