EU trade policy update: March

With France currently holding the Presidency of the Council of the EU, we are seeing a more defensive trade agenda, focussed on promoting the EU’s strategic autonomy. From a carbon border tax to rules on foreign subsidies, we take a look at the latest developments and what this means for international trade.

French Presidency prioritises a European Carbon Border Adjustment Mechanism (CBAM)

In July 2021, the European Commission published a proposal for an EU CBAM which would put a carbon price on imports of a targeted selection of high risk goods, in order to avoid carbon leakage.

Fast forward 8 months, and we have seen significant progress on the file. EU Finance and Economy Ministers agreed a compromise position on the planned CBAM, approving the Council’s general approach and paving the way for negotiations with the European Parliament on a final text. However, whilst an agreement has been reached, a number of the trickier elements have been parked. These include phasing out of free allowances and export support measures. Only when we have clarity on these issues, can negotiations start. Member States also pledged to seek to integrate the CBAM into the concept of an “open, and ambitious” climate club of countries with a similar climate ambition, a key priority for Germany in the framework of its G7 Presidency.

The CBI, with BusinessEurope, are pushing for a global price on carbon or a climate club, which would reduce the need for measures such as a unilateral CBAM by the EU alone. This will also form a key element of discussions at the B7, bringing together the business federations of the G7 nations, as we seek to work with partners to push for multilateral over unilateral action.

Years later, agreement reached on an International Public Procurement Instrument

The Council Presidency and the European Parliament reached a provisional agreement in March on a draft regulation on an EU International Procurement Instrument (IPI) after ten years of discussions. The instrument seeks to re-establish a level playing field in the field of international procurement markets.

The new instrument aims to address concerns that European companies face restrictions on access to a third country’s public procurement. Should such restrictions be evidenced, and if, following consultation with the third country concerned, those barriers persist, these new measures would limit the access of that third country’s companies to European public procurement.

These IPI measures will only apply to economic operators, goods and services from third countries which do not have an international public procurement agreement with the EU or whose agreement does not include commitments to open up markets for these goods or services. The European Commission has confirmed that the instrument is in line with its international commitments, including public procurement provisions set out under the EU-UK TCA. CBI will be working to ensure that the new rules do not result in any direct or indirect discrimination of UK operators and will continue to follow discussions in the public procurement specialised committee, under the TCA.

What could the EU Foreign Subsidies Instrument mean for third country businesses?

The European Commission adopted a proposal last May for a regulation on foreign subsidies, which seeks to expand the EU’s state aid rules to cover foreign companies active in the Single Market.

Discussions in the European Parliament and the Council have been progressing. The French Presidency hope that negotiations on a final agreement could still start under their mandate at the end of June. However, both the European Parliament and Council of the EU still have to agree their mandates.

As action ramps up at EU level, there are real concerns that the proposed instrument could have unintended consequences for third countries such as the UK, as well as there being a lack of clarity over how the instrument would work with international commitments such as those made under the EU-UK TCA on subsidies.

The CBI has ensured that BusinessEurope’s position, which has been shared with EU decision makers, calls on the Commission to grant an equivalency decision for third countries with EU-equivalent measures in terms of subsidy control and state aid. We will be continuing to engage with decision-makers as this proposal goes through the EU legislative process in order to avoid unintended consequences for UK businesses.

Want to get involved?

If you would like to discuss our work on influencing EU trade policy, please get in touch with Emily Ritchey.