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Trade Policy Briefing - January 2021

EU-UK Trade and Cooperation Agreement: Understanding the Remodelled Rules

On 24 December 2020, EU and UK negotiators reached an agreement on the new Trade and Cooperation Agreement to govern their relations now that the UK has left the EU. The new EU-UK Trade and Cooperation Agreement goes well beyond traditional free trade agreements and provides a solid basis for preserving the EU-UK relationship. It consists of (1) a free trade agreement, (2) cooperation on economic, social, environmental and fisheries issues, (3) a partnership for citizens’ security and (4) a governance framework. 

The agreement reflects the fact that the United Kingdom is leaving the EU system of common rules, supervision and enforcement mechanisms and thus will no longer enjoy the benefits of membership or the single market. The agreement does not cover decisions on equivalences for financial services. It also does not cover possible decisions on the UK's data protection system or the evaluation of its sanitary and phytosanitary regulations for purposes of inclusion on the list of third countries allowed to export food to the EU. These are and remain unilateral decisions by the EU and are not subject to negotiation.

 

EU and China Reach Agreement on Investments in Principle

The EU-China investment deal is a major step towards negotiations on a free-trade agreement. But it also leaves the Biden administration with a headache over US-China relations in the post-Trump era. On December 30, 2020, the European Union (EU) and China officially concluded the negotiations of their Comprehensive Agreement on Investment (CAI) at last. The deal will broaden the European companies’ market access in China and streamline the country’s regulatory environment while ensuring access to key European strategic markets for Chinese firms. The EU and China are strategic markets, trading on average over one billion euros per day. China's growing domestic market and its economic weight represent significant business opportunities for European companies. However, China's market is significantly less open than the EU's. Access for foreign investors is restricted or prohibited in a number of sectors. European companies operating in China do not benefit from the same level of transparency and fair competition that Chinese companies enjoy in the EU market. The CAI is an important tool to address this imbalance.

The EU and China launched negotiations on the CAI in 2014. The European Commission conducted an impact assessment in 2013. A Sustainability Impact Assessment was carried out between 2015 and 2018 to assess the potential economic, social and environmental impacts of the agreement. In 2016, the two sides agreed that the future agreement would go beyond a traditional investment protection agreement to cover market access for investment and a number of important disciplines. It would also include provisions on sustainable development and dispute resolution.

 

CAI summary:

  • The agreement aims to improve market access conditions for European companies beyond China's existing World Trade Organization commitments. The EU's main objective is to improve access to the Chinese market for EU investors, in particular by removing quantitative restrictions, equity caps or joint venture requirements.
  • The agreement also aims to ensure that European companies compete on an equal footing with Chinese companies and companies from third countries when operating in China. To this end, the EU is seeking measures that require investors to behave in a certain way or achieve certain results, as well as equal participation in standard-setting work.
  • Transparency, predictability and legal certainty of the investment environment are equally important. The agreement aims to ensure that European companies in China have adequate access to information affecting their businesses and the opportunity to comment on relevant laws and regulations. It is also important to ensure clear, transparent and objective licensing and approval procedures and requirements, as well as procedural fairness and due process.
  • The EU has also proposed commitments to discipline the behavior of state-owned enterprises and increase the transparency of subsidies.
  • According to the EU, the agreement should also emphasize that sustainable development is an overarching goal of bilateral investment between the EU and China.
  • Provisions on investment protection should ensure a high level of protection for European companies, while preserving governments’ right to regulate. The agreement should reflect the EU’s reformed approach to investor-to-state dispute settlement (Investment Court System).
  • The agreement will include provisions for dispute settlement (state-to-state) and an institutional framework to monitor its implementation.

 

US EXIM Board Changes Rules to Help Boost US Competitiveness vs. China

On 18 December 2020, the US Export-Import (EXIM) Bank’s Board of Directors voted to lower the content threshold for the financing certain high-tech sectors and added some other financing flexibility to increase US industrial competitiveness against the PRC. Under EXIM’s Program on China and Transformational Exports, US exporters from 10 sectors can now meet a minimum US content threshold of 51 percent (down from 85 percent) to receive the maximum amount of financing EXIM offers. EXIM also included some flexibility in its requirements for US exporters from the 10 sectors that cannot meet the 51 percent threshold. Additional details on the new policy are available here.

 

European Union: The EU Adopts Countermeasures Against US Exports Following WTO Ruling on Boeing

New tariffs on US exports to the EU worth $4 billion have been in place since mid-November. The countermeasures have been agreed by EU Member States since the US has not yet provided the basis for a negotiated settlement, which would include an immediate removal of US tariffs on EU exports in the Airbus WTO case. The World Trade Organization (WTO) formally authorised the EU on 26 October, 2020 to take such countermeasures against illegal US subsidies to aircraft maker Boeing.

The countermeasures put the EU on a level playing field with the US, with significant tariffs on both sides based on two WTO rulings related to aircraft subsidies. They include additional tariffs of 15% on aircraft and additional tariffs of 25% on a range of agricultural and industrial products imported from the US.

 

New Era of Transatlantic Diplomacy: EU-US Agenda for Global Change

Following the election of President Biden and Vice President Harris, the European Commission and the High Representative, Josep Borrell, have presented a proposal for a new, forward-looking transatlantic agenda for global change. This proposal focuses on areas where EU and US interests align and where global leadership is needed. The proposal calls for a united, capable, and self-reliant EU, which would be beneficial for Europe,the transatlantic partnership, and the multilateral system. The proposal includes (1) stronger multilateral action and institutions, (2) the pursuit of common interests and leveraging the transatlantic collective strength, (3) looking for solutions that respect transatlantic common values of fairness, openness and competition.

Working Together for a Healthier World: COVID-19 and Beyond

The new transatlantic agenda calls to:

  • Ensure funding for the development and equitable global distribution of vaccines, tests and treatments – starting by joining and contributing to ACT-A and COVAX initiatives.
  • Develop a pandemic playbook for preparedness and response and step up cooperation and data sharing.
  • Facilitate trade in essential medical goods, starting by joining the Trade and Health Initiative under the WTO.
  • Work to reinforce and reform the World Health Organization. Collectively learn the lessons from the pandemic and work closer together on prevention, preparedness and response

Working Together to Protect the Planet and Prosperity on both sides of the Atlantic

Furthermore the new transatlantic agenda claims:

  • Coordinate positions and lead efforts for ambitious global agreements at next year’s landmark UN Summits on Climate and Biodiversity – starting with a joint commitment to netzero emissions by 2050.
  • Propose a new transatlantic green trade agenda, including a Trade and Climate Initiative within the WTO and measures to avoid carbon leakage.
  • Form a transatlantic green tech alliance to ensure greater cooperation on developing clean and circular technologies and creating lead markets.
  • Jointly design a global regulatory framework for sustainable finance. Lead the fight against deforestation and step up ocean protection.

 

Working Together for Better Technology, Trade and Standards

The new transatlantic agenda also says that the EU and the US aim to:

  • Work together to lead WTO reform efforts and solve bilateral trade irritants through negotiated solutions.
  • Establish a new EU-US Trade and Technology Council to help, facilitate trade, develop compatible standards and promote innovation.
  • Open a transatlantic dialogue on the responsibility of online platforms and Big Tech - to find global solutions for fair taxation and market distortions in the digital economy.
  • Develop a common transatlantic approach to protecting critical technologies in light of global economic and security concerns – starting by discussions on 5G.
  • Work on an AI Agreement and intensify cooperation to facilitate free data flow with trust.
  • Renew cooperation on regulation and standards, starting by re-engaging on conformity assessment negotiations and aligning positions in international bodies

 

Working Together Towards a Safer, More Prosperous and More Democratic World

Concerning democratic values the new transatlantic agenda says that:

  • The EU is ready to play a full part in the Summit for Democracy proposed by President-elect Biden, making joint commitments to fight the rise of authoritarianism, human rights abuses and corruption.
  • The EU and the US have to coordinate responses to common challenges to promote regional and global stability.
  • The EU and the US have to trengthen the joint commitment to transatlantic and international security, starting by establishing a new EU-US Security and Defence Dialogue.
  • Strengthen the multilateral system

 

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