De-risking Emerges as EU-US Consensus

Editor's Note: Greetings! The fourth ministerial meeting of the EU-US Trade and Technology Council and the 27th Stockholm China Forum were held in Sweden this week. The strategic position on China has become an important topic in both the EU and its transatlantic partnerships. The EU is currently discussing the 11th round of sanctions, which affects several third countries, including China, and has faced opposition from multiple parties. According to the latest short-term economic analysis by Eurostat, there are no clear signals of recession in the EU in the near term, but it is still influenced by uncertainties in financial markets and the banking sector. Enjoy reading and have a nice weekend.

▶︎ Focus

On May 30-31, the fourth ministerial meeting of the EU-US Trade and Technology Council (EU-US TTC) was held in Luleå, Sweden, the current presidency of the Council of the EU.

Brussels said the meeting facilitated cooperation between the US and the EU in various emerging technology fields, including artificial intelligence risk management, semiconductor supply chain monitoring and transparency of subsidies, international standards for electric vehicle charging systems, and the development of a roadmap for 6G communications.

Furthermore, TTC aimed to enhance bilateral collaboration in areas such as pharmaceuticals and marine equipment by promoting the mutual recognition of technical regulations. The meeting also achieved consensus on a working plan for the Transatlantic Initiative on Sustainable Trade, which aims to coordinate clean industry incentive policies between the US and the EU.

China was mentioned twice in the joint statement reached after the meeting. Firstly, in the context of "addressing non-market policies and practices", it was mentioned that both sides are ready to address a range of non-market behaviors of third countries through bilateral and multilateral approaches. Secondly, in the context of "foreign information manipulation and interference in third countries", criticism was made of China's so-called amplification of Russian disinformation narratives about the war.

Bloomberg reported that while the US advocates for a more confrontational stance towards China, the EU remains somewhat hesitant. The latest version of the joint statement, compared to earlier drafts, downplays the position on China, particularly regarding "anti-competitive and harmful non-market policies and practices" in the semiconductor sector, and the argument of "economic coercion" by China and Russia. However, unlike previous EU-US TTC ministerial meetings that primarily focused on transatlantic relations, this meeting placed a stronger emphasis on discussing China.

Recently, the US has also adopted the EU's de-risking position in its stance towards China. Following the meeting, US Secretary of State Antony Blinken stated that the US and EU do not seek confrontation, a new Cold War, or decoupling, but rather focus on de-risking with regards to China.

In response, the Chinese Ministry of Foreign Affairs spokesperson, on June 1st, pointed out that the true risks faced by the world are such practice as stoking bloc confrontation and brewing a new Cold War, wantonly interfering in other countries' internal affairs and causing regional turmoil and chaos, politicizing trade and sci-tech issues and destabilizing global industrial and supply chains, shifting domestic economic and financial risks overseas and reaping global wealth like a seasonal crop. The international community needs to be vigilant and jointly fend off these risks, and China is not a risk but an opportunity.

At the same time, the 27th Stockholm China Forum was also held in Sweden. Swedish Prime Minister Ulf Kristersson attended the forum and delivered a speech. Regarding the EU's recent emphasis on de-risking with China, he stated, "at the EU level, we are enhancing our ability to address economic distortions and coercion and to mitigate the risks of supply chain disruptions. We will increase our capacity in areas where Europe is heavily dependent on China, for example the supply of rare earth metals. Nationally, Sweden is implementing investment screenings and enhancing the protection of Swedish citizens."

He emphasized the importance of the United States and the Indo-Pacific region to the EU interests and security. He believed that "the most important security partner for Sweden and the EU is the United States" and that "there is no contradiction between a stronger EU voice and a strong transatlantic partnership." He also pointed out that Sweden will strive to strengthen the EU cooperation with Indo-Pacific partners such as Japan, South Korea, Australia, New Zealand, and India.

The EU is currently discussing the 11th round of sanctions against Russia, primarily targeting third-country companies that the EU has determined to have helped Russia evade sanctions. These sanctions may include measures against seven Chinese companies operating in the energy, defense, and technology sectors.

On June 1st, the Chinese Ministry of Commerce stated that China consistently opposes unilateral sanctions and long-arm jurisdiction without international legal basis or authorization from the UN Security Council. China hopes that the EU will cherish the overall trust and cooperation between China and the EU, act prudently, and not set a bad precedent. China will closely follow the relevant developments and firmly uphold the rights of Chinese companies to engage in normal trade.

According to reports, some Greek and Hungarian companies have also been included in the sanctions list. These two countries have actively sought to have their companies removed from the final list. Furthermore, countries like Germany have expressed concerns about the mechanism's potential damage to bilateral diplomatic relations.

The EU foreign ministers' meeting on May 22nd failed to reach a unified position on the 11th round of sanctions against Russia. In the latest revised version, the European Commission categorized sanctions against third countries as additional safeguard measures and introduced a more cautious trigger mechanism. While the exact timing of the sanctions package's final announcement remains uncertain, EU member states hope to reach a preliminary agreement on the proposal next week and potentially make a decision at the EU Summit held at the end of this month.

In addition to the Russia-Ukraine conflict, the EU summit scheduled for June 29-30 will also focus on issues such as industrial policies to maintain the long-term competitiveness and productivity of the EU single market, defense mechanisms for EU-NATO cooperation, the EU's strategic position on China, and the upcoming EU-CELAC summit.

▶︎ Hot Topics

New Unitary Patent system: pioneering a new era of patent protection and enforcement in the EU

The European Commission on Thursday said that it welcomes the launch of the Unitary Patent system, which will make it simpler and easier for companies to protect their innovations in Europe and capitalise on their intellectual property. The Unitary Patent system will strengthen the EU's innovation and competitiveness and complete the Single Market for patents. It will initially cover 17 Member States, representing around 80% of the EU's GDP. Participation is open to further Member States in the future.

China was elected as the vice-president country of the Assembly of States Parties for the 1st time

China was elected as the vice-president country of the Assembly of States Parties for the 1st time during the 7th Meeting of States Parties to the UNESCO 1970 Convention, which aims to prohibit and prevent the illicit import & export and the transfer cultural property ownership.

EP agrees common position on corporate due diligence law

EurActive reported that a majority of MEPs on Thursday voted in favour of the report defining the European Parliament's position on the new rules, largely backing a compromise deal reached by the legal affairs committee on 25 April.

The vote was overall welcomed by many MEPs and civil society organisations, who have long supported the proposed EU corporate sustainability due diligence directive (CSDDD) to ensure EU companies prevent, identify and mitigate adverse human rights and environmental impacts along their value chain.

The Parliament's vote opens the way for inter-institutional negotiations – called "trilogues" – with the EU Commission and member states, which already agreed their common position in December 2022.

The MEPs tried to water down climate due diligence obligations, increase full harmonisation and eliminate directors' duties from the law, which remain a main concern of businesses as well.However, this is likely to create a clash with member states who strongly opposed any link between due diligence obligations and directors' remuneration in their negotiating position.The upcoming trilogue negotiations will likely focus on other critical points as well, such as the inclusion of the financial sector in the EU corporate sustainability due diligence directive1 (CSDDD). Negotiations should start next week under the Swedish presidency of the EU Council and continue under the Spanish presidency. The aim is to formally adopt the law before next year's European elections.

RCEP officially comes into full effect

The Regional Comprehensive Economic Partnership (RCEP) agreement took effect on Friday for the Philippines, marking the RCEP agreement entering into effect for all 15 members, according to the Ministry of Commerce.

The RCEP came into force on the first day of 2022 and is a mega free trade agreement involving Australia, China, Japan, South Korea, New Zealand and the 10 members of the Association of Southeast Asian Nations (ASEAN). It is the world's largest free trade bloc covering about 30 percent of the world's population, as well as 30 percent of the world's economic and trade volume.

The ministry said that the full implementation of the RCEP pact will boost China's high-level opening-up to the world.

MEPs call for "urgent protection" of 2024 European elections

"Foreign interference, disinformation, and attacks on democracy" are likely to continue in ever-greater numbers and to become more sophisticated in the run-up to the European Parliament elections in June 2024, said MEPs on Thursday. The remarks came in a report by the EP's special committee on foreign Interference, adopted by plenary by 469 votes for, 71 against and 75 abstentions.

▶︎ what are experts talking about？

Exploring the Potential Impact of Russia-Ukraine Conflict on Global Economy and Trade 

——Based on the Perspective of Global Value Chain

from: Chinese Journal of European Studies

by：He Qingqian

Since the outbreak of the Russia-Ukraine conflict in 2022, its potential impact on international trade and economy has received much attention from academic and policy circles. This paper analyzes the sensitivity and vulnerability dependence of countries and regions in the world on Russia in the global value chain dimension between 2015 and 2021 based on the retrospective data of the value added of exports in the UIBE GVC indicator system, with the help of two important concepts in the theory of economic interdependence - sensitivity and vulnerability dependence. 35 industries in the global value chain dimension between 2015 and 2021, and accordingly, the potential impact of the Russia-Ukraine conflict on the global economy and trade is examined.

In general, in the European region, the Central and Eastern European countries and the Baltic States have the highest overall sensitivity and vulnerability to Russia's 35 sectors in the GVC dimension. Therefore, they will suffer the greatest supply chain and export market adjustment pressures as well as the greatest opportunity costs and losses as a result of the Russia-Ukraine conflict. Western European countries, Northern European countries (except Finland) and Southern European countries (except Greece) will all face pressure to reorganize their supply chains and develop new export markets in the short term due to the Russia-Ukraine conflict; however, in the long run, the cost of restoring value chain stability in these countries is relatively small, even smaller than in some Central and East Asian countries. The impact of the Russia-Ukraine conflict on the European region is bound to spread to other economies along the value chain.

In the case of China, it shows some sensitive dependence on 35 Russian industries, but much less than European countries. In contrast, China's vulnerability dependence on major Russian industries is less pronounced, which shows that the potential impact of the Russia-Ukraine conflict on China's supply and value chains will be relatively minor.

Net Zero Industry Act——Testimony before the S&D ITRE Working Group at the European Parliament

from: Bruegel

by: Simone Tagliapietra

On 31 May 2023, Bruegel Senior fellow Simone Tagliapietra presented testimony before the S&D ITRE Working Group at the European Parliament on the Net Zero Industry Act.

Main flaws in the NZIA proposal:

1.It adopts a one-size-fits-all 40% target that is conceptually wrong.

2.Key focus is fast-track of permitting procedures: but not sure how defining this really is.

3.Strategic use of public procurement is irrelevant here, given 10% higher cost safeguard.

4.Governance is weak. Difficult to see how EC can implement and monitor.

Two missing elements in the NZIA proposal:

1.NZIA does not leverage the European scale, which is key of success in this space

2.NZIA lacks an EU-level funding strategy

Recommendations for the co-legislative process:

1.Drop the 40% target and adopt a new KPI.

2.Leverage the Single market.

3. Focus on creating European public-private clean-tech ecosystems.

4. Develop an EU-level funding strategy for clean-tech.

5. Get a strong governance to deliver.

END

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.