A week in Brussels, Latest news

Week in Brussels: National Board of Trade in Brussels, Chile, Mexico, Mercosur, China

It’s been a week where, apart from the announcement of a first-ever (but a bit non-committal) digital partnership with Japan, little has happened concretely, but where signals were given that much more could happen in future….. By Rob Francis and Iana Dreyer.

Still no sixth sanctions package against Russia

Here’s what did not happen this week: the sixth EU sanctions package targeting Russia over its actions in Ukraine. It failed over Hungary’s veto to an oil import phase-out (embargo is too much of a strong word), despite the personal visit of European Commission president von der Leyen to Budapest on Monday.

The sanctions, which are tied to the EU’s Common Foreign and Security Policy, need to be adopted by by unanimity. Whether the Council will accept this situation or seek alternative ways of adopting the oil import phase-out through other means – e.g. a separate arrangement among 26 member states – remains to be seen. One can trust member states for trying to avoid at any cost of undoing the unanimity principle.

EU foreign ministers will meet again on Monday (16 May) to confer further.

Head of Swedish trade think tank calls for action on FTAs, Indo-Pacific and transatlantic

The EU “needs to look at the other side of the coin and develop an outward-oriented constructive trade-creating strategy”, according to Anders Ahnlid, Director-General at the Swedish National Board of Trade.

“The main problem is that trade policy is made based on catchy buzzwords, such as ‘America First’ or ‘level playing field’,” Ahnlid told Borderlex on Thursday in Brussels.

“Policy is proposed and advanced on the basis of these notions rather than on the basis of solid evidence, and that is a main worry for us,” he said.

“In a situation where we are forced to isolate Russia, we should develop relations with countries that are likeminded with us, and we should do that in a way that gives us the raw products that we use,” he said.

Ahnlid went on to stress that agreements with Australia, Chile, Indonesia, Mercosur, and New Zealand should be finalised, and added that he was glad to see negotiations with India are starting “albeit these will be very difficult”.

The National Board of Trade is a Swedish government-affiliated research institute for international trade, the EU internal market and trade policy.

Ahnlid was at pains to point out that he was not speaking for the Swedish government. But it is clear that such views resonate with a number of liberal-minded member states, including his own.

He also sees potential to broaden out the scope of transatlantic relations, even if a deal akin to TTIP is now clearly off the table.

“In addition to the Trade and Technology Council, we think it does make sense to start thinking again about both regulatory issues, but also pure trade issues, and try to move towards a transatlantic agreement,” he said.

“I am not naïve. It would be too much to ask for all this to happen, not least the transatlantic element, but we should nonetheless try to strive for this.”

Another area which is currently under-utilised by Brussels in the eyes of Ahnlid is the Indo-Pacific, notwithstanding the recent strategy  unveiled by the European Commission last September.

“We feel that the EU should do better at linking up to pacific countries,” he continued.

“For the EU to do what the Brits have done and apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could be too far. But on its own the EU could create better conditions for trade, and through existing agreements we could expand our sourcing from other countries in the region.”

The National Board of Trade is also advising the Swedish government on its response to the carbon border adjustment mechanism, as well as sustainability more generally.

“We feel that our task to deliver evidence-based recommendations is very important, and we will continue to try to do that,” stressed Ahnlid.

“When it comes to the trade and sustainable development chapters, we need to get the balance right and be realistic,” he said. The watchword should be “sustainable trade without barriers”.

But what does he make of the many recent proposals from the EU to level the global playing field when it comes to trade?

Ahnlid urges caution.

“We are worried that Europe is attaching too many resources to unilateral defence measures,” he warned, referencing the CBAM and the recently proposed anti-coercion instrument.

“Maybe each and every one of them could be understood separately, but taken together, they might reduce the competitiveness of the EU because it might prevent trade that is legitimate.”

The Director-General also stressed the importance of access to “intermediate goods”, saying that they make countries more competitive.

He is therefore recommending the EU look to what Canada and Switzerland are doing when it comes to introducing zero tariffs on intermediary products.

“We would like to see this discussed in the EU as well,” he said.

Chile and Mexico upgraded trade accords – signs of movement towards signature

There are signs that the Brussels machinery is starting to listen to people such as Ahnlid – who are not alone in the EU…

Signs that the EU’s free trade agenda is slowly reviving were visible this week during the meeting of the European Parliament’s foreign affairs committee.

In an exchange of views with MEPs on Thursday (12 May), Brian Glynn, Managing Director for the Americas at the European External Action Service, repeated what EU foreign affairs chief Josep Borrell had said  last week, namely that signing the modernised Association Agreement with Chile before the end of the year is a distinct possibility.

A deal with Santiago had been reached towards the end of last year, but the new Chilean government, which came into power shortly afterwards, wanted additional time to analyse it.

The EU official also signalled that the modernised Association Agreement with Mexico could be signed next year. The deal was concluded in December 2018 and its procurement chapter finalised in 2020.

Consultations between the two sides are ongoing and focus mostly around whether to divide up the agreement into a political agreement and into a stricly ‘trade’-focused agreement in order to facilitate ratification (the EU’s preferred choice) or to ratify it as one document, preferred by Mexico.

A “high level delegation” from Mexico will be in Brussels next week to discuss developments.

EU Mercosur agreement stirrings

There are even signs that the impasse over the EU-Mercosur agreement could soon be overcome. Glynn said that an “additional instrument” detailing elements related to sustainability and labour could be published “in the coming months” by the European Commission.

Germany appears to be applying pressure to get the deal over the line. Following a meeting with Argentine President Alberto Fernández in Berlin this week, Chancellor Olaf Scholz said that in relation to Mercosur it is “necessary in the interest of both our regions to make progress now”.

The Mexico and Mercosur agreements were finalised two and three years ago respectively, but the signatures have been delayed. The situation has not been helped by the current French presidency of the council seemingly wanting to pause progress on FTAs until its election period is over.

In the case of Mercosur, the European Parliament and certain member states, including France, have said they will not ratify the agreement as it currently stands unless there is some form of guarantee related to environmental protection.

Russia’s invasion of Ukraine is clearly focusing minds in Brussels and, as EU trade officials acknowledge, the conflict is highlighting the importance of the EU working with global allies in the trade domain – but other geopolitical concerns are also pushing the EU to act.

As noted in this week’s committee meeting, China has overtaken the EU to be Latin America’s second largest trading partner, and Russia’s influence in the region continues to grow.

The stakes are high. After all, for all the talk of strategic autonomy, without access to South America’s raw materials such as copper and lithium, the EU will struggle to achieve the targets it has set for itself in the environmental and digital arenas.

Macron Xi Jinping call: forced labour ILO conventions, Lithuania

French president Emmanuel Macron and Chinese president Xi Jinping held a phone conversation this week. The French president partly spoke also as representative of the country that holds the rotating presidency of the EU.

Macron “welcomed the ratification of the two core International Labour Organization Conventions related to forced labour” by China, we read in the Elysée readout of the call. These “need to be fully put into force in the whole Chinese territory, in particular in Xinjiang”, according to president Macron.

In fact China has not yet fully ratified the two forced labour conventions it committed to ratifying in the Comprehensive Agreement on Investment with the EU, concluded in December 2020.

CAI’s ratification is currently on ice due to EU sanctions and Chinese counter-sanctions related to Chinese policy towards its Uighur minority in Xingjiang. In late April the People’s Congress approved the ratification in principle and the process is still ongoing – according to the ILO website.

In the call president Macron also “recalled the expectations of France related to sanctions taken against Lithuania”, in reference to the de facto blockade of Lithuanian exports enacted by China since late last year following Vilnius’ decision to let Taiwan open a representative office there. The EU brought a case against China at the WTO over this matter.

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