As a member of the European Parliament’s Committee for International Trade, what are the pressing issues regarding the EU’s new trade strategy unveiled by the European Commission in February 2021?
Trade policy is hot. The pressing twin-challenge of the digital and green transition, compounded by the pandemic, meant that the Commission had to review its international trade policy sooner than expected. After ‘Trade for all’, the mot d’ordre is ‘Open Strategic Autonomy’. To me this means that we have to enlist trade policy to enhance the EU’s capacity to project its values and standards beyond our borders, while broadening our instruments to enforce the rules of our Single Market equally for all economic actors, foreign or European, within our borders. Only then, with these preconditions safeguarded, will we be able to maintain the openness that is and will be the source of our common prosperity. Concretely, this means that there are number of files on the table to enhance the EU’s autonomy, such as the Instrument to Combat Distortive Foreign Subsidies in the Internal Market where I am the European Parliaments rapporteur (i.e. levelling the playing field between European and foreign companies), the International Procurement Instrument (i.e. enforcing reciprocity in the openness of foreign procurement markets), an instrument to fight against economic coercion (i.e. against blackmail and interference in Member States’ policies). These and other instruments need to create the conditions to allow us to continue opening new markets, such as for example with India or Taiwan.
How can international trade contribute to the EU’s post-COVID-19 growth and prosperity?
During the pandemic we saw an unprecedented dip in international trade. But as economies gradually came back online after the initial shock, the recovery – however asymmetric – has been fast (the WTO global goods trade barometer even hit a record high in August 2021). As a true jobs engine, trade remains a catalyst for the recovery. Every additional billion euros in exports translates into 13 000 jobs on average. This is especially true for our SMEs, who make up 87% of exporting companies in the EU, but struggle still too often to access the benefits of trade deals. We are working to improve this, for example through the ‘Access2Markets’ portal we pushed for. In the end, diversifying export opportunities means building economic resilience, protecting jobs and hence generating growth.
The COVID-19 pandemic was accompanied by general raw material and finished goods shortages, global shipping disruption, delivery delays and rising production costs. In addition, geopolitics continue to disrupt our traditional trade relations and global supply chains. How do you see the situation evolving and where do you see the EU’s role in this context?
The withdrawal from Afghanistan, as well as the recent formation of AUKUS (Australia, United Kingdom, United States), without prior consultation among allies, has demonstrated all too painfully that the EU remains ‘an economic giant, a political dwarf, and a military worm’. To state it bluntly, the EU is quickly becoming geopolitically irrelevant, or to say it with the words of Jean-Claude Juncker: we lack Weltpolitikfähigkeit. When we do have clout around the world, it is very often thanks to our economic might. Therefore it is very clear to me that the Union can only be truly autonomous when she is embedded in a dense network of trade and bi-, pluri- and multilateral partnership agreements. As the most reliant on trade among the large economies in the world, an open, stable and fair-trade environment (with a fully functional WTO to enforce and arbitrate international trade law) directly serves the EU’s interests.
If we have discovered certain strategic dependencies during the pandemic, turning only towards solutions such as “reshoring” or “nearshoring” (or worse autarky) would be dangerous for a continent that is resource-poor by nature. Our diversified network of trade agreements, has been our best insurance policy during the pandemic. Commission research in the context of the renewed industrial policy has shown strategic dependencies for only 34 products (= 0.6% of the EU’s total import value of goods) that cannot be easily solved by diversification of import channels or substitution with European equivalent products. This does not mean that in certain strategic sectors such as medical personal protective equipment, critical raw materials (essential to fuel our own green transition) or semiconductors we shouldn’t try to increase our own capacities. However, beyond building autonomous capacities, we should also look into diversifying our supply routes via investment agreements, for example with Taiwan where semiconductors are concerned. I advocated setting up a supply chain diversification-fund for companies to help them build resilience and avoid future bottlenecks. Reshoring can be part of such a strategy, but the decision always needs to remain in the hands of the company.
The current crisis also enhanced EU companies’ vulnerability to subsidised non-EU competitors. Indeed, they have an advantage to acquire European companies or win public procurement contracts. As newly appointed rapporteur on the legislative proposal for a Regulation on foreign subsidies distorting the internal market, presented by the European Commission on 5 May 2021, what is your philosophy to tackle distortive subsidies granted by third countries?
Without the right tools to ensure fairness and enforce the level playing field within our Single Market, we undermine public support for economic openness. This would mean shooting ourselves in the foot, especially knowing that 85% of global growth is projected to be generated outside of the EU no later than 2024. I therefore take my role as European Parliament rapporteur on this file very seriously, because it is about creating the conditions for enduring openness in the EU, which in turn is the lifeblood of the Luxembourgish economy.
Do you believe the future legislation should address possible distortions by the increased activity of foreign state-owned enterprises in the internal market?
We need to put an end to the situation in the Single Market where foreign companies can submit abnormally low tenders when competing for government contracts, or overpay for an acquisition of a European company, because they are in receipt of (often undisclosed) state-subsidies (that can take many forms such as zero interest loans, unlimited guarantees, tax credits,…), whereas government subsidies for European companies are subject to rigorous EU state-aid control. This means our companies are not competing with the same weapons, in our own market. As a result of this, EU companies are crowded out and this translates into loss of market share and reduced capacity to invest in innovation. Therefore, I want to make sure that the Commission has the tools to step in before any damage is done. At the same time we have to be mindful that we don’t create a paper tiger that only leads to additional red tape for our companies. We need to deliver an instrument that can act as a powerful deterrent and create real tangible benefits for European companies.
Of course the EU is not acting in a vacuum here. It is my hope that this instrument will incentivize other countries to revise harmful industrial policies that lead to overcapacities and a host of associated social and environmental problems. To this end I will advocate for a twin-track approach, where we pursue an autonomous instrument while at the same time continue to work with partners to revise global rules on industrial subsidies in the context of the WTO. The EU-US Trade & Technology Council will also be a very important forum to create synergies on this topic.
Finally, looking back on Brexit and your work as a rapporteur for the negotiations of a new trade relation with the UK, what challenges remain since the entry into force on 1st January 2021, of the EU-UK Trade and Cooperation Agreement?
Brexit is a painful never-ending saga. Many of the negative effects for the UK have been hidden in the long grass of the pandemic, but some Brexit effects are inevitably starting to show for example in labour market shortages in a number of sectors, of which the current fuel delivery problems to petrol pumps is a current example. We have also seen that the UK has recently extended the waiver for import checks for European exports because the administrative burden would prove too heavy. On the European side of the border, these checks have been in place since day one however, putting British companies and exporters on a competitive disadvantage. An interesting way of taking back control to say the least… The biggest flashpoint to date obviously remains the implementation of the Northern-Ireland Protocol, where the UK reproaches the EU inflexibility. Yet the protocol was jointly agreed by the EU and the UK and is the consequence of the type of Brexit that the UK has sought… The biggest issue before us in my eyes is therefore the utter lack of trust that repeated (threats of) unilateral action by the UK government have caused.
In your opinion, how can we overcome those challenges to ease trade between the EU and UK companies?
The TCA has been operational for less than a year now – let’s not forget that it takes time for an agreement of this magnitude to get acquainted with. Moreover, it comes fully equipped with an intricate governance structure to manage all parts of the agreement. Implementation issues should first be addressed through those channels as we become aware of them.
As far as the Protocol is concerned, we should first and foremost seek to fully implement it. The appropriate infrastructure is still not in place, for example the work on border control posts has been halted, and certain grace periods have been unilaterally extended by the UK. We believe the protocol in and of itself provides sufficient flexibility to address the majority of the implementation issues that have been raised. Moreover, the EU has bent over backwards to accommodate many of the issues that have been raised and the Commission is working hard to address all the issues point by point. The most sustainable solution in my view however, would be for the EU and the UK to conclude a veterinary/SPS agreement that would do away with 80% of the checks on goods travelling between UK and NI. The UK has so far always refused this for reasons of independence and to be able to strike trade deals with other nations, but maybe they will want to reconsider this now that the US has thoroughly quashed their hopes of a UK-US agreement anytime soon…
While the EU must in any circumstances remain constructive to accommodate for the special situation in Northern-Ireland, what we cannot allow is that the UK erodes the protocol step-by-step. This would be a threat to the integrity of the Single Market, and could lead to unfair competition for EU companies. We will continue to make sure that the Commission watches over this, and reactivates its legal procedures if necessary and can resort to the cross-suspension of preferential access under the TCA as a last resort. It is my hope that the launch of interparliamentary dialogue between the European Parliament and the House Of Commons will also be able to improve this situation.
On 14 July, the European Commission presented a package of proposals to make the EU fit for reducing greenhouse gas emissions by 55% by 2030, including a new Carbon Border Adjustment Mechanism. In a Plenary debate on 14 September, you welcomed the proposal while expressing some doubts as regards its capability of maintaining European businesses competitive. What are the opportunities and risks of the current proposal?
I do indeed think that the CBAM is, in theory, if well designed, an appropriate tool to implement, or export, the high European standards on carbon emissions. Third-countries with less or no environmental regulations in this regard would be forced to level up their emission regulations.
However, the mechanism as presented in July is not fit for that purpose. Third-country producers will either not or only marginally be affected; since it will be the European importers who pay the carbon fees embedded in the imported products. Additionally, this will not only lead to a higher administrative burden for our domestic manufacturers but also reduce their competitiveness on a global scale.
Additionally, due to a lack of monitoring, third-country producers might decide to apply different standards on part of their production and send their products with the lowest carbon footprint to the European Union; their overall emissions would not be reduced. This possible source shifting would make the CBAM obsolete since it would fail its primary goal.
Overall, I still see the idea of a CBAM as a good opportunity to raise our global environmental standards but only if it is polluter himself who pays and does the paper work. Executive Vice-President Frans Timmermans was taken by surprise to say the least when I highlighted the contradiction between the current CBAM proposal and the “polluter pays” principle. A lot of work ahead to make that tool work!