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Tag: Economic Policy

Looking for a common strategy

  • March 2019
  • Otto Ilveskero

Looking for a common strategy

 

EU struggles with a united vision on China ahead of bilateral summit

 

Source: Wikimedia Commons

 

The EU is struggling to maintain a united front towards China ahead of the 21st bilateral EU–China summit on 9 April. After the Commission labelled China a “systemic rival” for the first time, France has stepped up the calls for a common EU strategy and an alignment of vision towards China.

 

But while President Macron staged a “mini-summit” with Angela Merkel, Jean-Claude Juncker to Paris and China’s Xi Jinping on Tuesday (26 April), the Italian government was busy signing a bilateral investment deal as a part of the global power’s controversial Belt and Road Initiative (BRI). The EU’s slow departure from its usual soft stance towards Beijing is a welcomed step despite having so far gained limited attention beyond the Franco-German axis. Alongside Italy, 12 other EU members have signed a memorandum of understanding with China on BRI.

 

China’s growing interest in Europe comes with risks attached

 

Chinese foreign direct investment (FDI) in Europe has risen rapidly over the past decade. Last year Chinese companies completed FDI transactions worth over eight times the 2010 numbers (from €2.1 billion to €17.3 billion). During the record year of 2016, Chinese firms completed investments worth €37.2 billion in the EU. This year, China’s trade conflict with the United States has already prompted growing Chinese interests towards Europe, as highlighted by Xi’s European tour. China’s recent €2.5 billion memorandum of understanding with Italy, which marks the first time a G7 economy has signed up to the BRI, could grow to €20 billion in value in the future. These investments to the struggling Italian economy cover ports, satellites, agriculture, and media, among other sectors. In addition, China has also set aside a provisional €15 billion in the train tunnel development plan between Helsinki and Tallinn earlier this year. Chinese technology company Huawei’s investments and sponsorships in Europe worth billions of euros are also well-documented.

 

But dealing with state-owned companies that use Chinese governmental subsidies to their advantage will inevitably come with potential risk factors. Estonia’s Prime Minister Jüri Ratas, for instance, has called for a security review of the FinEst Bay Area project. Moreover, during his recent visit to Central Europe and Brussels, US Secretary of State Mike Pompeo sounded alarm on EU member states conducting business with Huawei on the company’s 5G technology in particular, which the US administration has identified as a security risk. Washington has suspected the Chinese government could use Huawei technology for spying, although it has so far not provided public evidence to support the claim. Like Germany earlier this month, the European Commission resisted the calls to issue a blanket ban on Huawei in its new Cybersecurity Recommendation published on Tuesday 26 March. Instead, the European agenda-setter decided to ask the national capitals to run risk assessments on 5G network technology and to collaborate on common EU-wide measures before auctioning spectrum bands. Many member states – notably France, Italy, and the UK, are yet to update their 5G security requirements.

 

China’s ‘debtbook diplomacy’ and strategic investments in Europe

 

China’s strategic investments around Europe may in the long-term constitute an unsustainable burden on weaker European economies. This so-called ‘debtbook diplomacy’ allows China to use economic leverage to politically coerce vulnerable countries to achieve its strategic aims. For example, the EU has raised concerns over China’s investments in Central and Eastern Europe as a part of its 16+1 Initiative. Similarly, due to concerns over the autonomy and sovereignty of Italy, the EU’s budget commissioner Günther Oettinger recently called for the EU to veto the member state’s participation in Chinese infrastructure projects. “[I]nfrastructure of strategic importance like power networks, rapid rail lines or harbours are no longer in European but in Chinese hands”, the commissioner added.

 

Equally important to China are the strategic investments made over the past decade which have led to its state-owned enterprises controlling around 10% of European cargo port capacity – most recently signing deals to manage Italy’s largest port in Genoa as well as the port of Trieste. On a continent where 70% of all goods crossing its borders travel by sea, this is certainly not insignificant. In addition, as a result of its carefully planned ‘science diplomacy’ and investments through the ‘Polar Silk Road’, China has been able to carve a foothold in strategically valuable locations in the Arctic. This has provided China with the opportunity to better observe air traffic and monitor naval activity in Europe’s High North, as well as tighten its grip on the global rare earth materials market. There is always a possibility these acquisitions will be used for non-civilian purposes later on.

 

EU needs a coherent common China strategy

 

The EU is in need of an updated common China strategy. (This applies equally to NATO, as pointed out here by Carnegie Endowment’s Erik Brattberg.) Although the nature of rhetoric has shifted since the EU’s 2016 Elements for a new EU strategy on China, the continent remains divided on its attitudes towards Beijing. For example, the southern member states have been critical of Brussels and the northern member states’ complaints about the scale of Chinese investment, given that many of them were pushed to sell prime asset during the height of the eurozone crisis. The combined impact of slow economic growth and the EU’s failure to maintain economic solidarity has also resulted in a situation where member states such as Italy are considering selling debt to China. This has understandably raised concerns in Brussels regarding the possibility for China to establish political leverage over Rome.

 

Calling for China to deliver on World Trade Organization (WTO) reforms regarding subsidies and technology transfers is not enough, when the EU cannot do it as one voice. Effective implementation of common screening regulation for FDI is one thing, but the EU must also improve its own practices on strategic investment to support many areas that now feel the need to turn to China due to lack of investment. Increasing EU investment on infrastructure and industry is important also from the perspective of sustainable development.

 

This is, however, not to say that the EU should become adversarial towards China or ban Chinese investments as a security risk altogether. It is to support what the Commission has already stated: ‘Neither the EU nor any of its Member States can effectively achieve their aims with China without full unity.’ It is highly important that member states ensure their bilateral relations with China comply with EU law and policies, while the EU aims to deliver a more balanced and reciprocal overall trade relationship with Beijing. A united EU can expect to wield some leverage in trade negotiations as China’s largest trading partner, but this should not be overestimated. China is adept at pitting Europeans against each other (not to say Europeans would not be good at it on their own). Thus, without a common strategy, the EU simply cannot push for the reciprocity in economic ties and advances in human rights it so desires.

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Piece by piece

  • March 2019
  • Otto Ilveskero

Piece by piece

 

Solving the challenges hindering EU–US trade talks

 

Source: Security & Defence Agenda | Flickr

 

The EU–US trade negotiations could be revitalised “within some weeks”, according to the EU Commissioner for Trade Cecilia Malmström. The Council is expected to approve the negotiating mandates during its currently on-going Summit in Brussels. The prospects of any transatlantic trade talks have faced numerous challenges since the Transatlantic Trade and Investment Partnership (TTIP) negotiations stalled, but the two sides sound ready to return to the table.

 

As is often the case in trade talks conducted by the EU, however, the agriculture sector has constituted a significant problem moving forward. In the specific case of revitalising the EU–US trade negotiations, there have been significant disagreements on whether to include agriculture products within the scope of the agreement. Despite the joint declaration made by Presidents Juncker and Trump in the White House Rose Garden in July 2018 to reduce trade barriers and strengthen strategic cooperation, trust between the transatlantic partners has only eroded further. From the EU’s perspective, President Trump’s zero-sum perception of trade negotiations, steel tariffs, and threats to impose measures against European car imports have reinforced the view that his administration is not willing to follow the rules on which the transatlantic relationship has traditionally been based.

 

“Agriculture is out! That is crystal clear.” Speaking at a European Liberal Forum global trade event on Thursday (21 March), Trade Commissioner Malmström was more than certain that the Council would never grant her a mandate to negotiate trade with the United States that would include agriculture products. She stated that there is no appetite on the EU side to open negotiations for a full 30-chapter free trade agreement. Instead, the bloc would be looking to conclude a smaller agreement, as President Juncker already indicated during his July 2018 visit to the White House. According to the Commission’s draft mandates released this January, the EU would be open to negotiating a trade agreement strictly focused on removing tariffs on industrial goods (such as steel) and another agreement on regulatory conformity intended to remove non-tariff barriers.

 

Speaking also on the topic of trade on Thursday, the US Ambassador to the EU Gordon Sondland told an American Chamber of Commerce to the EU (AmChamEU) transatlantic conference that “the mandate that is being circulated falls far short of what even President Juncker and President Trump discussed in July”. He continued that the talks will need to include “all aspects of our relationship” and repeated the US administration’s demand that agriculture is included in the deal. Last week, US Trade Representative Robert Lighthizer told Congress that the EU-U.S. Executive Working Group had reached a “complete stalemate” as a result of the disagreements over agriculture.

 

The situation is not this simple, of course. Washington has also consistently refused the EU’s demands to include public procurement and geographical indications in the negotiations, as Commissioner Malmström explained on Thursday. In addition, car tariffs have been another point of contention, as Brussels has insisted that vehicles should be included in the negotiations. This is obviously in the EU’s interest in order to avoid higher import tariffs on European cars to the US as per President Trump’s threats to do so. However, the 2018 joint declaration – on which the current efforts to establish a dialogue are based – explicitly refers to “non-auto industrial goods” in its wording.

 

What is there to be done then? First of all, both Commissioner Malmström and Ambassador Sondland agreed in their speeches that the EU and US could build up agreements, moving through the issues one by one. Dealing with each issue on its separate track would allow addressing problems at their own pace. Successfully concluding a smaller trade deal could also be used as a platform to build trust between the transatlantic partners and to pave the way for more comprehensive talks in the future. According to Malmström, seeking a positive platform for these talks could start, for example, from the work already done on some regulatory cooperation and standard alignment matters during the TTIP negotiations. From the EU’s perspective, focusing also on aligning car safety regulations could possibly strengthen its hand in arguing that the US cannot impose tariffs on the basis of national security.

 

Furthermore, the EU and US should use the talks to set a common agenda on their shared concerns on global trade, namely reforming the WTO rulebook and challenging China on its unfair practices.

 

There are also risks that the transatlantic negotiation would backfire, eroding the already strained relationship even further. The EU might, for example, fail to enter the talks as one voice. The European Parliament’s recent vote failing to issue recommendations on the US trade negotiations highlights the existing divisions between European policy-makers on the topic. President Trump’s own ‘tough guy’ act and the possibility that his administration would impose punitive tariffs before the talks have been concluded – in which case the EU would most likely suspend the negotiations – also pose risks to re-building the partnership. For example, carefully avoiding any reconciliatory tones in a speech to the US governors this February, Donald Trump called the EU “in certain ways, tougher than China” on trade and said that he would “tariff the hell out of [the EU]” if the bloc would not agree to include agriculture products in the trade negotiations.

 

Yet, perhaps the future opportunity to use the EU–US trade negotiations as an example of President Trump’s deal-making skills ahead of the 2020 US presidential race will eventually be enough to convince Washington of the benefits of a smaller trade agreement. Commissioner Malmström, at least, expects the talks to be concluded by the end of the current Commission’s mandate on 31 October.

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The battle is won, but the war goes on

  • June 2018
  • Ágnes Szűcs

The battle is won, but the war goes on

Greece bailout program ends, but the EU still can’t handle shocks

 

I have worked out the ideal solution for the Greek economic crisis a long time ago. But unfortunately, I haven’t had a chance so far to share my wisdom with the decision-makers of the troika. Maybe now that they are all relieved after closing a 10-year-long saga after a marathon Eurogroup meeting at Thursday night.

 

My recipe for happiness is very simple: we should move all the EU institutions to Athens. The construction work and the rising demand for flats, hotels and restaurants would kick off the economic boom and they would contribute to its sustainability in the long term. We, Eurobubble workers would also be happy to have tons of hours of sunshine and a beautiful seaside in a half-an-hour reach from the office. I can only see one counter-argument for my hilarious scenario: we wouldn’t be able to complain about Brussels weather for twenty minutes as a small talk with new acquaintances.

 

Apart from daydreaming, this week has really seen a historic Eurozone meeting in Luxemburg. As French finance minister Bruno Le Maire pointed out very optimistically, “the Greek debt problem is behind us”. However, he is only partially right. Because even if the country managed to secure its last 15 billion payment, got some moderate debt relief and therefore can officially quit the bailout program in August, the debt problem has remained with us. The EU is still not able to tackle major asymmetric economic shocks, like the bloc wasn’t able to do so ten years ago at the beginning of the crisis or in the early 1990s, at the creation of the Economic and Monetary Union.

 

Without denying the faults of the Greek governments in power before the crisis, the Mediterranean country has always been treated during the crisis management as a black sheep. Toying with the idea of Grexit was a convenient way to gain votes from angry taxpayers in Germany as well as to build some sense of unity in the EU, like ECB President Mario Draghi did with his famous “whatever it takes” declaration.

 

We will see if Greece is able to fit the public debt and GDP growth criteria in the upcoming years. But it is obvious that the country with a population of 10 million people and a moderate economy is not the real problem. The real problem lays behind the absence of any effective tool to help out a country in economic crisis.

 

French President Emmanuel Macron won elections with the promise of reforming the eurozone, but it turned out to be very soon that his audacious dreams are a bit similar to mine for moving the institutions to Athens. In fact, nothing happened last year due to the difficulties of forming a German government. Now, with the frightening CDU-CSU split over migration, the already moderate plans suggested by Chancellor Angela Merkel this week seem to go in vain.

 

The upcoming European Council’s summit might be one of the hardest ever. Still, we can hope that if the Eurozone finance ministers could have ended a ten-year-long story this week, the heads of governments and states will be able to finish the other never-ending story of the monetary union next week.

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Tariffs, sanctions and other mystical beasts

  • June 2018
  • Andrea Lotesoriere

Tariffs, Sanctions and other mystical beasts

With a full agenda, leaders meet at G7

The trade war is here. The EU reacted and Trump’s tariffs on steel and aluminum have found their match. The European Commission has officially proposed to impose tariffs on a series of US products, a few of which are symbolically, quintessentially American such as Harley-Davidson or Levi’s blue-jeans. The list aims to rebalance a loss for European companies, which the EU estimates in around 6,4 billion thanks to this tariffs, but should amount to “only” 2,8 billion. The remaining 3,6 billion will be phased-in within three years or after a positive evaluation from the WTO.

Even the UK has abandoned the cautious “special relationship” position and sided with the EU on the issue, with European Commission vice-president Maroš Šefčovič stating that the decision was taken with the full support of the 28 member states: “We have had the full support from all the member states on these issues which we are about to propose now. All the member states understand that if they want to defend rules and trade we have to play by the book. It is difficult to assess what President Trump will decide to do next but this is our response”.

This, as well as the Iran deal withdrawal, will be at the center of “very frank chats” between the world leaders and President Donald Trump. In particular, UK, France, and Germany have signed a joint letter demanding European companies to be spared by secondary sanctions on Teheran: “Building on our discussions at several occasions, as close allies we expect that the extraterritorial effects of US secondary sanctions will not be enforced on EU entities and individuals, and the United States will thus respect our political decision and the good faith of economic operators within EU legal territory”.

All of this and more will be discussed at the imminent G7 but, at the moment, it seems like this is shaping up to be an out-of-the-ordinary meeting. Like with everything else, Trump is disrupting the norms of the high-level meeting on Saturday morning, and announced that he will be leaving in the middle of it to fly to Singapore for his meeting with North Korean Supreme Leader Kim-Jong-Un. Critics have pointed out that this sounds more like an excuse to leave early (right before the talks on climate) than to prepare for the, albeit historical, meeting with the Korean dictator. In fact, it’s an open secret that Trump doesn’t like these meetings because he believes he does not have the upper hand in the discussion. In a bilateral get-together, he can push the US economic weight much more than on the diluted G7 and has even ventilated the hypothesis of skipping it altogether and sending Vice-President Mike Pence instead. French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau have been vocal about the disrupt of the tariffs and on how the rest of the group will move forward without the US if needed.

Trump has answered that the US trade deficit with the EU and the tariffs on US products are damaging American workers and that he’s looking forward to talking about this.

Long gone are the days of the “Bromance” between Emmanuel and Donald and it looks like the future of the G7, without the presence of the former “eighth” member Russia, is shaping up to be a trilateral meeting between the EU and its partners, Japan and Canada. Without the likes of global players, such as China, Russia, India, and without the full commitment of the United States, it is quickly becoming an echo-chamber of the EU positions and a good metaphor for the isolation of the European “worldview”. In the end, if they do go ahead and get a six-country agreement like Macron prospected, what will it be its weight?  What is the point of speaking with one voice, if you are whispering or, worse, if nobody else is listening?

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