A week in Brussels, Canada and CETA, China, Energy & Environment, Germany, Latest news

Week in Brussels : Hong Kong, G7 climate club, US, Canada

The EU trade policy machinery is definitely back in action after a slow-ish start to the year. Here some selected updates on developments this week by Iana Dreyer and Rob Francis.

Hong Kong: European Parliament calls into question customs arrangement, WTO status

The European Parliament voted on Thursday by a very strong majority of 585 MEPs in favour of an urgent non-binding resolution making recommendations to EU leaders aimed at helping improve the human rights situation in Hong Kong. The move comes amidst a growing crackdown against dissent and independent journalism as the city-state increasingly comes under the fold of direct Beijing rule.

The report mostly calls for political responses and individual sanctions on Chinese and Hong Kong leaders. The resolution also reiterates already well-known positions of the EU legislature in matters related to China and its broader human rights track record, not least as regards its Uyghur minority.

It is the first time that the parliament recommends touching at trade arrangements with Hong Kong. Hong Kong is an independent customs territory and a full-fledged member of the World Trade Organization.

MEPs are asking the Commission and EU member states to “review the Agreement between the European Community and Hong Kong, China on cooperation and mutual administrative assistance in customs matters and the EU’s support for Hong Kong’s seat at the World Trade Organization, in the light of the destruction of the autonomy the territory had under the previously established ‘One Country, Two Systems Model’.”

As to China trade and investment more broadly, the parliament “reiterates its previous position that any ratification of the EU-China comprehensive agreement on investment must take into account the ongoing human rights situation in Hong Kong and China’s commitment to the Sino-British Joint Declaration, and involve a clear and binding commitment to workers’ rights so as to ratify and implement International Labour Organization Conventions No. 29 on forced labour, No. 105 on the abolition of forced labour, No. 87 on freedom of association and protection of the right to organise and No. 98 on the right to organise and collective bargaining”.

G7: Olaf Scholz pitches carbon club at Davos

German chancellor Olaf Scholz formally announced he wants to use this year’s German presidency of the Group of Seven countries to turn the latter into a “nucleus of an international climate club”.

During an online address to the World Economic Forum on Wednesday (18 January 2022), the German leader said that such a club could achieve a “paradigm shift in international climate policy” and would mean there would be no need to wait for the “slowest and least ambitious”.

The club would be open to all countries, including developing countries “in the global south”, and would be fully WTO compliant, he said.

Members of the club would be obliged to work towards limiting the planet’s warming to 1.5 degrees Celsius and achieving climate neutrality by 2050 “at the earliest”. G7 members signed up to both these aims at last year’s summit in the UK.

Scholz also stated that he wants to “turn climate action from being a cost factor into a competitive advantage by agreeing joint minimum standards”.

A proposal from several ministries in Berlin that was put before the German government in August 2021 said that climate club members could “coordinate a selection of climate-policy instruments with each other.”

The “selection of suitable instruments (…) should (…) include in the medium term a measure for (possibly implicit) carbon pricing, and they should not distort international competition.” Other ideas proposed by this report and which are likely to be taken on board the list of initial German government proposals to fellow G7 members is the creation of markets for carbon-free products, setting carbon prices and avoiding carbon leakage at the same time.

The same document further suggests that members “work together on setting up a global supply chain for green hydrogen”.

The idea of a climate club has gained popularity in think tanks in particular, as a means to enable likeminded groups of countries to align their climate policies and set higher ambitions than may be possible multilaterally whilst avoiding damaging trade frictions.

The recently established EU-US Global Arrangement for Sustainable Steel and Aluminium could be seen as a variation on a climate club, since one of its aims is to discourage trade in high-carbon steel and aluminium.

TTC preparatory work continues

There is a constant to-and-fro between the Commission’s services and their US counterparts on many things related to trade. This week USTR Katherine Tai and EU trade chief Valdis Dombrovskis met informally without issuing a statement after the meeting. “Good to discuss progress of the Trade and Technology Council with  @AmbassadorTai today, and our ongoing work on @wto issues, including trade & health,” is the only tweet available on this meeting.

There is as yet no date for the next Trade and Technology Council meeting, which is due to be held this spring in Europe, potentially in France. The first meeting of this bilateral dialogue mechanism in September 2022. Its aim is to meet twice a year and to help the EU and US compare notes on key regulatory developments affecting the trade and digital sphere.

Areas where concrete ‘deliverables ‘are seen as within reach in the coming months include coordinating approaches to regulating or setting standards for ethical artificial intelligence.

Investment screening, labour rights are also seen as potential areas where both sides might be seen as working in sync.

The TTC is made of 10 working groups covering areas ranging from clean tech standards to resilient supply chains to reforming the global trading system. The two sides are also expected to establish a dedicated work stream on semiconductors under the heading of supply chain resilience this spring. This would come after the EU will have tabled its own Chips Act, which is due to be unveiled early February.

Progress on the TTC has been overshadowed by US consternation at the fact that the EU is steering ahead with putting two key digital pieces of legislation without US input, the Digital Markets Act and the Digital Services Act, which is in the final stages of being adopted.

“The problem with the TTC is why would the US listen to the EU on AI if the EU does not listen to the US on the DMA and DSA”, said  Brussels-based Christian Borggren, vice president of the Computer and Communications Industry Association at a webinar this week.

Canada’s Ng, Dombrovskis touch base on subsidies policy and CETA

With the EU focusing so strongly on itself and on the US it is a bit harder for Canada to get the full attention it might see as warranted as an unrelenting political and trade partner of the EU – and fellow FTA signatory.

Canada’s trade chief Mary Ng and Dombrovskis took the opportunity of a meeting hosted by Canada under the Ottawa Group umbrella of WTO system reform supporters this week to touch base.

“Minister Ng extended her appreciation of the EU’s ongoing engagement in the Ottawa Group and support to advance work on WTO reform priorities,” a Canadian statement reads.

“Minister Ng and Minister Dombrovskis committed to further strengthen bilateral commercial relations, including the full implementation of the Canada-European Union Comprehensive Economic and Trade Agreement.”

Among others the EU and Canada are struggling to finalise an agreement on mutual recognition of qualifications of architects, which is a legally binding commitment made under CETA, a deal that has been provisionally in force since September 2017. There was movement in 2021 on this deal but there are signs the two sides are struggling to conclude the talks.

“Minister Ng also discussed the importance of working together to address trade-distorting subsidies while also avoiding the creation of new barriers to trade and investments between Canada and the EU.” It’s clear the EU’s current industrial policy plans are focusing minds in Ottawa.

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