The Polint Fix #1

TRADE WATCHLIST

The Foreign Subsidies Instrument (FSI) can have far-reaching consequences for your business

The EP started working on the new Commission’s proposal on foreign subsidies with the first INTA Committee meeting on 25 October. The goal is to fill the existing gap in EU legislation between strict domestic controls on state aid and the lack of controls – or sanctions – over non-EU companies receiving subsidies.

Background

The Commission presented the 3 principles guiding its approach: (1) to target the most significant subsidies; (2) to be non-discriminatory; (3) to minimise the administrative burden for companies.
Many MEPs concerned about the different thresholds triggering the application of the instrument and the lack of clear definitions over what constitutes ‘subsidies’ and ‘distortions’. They want to toughen up the legislation and have Member States and relevant EU parties participate in the investigations.

Our take

The proposal will have far-reaching consequences. Debates over thresholds will be key, with lower threshold cascading a flood of cases for Brussels to investigate making the instrument more effective but more intrusive.
The proposal has strong support across all political groups (and between EU institutions), but the devil lies in the detail.
Questions were raised regarding the impact of the proposal on the EU’s access to critical raw materials. The Commission will need to tread carefully if it isn’t to cut off its nose to spite its face.

What’s next?

EPP Rapporteur Christophe Hansen (Luxembourg) is preparing a draft report which will be adopted in the first half of 2022 under the French Presidency of the Council of the EU.

The International Procurement Instrument (IPI) likely to pass down to the French Presidency

After the Council ended in June nine years of institutional deadlock, INTA held a debate over the draft report’s amendments on IPI (26 October), which aims to give leverage to the Commission to open up third-country public procurement markets (typically more restricted than the EU).

Background

The main point of contention relates to the EPP Rapporteur Daniel Caspary’s (Germany) suggestion for expelling underbidding companies from EU public tenders instead of hobbling them with a price premium proposed by the Commission.
Described as the ‘other side of the same coin’, MEPs want to see it complement the Foreign Subsidies Instrument.

Our take

The Rapporteur’s ‘tough love’ approach will not survive in the Commission even if it gets that far. Most MEPs, for the moment at least, favour the Commission’s handicapping option.

What’s next?

The Rapporteur will present a revised text to be put to vote in INTA at the end of November. Slovenia was keen to get the IPI over the finishing line, yet it’s more likely the final agreement awaits the French presidency.

FOREIGN AFFAIRS picks

Will the Indo-Pacific Strategy be resilient enough for the EU to play a role in the region?

The Foreign Affairs Committee (AFET) and Security and Defence Subcommittee (SEDE) discussed the EU strategy for cooperation in the Indo-Pacific with EEAS Managing Director for Asia and the Pacific Gunnar Wiegand and the new EU Special Envoy for Indo-Pacific Gabriele Visentin (25 October).

Background

AUKUS: There was consensus on the lack of transparency and mutual trust in the alliance’s announcement, although the EU still favours cooperation with Washington in the region. EU-Australia FTA will bear the brunt of Paris’ anger with the Commission already downgrading negotiations as a priority.
Strategic autonomy: The EU wants to avoid a head on confrontation with China, preferring to strengthen ties with regional partners (such as India and Japan) through QUAD or via the EU’s Global Initiative Gateway.
Taiwan: MEPs are pushing hard for the promised opening of negotiations for the Bilateral Investment Agreement with Taipei alongside more cooperation on disinformation.

Our take

While the Strategy highlights the EU’s ambition to play a geopolitical role in the Indo-Pacific – as the AUKUS imbroglio highlighted – this will ultimately depend on whether Brussels can square the circle of collusion with Washington without confrontation with Beijing.
France-US relations will be key in the implementation of the Strategy as the two balance America’s desire to maintain global hegemony against France’s ambition for EU strategic autonomy.
If the conservative candidate, Yoon Seok-youl, wins March’s upcoming South Korea Presidential election, then Seoul will likely join the QUAD creating a real ‘Nato in Asia’ that would inevitably impact the EU Indo-Pacific Strategy. In that case, pressure for the EU to follow the UK in expressing an interest in ‘Observer’ status might well follow.
Further deterioration in EU-China relations are inevitable as Brussels moves to ‘everything but recognition’ in its relations with Taiwan. Despite EEAS and Commission’s statements, the ‘One-China Policy’ is destined to become an empty vessel making most noise.

What’s next?

SEDE will draft an Own-Initiative report on the security challenges in the Indo-Pacific.
The upcoming French Presidency will organise a Ministerial meeting on the Indo-Pacific Strategy in February 2022. It will remain a priority for the Czech Presidency (July-December 2022).

Enhanced EU cyber defence capabilities to feature a role for Asian likeminded partners

The EP adopted overwhelmingly an Own Initiative Report on the state of EU cyber defence capabilities (7 October). This report demands a speeding up of coordination among institutions and Member States to create a more resilient cyber environment.

Background

The report denounces the ‘increasingly aggressive’ behaviour of Russia, North Korea, and China in cyberspace and calls on the Commission to develop a matrix of measures and policies to step up cyber defence.
MEPs called for the creation of a joint cyber unit and increased funding to better coordinate between Member States, NATO, and the UN.

Our take

This report will drive the EU’s cybersecurity-related cooperation with Indo-Pacific partners (India, Indonesia, Japan, South Korea, Singapore, and Vietnam), including enhanced cooperation under ESIWA (Enhancing Security Cooperation in and with Asia).

What’s next?

Cybersecurity will be at the core of the upcoming ‘Strategic Compass’, currently being prepared by the EEAS, as its future security and defence manifesto.

Korean Peninsula

In Japan, Kishida Fumio’s victory in the LDP’s internal Presidential election and subsequent General Election finally breaks the impasse blocking any prospect of engagement with Pyongyang and Six Party Talks while Abe and his ‘dynasty’ dominated LDP politics.
Any subsequent peace process on the Peninsula could prove expensive for Brussels. Last time around, with the Agreed Framework, any financial contribution for Tokyo was conditional on the EU helping to pay the bill.

TRANSATLANTIC corner

Commissioners Margrethe Vestager and Valdis Dombrovskis briefed INTA MEPs (on 26 October) on the inaugural meeting of the EU-US Trade and Technology Council (TTC) in Pittsburgh.

Background

Five key topics were discussed: (1) investment screening, (2) export control cooperation, (3) artificial intelligence, (4) semiconductor supply chains, and (5) global trade challenges. MEPs encouraged close cooperation in future meetings.
MEPs appreciated that the TTC took place despite the increased Washington-Paris tensions caused by the AUKUS deal and the US’ chaotic withdrawal from Afghanistan.

Our take

Parliament has high expectations for the TTC. The tricky part will be turning talk into walk. Its ultimate success will depend on the capacity of Brussels and Washington to compromise between their different regulatory philosophies.
The recent hiccups have certainly stirred – if not shaken – the transatlantic alliance. Recent gubernatorial elections in the US have suggested Biden might prove a pause in Washington turning in on itself.

What’s next?

The next TTC meeting is in Spring 2022. How the French Presidency will strike a balance between cooperation with the US and pursuing strategic autonomy will depend as much on psephology as ideology, as France’s Presidential Election looms large.

ASEAN corner

European Parliament Vice-President (VP) Heidi Hautala participated in a webinar hosted by the EP’s Delegation to ASEAN on EU-ASEAN trade perspectives. The main points were:

EU-ASEAN FTA

VP Hautala offered support for a framework agreement. The main obstacle remains the enormous socioeconomic differences among ASEAN members and their various trade arrangements with the EU.
Vietnam and Singapore already have FTAs, while Laos and Cambodia benefit from the EBA (Everything But Arms) scheme for least developed countries.

Our take

In terms of being both willing and able middle-income countries, Indonesia and Thailand are likely, politics willing, next in line to conclude bilateral FTAs with the EU, but the palm oil issue is still a barrier with Indonesia. The two are competing for the Commission’s attention. Any concession by one will be visited on the other.

Palm oil and deforestation

EU-ASEAN Business Council member Liyana Othman criticised the slow pace of EU negotiations with Jakarta and Kuala Lumpur despite their efforts to combat deforestation and improve workers’ conditions.
VP Hautala admitted Brussels was not quick enough to recognise that other vegetable oils also have a negative impact on the environment, while defending the importance for EU companies importing from Asia to thoroughly vet their supply chains.

Our take

Heavy lifting will be needed to convince MEPs that other vegetable oils are not a realistic option and that they could make deforestation even worst. Focusing on a sustainable palm oil production may allow the two to reconcile diverging interests (the EU’s demands for higher environmental standards with Indonesian/Malaysian economic stakes).

EU in the New Year

German elections

With Olaf Scholz replacing Angela Merkel in Germany, the centre of gravity in the European Institutions tilts away from EPP to the S&D. This will be a key factor in the half-term jostling for the positions.
The S&D could legitimately claim either President of the European Council or President of the European Parliament. The first means dealing with RenewEurope, and the second, with the EPP. Indecision threatens them with neither.

Our take

With Portuguese PM Antonio Costa interested in replacing Charles Michel and David Sassoli interested in a second term as EP President, for the S&D time is of the essence or they risk falling between two stools.

Upcoming French presidential elections

The traditional centre-right are, surprisingly, in with a chance if they can unite around a single candidate – by no means guaranteed – AND Independent far-right Éric Zemmour were to run – which is very likely. He would split the far right vote between himself and Le Pen, possibly pushing her into third place behind the conservative candidate (Bertrand or Barnier) and Macron.
With Macron’s heavy tack to the right to narrow the political gap with his apparent challenger Le Pen, few Communists, Socialists or Greens will trick to the polling stations with pegs on their noses to back Tweedledum against Tweedledee.

POLINT news

Polint Director meets ROK Vice Foreign Minister

Polint Founder and Executive Director Glyn Ford met South Korea’s Vice Minister of Foreign Affairs Jong Kun Choi in Brussels. They discussed EU-South Korean relations, common foreign policy and security challenges, and Seoul’s efforts for reviving the JCPOA talks with Iran.