A week in Brussels, Deforestation, EU Carbon Border Measure, Latest news, Public procurement

Week in Brussels: Strategic Compass, Procurement, CBAM, deforestation

There is fairly little to report back on in matters trade policy in this week of massive high-level meetings in Brussels: a NATO summit, G7 meeting, Council and US president Joe Biden attending all these.

There is simply no appetite in the EU –  mainly Germany – to further restrict any form of trade, be it in commodities or other, with Russia at this stage of its war with Ukraine.

There are two spots to watch though: a potential transatlantic data privacy deal to replace the Privacy Shield, and renewed pledges to find a transatlantic agreement on steel and aluminium trade.

But there are few other take-aways from this week of potential interest to our readers.

By Iana Dreyer and Rob Francis.

Strategic Compass

There is one document endorsed by heads of government this week everyone needs to pay attention to: the Strategic Compass.

This is the EU’s new guiding Common Foreign and Security Policy document. Most of it is about defence and military issues that go way beyond the scope of what our publication is about. However: the mindset laid down in paper here is bound to shape trade policy in the coming months if not years.

Security threats. “In this era of growing strategic competition, complex security threats and the direct attack on the European security order, the security of our citizens and our Union is at stake,” the document says. “The crisis in multilateralism is leading to more and more transactional relations among states. The spectrum of threats has grown more diverse and unpredictable. Climate change is a threat multiplier that affects all of us”.

Globalisation: “After three decades of strong economic interdependence which was supposed to decrease tensions, the return to power politics and even armed aggression, is the most significant change in international relations.”

And: “We face a competition of governance systems accompanied by a real battle of narratives. “

On China: “China is a partner for cooperation, an economic competitor and a systemic rival. With China, we can address matters of global concern such as climate change. China is increasingly both involved and engaged in regional tensions. The asymmetry in the openness of our markets and societies have led to growing concerns as regards to reciprocity, economic competition and resilience.”

On the Indo-Pacific: “A new centre of global competition has emerged in the Indo-Pacific, where geopolitical tensions endanger the rules-based order in the region, and put pressure on global supply chains. The EU has a crucial geopolitical and economic interest in stability and security in the region. We will therefore protect our interests in the region, also by ensuring that international law prevails in the maritime and other domains. China is the EU’s second biggest trading partner and a necessary one to address global challenges. But there is also a growing reaction to its increasingly assertive regional behaviour.”

Supply chains: “Achieving technological sovereignty in some critical technology areas, mitigating strategic dependencies in others, and reducing the vulnerability of our value chains are critical if we are to meet the challenges of a more dangerous world and be more resilient.”

International Procurement Instrument: next steps & the fine print on FTA, GPA members

The three EU institutions agreed on the fine print of the International Procurement Instrument mid March. So what happens next?

The legal text is now being prepared for adoption in Council and for a vote in the European Parliament. MEPs will vote on it in late April or May and hope to vote on it in plenary in June.

The legislation foresees that a government deal with a company from foreign governments that have not signed on to reciprocal market access commitments in the relevant sector maintain closed tendering markets in equivalent sectors for EU firms would be halted and ‘captured’ by the European Commission.

The latter would then start negotiations with the country of origin and seek better market access terms for the EU’s own firms. Failure of negotiations would lead the EU to exclude the bidder from the tender or would oblige a higher price tag – a ‘score adjustment measure’ -be applied to the tender.

The ‘IPI measures’ how they are called in the new regulation will apply to tenders worth at least €15 million for works and concessions and €5 million for goods and services.

Borderlex has been able to see the final text following trilogue.

The text confirms two important pieces of information:

1) FTA signatories and WTO Government Procurement Agreement partners are not entirely exempt.

2) Member states can exempt themselves if they so like.

Thus reads the final language:

“[M]easures adopted under this Regulation can only apply to economic operators, goods or services from countries that are not Parties to the plurilateral WTO Agreement on Government Procurement or to bilateral or multilateral trade agreements with, the Union that include commitments on access to public procurement and concessions markets, or from countries that are Parties to such agreements  but only with respect to public procurement procedures for goods, services or concessions that are not covered by those agreements.”

There are cases where the IPI regulation wil not apply: in the case of firms from least-developed countries, certain local authorities, and…. when governments decide they don’t want to apply the measures.

Language on local authorities: “To take into account the diversity of administrative capacity of contracting authorities and contracting entities, Member States should be able to request the exemption from IPI measures for a limited list of local contracting authorities under certain strict requirements”

Don’t care? Don’t apply! “[C]ontracting authorities and contracting entities should be able not to apply IPI measures limiting access of non-covered goods and services in case there are no Union and/or covered goods or services available which meet the requirements of the contracting authority or contracting entity or to safeguard essential public policy needs, for example regarding overriding reasons relating to public health or protection of the environment. When contracting authorities or contracting entities apply these exceptions the Commission should be informed in a timely and comprehensive manner to allow for appropriate monitoring”.

MEP pushing and shoving on CBAM

Discussions are continuing in the European Parliament on the proposed carbon border adjustment mechanism, with the environment committee on Tuesday debating the over-1300 amendments that have so far been submitted.

There appears broad agreement between political groups to centralise oversight in one EU authority, as one per country foreseen in the proposal. But there is no such consensus when it comes to the phase out of free allowances of emissions and the corresponding phase in of the CBAM.

The commission proposal foresees a 10-year period from 2025 for this switch to CBAM.  The parliament’s rapporteur Mohammed Chahim explained that amendments submitted by MEPs range from an immediate phase out of such allowances, as proposed by the Greens, to extending them for an almost unlimited time, as put forward by the EPP and right-leaning political groups.

The EPP also wants to put aside a reserve of free allowances in case the CBAM either does not work as it should or does not come into being. The idea of such a reserve is vehemently opposed by Chahim.

Chahim lawmaker nonetheless said he believes that a compromise will be reached on the free allowances, even though the council last week put the issue on the backburner, saying it should be decided as part of the review into the EU’s emissions trading scheme in the next few months.

The lead MEP on the file said he does not mind where the issue of free allowances is decided, but stressed he was strongly opposed to splitting up the commission’s broader package of measures to help Europe reduce its emissions by 55% by 2030, of which CBAM and the EU ETS are key elements.

He asked those present how he is expected to work on the CBAM “without knowing what will happen on free allowances”.

The Greens confirmed that they want to add aluminium to the scope, as well as downstream products, and are focusing on preventing circumvention.

Those on the right are reluctant to add further sectors until the CBAM has been shown to be working effectively and are also looking at providing financial compensation for exports.

Karin Karlsbro, the rapporteur for the INTA opinion which was rejected earlier this month, explained that export rebates would not work, as from a legal perspective Europe cannot be seen to treat emissions from outside the EU differently from those inside.

She also stressed that using the revenue from the scheme for the EU budget, as proposed by the commission and backed by MEPs in the budget committee, “will not fly at the WTO”.

The commission said it wants to hold back adding indirect emissions and further sectors to the scope until after the transition phase for CBAM which runs between 2023 and 2025. This is also when it wants to decide whether to add downstream products.

The EU executive confirmed during the meeting that it is already working on the delegated acts concerning the methodology for calculating average emissions and embedded emissions in third countries and stressed that it will intensify outreach to third countries.

A vote in committee is scheduled for May, with the plenary due to adopt the report in June. This will be followed by negotiations with the council in the second half of the year.

MEP pushing and shoving on deforestation product import ban

Parliamentarians from across political divides are calling for a broader scope of products and ecosystems to be covered under the commission’s proposal to restrict imports of products associated with deforestation and forest degradation.

During the exchange of views on 22 March in the European Parliament’s international trade committee, MEPs from both the left and right, including the rapporteur in the lead committee on environment Christophe Hansen, discussed adding rubber to the scope of products. The proposal currently includes products derived from cattle such as beef and leather, cocoa, coffee, palm oil, soy, and wood, and products in which they are found such as chocolate and furniture.

Hansen said he also wants to add certain palm oil derivatives, while Emmanuel Maurel from the Left group advocated for the inclusion of maize, which he argues is also driving deforestation.

The Left and the Greens also want savannah and peatlands to be added to the list of ecosystems.

Last week’s discussions in the environment council showed that a majority of member states want to further clarify the definitions for some key terms, and this concern is echoed in the parliament.

The issues around definitions are being driven by parliamentarians and governments from heavily forested member states, such as Sweden and Finland, who are wary of their own forestry industries being unwittingly caught in the scope of the legislation.

Hansen said he wants to delete altogether the definition for “sustainable harvesting operations” since he said there is no common global definition, whilst the INTA rapporteur Karin Karlsbro proposes to reword this to “sustainable forest management”.

Other issues being pushed by MEPs include providing indigenous peoples with the necessary help to support them adapt to the legislation, as well as an earlier cut-off date for when products within the scope of the regulation must not have been produced on land which has been deforested or degraded.

The commission responded to the latter point by saying that a cut-off date of 31 December 2020, as proposed in the draft regulation, would help to limit the number of smallholders that would be impacted. Karlsbro’s draft opinion is calling for a date of December 2015.

Commission representatives also expressed caution about extending the scope of products, saying a proper impact assessment would be needed first.

As an aside, the EU executive also mentioned that it had received “supportive statements” from smallholders in Ghana and Côte d’Ivoire in the cocoa production industries who see this regulation as a way to increase transparency around production.

The deadline for parliamentarians to submit amendments to Karlsbro’s draft opinion is 28 March.

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